Daily Digest

Daily Digest 11/1 - Tough Spending Cuts Ahead, Personal Income and Spending Miss Expectations, Turning Up the Power

Monday, November 1, 2010, 10:49 AM
  • Mauldin: Be Careful What You Wish For
  • Personal Income And Spending Both Miss Expectations As Savings Rate Drops To 2010 Low
  • Investor Advisors: Buy High, Sell Low
  • Tough Spending Cuts Ahead
  • Trends in USA Petroleum Production and Consumption
  • Tightening Oil Markets Will Bring The Speculators Back
  • Turning up the Power
  • China Coal Prices Reach Nine-Month High on Demand for Forecast Cold Winter

Crash Course DVDPass along a DVD to your friends and family—the deluxe DVD is available in discount packs of 4 and 10! (NTSC or PAL)

Economy

Mauldin: Be Careful What You Wish For (Click to download PDF) (JRB)

Be careful what you wish for. It’s one thing to get a few votes. It’s quite another to live up to promises that simply can’t be kept. We will start our analysis by looking at the GDP numbers that came out today, and we will end by pointing out that there will be no easy choices.

Personal Income And Spending Both Miss Expectations As Savings Rate Drops To 2010 Low (Megan)

One thing is sure to happen when Americans buy more iPads than they can afford: the savings rate will fall. Sure enough, the just reported September savings rate dipped to 5.3%, the lowest reading in 2010, and a decline from August's downward revised 5.6%. This is due to a miss in both personal income and personal spending, the former coming at -0.1% vs Exp. of 0.2 (and a prior revised to 0.4%) with the latter at 0.2% versus expectations of 0.4% (and an upward revised prior to 0.5%). The savings rate has now declined in a straight line since peaking at 6% (2010 high), to the current low. In other words Americans have been spending more than they were making for four months in a row. And on wonders why consumer discretionary names have been doing well...

Investor Advisors: Buy High, Sell Low (Megan)

Jason Zweig has an interesting piece in the Saturday WSJ about the bad advice investment advisors give:

“Investment professionals are supposed to exercise independent judgment; in Warren Buffett’s words, they should be fearful when others are greedy and be greedy only when others are fearful…"

The simple explanation is that advisors (or at least the bulk of them) are reacting emotionally to market swings. They are over-confident after markets have had big moves up, so that’s when they buy; they dump equity shares in a panic late in a down turn.

Yes, yes, Human primates are emotional creatures, especially in crowds; we are aware of this fact. Given that is a known variable, the more interesting question becomes why is this the case.

Tough Spending Cuts Ahead (cmartenson)

(VIDEO) David Stockman, President Reagan's budget director, tells Lesley Stahl that even if the government raises taxes on the rich and everyone else - some tough spending cuts will have to be made.

“Were going to have to dramatically scale back defense. We’re out of the imperialism business.   We’re out of the world policeman business.  We can’t afford it and there has never been a successful world policeman who is insolvent.”

Energy

Trends in USA Petroleum Production and Consumption (Crash Watcher)

As I showed in “Refining the Peak Oil Rosy Scenario,” when the assumptions of a constant “a” and Q∞ do not hold, and for instance, “a” or Q∞ have yearly fractional changes, the best fits using Hubbert’s Equation give systematically poor estimates of “a” or Q∞ as compared to the true values (in this case, known values because the data in my analysis was simulated data). Consequently, the predicted future production rates can be radically different from the true value. Using the linearized version of Hubbert’s Equation does not cure this problem.

Tightening Oil Markets Will Bring The Speculators Back (woodman)

What folks don’t mention is that when oil prices eventually crashed during the recession, so did oil demand—and not just speculative demand, but real economic demand. That’s what happens when essentially oil-powered economies experience severe contractions. In 2009, global oil demand fell for the first time since 1983—a testament to the severity of the last recession.

While drivers may have liked the pump prices that came along with the recession, oil producers certainly didn’t. Investments in future production, from Brazilian deep-water to Canadian tar sands, were slashed literally overnight as the price of oil fell well below the cost of developing new supply.

Turning up the Power (Samuel R.)

Remember Oil? We used to be strung out on the stuff, like junkies plugged into our Hummer engines. (And does anyone recall those gas guzzlers?) Now we're building carbon-free nuclear power plants and carpeting the Sunbelt with photovoltaic panels. We still use coal and oil, but we're much closer to attaining the Holy Grail of clean energy.

That, at least, is the optimist's version. Experts disagree on what will actually keep the lights on in 2020.

Crash Course DVDPass along a DVD to your friends and family—the deluxe DVD is available in discount packs of 4 and 10! (NTSC or PAL)

China Coal Prices Reach Nine-Month High on Demand for Forecast Cold Winter (Megan)

Coal prices at Qinhuangdao port, a benchmark for China, rose to the highest in nine months on expectations of a colder-than-usual winter. The price of power-station coal with an energy value of 5,500 kilocalories per kilogram rose 2.7 percent to between 755 yuan ($113) and 775 yuan a metric ton as of today, compared with a week earlier, according to data from the China Coal Transport and Distribution Association. That’s the highest since Feb. 8. China will likely have abnormally low temperatures this winter because of the La Nina weather pattern, the official Xinhua News Agency said in August. Coal prices have gained 7 percent since the start of September, when power stations started stockpiling coal for the winter, data from the association showed.

15 Comments

saxplayer00o1's picture
saxplayer00o1
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Re: Daily Digest 11/1 - Tough Spending Cuts Ahead, Personal ...

"The east European country is counting on 20 billion euros of loans to stay afloat amid its worst recession on record. The government cut wages for state workers by 25 percent and raised the value-added tax by 5 percentage points to 25 percent to meet budget deficit targets and qualify for the loans."

  • Other news headlines and info:

Currency Swings Show Faith in G-20 Pledge Fading

China Should Purchase Gold, Oil, CCB's Shao Writes

Fed's bond buys seen $500 billion to $750 billion: survey

Fed Helping Spanish Debt Market Keeps ECB Mum on US Dollar: Euro Credit

Greek Deputy PM: Debt Restructuring Should Not Be Demonized

San Jose Pension Payments Outstrip Contributions

Physicians face painful decision on Medicare

Home prices expected to slide another 8%

Billion-dollar problems await next group of Indiana lawmakers

Food Inflation Accelerating as Cooking Oil Poised to Catch Grains

Nation's Governor Candidates Vague On Deficits (NPR)

US public pensions face day of reckoning

Holidays threatened by soaring tax hike: airlines (UK)

Why the economy's growth isn't easing unemployment

Thirty-Three Hours May Induce ECB Surrender on Weak Dollar

Chinese Economic Growth May Face `Big Drop,' CIC Chairman Lou Jiwei Says

Commodities headlines from Bloomberg

Capital Economics Warns of Another Dip Ahead

Consumer spending reinforces Fed easing view

Bulgarian private pensions moving some funds to state control

Fed buys $2.489 bln in bonds; Treasurys stay down

Poet's picture
Poet
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Tragedy of the Commons

It's like all the politicians (left and right) and union bosses and people-in-charge and voters getting the benefits just said, "Let's promise them everything and leave the costs to the next people to worry about. We'll take what we can get now."

By the way, those are the same people who walk their dogs while carrying those little blue doggy bags that are always empty. Always. Even if they bend over and pretend to pick up.

Poet

Nate's picture
Nate
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Re: Tragedy of the Commons

Obama is doing exactly what he said he would do.  So now voters are unhappy with the current spending spree and will drain the swamp tomorrow to support spending cuts.  If real cuts are made (Tea Party agenda), in two years the voters will drain the swamp again.  To support more spending.  As an old calculus teacher once said, you should have to pass an IQ test before you vote.

David Stockman is right.  Cut defense and cut entitlements.  I wish someone would be honest with the voters.  Tired of all this BS.

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lastboyscout
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Re: Tragedy of the Commons

Nate,

Defense is one of the few things the Fed Govt is suppose to be spending money on! Yes, we don't need all the bases we have, and we don't need to have troops in a lot of places we have troops, Be careful what you cut for military. There are whole departments in the federal government that can be cut before entitlements. How about cutting the Dept of Education, they do absolutely nothing and their budget is 62 billion I think. Checks can still go out to states if need be without having a department. Department of energy, what a waste. The only thing there is the NRC which could easily go back to the DOD. The ATF, what does alcohol, tobacco and firearms have in common???? you tell me. Cut this baby and any real responsibilities go to the FBI and/or Homeland Security, I would even consider dismantling Homeland Security. The only reason it was invented is because all the agencies didn't play nice together (and administration officials made it impossible for them to play nice if they wanted to). Start cutting all the waste, all the crap we spend money on. Really look at money going to other countries, do we really need to support other countries, especially those who really don't support us when the chips are down! Get the president line item veto, I know it was deemed un-constitutional, make it an amendment! If a president vetoes an item that is really important, the congress can make a separate bill, send to pres where he may veto again and have the house and senate override, simple.  There is sooooooo much stuff that can be cut, it isn't funny. Cut SS to where it was originally designed for, retirement. Even give someone the option to participate or not. If they choose not, they sign off to never ask for any retirement benefits; I hear talking heads saying that candidates saying they will cut 100 billion and wondering where that kind of cut would come from, the Department of Ed would be more than half.

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osb272646
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Re: Tragedy of the Commons

Obama has done essentially NOTHING that he said he was going to do.  This has caused his supporters to abandon him, his potential supporters to write him off, and emboldened his opponents.  

horstfam's picture
horstfam
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The Federal Reserve in charge of Real Estate Appraisals?

When I saw this article today, it seemed very odd to me that the FED is even involved with RE appraisal, much less setting the rules. Are the Fed's tentacles going to end up controlling everything (as if they don't already, right?)?

http://articles.latimes.com/2010/oct/31/business/la-fi-harney-20101031

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Re: Tragedy of the Commons

lastboyscout wrote:

"be careful what you cut for military. There are whole departments in the federal government that can be cut before entitlements."

The gov't has to cut entitlements. entitlements + weathfare + debt intereste payments = 2.131 Trillion for FY 2010. Federal revenues for FY 2010 is 1.927 Trillion (including taxes, land leases, Mineral leases, etc. All revenue) . Federal gov't now pays out more in non-descretionary spending then it collects in revenues. All of the FY 2010 debt (1.6 Trillion not 1.3 Trillion as quoted in the media --see Treasury "Debt to the penny" web page) is used to keep the doors open in washington. If Washington balanced the budget without cutting non-discretionary it would have to permamently shutdown.

 In the years ahead ,entitlement outlays will soar as more people become eliable for them and as the workforce shrinks because the number of babies born during the post 1964 period (ie Gen Xers ) is much smaller. Plus the boomers have been promised new expensive entitlements via the Medicare Prescription drug plan (Bush) that is about to kick in, and Obamacare in 2013.

That said, the gov't isn't going to make any entitements in light of the riots in Greece and France. The Gov't is going to monertize debts by using printing presses to make up for the short fall (already doing with QE1, Post QE1 POMO's and the comming QE2, and beyond). They will not stop until the dollar is dead. I expect the dollar to begin collapsing in late 2012 to late 2014 as the fiscal problems begin spiralling out of control. When the dollar dies, so does the federal gov't, resulting in the break up of the United States as states are forced to abandon that dollar and print their own currencies for internation trade (much as did states did before Alexander Hamiltion built the US federal gov't around the dollar). Consider that virtually all wealthly nations\empire disolved into smaller states after monetary collapses (Soviet Union, British Empire, Ottoman Empire, Holy Roman Empire, Eastern Roman Empire, Western Roman Empire). All collapse and divided into smaller states. In our lifetime, we saw the collapse of the Soviet Union, with the break up of Eastern Europe states: Poland, Chezsolvia, Genrmay, Hungry, Baltic states, Ukraine, Georgia, The southern Stan. states.

I recommend relocating to a state that has sound budgeting with access to abundant water, agraculture, energy resources and access to the sea for international trade (to import oil, manufactured goods, etc).

Jan 1, 2011:  $13.9 Trillion

Jan 1, 2012: $15.6 Trillion

Jan 1, 2013:  $17.4 Trillion

 

Nate's picture
Nate
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Re: Tragedy of the Commons

The unfunded liabilities are so large that massive cuts (or effective cuts through inflation) will simply have to take place.  The 0th law of thermodynamics is that which cannot be sustained will not be sustained.  As John Mauldin said, long before the bills for SS and Medicare come due the bond market will simple revolt.  Each of us has to take responsibility for our future (and future needs). 

My crystal broke several years ago, but Tech Guy's  recommendation of relocating to a fiscally responsible state makes tons of sense to me.  I sincerely hope the folks on this site are spending as much time preparing for the future as they do reading this (and ALL the other) websites.

Quick question - how many 100% home grown meals have you had the past week? 

 

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Re: Daily Digest 11/1 - Tough Spending Cuts Ahead, Personal ...

I continue to be amazed that the government can put out these documents that don't even pass the straight face test:

The 2001 budget indicates about $3.5T outlays, $2.8T revenues, and $1.3T deficit

http://www.whitehouse.gov/sites/default/files/omb/budget/fy2011/assets/tables.pdf

The $50T Education budget would need to be cut many times over to eliminate the deficit.

 

Here's a couple of many online charts to look at the Federal Budget:

http://www.concordcoalition.org/learn/budget/federal-budget-pie-charts

http://www.federalbudget.com/

The math clearly shows that serious deficit reduction will take serious cuts from the biggest pieces of the pie, whether the spending is justified as necessary or not.

Opting out of Social Security will not ever be an option (unless you have a privaledged alternate government retirement plan).  SS is a ponzi scheme by design; what you pay in is paid out to others, or loaned to other government programs.  

Woodman's picture
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Re: Tragedy of the Commons
Nate wrote:

Quick question - how many 100% home grown meals have you had the past week? 

 

Tonight was close:  eggs, potatos, beets, carrots, onions, parsley all from garden and chickens out back.  Cheese and olive oil from store.

 

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Re: Daily Digest 11/1 - Tough Spending Cuts Ahead, Personal ...

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Re: Daily Digest 11/1 - Tough Spending Cuts Ahead, Personal ...

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December 7 Is The Unofficial Pan-European Bank Mutiny Day

December 7 Is The Unofficial Pan-European Bank Mutiny Day (from Zerohedge)

http://www.zerohedge.com/article/december-7-unofficial-pan-european-bank-mutiny-day

After German blog "All is Smoke and Mirrors" floated an idea of an organized bank run (something attempted previously in the US without much success) in France in response to French austerity protests (which have resulted in no gains), the effort has since expanded to a pan-European organized bank run day on December 7, 2010, and has metastasized to Italy, Germany, the Netherlands, the UK and Greece. We are confident that very soon the rest of Europe, which is currently gripped in a climate of extremely unpopular austerity, will join in this symbolic protest against banking, which unlike the US, may just succeed, considering the European banking system is in total shambles, and in far worse shape than its American counterpart.

Since virtually all actions in 2010 by the global central banking cartel have been geared toward stabilizing the European banking system which continues to wobble on the edge of a complete systemic collapse, perhaps the marginal withdrawal of a few billion in deposits could be just the straw that forces a reset first in Europe, and shortly thereafter in the rest of the globalized developed (and then developing, proving what a joke the whole concept of decoupling is) world. As America has demonstrated so very well, 25 weeks of consistent withdrawals from domestic funds (sorry CNBC, there have not been inflows yet, confirming yet again that fact and propaganda don't mix yet) have resulted in a quarter in which bank earnings were simply said crushed. Had Americans followed through and withdrawn their deposits from banks it would have been the final straw. Luckily, the lack of organization among the US population gave the US banking system a reprieve. In Europe things are different: banks are not as reliant on trading, however, they are far more reliant on a stable deposit base to sustain the Ponzi. Therefore, even a partially successful withdrawal campaign could have far more dire consequences to the continent's banking system, and bring the financial system to its proverbial knees.

And before some accuse the blog's activism of some vile form of megalomaniacal quackery, we should highlight that the action has already been noted by such reputable newspapers as Suddeutsche Zeitung. Furthermore, in just 24 hours 1,500 readers have pledge their support to the action's various Facebook support sites, and another 48,000 are on the waitlist. We hope that more alternative media (the mainstream will unlikely support such a radical venture) catches on, and more Europeans realize they have all to gain and little to lose from forcing the balance of power to shift away from the banks, and into the hands of the people.

 

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Re: December 7 Is The Unofficial Pan-European Bank Mutiny ...

I just Bing'd "bank mutiny day" 7 and got only 5 hits.  I expected more having read this post.  So, will it happen?

dickey45's picture
dickey45
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Re: Daily Digest 11/1 - Tough Spending Cuts Ahead, Personal ...

Obama has done essentially MANY that he said he was going to do (although watered down).  Wars and crappy economy has caused supporters to abandon him, his potential supporters to write him off, and emboldened his opponents.

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