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on banksters, congresscritters, & economic reports of the week ended March 17th

according to the NY times & at least 2 liberal websites, the House passed a popular bipartisan jobs bill this week, which was also expected to also pass the Senate and be signed by the president; at least that’s what you’d understand its about from reading about it…apparently everyone’s been taken in by the naming of the bill, the “Jumpstart Our Business Startups Act”, aka the JOBS act, & since it doesnt really create any jobs, we oughtta look at what it really would do…the bill actually just loosens regulations so that just about any small business’s hairbrained ideas can be pimped as sound investments, and goes so far as to allow sale of unproven penny stocks via ads on the internet, and, as Columbia Law professor John Coffee points out in an article at propublica, it would be better named “the boiler room legalization act.”, as it will allow wall street brokers to directly contact those who they’d like to separate from their money…although it’s hit a temporary hitch as the Senate attempts to attach funding for the Export-Import Bank to it, passage seems certain, so you can expect to see IPO pitches for the latest garage startups alongside your email starting this summer, and likely another dot-com bubble shortly thereafter…a more important piece of legislation, however, which would create jobs, has become bogged down in the house…in a bipartisan vote, the senate passed this week a two-year, $109 billion bill to fund highway & infrastructure repairs, which, although far short of whats needed, was about 2/3 of what the president had asked for; however, the House doesnt even plan to take it up before the current funding expires april 1st, so another stopgap bill, the ninth in a multiyear series of fits & starts, is expected to be passed in its stead…it goes without saying that infrastructure projects require long-term planning, and except for the most immediate necessary repair work, not much gets done at the local level while congress jerks around with the longer term funding for new projects…

although it was a slow week for major headline economic reports, the bankster contingent provided plenty of distraction to keep the econo-blogs humming; the big story of the week was a wednesday“take this job & shove it” op-ed in the NYTimes by Goldman Sach’s London VP Greg Smith, who tendered his resignation due to the firm’s “toxic and destructive” culture, wherein he came to realize that their primary business is ripping off customers; that this could have attracted so much attention (the NYTimes reported his diatribe had received 3 million pageviews in the first 12 hours, & the second-most-viewed story, with 500,000 views, was also about his rant) only suggests that most people havent been paying attention to the ongoing systematic fraud perpetrated by Goldman specifically, & the entire financial sector in more general terms, over the past half dozen years; the US financial sector has become a parasitic casino with with no socially redeeming value; its just a giant rent-seeking zero-sum manipulative bamboozle, producing nothing of value to the rest of us; to paraphrase robert reich, if you took the fraud out of wall street, all you’d have left is pavement…at any rate, this op-ed precipitated a response from goldman, several parodies, & dozens of retrospectives, including an op-ed forum with commentary from 8 analysts in the NYTimes at week’s end, & of which several were included on the global glass onion..

another bankster who spoke out this week was jamie dimon, CEO of JPMorgan Chase; you see, the Fed had been conducting stress tests on the nation’s 19 largest TBTF banks, to see how they would perform in a new severe economic downturn (ie, unemployment rate of 13%, a 50% stock market drop, and a 21% further decline in housing), and they planned to release the results after the markets closed on thursday; however, on tuesday afternoon, as the Fed was wrapping up it’s otherwise uneventful monthly FOMC meeting, JPMorgan came out with an announcement of its stress test results, and of resulting dividends and stock buybacks, upstaging the Fed, and forcing a rushed release of the test results for the other 18 banks; as we had expected the Fed to go easy on the banks, 15 of the 19 passed, with Citigroup being the notable failure, along with SunTrust, Ally Financial and MetLife; all of who will be restricted from paying dividends & required to raise more capital

the first economic reports we’ll look will be those from the transport industry, which should give us a sense of economic activity as it relates to movement of goods; first, the Association of American Railroads reported mixed results for February rail traffic; freight carloads totaled 1,410,992, down 27,555 carloads, or 1.9% less than Feb 2011, mostly due to less shipments of coal, whereas intermodal carloads totaled 1,122,458 containers and trailers, up 26,284 units or 2.4% higher than last year, and near the 2006 peak; port traffic in the Los Angeles area, which handles 40% of US container shipments, declined slightly in February, with inbound traffic down 0.9% and outbound traffic up 0.3% on a rolling 12 month basis…also this week, Ceridian Corp & UCLA released their Pulse of Commerce Index for February, an indicator based on diesel fuel consumption, which showed a 0.7% increase for the month, still not enough to offset the 1.7% decline in january; they also report the three-month period from December to February is lower than the previous three months from September to November 2011 by an annualized rate of 3.2%; the latest report we have for the trucking industry was from January, when the American Trucking Association, reporting for an industry that ships over two-thirds of domestic freight, reported tonnage fell 4.0% in January on a seasonally adjusted basis, after gaining 6.4% in December 2011 with that same seasonal adjustment…we also had the Industrial production and Capacity Utilization report for February from the Fed; industrial production was reported a unchanged on a month over month basis, and 4% higher than last february; whereas capacity utilization by industry edged down a tenth of a percent to 78.7%; since utilities are included in this series, we can surmise the weakness was due to the warmer than normal february…

Click to Viewthe other reports released this week were consumer related; on a seasonally adjusted monthly basis, the census bureau reported (pdf) retail sales were up 1.1% (±0.5%) from January to February and up 6.5% (±0.7%) from a year ago; excluding auto sales, retail sales increased 0.9% for the month; with january sales revised up to 0.6%, census gives a two month increase of 11.2% in gasoline sales to $46.9 billion, with a 10.3% increase in february, but doesnt break gas out as percentage of the $407.8 billion total for the month, nonetheless, it seems clear that a lot of the recent sales gains involves higher gas prices, which AAA reports at over $3.80 a gallon nationally this week; doug short has regular up 60 cents over the past 12 weeks (and charts to go with it), likely the reason the reuters/UofM consumer sentiment index fell to 74.3 in march from 75.3 at the end of february…we also got the February CPI (Consumer Price Index) report from the BLS this week; prices increase 0.4% on a seasonally adjusted basis, with the all items index increasing 2.9% year over year; doug short @ Advisor Perspectives has by far the best inflation coverage on the web, with four chart filled posts this week, including a breakdown of the index into its subcomponents and one separating energy from the transportation component; the one i’m going to include here isolates tuition increases from the education & communication component, relevant to our previous discussions of the predominance of student loan increases in the consumer credit reports; in this chart you can see in light red the unadjusted stepping up as tuition increases are announced each summer, as tuition more than doubled over the past 12 years; you can also see the other major driver of inflation, medical care, in dark red, with prices up over 60% since 2000, and the green transport component, made volatile by fluctuating gas prices (click on it for a larger image)lastly, since gasoline accounted for more than 80% of the rise in consumer prices for the month, i want to again point out the effect rising gas prices may now have on monetary policy; you might recall when i first read the Fed statement that said they were switching their inflation target from using core CPI to the PCE price index, i expressed my concern that this would allow monetary policy to become subjugated to fluctuations in oil prices; yet in reading most analysis elsewhere of Fed policy, i have still been seeing normally careful economists refer to core PCE as the subject of Fed policy, so i started to doubt my reading…but economist Tim Duy, who runs the blog “Fed Watch” at economist’s view, has confirmed my initial reading & has repeatedly indicated that Fed policy is now predicated on headline PCE, even stating it unequivocally & quite specifically: “As a point of clarification, the Fed does not target core inflation. Refer to the Fed’s freshly printed statement on long-run goals and strategy: [inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent with the Federal Reserve’s statutory mandate] That’s headline inflation, not core inflation.” …& that sure suggests to me that if rising gas prices drive personal consumption inflation much over a rate of 2%, we could well see a rigid institution like the Fed start to tighten the monetary screws…

(the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)

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March 17, 2012: Harbinger of the American Spring?



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