The Media and the Market Place III: Burying Bad News in Plain Sight

19 January, 2010. David Caploe PhD, Chief Political Economist, EconomyWatch.com

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19 January, 2010. David Caploe PhD, Chief Political Economist, EconomyWatch.com

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19 January, 2010. David Caploe PhD, Chief Political Economist, EconomyWatch.com

. In the first part of this series, we outlined the general ways media of all sorts has become an inescapable structural feature of today’s global political economy, creating what we call economedia ©, which links together markets / investors / analysts all over the world in a 24-hour-a-day world-wide trading network that literally never stops.[br]

In the second, we looked at case study of how the New York Times essentially buried an explosive report about Goldman Sachs selling clients mortgaged-based CDOs – Collateralized Debt Obligations – while simultaneously betting against them – “selling short”, in Wall Street parlance – by publishing it on Christmas Eve, the start of an 11 day holiday period in which most people were basically pre-occupied with personal / family issues and ignoring media accounts of anything.

In that context, this third article on the inter-connection of today’s 24-hour / 7 days a week global media and marketplaces –  “economedia” © – will look at some of the OTHER little bits of “bad” or scandalous news that were also “hidden in plain sight” in the New York Times during this period – while extending it to the Friday of the first week AFTER the holidays, a day when all most people can look forward to is the end of what is usually a difficult re-entry into the work-week.

On December 29, for example, while hewing to the “overall economy is really improving” line,  piece examining the actual state of the housing market made clear that all the “positive indicators”  filling everyone full of holiday cheer could come crashing down quickly:

[quote]

[Home] prices slipped in many cities in October, new figures show, despite low mortgage rates and a generous tax credit meant to spur sales.

Now rates are starting to rise, making it harder for many buyers to afford a house, and the tax credit seems to be losing its capacity to lure them into the market. …

“I’m worried. Everyone’s worried,” said Karl E. Case, the Wellesley College economist who helped design the housing index that provided fresh cause for alarm on Tuesday.

“If prices sink 15 percent from here, which is a possibility, and the 2008 and 2009 loans go bad, then we’re back where we were before — in a nightmare.” …

Mr. Case, who chided himself for his optimism over the summer, said he now believed “the probability is very high of a serious double dip like 1982.” …

Falling prices have put as many as a quarter of mortgage holders under water, where the loan balance is greater than the amount the home would fetch. If they lose their jobs, they have little choice but to opt for foreclosure. In a vicious circle, every new foreclosure puts more pressure on the housing market.

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And it’s not just the US where economic vicious cycles are a serious concern – another article that same day made clear things aren’t better in much of Europe either, so little hope of them becoming the new “engine” of global economic growth. The

[quote]

test for the world’s largest common currency zone, analysts say, will be whether it can withstand the economic, political and social strains once the European Central Bank begins to raise interest rates in response to economic improvements in Germany, France and other Northern European countries.

At that point, the laggards on the union’s fringe — Portugal, Ireland, Italy, Greece and Spain (the so-called Piigs) — will face even tougher choices to cope with what looks like several more years of stagnant economies, high unemployment and gaping budget deficits.

“If inflation picks up in France and Germany, the smaller economies will be left behind in stagnation and deflation,” said Jordi Galí, a Spanish economist recognized for his work on business cycles who heads the Center for Research in International Economics in Barcelona. “Such an asymmetric recovery is pretty likely, and if the E.C.B. raises rates, it could get very ugly.”

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Things are particularly ugly in Spain, where real estate prices experienced the same kind of boom the US did, and the downside similarities are disturbing, as evidenced in an article on New Year’s Eve, when, as you can imagine, LOTS of people are looking for analytical economic news. Youth are considered

[quote]

a lost generation in Spain, where unemployment among people ages 16 to 24 is 42.9 percent, the highest in Europe, and more than double the overall rate.

Spain is the extreme, but the experience of younger workers here reflects similar problems in the United States, as well as other European countries still struggling to emerge from the recession.

In the last 12 months, the jobless rate in the United States among workers ages 16 to 24 has risen to 19.1 percent from 13.9 percent. Economists expect the rate to remain high even as the overall jobless rate in the United States — now 10 percent — begins to shrink.

That is because the sectors that employ young people in the greatest numbers — fast food, construction, retail — are expected to take the longest to recover.

In the United States, workers on the first rungs of the job market run the risk of lower earnings even after the recovery gets going …

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Of course, it’s not only bad news that gets “hidden in plain sight” on New Year’s Eve.

Another story highlights how Neel Kashkari, the Bush administration’s bailout chief – amazingly enough – got a job as head of new initiatives for PIMCO, one of the most influential bond investment firms in the US.

[quote]

During the crisis, William H. Gross, the founder and co-chief investment officer of Pimco … frequently offered advice to the Treasury about how to handle the bailout.

At the same time, Pimco’s publicly stated strategy was to invest money in areas that would benefit from the government’s rescue efforts.

The company called this its “shake hands with the government” plan.

The strategy paid off.

The company’s flagship Total Return Fund’s … Class A shares, available to individual investors, were up 4.3 percent — nine percentage points ahead of comparable bond funds, according to Morningstar.

And by late September 2009, Pimco’s assets under management had swelled 32 percent, to $940 billion, from the end of 2008.

Outsiders consider Mr. Kashkari’s addition a natural strengthening of Pimco’s ties to government.

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Indeed – but who’s going to read about this on New Year’s Eve, when everyone is either getting ready to party, or steeling themselves for an evening of feeling like losers for NOT partying ???

But, of course, that would also minimize the number of people reading the Times’ eminence grise of economic analysis – Floyd Norris – on how the decade of the “zeroes” was indeed, from the point of view of stock markets in developed countries, a big fat zero – and actually a little less.

[quote]

… an investor in the American market who reinvested all dividends — and who somehow avoided all taxes and transaction costs for the decade — would have ended 2009 with 12 percent fewer dollars than when the decade began. That is an annual return of negative 1.3 percent.

Even that calculation understates the sad news for stock investors. Because of inflation, as measured by the Consumer Price Index, a 2009 dollar is worth about 78 cents in 1999 dollars.

Over all, the developed world did manage to rise a puny 2.3 percent, or an annual rate of 0.2 percent, not enough to offset the transaction costs any investor would have faced, and far below inflation.

 

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And on Saturday, January 2 – please re-call Saturday always has the lowest readership for news, even more so after New Year’s – too many people probably didn’t see a superb long story on how some six million Americans are living, literally, on nothing but food stamps –ironic because co-written by Jason DeParle, a Times veteran who, during the 90s, took a leading role in DE-legitimating precisely the sort of government assistance whose positive effects he now so heart-rendingly described.

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No less upsetting was to see that same day an analysis I had long awaited, but had given up hope of ever seeing in the Times:

one correctly analogizing the reaction of the Bush / Obama administrations to the crisis symbolized by Black September 2008 with that of the Japanese government to the similar bank / commercial real estate collapse in 1989 –

whose result was the famous “Lost Decade” of Japan’s 90s, a fate the US economy seems already well on the way to re-producing.

Of course, it was gratifying to finally see this crucial comparison, which could help Americans and others get a conceptual fix on what they have already started to experience.

But it was equally frustrating to realize practically no one would see it on the Saturday after New Years, as much as it could help give people a “big picture” perspective on what’s happening.

And a big-picture perspective was exactly what people needed as the first week of the New Year – during which, again, people were mostly focusing on re-adjusting to the workplace after almost two weeks away – brought a big bunch of really bad news.

First was statistical confirmation that predictions of another drop in housing prices – the very first piece cited above – was indeed correct, foreshadowing continuing turmoil in the key residential real estate marke.

This was followed the next day by a blast of equally bad, if not worse, news about commercial real estate in Manhattan:

[quote]

There are 920 football fields of available office space in Manhattan.

More than 180 major buildings totaling $12.5 billion in value … are in trouble, meaning in many cases they face foreclosure or bankruptcy, or have had problems making mortgage payments.

Rents for commercial office space fell faster over the past two years than in any such period in the last half century.

“I have been in the business for 12 years. I have never seen it this bad,” Peter Von Der Ahe, vice president of investments for the brokerage Marcus & Millichap, said of New York City’s commercial real estate market. …

And that is not the most sobering assessment.

“It hasn’t hit bottom,” Mr. Von Der Ahe added.

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Then there was the “triple-header” of disaster that made it into the paper on Saturday the 9^th, even though it surfaced on websites during the day on the Friday of that first week back – a day most people just want to some get through, and then either go home or out to party.

So who was looking at the paper when the Euro-zone – whose grim youth unemployment picture had been hidden during the “dead” week between Xmas and New Year’s – announced its jobless rate hit double digits for the first time in a decade ??? Probably not too many people.

And they also probably missed the equally disturbing report – also announced on Friday, as we’ve noted, any organization’s “favorite” day for releasing bad news – that,  despite all the “glowing” news about a better holiday season for retailers, the US lost 85,000 jobs in December.

[quote]

The nation lost 85,000 jobs from the economy in December, the Labor Department reported Friday, as hopes for a vigorous recovery ran headlong into the prospect that paychecks could remain painfully scarce into next year. …

The government’s monthly jobs report, while always important, now stands as the crucial indicator of economic health. …

“We’re still losing jobs,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington. “It’s nothing like we had in the free fall of last winter, but we’re not about to turn around. We’re still looking at a really weak economy.” …

For those out of work, the market is bleaker than ever. The average duration of unemployment reached 29 weeks in December, the longest since the government began tracking such data in 1948.

“There is almost no hiring going on outside the temporary help sector,” said Andrew Stettner, deputy director of the National Employment Law Project. …

One point of agreement among economists is that the nation cannot recover without millions of new jobs. The economy needs about 100,000 new jobs a month just to keep pace with people entering the work force. When workers gain wages, they spend them at other businesses, creating jobs for other workers — a virtuous cycle, in the parlance of economists. …

Skeptics argue that the factory expansion merely reflects a rebuilding of inventories after businesses slashed stocks during the panic.

Expansion has been [also] aided by stimulus spending and tax credits for homebuyers.

Once these factors fade in coming months, skeptics argue, the economy will confront stubborn challenges — cash-tight households curtailing spending, banks reluctant to lend and businesses unwilling to hire.

Those with the gloomiest outlooks envision a “double dip” recession, in which the economy resumes contracting.

Others fear years of stagnation, like Japan’s Lost Decade in the 1990s.

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And to bring it all home, in the middle of an unusually cold winter in both the US and Europe, the economic crisis is making it almost impossible for people to even get around, due to the crunch on municipal and county budgets as a result of less aid from the top and a mind-numbing loss of tax revenues.

 

[quote]

 

There’s the gold standard of snow and ice removal on major roads in the Midwest — asphalt, plowed smooth and salted for easy driving.

And then there’s the reality this year across the region, and in the Northeast, too, where drivers might be lucky to see bare pavement, and some roads are considered good enough if they have a single defined rut for the tires on one side of a vehicle. A “one-wheel path,” in industry parlance.

With states and localities facing budget cuts in a time of economic crisis, the early onset of severe storms bringing heavy, wet snow is wreaking havoc on already strained resources and raising concerns about public safety. …

… [C]ounties, cities and states across the regions are also feeling the pinch of expensive storm cleanup — rationing of salt, not plowing side roads, canceling public works projects for fear of running out of money to clear the roads.

In Kansas, state workers are no longer plowing for a perfectly clear path on weekends or after business hours, except on Interstate highways. “Our budgets have been cut, and people will notice it on the highways this year,” said Steve Swartz, a spokesman for the state’s Transportation Department. “In years past, we’d continue to pay our operators until we got down to bare pavement everywhere, at all times.” …

In Iowa, Des Moines’s $3 million snow removal budget is supposed to last the winter, but with the snowstorm that hit Thursday, the city has already used the entire budget. “We will have exhausted it by the end of this event,” Bill Stowe, the director of public works, said Friday. “Yesterday, we had six additional inches and 30-mile-per-hour winds. We’re done.”

In Waltham, Mass., a suburb of Boston, Mayor Jeannette A. McCarthy said the town had nearly depleted its $400,000 snow removal budget after a storm last weekend. It will now have to ask the City Council for more money, she said.

In Kansas City, Mo., the $2.5 million allocated for the entire winter’s snow removal budget, including overtime pay for workers and the chemicals used to combat the snow, has been spent.

“Our snow budget is gone,” said Dennis Gagnon, a spokesman for the city’s Public Works Department. “We’ve used as much in the last three weeks that we expect to use in a full year. It has been a struggle.”

The department will have to dip into a contingency fund, which is smaller than usual because of the recession.

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Now the fact this is happening isn’t news to the people experiencing it directly.

That the economic situation has gotten so bad people in snowy areas are confronting at least another two months of uncertainty about whether they’ll be able to get to work or the grocery store to buy food –

well, that’s just the kind of news that makes people at the top levels of government very nervous … and that a major media outlet like the New York Times is printing this on Saturday indicates its willingness to help tamp down any fires the awareness of such conditions may stoke.

Next, we look at a country whose economic importance is beginning to rival that of the US and Europe, and where concerns about “managing news” are handled in a much less subtle and indirect way – China.

David Caploe PhD

Chief Political Economist

EconomyWatch.com