M.A.D. Sanctions; Two Games at Once
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World View & Market Commentary.
Forest first; Trees second.
Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.
Obama taps GE chairman to chair new White House economic group
Washington (CNN) -- The White House will announce a new economic advisory council on Friday, one that will be headed by Jeffrey Immelt, the CEO and chairman of General Electric.
"Because we still have a long way to go to get Americans back to work and strengthen our economy, the President will announce on Friday that he will sign a new Executive Order creating a new board, the President's Council on Jobs and Competitiveness, which will have a new composition and new mission as we move to a new phase in our economic recovery," a White House statement said.
"The Council will focus on finding new ways to promote growth by investing in American business to encourage hiring, to educate and train our workers to compete globally, and to attract the best jobs and businesses to the United States."
The council replaces the old Economic Recovery Advisory Board that was headed by Former Federal Reserve Chairman Paul Volcker.
"President Obama has asked me to chair his new President's Council on Jobs and Competitiveness," Immelt said in a Washington Post op-ed piece published Friday. "I have served for the past two years on the President's Economic Recovery Advisory Board, and I look forward to leading the next phase of this effort as we transition from recovery to long-term growth.
"The president and I are committed to a candid and full dialogue among business, labor and government to help ensure that the United States has the most competitive and innovative economy in the world," he said.
"Jeff Immelt's experience at GE and his understanding of the vital role the private sector plays in creating jobs and making America competitive makes him up to the challenge of leading this new Council," President Barack Obama said in a statement. "I also want to thank my friend Paul Volcker, whose service not just during this difficult period but for decades has been invaluable to me and the American people."
General Electric posts 31% earnings jump
NEW YORK (CNNMoney) -- General Electric logged higher fourth-quarter earnings and revenue Friday that beat Wall Street's expectations, getting a boost from its finance arm and strong growth in equipment orders.
The Fairfield, Conn.-based conglomerate said its fourth-quarter earnings from continuing operations rose 31% to $3.9 billion. Earnings per share rose to 36 cents per share, up 33% from a year earlier. Analysts polled by Thomson Reuters had forecast a profit of 32 cents per share for the quarter.
Net income, including discontinued operations, was $4.5 billion, up 51% from a year earlier.
The industrial giant said its year-over-year revenue rose 1% to $41.4 billion -- the first positive growth in nine quarters. Analysts expected the company to report a 4% drop in revenue to $39.9 billion.
"GE ended 2010 with three consecutive quarters of strong earnings growth," Chairman and CEO Jeff Immelt said in a prepared statement, highlighting gains in the industrial segment, as well as strength in orders and equipment.
Orders on the rise: Fourth-quarter orders were up across the board. Overall industrial orders jumped 12% year-over-year, with a 20% surge in equipment orders and a 5% increase in service orders. Orders in energy infrastructure grew 4%. Meanwhile, the company's backlog increased by $3.1 billion to a record $175 billion.
"They have been posting solid order growth for a while now, so it's not difficult to see the company continuing to grow because of this," said Daniel Holland, an equity analyst at Morningstar.
The health care sector was another bright spot, with revenue rising 8% and profit jumping 10% in the quarter.
GE (GE, Fortune 500) manufactures products ranging from jet engines and health care technologies to light bulbs and electric cars, so the company is widely viewed as a barometer of the overall health of the economy.
"It was a team effort in terms of the overall story," said Holland. "It seems like the individual businesses are starting to make their way through the recession and are starting to turn around."
Revenue and profit at the company's energy infrastructure was also an encouraging sign, with revenue only slipping slightly and profit inching higher.
"You always want to see growth particularly out of its power generation segment," he said. "That segment is driven by electricity demand across the world, and electricity demand is linked to economic growth and activity -- so we want to see the wheels of the economy continuing to improve."
GE Capital recovering: GE Capital, the company's finance division that was hard-hit during the financial crisis, continued to improve in the fourth quarter. Net income in the unit rose to $1.1 billion from $100 million a year earlier.
"GE Capital is doing better than I think anyone would have expected a couple quarters ago, let alone two years ago when we were in the depths of the recession," said Holland. "Even in its weakest spot -- commercial real estate -- you're seeing losses lessen."
Figures often beguile me, particularly when I have the arranging of them myself; in which case the remark attributed to Disraeli would often apply with justice and force: "There are three kinds of lies: lies, damned lies, and statistics."~Mark Twain, autobiography, 1904
Initial jobless claims swung in the other direction for the January 15 week, dropping an unexpectedly sharp 37,000 to 404,000 from a revised 441,000 the prior week. The latest decline more than offset the prior week's 30,000 boost. With recent weekly volatility, the four-week average likely provides the best insight. The average is down 4,000 to 411,750 and is down more than 14,000 from a month ago in what is good signal for the monthly payroll report.
Continuing claims claims fell for the third week, down 26,000 in data for the January 8 week to 3.861 million. The four-week average is down 53,000 to 4.006 million. The unemployment rate for insured workers is unchanged at 3.1 percent.
I don't know if the U.S. has reached a desperate point, but it is employing instruments and vehicles and policies that smack of desperation. We are not looking at a default here, but at years of accelerating inflation, which basically robs investors and labor of their real wages and earnings. We are looking at a currency that almost certainly will depreciate relative to other, stronger currencies in developing countries that have lower levels of debt and higher growth potential. And, on the short end of the yield curve, we are looking at creditors receiving negative real interest rates for a long, long time. That, in effect, is a default. Ultimately creditors and investors are at the behest of a central bank and policymakers that will rob them of their money.
If you measure the stock market not in dollars but gold, it is down 80% since 1999. I no longer regard the U.S. dollar as a valid unit of account. People shouldn't value their wealth in dollars because one day, in dollars, everyone will be a billionaire.
Goldman's Eileen Rominger to Join S.E.C.
The Securities and Exchange Commission has announced that Eileen Rominger, the global chief investment officer of Goldman Sachs Asset Management, has been named its director of investment management.
Home sales aren't likely to pick up "anytime soon" is the conclusion of the Mortgage Bankers Association whose purchase index remains depressed, down 1.9 percent in the January 14 week to extend a run of weakness. Refinancing is another matter as those who already own a home seek to lock in low rates. The refinance index rose 7.7 percent in the week with the average 30-year rate at 4.77 percent vs 4.78 percent in the prior week. Housing starts will be posted today at 8:00 a.m. ET.
Housing may be gaining forward momentum but adverse weather appears to have delayed groundbreaking. For the latest month, starts declined while permits strengthened. Housing starts in December slipped back 4.3 percent, following a 3.8 percent rebound in November. The December annualized pace of 0.529 million units fell short of the median forecast for 0.550 million units and is down 8.2 percent on a year-ago basis. The reversal in December was led by a 9.0 percent drop in single-family starts, following a 5.8 percent gain the month before. The multifamily component rebounded 17.9 percent after declining 5.0 percent in November.
By region, the December boost in starts was led by a 45.8 percent increase for the West. Declines were seen in the Midwest, down 38.4; the Northeast, down 24.7; and South, down 2.2 percent. The sharp weakness in the Midwest and Northeast indicates that snow storms played a role in damping starts.
Housing permits, in contrast, made a 16.7 percent comeback in December after declining 1.4 percent in November. Overall permits posted at an annualized rate of 0.635 million units and are down 6.8 percent on a year-ago basis. The latest boost was led by the multifamily component which was up a sharp 53.5 percent while single-family permits improved 5.5 percent.
The gain in permits may be a significant positive as it in part reflects optimism of homebuilders. December starts were relatively weak and this likely was due to atypically adverse weather for the month. Permits are much less affected by weather as homebuilders simply fill out paperwork indoors while starts depend on whether bulldozers and workers have good weather to operate. However, the Commerce Department noted that building code changes took effect on January 1 in California, Pennsylvania and New York. In turn, some of the multifamily strength likely is due to construction companies getting approval before the tighter regulations.
Today's report should be seen as a positive despite starts falling short of expectations. The big issue going forward is whether homebuilder optimism is confirmed by gains in home sales. If sales stay flat, starts will ease. But meanwhile, homebuilders have reason to be cautious and the boost in permits should be seen in that context. Optimism is up but more toward multifamily than single-family.
Biggest Builders to Gain Market Share as Demand Rises
Jan. 19 (Bloomberg) -- The biggest U.S. homebuilders are poised to benefit from a fledgling rebound in demand for new houses this year, with competitors having gone out of business during the recession and sales likely to climb from record lows.
D.R. Horton Inc., Lennar Corp. and Toll Brothers Inc. are among companies planning to boost their community counts by at least 10 percent this year after writing down property values, buying land at discounted prices and obtaining financing unavailable to smaller, closely held builders.
“It’s a definite bull tenet for the big builders,” said Ivy Zelman, chief executive officer of Cleveland-based advisory firm Zelman & Associates, who rated all homebuilders “sell” in December 2006 and now has “buy” on five of the 13 she covers. “That’s one of the reasons we’re recommending investors be long a handful of homebuilding stocks.”
The National Association of Home Builders expects new single-family home sales to rise to 405,000 this year, while Moody’s Analytics Inc. projects an increase to 540,000. The annual pace of sales averaged 319,640 for the 11 months through November, down 15 percent from a year earlier, according to Commerce Department data.
Manufacturing activity is accelerating in the New York region this month according to the Empire State general business conditions index which rose more than two points to 11.92, a reading well over the breakeven zero level and slightly above December's revised growth of 9.89. New orders show significant acceleration to 12.39 vs December's 2.03 and vs November's steep contraction of minus 23.80. Shipments, which follow new orders, accelerated to 25.39 from 7.16 in December and from minus 5.27 in November.
The gains however are far from straining the supply chain, a factor that points to limited gains ahead for employment. Unfilled orders extended their long run of contraction while deliveries continue to speed up, not slow down. Inventories, at plus 4.21, show a build this month but follow a run of draws.
Employment did rise in the month, to 8.42, but the slack in unfilled orders and lack of pressure in deliveries suggest that existing capacity is sufficient to meet production needs. Still this report, especially the new orders index, is positive for the outlook hinting at an incremental gain for the nation's manufacturing sector during January. The Philly Fed will release its manufacturing report for the Mid-Atlantic region on Thursday.
National debt: The ugly facts
NEW YORK -- Commentary: Maya MacGuineas is the director of the fiscal policy program at the New America Foundation.
The facts are ugly. The federal debt, which has averaged less than 40% of the total economy, now represents more than 60%. It's likely to hit 100% in a little oYou want more? Here's more.
Pretty much every impartial analyst has declared the situation unsustainable. And many European countries have already been hit by nervous credit markets worried about their debt levels.
Bottom line: If Congress and the president fail to make changes to current policies, the United States will experience some form of a fiscal crisis.
Not a pretty picture. And yet policymakers continue to drag their feet.
When it comes to fiscal policy, the political system is stuck in posturing mode.
Sorry, the abominable $858 billion tax deal President Obama struck with Republicans last month, in which both sides piled on more to the public debt and called it a win-win, does not qualify as my kind of fiscal compromise.
Geithner's debt ceiling warning
It's time for real compromise.
As long as each political party sees an advantage to delaying, we will continue to inch along, closer and closer to that inevitable crisis.
Last week, both Moody's and Standard and Poor's commented on the need for the United States to make changes or jeopardize its triple-A credit rating. A few years back, such warnings would have seemed inconceivable.
The gridlock comes in part from both sides believing they are right.
Republicans view smaller government as promoting more individual freedoms and as better for the economy because it allows for lower taxes. Fair enough.
Democrats see government as serving a more useful purpose -- one that is particularly justified because of the needs of an aging population, years of under investment and growing income inequality. Also legit.
On top of that, both sides blame the other for having made the problem worse for political reasons. Unfortunately, both are right.