Big Macro Data: Gregor Weekly Macro Note

• Gregor Macdonald
• January 9th, 2010

The first week of the year was stuffed with some big macro data. This was fitting as we now have the bracket of the last 10 years through which to see a number of important trends in the US economic story. Essentially, we’ve been spinning our wheels since the Nasdaq cracked in the Spring of 2000, when we set about the task of monetizing the nation’s housing stock. The trends in wages, rents, manufacturing, debt, tax revenues and jobs now show the wear and tear.

Of particular note is the current employment to population ratio. Now, we already knew that the decade would see the erasure of all jobs created since 2000. We’ve talked about this already on the Sunday Night MacroTwits show (which returns this weekend). But of course the population has grown since 2000. Result? 27 year lows in the employment to population ratio. This was indeed the coup de grace on a week when macro news made headlines: Office vacancies hit 15 year highs. Residential rental vacancies hit all time highs. California declared another budget emergency, and New York’s Governor said the Empire State is broke.

I decided to reach back, therefore, to a key passage I recall writing in my June 2009 newsletter: The Scholarship of Collapse:

In my opinion the United States economy passed its hidden terminus with the bursting of the technology bubble in 2000. All of the power and thrust in the economy since 2000 was provided by nothing more than an expansion of credit via two, typical vehicles: War and Domestic government spending (Guns and Butter), and, artificially low interest rates provided by the central bank. This concept can be extremely difficult to accept among people working in highly innovative, highly productive areas like technology, venture capital, engineering, and other globalized product and service industries. What’s important to understand, however, is that the economy we made in the United States needs to serve 300 million people. If a good portion of that population is living off the housing and automobile economy, unsustainable at high levels, it matters little to the problem of a fundamentally unsound economy that Google, Sunpower, and Honeywell are indeed doing wonderful things in technology, solar energy, and engineering. Moreover, it seems quite likely now that the expansion of credit post 2000 was in many ways a collective attempt to replace the trailing loss of our manufacturing economy. Yes, the US remains a hotbed of the best innovation but the acceleration of the financial and financial product economy was very likely an overshoot, past the hidden terminus in the structure of our system. To use a phrase that was once somewhat unfairly said about California by Gertrude Stein, we have discovered that there was no there, there in the US economy.

The problem the US economy now faces is structural. There is no sector or even group of sectors that could begin to set a normal course for net job creation. The States will probably have to again cut payrolls and spending this year either through reduced hours, reduced wages, or full layoffs. Incredibly, the FED and many mainstream observers believe we are in a post-war recession that can be goosed with cheap money to get the housing and auto sectors going. Oops. Did that already. Ten years ago. And look at the results. Also, I remain baffled as to why anyone would believe there is a recovery in housing. Worse, the the buzz-saw of interest rates has only just started to whir.

The model portfolio is now up 11.36% since inception (01 September 2009). I made a few changes to the portfolio’s composition on Friday of this week. (this article continues for subscribers through the membership gateway, on the right side of this page).

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