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Sunday, February 12, 2012

Economic Stories of Relevance in Today's World -- February 12, 2012

Obama Revises CBO Deficit Forecast, Predicts 110% Debt-To-GDP By End Of 2013, Worse Deficit In 2012 Than 2011 - Zero Hedge - Tyler Durden - February 10, 2012 - WSJ reports that "President Barack Obama's budget request to Congress on Monday will forecast a deficit of $1.33 trillion in fiscal year 2012 and will include hundreds of billions of dollars of proposed infrastructure spending, according to draft documents viewed by Dow Jones Newswires and The Wall Street Journal. The projected deficit is higher than the $1.296 trillion deficit in 2011 and also slightly higher than a roughly $1.15 trillion projection released by the Congressional Budget Office last week. The budget, according to the documents, will forecast a $901 billion deficit for fiscal 2013, which would be equivalent to 5.5% of gross domestic product. That is up from the administration's September forecast of a deficit of $833 billion, or 5.1% of GDP."

Pepsico to cut 8,700 jobs; 4Q net rises - Wall Street Journal - AP - February 9, 2012 - PepsiCo is trying to put some fizz back into its business. The food and drinks maker announced a restructuring on Thursday that includes cutting 8,700 jobs globally and plowing money into advertising drinks like Pepsi and Mountain Dew in North America.             Pepsi announced its cost-cutting plan Thursday as it reported better-than-expected fourth-quarter profit, but also forecast a decline in adjusted 2012 earnings. On the mixed news, the company's shares fell nearly 4 percent....                 Like many companies of all stripes, Pepsi is facing higher costs for materials it uses to make, package and transport its products, including sugar, corn and aluminum. Pepsi and many other food and beverage makers raised prices last year to offset the higher costs. But consumers are still cautious about spending in the uncertain economy, so some companies are moving on to Plan B: cost cutting.             Pepsi rival Coca-Cola Co. announced its own cost-cutting program on Tuesday, although Coke did not say it was reducing its workforce. For its part, Pepsi said "tough decisions" needed to be made because it expects 2012 will be the second year in a row that it will encounter higher-than-average costs for commodities....

Fed's Pianalto: Foreclosures Have Become A National Crisis - Wall Street Journal - Wall Street Journal - Dow Jones Wires - Cynthia Lin - February 10, 2012 - -Foreclosures in the housing market have become a national crisis, a regional Federal Reserve president said Friday, noting however that the drop in property value in her particular region is more deeply rooted. Federal Reserve Bank of Cleveland President Sandra Pianalto spoke before a housing services audience in Cleveland, encouraging the community to work together in improving the appeal of living in older, more industrial cities. These older cities have suffered housing foreclosures like the rest of the nation, but Pianalto says the high vacancy and abandonment rates are the more troubling issues. "Our challenges with vacant and abandoned housing are immediate, but they are the result of forces that have been at work long before the recent financial crisis and recession," she said...

The insiders are selling heavily - Commentary: July was last time insiders were equally as bearish - Market Watch - Mark Hulbert - February 11, 2012 - That’s a scary parallel indeed, since that late-July spike in selling came just days before one of the more painful two-week periods in the stock market in years.         In early August, as you may recall, the U.S. government lost its triple-A credit rating, and the bottom dropped out of the stock market. Between the last week of July and the second week of August, the Dow Jones Industrial Average dropped 2,000 points. To be sure, heavy insider selling doesn’t always lead to this much market weakness, or this immediately. And there were a lot of other things going on last summer that aren’t present today.           Still, on the theory that corporate insiders — officers, directors and largest shareholders — know more about their firms’ prospects than do the rest of us, it can’t be good news that they are selling at such a heavy pace.

Dependency Index Surges 23% Under President Obama - Investors Business Daily - John Merline - February 8, 2012 - The American public's dependence on the federal government shot up 23% in just two years under President Obama, with 67 million now relying on some federal program, according to a newly released study by the Heritage Foundation.           The conservative think tank's annual Index of Dependence on Government tracks money spent on housing, health, welfare, education subsidies and other federal programs that were "traditionally provided to needy people by local organizations and families."               The two-year increase under Obama is the biggest two-year jump since Jimmy Carter was president, the data show. The rise was driven mainly by increases in housing subsidies, an expansion in Medicaid and changes to the welfare system, along with a sharp rise in food stamps, the study found. "You can't get around the fact that policy decisions made over the past two years, on top of those made over the past several decades, are having a large effect on the pace of growth of the index," said William Beach, who authored the Heritage study.            Government dependence has climbed steadily since 1962, when the index stood at 19. By 1980, the index had risen to 100. It stood at 294 in 2010, the last year for which the data are available. D.C.-based Heritage has produced the index for nine years. The report also found that spending on "dependence programs" accounts for more than 70% of the federal budget. That, too, is up dramatically. In 1990, for example, the figure stood at 48.5%, and in 1962 just over a quarter of federal spending went to dependence programs. At the same time, fewer Americans pay income taxes, the report notes. Almost half (49.5%) didn't pay income taxes in 2009, the latest year for which the researchers have data. Back in the late 1960s, only 12% of Americans escaped the income tax burden.

Could High Gas Prices Hurt Obama's Reelection Campaign? - Pain at the pump could mean pain at the polls for President Obama - U.S. News and World Report - Meg Handley - February 6, 2012 - Thanks to tensions in the Middle East and refinery closures stateside, experts are projecting gasoline prices to jump 60 cents by Memorial Day. That's on top of an 11-cent spike over the past four weeks on the already sky-high gas prices Americans saw in January, the highest on record.           Experts say prices could even jump to $5 per gallon in cities such as New York and Chicago, and that pain at the pump could translate into some pain at the polls for Obama. Some GOP contenders have already keyed into the issue of gas prices and how acutely consumers feel upticks in fuel costs. When she was still campaigning for the GOP nomination, Michele Bachmann promised to bring back $2-a-gallon gasoline. That might sound crazy when looking at average gas prices today, which currently hover around $3.48, but take a trip down memory lane and prices weren't far away from the $2 mark... Over the past several years, gas prices have hit increasingly high starting points at the beginning of the year. On Dec. 31, 2008, average gas prices were around $1.61 per gallon, says Gregg Laskoski, senior petroleum analyst at On the same date in 2009, they were up to $2.64. Flash forward to last month, and prices hit $3.25 going into 2012.               Some of the price movements are expected in the run-up to the summer months, Laskoski says, primarily because refiners have to reformulate gasoline to include eco-friendly fuel additives. On average, the spread between prices from Dec. 31 to peak are around 93 cents, he says. Adding that to $1.61 per gallon might not feel too bad to consumers, but when tacking it on to $3.25, consumers can start to feel squeezed. Budget-constrained consumers stop spending, which can be disastrous for the United States, which relies heavily on consumer spending to fuel its economy.

Gas prices could spike 60 cents or more by May
- USA Today - February 6, 2012 - Gary Strauss - After rising 19 cents a gallon in the past four weeks, regular unleaded gasoline now averages $3.48 a gallon, vs. $3.12 a year ago and $2.67 in February 2010. Prices could spike another 60 cents or more by May. "I think it's going to be a chaotic spring, with huge price increases in some places," says Tom Kloza of the Oil Price Information Service. Kloza expects average prices to peak at $4.05, although he and other industry trackers say prices could be sharply higher in some markets. This year's earlier-than-usual run-up is more about anticipation than current supply and demand. Last week, the Energy Department reported anemic U.S. consumption — the lowest levels since September 2001. Domestic crude oil prices have fallen in six of the past seven trading sessions on the New York Mercantile Exchange and were about $98 a barrel Monday morning, near six-week lows... "The increase in gas prices last year sucked $100 billion out of the economy," she says. "We aren't going to get a break because there is no long-term grand strategy to keep prices down."

End of the Boom: The True State of the Shale Gas Industry - Oil - Kurt Cobb - February 7, 2012 -  Estimates for recoverable shale gas just keep falling. Last year, the Potential Gas Committee, an industry consortium that focuses on long-term projections, estimated that recoverable natural gas from shale deposits in the United States would amount to 687 trillion cubic feet (tcf). (This optimistic appraisal laid the groundwork for the oft-repeated notion that the United States has 100 years of natural gas supply at current rates of consumption. The estimate was also based on so-called "speculative resources" of another 615 tcf.).                But, in its early release of the Annual Energy Outlook for 2012, the U.S. Energy Information Administration (EIA) cut its estimate of technically recoverable resources of U.S. shale gas from 827 tcf to 482 tcf. (That says little about whether all those resources will be economically recoverable.) Much of the decline in the EIA estimate comes from a downgrading of the Marcellus Shale, by far the largest of the U.S. shale gas deposits spanning vast areas of New York, Pennsylvania, and West Virginia as well as sections of Ohio, Kentucky and Tennessee. The downgrade resulted from extensive drilling results now available as the rush to extract gas from the Marcellus Shale accelerates. The EIA cut its estimated technically recoverable resources from 410 tcf to 141 tcf. This estimate remains well in excess of last year's estimate from the U.S. Geological Survey which put those resources at 84 tcf.

Apple worth more than Google, Microsoft combined - Washington Post - Hayley Tsukayama - February 11, 2012 - Apple’s market cap is around $462 billion as of mid-Friday. Microsoft’s is about $257 billion and Google’s weighs in at about $197 billion. Tech bloggers have been coming up with all kinds of statistics to put Apple’s market cap in context. Fortune’s Philip Elmer-Dewitt pointed out that Apple’s now worth more than the gross domestic product of Sweden, which is $458 billion. — Retail sales of electricity in the United States, $350 billion — The worth of the global coffee industry, $70 billion — Two Apollo Space programs, $145 billion-$170 billion if adjusted for inflation.

"No Country For Old Men?" Bernanke Plan To Exterminate Savers Is Unsustainable
- Zero Hedge - Tyler Durden - February 6, 2012 - Bernanke's recognition of his penalizing savers with low rates as an 'issue for people' sparked an interesting note from the WSJ on how sensible and stoic savers are being herded (unsafely) into risky investments. Bernanke's insistence that "our savers collectively have to hold all the assets of the economy and a strong economy produces much better returns in general" must be juxtaposed with comments from a money manager that "I don't think that's a fair-trade" for money intended to be invested safely.

Itchy Investors Ramp Up the Risk - With Rates Staying Low, Returns on Conservative Investments Don't Cut It Anymore for Some - Wall Street Journal - RUTH SIMON and BEN LEVISOHN - February 6, 2012 - The Federal Reserve is presenting a broad swath of conservative investors, from retirees and college savers to banks and insurance companies, with a tough choice: move into riskier investments or continue coming up short from low-risk investments that aren't even keeping pace with inflation.         The central bank has held short-term interest rates near zero since late 2008 to spur the economy and help the housing market. One side effect of that policy is lower returns on savings accounts and other low-risk investments.        When the Fed announced last week that it likely will keep rates at rock-bottom levels through 2014—almost three full years from now—some risk-averse investors began to abandon hopes that rates would rise soon.

John Williams of Shadow Stats "This is end of the world type stuff"

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