Warren Buffett: "We're Still In a Recession"

Despite a study earlier in the week asserting the recession has ended, famed investor Warren Buffet claims that we are still in a recession. He admits that the economy will recover eventually but that it is going to take a few more years.

MSN reports

On Monday, the National Bureau of Economic Research said the world's largest economy ended an 18-month recession in June 2009, but cautioned that its assessment did not mean normal activity had resumed.

Buffett said he defines a recession differently from the NBER, saying it ends when real per capita gross domestic product returns to its pre-downturn level.

President Barack Obama said on Monday that economic weakness is "still very real" for the millions of Americans who are out of work, have seen the value of their homes fall, or are mired in debt.

Buffett, 80, runs Berkshire Hathaway Inc, which has roughly 80 operating businesses. "A great majority" of these businesses are "coming back slowly," he said.

Berkshire's operations cover a broad swath of the economy, including the Burlington Northern Santa Fe railroad, Dairy Queen ice cream, Geico auto insurance, and luxury jewelers such as Borsheim's.

Shipments at Burlington Northern are "61 percent of the way back," Buffett said. "Our carpet business, our brick business, our insulation business, they're not back 61 percent, but they are moving back."

Read more here

22 Cities In Danger of a Double-Dip Recession

Some experts have warned of the potential for a double-dip recession nation wide, while others are still pointing to signs of recovery. However, no one can argue that there are dozens of cities in serious danger of slipping back into a recession. CNN Money put together a list of 22 cities that are at risk, I have included a section of their article below.

A new report from Moody's Economy.com singled out 22 cities that are at risk of slipping back into a recession in as early as three months. To come to this conclusion, the economists considered dwindling progress in employment, housing starts, home prices and industrial production.

The at-risk cities are spread across the country, though more than half of the cities are in the South, and five are concentrated in the Midwest.

"With chances of a national double-dip recession now estimated at about one in four, several metro areas will probably experience their own downturns in the first half of 2011," said economist Andrew Gledhill, author of the report.

Private sector hiring has been tapering off in recent months compared to the start of the year, triggering Moody's to boost its forecast for a national double-dip from a 20% chance to 25% chance.

Read more here

Are Low Taxes Exacerbating the Recession?

The housing and financial crash has long passed, and there are now hundreds of theories as to why the country is still in its worst economic state since the Great Depression. Some experts are even asserting that the real problem lies in low tax rates.

U.S. Secretary of State Hilary Clinton recently voiced her support for this theory. According to this article from the San Francisco Gate, Clinton was quoted saying that the high tax equals high revenue formula "used to work for us until we abandoned it."

As history (and Freakonomics) teaches, such oversimplified memes tend to obscure the counterintuitive notions that often hold the most profound truths. And in the case of the WRSTGD, the most important of these is the idea that we are in economic dire straits because tax rates are too low. This is the provocative argument first floated by former New York Gov. Eliot Spitzer in a Slate magazine article evaluating 80 years of economic data.

"During the period 1951-63, when marginal rates were at their peak - 91 percent or 92 percent - the American economy boomed, growing at an average annual rate of 3.71 percent," he wrote in February. "The fact that the marginal rates were what would today be viewed as essentially confiscatory did not cause economic cataclysm - just the opposite. And during the past seven years, during which we reduced the top marginal rate to 35 percent, average growth was a more meager 1.71 percent."

Months later, with USA Today reporting that tax rates are at a 60-year nadir, Secretary of State Hillary Clinton told a Brookings Institution audience that "the rich are not paying their fair share in any nation that is facing (major) employment issues ... whether it is individual, corporate, whatever the taxation forms are."

Continue reading at SF Gate.com…

Household Net Worth Up $1.1 Trillion In First Quarter

According to the Federal Reserve (via MSNMoney.com) the total household net worth in the country rose by $1.1 trillion in the first quarter of 2010. It increased to $54.6 trillion, which is still below the $64.4 trillion high in 2007, when the recession began.

Financial assets -- primarily stocks and mutual funds -- accounted for virtually all of the wealth increase, but the stock market has weakened in recent weeks, so those gains may be at least partially reversed in the second quarter.

The Standard & Poor's 500 index is down 8 percent since the end of the first quarter.

Americans pared debt at a 2.4 percent pace in the first quarter, the seventh consecutive quarter of declines in household borrowing. Mortgage debt dropped at a 3.8 percent rate, the biggest decline in records dating back to 1952.

Consumers Step Up Spending, Bolstering Growth

The U.S economy grew in the first quarter, as consumers finally started spending again. Since consumer spending accounts for about 70% of economic activity, increased spending always means a boost for the economy. According to this MSN Money.com article, the economy expanded at a 3.2 percent annual rate, the strongest sign yet of economic recovery.

While growth slowed from the fourth quarter's rapid 5.6 percent pace and was a touch weaker than economists expected, the details of the report from the Commerce Department on Friday were fairly upbeat.

Consumer spending, which normally accounts for about 70 percent of U.S. economic activity, added nearly 2.6 percentage points to U.S. gross domestic product last quarter, the biggest contribution since the fourth quarter of 2006.

"Once you take a quick look under the hood you see some very positive signs there," said Ward McCarthy, chief financial economist at Jefferies & Co. in New York. "This is just the latest piece of evidence to suggest that the recovery is sustainable."

Still, markets showed some disappointment. U.S. stock markets were lower, while prices for U.S. government debt edged up. The dollar was little changed.

Wells Fargo Earns $2.4B, Says Credit Is Improving

Despite expectations, Wells Fargo has announced that their credit improved in the force quarter of 2010, and that their losses were much less than had been predicted. Many experts are calling the positive news a sign that American financial institutions are on the road to recovery, along with the economy as a whole.

According to the Associated Press, Wells Fargo & Co. said Wednesday its first-quarter earnings fell 1 percent to $2.37 billion as the bank dealt with continuing losses on consumer loans. It also originated fewer mortgages compared to a year earlier as refinancing activity trickled off.

However, the bank said it believes it has "turned the corner" with its credit problems.

The results surpassed expectations and provided further evidence that the banking industry and the economy are recovering. Wells Fargo rose in early trading and hit a new 52-week high of $34.25, but was down 62 cents, or 1.9 percent, at $33.06 by midday.

Investors appeared to have doubts about consumers' ability to pay their bills because many banks are still reporting a high number of loan defaults.

San Francisco-based Wells Fargo joined other big banks in the most recent quarter in reporting improvement in their consumer loan businesses.

Continue reading at Google News…

U.S. Minted More Millionaires In 2009

It should come as no surprise that the number of millionaires in the country decreased in 2008 due to the market meltdown, and poor economy. However, I was surprised when I read that the number of millionaires actually increased by around 16% in 2009, according to this article on CNN Money. As it explains, the number of households in the U.S. worth $1 million or more grew to 7.8 million in 2009.

The firm's report, "Affluent Market Insights 2010," also found that the number of ultra high-net-worth households, worth $5 million or more jumped 17% to 980,000 in 2009.

"This is largely attributed to the stock market rebound, since other assets including real estate and private businesses have not rebounded as dramatically," said George H. Walper, Jr., president of Spectrem Group.

The report comes one year to the day after the Dow and the S&P 500 closed at 12 year lows in the thick of the financial crisis.

Continue reading at CNN Money.com…

Bye-bye, Saturday Mail?

Businesses large and small have been struggling through the recession, and the U.S. Postal Service is also feeling the strain of the poor economy. The government agency recently admitted to a $3.8 billion loss last year, and in an attempt to keep their doors open, the post office is hoping to put an end to Saturday mail deliveries.

As this article on CNN explains, the USPS posted a $3.8 billion loss in its 2009 fiscal year, the latest in a multiyear string of whopping losses. Mail volume was down 12.7% for the year, a trend the agency expects to continue over the next decade as more consumers opt for online bill payments and message delivery.

The Post Office was $10 billion in debt as of Sept. 30 -- not far off from its $15 billion debt limit, which the agency expects to hit in its 2011 fiscal year.

The challenges hurting USPS's bottom line are reflective of a "macro change in society," Postmaster General Jack Potter said at a press conference Monday previewing the proposed changes. "All posts around the world are challenged, just as we are, by the diversion of hard copy to electronic medium."

Continue reading at CNN.com…

Debt: The Big Hangover Has Only Just Begun

From BusinessWeek.com:

More than $1 trillion of high-yield debt will come due between now and 2015—a big potential weight on the U.S. economic recovery

Whatever the economic indicator—from manufacturing reports to home sales to consumer spending—the message is clear: The U.S. recovery is under way. It will likely be a tepid comeback, but it will still fit economists' definition of a recovery. While most post-World War II recessions have been followed by strong recoveries, economists and business leaders all caution that this time it will be different.

The Great Recession had many causes. Clearly the bursting of the bubble in asset values, particularly U.S. residential real estate, was the main cause of the subprime mortgage crisis and the resultant bust. Those asset valuations did not shoot higher on their own; they were sustained by ever-increasing debt levels that primed the pump and inflated the bubble.

While asset values can evaporate in an instant, the indebtedness assumed to acquire the asset does not. Significant debt can take years and even decades to eradicate. Unless, of course, the debtor goes bankrupt. While filing for Chapter 11 may appear to be a quick solution, it is by no means an easy one. Few debtors are willing to write off their equity unless there is no other alternative.

Whatever the ultimate resolution, the struggle to pay off, refinance, or renegotiate significant debt can be difficult and is always fertile ground for unintended consequences. The challenges for this recovery and indeed for efforts to increase economic growth in the decade ahead will ultimately be whether those consequences are manageable.

Budget-Strapped States Avoid the Word “Taxes”

From Washington Times.com:

Faced with severe budget shortfalls after a steep economic recession, state legislatures and governors are trying to raise money without raising taxes — at least not technically.

A fee hike, an increased penalty or fine, the elimination of a tax exemption — none of these technically counts as a tax increase, as far as many state lawmakers are concerned. Fiscal conservatives argue that a tax hikes are exactly what they are, but their arguments are likely to fall on deaf ears for legislators and governors wrestling with some of the worst budget deficits since the Great Depression.

"There's a certain American antipathy to raising taxes, so even if these are tax increases, there's an incentive to call them something else," said Joseph Henchman, director of state projects at the conservative Tax Foundation. "It's a trend we always see, but it's certainly going to be one that's stronger this year."

The National Conference of State Legislatures found that 35 states and Puerto Rico are facing deficits for fiscal year 2011, despite the Obama administration's $787 billion recovery package, which pumped tens of billions of dollars into state coffers last year.

Obama Budget: Record Spending, Record Deficit

Yesterday, The president asked Congress to approve a record amount of spending on economic relief. His administration insisted that in order for the economy to recover, the government must spend more money on the relief efforts. You can find a story of the announcement from the Associated Press piece below.

Spelling out painful priorities, President Barack Obama urged Congress on Monday to quickly approve a huge new shot of spending for recession relief and job creation, part of a record $3.8 trillion budget that would boost the deficit beyond any in the nation's history while only slowly beginning to put Americans back to work.

If Congress goes along with Obama's election-year plan, the nation would still end the year with unemployment pushing double digits at 9.8 percent and this year's pool of government red ink deepening to $1.56 trillion — by the administration's accounting.

The spending blueprint for next year calls for tax cuts for workers and business and more aid for cash-starved state governments as well as the unemployed. The jobs initiative largely mirrors last year's stimulus bill, but is about one-third its size. The president is asking for nearly $300 billion for recession relief and job stimulus.

Continue reading at Yahoo! News…

The Most Valuable Teams In Sports

The recession hit some businesses hard while affecting other businesses hardly at all; the same can be said for sports teams. According to this article on Fobes.com, there are some teams that are profiting in spite of the poor economy, such as the Dallas Cowboys who top their list of most valuable teams. However, other teams were not so lucky, and showed significant reductions in revenue last year.

The recession has been more visible in the U.S., with the hurt distributed along class lines. The rich had few problems, with the bulk of the highest-valued teams in the NFL, NBA, MLB and NHL holding their own or growing, while negative growth hit the poor and middle class. In the NFL, where the average franchise value inched down about a half a percentage point, the 10 most valuable franchises gained a collective $164 million in value; the rest of the league lost a combined $303 million. Six NFL clubs appear on our top 10 list, led by the Dallas Cowboys and Washington Redskins.

Major League Baseball, where rich clubs help the poor through revenue sharing, suffered a classic middle-class squeeze. Valuation gains showed up in the top six spots and in seven of the bottom nine. But those in the middle--clubs like Atlanta, San Francisco, Texas and Cleveland--lost value.

"It's easier to revive a small-market club, where you can get young (and cheap) guys that play well together," says Tilliss. Example: The Florida Marlins, who went young and cheap and contended for much of the season on a low payroll, saw an 8% jump in value. The San Francisco Giants, still trying to carve out a post-Barry Bonds identity, patched a veteran roster together and lost 5% of their value.

In baseball, only the New York Yankees--who print money through cable riches and a sparkling new stadium--reside in the billionaire's club.

Meanwhile, it's been pretty much an equal opportunity recession in the NBA, where the majority of teams backslid. The value of the reigning champion Los Angeles Lakers dropped by $6 million from a year earlier to $607 million, but still took over the top spot from the New York Knicks, who slipped even more. No doubt, the sponsorship-heavy league is getting pinched more than others right now, after going premium over the past decade with fast-rising ticket prices and expensive luxury suites.

Continue reading at Forbes.com…

Treasuries Set for Worst Year Since 1978 as U.S. Steps Up Sales

From BusinessWeek.com:

Treasuries headed for the worst year since at least 1978 as the U.S. stepped up debt sales to help spur growth in an economy recovering from its deepest recession in six decades.

U.S. seven-year notes were little changed before today’s $32 billion sale of the securities, the last of three auctions this week totaling $118 billion. The Treasury sold a record- tying $42 billion of five-year securities yesterday and $44 billion in two-year notes on Dec. 28. U.S. government securities have fallen 3.6 percent this year, according to Bank of America Merrill Lynch indexes, the worst annual performance since at least 1978, when Merrill began collecting the data.

“It’s the last hoop the market has to jump through in 2009,” said James Collins, an interest-rate strategist in the futures group in Chicago at Citigroup Inc., one of 18 primary dealers obliged to participate in the Treasury’s auctions. “Yields have been trending higher. It’s been a response to increased supply.”

The yield on the benchmark 10-year note was little changed at 3.80 percent at 9:24 a.m. in New York, according to BGCantor Market Data. The yield has increased 1.58 percentage points this year. The 3.375 percent debt due in November 2019 fell 1/32, or 31 cents per $1,000 face amount, to 96 17/32. The yield on a seven-year note was little changed at 3.31 percent.

Unemployment Claims Rise Unexpectedly

Despite predictions of a decline, unemployment claims in the U.S rose by 7,000 last week for a total of 480,000. Leading economists had expected the number of claims to decrease to 465,000, however the opposite turned out to be true. This news is especially trouble as holiday season usually brings additional employment opportunities. Checkout the following article from CNNMoney.com on the startling announcement.

There were 480,000 initial job claims filed in the week ended Dec. 12, up 7,000 from the previous week's revised 473,000, the Labor Department said.

A consensus estimate of economists surveyed by Briefing.com expected claims to decline to 465,000.

The 4-week moving average of initial claims totaled 467,000, down 5,250 from the previous week's revised average of 472,750.

This marks the second consecutive week that claims have climbed. But weekly claims have proven to be volatile with some pops but overall maintaining a downward trajectory. Analysts say that's normal for this time of year.

"With all the seasonal factors in play at this time of year, I'm not going to get too concerned over a couple of weeks of increases," said Robert Dye, senior economist at PNC Financial Services Group. "I expect the downward trend to steadily continue, but it wouldn't surprise me if we get another erratic week or two."

California Was Among States With Record Unemployment

According to an article on Bloomberg.com, the jobless rate rose in 29 of states across the country last month. California, Delaware, South Carolina and Florida were all among the list of states with record unemployment rates, while Michigan, Nevada, and Rhode Island had the highest jobless rates with 15.1%, 13%, and 12.9% respectively.

The national rate last month reached a 26-year high of 10.2 percent, weighing on consumer spending that accounts for about 70 percent of the economy. Federal Reserve Chairman Ben S. Bernanke said Nov. 17 that joblessness “likely will decline only slowly,” a reason policy makers will keep interest rates near zero to ensure growth is sustained.

“We’ve had a surprisingly sharp jump in the jobless rate,” said Richard DeKaser, president of Woodley Park Research in Washington. “Businesses have truly been doing an extraordinary job of wringing out productivity from the labor force.”

Stocks fell for a third day, with the Standard & Poor’s 500 Index declining 0.3 percent to 1,091.38 at 4:03 p.m. in New York. Dell Inc., the third-largest maker of personal computers, dropped 10 percent after reporting a 54 percent drop in profit.

The unemployment rate fell in 13 states, including Massachusetts, where it declined to 8.9 percent from 9.3 percent; New Hampshire, with a drop to 6.8 percent from 7.2 percent; and West Virginia, which fell to 8.5 percent from 8.9 percent.

Check Out Line: Consumers spending again?

From Reuters.com:

Check Out home-related retailers Sears Holdings and Williams-Sonoma reporting better-than-expected quarterly results. Does this mean consumers are feathering their nests again?

Somewhat, according to Barclays analyst Michael Lasser, who said Williams-Sonoma’s results were “an indication that upper-income consumers are spending a bit more, which is not surprising given the rally in the stock market and the stabilization in the housing market.”

Williams-Sonoma, which also operates Pottery Barn and West Elm, has updated its styles and slashed prices on some items to woo shoppers, despite worries that the move might tarnish its image as a high-end retailer.

But it’s not only high-end chains showing signs of life. Kmart, the value-priced retailer that sells everything from appliances to clothing, posted its first increase in same-store sales since 2005, and only its second since 2001. The chain, which is owned by Sears, took back its shoe operations this year from Footstar, which had operated within Kmart stores.

Even Sears, which depends more heavily on the housing market due to its Craftsman tools and Kenmore appliances, posted its best performance since the fourth quarter of 2007, and outperformed competing home improvement chains like Home Depot and Lowe’s.

Geithner: 'The Credit Crunch is Not Over'

At a small business finance forum in Washington, Timothy Geithner reminded small businesses that the credit crunch is not over yet and warned listeners not to get too far ahead of themselves. He went on to explain that while many big businesses are already seeing profits, small business owners still have more recovering to do. Checkout the following CNNMoney.com article on the event below.

One day after Goldman Sachs' CEO apologized for his bank's role in the financial meltdown, Treasury Secretary Geithner called on the nation's financiers to step up and do more to fix the damage they helped cause.

"This credit crunch is not over," Geithner at a small business financing forum in Washington hosted by the Treasury. "It may feel dramatically better for large companies, but it is not over for small businesses across the country."

The nation's banking system was stabilized with taxpayer dollars, and Geithner said he holds the biggest banks accountable for passing the torch from Wall Street to Main Street.

"Banks bear some responsibility for the extent of the damage caused by the crisis," he said. "And they carry a substantial obligation to help our communities get back on their feet."

Geithner and an assortment of top Washington officials, including Small Business Administrator Karen Mills, met Wednesday with a gathering of bankers and small business owners to address the credit crunch that has plagued small business owners for more than a year. Frozen out by banks unwilling to make risky lending bets on startups and small companies, the nation's 6 million small employers are struggling.

Continue reading at CNN Money.com…

Obama: Too Much Debt Could Fuel Double-Dip Recession

According to Reuters, President Obama warned the country about the need to stop rising federal deficits yesterday. He asserted that if government debts continue to pile up, that it could result in a “double-dip” recession.

With the U.S. unemployment rate at 10.2 percent, Obama told FOX News his administration faces a delicate balance of trying to boost the economy and spur job creation while putting the economy on a path toward long-term deficit reduction.

His administration was considering ways to accelerate economic growth, with tax measures among the options to give companies incentives to hire, Obama said in the interview with FOX conducted in Beijing during his nine-day trip to Asia.

"It is important though to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession," he said.

States Face More Cutbacks and Tax Hikes

While some experts assert the United States’s economy is improving, state and local governments are reportedly still facing tax increases, setbacks, and budget problems. According to preliminary reports, state agencies in this country will likely face a combined deficit of at least $51 billion next year, which is significantly higher than many had expected.

"These are the worst numbers we've ever seen in the decades of putting together this report," said Scott Pattison, executive director of the National Association of State Budget Officers. "States have been forced to lay off and furlough employees, raise taxes, drain rainy day funds and sharply cut state spending in ways that impact every part of state government."

The full report, which will be released in December, is jointly compiled by the budget officers' group and the National Governors Association. Fiscal year 2010 started on July 1 in 46 states.

Some $135 billion in federal stimulus funding helped states avoid even more draconian cuts, particularly to health services and education. But it was not enough to put the states back on solid footing.

States typically continue to suffer for two years after a national recession is declared over. Many economists predict that the current downturn ended last quarter, when the gross domestic product grew at a 3.5% annual rate.

Continue reading at CNN.com…

California Finances Plummet Less than Three Months after Budget Passage

From WSWS.org:

California finance officials have announced that the state has a current budget deficit of $1.1 billion. News of the shortfall comes less than 10 weeks after a balanced budget deal was reached by Republican Governor Arnold Schwarzenegger and the State Legislature.

An October report released by State Controller John Chiang announced that the latest budget deficit was mainly due to a large drop in third quarter income tax collection; revenues were 11 percent lower than initially projected.

The California Department of Finance is also expecting a deficit of $7.4 billion at the start of fiscal year 2010-2011, which begins next July. This could climb to as high as $20 billion by the start of fiscal year 2011-2012.

Loss of tax revenue due to the economic crisis and widespread unemployment and wage reductions is not the only component of the budget deficit. The state’s fiscal health is also largely dependent upon the willingness of outside investors to purchase its municipal bonds and other securities.

As recently as last summer, the state’s credit rating was lowered by all three of the largest agencies, Fitch, Moody’s and Standard & Poor’s, to the lowest in the nation. The state effectively became insolvent at that time and was reduced to handing out IOU’s instead of actual cash payments to vendors, tax refund recipients and others.