GNP, M&A, EBITDA, P/E, NASDAQ, Econo-thread Part 10

[DanS]

Roland: It looks to my uneducated eyes like the recession has ended and the Kasriels of the world have been vindicated. If that's a tunnel, then I'll buy it. However, I'm less sanguine going forward. Outlook = so so. The stock market will continue to trade in the range that we have been seeing over the last couple of years. Do you think this is incorrect?

Re unemployment...

http://www.bls.gov/news.release/empsit.nr0.htm

Colon: One reason that I've been thinking about is the possibility that it is becoming harder (in a general sense) to add employees--an employee is becoming more valuable to keep. For many years, we experienced job growth, but not much in the way of real wage growth for men. Employers found it easy to add female employees. But that pool of new employees is about tapped out, even when you consider increased unemployment and the continuation of mass immigration.

[Roland]

"...eyes like the recession has ended"

Well if Q4 stays positive, it hasn't even begun, technically. If it drops and Q1 is negative, it's still on. But those are minor timing issues...

"Re unemployment...

http://www.bls.gov/news.release/empsit.nr0.htm "

Exactly. "The civilian labor force fell by 924,000 in January..."

[Colon™]

Dan, actually, I’m viewing this as a cyclical phenomenon because compensations growth has accelerated to this level only since 2000. You’re describing a long-term trend and in the LT compensations grows on par with productivity while compensations/hour has consistently outpaced productivity/hour. (see this BLS productivity report about Q3)

[DanS]

Colon: yeh, taking a look at the numbers again, the long-term labor participation hasn't changed enough to make that much of an effect.

[Colon™]

Here’s a quote from an article in this week’s economist (I won’t bother providing the rest )

” As companies draw up their pay budgets for 2002, they are being even tougher than they were in 2001. A survey last October by William M. Mercer, a pay consultancy, found that 19% of companies had cut the pay increase they originally planned in their budgets. Steven Gross, head of Mercer's employee compensation practice in America, expects more to do so: in 1990, a year of recession, 1% of employers froze budgets, but that figure climbed to 9% by 1992, as the recession abated.”

Guess I’ll have to wait and see.

[DanS]

Interesting productivity numbers...

1.8% annual isn't so bad.

Also, I wonder when Japan will stop contracting... Doesn't look good. Deflation sucks! And I sort of get the feeling that they don't have an end game in mind.

edit yet again: This "Crony Capitalism" headline wrt the US is such BS, but I assume Roland will want to know when the headline is used.

http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT3IL225CXC&live=true

Cleaning the stable floors...

[el freako]

DanS,

Remember at the top of the boom when I was worrying about the net financial position of US Households.

Well the figures for the fourth quarter are scary indeed.

In Q1 2000 US net household saving (that gross saving less investment, mainly in housing) was -5.4% of disposable income.

Despite an upward blip caused by the tax rebates in Q3 that figure had actually deteriorated by Q4 2001 to -5.5%.

The long term average (for 1950-95) is +1.9% and during recessions figures of +4% are the norm.


The worrying thing is that the main financial imbalance that I thought would cause recession in the US has not improved at all, and no other country has been able to keep spending so far ahead of incomes without there being a nasty correction later.

If US household's were just to bring their financial balance back to the long-term average by 2005 and their disposable income increased at 3% a year (the average for the last 20 years) that would imply that spending by households (which accounts for 77% of GDP) would rise at an annual rate of only 1.3% - only as fast as population in other words.

This compares with an averages of 4.5% during the boom of 1996-2000 and 3.4% since 1980.

[pchang]

inclusions

Does the savings rate include contributions to things like IRA's and 401K plans?

[el freako]

The data is from national accounts.

The savings rate is a residual it is the difference between Disposable Income - that's income after taxes and benefits - and personal outlay's, which is personal consumption, interest payments and transfers overseas.

As this is the total difference between income and spending it must, by definition, include any kind of saving.

[Roland]

"1.8% annual isn't so bad."

Oh it isn't. But then, we have barely begun to cut back inflated investment, to rebalance the economy, to liquidate malinvestments....

"edit yet again: This "Crony Capitalism" headline wrt the US is such BS, but I assume Roland will want to know when the headline is used."

Well, after enron I prefer calling it "Idiot capitalism". That okay ?

Btw, that article in the FT is piss funny.

"Enron was allowed to collapse" - lol.
"its practices are being investigated with vigour" - ROTFL.
"and accountants and others are scrambling to reform." - Hahahaha.
"The changes must be convincing if the Washington consensus is to retain its authority in the eyes of the wider world." - "authority" ? Did she really write "authority" ?

pchang:

"Does the savings rate include contributions to things like IRA's and 401K plans?"

The savings rate in the national accounts books them as savings. The savings rate el-f mentioned though is more the household financing position (if I understand correctly?) where those would be counted as an expense.

[DanS]

Re the savings rate, let's call Q4 a "Fed Bonus". Quite a few people refinanced to a lower rate, then bought a car with the resulting wiggle room. I realize this is a one-off deal, though, and eventually it will revert somewhere close to the mean.

ef, the memory of my one survey econ course in college is failing me ( ). Isn't that %-age of GDP consumption number higher than normal? For instance, I seem to remember a 70% figure. Maybe 72%. If that is the case, shouldn't the remainder grow from ~ 23% to 30% (is it gov't spending? biz spending?) and give the economy at least a small pop?

[DanS]

"and accountants and others are scrambling to reform." - Hahahaha.

Roland: Actually, I think they are/will. Andersen is probably caput because of this. The accountants will see Andersen fall and eventually will get tired of being the scapegoat for companys' natural inclination to use aggressive accounting. They are pretty much immediately separating their consulting and auditing businesses. Of course, this is a red herring, IMO, but it does show that the impetus for reform is real and large.

"Did she really write "authority" ?"

Well, as you know, I don't think this is a political issue at heart. But one regulatory area that needs to be deepened is the disclosure rules at the SEC. I think the US does very well at this (do any other countries do better?), but maybe we're seeing too many 500-page filings that say as little as possible. Maybe the NYC law firms who do all of these filings need to be taken to the woodshed.

For instance, we'll probably see stricter insider trading disclosure laws--more timely disclosure of trades would be helpful to all.

[Roland]

Originally posted by DanS
Isn't that %-age of GDP consumption number higher than normal? For instance, I seem to remember a 70% figure.

I'm not 100 % sure about el ef's numbers there, but household spending is more than consumption - unless you're the US. Yet consumption is about 70 % of GDP - and don't forget that currently, all US consumption and investment is about 104+ % of GDP.

ElF's number could also be private sector spending though. I'm a bit confused.

[Roland]

"They are pretty much immediately separating their consulting and auditing businesses."

Well that doesn't change the problem that auditors are de facto hired and paid by the audited.

"I think the US does very well at this (do any other countries do better?), but maybe we're seeing too many 500-page filings that say as little as possible."

The best rules are wasted on a market that is gaga. So much of this will auto-correct. Transparency is nice, but can be outmanouvered by information overkill. As for comparisons, I wonder why we had little accounting fraud so far. I'd expect some to surface, especially for those companies listed in NY too.

I wonder if anyone from Enron will do time for all this. If you can pull such a thing off legally or escape punishment, it's pretty much an invitation to gamble.

[el freako]

The figure I used was:

Disposable Income - Gross Saving + Residential Investment

For Q4 2001 that's:

$7438.8bn - 39.0bn + $447.4bn = $7847.2bn

As GDP was $10,221.6bn that amounts to 76.8% of GDP.