Alan Greenspan is expecting mediocre GDP in 4Q, says housing and investment must recover to fix it

Quoted here at Bloomberg:

Greenspan said the economy won’t fully recover until American companies invest more in productive assets and the housing market bounces back.

“Almost all of the weakness in the last four, five, six years has been in long-lived investments” in capital goods and real estate, Greenspan said. “Until these pick up, we’re not going to get the kind of vibrant growth that everyone is hoping for.”

Greenspan, who retired from the Fed’s helm in January 2006, said he expects growth to dip below a 3 percent annual rate in the fourth quarter of this year. His forecast is in line with the estimate of 2.5 percent in a Bloomberg survey of economists.

Norway whacks GDP projection by over 50% amidst plunging oil prices

Seen here:

According to Statistics Norway, lower investment in the oil sector, Norway's primary growth engine, will likely slow the country's overall GDP growth to 1% next year from 2.1% anticipated in September.

The Conservative-led government has not proposed modifications to the current tax levels imposed on the oil and gas sector, where an additional 51 percent income tax rate applies to make the effective rate 78 percent.

Instead, in order to compensate for declining oil revenues, the current right-wing government, made up of the Conservative and Progress parties, has proposed tax reform measures that would significantly alter the distribution of Norway's tax revenues. 

The measure, that would see the tax burden moved from corporate and personal income toward taxes on consumption and property, has been criticized by left-leaning opposition parties.

Dr. Copper has been trading below $3 since before Thanksgiving

Except for a brief ten day period in March, copper hasn't been this low this long since the stock market low in 2009. Combined with oil falling out of bed, the prospects for improving GDP look dim.

If Obama had wanted to "rescue" the economy in 2009, he should have ramped-up the wars as he's doing now

If Obama had really wanted to rescue the economy in 2009, he would have ramped up dramatically the wars in Iraq and Afghanistan instead of putting them on the path to euthanasia. In this sense he was a very bad Keynesian who made FDR spin in his grave.

Of course, that assumes he is smart enough to understand Keynesianism, being raised as a doctrinaire Marxist who was content to bask lazily in the glow of his presidential victory while a bunch of Clinton re-treads did their mediocre best for him . . . recreating HillaryCare. A more sinister interpretation believes that the inattention to the economy was all on purpose, since suppressing the middle class is the main objective of revolutionary leftism faced with successful capitalism almost everywhere. Still others simply chalk it up to Obama's incompetence, just another example of the Affirmative Action Presidency at work.

But I digress.

The simple reason for the need to have ramped up the wars back in 2009 is that the radical stimulus spending called for by the likes of Paul Krugman (3x what Obama ended up spending), who ridiculed the smallness of Obama's stimulus spending plan in The New York Times here, cannot be accomplished quickly through any other department of the federal government except through what we used to call more accurately The War Department. 'There are only a limited number of “shovel-ready” public investment projects — that is, projects that can be started quickly enough to help the economy in the near term,' Krugman wrote at the time.

That's for sure.

Proof of this can now be seen in the GDP numbers in just the last year when ISIS all of a sudden became a threat on the administration's radar screen even though ISIS had been building in the open for years and the administration actually had been warned about it and knew about it.

Federal government consumption had been a net negative subtraction from GDP for each of the last three years, 2011-2013, totaling -0.28 points of GDP for each year on average, and 75% of that came on average from cutting spending on National Defense.

All of that changed on a dime in 3Q2014 when ISIS surged into Iraq. Consumption on national defense suddenly vaulted to +0.69 points of GDP from +0.12 points in 1Q and -0.07 points in 2Q, to the point where defense spending now represents fully 97% of the federal contribution to GDP in the third quarter of 2014, and over 13% of GDP overall. All the current big contributors to GDP come in lower than this except for exports, with which defense spending is tied. 

Only the military can spend large sums of government money quickly in this slow-moving, inertia-plagued bureaucratic state. Future presidents, take note: War is still the father of everything.

Merry Christmas: The world is experiencing the benefits of Western liberty like never before

The Nativity at Night c. 1490

Freedom from want, loneliness, ignorance, danger, disease, discomfort and drudgery.

From Richard Rahn:

As we go into this Christmas week, you should count your blessings that you live in 2014. ...

People in the world live far better today than they did a mere half-century ago. World per-capita gross domestic product is now a little more than $14,000 per year, a little less than where the United States was in 1960 or where the Japanese and United Kingdom were in the mid-1970s (inflation adjusted). In October, the World Bank reported that those living in extreme poverty fell from 36 percent in 1990 to 15 percent in 2011. ...

Read the whole thing, here.

Zero Hedge gets ObamaCare spending all wrong, again

The latest screed is here, claiming that healthcare spending is "the reason" behind the surge in Q3 GDP.

From the BEA here, healthcare spending contributed 0.52 points (line 17) to 5.0 GDP, about 10.4% of the total.

Zero Hedge wants to leave the impression there was no single bigger contributor to GDP, which isn't the case at all:

Equipment contributed 0.63 (line 30)

Durable goods 0.67 (line 4)

Pure consumption from defense spending 0.69 (line 55)

Export of goods 0.69 (line 47).

More importantly, it's not like we haven't spent 0.52 points of GDP on healthcare before.

We spent 0.51 in 4Q2011, 0.70 in 1Q2012, 0.48 in 4Q2013, and 0.45 in 2Q2014.

That last one is really important. It's the third estimate final figure of healthcare spending for the immediately preceding quarter, which can now be compared to the third estimate final figure for this one. The difference? Just 0.07 points, for an increase in healthcare spending of 15.5% on an annualized basis from 2Q to 3Q. As I've said, we've seen such increases before, quite apart from any new developments over ObamaCare.

The proper comparison, notably, is with 2Q, not with the previous estimate of healthcare's contribution to GDP for the current quarter, which, like everything else, was admittedly incomplete in the BEA's own words, as is always the case with the estimates before the third and final report.

And what that shows, last of all, is that GDP hasn't "surged" at all between 2Q and 3Q. The only thing which surged is the final revision based on the more complete data. The quarterly measure of GDP is up a very modest 0.40 points, from 4.6 to 5.0, or about 8.7% on the annualized basis. Healthcare's share of that increase to GDP is just 17.5%. 82.5% comes from other categories.

The worrisome thing is all kinds of people read and sometimes quote Zero Hedge: Rush Limbaugh, John Hussmann and Bill Gross come to mind. And Real Clear Markets often links to it, which is how I saw it.

Zero Hedge is embarrassing to read, kind of like pornography.

To date current dollar GDP under Obama is running 9.6% behind Bush every year

Bush nominal GDP increased 43% over his term. To date nominal GDP under Obama is up less than 20%.

Bush nominal GDP rose $4.4338 trillion from the end of 2000 to the end of 2008, from $10.2848 trillion to $14.7186 trillion. That comes to $554.225 billion per year for eight years.

Obama nominal GDP has risen to date $2.8812 trillion from the end of 2008 to the end of 3Q2014, from $14.7186 trillion to $17.5998 trillion to date. That comes to $501.078 billion per year for 5.75 years.

The $53.147 billion difference amounts to a difference of 9.59% on average per year to date.

Total market cap to 3Q2014 GDP ratio falls slightly on third revision . . .

. . . to 1.415 from 1.419.

The ratio was 0.74 at the end of 2008, indicating that the stock market was 91.2% more expensive at the end of September 2014 than it was at the end of 2008.

At rich valuations the return from stocks over the subsequent long haul is surprisingly small. From the peak in August 2000 to now the average nominal return from the S&P500 has been just 4.22% per annum, with dividends fully reinvested. From the peak in October 2007 to now the average nominal return has been 6.35% per annum.

The great bull market from July 1982 to August 2000 produced an average annual return of 18.99%. 

Third and final revision of 3Q2014 GDP surges to 5.0% on personal consumption and investment revisions

Personal consumption added 2.21 points to today's revision of 3Q2014 GDP at 5.0% while government consumption added 0.80 points. TOGETHER they represent 60% of the total, which again gives the lie to the meme that 70% of the economy is still consumer spending.

Not any more. Frugality is still operative in this economy when only 44% of it is from the consumer side. Keep in mind that that's a one month IMPROVEMENT in the BEA's assessment of the contribution of personal consumption by 46%.

Hm. The difference a month can make.

In the second report a month ago personal consumption had added just 1.51 points, and government consumption 0.76. Personal consumption had been averaging just 1.48 points in contribution in 2011, 2012 and 2013. Government consumption had been averaging -0.45, actually adding a SUBTRACTION to GDP over the same period. The positive contribution from government spending now, however, is nearly 83% defense spending . . . the war on ISIS.

More war, more GDP.

Gross private domestic investment added 1.18 points in today's revision, but only 0.85 in the second. The three year average had been 0.94. The 39% improvement in the estimation for this category is a very healthy and welcome sign for the economy.

Net exports added 0.78 in today's report, unchanged from the second, but way up from the prior period average contribution of just 0.08 points.

Refined petroleum exports, up 3.7% on average in 2014 year to date over the 2013 average. It's a good thing.

Ambrose Evans-Pritchard says Britain's George Osborne is full of fiscal baloney

George Osborne is in today's Wall Street Journal here, bragging about Britain's fiscal discipline, among other things:

"In the U.K., faced four years ago with a record budget deficit of over 10%, we set out a clear deficit-reduction plan and steadily implemented it. The challenging spending totals I set out for the British government have been consistently achieved year after year."

Ambrose Evans-Pritchard has heard it all before, and says baloney, here:

On the fiscal front, Britain has a deficit of 5pc of GDP a full five years into the economic recovery, when growth is running at 3pc and should be generating a windfall of tax revenue. This is prima facie evidence of a chronic reliance on state borrowing to perpetuate a consumption model.

The deficit is 4.4pc in France, 1.5pc in Italy and 0.2pc in Germany. The US deficit - once similar to ours - has dropped to 2.8pc of GDP on a quarterly basis. Britain sticks out like a sore thumb. ... 

For all the superficial likeness, the Anglo-Saxon growth stories in Britain and America have nothing in common. The US has cut its current account deficit from 6pc to 1.9pc of GDP. It is on track to achieve energy independence by 2018, igniting a revival of its chemical, plastics, glass and steel industries along the way. Luck has played its part but one recovery is durable, the other is literally on borrowed time.

---------------------------------------------------

Methinks Ambrose overestimates US GDP in his analysis to arrive at his rosy 2.8% deficit, and is too sanguine about the future of Republican spending restraint now that Cromnibus has passed, but you get the idea . . . Politicians spinning tales.

Stupid things heard on the Steve Gruber Show radio program last week

Both the AM drive-time host, Steve Gruber, a libertarian for whom every opponent is taken as a challenge to his manhood, and his weekly punching bag guest, Liberal Lee, last Tuesday agreed that the middle class in America is basically . . .  intact!

Which just proves that ideologues are impervious to the destruction which has been all around them and that libertarians and liberals drink from the same cup. Both camps are too heavily invested in the political gangs they support to say otherwise, for if the one did it would mean George Bush and Alan Greenspan would have to be blamed, and if the other, Barack Obama, Larry Summers and the rest of the Clinton re-treads which steered the economy through the latest depression to give you . . . nearly $90 billion in costs for over 500 failed banks, over 5 million homes lost to foreclosure, full-time jobs still 4 million below the 2007 peak seven years ago, ObamaCare's lies, higher costs, poorer coverage and limited networks, the deaths of Americans at Benghazi, IRS targeting of conservatives, the most imperial presidency in our history, 30 million prime working age people not working, a lawless executive, and 1.8% GDP, the worst in the post-war.

For his part, Gruber basically gave over a segment on his show every week this fall to the reelection campaign of Congressman Tim Walberg, a conventional Republican who normally votes with the majority of his caucus, but who did vote against making the Bush tax cuts permanent for the vast majority of Americans. Walberg notably just rewarded his radio benefactor who opposed Cromnibus with a vote for it, in keeping with his past voting record for sweeping spending bills which avoid the traditional appropriations process in order to take the politics out of spending the people's money. Hey, thanks Gruber.

The Steve Gruber Show is unfortunately heard on many small market radio stations during morning drive throughout Michigan, which through August 2014 was the top state for completed foreclosures among non-judicial states for the prior twelve month period. But the show's best rank is only #3 in the Lansing market according to dar.fm, and #31 in the mornings overall, here. The best thing that can be said for it is that the stations it is on are typically low-power, like its commentary. 

Obama's war on growth: Per capita measure shows GDP didn't recover to 2007 level until 3Q2013

So says Ironman, here:

"Going by this measure we see that it wasn't until the third quarter of 2013 that the U.S. economy really recovered to its pre-recession level. And then, it has only been since the second quarter of 2014 that it has grown beyond that level.

"The interesting thing is that tracking the GDP per capita measure this way would more closely match the perceptions of the American people regarding the overall health of the U.S. economy. Say as measured by the University of Michigan's Consumer Sentiment Index, which returned to its prerecession levels just a few months ahead of real GDP per capita.

"Contrary to what at least one particular economist [Jonathan Gruber] and his fellow travelers [Bill Maher/Kathleen Sebelius] might think about their cognitive abilities and financial literacy, regular Americans would seem to be pretty capable of collectively assessing the real condition of the U.S. economy."

-------------------------------------------------------------------------------------------

Yes, self-perceptions matter.

Coincident with the extraordinarily long 6 year wait for the real economy to recover, the self-identification of the American people by lower class in January 2014 has swelled by 50 million since 2008, according to the results of a regular Pew survey, showing just how many people have died on the vine of a militant, leftist Obama administration and Democrat Party bent on destroying the middle class.

When the New York Times suddenly tells you after the election that 30 million prime-working-age Americans 25-54 aren't working, you know that where there's smoke, there's fire. With fewer than 5 million job openings in the country for those 30 million, legalizing 11 million illegal aliens isn't just an act of charity toward some, but a declaration of war against all.

Barack Obama has been burning down the house, one family at a time.

How massive government debt remains the biggest impediment to growth

Nominal GDP increased $604.9 billion dollars in 2013. The interest payment on the debt for fiscal 2013 was $415.7 billion, consuming almost 69% of GDP.

So far in 2014 nominal GDP is up $787.1 billion. The interest payment on the debt for fiscal 2014 just ended on September 30th was $430.8 billion, consuming almost 55% of GDP to date. At least that trend is in the right direction.

Interest payments on government bonds do not count as government spending in the category of consumption expenditures because they are not related to production as they are in business.

Interest expense has exceeded $400 billion in seven out of the last nine fiscal years.

The national debt stood at $17.824 trillion on September 30, 2014. The fiscal year interest expense of $430.8 billion therefore represents an interest rate on the debt of 2.42%. The 10-year Treasury currently pays 2.31%.

Now you may understand the Federal Reserve's Zero Interest Rate Policy, and its never-ending message to Congress pleading for fiscal restraint. Interest rates cannot be repressed forever without social unrest. Democrats need reminding that such restraint involves spending, while Republicans need reminding that it involves both spending restraint and necessary taxation. They could make a start by recognizing that income inequality begins by treating some money more equally than other money.

It's a waste of time asking Democrats for prudent anything, which is why Republicans now run the show again. We'll see if the Republicans got the message this time. As always, past performance is not a guarantee of future returns.

NY Times laments "tax uncertainty" over breaks which expired almost a year ago

As seen at Amazon

This is like lamenting that the Bush tax cuts became permanent two years ago. The only uncertainty is for liberals who still hope to repeal them. When pigs fly.

Here:

"Absent congressional action, a host of business and personal tax breaks expires on Jan. 1. ...

"Negotiators have all but given up culling the government’s growing list of temporary tax measures, making some permanent and jettisoning the most egregious tax giveaways. Instead, the House will vote Wednesday on a measure to restore almost all the tax breaks that expired last year for one year retroactively. That would allow taxpayers to claim them on their 2014 tax returns while forcing Congress to grapple with the issue again early next year."

----------------------------------------------------------------------

Ahem. There's nothing temporary about a tax break which was allowed to expire many months ago. If you've been counting on getting any expired tax break back, you deserve to be disappointed. If Congress decides to reinstate any of them before the end of the year, you've received a gift.

And while we're at it, the New York Times isn't very helpful about telling you what expired. Here's a list:

Health Coverage Tax Credit

Deduction for Charitable Donations from IRAs

Educator Expense Deduction

Nonbusiness Energy Property Credit

Tuition and Fees Deduction.

But the real whopper of this story is that we're supposed to believe that

"Uncertainty alone raised corporate bond prices, lowered growth by 0.3 percentage points a year and raised unemployment last year by 0.6 percentage points."

Investors in popular corporate bond index funds know the first statement completely misrepresents history. Net asset values of intermediates and shorts fell dramatically in the summer of 2013 after Ben Bernanke's ill-timed remarks. That prices have recovered since then masks the fact that prices today are still almost 3% lower for intermediates than they were when the Bush tax cuts became permanent at the beginning of 2013, and a half percent lower for shorts.

As for lowering growth, how anyone is supposed to believe that is beyond me. Government revenues have SOARED to record heights in fiscal 2013 as a result of permanency in the tax code, allowing a positive contribution to GDP from government consumption expenditures for the first time in four years. The 3Q2014 contribution was 0.76, most of that military spending on the war against ISIS, and the 2014 average to date is 0.31. The average contribution from government spending for 2011, 2012 and 2013? -0.45, a subtraction from growth.

Meanwhile unemployment has been falling, mostly as a result of not counting over 6 million unemployed Americans who have given up on finding a job. Adding them back in would take unemployment up from 5.8% to 9.6%, and the New York Times thinks it can detect a 0.6 point contribution from "uncertainty". We should be so lucky.

Birth rate in 2013 reaches new all time low under Obama

The birth rate per 1000 women in 2006 and 2007 had been 14.3, but in 2011 it fell to 12.7 and then to 12.6 in 2012.

Things have gotten even worse in 2013: the birth rate per 1000 women is now barely 12.4, a new record low.

In the late 1950s the birth rate per 1000 women exceeded 25.0, and fell through the sexual revolution of the 1960s and 1970s, stabilizing in the range of 15 for many years thereafter.

View the recent CDC reports here and here.

No babies, no GDP.

Average GDP report under Obama after 23 quarters

1.8%

With 9 quarters to go, Obama will have to have an astounding economic performance going forward to overcome the 2.1% average report of the George W. Bush presidency.

Total market cap/3QGDP2014 2nd estimate = 1.419

The ratio is effectively unchanged since the first estimate of third quarter GDP, falling from 1.421 to 1.419.

$24.9126 trillion market cap on 9/30/14 divided by $17.5552 trillion current dollar GDP = 1.419.

The ratio soared to 1.715 at the end of 1999, was .912 at the end of 2002 and fell to .740 at the end of 2008.

The market remains very expensive.

3Q2014 GDP revised up to 3.9% on surge in net exports (refined petroleum) and government spending (war on ISIS)

Today's second estimate of 3Q2014 real GDP surprised to the upside, rising to 3.9% from 3.5%. Consensus estimates had GDP declining to 3.3%.

Personal Consumption Expenditures contributed 1.51 points, hardly much above the average contribution for the three years 2011-2013 at 1.48. The people are spending about the same.

Likewise the contribution from Gross Private Domestic Investment was only slightly below average at .85 points. During the prior three years this had contributed to GDP annually on average just .94 points. So you could say investment activity is steady to declining.

No, the major contributions to GDP came from the huge reversals in net exports and government consumption expenditures. The former has contributed on average just .08 points annually 2011-2013, the latter -.45 annually. That's right, the net export category has been entirely inconsequential to GDP for the last three years, and that in a heretofore moribund dollar environment, while government spending has actually been a subtraction from annual GDP because the GOP takeover of the US House in 2010 arrested spending in its tracks.

But in today's report net exports contributed .78 points and government spending .76 points as  1) refined petroleum exports from the US shale boom help to pressure oil prices lower, making imported oil cheaper (imports thus are less of a subtraction from GDP at the same time), and as 2) the war on ISIS in Iraq and Syria ramps up military spending. Without those contributions to GDP and the other things being equal, growth was more like 2.36%.

Same old same old, except the dollar hit a 52 week high yesterday at 88.44. How long exports can help us in this rising dollar environment is anyone's guess, as is the tolerance of the American people for more spending on yet another foreign war.

Told ya: Exports decline 1.5% in September, imports at record levels, signaling GDP of 3.5% will be revised lower

And to think just five days ago our masters of deception had no idea this was coming. As usual, this was unexpected.

Reported here:

The U.S. trade deficit unexpectedly widened in September as exports hit a five-month low, suggesting slowing global demand could undercut economic growth in the final three months of the year. ...

September's shortfall in the overall trade balance is bigger than the $38.1 billion deficit that the government had assumed in its advance gross domestic product (GDP) estimate for the third quarter published last week. This suggests the 3.5 percent annual growth pace it estimated will probably be trimmed when the government publishes its revisions later this month. Trade was reported to have contributed 1.32 percentage points to GDP growth. Exports in September fell 1.5 percent to $195.59 billion, the lowest since April, a sign that weakening demand in key markets such as China and the euro zone was starting to weigh. ...

Apart from slowing global demand, export growth is seen crimped by a strong dollar, which has so far this year strengthened by about 4 percent against the currencies of the country's main trading partners. ...

Consumer goods imports, however, were the highest on record, as were non-petroleum imports. Imports from China also hit an all-time high, leaving the politically sensitive trade gap at $35.6 billion, the highest on record. Imports from Canada were the highest since July 2008.

Why this stock market may have another 20% left in it

Simply stated, the market has another 20% in it because it hasn't yet reached the extremes of valuation which we witnessed in 1999. That's not to say that it must reach those extremes, but it is possible.

At that time, total market cap to GDP came to 1.72, using the Wilshire 5000 as a proxy for the total market (times 1.2).

Since current dollar GDP is $17.5354 trillion, the current ratio is only 1.42, but the level of the Wilshire 5000 implied by a ratio of 1.72 would be about 20% higher than where it is today (total market cap of $30.1609 trillion or Wilshire 5000 25,134.07).

The Wilshire 5000 starts the day at 21,005.50.

Good luck!