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ECONOMIC GLEANINGS,


August 27, 2009

While much of the news this week seems quite positive, the unofficial tally of unemployed is now in the 14-15MM range (incl. those who don’t figure in the official statistics because they have ceased looking for work).  And Prof. Nouriel Roubini of the Stern School of Business at NYU, who correctly forecast the financial meltdown, & more importantly its severity, recently warned in the Financial Times of the risk of a “double-dip” recession and that, in any case, even if the global economy were bottoming out, the US & UK economies will likely experience “anemic”/”below trend” growth for at least a couple of years, with policy makers facing a “be damned if they do and damned if they don’t” conundrum as they seek to unwind their massive fiscal & monetary stimulus programs. 

One hundred and fifty years ago today, after much frustration & public ridicule,  Edwin Drake, a ne’er-do-well with a vision, and Billy Smith, a blacksmith with experience as a salt well driller, produced the first oil ever on US soil (from a 70 foot-deep well). While at first the price of oil was about US$500/bbl in current dollar terms, the subsequent massive increase in oil output by copycats soon drove the price down to US$12/bbl in current dollar terms. 

On several places in today’s edition there appears to be validation of a recent news magazine headline that read : We are a nation of liars.; for some of the answers people are giving to pollsters are, well, simply inconsistent with one another. 

There was a lot of material on US health care reform. So I have again taken the liberty to add it as a sort of an addendum at the end of the regular five pages. 
 

GLEANINGS VERSION II

No. 327 - August 27th, 2009 

OECD SAYS MEMBERS’  ECONOMIES STABILIZING (AP) 

    ∙ It said on August 20th that the economies of its 30 member nations as a whole had stabilized in the Second Quarter as Japan, France & Germany return to growth made up for the laggards, the US & UK (whose GDP had continued to shrink by 0.3% & 0.8% respectively).  

Still, total member GDP was flat compared to the preceding quarter & down 4.6% YoY.  

ISRAEL FIRST TO LIFT RATES (Bloomberg) 

    ∙ On  August 24th the Bank of Israel boosted its benchmark rate from 0.50% to 0.75%. 

This came as a surprise to 10 of the 12 economists surveyed by Bloomberg. 

JULY HOME RESALES SURGE MORE THAN 7 PERCENT (AP) 

    ∙ Expected to rise 2.2% from June’s 4.89MM annual rate to 5.0MM, they did so by 7% to 5.24MM. This was the fourth month of higher sales  & the strongest month in two years.  

Much of this is due to first time home buyers seeking to take advantage of a tax credit program expiring November 30th.  

JULY NEW HOME SALES JUMP 9.6% (AP) 

    ∙ The 433,000 annual rate of sales was the fourth increase in four months, the strongest sales pace since September & the most dramatic MoM sales increase in 4½ years. 

This cut the inventory of new homes for sale to a 7.5 months’  supply, the least since April 2007.     

HOME PRICES POST FIRST QUARTERLY RISE IN 3 YEARS (AP) 

    ∙ The Second Quarter S&P/Case-Shiller’s National Home Price Index was up 3% QoQ. 

Positive as this may be, they are still down 15% YoY & 30% off its peak 3 years earlier. 

JULY DURABLE GOODS ORDERS SURGE 4.9% (CNNMoney. com) 

    ∙ This was the most in two years, and well above June’s 1.3% decline & the 3.0% expected (but still down 25.8% YoY), largely due to higher orders for commercial aircraft (which are notoriously volatile) & the resumption of production at several GM & Chrysler plants. Ex-transportation equipment, they were up less than the expected 0.8% but for the first time in 3½ years they were up 3 months in a row. 

As is the case with so much of the recent ‘good news, it’s primarily good because it is less bad. 

CONSUMER SENTIMENT RISES MORE THAN EXPECTED (AP) 

    ∙ The Conference Board’s Consumer Confidence Index in August soared to 54.1, vs. 47.4 in July & the 47.5 forecast. While more than double its record February low of 25.3, it is  still well short of the level of 90 associated with a healthy economy.  

The sub-index for their expectations for conditions six months hence rose to 73.5, from 63.4 in July, implying that their assessment of the present not just remains low, but is still deteriorating.   

NEW JOBLESS CLAIMS AND TOTAL BENEFIT ROLLS DROP (AP) 

    ∙ First-time unemployment claims in the most recent week fell to 570,000 from 580,000 the week before. While below the 600,000+ level of most of the year to date, it’s still 80% above the 325,000 deemed consistent with a healthy economy. And the number of those drawing unemployment benefits declined from 6.25MM to 6.13MM. 

The latter number should be treated with caution. For people are starting fall by the wayside because they have run out of eligibility (as 1½  MM people are expected to do by yearend). 

TROUBLED BANKS JUMPED TO 416 FROM 305 (AP) 

    ∙ In the Second Quarter the nation’s banks lost US$3.7BN (causing a 20% decline in the FDIC’s insurance fund to US$10.4BN) vs. a US$7.6BN profit in the First Quarter & US$4.7BN in the year-earlier period. The number of banks ‘in trouble’ grew by 36% to 416. 81 banks have failed YTD & 100's more will do so as commercial real estate loans go sour. 

Meanwhile the FDIC is running into opposition from banks for its plan to let the TAG program expire on schedule at yearend or extend it by just six months at double the cost to the banks (it covers US700BN of otherwise uninsured bank deposits & thus reduces the banks’ cost of funds).  

OBAMA FACES HARD CHOICES ON AFGHAN WAR PLANS (AP) 

    ∙ As public support erodes & the military situation, according to JCS Chairman Adm. Mike McMullen is ‘serious and deteriorating’, Obama faces a Scylla & Charibdis-like situation :  boost troop levels now still more from their present level & risk a political backlash that he doesn’t need at this time or stick with the 68,000 already committed & risk political flack later if that were proven to have been insufficient. 

Another ‘toxic legacy’ from the Bush era.  

CANOLA CROP WAY DOWN (EJ, Business Browser) 

    ∙ Western Canadian farmers are expected to harvest 9.4MM tonnes of canola this year, down 25% YoY, and barley & oats output is expected to be down by as much as 44%.  

This wasn’t a Goldilocks-type of summer for them; most had too little rain & some had too much  

PM UNVEILS PLANS FOR PALESTINIAN STATE (AF-P, Hossam Ezzedine) 

    ∙ On August 25th Prime Minister Salam Fayyad told a press conference in Ramallah “The Palestinian government is struggling ... against a hostile occupation regime; ... a de facto state apparatus ... can and must happen within two years ... We must confront the whole world with the reality that the Palestinians are ... steadfast in their determination to remain on their homeland, end the occupation and achieve their ... independence ...  The world should know we are not prepared to continue living under a brutal occupation and siege that flouts not only the law, but also the principles of natural justice and human decency.” His rather ambitious  priorities include disentangling the economy’s dependence on Israel & foreign aid, trimming the size of, and keeping wages in check & implementing a performance-based system in, the public sector, increasing the use of technology & unifying a legal system that is a hodge-podge of Ottoman, British, Jordanian & Israeli bits & pieces.

    ∙ Finance Minister Yual Steinitz, criticized this by saying “There is no place for either unilateral actions or threats ... a Palestinian state, no matter what its form, will not see the light of day if Israel’s security concerns are not taken into account.”  

Two Israeli officials reacted “with consternation” over what they called “this unilateral action”. But the Palestinians are feeling their oats, believing the winds of change have changed in their favour, with their economy this year expected to be one of the fastest-growing in the world, King Abdullah’s letter & a US President seemingly intent on achieving Middle East peace. 

US AND US DISCUSS SETLEMENTS (BBCNews) 

    ∙ During Netanyahu’s visit to London he met with Prime Minister Gordon Brown, rejecting any construction freeze in East Jerusalem, demanding the Palestinians recognize Israel as a Jewish state & insisting on continued ‘organic growth’ in the West Bank settlements & with Obama’s Special Envoy for the Middle East, George Mitchell. Afterwards he told reporters “We are making headway. My government has taken steps in both words and deeds to move forward.” Then he was off to Berlin (but Germany seems to be shedding its guilt complex-driven tendency to condone anything Israel does or wants).

    ∙ While the Palestinians refuse to re-enter peace negotiations unless Israel halts all settlement construction, the Israelis operate on the assumption that they will go along with any deal Israel makes with the US, if asked to do so by President Obama who knows that any deal  short of ending all construction activity will cost him some of his credibility with the Arab leaders. 

But back home his coalition partners are doing their utmost to push him to the right, with several of his Cabinet colleagues recently visiting a ‘wildcat’ settlement of the kind he has undertaken to remove, prompting an Israeli analyst to wonder how he will be able to stop settlement construction without toppling his government. And in the midst of all this two Palestinian families have been camped out on a sidewalk in East Jerusalem since earlier this month in front of houses they built 50 years ago & occupied ever since, after being evicted & having their belongings dumped on the street to make room for settlers after an Israeli court ruled that the land their houses were on were was legally Jewish-owned, having been purchased during the pre-WW I Ottoman period. 

HAMAS CLAIMS ABBAS FOILED SCHALIT DEAL (Jerusalem Post, Khaled Abu Toameh) 

    ∙ Mushir al-Masri, a Hamas spokesman & legislator, said on August 22nd “We were very close to striking a deal that would have resulted in the release of Israeli soldier Gilad Schalit ... but Abbas personally interfered to prevent the prisoner exchange because he was opposed to the release of Hamas legislators and officials from Israeli prison” (fearing it would undermine his authority) & that the US had also intervened, fearing that a successful prisoner exchange would boost Hamas’ standing among Palestinians (remember, there is an election in the offing). 

Cpl. Schalit, a dual Israeli-French citizen serving in the IDF, was captured in a June 2006 border raid (Hamas earlier offered to release him in exchange for 450 Hamas members in Israeli jails). 

POWERFUL IRAQI SHIITE LEADER DIES (AP) 

    ∙ Abdul-Aziz al-Hakim died from lung cancer on August 26th. He led the Shiite opposition against Saddam Hussein for 20 years from exile in Iran & his Supreme Iraqi Islamic Council party was a key player in the coalition that brought Prime Minister Nouri al-Maliki to power although recently, ahead of next January’s General Election, it withdrew its support of him. 

Two days before his death the creation of a new alliance of Shiite parties was announced, the main players in which will be the Council & the party led by the anti-American cleric Muqtada al-Sadr, both with close ties to Iran. This leaves al-Maliki dependent on support from Kurds & Sunnis and will likely exacerbate sectarian tensions at a time violence is already on the upswing 

IRAN TO BOOST ITS INFLUENCE OVER DESTABILIZED NEIGHBOUR

(WP, David Ignatius) 

    ∙ The US-trained head of the US-trained Iraqi National Intelligence Service (INIS) has quit in protest over al-Maliki’s attempts to undermine his service in order to enable Iranian spies to operate more freely in Iraq. This removes a key figure in the fight against terrorism & without a US backstop the regime appears vulnerable to pressure from Iran. A July 28th bank robbery that left eight people dead was carried out by members of a group that supposedly included a member of the security detail of one of Iran’s Vice-Presidents, Adel Abdul Mahdi. Many senior INIS officers are fleeing to Jordan, Egypt & Syria, fearing they will be targeted by Iranian hit teams if they stay. And on August 19th the bombing of the Ministry of Foreign Affairs killed 100 & wounded hundreds more, with the Minister not ruling out collusion between the terrorists & members of the security forces, saying “We have to face the truth. There has been an obvious deterioration in the security situation in the past two months.” While the government blames Sunnis, the C-4 residues found at the site are similar to those of other Iranian-made explosives found elsewhere in the country in the past three years.  

Al-Maliki is so close to Tehran that he is said to use an Iranian jet & crew for his official travel. 

SUICIDE BOMBER LIGHTLY INJURES SAUDI PRINCE (BBCNews) 

    ∙ A suicide bomber on August 27th lightly injured Prince Muhammed bin Nayef, the assistant interior minister, a key figure in the country’s anti-terrorism campaign & a son of the interior minister, Prince Nayef, when he blew himself up at a gathering of well-wishers for the holy month of Ramadan. The royals are vulnerable since it is customary for them to hold gatherings open to the public where people can air their grievances. 

One can only wonder if this is a harbinger of things to come; if it were, it would have serious implications for global oil markets & oil prices  

CHINA’S GROWTH MAY PICK UP THIS QUARTER TO 8.5 PERCENT (Bloomberg) 

    ∙ The State Information Centre said on August 21st economic growth may rise to 8.5% this quarter on stimulus spending, a “moderately loose” monetary policy & better export demand. 

    ∙ This would be a big improvement over the First Quarter’s 6.1% & the Second Quarter’s 7.9% & above the 8% threshold deemed necessary to avoid social unrest. 

SEVER DROUGHT HITS CHINA’S GRAIN ZONES (China Daily) 

    ∙ The State Flood Control & Drought Relief agency said on August 24th insufficient rain & high temperatures have created drought conditions affecting 170MM mu (11.3MM hectares) of crops, with 10% thereof ‘dried up’ & another 40% suffering ‘serious drought’. Many of the country’s main grain production regions are among the hardest-hit.  

170 mu is 10% of the country’s crop land. This has also led to water scarcity for millions of people & livestock, prompting 340,000 automobiles to be put to use transporting water. 

JAPAN’S RULING PARTY IN TROUBLE AS ELECTION LOOMS (AP) 

    ∙ The opposition Democratic Party of Japan is expected to emerge from this weekend’s election with at least 300 of the 480 seats in parliament’s lower chamber. For voters are turning away in droves from the Liberal Democratic Party that has ruled Japan for 53 of the past 54 years, angered by growing unemployment, its plans to raise taxes  & its perceived lack of vision for the future & attracted by the opposition party’s call for less wasteful government spending and for spurring the economy & putting more money in consumers’ pockets.  

If the opposition wins the election, the country may be in for quite a change. For the opposition leader’s wife, a former performing artist, has let it be known she doesn’t intend to assume the traditional subservient role of Japanese political wives (& she seems to have her husband’s support; for he said in a recent interview that “I feel relieved when I arrive home” & credited her cheerfulness & ability to infuse him with new energy for much of his success).    

SOUTH ASIA HIT BY SUGAR SHORTAGES (BBCNews) 

    ∙ With the world price of sugar at a 28-year peak, soaring sugar prices in India & Pakistan are causing consumer unrest. World prices have been pushed up by a growing demand in Brazil for sugar to be turned into ethanol & a sharp drop in sugar output in India, the world’s No. 1 consumer &, until recently, its No.2 producer, due to unusually poor monsoon rains. 

Sugar may not be essential to survival, but it sure adds to the quality of life at all levels. 

ARGENTINA CONDEMNS PICK OF TERROR SUSPECT FOR CABINET (AF-P) 

    ∙ President Ahmadinejad on August 21st nominated Ahmad Vahidi to be his Minister of Defence. But Argentina’s Chief Prosecutor Alberta Nisman said he is wanted by Interpol in connection with a 1994 bombing that flattened the seven story headquarters of the Argentine Jewish Mutual Association in Buenos Aires, killing 85 & injuring 300, in which he is believed to have been involved as head of Al-Quds, an elite unit of the Revolutionary Guards. Asked for comment, Ahmadinejad’s press adviser, Ali Akbar Javanfekr said “How come they didn’t bring it up in the past ... Mr. Vahidi (previously) was deputy defence minister and this is a very senior political position.” 

This may actually help Ahmadinejad to get parliamentary approval for his cabinet. 

-o-o-o-o-o-o-o-o-o-o-o-o-o-o-o 

ALL THE PRESIDENT’S ZOMBIES (NYT, Paul Krugman) 

    ∙ The most depressing aspect of the healthcare debate is the way in which the opponents of reform are getting away with peddling the Reagan mantra that government is bad & the private sector good. For Reaganomics didn’t deliver : lower taxes on high incomes & deregulation didn’t trickle down : between 1980 & 2007 the top 0.1% of Americans saw their real incomes rise seven-fold while that of median American families rose just 22%, less than one-third the rate of the previous 27 years. And the President must take some blame for not more effectively refuting that ‘all government is bad government’. 

Obama’s low profile on the healthcare issue is surprising given its potential for being the signature event of his Presidency & the driver of his agenda for the next four years. 

BIG EMPLOYERS DIP INTO THE HEALTHCARE DEBATE (MSNBC, Allison Linn) 

    ∙ Health care costs have risen dramatically in recent years & many corporate executives are now promoting health care reform for the same reason they do most things, its impact on their bottom line if they can download their healthcare costs onto the government. 

With not just employers but also the AMA, the American Hospital Association & the drug companies in Obama’s corner it’s amazing the opponents of reform have been able to set the agenda for the debate - perhaps this because they appreciated better that people find it easier to ‘understand’ an issue if it’s presented to them in terms of their own financial well-being. A Canadian journalist recently referred to the US health care reform debate as  “class warfare”, saying the middle class is ready to lynch the insanely well-paid financial people that brought to economy to its knees & are back at looting the till, but at the same time has little sympathy for those who work for a living.  

HOW OBAMA MISCALCULATED ON HEALTHCARE (Fortune, Nina Easton) 

    ∙ His critical mistake was ignoring the fact that 80% of Americans are satisfied with their health care, even as they tell pollsters they want “reform” & support “universal healthcare” and cite “healthcare costs as their top financial concern”, ahead of retirement, mortgage and/or rent, & job security. So any radical restructuring of the system threatens a status quo that suits 80% of the people. And the latest NBC poll shows that 54% are more worried about government control of healthcare than about reform not going far enough & isn’t buying Obama’s promise that no one will lose their benefits if they want to keep them.

 

The public option issue is particularly tricky. For it is as anathemous to Republicans & conservative Democrats as it is an article of faith to his liberal base (which equates it with ‘real’ reform) & could cost him the support of a hundred or so conservative Democrats in the House. 

HEALTH OVERHAUL TACTICS NEED OVERHAUL (AP, Steven R. Hurst) 

    ∙ He is trapped between the Republicans who won’t tolerate further government involvement in healthcare & his liberal base that insists he must keep his campaign pledge to ensure the 50MM Americans now without healthcare coverage can afford health insurance. And the polls seem to bear out the observation by Prof. Robin Lauerman, professor of politics at Messiah College in Grantham, Pa. that “the administration and others backing reform haven’t done much to educate the public”; for the latest Washington Post/ABC News poll found that while his overall approval rate is still 57% (12% off its peak), only 49% say they believe the president will make the right decisions for the country, eleven points below its level at the 100-day point. 

He needs to get a grip on the ‘Blue Dog” Democrats, whose views on healthcare reform are closer to the Republicans’ than to those of many of their fellow Democrats, incl. Obama himself.  

GRASS ROOTS TESTS OBAMA MOVEMENT (WP, Eli Saslow)  

    ∙ Jeremy Bird joined the Obama campaign as a top organizer in 2007. He is now the Deputy Director of Organizing for America (OFA), a national network of Obama supporters that inherited the more than 13MM e-mail addresses collected during his run for the Presidency that could help determine the outcome of the healthcare reform debate. So right now he, & others like him, are crisscrossing the country seeking to re-energize grass roots supporters outshouted at local rallies & suffering from post-election fatigue, while reviving in them the credo of the Obama campaign that grass roots support can power government & shape legislation and that people should feel “like they can control almost anything that happens in government ... (and that) there’s no barrier between the regular people out in the states and the power players in Washington, D.C.” 

While so far the healthcare reform adversaries have been making all the yards, Obama’s track record suggests that would be dangerous to underestimate his political savvy. 

YOUNG OBAMA BACKERS SKIP HEALTH CARE FIGHT (AP) 

    ∙ A lot of the tech-savvy activists instrumental in getting him elected President are young, feel indestructible & are not much into what they see as an old folks issue.  

One of them who is pro-active on the issue says it makes him nervous that the generation most supportive of health care reform is not engaged in the battle to achieve it. 

ALAN FRUMIN : KING OF CAPITOL HILL? (NW, Katie Connolly) 

    ∙ The Democrats are considering using the budget reconciliation process to ram through the more contentious aspects of health care reform; for it pre-empts filibusters in the Senate so that a bill only needs a simple 51-vote majority for passage. But under the so-called ‘Byrd rule’, passed in 1985 to prevent it from being abused to pass non budget-related legislation, only certain types of legislation qualify for consideration under reconciliation. And the rule’s obtuse language often needs interpretation, and Frumin is the official interpreter. 

His predecessor, Bob Dove, served many Republican leaders in the Senate but was nevertheless fired by the then Republican Majority Leader Trent Lott because he didn’t like his rulings. 

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