Stats Won’t Save Us

Every day, and every minute somewhere on the Web, another statistic that hints at an economic recovery is reported, copied, translated, manipulated and reevaluated. It seems for every positive up tick in economic numbers, there is also a negative. We have been experiencing shaky times for the past 20 months. Every sector is not going to at once join together on an all-knowing graph somewhere and move together as one gradually-rising black arrow.

Stats are meant to give us market indication. “Experts” on the economy make sense of the stats by attaching other positive attributes to them without any solid proof. In social psychology, it is similar to how the halo effect works: If I see Bob Somebody helping an old lady cross a busy intersection, then I automatically believe Bob to be a good person; without having any solid proof. Helping the elderly in dangerous situations is good, I saw Bob do that, so Bob must be good. Similarly, the media tells us recessions are scary and bad, positive things do not happen in recessions; therefore a positive up tick in one sector must mean we are out of the bad recession and into the good recovery. Experts link good news with other good news without any solid proof.

Earlier this month, Newsweek ran a cover that pictured a big red balloon which read “The Recession is Over!” The cover and its related story caused a small uproar that resulted in criticism from President Obama. Although the cover story was meant primarily to sell magazines, the author did make a solid point: “… when economists proclaim a recession over, they’re celebrating a technicality: they mean economic output has stopped contracting.”[1] When the economy stops contracting, it does not simultaneously return to the rising rates we experienced in the years prior to this recession.

The reporting of numbers, percentages, graphs and ratios should only be taken for face value. We use them as indicators, as ways to gauge where we are and the possibilities of where we could be heading. Be aware that we are approaching a period that is sure to be overflowing with economists eager to be the first to accurately predict the recovery by accident. Statistics will punctuate every news story you ingest. A small increase over a quarter is no reason to speculate and sink loads of savings into any financial market. The recovery will come. As we work towards it, I encourage you to stick with the basics. Own stocks that make sense. Consider incorporating alternative investments such as real estate into your portfolio not only because of their soundness, but also because they work as a wonderful hedge against inflation. Pay off debt. Adapt to the times. And, most importantly, focus on those things in your life that you care about the most.

Read the rest of this entry »

Tags: alternative investments, appreciation, Bank, bank account, Basis Points, Bernanke, Billion, bonds, bottom, bounce, Cash For Clunkers Part One: Good For Business?, commercial real estate, Compounding Interest, consumer sentiment, Credit, credit constraction, due diligence, durable goods, Economic Recovery, economics, economy, Finance, financial, Financial Future, gains, Geithner, Harvard Real Estate, Hedge against inflation, home prices, home value, Inflation, Investing, investment balances, job loss, just right recovery, lagging indicator, Money, Money Market, new home sales, Paulson, Piggy Bank, Portfolio, President Barack Obama, profit, Putting cash to work, Putting Money to Work, Real estate, real estate assets, recession, Reset, Resources, Retirement, risk analysis, Ronald Reagan, Rule of 72, Short Sales, Smart Money, Standing In The Rain, Stimulus, stocks, strong signs, The Powell Perspective, Thomas J. Powell, Trillion, Trust, Trust But Verify, U.S. Debt, upward swing

Comments feed (RSS 2.0), comment or trackback from your site.

The stories below offer further concrete evidence that major issues persist in the US economy. When making investment decisions, we prefer to place more weight behind this type of data than “leading” economic indicators the government likes to laud and CNBC types love to regurgitate.

The rally in the US$ last week stalled this week right at the resistance of a long-term downtrend. We expected as much and wrote about the move last week. Treasury bonds however continue to rally. The direction of this market is perhaps harder to predict on a short-term basis due to the open efforts of the Fed to buy treasuries and support the market.

ECONX Initial Claims Disappoint
The initial claims report did nothing to support the economic recovery scenario. Initial claims for the week ended Aug. 15 increased to 576,000 from a revised 561,000 in the prior week. The number lifted the 4-week moving average to 570,000 from 565,750. Initial claims are up 31.5% from the prior year. Continuing claims rose 2,000 to 6.241 million. The 4-week moving average fell by 2,000 to 6.266 million. No major layoffs were announced yet 10 states reported increases in unemployment of more than 1,000. When you factor in that continuing claims were expected to slowly run down as unemployment benefits lapsed and not due to new hires, this report shows the labor market is more troubled than previously thought.

Failed banks weighing on FDIC – WSJ
WSJ reports banks in the U.S. that failed in the past two years were in far worse shape than those that collapsed during the industry’s last crisis, a looming problem for the government agency charged with insuring deposits.

At three of the five banks that failed Friday, increasing the total to 77 so far this year, the financial hit to the agency’s deposit-insurance fund is expected by the FDIC to be about 50% of their assets. The biggest hit on a percentage basis is coming from Community Bank of Nevada, a Las Vegas bank with $1.52 billion in assets and an estimated cost of $781.5 million. The failure of Colonial Bank, a unit of Colonial BancGroup that was sold to BB&T Corp., will cost $2.8 billion, or 11% of the Montgomery, Ala., bank’s assets. For the 102 banks that have collapsed in the past two years, the FDIC’s estimated cost averaged 25% of assets. That is up from the 19% rate between 1989 and 1995, when 747 financial institutions were closed by regulators, according to the FDIC.

The agency’s insurance fund already has dipped to $13 billion, with more than 300 battered banks and thrifts still on an undisclosed FDIC list of problem institutions. One problem is that so many banks took risks when the economy was booming, and are seeing their capital dissipate with alarming speed.

Calpers takes another property hit – WSJ
WSJ reports the California Public Employees’ Retirement System has given up control of its stake in a trophy office tower in Portland, Ore., a sign that even the largest institutional investors are cutting their losses rather than throwing good money after some badly battered real-estate assets. The decision by Calpers, the country’s largest public pension fund by assets, to walk from its investment in the Koin Center, one of Oregon’s tallest buildings at about 509 feet, nicknamed the “mechanical pencil” for its signature shape, also shows that leasing problems are cropping up in even the country’s healthier markets. While it is on the rise, downtown Portland’s Class A office vacancy rate was 6.1% as of June 30, below the average of 12.9% for major U.S. downtown markets, according to Colliers International. Despite Portland’s relative health, in July a partnership that includes Calpers and CommonWealth Partners, defaulted on the Koin Center’s $70 million mortgage provided by New York Life Insurance Co., according to court papers. A state circuit court judge approved New York Life’s request that a receiver be appointed to control and possibly sell the property.

Tishman faces office downturn - WSJ
WSJ reports a partnership led by Tishman Speyer Properties is in default on debt tied to one of the largest office portfolios in the Washington area, the latest in a line of humbling turns for the prominent property developer. Tishman Speyer paid $2.8 billion in late 2006 for what was known as the CarrAmerica portfolio, a collection of 28 buildings leased to law cos, lobbyists and other upscale tenants in and around Washington. But in taking advantage of the easy credit terms of the time, Tishman ended up overpaying. With office vacancies rising and rents falling, the partnership has violated lender’s covenants. Tishman also must find a way to refinance the debt when it comes due in 2011, something that analysts say could be a struggle.

Tags: banks, calpers, commercial real estate, FDIC, initial jobless claims, tishman

Comments feed (RSS 2.0), comment or trackback from your site.

Tags: 2nd stimulus, commercial real estate, Goldman trading scandal, HFT, joe saluzzi, News that Moves Markets, RCM Editorial, Sergey Aleynikov, Zero Hedge

Comments feed (RSS 2.0), comment or trackback from your site.