New poll Question
With so much to cover, I will save the last poll results for another discussion. I would appreciate your participation in a new poll that was on my mind after I read this article (via Clusterstock):
Barely Anybody Clicks On Banner Ads Anymore
Obviously the piece covers the reality that nobody even clicks banner ads. I am interested to know how many (if any at all) banner ads the readers have clicked. Be honest, this is anonymous after all!
Not to be Lost in the Confusion
There was so much news and reactions today that I wanted to spotlight two items I read that I thought were first rate material that demand attention. I know there are plenty of items to cover, but these two writings are too good to let slide.
First up is another winner from Jesse's Cafe Americain:
A Priori versus Empirical Reasoning and Practical Decision Making
This article covers the issue of using one's own prejudice (as it pertains to market expectation) to color data selection. This is of course counter to how a real scientist uses information. This selection will allow you to step back and see if you are indeed using data selectively. It should be required reading for all writers of financial news. Blogs included!
The second selection is no stranger to readers of this blog as Ilargi of The Automatic Earth again amazes with another great introduction section:
The Carcass of Mother Goose
While the entire piece needs your review, here is the summation paragraph to get you hooked:
There once was a time, and it's not even that long ago, when the term "Moral Hazard" had a profound meaning that everybody in finance had respect for. Today, Moral Hazard means nothing anymore. The gutting of the term has become a cornerstone of government policy. And that harks back to something I told you a long time ago: this is not a financial crisis we're in, it's a political crisis, and a full-blown one.
Tomorrow's Headline Today
I mentioned the "beating lowest of the low" expectation game in my opening tonight. I am going to go out on a limb this evening and make a prediction with no waffle, no wiggle, and no excuses if I am wrong.
To set this up, we see this headline from today:
Goldman Raises Estimate of September Job Losses
The article tells us that:
The Goldman economics team, led by Jan Hatzius, said in a note to clients that they expected Friday’s employment report to show a net loss of 250,000 jobs, up from their previous estimate of 200,000.
The new figure is well above economists’ consensus estimate of 175,000, as tracked by Bloomberg News.
So one day before the data is to be released (released to the general public that is, government officials surely have this on hand right now, thus so does Goldman) we have a reasonably large bump up of job loss expectations. We saw this game in full force during the last bank earnings season.
The deal here is the template used by the major news wires for the last 6 months of "green shoot" coverage is a fill in the blank template so the news is standardized across the board. Tomorrow was supposed to go:
"Jobs losses of [165,000] easily surpassed Wall Street estimates for a job loss total of [175,000] adding further evidence that the worst of the recession has passed."Of course after today's numbers the template will have to be changed somewhat, and so the new release tomorrow will read (my prediction):
"Jobs losses of [225,000] surpassed Wall Street estimates for a job loss total of [250,000] adding further evidence that job market pressure is easing after the worst financial crisis since the Great Depression."You read it here first!
The story since last March has been one of government targeted support for the "free market" in order to save it. We are told the edge of destruction has been avoided, and more than that, a recovery is under way. I will side step for now the details involved in all this, they are secondary to this discussion.
In this fable all is going well enough that the FED will have to begin looking at "exit strategies" and in fact are out of ammo when it comes to MBS purchases and Treasury buys. Cash for Clunkers has come and gone. The housing handout is about over as you need to close on a home by the end of 2009 and those things take time. All that is needed is a self sustaining rebound and it would seem all will be well.
This is not going to happen.
Today's numbers (Car sales, Employment, Manufacturing) all are reflecting already a drop off in activity as even the knowledge of the possible end of government intervention is at hand. The stock market's first real down day in months served notice that the exits will indeed be full when the music stops.
In my mind we are coming to the point where the rubber meets the road. It was this writers expectation that as the fall season went along the data would get worse, and then much worse. Today may have been the opening salvo in this process, or just a one time blip that will resume shortly. Either way the real time reactions are the same.
I have never argued that we are not in deflation right now. Even in the face of unprecedented (in the modern era) government assistance, the economy is still in tatters. Soon the FED will come to understand some side effects of all their intervention:
-The market sees temporary lending facilities as capital pools
-The market sees MBS purchases as an open ended trash dump
-The market sees a weakening dollar as a structural trading platform
And there are many more ingrained intervention effects as well.
Should any of this change, there is going to be a violent market reaction.
The government is going to have to make a decision. Massive expansion of support programs and extension of the same is the bare minimum. Of course they could just let things go to their natural level, as I have argued all along. We would be 6 months closer to real resolution of our structural issues if the government had stayed out of things. Instead we have played a rally game built on implicit help that may or may not be renewed.
In the face of a deflationary collapse and overhaul of US financial engineering, I believe the government will go "all in" and do whatever they think they need to make sure deflation "does not happen here". Think big.
Have a good night.