Greenspan needs glasses, employment data surprise consensus economists, stocks tank

[EJ]

Greenspan needs glasses, employment data surprise consensus economists, stocks tank

Greenspan says market turbulence similar to prior crises
Sep 7, 2007 (AFP)

Former Federal Reserve chairman Alan Greenspan compares the current financial market turbulence to prior crises that have engulfed stock markets and the US

Greenspan, who stepped down as Fed chairman in January 2006, compared the present turmoil to prior crises triggered by hedge fund collapses, excessive land speculation and a bank panic, according to remarks in the Wall Street Journal on Friday.

"The behavior in what we are observing in the last seven weeks is identical in many respects to what we saw in 1998, what we saw in the stock market crash of 1987, I suspect what we saw in the land boom collapse of 1837 and certainly (the bank panic of) 1907," Greenspan said late Thursday, according to the online report.

AntiSpin: No it isn't. Can't speak for 1907 but global imbalances and asset bubbles are far more extreme now than in 1998, due to the hangover from the reflation policies that followed the collapse of the 1990s asset bubbles.

Nor is the environment going into the post 2001 - 2007 asset bubbles period as benign as in 2001 when the last reflation program started.

From my presentation in Vegas on Monday, the table below shows that preconditions could not be less attractive for a standard post-bubble reflation program of rate cuts, currency depreciation, and deficit spending.

As for today's unemployment data, four out of five economists expected job growth. Today's Wall Street Journal reads:

Jobs Report Could Sport Improved Payroll Growth
September 7, 2007 (WSJ)

Economists generally expect the unemployment rate to remain at 4.6% for August. Nonfarm payroll growth is seen at 112,000 -- stronger than July's 92,000, which reflected a drop in government jobs.

The Myth of the Slow Crash posits that this drop in payroll employment was due, as the national employment picture changed significantly in the space of a single month, in August 2007, as credit suddenly tightened.

In any case, payroll employment is not much of a leading indicator. Without giving away too many secrets, a key data element used in our year 2000 prediction of the last recession in Q2 2001 were the Duration of Unemployment numbers.

Do you see what we see?

Recession Q4 2007 remains in place, rate cuts or not.

If gold was still hanging around $650 when I did my keynote at the Las Vegas Hard Assets conference Monday, how'd I look? Figured I'd better goose up the price before the conference.

Seriously, the breakout is likely a bet that the ECB rate hike hold announcement yesterday presages a Fed cut Sept. 18, despite high inflation expectations. Gold may fall on the fact of a cut.

See you in Vegas!

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[FRED]

Re: Greenspan needs glasses, employment data surprise consensus economists, stocks ta

FYI, duration of unemployment trends down during recoveries as new jobs are created and it takes the average person less time to find a job. It trends up going into a recession because the time required to find a job increases. This happens three to six months before companies take the more drastic step of laying people off, which later shows up as layoffs and increases in unemployment insurance filings. It also shows up later as falling payroll employment, as we saw today.

[necron99]

Sequence of Bubbles

Political blog "The Poor Man" has an amusing write-up on a longstanding iTulip theme -- how one bubble follows the next:

http://www.thepoorman.net/2007/09/07...trophe-bubble/

Hey, look... The Poor Man even snuck in a reference to the iTulip theory about Jocks and Geeks. Let's see if the HTML will come through if I copy-paste it. All of the following comes from The Poor Man Blog:

THE CATASTROPHE BUBBLE

The people on Wall Street who specialize in cat bonds now view Katrina as the single most important thing that ever happened to their business: overnight it went from a tiny backwater to a $14 billion market, and it is now stretching and straining to grow. In March of this year, a single insurer, Allstate, announced its intention to sell $4 billion in catastrophe bonds. A $14 billion market is a trivial sum next to the half-trillion or so dollars that the insurance industry stands to lose from megacatastrophes and next to the additional trillions of dollars worth of property that has gone uninsured in the places most likely to be destroyed by nature, like California, because the insurance is so expensive. But there are all around John Seo signs of a shift in the culture of catastrophe. “It has all the features of providential action,” he says. “It’s like all the actions of man and nature serve to grow the cat-bond market.”

Cat bonds, that is, Catastrophe bonds. Market driven re-insurance, insulating big insurance companies from having to price the risk of extremely unlikely events, like Hurricane Katrina, or the destruction of West Hollywood by fire, or the destruction of Miami, or Hilton Head Island: many billions of dollars of coastal real-estate is going to be destroyed sooner or later, and insurers are understandably skittish about betting on a sure loser. But look! O providence! Clever Wall Street geeks have figured out a way to pass that risk onto financial markets, just as — and this is handy — just as the housing bubble collapses, and mortgage securities don’t look like quite the sure thing they used to. Let a million gleaming coastal palaces bloom, baby! We’re off and running!


Yeah. Want to see something neat? Let me just re-jigger that last paragraph a bit:


Cat bonds Tranches, that is, Catastrophe bonds mortgage securities. Market driven re-insurance debt management, insulating insurers lenders from having to price the risk of extremely unlikely events, like Hurricane Katrina, or the destruction of West Hollywood by fire, or the destruction of Miami, or Hilton Head Island a nationwide drop in housing prices: many billions of dollars of coastal real-estate is going to be destroyed sooner or later just sitting there without houses on it, and insurers lenders are understandably skittish about betting on a sure loser people with no income. But look! O providence! Clever Wall Street geeks have figured out a way to pass that risk onto financial markets, just as — and this is handy — just as the housing internet bubble collapses, and mortgage securities dot-coms don’t look like quite the sure thing they used to.


Neat, huh? It’s like a fractal.


Now, defenders of cat bonds would say that this comparison isn’t fair; cat bond sellers know perfectly well that these events will happen, and the bonds are set up such that the risk of a catastrophe bankrupting too many bondholders at once (thus keeeping them from performing the reinsurance function they were meant to, thus bankrupting insurers, thus leaving insurees high and, uh, wet) is minimal. The only way that could happen, you see, is if something like a hundred year flood were to happen much more often than that. The only way cat bonds could be a bad deal, that is, would be if certain kind of natural disasters were to become more commonplace, or more severe.


Oh, well that’s no problem, then.

[zoog]

Re: Sequence of Bubbles

The people on Wall Street who specialize in cat bonds now view Katrina as the single most important thing that ever happened to their business...

When I got this far, I really thought Wall Street had created bonds based on cats. As in meow. We have reached the point in this careening financial economy where the idea that someone might be investing in domestic pets does not seem immediately absurd.

[Guest]

Re: Greenspan needs glasses, employment data surprise consensus economists, stocks ta

EJ wrote:

<< Seriously, the breakout (gold price) is likely a bet that the ECB rate hike hold announcement yesterday presages a Fed cut Sept. 18, despite high inflation expectations. Gold may fall on the fact of a cut. >>

Gold may also be benefiting from a significant bid from global markets which are a somewhat less directly involved in US rate moves anticipation?

When it's rising in currencies as diverse as Gulf States, Rupees, BRIC nation currencies, Yen, Euro, to all South American and SE Asian currencies, there may be some significant component acting fairly independently of US FED rate moves?

Just a thought - for those of us trying to gauge how defensively we should regard the present upwsing as a selling versus "sit tight" opportunity or cue.

[GRG55]

Re: Sequence of Bubbles

When I got this far, I really thought Wall Street had created bonds based on cats. As in meow. We have reached the point in this careening financial economy where the idea that someone might be investing in domestic pets does not seem immediately absurd.

Naaaaa. The bonds would have been floated by the cat food companies in Peoria and St. Louis.

THEN Wall St. would have swapped the fixed rate for 3-year maturity inverse floaters with no cap. Those would then have been packaged and sliced into CAT (Certified As Toxic) derivatives, and marketed to line the litterboxes of unsuspecting Landesbanks. And then it would be time for lunch...

[Guest]

Re: Sequence of Bubbles

Naaaaa. The bonds would have been floated by the cat food companies in Peoria and St. Louis.

THEN Wall St. would have swapped the fixed rate for 3-year maturity inverse floaters with no cap. Those would then have been packaged and sliced into CAT (Certified As Toxic) derivatives, and marketed to line the litterboxes of unsuspecting Landesbanks. And then it would be time for lunch...

Eh? Come again?

[bart]

Re: Greenspan needs glasses, employment data surprise consensus economists, stocks ta

FYI, duration of unemployment trends down during recoveries as new jobs are created and it takes the average person less time to find a job. It trends up going into a recession because the time required to find a job increases. This happens three to six months before companies take the more drastic step of laying people off, which later shows up as layoffs and increases in unemployment insurance filings. It also shows up later as falling payroll employment, as we saw today.

Temp employment stats also are a harbinger of things to come as this nice chart from Contrary Investor shows:

[bart]

Re: Sequence of Bubbles

When I got this far, I really thought Wall Street had created bonds based on cats. As in meow. We have reached the point in this careening financial economy where the idea that someone might be investing in domestic pets does not seem immediately absurd.

And on a more serious (and doofus) note, there's hardly any derivatives represented in pension funds or mutual funds... what are the scum on Wall St. waiting for? :eek: :rolleyes: :eek: :rolleyes: :mad:

(extreme cynic mode off)

[jk]

Re: Sequence of Bubbles

And on a more serious (and doofus) note, there's hardly any derivatives represented in pension funds or mutual funds... what are the scum on Wall St. waiting for? :eek: :rolleyes: :eek: :rolleyes: :mad:

(extreme cynic mode off)

i thought i read a`while back about calpers and other big pension funds holding a mess of cdo's.

[bart]

Re: Sequence of Bubbles

i thought i read a`while back about calpers and other big pension funds holding a mess of cdo's.

True, but the average is under 5% of the entire portfolios of all pension and mutual funds... if memory serves... and if it wasn't a too real nightmare.

[jk]

Re: Sequence of Bubbles

True, but the average is under 5% of the entire portfolios of all pension and mutual funds... if memory serves... and if it wasn't a too real nightmare.

so would you agree with greenspan that these derivatives succeeded in dispersing and thus reducing the risk? i.e. if calpers takes a 5% haircut it isn't the end of the world, and there is no systemic risk from such an event.

[bart]

Re: Sequence of Bubbles

so would you agree with greenspan that these derivatives succeeded in dispersing and thus reducing the risk? i.e. if calpers takes a 5% haircut it isn't the end of the world, and there is no systemic risk from such an event.

No, not all all.
Its **extremely** surprising that you'd even think that.

Please check or recheck the context in which I mentioned derivatives and funds.

[GRG55]

Re: Sequence of Bubbles

Eh? Come again?

Just having a cynical poke at the worthies on Wall St.

Given the excesses of these alchemists has now driven the financial system to the brink, zoog's thought that they might be creating feline based credit structures (what's left that they haven't touched?) seems perfectly plausible. Surely you would agree?

[jk]

Re: Sequence of Bubbles

No, not all all.
Its **extremely** surprising that you'd even think that.

sorry i left out the ":rolleyes:". i thought it was amusing that what you were saying could be twisted to look like agreement with greenspan's notorious and foolish assertion.