Farrell: Just How Confident Can We Be?

As our President stays in the role of cheerleader and, as the Financial Times columnist Clive Crooksaid recently, willing the end to problems but not the means, just how confident dare we be? Income was reported up 1.4% last week, but most of that came from one-time government transfer payments. Ex the government largess, the monthly reading would have been a gain of 0.2%. Real wages (adjusted for inflation) were actually off 0.1%, which was the ninth monthly decline in a row.

Durable goods orders for May were up 1.8% versus April. But shipments of durable goods were off 2.1%, which was the tenth month in a row of declining shipments. California housing prices were up last month for the third monthly gain in a row, and the median home price rose 4.2% to $267,570. Inventories of homes for sale in the state fell to 4.2 months from a peak of 8.7 months in May of 2008. But you have to wonder: would the numbers be as good if California didn't have a $10,000 tax credit and some buyers also qualifying for the Federal tax credit of $8,000? With a state-wide unemployment rate of 11.5%, it's hard to imagine the good times will continue to roll.

President Barack Obama
Photo by: Pete Souza
President Barack Obama

Jake Fuller, Soleil's crack lodging analyst, just completed a survey of monthly online air-ticket bookings. Priceline, Orbitz, and Expedia are all seeing increased leisure ticket volume. Hertz and Carnival Cruise Lines both see an uptick in activity in their businesses. This would square with the recent University of Michigan consumer sentiment survey, which was up last week for the third month in a row, albeit still at very low levels. But Jake doesn't see an improvement yet in corporate or European volumes so the recovery in this area is limited. The recovery in general is spotty. I believe it is underway, but "less-bad" news is losing its ability to inspire stock-buyers. The recession is over, in my mind, but the nature of the recovery is still to be determined.


China was making some noise again last week about the need for the world to diversify from the dollar. China's current account surplus for this year is estimated to be about $400 billion. Since China started making noise about the dollar some months ago, foreign holdings of U.S debt have risen by $170 billion. There is no way of knowing how much is China's, but it's easy to surmise it's a good chunk of the $170 billion since many other countries are in deficit. Deutsche Bank yesterday predicted strength for the dollar since the US is a quarter or two ahead of the rest of the world in its recovery. If the dollar were to be strong, there would be a lot less carping about the currency and the large amount of Treasury financing.

The papers all have articles about the dismal outlook for the Public Private Investment Partnership (PPIP) to buy toxic assets from the banks. The best part of the program, buying troubled loans, is essentially dead, as there is no appetite to sell at distressed prices and take additional write-offs. There is also no appetite to go into partnership with the government. The cash for clunkers program has been a success in Germany, where some 5 billion Euros have been dedicated. The measly $1 billion the US is committing is too little to make a dent. Lack of leadership caused both programs to drift into mediocrity.


To govern is to choose. It seems to me that President Obama's public life has been built around avoiding confrontation. All the "present" votes in the Illinois legislature make sense when you don't want to alienate anyone. Obama is too smart not to realize that the mood of tolerance is fading and focused leadership is woefully lacking and long overdue.

And the volume Monday was well under 1 billion shares on the NYSE. I am increasingly nervous about the market and am wishing the quarter away so we can find out if window dressing is playing a role.