Tag Archive: depression 2.0

Stocks up despite falling revenues – can we say market volatility?

Continental, AMR soar with falling oil prices – MarketWatch

This makes no sense.  Continental was leading the pack on declining revenues, helping to cause a market-wide drop just a week ago, perhaps less (will look up those links in a bit).  Now, just because oil prices are dropping, the hope for increased profits (or…maybe just decreased losses?) has everyone feeling good about airlines again. 

Perhaps the least examined aspect of this entire crisis is the psychological effect.  Massive volatility like this and the impact market-wide points towards the lack of confidence, the over-emphasis on even small points of positive activity, etc. 

Panasonic’s “tough love” approach to fighting the recession

Huge Recession-Fighting Cuts at Panasonic – BusinessWeek

Those opposed to a massive stimulus plan for the US might want to look at this article…Panasonic is taking a hyper-aggressive approach to fighting off its losses in profits.  Laying people off, closing plants, and taking a HUGE bath on losses for this year.  $3.85 BILLION this year, though March.  That’s TWICE the size of previous estimates.  This will increase the net loss for the year to $4.2 billion. 

However.  Next year’s savings could top $1 billion.  That’s a remarkable number considering this is a consumer electronics company in a market where people are saving at potentially scary rates (US savings rate should be at 4% right about now, possibly more, which is quite high) and consuming at very low ones. 

This speaks to a few things.  First, taking a bath isn’t necessarily bad.  A gigantic government deficit, unto itself, is not a good thing, but in terms of recession, it’s almost always necessary.  Government spending means government deficit, unless you raise taxes at the exact same time (kinda defeats the purpose, though, if you raise taxes the same amount you raise spending).  If huge deficit right now can mean a faster recovery (which, under sound fiscal management should then pay off that deficit), then that’s quite meaningful.

The Economic Crisis & Universities – my take on why it’s different

As with just about any financial entity in the country and possibly the world, Santa Clara University has been dealing with the ramifications of the economic crisis that the entire nation is facing right now.  Frozen credit markets, liquidity concerns, dissolution of various funds which were the basis of our wealth – they are all on our minds whether we work at a university or a for-profit corporation.

However, something struck me while walking into work today.  While there is a liquidity concern here and probably at most universities (all are at least mostly tuition-based, though the percentages vary), the fact is that we don’t utilize debt to fund our operations.  A university uses cash assets in the form of tuition income, then a percentage of the return from the endowment.  Now, if the endowment loses money – as almost all have in the last several months (Harvard’s endowment was nailed for $8 billion as of early December) – a major problem is a-brewing.  But the credit freeze itself, which has massively hit corporations doesn’t, it seem, have much of an impact on schools themselves.  We just don’t rely on debt to finance things.

NB – I’m not sure if we make much use of the commercial paper market, but I didn’t hear anything about it (and we heard a lot about a lot of things) so I’m thinking not.


Credit a little less frozen for the right customers, plus TARP in action

Pfizer lines up biggest bank deal since March, tapping U.S. aid – MarketWatch

The article sums up the importance of this deal pretty well, but it’s nice to see that the paranoia about liquidity is a bit less intense for the right customer (though no, you and I are not the “right” customer just yet), and that TARP has had a positive impact for at least some lenders.  After all, when that paranoia is at the point where even the commercial paper market is compromised, how can one start thinking about lending for purposes of buying out other companies? 

The whole TARP thing is even more intriguing since many banks rejected for fear that customers would lose confidence in a bank if it accepted this “bailout” aid. 

When the government spends $700 billion, you’ve just increased demand by $700 billion

The other day, my macro-economics professor stated something similar to the title of this post in class. While government spending and demand creation is not directly linear, an interesting point is made.

When the government actually spends, say, $700 billion on roads, bridges, green energy, etc, it injects that money directly into the actual economy. Construction crews, engineers, architects, etc all get hired back on to build things, researchers are brought back into the fold to work on new energy efficient materials and processing methods, etc. Those people now have salaries and will spend at least some of it on “stuff” which will help create jobs at the companies that make “stuff” and so on and so on. Yes, many of these people with new jobs will also save a lot rather than spend but overall you will get new jobs plus more spending which leads to even more jobs.

However, when you give tax cuts, there doesn’t have nearly the demand-creation yield rate (a term I just coined…) as direct injection of money. This is because if, say, 50% of people in this current economic environment will save rather than spend, and 40% of a $700 billion stimulus plan is actually in the form of tax cuts, then we get:

$420 billion directly injected
$140 billion spent from tax cuts

And while $560 billion is a lot of money, the other $140 billion is, too.

My, how far IBM has come

IBM seen remaining steady with earnings report – MarketWatch

Between IBM being the “slow, plodding behemoth” from a decade (and a half?) ago and its significant transition from a product company to a service one, this is a pretty impressive sign.  It’s still a “bellwether” for the overall tech economy, and its transition to a service company has made it better able to withstand the current economic situation.


Debbie Schinker posted a comment in response to another post of mine that has me wanting to write a bit more…

I always take what the “experts” say with a grain of salt. Expert analysis lags real life – they wait for the numbers to “confirm” what the rest of the world – literally – already knew: we are in a bad recession. You and I and everyone else on the street knew this at least 6 months ago. The prices were going up, people were losing jobs, and belt tightening was necessary for nearly everyone. But the “experts” refused to use the word recession.

The National Bureau of Economic Research is one of the major organizations that help define when we are or are not in a recession.  While I agree 100% that just about any moderately educated person would have said “heck yeah we’re in a recession” months ago, there kind of has to be some official rules and/or body that defines rules to determine when the economy has hit such a point.  The common rule is “2 consecutive quarters of negative GDP growth.”  Note that this not declining growth.  This is actual reduction in GDP, which is driven primarily by productivity.  Which means an actual decline in productivity for two consecutive quarters.

The NBER uses many more stats, though, and determined that we actually have been in a recession since around the beginning of 2008.  So forget about 2 consecutive quarters (I think we hit that only in Q3 last year, possibly Q4).  According to the NBER it’s been a whole year.  That’s pretty scary.

Another reason why defining recession is useful came up yesterday in my macroeconomics class.  How can we define “depression” if we don’t define “recession?”  Technically, there is no definition of when we are in a depression.  Which is kind of scary.  That we have some dry definition for recession feels comforting in that light.

The major issues to watch for are the unemployment rate, because GDP growth is based on productivity, and we can’t be productive as a society, on a macroeconomic level, if people aren’t working, and inflation/deflation.  If the dollar becomes weaker or prices drop and return on products goes down, then we have serious problems ahead.  The specific issues we’re seeing are in many ways responses – no credit because banks are scared about risk and their own futures is a reaction.  One that has massive side effects, sure, because in an economy that relies on people spending money whether they have it or not, when banks don’t lend to the population we have a problem.  But still a reaction.

Read on for more…


Newsflash: Stating the Obvious (Maybe I shouldn’t read MarketWatch)

This year is ‘a bad time to buy a home,’ analyst warns – MarketWatch

This article states so many obvious items that I wonder if I should still read MarketWatch. 

  1. If you lose your job, it might not be a good time to get a house.
  2. If you have a bad credit score, this is not a good time to get a house or you may have trouble getting one of these great, low-interest mortgages (which you probably won’t be able to get even with a good score since banks are still too scared to lend)
  3. If you aren’t planning on staying in a house for 5-7 years, it’s not a good time to buy a house.  Because people are really thinking this is the right environment to be flipping houses.  Right…

The part on unemployment is good.  Talking about issues around unemployment is almost always good – very important, and people need to see past just the number of people without jobs and towards the impact that stat has on the overall GDP and economy.  But the housing stuff is just weird.