Saturday, January 31, 2009

Friday evening at the FDIC - three more bank failures

Friday evening the FDIC announced that it had closed three failed banks:

  1. MagnetBank, Salt Lake City, Utah. The FDIC was unable to find a purchaser, so they will simply mail checks to insured depositors. The FDIC "estimates" that there were no uninsured depositors.
  2. Suburban Federal Savings Bank, Crofton, Maryland. Bank of Essex, Tappahannock, Virginia, assumed all of the deposits, even any that might have been uninsured.
  3. Ocala National Bank, Ocala, Florida. CenterState Bank of Florida, Winter Haven, Florida, assumed all of the deposits, even any that might have been uninsured.

That brings to 6 the number of failed banks in 2009.

The FDIC does not give any advance notice of bank closures. In fact, it is usually a state banking regulator who does the closure and then FDIC is "named receiver" and then takes over and promptly arranges to sell as much deposits and assets as it can to a healthier bank.

The basic idea is to totally avoid old-fashioned "runs" on banks and pre-arrange the assumption of deposits by a healthy bank before the closure is even announced. In other words, there should be no disruption of service and no need for customers to lose any sleep.

-- Jack Krupansky

Friday, January 30, 2009

Q4 GDP wait over

Despite the negative market reaction, the Q4 GDP report was actually better than expected. Sure, it was still quite negative, but everybody knew that it was going to be very negative. Q1 will also be fairly negative, but within two weeks we will have a massive fiscal stimulus bill passed and within a month the effects will begin trickling into the economy and then growing over the next few months.

-- Jack Krupansky

Task force to study how to rejuvenate the middle class

Almost 18 months ago I wrote a post on the need to rejuvenate the dying middle class in America, so I am glad to see that somebody in Washington has woken up to that reality as President Obama and VP Biden have announced the formation of a task force to study and hopefully "fix" the middle class - the White House Task Force on Middle Class Working Families. Whether their efforts will go anywhere is another matter, but at least they are taking a step in the right direction. Limited details about the task force are available. The short summary:

The Task Force is a major initiative targeted at raising the living standards of middle-class, working families in America. It is comprised of top-level administration policy makers, and in addition to regular meetings, it will conduct outreach sessions with representatives of labor, business, and the advocacy communities. The Task Force will be chaired by Vice President Joe Biden. The Vice President and members of the task force will work with a wide array of federal agencies that have responsibility for key issues facing the middle class and expedite administrative reforms, propose Executive orders, and develop legislative and policy proposals that can be of special importance to working families.

Goals include:

  • Expanding education and lifelong training opportunities
  • Improving work and family balance
  • Restoring labor standards, including workplace safety
  • Helping to protect middle-class and working-family incomes
  • Protecting retirement security

-- Jack Krupansky

ECRI Weekly Leading Index indicator falls modestly and remains deep in recession territory

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) fell modestly by -0.17% vs. -1.14% last week, and although its annualized growth rate rose modestly to -24.0 vs. -24.3 last week, it remains near its record low for its 60-year history of data of -30.2 for the week ended December 5, 2008, which is well below the flat line, suggesting that the economy will be struggling in the months ahead.

The bottom line is that the ECRI WLI remains "flashing red." Alas, even the ECRI WLI is not a guaranteed, fool-proof economic indicator, especially when the data is mixed and there some amount of stimulus as well as potential problems in the pipeline.

My personal outlook is that: The recession of the U.S. economy that started in December 2007 and sharply accelerated in August 2008 currently shows no sign of an imminent end. There was a modest flattening of the WLI recently, but even that seems to be reversing. Still, the WLI has not set a new low for seven weeks now.

Although the current economic reports show significant weakness, there is also a vast amount of potential stimulus in the pipeline that could kick-start the economy within the next couple of months.

-- Jack Krupansky

Thursday, January 29, 2009

What do the Republicans want from the stimulus package?

Sure, the Republicans are raising a big stink about the stimulus plan, but in the end it may not take too much to get a bunch of moderate Republicans to go along in the Senate. From a Reuters article by Richard Cowan entitled "Obama and Congress seek deal on economic stimulus":

McConnell said a main goal for the Senate Republicans will be to increase the amount of tax cuts in the package so they amount to 40 percent of the overall measure, with the rest in emergency spending.

The House-passed bill is closer to 33 percent being devoted to tax cuts -- not hugely different from McConnell's goal.

Give them another $10 billion or so in tax cuts and a number of moderate Republicans will go along with the deal.

I am sure the Republicans want a bunch of other goodies and to strip out some of the Democratic goodies, but the big deal is to assure that the moderate Republicans get enough tax cuts in the bill. Sure, that will make the bill bigger, but in this environment that is not a problem.

President Obama still has a good shot at getting his 80 votes in the Senate, but that is no slam-dunk. Still, 70 to 75 votes could easily be within reach and give the Senate version of the bill at least a somewhat bi-partisan flavor.

-- Jack Krupansky

Q4 GDP wait

Everybody is anxiously awaiting for the advance report on real GDP growth in Q4 of 2008, due out Friday morning, which is forecast by Macroeconomic Advisers to be a decline of -5.5%. They are also forecasting another big decline of -4.2% in Q1.

With the U.S. economy being as dynamic as it is, on both the up and down sides, I have no reason to challenge the -5.5% number. Still, the actual number could be somewhat higher or even somewhat lower. Also, this is the "advance" report, with two revisions, the "preliminary" revision and the "final" revision, to be issued in the coming two months.

-- Jack Krupansky

Where are all the credit card offers??

I just realized that I have not received any new credit card offers in the mail for quite some time. None in 2009 and none in December of 2008. The last one, from WaMu was back in November of 2008. I do receive email solicitations on occasion, but that is about it.

Maybe they found out I have not had work since November.

Actually, the simple answer is that the credit card companies are not able to securitize much in the way of new credit card debt, not with a deep recession increasing the likeligood that consumers will be defaulting on their debt.

In truth, I have no need for additional credit cards. I have three and only use one of them. Still, I do not particularly like the idea that I no longer have a wealth of choices if I should decide to cancel any of my existing cards. Oh, I am sure I could get additional cards, but not necessarily on the kind of favorable terms I am used to.

-- Jack Krupansky

Wednesday, January 28, 2009

Major milestone for stimulus bill

Although the final stimulus package will inevitably be somewhat different from the bill just passed by the House, the vote was still a major milestone. It would have been nice to have them vote on something much closer to the final bill, but this is the way things are typically done in Washington, despite President Obama's call for "change." The Democrats got to vote for their vision of the package and the Republicans got to vote against it.

The Senate bill, still not in its final form, will likely be larger than the House bill and garner at least a modest level of bipartisan support. It sounds as if the Senate will vote next week.

Then, we will have two very versions of the same basic bill. A conference committee will be appointed, back-room negotiations will occur, and deals and changes will be made, enough to get some semblance of bipartisan support in the conference committee. The final bill could have major differences. It may seem odd that the conference committee can essentially rewrite the entire bill to its liking, but that is the way the process works. The actual conference committee members are carefully chosen by the congressional leadship of each party, so the members can be expected to deliver whatever the leadersip negotiates. Overall, the final bill will likely follow the rough contours of the original proposal(s), not identical, but close enough that the average American might not notice the differences, other than a significantly higher price tag.

Then, that final bill will go to the President to sign.

Despite a lot of negative media headlines, the process is actually going amazingly well and on a great schedule. There should not be any major obstacles to getting the bill passed before the end of the second week of February.

Then, the really big debate begins: how soon will money actually flow into the economy and actually show up in the economic reports.

A somewhat longer debate will be how soon we will actually see jobs created, and then how soon the net created jobs begin to exceed losses.

-- Jack Krupansky

Are we really sending hundreds of billions of dollars a year for foreign oil to the most dangerous and unstable regions of the world?

Former Vice President Al Gore continues to misrepresent the amount of money the U.S. spends on crude oil imports from "the most dangerous and unstable regions of the world". According to ABC News, today he said:

As long as we continue to send hundreds of billions of dollars for foreign oil -- year after year -- to the most dangerous and unstable regions of the world, our national security will continue to be at risk.

Hundreds of billions? Really? I would like to see his math!

According to the Department of Energy Energy Information Administration, in November of 2008 the U.S. imported 9.817 million barrels of oil per day from all countries. That included 2.028 million barrels per day from Canada, our largest source of imported oil, 1.461 million barrels per day from Saudi Arabia, our second largest source, and 1.296 million barrels per day from Mexico, our third largest source. The U.S. itself produced 5.064 million barrels per day in 2007.

Excluding Canada, Mexico, Brazil, and the UK, countries which any sane person would not consider "dangerous and unstable regions of the world", our crude imports were 6.096 million barrels per day in November.

That works out to 2.225 billion barrels of crude oil imported each year from "the most dangerous and unstable regions of the world", including Saudi Arabia, Venezuela, Russia, Nigeria, Iraq, Angola, Columbia, etc.

At $100 a barrel, that would work out to $222.5 billion, technically "hundreds" of billions, but at $50 a barrel those "dangerous" imports work out to $111.3 billion, hardly "hundreds of billions." Even at $75 a barrel, it only costs $166.9 billion, still not in the "hundreds of billions." At $60 per barrel, the cost would be $133.5 billion.

Sure, if you forecast oil up at $200 per barrel, then the cost would go up to $445 billion, but we are not dealing with $200 oil at this time.

There, that's my math. Now, if only we could get the former Vice President (and Nobel Laureate) to start being a little more honest and transparent. I am not holding my breath.

-- Jack Krupansky

Monday, January 26, 2009

Q1 GDP

Everybody is anxiously awaiting for the advance report on real GDP growth in Q4 of 2008, which is forecast by Macroeconomic Advisers to be a decline of -5.5%, but the big question is how Q1 of 2009 will play out. Macroeconomic Advisers does forecast another big decline of -4.2%, but I suspect that may be based on a presumption that little of the fiscal stimulus is felt in Q1. I suspect that Q1 will come in closer to a smaller decline of something on the order of -2.0%.

Given the news to date, January is clearly another big down month, but I suspect it will not be as bad as November or December.

February will also likely be a down month, but I suspect nowhere near as bad as November or January. Anticipation of the effects of fiscal stimulus will help to moderate the decline.

Finally, my suspicion is that we will in fact see at least a modest uptick in March due to the initial phase of fiscal stimulus and the anticipation of much more to come.

Yes, substantial job losses will continue, possibly into April, May, and June, but the vast amount of money from fiscal stimulus will be overwhelming those incremental job losses in terms of calculating GDP.

So, maybe January real GDP will be at a -4% annualized rate, February at -3%, and March at +1%. That would average out to -2% annualized real GDP growth in Q1 of 2009.

Sure, that will give us GDP that is "worse" or lower than Q4 GDP, but that will still be consistent with the biggest chunk of GDP bad news being behind us as of the end of 2008.

My suspicion is that Q2 will be a quarter of at least modest positive growth, or even strong growth depending on how the fiscal stimulus begins to play out. Maybe something in the range of +0.5% to even +5.0% annualized real GDP growth. That will not mean that we are out of the woods, but simply that the economic life-support systems are functioning properly. "Real" job gains may not begin until late in the year or even a year from now.

-- Jack Krupansky

Sunday, January 25, 2009

Friday evening at the FDIC - third bank failure of 2009 - 1st Centennial Bank, Redlands, CA

Friday evening the FDIC took control of one failed bank. For the third bank failure of 2009, the FDIC arranged for First California Bank, Westlake Village, CA to assume only the insured deposits of 1st Centennial Bank, Redlands, CA. Alas,  there were approximately $12.8 million in uninsured (excess) deposits held at 1st Centennial that potentially exceeded the insurance limits, out of total deposits of $676.9 million. First California paid a 5.29% premium for the insured deposits.

The FDIC does not give any advance notice of bank closures. In fact, it is usually a state banking regulator who does the closure and then FDIC is "named receiver" and then takes over and promptly arranges to sell as much deposits and assets as it can to a healthier bank.

The basic idea is to totally avoid old-fashioned "runs" on banks and pre-arrange the assumption of deposits by a healthy bank before the closure is even announced. In other words, there should be no disruption of service and no need for customers to lose any sleep.

-- Jack Krupansky

DollarSavingsDirect yield falls from 4.00% APY to 3.50% APY

Sometimes good things just don't last. Recently DollarSavingsDirect (online division of Emigrant Savings Bank) was paying 4.00% APY for online savings, but now that has fallen to 3.50% APY. That is still a top yield, but illustrates how volatile interest rates are.

The highest current yield that I know of is Bank of Internet USA at 3.51% APY.

iGObanking.com is at 3.08% APY.

GMAC Bank is down to 3.00% APY.

Capital One Direct Banking is down at 2.64% APY for a $10,000 minimum balance.

-- Jack Krupansky

Friday, January 23, 2009

Senate Finance Committee work on stimulus bill

As promised, the Senate Finance Committee has released its preliminary proposal for its portion of the fiscal stimulus package. Frankly, it is not easy reading, but here it is, split into four documents:

That last document is the closest to being readable, it is titled "Tax Relief Included in 'The American Recovery and Reinvestment Plan." The first document goes into the gory details.

Note that even these documents are not the actual bill, but semi-readable summary documents for people to review and the guidance for staff to go forward. The actual bill will be presented for "markup" on Tuesday, January 27, 2009.

Note that the almost-official name of the bill is "American Recovery and Reinvestment Tax Act of 2009." The initials are A-R-R-T-A. I guess we can start calling it "arta."

Oh no... I just noticed... the name used in that fourth document, admittedly a less formal document, is "The American Recovery and Reinvestment Plan", the initials being T-A-R-R-P, awfully close to the much-maligned TARP plan. Maybe somebody's idea of a joke. Sigh. But, that is not the official name, yet.

When Congress gets done with this thing it is going to look like a cross between a Christmas tree and a sausage. Got that visual image? Something for everybody, something for everybody to hate, and what comes out will not look like anything that went in. But, the truth is that this bill has only one real purpose: to spend a lot of money as quickly as possible and as widely in the economy as possible.

-- Jack Krupansky

ECRI Weekly Leading Index indicator falls sharply and remains deep in recession territory

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) fell sharply by -1.17% vs. -0.88% last week, and although its annualized growth rate rose moderately to -24.4 vs. -25.2 last week, it remains near its record low for its 60-year history of data of -30.4 for the week ended December 12, 2008, which is well below the flat line, suggesting that the economy will be struggling in the months ahead.

According to ECRI, "With the WLI declining again, it is premature to objectively declare that the worst of the recession will soon be behind us."

The bottom line is that the ECRI WLI remains "flashing red." Alas, even the ECRI WLI is not a guaranteed, fool-proof economic indicator, especially when the data is mixed and there some amount of stimulus as well as potential problems in the pipeline.

My personal outlook is that: The recession of the U.S. economy that started in December 2007 and sharply accelerated in August 2008 currently shows no sign of an imminent end. There was a modest flattening of the WLI recently, but even that seems to be reversing. Still, the WLI has not set a new low for six weeks now.

Although the current economic reports show significant weakness, there is also a vast amount of potential stimulus in the pipeline that could kick-start the economy within the next couple of months.

-- Jack Krupansky

Thursday, January 22, 2009

Microsoft

There is no question that the news from Microsoft this morning was rather bleak, but it certainly was nowhere near as gloomy as most commentators and analysts suggested. Sure, earnings were a "miss" and a decline, but overall not so bad relative to the nosedive that the economy has taken. A number of analysts expected (demanded?) steeper job cuts, but Microsoft should get credit for continuing to invest for the future.

Personally, I am maintaining my current position. After all, the dividend yield is now over 3%. I would be tempted to buy a little more, but that is not a viable option given that my income has stopped and I am living on cash savings, potentially for some number of months until I line up new income.

I see Microsoft as a long-term value play. I do not have the money or nervous frenzy to trade and speculate in "hot" stocks such as Apple, Google, and RIM.

-- Jack Krupansky

Tuesday, January 20, 2009

The Great Depression - fading?

The economy must be on the verge of perking up -- I have only seen four references to The Great Depression this morning. That is a dramatic improvement compared to the past couple of months. And one of those references was actually simply saying that people are getting tired of constantly comparing everything to The Great Depression.

Granted, our economic future is contingent on the Federal Reserve and the incoming administration making a lot of wise decisions, but that is the way it always is.

The overall economy is "the sum of all curves." Some of the curves (e.g., employment, consumer spending, decline of weak companies and poor credit risks) are continuing to trend downwards, but other curves (e.g., mortgage refinance, money supply, Federal Reserve support for various forms of finance) are trending upwards. Sure, the downwards-sloping curves continue to overwhelm the upwards-sloping curves, but that is the way it always is even shortly before an overall turning point.

The Federal Reserve, Treasury, and Congress clearly have plenty of work to do, but the simple fact that there is more work to do or that not 100% of prior efforts have been 100% successful is not a valid reason to abandon confidence in the efforts to come or the value of the work that has already been done.

-- Jack Krupansky

Convenience vs. yield on cash

Prior to September, I had never kept any substantial amount of cash in a bank for most of my adult life. Money market funds have offered a better combination of convenience and yield. Yes, bank CDs have frequently offered higher yields, but at an extreme loss of convenience. The last time I had any cash sitting in a bank account, other than a pay check's worth, was back in 1983, over 25 years ago. But, now, I am currently keeping the bulk of my cash in several bank savings and money market accounts due to the significantly higher yields with only a minimal loss of convenience.

For those 25 years I enjoyed the convenience of being able to write a check or use an ATM to access my cash while it was earning a much better yield in a money market mutual fund than any bank checking account.

I do miss the modest extra convenience of leaving the cash in the brokerage account and not having to worry about transferring funds to cover a check, but the yield differential is simply too great to ignore.

Actually, in recent years I was keeping my cash in a different money market fund than the "core" cash fund to get an even better rate, and then selling (or buying) that fund depending on my cash flow and needs.

One major difference from years ago is that ACH electronic transfers between bank accounts and brokerage accounts are now very common and not that inconvenient, so I can keep cash in an online savings account for better yield and then do an ACH debit to move the cash to my brokerage account (using the routing and account information for the checking account associated with the brokerage account.)

There is a modest extra inconvenience in that the ACH transfer could take an extra day or two depending on the bank compared to next-day when selling a money market mutual fund to move money to the core brokerage account, but that feels bearable compared to the dramatic yield differential.

On the other hand, if your gross amount of cash is more modest and/or you value pure convenience more highly, simply keeping your cash in either the "core" brokerage account or next-day away in a money market mutual fund that can be quickly sold, money market funds can still be more attractive than bank savings and money market accounts despite the yield differential.

Besides, if you really want a significantly higher yield, you might consider selectively investing in stocks that have either growth potential and/or have a dividend yield significantly higher than even most bank accounts and even CDs, albeit with a higher risk.

But, for me, given that I am sitting on a relatively large pile of cash as I deal with uncertainty as to my income over the coming year, a decent yield is fairly important, even if it is modestly less convenient to access a bank savings or money market account compared to managing money market mutual funds in a brokerage account.

Bank accounts do have the added plus of FDIC insurance, but I am not so worried about the safety of the better-managed money market funds, such as Fidelity.

CDs can become attractive when you have cash that you are sure that you will not need for the next six months or a year or two, but I am not in such a lucky circumstance. Besides, some of the online savings accounts are offering better yields than most CDs. Once again, it may be a convenience vs. yield issue.

Every individual needs to prioritize convenience vs. yield for their own particular circumstances.

-- Jack Krupansky

Sunday, January 18, 2009

The Depression

At a public philosophy discussion that I was moderating on Thursday evening one participant started to make a point saying "In the Depression, ..." I interrupted him and asked whether he was referring to the current depression or the last one. My query got a few laughs, but at least some of the laughter was probably nervous laughter. Maybe that about sums up where people feel that we are, not convinced that the current economic situation is necessarily headed for a full-blown depression, but not absolutely convinced otherwise either.

The next year will tell us what we are really dealing with.

I continue to belief that we are dealing with merely a "recession with adjectives" and that the combination of the actions of the Federal Reserve, fiscal stimulus, corporate restructuring, the vast amounts of money still in private hands, and just the passage of time will restore at least a facsimile of growth shortly.

-- Jack Krupansky

False claims of deflation

We may at some point start to experience true deflation, but it is not here yet. The recent "headline" declines in inflation are simply an unwinding of the price spikes that we saw earlier last year as energy, food, and other commodities prices that were pushed up by speculation rather than true demand. The whole point of measuring inflation is to measure actual demand relative to actual supply. That means we need to factor out mere speculation. This is typically done by focusing on "core" inflation, which factors out energy and food prices. The theory is that any long-term food and energy price changes (free of speculation since speculation is a relatively short-term phenomenon) will eventually flow back into the prices of other components of consumer prices.

Core inflation was +1.8% over the past calendar year. That was in the CPI report, but conveniently overlooked by those who are touting deflation due to some agenda they are pursuing but not disclosing.

Even with the speculative price swings of food and energy included, there was no deflation on a year over year basis (+0.1%.)

The headline consumer price declines since July perfectly bookend the headline price increases that we saw leading up through July. Those two artificial trends (due to speculation up through July and the unwinding of speculation since July) are not in any way an indication of any true, long-term trend or true, long-term inflation or deflation.

It may take another two to six months to wring all of the speculation price gains out of the headline inflation number, and we may see modest declines in core price changes as the lower energy prices gradually flow into the other components of consumer prices.

One technical problem is that even though energy prices fell sharply since the middle of July, real users such as transportion companies and chemical companies may have purchased futures contracts many months out into the future at those artificially inflated prices and those high prices will need to be factored into the prices of their goods and services now and maybe months into the future. Most of the impact of those higher prices should be wrung out of the system over the next few months so that six months from now core prices will reflect current energy and commodity prices.

It is also worth noting that energy prices are now bouncing around within a much narrower range over a much shorter timeframe, as they have done traditionally.

Unless crude oil falls well below $30 and heads below $20, we are unlikely to see true deflation over the next year.

Unemployment would probably need to head above 12% as well to see the kind of demand decline needed for true deflation to take root.

-- Jack Krupansky

Saturday, January 17, 2009

Monthly GDP for November rose by +1.2% (+15.2% annualized), Q4 tracking for a -5.5% annualized loss

Monthly real GDP, one of the five primary economic indicators that the NBER Business Cycle Dating Committee (NBER BCDC) uses to judge recession start and end dates, rose sharply in November by +1.2% or +15.2% annualized, after declining sharply by -1.3% in October, and real Q4 GDP is forecast to decline by -5.5% annualized, according to Macroeconomic Advisers (MA). The government does not publish GDP data at a monthly level, but the NBER Business Cycle Dating Committee says that they refer to sources such as Macroeconomic Advisers (MA) and their MGDP data series. As Macroeconomic Advisers summarized GDP in November:

Monthly GDP rose 1.2% in November, essentially reversing a 1.3% decline in October.  The sharp increase in November primarily reflected sharply positive contributions from net exports and inventory investment.  The contribution to monthly GDP growth from domestic final sales was essentially nil, following a sharply negative contribution in October.  The level of monthly GDP averaged over October and November was 4.5% below the third-quarter average at an annual rate.  Our latest tracking estimate of a 5.5% decline in GDP in the fourth quarter assumes a 1.4% decline in monthly GDP in December.

If the NBER BCDC is the definitive expert on marking of recessions, MA is the definitive expert on measuring real GDP at the monthly level with their MGDP data series.

-- Jack Krupansky

Friday evening at the FDIC - first bank failures of 2009 - National Bank of Commerce, Berkeley, IL and Bank of Clark County, Vancouver, WA

Friday evening the FDIC took control of two faileds banks. For the first bank failure of 2009, the FDIC arranged for Republic Bank of Chicago, Oak Brook, IL to assume all deposits of National Bank of Commerce, Berkeley, IL. Also, the FDIC arranged for Umpqua Bank, Roseburg, OR to assume only the insured deposits of Bank of Clark County, Vancouver, WA. Alas,  there were approximately $39.3 million in uninsured deposits held at Clark in approximately 138 accounts that potentially exceeded the insurance limits, out of total deposits of $366.5 million.

The FDIC does not give any advance notice of bank closures. In fact, it is usually a state banking regulator who does the closure and then FDIC is "named receiver" and then takes over and promptly arranges to sell as much deposits and assets as it can to a healthier bank.

The basic idea is to totally avoid old-fashioned "runs" on banks and pre-arrange the assumption of deposits by a healthy bank before the closure is even announced. In other words, there should be no disruption of service and no need for customers to lose any sleep.

-- Jack Krupansky

Gasoline price spike resumes, but may stabilize soon

The price of gasoline has resumed its recent spike higher, with the AAA Daily Fuel Gauge Report showing that the national average retail price for a gallon of regular unleaded gasoline has risen from its recent peak of $1.792 to a new peak of $1.831.

Wholesale gasoline futures have risen lately, with February RBOB unleaded gasoline futures at $1.1672, indicating that retail prices are headed for $1.76 to $1.81 within a few weeks, about 5 cents below the current price level.

Still, this latest move of the past week is likely to be simply gasoline trading in a range rather than a major new trend. The price of crude had spiked upwards recently, but lately has given back a big chunk of those gains.

Gasoline below $2 continues to mean more cash in the pockets of consumers and less pressure on their budgets as well as the budgets of businesses and governmental entities. It also means more traffic on the roads.

-- Jack Krupansky

Friday, January 16, 2009

ECRI Weekly Leading Index indicator falls moderately and remains deep in recession territory

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) fell moderately by -0.61% vs. +1.37% last week, and although its annualized growth rate rose sharply to -25.5 vs. -26.9 last week, it is still near its record low for its 60-year history of data of -30.4 for the week ended December 12, 2008, which is well below the flat line, suggesting that the economy will be struggling in the months ahead.

According to ECRI, "Despite some recent stabilization the WLI remains in a clear cyclical downswing, indicating that an economic recovery is not on the horizon."

The bottom line is that the ECRI WLI remains "flashing red." Alas, even the ECRI WLI is not a guaranteed, fool-proof economic indicator, especially when the data is mixed and there some amount of stimulus as well as potential problems in the pipeline.

My personal outlook is that: The recession of the U.S. economy that started in December 2007 and sharply accelerated in August 2008 currently shows no sign of an imminent end, but the decline may be starting to flatten out a little.

Although the current economic reports show significant weakness, there is also a vast amount of potential stimulus in the pipeline that could kick-start the economy within the next couple of months.

-- Jack Krupansky

Finished opening my new Dollar Savings Direct online savings account offering 4.00% APY

I just verified the two small verification deposits (and matching debits) that DollarSavingsDirect, a division of Emigrant Savings Bank, made to verify that my "checking" account (actually the bank checking account associated with my Fidelity brokerage account) is now properly linked to the DSD online savings account. Is is offering a rate of 3.92% or 4.00% APY for online savings, with a minimum of $1,000. This is not even a money market account, but simply an online savings account. And fully FDIC-insured.

The account is already earning interest. I only made the minimum $1,000 initial deposit to verify that everything is working fine. I will transfer more money once I figure out how much money I need to live on next month.

I am not sure why they bother with the verification deposits since they had already debited the initial funding amount before I had manually verified the deposits. Maybe it is just a double check and verification that I in fact have access to the account. And maybe they wanted the funding deposit ASAP. After all, they are paying a high rate for it, so they must need it.

-- Jack Krupansky

Thursday, January 15, 2009

Summary of House $825 billion stimulus bill now available

Finally, after all the chatter and rumors, a summary of the big fiscal stimulus bill is available, at least the House version. Released by the House Appropriations Committee, the summary calls the bill the American Recovery and Reinvestment Bill of 2009, and it totals $825 billion in stimulus. The summary tells us that:

In the next two weeks, the Congress will be considering the American Recovery and Reinvestment Bill of 2009. This package is the first crucial step in a concerted effort to create and save 3 to 4 million jobs, jumpstart our economy, and begin the process of transforming it for the 21st century with $275 billion in economic recovery tax cuts and $550 billion in thoughtful and carefully targeted priority investments with unprecedented accountability measures built in.

The package contains targeted efforts in:

  • Clean, Efficient, American Energy
  • Transforming our Economy with Science and Technology
  • Modernizing Roads, Bridges, Transit and Waterways
  • Education for the 21st Century
  • Tax Cuts to Make Work Pay and Create Jobs
  • Lowering Healthcare Costs
  • Helping Workers Hurt by the Economy
  • Saving Public Sector Jobs and Protect Vital Services

The summary does detail each of those areas at least to the bullet-point level, but trying to make sense of that level of budgetary detail is difficult unless you are a budget analyst.

I do appreciate the first phrase quoted above, "In the next two weeks, the Congress will be considering", which makes it sounds as if they are serious about trying to pass a bill by the end of the month. Or, maybe that is just for the House version and then there would be two weeks to recouncile the House and Senate bills and the will of the Obama team. We will see.

Note, this is not the actuall bill, but simply a summary of the main points. The summary provides something to talk about and feed into negotiations. It may get revised further before committee staff goes off to draft the actual bill.

It is unclear whether a core collection of Republican moderates are already onboard for the points contained in the summary, or whether this is their first viewing and maybe significant negotiations may be needed to finalize details sufficient for a bill that could pass the House and have a chance of being acceptable by moderate senators.

In any case, this is a good start and shows that great progress is being made.

-- Jack Krupansky

Wednesday, January 14, 2009

Stimulus package now upwards of $850 billion

Despite all of the traditional back and forth that goes on in Washington for even the simplest of matters, the big fiscal stimulus bill is making good progress. The traditional way to make a bill move faster through Congress is to add more money to it. That is what is happening. What started as roughly a $775 billion bill is now supposedly at $850 billion and the end is not necessarily in sight. A Bloomberg article by Brian Faler entitled "Stimulus Plan to Cost $850 Billion, Emanuel Says" gives us that $850 billion number:

The U.S. economic stimulus package being negotiated in Congress will cost $850 billion and will include about $300 billion in tax cuts, said President-elect Barack Obama's incoming chief of staff.

Chief of Staff Rahm Emanuel spoke with reporters today at the Capitol in Washington, where lawmakers are rushing to work out details of the two-year package.

Obama and lawmakers had previously been discussing a package of about $775 billion. Earlier today, Democratic Senator Charles Schumer of New York said the price tag might rise to as much $850 billion.

Personally, I think the final target need to be significantly closer to a full $1.00 trillion, if not $1.25 trillion since it is really not clear how many of these dollars will lead to sustainable economic growth.

In truth, I do not even know whether there is an actual "bill" in progress yet. Rather, there appears to be a rough outline that is currently being negotiated. Once all of the contentious decisions are worked out, committee staff will then draft the actual bill.

Although it is still technically quite possible to complete the bill by the end of the month, there have been quite a few mentions of "before the February recess" and no denial of that target by the Obama transition team, so maybe that is in fact the current working target. I suspect that Barack wants to see how the congressional discussions progress before he publicly mentions a hard target date.

-- Jack Krupansky

Mortgage refinancing is one of the few bright spots for the economy

The decision by the Federal Reserve to buy large quantities of mortgage-backed securities has led to record-low mortgage interest rates which are in turn leading to heavy demand for mortgage refinancing, which ultimately leads to more money in the pockets of beleaguered homeowners. The weekly report from the Mortgage Bankers Association showed a 25.6% increase in mortgage refinance applications. The average contract interest rate for 15-year fixed-rate mortgages decreased from 4.67% to 4.63%.

Unfortunately, applications to purchase declined by 14.1%, but that is no surprise given the recession. People are staying put, but refinancing is a way of giving yourself a raise.

-- Jack Krupansky

Apple Media Advisory: Jobs to take a medical leave of absence until the end of June

Here is the link to the official Apple Media Advisory concerning Steve Jobs' medical leave of absence. You have probably already seen the text of the internal Apple email:

Apple Media Advisory

Apple CEO Steve Jobs today sent the following email to all Apple employees:

Team,

I am sure all of you saw my letter last week sharing something very personal with the Apple community. Unfortunately, the curiosity over my personal health continues to be a distraction not only for me and my family, but everyone else at Apple as well. In addition, during the past week I have learned that my health-related issues are more complex than I originally thought.

In order to take myself out of the limelight and focus on my health, and to allow everyone at Apple to focus on delivering extraordinary products, I have decided to take a medical leave of absence until the end of June.

I have asked Tim Cook to be responsible for Apple's day to day operations, and I know he and the rest of the executive management team will do a great job. As CEO, I plan to remain involved in major strategic decisions while I am out. Our board of directors fully supports this plan.

I look forward to seeing all of you this summer.

Steve

A wise decision by Steve. There was no need to martyr himself in pursuit of the insane ideal of performance and perfection that so many Apple zealots and followers had been promoting in such an idealistic and unrealistic manner.

Just last week I recommended that Jobs take a break. I am glad to see that his thinking is in line with mine.

Meanwhile, I am sure that Apple will survive just fine without him for the next six months.

-- Jack Krupansky

Tuesday, January 13, 2009

Dollar Savings Direct offering 4.00% APY for online savings

It appears that Dollar Savings Direct, a division of Emigrant Savings Bank, is offering a rate of 4.00% APY for online savings, with a minimum of $1,000. It looks like a great deal.

I haven't read through the fine print yet, but I will definitely consider opening an account as soon as I finish paying my estimated taxes this week. But, their initialfunding process seems onerus:

At the present time, an individual may have up to two checking accounts linked to DollarSavingsDirect, including the checking account you used for your initial funding deposit. The name on the accounts must be the same as your Dollar Savings Account. We can only accept your personal checking accounts as linked accounts. Add the new funding account information in the Funding section under the Accounts section. Once completed, mail the voided check with your Dollar Savings Account number written in the memo portion of the check and a signed Account Verification Authorization Form to DollarSavingsDirect, Attn: Account Fulfillment, 13 Croton Avenue, Ossining, NY 10562. The Account Verification Authorization Form must accompany the voided check in order for us to process your request. Faxes will not be accepted. Upon receipt of the voided check and verification authorization form and successful confirmation of account ownership, two small deposits will be transmitted to the new linked account. You will need to verify these amounts as you did for your initial funding account in order for the new link to be activated.

I actually do not have a working printer right now, so I won't be able to submit their Account Verification Authorization Form soon. But wait... I called customer service (1-866-395-8693) and they said that form is only required to add a second linked checking account.

I may go ahead with this.

-- Jack Krupansky

Finally got my credit score: 698

I held off getting my free annual credit report until after November 30, 2008 since that was the three-year anniversary of my personal bankruptcy being discharged. I actually waited until New Year's Eve to request the reports, but more because I forgot than by intention. I was able to get my Experian and TransUnion reports online immediately, but the Equifax Web site refused to give me my report or credit score, vaguely suggested that there "might" be some sort of "lock" on my account or other unknown reason for denying my access and that I would have to request the report in writing and supply proof of ID. A few days later I managed to find a customer service phone number and actually managed to get through to someone what spent some time figuring out how to unlock my account at Equifax so that I could then access both my free credit report and purchase the FICO credit score.

I did get credit scores from TransUnion and Experian, but they use a different scoring method and do not give you the more popular "FICO" score that comes from Equifax.

Although the credit reports were free, I did have to pay to get the credit scores, $5.95 from Experian, and $7.95 from TransUnion and Equifax.

My TransUnion score was 741, which would be great if it was a FICO score, but that is 741 out of 501-990 which is only a grade "C" which is "average" and only at the 37% percentile.

My Experian score was 752, out of 501-990, a "risk grade" of "C", which is a "credit category" of "Prime", and at the 51.16% percentile. Not bad for a fairly recent bankruptcy and so many credit card problems four years ago.

Finally, my Equifax FICO score is 698, out of 300-850, which is at the 41% percentile of U.S. consumers. Not great, but acceptable given a recent bankruptcy.

Overall, although my score is clearly somewhat weak, I am reasonably satisfied with it after going through personal bankruptcy and all of the associated negative items on my credit report.

I have three credit cards in good standing, but I actually get dinged for not carrying any balances that show I am making payments on debt.

I got dinged since my new accounts have been opened for a relatively short period of time (roughly two years.)

I also get dinged for not having any "installment" accounts, such as car loans, or any real estate (mortgage) accounts.

Finally, I got dinged for running credit cards up near their credit limits, even though I did not exceed the limits and did not miss any payments and in fact paid off the statement balance every month.

What is the bottom line? According to Equifax, my "Bottom Line" is:

This is generally recognized as a good score, and a wide array of loans and credit products will likely be available to you, often at attractive rates. Most lenders will view consumers with a score as high as yours as an acceptable risk. Even so, remember that lenders often incorporate other information into their decision process, in addition to the FICO score, so you might be offered different rates or terms by different lenders. Nonetheless, most lenders agree that scores such as yours indicate an acceptable level of risk.

My main regret over the past year is using my credit cards up near their credit limits (due to my move to NYC.) It would have been easy for me to have used them differently or used my debit card instead.

I have no intention of buying a house or a car, and my credit limits are not likely to rise in this economic climate, so my main opportunities for a higher credit score next year will be that I will have been out of bankruptcy longer and my new credit card history will not be a year longer. I suppose I could consider some form of installment purchase, maybe for a new computer, just to boost my credit score, but I really do not want to waste money on paying interest, and besides, my score may be good enough (or close to as good as I can make it) for any near-term purposes. In fact, I actually do not anticipate any credit-related need for my credit score this year.

In truth, I would just like another two points to get me to "700" since that "7" handle sounds so much more "credit worthy."

Note: To get your free annual credit reports, make sure to start from the FTC Web site. There are quite a few Web sites that are offering fee-based credit services with a "free credit report" and possibly even a free credit score as the sign-up enticement, but then you get stuck with some monthly fee.

Hmmm... I wonder if signing up for a monthly service from Equifax would boost my FICO score. Technically, it should not (no actual debt since it can be canceled at any time), but who knows.

-- Jack Krupansky

Range trading

Although traders may be talking up "economic weakness" as the "reason" for recent stock market declines, the more likely scenario is that the stock market is "locked" in a trading range. This means that short-term traders push stocks up until they begin to meet "resistence" and then reverse their trading bias and push them back down. Then, as stocks fall far enough to start bumping into "support", traders reverse their bias again and push them back up. Occasionally stocks manage to push up through resistence to establish a new bullish trend and occasionally stocks fall through support to establish a new bearish trend, but more commonly stocks simply bounce up and down within a "trading range" until either new money flows into the market or investors decide to allocate assets away from stocks. Recently the market has been trading down towards support. How much lower it trades remains to be seen, but any day now we could see a day where the market starts out with significant weakness, hits a low for the recent trading range, and then bounces up strongly and heads back for the upper limit of the trading range again.

Sure, you can write it all off to "volatility", but the reason for the volatility is short-term traders all trying to out-guess each other as to where the limits of the trading range really lie. Nobody want to be the last trader to realize that the short-term trend has reversed. And, there are multiple trading ranges for different time scales, including for intra-day "day trading."

-- Jack Krupansky

Monday, January 12, 2009

Oh no... Unconfirmed Sources report that zero shortage threatens Obama stimulus plan

Just when I though Obama was in for some smooth sailing, now I read that Unconfirmed Sources are saying that "Zero Shortage Threatens Obama Stimulus Plan." The report states that:

Unconfirmed sources are reporting that a shortage of zeros, is threatening to derail the Obama transition team's stimulus plans. The impending shortage of the "0" digit was discovered yesterday as copies of the proposed plan were being printed to distribute to members of congress. All federal agencies are being tasked to help conserve zeros until the crisis is over.

The report elaborates that:

"I was watching the print outs come off the machine when I noticed that some of the budget numbers looked too small." Says Stacey Goodman, of the Obama transition team. "I noticed that some of the zero's were missing. I then went to refill the zeros in the printer and found out the whole office was out. I then called around and discovered that everybody was running low on zeros."

Further noting that:

It seems that the massive size of all the numbers flying around Washington are putting a strain on the nation's zero supply. A quick informal survey of zero suppliers finds that, industry wide, zero's are being used faster than they can be made.

The report provides some background on the source of the problem:

"I've never seen anything like it." Says Ken Burton of Burton Digital Digits Manufacturing Co. "We are normally able to keep up with the demand for all numerals and letters, but the size of the numbers being used today has caught all of us suppliers off guard. We are trying to ramp up production of zeros, but these things take time. It could be weeks before we can meet the new demand."

The report concludes by passing on a caution from the government:

In the mean time government officials and suppliers are recommending that people try to use other digits to conserve the number of zero's available.

There was no mention as to whether existing zeros can be recycled.

As to their recommendation that other digits be used, they neglected to recommend any rationing plan for different digits since an obvious switch to the "1" digit would simply result in another shortage of a critical digit. Possibly each organization should consider using the last digit of their local zip code so that we get a more uniform use of digits to avoid future shortages.

Or, maybe it is time to expand from ten digits to twenty or even one hundred. That could shorten the lengths of these big numbers and possibly save paper. Besides "million" is a lot less scary than "trillion." How many people even know what a trillion is?!?!?!! Quick: How many zeros do you need for a trillion?

Hmmm... I did check the date and it is not April 1, so this report is probably not a joke, but it could be a hoax or a scam of some sort. Who knows...

Hey, you have to admit that this "hoax" is more realistic than a lot of the media coverage for the Obama stimulus plan.

What's next, a shortage of waterdoodles and labra hounds?

-- Jack Krupansky

Labradoodles, water hounds, and fiscal stimulus

While the American people are anxiously awaiting the passage of a massive fiscal stimulus bill, media coverage tells us precisely where the priorities of the media are: focusing on labradoodles and water hounds. And when they get bored, taking a cheap shot at Obama's efforts to pass a stimulus bill is a second-best choice. When it comes to priorities, the media all too often focuses on fun and games rather than on truth and enlightenment.

Fine, let the media focus on labradoodles and water hounds. Meanwhile, the Obama economic team is working to coordinate a fiscal stimulus package that can gain congressional support in the near future.

They seem right on track. The Obama team, that is. Not the media, unless your real interest is labradoodles and water hounds.

-- Jack Krupansky

Gasoline price spike falters, may decline further soon

Although the price of gasoline had spiked higher by about 19 cents in recent weeks, the trend has now broken. The AAA Daily Fuel Gauge Report show that the national average retail price for a gallon of regular unleaded gasoline has fallen back to $1.790 from its recent peak of $1.792, but is still roughly 19 cents above its recent low of $1.60.

Wholesale gasoline futures have declined lately, with February RBOB unleaded gasoline futures at $1.0744, indicating that retail prices are headed for $1.67 to $1.72 within a few weeks, about 10 cents below the current price level.

Still, this latest move of the past week is likely to be simply gasoline trading in a range rather than a major new trend. The price of crude had spiked upwards recently, but lately has given back a big chunk of those gains.

Gasoline below $2 continues to mean more cash in the pockets of consumers and less pressure on their budgets as well as the budgets of businesses and governmental entities. It also means more traffic on the roads.

-- Jack Krupansky

No FDIC bank failures for four weeks in a row

Another Friday evening has come and gone without any FDIC bank failure reports. The FDIC reports bank failures on Friday evenings, but has not reported any since Friday, December 12, 2008. It could be that the holidays interfere with the process, but I would not bet on it. Still, we do have this nice little positive trend emerging. Stay tuned.

The FDIC does not give any advance notice of bank closures. In fact, it is usually a state banking regulator who does the closure and then FDIC is "named receiver" and then takes over and promptly arranges to sell as much deposits and assets as it can to a healthier bank.

The basic idea is to totally avoid old-fashioned "runs" on banks and pre-arrange the assumption of deposits by a healthy bank before the closure is even announced. In other words, there should be no disruption of service and no need for customers to lose any sleep.

There were 25 banks that were closed by regulators in 2008, which is a lot compared to a normal year, but miniscule considering that all that happened last year and the fact that there are over 8,000 banks and savings associations in the U.S.

-- Jack Krupansky

Saturday, January 10, 2009

ECRI Weekly Leading Index indicator rises sharply for a fourth week but remains deep in recession territory

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) rose sharply by +1.33% vs. +1.16% last week, and its annualized growth rate rose sharply to -26.8 vs. -28.7 last week, but is still near its record low for its 60-year history of data of -30.3 for the week ended December 12, 2008, which is well below the flat line, suggesting that the economy will be struggling in the months ahead.

According to ECRI, "While WLI growth has inched up over the past four weeks, it remains deep in negative territory, indicating that an economic recovery is not yet in sight."

The bottom line is that the ECRI WLI remains "flashing red." Alas, even the ECRI WLI is not a guaranteed, fool-proof economic indicator, especially when the data is mixed and there some amount of stimulus as well as potential problems in the pipeline.

My personal outlook is that: The recession of the U.S. economy that started in December 2007 and sharply accelerated in August 2008 currently shows no sign of an imminent end, but the decline may be starting to flatten out a little.

Although the current economic reports show significant weakness, there is also a vast amount of potential stimulus in the pipeline that could kick-start the economy within the next couple of months.

-- Jack Krupansky

Despite the criticisms and "rifts", Obama stimulus bill amazingly on schedule

Barack Obama is actually committed to an open and constructive dialog with Congress, including the Republicans. It is only natural that such an open dialog would lead to criticisms and even disputes, and that the media will gleefully label even the most minor of molehills with such impressive terms as "rifts." The goal of the stimulus bill was never to be something crafted only by the White House and shoved down the throats of members of Congress. Maybe the perception problem is that the media acted during the campaign as if Barack was being elected as a god ("The One") and is now acting confused when he insists on practicing his consummate community organizing skills in Washington. Barack is right on track. The media is behind the curve, obsessing on its own misguided narratives. Meanwhile, Barack and his economic team have presented Congress with a credible starting point, met with the various constituencies in Congress, gotten plenty of frank and constructive feedback, and is already at work modifying their proposal. And all of this is in a single week and Barack is not even in charge yet. That is amazing progress, but you would not know it from the media coverage.

Seeing where the discussions were at the end of this week, it is still very possible that a completed bill could be passed and signed by the end of the month.

Barack and his team and Congress still have all of next week, parts of inauguration week, and the entire following week to pull it all together. That is a dog's age in Barack Obama community organizing time. The media refuses to acknowledge that reality, but they may begin to catch on in a few weeks.

This is by all means a real test of Barack's abilities and organizing skills, but I strongly suspect that he really is up to the challenge.

-- Jack Krupansky

Friday, January 09, 2009

Suspending my Sharebuilder automatic investment program

I hate to do it, but since I am now living off savings and may be for an indeterminate number of months, I have decided to suspend my monthly Sharebuilder automatic investment program in Microsoft stock. Keeping my monthly drain on cash reserves to a minimum is a top financial priority for me. I will resume the plan as soon as I get some new steady income.

-- Jack Krupansky

Job losses not unexpected

The big job loss in December was not unexpected. The good news is that this big bad number will help to solidify the case for a big stimulus bill in the next few weeks.

My expectation is that job losses will continue for some number of months, even after the stimulus causes spending and incomes to spike up and boost GDP.

One caveat: The employment report is based on surverys as of the week of the 12th of the month. So, job cuts in the second half of December will not be counted until the next report comes out in early February.

I still believe that the worst is probably behind us. The worst part of the financial panic is over. Much of the knee-jerk slashing of jobs probably culminated in December. January will probably still be a fairly bad month for jobs, but not as bad as December. February will likely follow that same pattern of smaller losses. Then, we will be seeing the effects of stimulus on an incremental basis in March.

-- Jack Krupansky

Gasoline price continues spiking upwards, but may stabilize and decline soon

Yesterday, the retail price of gasoline spiked up another 2 cents. The AAA Daily Fuel Gauge Report show that the national average retail price for a gallon of regular unleaded gasoline has risen to $1.782, 18 cents above its recent low of $1.60.

But, wholesale gasoline futures have declined lately, with February RBOB unleaded gasoline futures at $1.0728, indicating that retail prices are headed for $1.67 to $1.72 within a few weeks, about 10 cents below the current price level.

Still, this latest move of the past week is likely to be simply gasoline trading in a range rather than a major new trend. The price of crude had spiked upwards recently, but lately has given back a big chunk of those gains.

Gasoline below $2 continues to mean more cash in the pockets of consumers and less pressure on their budgets as well as the budgets of businesses and governmental entities. It also means more traffic on the roads.

-- Jack Krupansky

Thursday, January 08, 2009

Capital One Online Savings rate slashed to 2.64% APY

Due to concerns about going heavily after risky credit card borrowers (including me!), Capital One used to be on relatively shaky ground. But now that the financial crisis has humbled even the mightiest of banks, even Barron's thinks that Capital One is looking not so bad ("Of the pure-play card issuers, Capital One is best positioned to ride out the storm; its acquisition of Chevy Chase Bank gives it a fresh source of funding.") Like many of the other risky banks even before the crisis in September, Capital One was offering very attractive FDIC-insured online savings rates to attract deposits, a way of "bailing" themselves out reasonably cheaply. In November I opened an account and the rate was 3.55% APY. But, now Capital One is doing so well that they slashed their online savings rate to 2.64% APY from 3.00% APY where in was in late December. That is for a $10,000 minimum. They are offering only 1.50% APY for balances under $10,000. Silly me, wishing my bank was on shakier ground!

The good news is that GMAC Bank is still offering 3.25% APY with no minimum. Despite the government bailout of Detroit and GMAC itself becoming a bank holding company, GM and GMAC are still on somewhat shaky ground. But with FDIC insurance, you have got to love it!

I had put some of my estimated tax money for next week (quarterly due date of 1/15) in my GMAC Bank account, but since it is earning the higher rate, I will leave it there and take the money out of my Capital One Online Savings account since it is earning a much lower rate. A larger pile of my cash is sitting in a Sovereign Bank money market account that is still earning the same rate as GMAC Bank.

All of these FDIC-insured bank accounts are paying a higher rate than the best money market mutual fund rate that I can get from Fidelity, even though any new balances at Fidelity would not have any government protection. Actually, fresh money market funds do have some "protection" in the sense that the Federal Reserve now has some new programs in place to facilitate liquidity of money market funds.

-- Jack Krupansky

No FDIC bank failures for three weeks in a row

The FDIC reports bank failures on Friday evenings, but has not reported any since Friday, December 12, 2008. It could be that the holdays interfere with the process, but I would not bet on it. In any case, it will be interesting to see if any failures are reported tomorrow evening.

The FDIC does not give any advance notice of bank closures. In fact, it is usually a state banking regulator who does the closure and then FDIC is "named receiver" and then takes over and promptly arranges to sell as much deposits and assets as it can to a healthier bank.

The basic idea is to totally avoid old-fashioned "runs" on banks and pre-arrange the assumption of deposits by a healthy bank before the closure is even announced. In other words, there should be no disruption of service and no need for customers to lose any sleep.

There were 25 banks that were closed by regulators this year, which is a lot compared to a normal year, but miniscule considering that all that has happened this year and the fact that there are over 8,000 banks and savings associations in the U.S.

-- Jack Krupansky

Wednesday, January 07, 2009

Stimulus bill getting respectable reception

Although there are still plenty of hurdles for Barack Obama's stimulus bill, the reception today has been quite reasonable. A Bloomberg article by Ryan J. Donmoyer and Christopher Stern entitled "Democrats Will Revise Obama Stimulus, Baucus Says" tells us that:

Senator Max Baucus of Montana ... signaled a willingness to accept Republican ideas to reach a bipartisan consensus. "My goal is to get people together," he said. Baucus's full committee will meet privately tomorrow and may draft a bill as early as next week.

Senate Minority Leader Mitch McConnell, a Kentucky Republican, has said his party would support an immediate middle- class tax cut as part of any stimulus package.

Obama also has proposed tax cuts for businesses, including the ability to convert current losses into cash by getting a refund of taxes paid in the past, accelerated depreciation for companies that purchase equipment, and a tax credit for hiring workers.

...

House Republican Leader John Boehner told reporters today that talks between Republicans and Obama about the specifics of a stimulus measure are off to a "good start." Still, he said members of his party remain wary about the overall size of proposals that Democrats are discussing.

We are certainly not there yet, but Senators and Republicans are making at least some of the right noises.

The good news is that the constant drumbeat of bad economic news (job losses today and a bad report expected on Friday) will help to convince reluctant Republicans that a big number is important, and help to convince a plodding Congress to act more promptly than the middle of February.

Nonetheless, the news on the stimulus bill today was reasonably encouraging.

-- Jack Krupansky

Recession will end before the job losses

The recession will likely end well before the job losses, as was the case in the last recession. The process of creating jobs is a rather slow one. The dollars from fiscal stimulus will likely initially result in a jump in spending by businesses who directly receive the stimulus, an increase in overtime, and an increase in hours for workers who had hours cut back over the past year. Companies will resume hiring only after they can no longer produce output using existing staff. All of that initial spending will show up in GDP, but without a bump in jobs. Meanwhile, companies that are not getting that stimulus or seeing a bump from the spending of that stimulus will continue shedding jobs for months to come. Eventually the flow of stimulus money will reach the remaining surviving companies and they will be able to resume hiring or at least slow down their cutting of jobs.

Also, a hefty chunk of the stimulus will merely "save" jobs, such as aid to local and state governments which permit them to continue spending without the need to fire more workers. That spending will quickly show up in GDP, but without a corresponding bump in jobs, at least initially.

The simple point is that jobs will not be the leading indicator of the end of the recession.

I would not be surprised if it took four to nine months after the start of stimulus spending before we start seeing significant job gains.

-- Jack Krupansky

Gasoline price spiking upwards

Yesterday alone, the retail price of gasoline spiked up almost 4 cents. The AAA Daily Fuel Gauge Report show that the national average retail price for a gallon of regular unleaded gasoline has risen to $1.727, 12 cents above its recent low of $1.60.

February RBOB unleaded gasoline futures are at $1.1879, indicating that retail prices are headed for $1.78 to $1.83 within a few weeks, about 10 cents above the current price level.

Still, this latest move of the past week is likely to be simply gasoline trading in a range rather than a new trend back above $2. But, since crude oil is about 37% above its recent low, gasoline could continue to see some upwards pressure unless the price of crude oil declines.

Gasoline below $2 continues to mean more cash in the pockets of consumers and less pressure on their budgets as well as the budgets of businesses and governmental entities. It also means more traffic on the roads.

-- Jack Krupansky

Tuesday, January 06, 2009

Whether to continue my Sharebuilder automatic investment program

Since I am starting to live on savings now and may be for a few more months, the question arises of whether I should continue or suspend my monthly Sharebuilder automatic investment program in Microsoft stock. In the past, this was part of my "savings" since I was converting income from work into an investment, but now any "investment" in this plan would be simply a transfer from cash savings to stock, so it wold be more of an asset allocation shift than a savings plan. Granted, I still feel comfortable investing in Microsoft stock going forward, but I am also reluctant to put any additional downwards pressure on my cash reserves.

I need to decide by next Monday whether to suspend the plan before it makes the next automatic investment next Tuesday.

I am seriously leaning towards suspending the automatic investment plan since paying closer attention to preserving my cash reserves feels like a top priority.

On the other hand, if I get new work within a few months, the total dollar amount of the automatic investment plan will still be fairly small.

I may decide to continue the plan tentatively for another two months and decide in three months whether my work prospects are imminent or not. That will probably be my default plan.

Or, who knows, maybe I will have some new work lined up by the end of this week. You never know.

-- Jack Krupansky

What concessions will Barack Obama make to the Republicans to get a timely stimulus bill passed by a wide margin?

Although there has been talk of the big stimulus bill being delayed until the middle of February, I think this is simply the "same old games of Washington" mentality trying to take root again, and premised on the Democrats proposing an unacceptable bill that passes the House and then fails in the Senate and then gets renegotiated to be what it should have been in the first place. But, in meetings on Monday, Barack apparently indicated that he wanted a bill sooner than what people were talking about. There was also talk that he is determined to get 80 votes in the Senate. That makes a lot of sense to me, but suggests that major concessions will be needed. The ultimate question is what concessions Barack Obama will be willing to make to the Republicans in the Senate in order to assure that the bill gets passed, gets passed with a fairly wide margin of moderate Republicans, does not get blocked by angry right-wing Republicans, and gets passed ASAP, within a few days of the innauguration.

The precise list of concessions is not as important as the question of process. Barack is a strong enough community organizer to be able to deeply comprehend the extent to which he will need to make moderate Republicans relatively comfortable with any stimulus plan, as well as to assure that no right-wing Republicans feel offended enough to block the bill with parliamentary maneuvers. I am 100% confident that Barack knows this "game" well and will play it well, despite opposition to compromise that will come from his Progressive supporters.

I look forward to Barack signing a solid stimulus bill before the first of February.

-- Jack Krupansky

Monday, January 05, 2009

Oops, gasoline price headed up again

Supposed geopolitical tension over Gaza, supposed cutbacks in production by OPEC members, the rising price of crude oil, and the transition to a new, higher-priced front-month wholesale gasoline futures contract mean that the price trend for retail gasoline has headed up again, for almost a week now. It bottomed at about $1.60, and now the AAA Daily Fuel Gauge Report show that the national average retail price for a gallon of regular unleaded gasoline has risen to $1.672.

February RBOB unleaded gasoline futures are at $1.1771, indicating that retail prices are headed for $1.77 to $1.82 within a few weeks, about 10 to 15 cents above the current price level.

Still, this latest move of the past week is likely to be simply gasoline trading in a range rather than a new trend back above $2.

All of this means more cash in the pockets of consumers and less pressure on their budgets as well as the budgets of businesses and governmental entities. It also means more traffic on the roads.

-- Jack Krupansky

Sunday, January 04, 2009

Looking for work, again

I have not gotten any strong indication that my most recent software development contracting client will be needing my services in the near future, so now that the holidays are over I need to start looking for new work ASAP. I have not had any billable work since the middle of November, but I have enough cash saved from work over the previous six months to hold me over for at least a few more months.

There is still a chance that I may get some more work from my current client sometime this month or next, so I will not begin looking for work full-time until later this month, but I have already been looking around as a background task for the past few weeks. It will be my half-time task for the next few weeks.

I would like to find some work here in New York City, or at least remote work I can do at home, but I may have to relocate depending on what work is available. That's part of this business.

My recent client was lucky enough to get a substantial pile of venture capital cash in September just as Lehman Brothers was imploding, but now they, like most other VC-funded startups, are being ultra-hyper-cautious in their spending since they need current funds to last for who knows how long in this weakened economy.

-- Jack Krupansky

Saturday, January 03, 2009

Does Pelosi get the message about working with the Republicans?

In his weekly address, Barack Obama talks in vague terms that "the problems we face today are not Democratic problems or Republican problems... These are America's problems, and we must come together as Americans to meet them with the urgency this moment demands." and that "we need an American Recovery and Reinvestment Plan." I am sure that Barack fully understands that he needs more than a couple of Republicans onboard if he wants a plan that is as grandiose as he envisions and as quickly as he correctly deems it necessary, but I have seen no evidence that Pelosi and her fellow Democratic hench-persons in both houses of Congress are in fact ready if not enthusiastic about accommodating the alternative views of a moderate number of moderate Republicans. From news reports, it does sound as if Barack's stimulus (or "recovery and reinvestment") team has been instructed to incorporate items from an earlier House stimulus bill, but that is surely a recipe for arriving at a standoff with most Republicans in the Senate. I suspect that Barack knows that this will be the result in the very near term (this week) and that he has "calculated" that he needs to allow that result to show that he is nominally on the side of the Progressive wing of the Democratic party. Once that standoff is reached, Barack can then turn to Pelosi, et al and wait for them to finally admit that they will have to make some concessions in order to get their bill passed. Barack will not have to say anything. The Democrats already know that concessions are needed, but they need to play to The Progressives and pretend that the Democrats "control" Congress. This is the way "The Game" is played in Washington. Sure, Barack said he wanted to stop playing "the same old games of Washington", but he wants fast, substantial results, so that's what is required.

So, the question is what Progressive elements of the current, unseen American Recovery and Reinvestment Plan will need to be ditched and what minimal collection of Republican stimulus policies need to be added to get at least a dozen moderate Republicans to vote for the bill and to not have it be so toxic to the remaining right-wing Republicans that they engage in parliamentary stalling tactics.

Barack said:

I look forward to meeting next week in Washington with leaders from both parties to discuss this plan.  I am optimistic that if we come together to seek solutions that advance not the interests of any party, or the agenda of any one group, but the aspirations of all Americans...

The first part about "discuss this plan" suggests that his initial proposal is somehow already cut into stone and he will be like Moses presenting the Ten Commandments, but then he goes on to say "seek solutions that advance not the interests of any party, or the agenda of any one group", suggesting that significant changes would be permitted, even bi-partisan changes that are not strictly supported by only the Democrats. These are conflicting messages, but I suspect that is intentional on his part.

What Barack is really saying is that his initial proposal incorporates most if not all of the Progressive economic agenda, which should convince The Progressives that he is nominally on their side, but that he fully recognizes that compromise with moderate Republicans will be required and essential and in fact a good thing.

To be fair, Pelosi may in fact agree with this approach 100%, but for political reasons cannot and must not challenge The Progressives and admit that compromise will be even considered.

So, this necessary Democratic pandering to The Progressives means that an economic stimulus plan needs to be rolled out in this multi-step fashion, with step one being intentionally crippled to pander to The Progressives, step two being moderate Republicans shaking their heads "No", step three being Barack meeting with all of the "injured" parties, step four being Pelosi acknowledging that the Senate does not have the votes, step five being modifications to make the plan bi-partisan, and finally passable by the Senate.

-- Jack Krupansky

Friday, January 02, 2009

Is manufacturing heading into a depression?

The ISM Manufacturing report today was quite gloomy, with an article in The New York Times by Bettina Wassener entitled "Manufacturing Reports Show Depth of Global Downturn" telling us that "manufacturing continued to slump amid the worst slowdown since the Great Depression" and that the ISM Manufacturing index "fell to the lowest level in 28 years in December." 28 years points back to 1980. The Times quotes ISM as saying that "New orders have contracted for 13 consecutive months, and are at the lowest level on record going back to January 1948." 1948 was 60 years ago. Awfully gloomy stuff.

While it is true that manufacturing is an important sector of the U.S. economy it is worth noting that the U.S. economy is now primarily a service economy, so that weakness in the manufacturing sector is not necessarily an indicator of weakness ahead for the overall U.S. economy. Next week we will get the ISM non-manufacturing (services) report, which will also likely show weakness in the services sector of the U.S. economy for the month of December. The ISM Manufacturing report notes that "if the PMI for December (32.4 percent) is annualized, it corresponds to a 2.7 percent decrease in real GDP annually." That is bad, -2.7% real GDP, but that is only if manufacturing does not improve in the months ahead.

The real bottom line here is that everybody knew that December was a bad month for the economy. Detroit had slammed on the brakes and remains near a dead stop, but later in the month the bailout funds should enable the car companies to get started again and we may have a near-$1 trillion fiscal stimulus package on the way as well, so I would not use December as a leading indicator of whether manufacturing or the overall U.S. economy is headed in the months ahead.

Yes, the economic reports for December are truly dismal, but still not so bad as to indicate that a true depression is a likely scenario.

-- Jack Krupansky

ECRI Weekly Leading Index indicator rises sharply for a third week but remains deep in recession territory

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) rose sharply by +1.13% vs. +0.51% last week, and its annualized growth rate rose moderately to -28.7 vs. -29.2 last week, but is still near its record low for its 60-year history of data of -30.3 for the week ended December 12, 2008, which is well below the flat line, suggesting that the economy will be struggling in the months ahead.

According to ECRI, "Despite a three-week uptick, WLI growth remains close to its all-time low seen in early December, which tells us that the recession will persist for the time being."

The bottom line is that the ECRI WLI remains "flashing red." Alas, even the ECRI WLI is not a guaranteed, fool-proof economic indicator, especially when the data is mixed and there some amount of stimulus as well as potential problems in the pipeline.

My personal outlook is that: The recession of the U.S. economy that started in December 2007 and sharply accelerated in August is currently shows no sign of an imminent end, but the decline may be starting to flatten out a little.

Although the current economic reports show significant weakness, there is also a vast amount of potential stimulus in the pipeline that could kick-start the economy within the next couple of months.

-- Jack Krupansky

Thursday, January 01, 2009

The worst is now behind us, really!

I am the perpetual optimist, but even I am not so absolutely sure that the worst of the financial crisis and economic recession and stock market decline are truly behind us and that 2009 will be a definite, if tepid, year of recovery, but that is in fact what I believe. Sure, there will be plenty of negative news in the next few months, and monthly GDP may not make its final bottom until later in Q1 and employment may continue to decline well into 2009, but there will likely be so much fiscal stimulus pouring into the economy by Q2 that GDP will bounce back quite strongly. Granted, this will not be a truly healthy economy at first since it will be on fiscal stimulus "life support", but it will not be much of a stretch for the stock market to believe that Democrats will continue to spend for years to come.

That said, the first few months of 2009 will be a real test of nerves for stock market investors since the continued flow of negative news (e.g., Q4 GDP likely to be down -6.5% with the final report not due until late March, plus ongoing negative employment reports) will result in a continuation of whipsaw volatility in the market. The market trend in Q1 will very likely be up, but with big dips to "test" each big gain. Enjoy the ride!

-- Jack Krupansky

Still not sure what to do with an extra $20 other than to save it

I still have an extra $20 bill from last week, with no new great ideas for something productive to do with it. My default is to save it (and earn 3% interest), but I would prefer to find something to do with it that would have some more substantial, longer term impact than, say, paying my electric bill.

I would like to find something that would make some noticeable difference a year from now.

Maybe the simple fact is that $20 is small change these days. But  that begs the question of what I would do with an extra $200 or $2,000 or even $20,000.

Two ideas that come to mind are that maybe I could attend some professional training seminar or trade conference.

Maybe the real question is not the money or financial cost per se, but what can I productively do with my time, how can I more productively use an hour or two or day or two of my time for a more significant, longer-term gain.

-- Jack Krupansky