Nobel Winner Stiglitz: U.S. Facing Long Recession
By CNBC.com
25 Apr 2008 02:17 PM ET
The U.S. economy is already in recession -- and may echo the 1930s, Nobel Laureate Joseph Stiglitz said Friday.
"The big question is: how will the government respond?" said Stiglitz, in an interview with CNBC. Stiglitz, a Columbia University professor and 2001 winner of the Nobel prize, detailed his bleak outlook for the American economy.
"This is going to be one of the worst economic downturns since the Great Depression," said Stiglitz.
He explained that main cause of the current situation is historically unique—and thus is befuddling those charged with creating solutions.
Other downturns were primarily caused by excesses in inventories or inflation; but this slowdown is due to the condition of "badly impaired" banks and financial entities, which are unwilling and/or unable to lend capital -- stymieing the very borrowers who usually drive the country back to vitality, Stiglitz said. And the Federal Reserve may have used up its ammunition -- and the faith investors and planners have put in it. 
"[The Fed] will be between a rock and hard place. And we're not over-worrying about credit. But [simultaneously], we need to start worrying about the real sector," he said.
And if inflation wasn't the prime recession cause, it's still a menace. The professor points to the two-pronged danger of high oil prices joined by climbing food prices, harming businesses and scaring consumers.
"Oil is particularly bad," as it means that more U.S. dollars "will be going abroad," he said.
The housing downturn is an even worse economic factor than casual observers realized, Stiglitz said. He explained that during the real estate boom, Americans were able to withdraw billions of dollars from their home equity.
"[But] with housing prices coming down, it's going to be difficult to do that anymore," he said -- drying up a spending source. And within that problem, still another complication: people typically spent the money they drew off their home equity on consumption, rather than investment -- garnering no return on the spending.
"The savings rate as we go into the recession is zero. Which means [savings] will go up, " he said—decreasing consumer spending and weakening retail further.
What about the government stimulus package?
"The Bush Administration's response is too little, too late -- and very badly designed," he declared. The amount ostensibly being infused into the economy by tax rebate checks will be a "drop in the bucket" compared to the money being held back and siphoned out by the factors he mentioned.
"If you really wanted to stimulate the economy, increase unemployment insurance," he suggested. (That would require giving money to the less fortunate which is anathema to 'silver spoon specimens' like Bush. - Jesse)
"The president is telling people to go out and get jobs—and there are no jobs for them," he said.
25 April 2008
Stiglitz: US Recession May Echo the 1930s
CalPERS: CEO To Step Down Unexpectedly the Day after the Chief Investment Officer Resigns
The CalPERS CEO is stepping down according to Bloomberg Television. The Chief Investment Officer resigned yesterday to pursue an independent career in 'green investment.'
Calpers Chief Fred Buenrostro May Leave By Year End, People Say
By Dan Levy
April 25 (Bloomberg) -- California Public Employees' Retirement System Chief Executive Officer Fred Buenrostro is planning to leave by the end of the year, according to two people familiar with the matter.
The board is in discussions with Buenrostro about his departure from the largest U.S. public pension fund, known as Calpers, said the people, who declined to be identified. He has been in the job since 2002 and was on its board of directors for 15 years. Calpers has $244 billion in assets.
The executive would be the third top-ranking officer at Calpers to exit this year. Russell Read, Calpers' chief investment officer, said April 23 that he is resigning on June 30 to begin investing in environmental technologies.
Calpers' spokeswoman Pat Macht didn't immediately return a call for comment.
Buenrostro has a bachelor's degree from Pepperdine University and a law degree from the University of Pacific's McGeorge School of Law.
Read quit after overseeing Calpers investment strategy for two years. Chief Operating Investment Officer Anne Stausboll will replace him until a permanent successor is found.
Calpers last year placed its first direct investments in commodities and in February approved putting as much as 3 percent of its investments in raw materials, seeking to take advantage of soaring worldwide prices. The fund is shifting more of its portfolio from stocks and bonds into private equity, real estate and securities that perform well when inflation accelerates.
Calpers, based in Sacramento, earned a 19.1 percent return for the year ended June 30, 2007, according to its most recent annual report, compared with a gain of 18.4 percent on the Standard & Poor's 500 Index of stocks.
The fund had about 60 percent of its portfolio invested in public equity, about 24 percent in bonds and other fixed income, 8 percent in real estate, 6.7 percent in private equity and 1.4 percent in cash equivalents, the report said.
CalPERS' top investment officer stepping down
After just two years, Russell Read quits the state pension post to pursue green investing.
By Tom Petruno, Los Angeles Times Staff Writer
April 24, 2008
The giant CalPERS pension fund is losing its investment chief to the green movement.
In a surprise, Russell Read -- who has been principal investment officer of the California Public Employees' Retirement System for just two years -- told the pension system's board this week that he's leaving June 30.
Read, 44, said in a letter to the board that he was quitting "to pursue my long-standing interest in environmental and clean-technology investing."
He said by phone from a meeting in New Orleans that his plans weren't fully formed.
He isn't sure if he'll try to manage his own investment fund or build a business in some other way. Whatever the model, he said, he wanted to help bring together what he viewed as now "disconnected efforts" worldwide to develop and implement the best green technologies.
"I might have the ability to play a major role in something that I think is of absolute paramount importance," he said.
Read said he hadn't planned to depart CalPERS this soon, but that events in the mushrooming green-investing industry overtook his own timing. "I didn't anticipate [its] rapid development," he said.
Yet Read, who holds a PhD in economics from Stanford University and earned $958,000 at CalPERS last year, knows plenty about green investing. He has long been a private investor in Maine timberland and is involved in a hardwood reforestation project there.
Read has been pushing the $242-billion CalPERS fund, the nation's largest public pension fund, to shift a chunk of its assets away from stocks and bonds and into commodities, such as oil and timberlands, as well as into public-private partnerships that build infrastructure projects.
One new CalPERS' initiative is a 10-year, $600-million commitment to private-equity funds that are focused on investing in companies developing new energy sources, anti-pollution devices, recycling technologies and other green efforts.
Anne Stausboll, CalPERS' assistant executive officer for investments, will take over as interim investment chief, CalPERS said.
Read came to CalPERS from New York-based Deutsche Asset Management.
CalPERS vows to ease market crisis
by Keren Holland 25 April 2008
The California Public Employees’ Retirement System (CalPERS) has vowed to ‘aggressively deploy its capacity’ to alleviate current market disruption brought about by the collapse of the auction rate market.
At its recent investment committee, board members were told CalPERS’ Credit Enhancement Program had received an unprecedented number of enquiries to provide liquidity and credit enhancement for conversions into financing structures such as variable rate demand obligations.
The situation is the result of recent difficulties in the auction rate market, where public finance makes up 50% of the $330bn securities issued.
Auctions for these securities began to fail in February when investors declined to bid because of fears monoline insurers, which backed the debt, were no longer creditworthy, and large investment banks declined to act as bidders of last resort, as they had in the past.
This meant issuers were forced to pay a high penalty interest rate, which CalPERS said was putting an onerous burden on municipalities in California and beyond...
About CalPERS
The California Public Employees' Retirement System (CalPERS) provides pension fund, healthcare and other retirement services for approximately 1.5 million California public employees.
As of October 2007, it owns $254.8 billion worth of stock, bonds, funds, private equity and real estate. It is the largest pension fund in the United States.
CalPERS provides benefits to all state government employees and, by contract, to local agency and school employees. Many California counties and large cities have their own retirement system.
California teachers are covered under CalSTRS (California State Teacher Retirement System), with funds in excess of $179.6 billion.
The US Consumer is Hitting the Wall
Real wages in the US for the working classes have been stagnant.
The government is lying about cost-of-living inflation through the use of statistical smoke and mirrors.
People have been borrowing heavily on the equity of their homes in order to pay for basic consumption needs.
The country is now in an economic recession with home prices falling and credit tightening.
Blue collar jobs continue to be sent overseas by corporations.
Economic distortions are leading to selective shortages in basic food supplies and health care.
Five large corporations control 90% of the non-Internet media outlets in the US.
The disparity in wealth between a small percentage of elites and most Americans continues to widen.
The Presidential candidates spend most of their time engaging in gossip and slander about each other encouraged by the media.
What is there to spark a recovery in our consumption based economy? Who is going to do all the consumption, the top 1% of the population?
“We must find new lands from which we can easily obtain raw materials and at the same time exploit the cheap slave labor that is available from the natives of the colonies. The colonies would also provide a dumping ground for the surplus goods produced in our factories worthless financial instruments originated by Wall Street.” Cecil Rhodes
U.S. Economy: Consumer Sentiment Weakens More Than Anticipated
By Bob Willis
April 25 (Bloomberg) -- U.S. consumer confidence fell more than forecast in April to a 26-year low as record gasoline prices and rising unemployment threaten to reduce spending.
The Reuters/University of Michigan sentiment index decreased to 62.6, from 69.5 the previous month. The measure was down from a preliminary estimate of 63.2 issued on April 11.
Consumers are growing increasingly anxious because the economy has lost almost a quarter million jobs so far this year, the cost of refueling a car is up 17 percent and property values have fallen. Sales of houses and cars have declined as a result, contributing to a slowdown that may bring an end to the six-year expansion.
``Consumers are feeling the pinch, not only from the labor market, but also from prices,'' Aaron Smith, an economist at Moody's Economy.com in West Chester, Pennsylvania, said in a Bloomberg Television interview. ``There's a squeeze on incomes from two sides.''
Economists had forecast the consumer sentiment gauge would fall to 63.2 from 69.5 in March, according to the median of 60 projections in a Bloomberg News survey. Estimates ranged from a low of 62 to a high of 72.
The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped to 53.3 from 60.1 last month.
Current Conditions 
A measure of current conditions, which reflects Americans' perceptions of their financial situation and whether it's a good time to make big ticket purchases like cars, decreased to 77 from 84.2 last month.
Consumers were also more concerned about inflation. Americans thought prices would increase 4.8 percent over the next 12 months, up from a 4.3 percent estimate in March. Longer term, inflation was pegged at 3.2 percent, the highest level since August 2006 and compared with 2.9 percent last month.
The economy lost 80,000 jobs in March, the most in five years, following a 76,000 drop in payrolls in each of the prior two months, according to figures from the Labor Department. The jobless rate rose to 5.1 percent, the highest level in more than two years.
Rising fuel costs have contributed to a drop in auto sales and prompted some shoppers to limit trips to malls. The average price of regular unleaded gasoline rose to a record $3.58 a gallon yesterday, according to data from AAA.
Auto Sales
Cars and light trucks sold at an average 15.2 million annual pace in the first three months of the year, the fewest since the third quarter of 1998. Some 14.9 million autos will be sold this year, the fewest since 1995, Standard & Poor's forecast this month.
AutoNation Inc., the largest publicly traded U.S. car dealer, yesterday said first-quarter profit fell 35 percent as weak housing markets in states including California hurt demand for new vehicles.
``We expect to continue to see a challenging automotive retail market as long as the current economic difficulties persist,'' Chief Executive Officer Michael Jackson said in a statement.
Economists surveyed by Bloomberg earlier this month forecast consumer spending will rise at a 0.5 percent pace in the first half of the year, the smallest gain since 1991. The economy is unlikely to grow at all through June, the survey also showed.
Those polled put the odds of the economy entering a recession this year at 70 percent, up from 50 percent in the prior month's poll.
Falling Home Values
The biggest housing slump in a generation is leading the downturn. Home prices nationwide have fallen 10 percent from their peak, according to the S&P Case-Shiller home-price index, and many economists are forecasting values will keep dropping. Falling property prices make Americans feel less wealthy and reduce the amount of equity owners can tap for spending.
Rising foreclosures are also lifting stress levels. Foreclosure filings jumped 57 percent and bank repossessions more than doubled in March from a year earlier as rates on adjustable mortgages increased, Irvine, California-based RealtyTrac Inc., a seller of default data, said last week.
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
Last Updated: April 25, 2008 10:41 EDT
Time to Hoard Food - Wall Street Journal
No this is not a joke. Its the theme we have discussed before of appearance versus reality. The cognitive dissonance between the stated inflation rates and rates of interest paid on savings, versus the actual supply of tangible commodities and the price inflation with wage stagnation people are experiencing in the world of reality.
Things are getting a little crazy out there aren't they? Why is the media trying to foment a food panic? That's clearly where a lot of recent media stories are going. Does Iran have rice? Is it time to annex Canada? Shock and awe on the people? One can only wonder what wicked thing is coming our way.
R.O.I.
By BRETT ARENDS
Load Up the Pantry
April 21, 2008 6:47 p.m.
Wall Street Journal
I don't want to alarm anybody, but maybe it's time for Americans to start stockpiling food.
No, this is not a drill.
You've seen the TV footage of food riots in parts of the developing world. Yes, they're a long way away from the U.S. But most foodstuffs operate in a global market. When the cost of wheat soars in Asia, it will do the same here.
Reality: Food prices are already rising here much faster than the returns you are likely to get from keeping your money in a bank or money-market fund. And there are very good reasons to believe prices on the shelves are about to start rising a lot faster.
"Load up the pantry," says Manu Daftary, one of Wall Street's top investors and the manager of the Quaker Strategic Growth mutual fund. "I think prices are going higher. People are too complacent. They think it isn't going to happen here. But I don't know how the food companies can absorb higher costs." (Full disclosure: I am an investor in Quaker Strategic)
Stocking up on food may not replace your long-term investments, but it may make a sensible home for some of your shorter-term cash. Do the math. If you keep your standby cash in a money-market fund you'll be lucky to get a 2.5% interest rate. Even the best one-year certificate of deposit you can find is only going to pay you about 4.1%, according to Bankrate.com. And those yields are before tax.
Meanwhile the most recent government data shows food inflation for the average American household is now running at 4.5% a year.
And some prices are rising even more quickly. The latest data show cereal prices rising by more than 8% a year. Both flour and rice are up more than 13%. Milk, cheese, bananas and even peanut butter: They're all up by more than 10%. Eggs have rocketed up 30% in a year. Ground beef prices are up 4.8% and chicken by 5.4%.
These are trends that have been in place for some time.
And if you are hoping they will pass, here's the bad news: They may actually accelerate.
The reason? The prices of many underlying raw materials have risen much more quickly still. Wheat prices, for example, have roughly tripled in the past three years.
Sooner or later, the food companies are going to have to pass those costs on. Kraft saw its raw material costs soar by about $1.25 billion last year, squeezing profit margins. The company recently warned that higher prices are here to stay. Last month the chief executive of General Mills, Kendall Powell, made a similar point.
The main reason for rising prices, of course, is the surge in demand from China and India. Hundreds of millions of people are joining the middle class each year, and that means they want to eat more and better food.
A secondary reason has been the growing demand for ethanol as a fuel additive. That's soaking up some of the corn supply.
You can't easily stock up on perishables like eggs or milk. But other products will keep. Among them: Dried pasta, rice, cereals, and cans of everything from tuna fish to fruit and vegetables. The kicker: You should also save money by buying them in bulk.
If this seems a stretch, ponder this: The emerging bull market in agricultural products is following in the footsteps of oil. A few years ago, many Americans hoped $2 gas was a temporary spike. Now it's the rosy memory of a bygone age.
The good news is that it's easier to store Cap'n Crunch or cans of Starkist in your home than it is to store lots of gasoline. Safer, too.
Write to Brett Arends at brett.arends@wsj.com
