Buck For President
“If I am to speak for ten minutes, I need a week for preparation; if fifteen minutes, three days; if half an hour, two days; if an hour, I am ready now” – Woodrow Wilson
President Wilson didn’t say what would happen if he spoke for one hour and nineteen minutes besides, as President Obama did last night, but I am pretty sure that (following the curve) it would have risked a tear in the space-time continuum, with the preparation happening after the speech itself. And perhaps Wilson was on to something, because the President did ad-lib some lines very tellingly. My favorite was when he was explaining why the “spending freeze” won’t take effect until 2011, rather than this year, and said “I know that some in my own party will argue that we cannot address the deficit or freeze government spending when so many are still hurting. I agree, which is why this freeze will not take effect until next year, when the economy is stronger.” After groans from the Republican side of the aisle Mr. Obama, visibly irritated, ad-libbed in a lecturing tone, “…that’s how budgeting works.”
This brought howls of laughter from Republicans and even some Democrats – the first time I can remember a non-laugh line getting a laugh. The Chamber seemed to understand that this really is how the President thinks budgeting works – we “budget” when we have enough money to buy what we want and have some left over. And that’s funny. And scary.
The SOTU reinforced what the People, and Wall Street too (some of them are people, anyway), have come to understand. This Administration is at home with soaring rhetoric and populist messages; but it is adrift completely when it comes to economics. They just don’t understand how it works.
The Address didn’t reroute anybody’s opinion of what is going on down there in DC. We had groans of objection. We had unorchestrated laughter at things that shouldn’t have been funny. We even saw a Supreme Court Justice (Alito) scowl and mouth “That’s not true” to the President. Things are getting scrappy right now in just the place we need calm, even-handed leadership, and as I said before it’s clear we’re not getting our money’s worth out of … well, the money that’s being spent to buck up the economy. The crummy SOTU, I believe, is why stocks were down overnight.
Initial Claims today were surprisingly weak, falling only 8k to 470,000 from an adjusted 478,000. The prior week, California had reported an increase of 44,000 claims as they were “clearing [the] claims backlog” (the weekly news release contains, with a one-week lag, the explanation by state of increases or decreases that are unusual); perhaps that is continuing this week or perhaps there is something more to it.
If this sort of volatility in the Claims number had happened in late December or early January, it would be easier to dismiss since the seasonal adjustments are truly massive around the turn of the year. By late January, those seasonal adjustments are ebbing and the numbers are more reliable. There are still huge error bars, and it may be that “Furlough Fridays” in California just pushed the period of uncertainty forward. However, even if it is the case that these numbers are overstated a little because of that effect, it implies that the prior numbers had been understated by an equivalent amount, and the implication is much the same: the employment trajectory has not been improving quite as much as we thought.
But the surprisingly high Claims number did in fact outweigh a core Durable Goods release that was stronger than expected. Moreover, stocks were under pressure early today and reached new lows for the year intraday. But here’s where trading gets hard. 10-year note futures, with all that, did little and closed up a tick and a half in lethargic action. Could it be because the “spending freeze” doesn’t kick in for another year, implying that the mountain of Treasuries being shoveled on the market is going to continue to grow?
I don’t think that movements in stocks or bonds or the dollar had anything to do with Bernanke’s confirmation finally passing the Senate. The Congress has been throwing brickbats at Geithner for his role in the AIG debacle, and roundly criticizing Bernanke quite fairly for exceeding his authority as Fed Chairman and possibly creating problems greater than those which he was fixing, and they couldn’t get rid of either of those guys. Is it any wonder that people are worried whether our leaders can do anything at all? (On the plus side, I have four more years to write my sequel to Maestro, My Ass!)
For now, the dollar is strong-ish thanks to Greece. But if our currency unit can lead, then perhaps we should elect it to public office.
Tomorrow, there are several economic reports worth watching. The Employment Cost Index (ECI) is useful because it is the broadest measure of labor costs although it is reported only quarterly and with a significant lag. It was last at a feeble +1.5% year-on-year, and the consensus call is for a print of +0.4% to keep the year-on-year number unchanged. I don’t know if there is anything this figure could do right now to cause the market to move, because inflation is perceived as not an immediate threat. But the forecasts are based on the Keynesian assumption that inflation is caused by a lack of slack in the economy, and as long as Aggregate Demand is well south of the economy’s potential inflation isn’t a risk. However – and Goldman Sachs had a good piece on this topic out this week that I need to read in more detail – given the amount of slack in the economy inflation should, if Keynes is right, have fallen much further. (Keynes, of course, isn’t right, but he is popular.) Anyhow, if wages tick up at all with Unemployment at 10% then someone needs to dig up Keynes and ask him how that can happen. (Note to readers: please no one dig up Keynes).
The advance GDP report doesn’t usually excite me much – it’s all about Q4, which we know will show a strong print thanks to tax rebates on housing, etc. Look at the C+I+G+(X-M) breakdown. How much of the growth (Consensus: +4.5% annualized) is due to government spending? I am more interested in the report from Chicago Purchasing Managers (Consensus: 57.0 from 60.0), which last month jumped to a multi-year high. The number is volatile, and won’t tell us a ton, but it’s worth a look.
It will also be worth a look to see how stocks behave following Microsoft’s blowout numbers tonight. I thought we had the makings of a rip-roaring short-covering rally as bears got run over by Bill Gates, but at this hour S&P futures are up a whopping 0.20.