A lot of people express frustration with “are-we or aren’t-we” economic stories, like the one this morning by The New York Times’s Peter Goodman, who tries to figure out whether or not we’re in an official recession.
What’s in a name, anyway?
The American economy expanded more slowly than expected from April to June, the government reported Thursday, while numbers for the last three months of 2007 were revised downward to show a contraction — the first official slide backward since the last recession in 2001.
But I understand the editorial choice. An economy that feels this bad is hard to reconcile with the fact that, according to official data anyway, it expanded at a 1.9 percent annual rate in the second quarter.
That upside performance was buoyed by consumer spending, apparently itself propped by this year’s federal tax rebate:
…which amounts to 70 percent of the economy, grew at a 1.5 percent annual rate between April and June, after growing at a meager 0.9 percent clip in the previous quarter.
But all arrows are pointing down, as the Times notes about durable goods:
This spending barely grew in the last three months of 2007, fell at a 4.3 percent clip in the first three months of this year and dropped at a 3 percent pace in the second quarter.
and jobs:
Meanwhile, joblessness is growing, with new unemployment claims filed in the week that ended July 26 swelling to 448,000 — up 44,000 from the previous week. And the purchasing power of wages is being eroded by higher prices for food and energy.
You just feel this guy is going to be right:
“We already knew the economy was weak, and now you have both a negative growth number coupled with job losses,” said Dean Baker, a director of the liberal Center for Economic and Policy Research. “There’s a lot of real bad times to come.”
Betting on worse to come
Bloomberg, again, does a nice job of straining to see beyond the headlights, today with a story about how two investors who follow the so-called “macro-investing” style pioneered by George Soros, which looks for profit in macroeconomic trends by trading currencies, bonds, stocks and commodities, see serious trouble ahead:
“Macro investors are torn between two views: We’re in something like the 1970s or we’re in something like the 1930s,” said Christopher Watling, head of London-based research firm Longview Economics, referring to the two worst periods of economic pain in the last century.
I’ll take the ‘70s, if anybody’s asking.
The two investors in question are up this year
Clarium LP, the San Francisco-based hedge fund run by Peter Thiel, gained 47 percent this year as of July 25 on trades that paid off when stocks and the U.S. dollar fell, according to two of his investors. Alan Howard’s Brevan Howard Fund Ltd. rose almost 18 percent, helped by holdings that profited as the Federal Reserve cut interest rates seven times since September to keep the U.S. out of a recession, according to monthly shareholder reports.
And their bets are against the U.S. economy:
Thiel:
… is positioned to profit from declines in U.S. stock prices and the dollar, particularly against the yen, the investors said. Thiel, who declined to comment, also expects 30-year Treasuries to rise as the U.S. moves closer to deflation, or an extended period of falling prices.
The only difference is Howard thinks we’ll get stagflation, not deflation, so, rising prices too.
If you’re wondering, Soros, at age, 78 and back from saving the world to steer his funds through the credit crisis, last year “made 31 percent investing in India and China,” Bloomberg says.
Silver lining
On the bright side, the Carlyle Group is getting crushed:
Carlyle Group is liquidating its $600 million Blue Wave hedge fund, which has been plagued by losses in mortgage-backed securities since its March 2007 launch.
(Cue muted trombone: wha waaah)
How’s the rest of the firm doing?
Blue Wave’s liquidation is the latest black eye for the Washington-based buyout firm. In March, Carlyle Capital Corp., its publicly traded investment affiliate, all but collapsed as banks rushed to sell assets backing the mortgage fund. More recently, Carlyle Group’s stake in energy trader SemGroup LP is expected to be wiped out as a result of wrong-way oil bets that caused the firm to collapse.
I feel bad for their board of directors:
Maybe they can get a job over at Soros’s fund. Better hurry.
The vomitorium.
The Quote of the Day also goes to Bloomberg:
“Come on down and visit us in the vomitorium!!”
What did prosecutors and journalists do before email?
The quote is from last August, an email sent by the managing director of Merrill Lynch’s auction-rate securities trading desk. It was gleaned from an administrative complaint filed by Massachusetts Secretary of State William Galvin against Merrill Lynch for allegedly pushing auction-rate securities on unsuspecting cities and towns while the market was collapsing.
(And if Wall Street Journal editorialist Kim Strassel is against attorneys general filling the regulatory vacuum left by misguided Republican ideology, what must she think of secretaries of state getting in on the act? What’s next: lieutenants governor? State archivists?)
And here are other quotes from Galvin’s complaint, which indeed seems to be taken straight from the tried-and-true Eliot Spitzer playbook.
“Market is collapsing,” another executive cited in Galvin’s complaint said in a November 2007 personal e-mail. “No more $2K dinners at CRU,” a Manhattan restaurant where the wine list includes dozens of bottles for more than $1,000.
And doesn’t this scandal remind you of Spitzer’s bogus-stock-research scandal that followed the tech bubble?
Personally, I wish as much attention were directed toward fraud and deceit in the trillions-dollar mortgage market (see my story on that subject in the upcoming print edition of The Columbia Journalism Review) but, no doubt, this is a fine scandal.
A broken clock is right twice a day
In media-watch news, The Journal has a good story about how Sam Zell’s Tribune Co. is putting some of the money it is cutting from newspapers into its TV news operations.
Zell has been a disaster, of course, but investing in TV seems like an obviously good move.
Playing it straight
Finally, the Journal’s good story on Wal-Mart mobilizing its managers and supervisors to warn that if Democrats win power in November, they’ll likely change federal law to make it easier for workers to unionize” has to be taken into account for those of us keeping score on whether the paper would play it straight politically after NewsCorp.’s takeover.
Even bells need a vacation
Note to readers:
The Opening Bell will take a couple weeks off starting Monday.
Dean Starkman Dean Starkman runs The Audit, CJR’s business section, and is the author of The Watchdog That Didn’t Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.