Indy Telecom & Industrial Media

Excellent (and controversial) summary chart of the global macro-economic history of the past ~50 years by David Beckworth.

Of course, the chart has sparked some interesting takes by Paul Krugman and Alex Tabarrok, amongst others.

So, turns out that the US trade deficit went down to $30.7 billion in August 2009 from $31.9 billion in July 2009.

What is particularly interesting is the strong correlation between the imports and the exports.

Excellent visualization in the NYT showing how Americans spend their time.

…this is how it would be spent.

So, more debt stuff. Here’s a chart showing the comparison of debt between the US, China and the World, with percentages.

Data was sourced from Index Mundi.

A friend sent along this comparison of gender breakdown in terms of payrolls and job loss — Mancession! An Illustrated Analysis.

You can download a copy of Obama’s budget blueprint here.

It’s a rather interesting read, but my only bone to pick is that the estimates seem a little too optimistic (e.g. the assumed 3+% growth rate). Turns out that I’m not the only one who feels that way – the WSJ econ blog also talks about this.

There are also a lot of pretty graphs on a variety of things, but there is no mention of any of the important ones (e.g. treasury bond performance or inflation).  While it could be argued that it is not the place of a budget to talk about these things, in these perilous times, it becomes necessary.  More so given all the money that is being printed.

Rather nice interview with Gao Xiqing, who is one of the many people overseeing China’s $2 trillion investments in the US.

While some of his statements make me cringe (i.e. comparing socialism with American characteristics with socialism with Chinese characteristics), he does make a lot of good points on how our system cannot be sustained long term.

He also talks about how Americans have to tighten up and spend less, and save more. Of course, one must also not forget that the Chinese help expedite this process by largely giving us a sword to fall on (i.e. an artificially low currency, and cheap manufacturing to feed the consumerism).

But the best part of the interview is his analogy of mirrors and derivatives –

In 1999 or 2000, I gave a talk to the State Council [China’s main ruling body], with Premier Zhu Rongji. They wanted me to explain about capital markets and how they worked. These were all ministers and mostly not from a financial background. So I wondered, How do I explain derivatives?, and I used the model of mirrors.

First of all, you have this book to sell. [He picks up a leather-bound book.] This is worth something, because of all the labor and so on you put in it. But then someone says, “I don’t have to sell the book itself! I have a mirror, and I can sell the mirror image of the book!” Okay. That’s a stock certificate. And then someone else says, “I have another mirror—I can sell a mirror image of that mirror.” Derivatives. That’s fine too, for a while. Then you have 10,000 mirrors, and the image is almost perfect. People start to believe that these mirrors are almost the real thing. But at some point, the image is interrupted. And all the rest will go.

When I told the State Council about the mirrors, they all started laughing. “How can you sell a mirror image! Won’t there be distortion?” But this is what happened with the American economy, and it will be a long and painful process to come down.

Painful, indeed. For both him and us.

And on that note, I wonder what Mr. Xiqing would think of the US’ latest stance to encourage more Chinese investment.

From the NYT -

Gleaming new Mercedes cars roll one by one out of a huge container ship here and onto a pier. Ordinarily the cars would be loaded on trucks within hours, destined for dealerships around the country. But these are not ordinary times.

For now, the port itself is the destination. Unwelcome by dealers and buyers, thousands of cars worth tens of millions of dollars are being warehoused on increasingly crowded port property.

And for the first time, Mercedes-Benz, Toyota, and Nissan have each asked to lease space from the port for these orphan vehicles. They are turning dozens of acres of the nation’s second-largest container port into a parking lot, creating a vivid picture of a paralyzed auto business and an economy in peril.

Well, shouldn’t the increased demand translate into lower prices for these vehicles? Cars are one of the worst depreciating assets around, and yet, the markups on cars is quite insane and rather staggering.

Perhaps this will encourage auto makers to reconsider their pricing models in these troubled times.

ABC News has a rather interesting study on the impact of race on politics, particularly given the candidacy of Barack Obama.

One of the interesting measures is “racial sensitivity” of white voters between Obama and McCain.

A similar graph amongst Blacks would have been useful; however, blacks have traditionally been a pro-democratic group, with 90% supporting Obama. What’s more interesting is that this has little to do with a black candidate – John Kerry had 88% black support in 2004, and 90% voted for Al Gore in 2000.

Similarly, the racial impact graph shows how blacks and whites perceive Obama’s candidacy’s impact on race relations.

I am also curious to see correlations between this, and traditional right-wing/conservative voters, and see how that scores. This would be unique because according to the study, Obama’s standing amongst whites is about the same as any Democratic candidate, but with a much wider range than usual.

Either way, interesting nuances to watch out for.

The New York Times has an excellent article on the state of the current US economy.

One of the key points that they bring up is that traditionally, boom and bust cycles result in higher purchasing power and better lifestyle to the people during the boom cycles. Unfortunately, this is not necessarily the case in the US.

For instance, at the end of the 2000 economic expansion, the median American family’s income was $61,000. In 2007, it was $60,500. If anything, the American middle class is not just stagnating — it is recessing, made worse by inflation and high gas prices.

Contrast this between the real median family income that quite literally doubled from the 1940s through the late 1970s. In the three decades since, it has barely risen by 25%.

One of the most critical problems facing our country today is education. The US is lagging far behind compared to the rest of the world, and despite faulty programs like “No Child Left Behind” has one of the lowest graduation rates among developed countries.. Another one is public infrastructure — a lot of money that’s currently spent is on useless pet projects, while the larger infrastructure needs aren’t being met. And of course, there is the issue of health care and the fact that a significant portion of Americans cannot afford to take care of themselves.

Finally, there is the age old issue of tax cuts which are supposedly favorable to the higher-income bracket groups versus the lower-income bracket groups (this is the one point that I disagree on).

But either way, it is a good point, and a very insightful one in a very sad way.

A long, long time ago, BPSK and I had a conversation on the “capitalism” that UK and the US practice.

We made fun of the faux capitalism that’s in reality a Fabian-esque socialism that Britian practices, and how the US would “differentiate” itself by Paulson calling up Pandit to do a save.

Well, turns out that we weren’t too off. Paulson did not call Pandit, but instead called Dimon to do a save. Isn’t it a joy to be in a capitalist economy where the free market decides what needs to be done?

To this end, I recently came across an article that suggested that the Fed is considering Nordic-styled nationalization of US banks to help bail out the economy from its current crisis.

Let’s just say that I am at a loss for words.

With a sluggish economy, it was only a matter of time before stores adopted the any-which-way-they-can to make money attitude.

The NYT has a post on how a lot of the megastores are willing to negotiate with the customer on what the prices may be.  This includes such big names as Best Buy, Home Depot and Circuit City. Here’s an excerpt:

“We want to work with the customer, and if that happens to mean negotiating a price, then we’re willing to look at that,” said Kathryn Gallagher, a spokeswoman for Home Depot.

…

“The recession is helping to push these seedlings to the surface,” she added. “It’s a real turnabout on the part of the buyer and the seller.”

Wow. Un-freakin’-believable.

The NYT has an excellent article by Professor Tyler Cowen on how a falling USD is not all bad news. The WSJ also has a related article that talks about how the USD may actually rebound.

The crux of both the articles is this that while the USD may have had a significant fall (~19.8%), it still isn’t grounds for fear. For one, it has definitely helped bridge the trade-deficit gap because imports coming into the US are becoming more expensive while exports going out from the US are becoming cheaper.

In fact, some of the people hardest hit by the falling USD are European businesses. As the USD falls, it becomes harder for them to compete in their own local regions because it is a lot cheaper to buy American stuff paid for in USD than it is to buy European stuff paid for in Euro.

Secondly, the WSJ talks about a 30% fall in the USD to equalize the trade deficit — and we’re almost at 20%. Now whether the USD falls another 10% remains to be seen, but once again, that need not necessarily be a bad thing all around.

Also, other economies in the world are in just as bad a shape (or worse) than the US economy. British, Canadian, German and French economies are also struggling, and the falling USD isn’t necessarily helping them, either.

Now, the Chinese are whole another story. That’s a mixed bag — while they have over a trillion in dollar-dominated assets, they aren’t too particular about dumping it all overnight, simply because of what it might do to their assets. It is in their best interests to have a strong dollar, especially since we are their largest consumer.

The biggest problem that’s likely to arise from a falling USD is of course worries about volatility. A shaky currency is not good for any economy, and ours is no exception. And of course, the middle-east, who make money off oil, no matter which way things go.

I think that over the next quarter or so, the USD will slowly stabilize, and that the fall in the USD that’s happened is not necessarily a bad thing for us.

Remember that whole thing about sexy, hot models not wanting the USD? Well, turns out that it may not be entirely true.

CNBC has an update where the manager of the babe supermodel in question clarifies that she did no such thing.

They also offer the following clarification –

Nelson points out that Gisele lives in New York City, and thus needs U.S. dollars for her big-city lifestyle.

And American fans and contracts, of course.

Dealbreaker puts it best –

Also, it’s hard not to think that some sort of PR spin went into this denial. Gisele if you’re short the dollar, the American public will be short you! Retract, deny, rinse, repeat.

Of course it did. Then again, I guess if you are a rich hot babe, you can pretty much do whatever the heck you want.

Apparently, the dollar isn’t just scaring hedge funds and financial investors. Gisele Bundchen, the highest-paid Brazilian supermodel does not want to be paid in US dollars anymore.

That’s right, folks. You know things are bad when the (hot) women decide the dollar isn’t for them anymore.

Damn, and here I came to the US thinking that I could earn the big-bucks in USD so that I can get all those hot women (for cheap, no less). Oh well, I guess I’ll just have to move to Europe.

As a lot of people predicted, the Feds have lowered the rate yet again by 25 bps.

While this may help the sub-prime and housing markets, it is probably going to be detrimental to other consumer-lending operations. And I think that this move is likely to have some rather severe ramifications for the US economy in other ways, as well.

For one, the USD slid to all-time lows against the Euro, with the Euro hitting 1.45 for the first time. On top of this, the cost of oil has hit all-time highs at close to $96/barrel.

Both of these are bad enough by themselves. But with the new rate cut, what’s likely to happen is that there is now more currency being pumped into the economy. This is only going to drive up the inflation further.

And given the state of the financial sectors today and given that every other i-bank (with the sole exception of my dream-company, Goldman Sachs, of course) is down in the dumps, this is probably not a good thing for the economy.

The other thing that I feel rather strongly about is that the economy probably needs a 10% correction that needs to happen. Now, you can artificially curtail that from happening, but doing so will work for only so long. Eventually, the numbers catch up with you.

Also, it’s been known that it takes longer than just a couple of months for such rate-cuts to seep through the market (I’d love to work on building models for this – ah, some day, when I have the time). So, it is probably too early to see an impact of September’s rate cut, leave alone the new one.

Given all this, the rate cut may help bail out the stock market for now, but it is probably going to be very short term. And since the feds don’t want to be seen to be bailing out the stock market every time, a rate cut will probably not happen in December (speaking of which, Business Week has a rather interesting list of reasons for this, as well).

But what does it mean for the consumers today? That’s the more important question, and the answer to that will probably not be known for a while.

I think Bernanke is being asked the question, “Have you stopped being a puppet of the market yet?” as he decides upon the rate cut.

If he does, he’s going to have to try hard and portray himself to be an independent decision maker. If he doesn’t, well, he’d better find some way to help the markets real quick.