Within the New York District, condo sales volumes strengthened and low inventories have begun to drive up selling prices in New York City and surrounding areas, while New Jersey home prices were rising modestly and inventories were shrinking with a marked reduction in the number of distressed properties.
Several Districts, including Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Dallas, and San Francisco, said loan pricing was very competitive. The San Francisco District said increased growth in automobile and mortgage loans spurred overall improvements in loan demand. The Dallas District saw broad-based improvement in loan demand as energy-related lending remained strong and commercial real estate and home equity lending bounced up from low levels.
New York District respondents noted some increased selling prices in the service sector, and the Atlanta District reported that contacts in the transportation sector were able to cover cost increases with fuel surcharges. Kansas City District contacts said price increases for raw materials used in manufacturing led to higher selling prices in some instances and retail prices edged up.
I will return to NYC November 12 for a one-day meeting. Then I'll fly down to be with my good friend Cliff Draughn at Ponte Vedra, Florida (south of Jacksonville), on November 14. 3-6), and later that month I'll head to Geneva. In January I will visit sunny Saudi Arabia for the first time and am open to other speaking engagements in the region. I go from there to a speaking trip in late January that will take me through three cities in Western Canada (Vancouver, Edmonton, Regina), where the weather will be quite the opposite. I finish this letter from Dallas after flying back today. You can find out more by going to Cliff's website at website And then it's back to NYC in early December (Dec.
In the film A Few Good Men Jack Nicholson played Colonel Nathan Jessup. David Zervos, chief market strategist at the investment bank Jeffries & Co. While central bank Code Red policies are unorthodox and distasteful, many economists believe they are necessary to kick-start the global economy and counteract the crushing burden of debt. He was guilty of using an unconventional approach to discipline by ordering a Code Red, an extreme discipline method, on his soldiers. , humorously observed that if Ben Bernanke, the Chairman of the United States Federal Reserve, could be honest with the public, he would paraphrase Colonel Jessup's speech: Colonel Jessup explained in court towards the end of the film that while his methods are grotesque and abnormal, they are necessary to preserve freedom.
(By the time you read this book, the number will probably be a few trillion higher, but who is counting? The amount of money central banks have created is simply staggering. Under quantitative easing, central banks have been buying every government bond in sight and have expanded their balance sheets by over nine trillion dollars. Yes, that's $9,000,000,000,000 - twelve zeros to be exact. Dirksen once probably didn't say, "A billion here, a billion there, and soon you're talking about real money. We could go on, but you get the point: it's a big number . " To put it in everyday terms, if you had a credit limit of nine trillion dollars on your credit card, you could buy a MacBook Air for every single person in the world. ) Numbers so large are difficult for ordinary humans to understand. You could fly everyone in the world on a round-trip ticket from New York to London and back. You could do that twice without blinking.
But to be perfectly honest about it, we are all forever venturing into the unknown territory that we call the future. New inventions and technologies, global expansions and collapses, and amazing developments of all kinds arrive to challenge us every day.
Keeping Up with Tech
I said at the beginning of the letter that central bankers had run right off the monetary-policy map into unexplored territory. But we certainly do live in an unprecedented, absolutely extraordinary time. To thrive we must adapt! Code Red will be available on Amazon on Monday, Oct.
The New York District noted widespread increases in loan demand, particularly for commercial loans and residential mortgages, and the Cleveland District said business and consumer loan demand picked up since the last report. The Philadelphia District, however, said loan volumes softened somewhat since the previous report. Banking and Finance
Loan demand was steady to slightly up at most District Banks that commented on lending.
I think NBA basketball is the most beautiful of sports. I have been a season ticket holder for 30 years and have seen bull and bear markets in the team, but it has always been entertaining. I am actually going to be able to go out on a Friday night! It is time to hit the send button. And my seats are better now than 30 years ago, when I was literally on the very top row in the corner. Another season for the Dallas Mavericks is beginning, and I want to go and see what Mark Cuban has in store for me. But it's sure fun to sit and watch. Good thing there's been no inflation since 1982. Even the guys we think of as average can do things that we mere mortals can never hope to aspire to. I think they were something like $2.Sales of electronics rose in the Cleveland District, and the San Francisco District report indicated strong demand for mobile computing devices. Sales activity was mixed according to the Atlanta District's report, and retail spending declined in the Richmond and Chicago Districts. Demand for apparel rose in the Boston, Cleveland, Kansas City, and San Francisco Districts, and sales of furniture and appliances in the Chicago District were buoyed by improvements in the housing market. Contacts in some Districts cited higher gasoline prices, expiration of the payroll tax cut, and winter weather as factors restraining sales growth.
Countries are turning protectionist. Emerging market countries like Brazil, Russia, Malaysia, and Indonesia will not sit idly by while developed central banks weaken their currencies. Governments will fight dirty, they will impose tariffs and restrictions and capital controls. They are imposing taxes on investments and savings in their currencies. The battles have only begun in what promises to be an enormous, ugly currency war. It is already happening and we will see a lot more of it. They are fighting to keep their currencies from appreciating. If the currency wars of the1930 and 1970s are any guide, we will see knife fights ahead.
Trucking traffic picked up in the Kansas City District, and trucking cargo volumes were above year ago levels according to Atlanta's report. According to Richmond's report, container traffic increased at larger ports in the District because of continued strength in shipments of auto parts. Air freight volumes rose in the Atlanta District, and small parcel shipments grew strongly in the Dallas District. Railroad contacts in the Dallas District said shipments grew, particularly for petroleum and construction-related products, and freight transportation volumes were higher than expected in the Cleveland District.
Cold weather delayed field preparation for spring planting in the Richmond and Chicago Districts. However, drought conditions improved significantly in much of the Atlanta District, and the winter wheat crop in the St. Agriculture and Natural Resources
Agricultural conditions were mixed across Districts, largely due to varying weather patterns. Louis District was largely in good condition. Drought persisted in the Kansas City District and worsened slightly in the Dallas District, straining the respective winter wheat crops and causing continued losses in the livestock sector.
In contrast, business at restaurants and museums in the Boston District softened in part due to unfavorable weather conditions. Attendance and revenues were slightly lower at Broadway theaters, casino revenues fell in the Philadelphia District, and tourism activity weakened in Southern California during the reporting period.
The money printing that central bankers did after the failure of Lehman Brothers was entirely appropriate in order to avoid a Great Depression II. The initial crisis is long gone, but the unconventional measures have stayed with us. Central bankers kept on creating money. Once the crisis was over, it was clear that the world was saddled with high debt and low growth. Quantitative easing was a shocking development when it was first trotted out, but these days the markets just shrug. What will withdrawal be like? The Fed and central banks were merely creating some money and credit that only partially offset the contraction in bank lending. Now, the markets are worried about losing their regular injections of monetary drugs. In order to fight the monsters of deflation and depression, central bankers have gone wild.
Dallas District contacts said office and warehouse markets were improving, and Atlanta District respondents noted growing optimism for the office and industrial sectors. Contacts in the Philadelphia and Kansas City Districts were somewhat optimistic in their outlooks for the commercial real estate and construction markets in general, but contacts in the Cleveland District were cautious about near-term construction activity.
Central bankers contributed to the economic crisis the world now faces. They couldn't spot housing bubbles, and even when the crisis had started and banks were failing, they insisted that the banks they supervised were well regulated and healthy. The arsonists are now running the fire brigade. They fixated on controlling inflation, even as they stood by and watched investment banks party in an orgy of credit. They kept interest rates too low for too long. Yet governments now need central banks to erode the mountain of debt by printing money and creating inflation. They failed at their job and should have been fired. Central bankers were completely incompetent and failed to see the Great Financial Crisis coming.
Louis District reported plans to open new dealership locations, and dealers in the Chicago District were building inventories for the spring selling season. The exception was a slight decline in sales of used vehicles in the New York and Cleveland Districts. A number of contacts in the St. Overall, automobile sales remained strong or increased moderately since the last report. Used vehicle prices remained high.Primary and fabricated metal manufacturers in the Philadelphia District experienced a slowdown in activity, and a structural steel manufacturer in the Minneapolis District planned to close. Durable manufacturing was weak in the Kansas City District, but non-durables-especially chemical manufacturing-improved. Louis, Kansas City, and Dallas Districts expected activity to improve over the next few months across a wide variety of industries. Expectations for future factory activity were generally more optimistic compared with the previous survey. Contacts in the Boston, New York, Philadelphia, Cleveland, Atlanta, St.
The majority of Districts said overall price pressures remained minimal during the reporting period. Several Districts, including Boston, Philadelphia, Cleveland, Minneapolis, Kansas City, and San Francisco, said prices for some construction materials rose since the last report, but there were few reports of pass-through.
Louis District reported new store openings, and some retailers in the Dallas District said they have added employees in line with expanding operations. Looking ahead, retailers in several Districts expect modest sales growth in the near term. In particular, the St.
It is grotesque and not what central bankers are meant to do. Central bankers are left with no other option but to create inflation and devalue their currencies. They're sparing some the pain of defaults while others bear the pain of low returns. But people can't handle the truth, and inflation is exactly what the central bankers are preparing for us. No one wants to hear that we'll suffer from higher inflation. Growing our way out of our problems would be ideal, but it isn't an option. The global situation reminds us very much of Woody Allen's quote, "More than any other time in history, mankind faces a crossroads. Economic growth is elusive everywhere we look. But a world in which big banks and governments default is almost by definition a world of not just low but (sometimes steeply) negative returns. As we said in Endgame, we are left with no good choices, only choices that range from the merely very difficult to the downright disastrous.
Office vacancy rates declined across most of the New York District, and industrial vacancy rates in upstate New York posted their lowest levels in three years. Although some modest growth was reported in the Chicago District, the level of activity remained weak, and commercial contractors in the Cleveland District noted a slowing in activity, particularly for defense-related projects.
Louis District noted plans for hiring and expansion in social and legal services, while the Dallas District report indicated weaker-than-expected growth in demand for legal services. Advertising and marketing firms in the Boston District said an uptick in growth for their services was buoyed by stronger financial positions of clients.
The pace of growth picked up in the Cleveland, Atlanta, Minneapolis, Dallas, and San Francisco Districts, while the Richmond and Chicago Districts noted that the pace of growth in production was slower than earlier this year. Manufacturing
Manufacturing activity held steady or increased in most Districts since the previous Beige Book. Outlooks among respondents remained optimistic across sectors and Districts, with growth mostly expected to continue at the same or a slightly improved pace. Some uncertainty remained, primarily regarding fiscal policy and health care reform.
Standards of living are falling for many and economic growth is elusive. In the US, UK, Japan, and most of Europe, savers receive close to zero percent interest on their savings while they watch the price of gasoline, groceries, and rents go up. This means that the interest savers receive on their deposits cannot keep up with the rising cost of living. There are clear winners and losers as prudent savers are called upon to bail out reckless borrowers. Big banks are bailed out and continue paying large bonuses while older savers are punished. Savers and investors in the developed world are the guinea pigs in an unprecedented monetary experiment. Today is a time of financial repression, where central banks keep interest rates below inflation.
Stronger refinancing activity was cited by the New York and Atlanta Districts. Reports on mortgage lending were mostly favorable. The Cleveland and Kansas City Districts noted a shift from mortgage refinancing to new purchases, and the New York, Richmond, Dallas, and San Francisco Districts reported an uptick in residential mortgage loans.
Real Estate and Construction
Residential real estate activity continued to improve in most Districts, and some Districts, including Cleveland, Richmond, Chicago, Minneapolis, Kansas City, Dallas, and San Francisco, noted increased momentum since the last report. The New York District, in particular, noted especially strong improvement in residential real estate-both in for-sale housing and apartment markets.And the new bartender promises to be even more liberal with her libations. " In his unrequited passion I find an unsettling analysis, if he is even close to the mark. Central Bankers Gone Wild
But there is a resounding call for even more rounds of monetary spirits coming from emerging-market central banks and from local participants, as well. This week my friend David Zervos sent out a love letter to Janet Yellen, professing an undying love for the prospect of a Yellen-led Fed and quoting a song from the "Rocky Horror Picture Show," whose refrain was "Dammit, Janet, I love you.
Louis, and Minneapolis Districts. Wage pressures were mostly limited, but some contacts reported upward pressure for skilled positions in certain industries due to worker shortages. Sales strengthened in the Philadelphia and Richmond Districts, and retail sales were higher than a year ago in the Boston, St. Consumer Spending and Tourism
Consumer spending expanded in most Districts, but several Districts reported mixed or lower activity among non-auto retailers.
Many Districts reported a rise in temporary employees, while staffing contacts in the Boston District noted an increase in the placement of permanent and temporary-to- permanent workers. Employment, Wages, and Prices
Labor market conditions generally improved, although several Districts reported restrained hiring.
Rather than inducing them to consume more, they are forcing them to spend less in order to make their savings last through their final years! In the bizarre world we now inhabit, central banks and governments try to induce consumers to spend to help the economy while they take money away from savers who would like to be able to profitably invest.
Many emerging market stock markets have skyrocketed, only to fall back to earth at the hint of an end to Code Red policies. Junk bonds and risky commercial mortgage-backed securities are offering investors the lowest rates they have ever seen. It is fun for a while, but the end is always ugly. Older people who are relying on pension funds to pay for their retirement are getting screwed (that is a technical economic term that we will define in detail later). They're picking up dimes in front of a steamroller. In normal times, retirees could buy bonds and live on the coupons. Investors are reaching for riskier and riskier investments to get some small return. Government bond yields are now trading below the level of inflation, guaranteeing that any investor who holds the bonds until maturity will lose money in real terms. We are already seeing the unintended consequences of this Great Monetary Experiment.
Ethanol production declined in the Minneapolis and Kansas City Districts but edged up in the Chicago District. Minneapolis reported a slowdown in metal mining activity, and some facilities planned to further reduce production later in the year. Louis, and Kansas City Districts, and was expected to decline further with a shift in demand toward low-priced natural gas and stricter environmental regulations.
So, without further ado, let's jump right into the introduction. We finished the last draft less than two months ago and rushed it to press; but perusing it again this week, I found it even more timely than when we hit the send button to deliver it to the publisher. I saw the actual book for the first time this week and found myself reading it with fresh eyes. (If nothing else, you must read my redo of Jack Nicholson's speech from A Few Good Men - as delivered by Ben Bernanke.
Strength in residential construction spurred manufacturing increases in several Districts. There were widespread reports of growth in demand for wood products; a contact in the Philadelphia District noted the best growth prospects in five years, a sawmill in Montana restarted production after idling for more than four years, and a Dallas District lumber firm noted a seasonal demand increase for the first time in several years.
Commercial construction saw widespread improvement with the New York, Atlanta, St. Several Districts, including Boston, Richmond, Atlanta, and Kansas City said commercial property investment sales activity increased during the reporting period. Both commercial real estate development and leasing activity increased across the San Francisco District, mostly fueled by growth in the technology industry. Louis, Minneapolis, and Kansas City Districts noting increases. Contacts in the Richmond District cited a tight supply of class A office space and said there were several large projects under construction in the Washington D.
San Francisco continued to report a slowdown in venture capital and private equity activity, but contacts noted an increase in the number of private technology companies moving toward an IPO. Auto lending increased in the Cleveland and Atlanta Districts, and Philadelphia and Dallas cited growth in energy-related loan demand. Banking and Finance
Loan demand was steady or increased across all the Districts that reported. Demand for commercial real estate loans was also strong in the Cleveland, Richmond, and Kansas City Districts. Residential real estate loan demand was strong in the Philadelphia, Cleveland, Richmond, Atlanta and Chicago Districts, mainly driven by refinances due to continued low interest rates.Home prices were rising in many areas of the country. Travel and tourism expanded across most reporting Districts, boosted by both business and leisure travel. Most Districts said residential and commercial real estate improved markedly since the last report. Demand for nonfinancial services increased at a modest pace, and several Districts noted growth in freight and transportation services. Overall vehicle sales remained strong or increased, but sales of used automobiles declined in some Districts.
Kansas City transportation services activity was flat compared to the previous survey period. Trucking firms in the Cleveland and Kansas City Districts had trouble finding experienced drivers, and a Cleveland contact said there may be a driver shortage in the summer. Expectations for future transportation activity were generally positive in most Districts. Dallas reported weakened transportation demand, with decreases in intermodal cargo, air cargo, and coal shipments, but contacts noted that petroleum and petroleum-product shipments increased during the survey period.
One path leads to despair and utter hopelessness. " The choice now left to some countries is only between Disaster A and Disaster B. Today's battle with deflation requires a constant vigilance and use of Code Red procedures. The other, to total extinction. They are punishing savers, encouraging people to borrow more, providing lots of liquidity, and weakening their currencies. Unfortunately, just as in A Few Good Men, Code Reds are not standard operating procedures or conventional policies. Let us pray we have the wisdom to choose correctly. Ben Bernanke, Mario Draghi, Haruhiko Kuroda, and other central bankers are manning their battle station using ugly means to get the job done.
Some Districts indicated a shortage of skilled workers such as engineers, truck drivers, software developers, and technical jobs, and Atlanta noted a lack of compliance specialists due to heavier regulations in the healthcare industry. Wage pressures were minimal in most Districts, but contacts reported some upward pressure for several skilled positions as a result of higher demand.
Borrowing standards were reported to have been loosened in some Districts. Asset quality improved at banks in the Philadelphia, Kansas City and San Francisco Districts. Atlanta contacts noted additional loan capacity, but continued to be cautious with loan activity. Cleveland bankers considered cost cutting measures, including layoffs, due to shrinking net interest margins. Philadelphia, Richmond, Atlanta and San Francisco lenders reported high competition for qualified borrowers. New York contacts indicated a decrease in loan spreads for all loan categories, particularly residential mortgages, and bankers in the Chicago District said that very few mortgage originations were being kept on their balance sheets and that interest rate swaps were being utilized to hedge against a potential rise in interest rates.
Richmond and Atlanta Realtors observed multiple offers on many homes. Philadelphia real estate contacts continued to report low-end home prices as firm or rising slightly, while high-end home prices were still falling. Home prices edged higher in the majority of Districts, with lower inventories generally cited as the primary cause.
And the anecdotes confirming this are yours for the askin'. At the moment, sporadic envelope testing notwithstanding, the answer is yes. The antidote to such a boundless love of stimulus is of course Joan McCullough, with her own salty prose:
And the more I see of the destruction of our growth potential