Stimulus and Economy

Putting it all together, the stimulus raised total personal income by about $22 billion from March through May.
Over this same period, the BEA estimates personal saving increased by $1.94 billion in March, $12.18 billion in April, and $13.36 billion in May, for a total of about $27 billion. In other words, the spike in savings was bigger than the stimulus. It might be that almost all of the stimulus money was saved.
So the stimulus bill had two parts, and neither has succeeded. The government-spending part has yet to occur, and the individual-tax part appears to have been saved. That’s a big reason why the economy still stinks.
Fixing the economy may well be necessary and may well require policy changes. But another stimulus plan like the last one would be a recipe only for a bigger deficit. Given how little of the medicine has made it to the patient, it is appalling that anyone might have the temerity to call for more of the same.
Bloomberg

By June 26, about $56 billion was spent on the stimulus from the American Recovery and Reinvestment Act of 2009, passed Feb. 17. A large proportion of that actually reflects mere transfers from the federal government to state governments, so the amount that has gotten into the economy is significantly lower.

Congress and the Obama administration have used the economic downturn as an excuse to expand the size of government. Calling it a stimulus, they have instead put in place a spending agenda that will unfold over the next two years.

Additional evidence that the Obama administration wants to expand government rather than stimulate the economy comes from the president's own statements about deficit reduction. When the budget came out, he announced a goal of reducing the deficit to around 4% of GDP by 2013, at which point the administration believes the economy will be fully recovered. Yet to keep the ratio of public debt to GDP constant, the deficit must actually stay below about 2.7%.

It may be the case that the country wants more government, that Americans now believe the European model of big government is best. That is a decision that society must make. But it should do so with no illusions: The current stimulus and calls for a future one are primarily government growth policies, not strategies to shorten the current recession.
WSJ

I do think the one big failings of the stimulus package that I highlighted back in March is now coming to light: the cut in the transfers to states that came about as a result of the compromise with the Senate Republican moderates [3]. As the states grapple with truly challenging budget shortfalls [4] [5] [6], they are cutting spending and raising taxes -- exactly the measures that the textbooks say are not ideal from a countercyclical stabilization policy standpoint.
Econbrowser

The U.S. economy will grow for a few quarters and then contract again, said Martin Feldstein, a professor of economics at Harvard University.

“I think we’re going to see a temporary substantial improvement,” Feldstein, the former head of the National Bureau of Economic Research and a Reagan administration adviser, said today in an interview on Bloomberg Radio. “I emphasize the words temporary and substantial.”
Bloomberg

Shipping Activity 2009-2010

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View the full BALDRY chart at Wikinvest

The Baltic Dry Index is a daily average of prices to ship raw materials. It represents the cost paid by an end customer to have a shipping company transport raw materials across seas on the Baltic Exchange, the global marketplace for brokering shipping contracts.

the Baltic Dry Index is well off its lows, but other indicators of shipping activity are less encouraging. Containers shipment is still falling and is expected to remain low in 2010. Trade at international ports is on track to drop more than 10% this year, one of the steepest declines ever.
Cargo ships will carry 27 million fewer containers by year's end than they did in 2008 -- a reduction roughly equivalent to all of the cargo containers handled by the five busiest U.S. seaports in a typical year, according to London-based Drewry Shipping Consultants' Container Forecaster Report.
"The forecasts for 2010 call only for a very moderate recovery in trade volume. This is a long-term problem. It will take several years for us to get back to the trade levels we saw in 2006 and 2007," Kyser said.
Freight rates for transpacific trade, the amount that shipping lines can charge for a typical 40-foot container for cargo moving between Asia and the West Coast of the U.S., have plummeted to $920 from $1,400 at the beginning of the year, according to the Drewry report.
Drewry’s conclusions can be summarised as follows:
• The size of the current newbuilding orderbook suggests massive over-supply in some sectors
• Cancellations of newbuilding orders have been relatively minor to date and while they are expected to grow, they are unlikely to reduce the size of the orderbook by a significant margin
• Growth in seaborne trade and ship demand in the next five years will absorb relatively small amounts of the tonnage on order
• Deferral and rescheduling of the orderbook phasing may be a more attractive option and while only very small levels of this have occurred to date, this provides the market with potential to reduce the imbalance.

The world’s shipbuilders undoubtedly face difficult times between the delivery of the current inflated orderbook and a return to more normal ordering patterns.

Eurusd - Dollar close to support

Wave C completed, we should see a stronger dollar to retest the support at 1,375. A move above 1,43 would invalid this scenario.

US Foreign Policy Change?

During the first months of Mr Obama’s approach to international affairs the perception has been that of a significant course correction. Some argue that his foreign policy may seem more different than it really is. For sure there has been a change in tone and an opening to engagements to cope with issues adopting a more cooperative approach than before.

There are several examples. The recent speech in Egypt highlighted the intention to improve the relationships between the United States and Muslims around the world, acknowledging his own country’s flaws (“by no means is America perfect”). Mr. Obama stated the intention to “press the reset button” in its relationships with Russia (the agreement on nuclear arms reductions could be one step in this direction). The new administration may be more flexible about conditions for conducting talks with Iran. In general, with China or North Korea, the administration is moving cautiously. Also, very recently, reactions to the Honduras coup were prudent.

It is, in summary, a foreign policy oriented on engagement, on recognizing the need to build global partnerships because to global challenges there is a need to provide global responses. Despite a significant change in tones, my view is that American goals and interests are the same that his predecessor was pursuing. The real issue is the perception that the US does not have the strength any more to be confrontational in so many varied fronts and issues. It is the perception that the strategy followed by the previous administration was too ambitious (and partially ineffective) and cannot be supported longer by the political and economic power that the US had during the previous decade. The financial crisis is something that will have profound consequences in the lifestyle of western countries. The US (as well as the other western nations) is increasing the deficit and level of debt in order to support the current welfare and social networks. This will provide short term solutions and will delay the problems for another ten years, unless more structural measures are taken.

It seems to me that it is this perceived internal weakness that is bringing the administration to an approach more open to dialogue than before. This emphasis on diplomacy and multilateralism, in practice, is not coming solely from different policy views. Internally, on the health-care front, the administration is committed to provide a social safety net to a hard and uncertain future for many Americans. The government is stepping in to make sure that Americans are ensured that level of health care could be impossible for many in the years ahead (I am sure, however, that Ayn Rand would not be very happy about this).

We are living the consequences of the financial crisis into the political realm, where the US will be more ready than before to compromise on foreign policy issues and to cooperate with other actors on external fronts. There will be consequences also on the military side. The “global power” approach followed so far will be likely (as much gradually as possible) downsized in the future with more focus put on internal problems. It is, in summary, a pragmatic approach (mixed with the right dose of rethoric and personal charisma) that does not probably have many alternatives in this moment. How this will be implemented and the consequences on global balances of power it remains to be seen.

emini S&P - Looks like a Flag 21 June

It looks like a flag. Supports at 900 (nice round number) and 880. To the upside, first resistance at 925.
65% to have a lower open on Monday and a weak morning.

The World's Resources by Country

The map shows the top producing countries of each resource, or the proved reserves in case of oil and natural gas.

MINT MAP

Ayn Rand Quote - The Looters

It seems monstruously wrong to surrender the world to the looters, and monstruously wrong to live under their rule. I can neither give up nor go back. I can neither exist without work nor work as a serf. I had always thought that any sort of battle was proper, anything, except renounciation. I'm not sure we're right to quit, you and I, when we should have fought them. But there is no way to fight. It's surrender, if we leave - and surrender, if we remain. I don't know what is right any longer.

A FAKE FINANCIAL FIX

By MARK A. CALABRIA

New York Post

The Obama administration yesterday presented a misguided, ill-informed remake of our financial regulatory system that will make crises more likely and more costly.

Instead of putting an end to bank bailouts, the plan makes bailouts a permanent feature of our regulatory landscape.In fact, it extends the possibility of taxpayer-funded bailouts to any company choosing to become a financial-holding company. This will likely include every large insurer, as well as major consumer-finance companies like GMAC.

...the same regulators who missed the signs of the current crisis will get added powers to prevent the next one.

By assembling a list of institutions deemed "too big to fail," the president is announcing that any of these select corporations will be bailed out if it fails. As a result, these institutions will face lower funding costs than smaller lenders -- which will allow them to gain market share.

It recognizes the failure of the credit-rating agencies, but misses the source of that failure -- namely, the fact that those agencies are a government-created monopoly.

What's needed is an end to the exclusive government privileges that have been granted to the rating agencies -- and an end to the practice of having government regulators outsource their jobs to these companies.

In short, the Obama team has once again put politics ahead of policy, offering "answers" that will sound good to the uninformed without threatening any of the vested Washington interests that played so large a role in creating the current crisis.