Friday, April 30, 2010

Big Picture Economic Overview

A great post from The Big Picture blog by Barry Ritholtz on the economy as a whole.

I highlighted some sections that are worth noting as the year continues.

1. The Economy is recovering; The recession is over: Of that, we have no doubt, as the data is clear. The free fall of 2008-09 is over, and a gradual improvement is seen across the board. Industrial manufacturing, exports, autos, retail sales, durable goods, travel all confirm that the economy is “healing.”

2. But, the recovery is “Lumpy”: — Part of the reason some people doubt the recovery story is how unevenly distributed the improvements are. Geographically, much of the country is still soft. In retail, it is pent up demand plus luxury goods. In technology, it is mobile devices and consumer products. Financial firms are taking advantage of the steep yield curve and ZIRP to arbitrage profits, as opposed to actually lending. Profits are not evenly distributed either.

3. Government spending is only part of the story: In the midst of the crisis,  Credit froze, the consumer panicked, and business spending looked to be going extinct. Uncle Sam temporarily bridged the gap.

But the argument that government spending is the only game in town overstates the case. Private sector CapEx spending and hiring is improving (albeit slowly); Consumers have come out of their bunkers and are dining out, going to the movies, hitting the malls, and traveling.

We have not returned to the Home ATM days of 2004-07 — and probably won’t in our lifetimes — but the present environment is a massive improvement from the 2008-09 contraction.

4. Weak Improvement in Employment: The massive labor under-utilization is one of the two biggest drags on the economy (RE being the other). Near record low hours worked suggest that employers can simply increase hours rather than make new hires. Thus, I do not look for a V-shaped employment recovery — forget about 400-500k NFP data — anytime soon.

There are 15 million unemployed, and 8 million underemployed — it will take a long time for them to be re-absorbed into the economy. The 2001 recession took 47 months to return employment to pre-recession levels. This recession will likely take 65-75 months to achieve that goal — if not longer.

5. Real Estate (Commercial and Residential): We do not believe that residential real estate has found its natural price level yet. It remains over-valued. This is due to artificially low mortgage rates, foreclosure abatements and mortgage mod programs. We are probably 10-15% over valued, when measured by Median Sales price to median Income, Rent vs Ownership Costs, and Home Value as a Percentage of GDP.

Commercial real estate tends to lag residential by 18-24 months. It is still adapting to the downsizing of America, particularly retail. The over-investment in commercial real estate of the past decade will take at least another 5 years to resolve, if not longer.

6. Deflation? Inflation?:  Well, as my pal Jeff Saut notes, we definitely have “flation.” Just not the type that everyone fears.

As of today, Deflation is a fact, inflation is an opinion. We are still living in a period of falling prices, heavy discounts, wage deflation, asset depreciation and lack of pricing power.  The S&P500 is below levels seen in the 1990s; Wages are flat for a decade.

The risk going forward is that the Fed fails to remove the accommodations in time. But they have Japan as an example of ZIRP with no inflation.  So long as labor under-utilization is near record levels, they can take their time in tightening.

7. The rest of the world: Europe is a disaster, and is likely to remain that way for a while. Asian economies are doing very well, helping to pull the rest of the world along — but China’s market is at 6 month lows, something few people are discussing. The risk in China’s real estate and stock markets has been mostly ignored,. Commodity regions and emerging markets still have strength.

Canadian Water Consumption During Olympics

EPCOR, the water utility company that runs the fountains up in Edmonton, Canada released this graph yesterday. It's water consumption during the Olympic gold medal hockey game, overlaying consumption of the previous day. How much do Canadians love their hockey? A lot.

The first period ends. Time to pee. The second period ends. Time to pee. The third period ends. Time to pee. Consumption goes way down when Canada wins and during the medal ceremony.

Finally, when it's all said and done, the rest of the country can relieve itself, figuratively and literally.

Article/graph  courtesy:

Thursday, April 29, 2010

Major League Baseball: No Rainouts through April 22nd

Hard to believe considering the volitile weather of early spring but so far, no rainouts in Major League Baseball. At least until last Friday.

A mixture of rain, sleet and snow in Denver forced the postponement of the Colorado Rockies’ game against the Florida Marlins.

 Photo: Courtesy:

In the last two decades, at least half the time there was at least one postponement in the first week of the season, STATS LLC found. In 1995, the first rainout came on April 30, but that year started late after the players' strike was settled.

The longest MLB has gone into a season without a rainout was May 20, 1985, when Milwaukee and the Indians were called off at old Cleveland Stadium on the 43rd day of the season.

Wednesday, April 28, 2010

Medical Graduate Numbers

Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the  University of Michigan.  His blog "Carpe Diem" had a great article a few weeks back on the supply of medical graduates over the last few decades.  According to his research, the number hasn't increased as the demand increased in recent years.

This isn't an indictment on the new health care reform legislation but rather a look at the demand for services exceeding the health care system's inability to provide an adequate number of doctors to meet this increased demand.

"The supply of medical school graduates has remained basically flat for the last 30 years (data here). At the same time, the demand for physicians' services has increased over time because of a population that is both increasing and aging. So we've now got more people with more serious end-of-life medical problems demanding more medical care from a limited supply of physicians - and that's a sure prescription for rising MD salaries.

"The marketplace doesn't determine how many doctors the nation has, as it does for engineers, pilots and other professions. The number of doctors is a political decision, heavily influenced by doctors themselves. Congress controls the supply of physicians by how much federal funding it provides for medical residencies — the graduate training required of all doctors."

And we're now going to provide health care to an additional 20-30 million Americans under health care reform when the number of new physicians this year is about the same as the graduating class of 1980?"

Tuesday, April 27, 2010

Hurricane Season and Global Lightning

l Nino is weakening fast in the central Pacific.  As the sea surface temperatures slowly drop into the Summer, the trade winds will relax enough to allow tropical systems to develop much easier than last year.  Neutral conditions will stay steady through Hurricane Season.  Expect this season to be very active.

Back in 2005, Hurricane Katrina and Hurricane Rita ballooned into monster storms in the Gulf of Mexico due to increased water temperatures driven by a current of warm water that travels between Cuba and the Yucatan Peninsula.  This is called The Loop Current.

If a tropical storm develops over this current, it can build and strengthen extremely fast. The loop current could play a pivotal role in hurricane development this season in the gulf and subsequent landfalls.

A snapshot of the Global Lightning over the last 5 days shows activity along the equator heating up.  Notice the widespread lightning over the US during the recent severe weather outbreak last weekend.


Monday, April 26, 2010

Has 2010 Featured More Tornadoes Than Recent Years?

...After an event like the one this past weekend, its easy to say "yes" definitely.

In reality, the short answer is NO.  Not even close.

Here are the tornado numbers through the end of April since 2000:

2000:   309
2001:   206
2002:   168
2003:   221
2004:   186
2005:   236
2006:   460
2007:   410
2008:   549
2009:   383
2010:   153

2010 has been the least active tornado season in at least 10 years.  The tornado trend map below really tells the story.  The "79" at the bottom is this year's tornado number before this weekend's event.

Sunday, April 25, 2010

Tornado Outbreak Kills on Saturday

The largest tornado outbreak this season developed late Friday into Saturday across the south killing 10 in Mississippi.  17 Counties are under a state of emergency in Mississippi as the cleanup begins.  The initial reports estimate the tornado to be one mile wide.

Below is the most recent storm report from the Storm Prediction Center.

 The Storm Prediction Center posted their severe weather outlook which marks the first time this season with a HIGH PROBABILITY of severe weather, something that happens a few times a year.

At its peak, the middle of the country was covered in tornado watches.

The rainfall amounts were extensive.

Tornado watches extended into southern Ohio late Saturday evening.