Ever Increasing Inconsistencies In Reported Economic Data (Zero Hedge)

Thanks to Zero Hedge and David Rosenberg for a most informative post. Grandpa wonders if the inconsistent (a.k.a. manipulative) data is mid-term election related and we will witness mondo post November revisions?

Zero Hedge

Ever get the feeling that the Bureau of Truth is not being completely truthful? Feel like the ADP is to the NFP like the ISM to the regional Fed Surveys, and as the surging Mfg ISM employment diffusion index is to the plunging Service ISM employment diffusion index (i.e., both can not possibly be correct)? You are not alone.

David Rosenberg summarizes which recent data releases are so blatantly incomprehensible, one wonder when the government will announce an AXA Rosenberg-like computer glitch and say all its data for the past 12 months has been compromised. Either that, or we await the introduction of the Birth/Death adjustment to every single data series released in America imminently.

Here is David with much more on the topic (from Gluskin Sheff):

The latest batch of data has been highly confusing, to say the least. The chain store sales data were skewed by one-offs, such as retroactive jobless benefit checks that were mailed out in early August and the growing number (17 this year) of States offering sales tax holidays. We estimate that absent these influences, year-on-year sales growth would have been closer to 1% than 3%.

The spending data also belied the information contained in the Conference Board’s consumer confidence survey, as the facts-on-the ground ‘present situation’ index sagged to 24.9 in August from 26.4 in July — only 5% of the time in the past has it been so low. The ISM manufacturing index, which really got the ball rolling on this ‘take out the double-dip’ trade, managed to spike even though the three leading sub-indices — new orders, backlogs and vendor performance — all declined in what was a 1-in-100 event.

Not only that, but the employment component of the ISM surged to its highest level since December 1983, and yet the manufacturing employment segment of the payroll survey fell 27,000 — the first decline this year and the sharpest falloff since last October. Furthermore, the manufacturing diffusion index slumped to a seven-month low of 47 from 53 — in other words, fewer than half of the industrial sector was adding to staff requirements last month. It begs the question as to what exactly the ISM is measuring.

The list of inconsistencies in the data didn’t stop there. The entire increase in private sector employment in August was in the service sector — mostly health and education, which says little about the cyclical state of the economy. Yet 90 minutes after the jobs number was released, we got the ISM non-manufacturing survey and it flashed a contraction in services employment to a seven-month low of 48.2 from 50.9 in July.

Just a tad confusing, but the newly found bullish view of the economy is sort of corroborating evidence.

The employment report did not detract from the view that the economy is losing steam. The fourth quarter of a recovery typically sees real GDP growth of over 6% at an annual rate, but in this post-bubble credit collapse, what we got this time was 1.6% at an annual rate in Q2.

Moreover, there is nothing in the data to suggest anything but a further slowing in Q3, and the only reason why there is no contraction this quarter is because it looks as though we are getting another lift from inventories — though now the buildup looks involuntary, which will cast a cloud on fourth-quarter GDP barring a sudden reversal in the declining trend in real final sales.

Private payrolls were +247,000 when the equity market peaked in April, it slowed to +107,000 by July and was +67,000 last month. What does that suggest about the trend? Ditto for goods-producing employment, which was +67,000 in April, subsequently softened to +37,000 by July, and in August was the grand total of zero.

One can easily draw the conclusion from the data that we have dodged a bullet. But that does not mean we are out of the woods. Employment is a coincident indicator. Leading indicators, such as the ECRI, continue to deteriorate and to levels still consistent with nontrivial double-dip risks. Keep this in mind — private payrolls came in at +97,000 in November 2007 and the “Great Recession” began the next month. In other words, the +67,000 tally we saw today basically tells you nothing about how the pace of economic activity is going to unfold as we move into the fall.

Inside Job Trailer (thank you Huffington Post and Nouriel Roubini)

The trailer for Charles Ferguson's new documentary "Inside Job" has been making its way around the web (hat tip to Nouriel Roubini's Twitter feed). The film has been getting serious love from critics, including winning the top award at Cannes this year.

Roger Ebert called the the film "devastating" summed it up this way in May:

"From Roosevelt until Reagan, the American economy enjoyed 40 years of stability, prosperity and growth. Beginning with Reagan's moves against financial regulation, that sound base has been progressively eroded. The crucial federal error (in administrations of both parties) was to allow financial institutions to trade on their own behalf. Today many large trading banks are betting against their own customers."

"Inside Job" is due out in October. WATCH the trailer:

Another $4.313 BILLION Withdrawn from U.S. Equity Funds, $56.709 billion withdrawn since 5/5/2010

$11.88 Billion Withdrawn from U.S. Equity Market in August

Washington, DC, September 1, 2010 - Total estimated inflows to long-term mutual funds were $1.73 billion for the week ended Wednesday, August 25, the Investment Company Institute reported today. Flow estimates are derived from data collected covering more than 95 percent of industry assets and are adjusted to represent industry totals.

Equity funds had estimated outflows of $4.60 billion for the week, compared to estimated outflows of $2.82 billion in the previous week. Domestic equity funds had estimated outflows of $4.31 billion, while estimated outflows from foreign equity funds were $292 million.

Total Domestic Equity Flows/Week Ending
-$4.313 billion 8/25/10
-$2.706 billion 8/18/10
-$2.073 Billion 8/11/10
-$2.788 Billion 8/4/10
-$4.099 Billion 7/28/10
-$1.525 Billion 7/21/10
-$ 3.235 Billion 7/14/10
-$4.176 Billion 7/7/10
-$303 million 6/30/10
-$1.248 Billion 6/23/10
-$1.824 Billion 6/16/10
-$3.660 Billion 6/9/10
-$1.117 Billion 6/2/10
-$19.066 Billion for the month of May 2010

Since May 5th, 2010, $56.709 BILLION has been withdrawn from Domestic Equity Funds.

Banks Playing "Foreclosure Roulette" with Delinquent Homeowners...Extend and Pretend

Arthur Delaney
HuffingtonPost
9/1/10

Bea Garwood has been bracing for foreclosure since May, but she says she's been told three times to expect a sheriff's sale in the next month and it still hasn't happened.

"We really at this point do not know where we are in the process," said Garwood, who lives in Pinckney, Mich. with her husband. "We have no clue. We haven't even heard from Chase bank in three weeks."

The Garwoods may have had a lucky spin in the game that industry analyst Sean O'Toole calls "Foreclosure Roulette."

Banks don't want to recognize losses by having to put homes on the market at foreclosure-sale prices, but they don't want to encourage borrowers to quit making payments either, so, O'Toole believes, they randomly foreclose on some people to prevent widespread "moral hazard." The rest are left hanging with the help of the government's "extend and pretend" approach to the collapse of the housing bubble.

"We just don't have the political appetite to bail homeowners out," said O'Toole, CEO of ForeclosureRadar.com. "On the other hand, we don't have the political appetite to kick them out."

The Gestation Period of HAMP

Last year the Garwoods tried to modify the mortgage on their Pinckney, Mich. home under the Obama administration's Home Affordable Modification Program, which is supposed to put eligible borrowers into a three-month trial period before making the modification "permanent" for five years. The Garwoods' trial period dragged on for nine months before they received a letter of rejection in March. They've been waiting anxiously since then for the day they will finally lose their house.

Extend and Pretend...courtesy of HAMP

It may be a while. The average foreclosure now takes 469 days, according to Lender Processing Services, whereas it took 319 days at the beginning of 2009. Many industry analysts say that is due to the Troubled Asset Relief Program, HAMP, and federal accounting-rule changes.

We weakened accounting standards to allow banks to keep non-paying mortgages in their books at full value," wrote economist Dean Baker, co-director of the progressive Center for Economic and Policy Research. "Banks also know that they are looking at glutted markets right now, so they have little incentive to take possession of a home and then try to sell it. And, the HAMP and other programs mostly delay foreclosures and hand money to banks, instead of keeping people in their homes."

American Banker reported last week that the procrastination on foreclosures could backfire: "With home prices expected to fall as much as 10% further, the refusal to foreclose quickly on and sell distressed homes at inventory-clearing prices may be contributing to the stall of the overall market seen in July sales data. It also may increase the likelihood of more strategic defaults."

Of the 1.5 million trial offers made by servicers participating in HAMP, 616,839 have resulted in cancellations, while only 434,716 have resulted in permanent modifications, according to government data released in August. But Treasury officials have said even if a person isn't able to stay in his or her home, HAMP is a success if assists that person in "transitioning with dignity to more suitable housing."

Borrowers rejected from HAMP are sometimes confused, as the Garwoods are, about the reason for their rejection. (Chase has declined to comment on the Garwoods' situation.)

"There's still a lot of uncertainty about why certain homeowners are receiving help in HAMP and others are not," said Diane Standaert, legislative counsel with the Center for Responsible Lending. Standaert said policymakers should consider allowing bankruptcy judges to write down mortgage principal (a process sometimes known as "cramdown"). "I think this new game of casino that lenders and servicers are playing with homeowners...is not going to cut it."

FDIC Problem Bank List Rose to 829 in Q2 2010 and Sheila Bair on Spin Cycle

Sheila Bair's Spin Cycle Headline

Earnings of FDIC-Insured Institutions Increased to

$21.6 Billion in the Second Quarter of 2010

FDIC Earnings Spin

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported an aggregate profit of $21.6 billion in the second quarter of 2010, a $26 billion improvement from the $4.4 billion net loss the industry posted in the second quarter of 2009. This is the highest quarterly earnings total since the third quarter of 2007. Despite the improvement, earnings remain below historical norms.

On the positive side, one in five institutions reported a net loss for the quarter, compared to 29 percent a year earlier. Grandpa: Sheila you neglected to mention that 8,195 institutions reported results during Q2 2009 versus 7,830 during Q2 2010. How many of the 365 fewer institutions are no longer in business to report a loss? And, the average return on assets (ROA), a basic yardstick of profitability, rose to 0.65 percent, from negative 0.13 percent a year ago.

As long as economic conditions remain supportive?

"This is the best quarterly profit for the banking sector in almost three years," said FDIC Chairman Sheila C. Bair. "Nearly two out of every three banks are reporting better year-over-year earnings. As long as economic conditions remain supportive, most institutions should maintain profitability and increase their capacity to lend." Sheila, please define supportive and "should" screams noncommittal ergo I am covering my behind.

She added, "Without question, the industry still faces challenges. Earnings remain low by historical standards, and the numbers of unprofitable institutions, problem banks and failures remain high. But the banking sector is gaining strength. Earnings have grown, and most asset quality indicators are moving in the right direction."

FASB Mark-to-Model Mission Accomplished

The primary factor contributing to the year-over-year improvement in quarterly earnings was a reduction in provisions for loan losses. While quarterly provisions remained high, at $40.3 billion, they were $27.1 billion (40.2 percent) lower than a year earlier. Gee Sheila, you closed 118 banks in 2010 with 45 closed in Q2. Might this impact the total amount of loan loss provisions? Net interest income was $8.5 billion (8.6 percent) higher than a year ago, and noninterest expenses were $1.5 billion (1.5 percent) lower.

The FDIC noted signs of improvement in asset-quality trends as the amount of loans and leases that were noncurrent (90 days or more past due or in nonaccrual status) fell for the first time since the first quarter of 2006. Insured banks and thrifts charged off $49 billion in uncollectible loans during the quarter, down $214 million (0.4 percent) from a year earlier. This is the first time since the fourth quarter of 2006 that net charge-offs posted a year-over-year decline.

Total loans and leases declined by $107.5 billion (1.4 percent) during the quarter. Total assets fell by $136.2 billion (1.0 percent).

Financial results for the first quarter are contained in the FDIC's latest Quarterly Banking Profile, which was released today. Also among the findings:

Loan-loss reserves declined for the first time since the fourth quarter of 2006. Although almost two out of every three banks (62.1 percent) increased their loan-loss reserves in the quarter, the industry's total reserves declined by $11.8 billion (4.5 percent), as a number of large banks reduced their loan-loss provisions. FASB without the "standards" is just FAB! The industry's ratio of reserves to total loans and leases fell from 3.50 percent to 3.40 percent during the quarter, but this is still the second-highest ratio in the 63 years for which data are available. "Particularly given economic uncertainties, we believe all banks should continue to exercise caution and maintain strong reserves," Chairman Bair said.

The industry's "coverage ratio" of reserves to noncurrent loans improved for a second consecutive quarter, from 64.9 percent to 65.1 percent, as the decline in noncurrent loans outpaced the reduction in loss reserves.

The number of institutions on the FDIC's "Problem List" rose from 775 to 829. However, the total assets of "problem" institutions declined from $431 billion to $403 billion. Also, while the number of "problem" institutions is the highest since March 31, 1993, when there were 928, it is the smallest net increase since the first quarter of 2009. Sheila, you are spinning again. 829 problem banks represents 10.5% of reporting institutions. 928 problem banks in Q2 2009 represents approximately 7% of the 13,221 reporting institutions year end 1993.

Forty-five insured institutions failed during the second quarter.

DIF Balance Grows Thanks to Mark-to-Model

The Deposit Insurance Fund (DIF) balance improved for the second quarter in a row. The DIF balance - the net worth of the fund - improved from negative $20.7 billion to negative $15.2 billion during the second quarter. The improvement stemmed primarily from assessment revenues and from a reduction in the contingent loss reserve, which covers the costs of expected failures. The reserve declined from $40.7 billion to $27.5 billion during the quarter.

The FDIC's liquid resources - cash and marketable securities - remained strong. Liquid resources stood at $44 billion at the end of the second quarter, a decline from $63 billion at the end of the first quarter. The decline in cash balances reflects previously anticipated outlays, primarily related to three bank failures in Puerto Rico on April 30th.

"As we expected," Chairman Bair said, "demands on cash have increased this year. But our projections indicate that our current resources are more than enough to resolve anticipated failures."

Total insured deposits declined by 0.7 percent ($39 billion) during the quarter.