VC's on the Rise

The prospects for the northern California economy look very promising with venture capital on the rise. Could the number break $30 Billion this year? Remember almost 1/2 of all U.S. venture capital goes through California......

VC investments reach 5-year high nationwide


"Venture capitalists invested $7.1 billion in the United States during the first three months of the year, lifting the industry to its biggest quarter in more than five years, according to figures to be released today.

The amount spread across 778 deals represented the most venture capital to pour into start-ups in a quarter since the final three months of 2001, based on data compiled by PricewaterhouseCoopers, Thomson Financial and the National Venture Capital Association.

The first-quarter flurry represented an 11 percent increase from the $6.3 billion invested by venture capitalists at the same time last year.

The fast start indicates "this will be a breakout year for U.S. venture capital," said Darrell Pinto, Thomson Financial's director of global private equity performance. "

By Michael Lied - the Associated Press

For Link go here

Job Growth Still Strong In Sacramento

Just the Facts Please:
Over 27,000 new Jobs in Sacramento in the last year at a growth rate of 3%.
Over 260,000 new jobs in California in the last 12 months.
Looks like a strong foundation for growth.

From the Sacramento Business Journal

Region still adding jobs

The four-county Sacramento metro area added 3,300 jobs in April to reach 924,600 jobs, keeping the local unemployment rate at 4.9 percent, unchanged from March.

Gains were scattered across several industries, with the biggest monthly gains in professional and business services at 1,100 and agriculture at 900, according to data issued Friday by the California Employment Development Department. There were small declines in leisure and hospitality as the ski season limped to a close; in finance because of mortgage-industry woes; and in transportation and utilities, possibly related to high gas prices.

Year-over-year, the four-county area added 27,300 jobs, a "relatively strong" 3 percent gain, EDD reported. Nearly half of the game came from growth in state and local government, public service, education and health care. The region also added 2,900 construction jobs despite the housing slowdown, although part of that gain may reflect the earlier start to the 2007 construction season compared to the rainy spring of 2006.

The local jobless rate of 4.9 percent is unadjusted for seasonal variations, and compares with an unadjusted rate of 5 percent for California and 4.3 percent for the United States. California's seasonally adjusted rate for April was 5.1 percent, up from 4.8 percent in March; California added 7,400 jobs to reach 15,250,200, state officials reported. That reflects growth of more than 266,000 jobs year-over-year, up 1.8 percent.

Sacramento Business Journal - 11:56 AM PDT Friday, May 18, 2007

Story Link Here

Reasons to Feel Good

Since my last post we've been treated to a few "bright" spots in some recent economic indicators.

First of all, as I've reiterated dozens of times............inflation was not and is not a threat. The Fed should be preparing to cut rates to meet the market . Though they will continue to talk big, I see rate cuts coming starting in Q3.

Here are the recent numbers on our tame inflation picture:

May 11th - Core PPI - Expected: .2% - Actual .0% - that's right nada

May 15th - Core CPI - Expected .2% - Actual .2% - with the 12 month number at 2.1% - just a rounding error from the Fed's "comfort" level.

Excerpt Regarding Inflation from May 15 WSJ -

"Early Tuesday, the Labor Department said the April consumer price index rose 0.4%, but the core CPI, which excludes volatile food and energy prices, advanced just 0.2%. The data, which largely matched Wall Street forecasts for a 0.5% CPI increase and 0.2% core rise, suggest inflation remains tame. That reinforced a growing belief among investors that Federal Reserve policy makers will cut rates later this year.

"I read [the CPI data] as very bullish for the economy," said Timothy Rogers, chief economist at Briefing.com. "I suspect that the reasons for the Fed to tighten [credit by raising interest rates] have largely disappeared." Mr. Rogers expects central bankers to cut their target lending rate by a quarter percentage point in the fourth quarter.

Lower interest rates make borrowing cheaper and spur investment, so hopes for lower rates tend to boost stocks. However, they can also fuel inflation, which until recently was higher than the Fed's supposed comfort zone. Now that price growth seems to have slowed, the Fed may feel freer to soften its vigilant stance on inflation and perhaps even cut rates.

In addition, a Fed reading on the health of the New York manufacturing sector met expectations, increasing from April and signaling a possible rebound in manufacturing overall."

And last but not least the backbone of our economy retrenched in April. Industrial production knocked the cover off the ball today coming in at .7%, significantly higher than the .2% expected.

Memo To Bernanke: It's Ok to Cut Too

I have reiterated ad nauseam on this blog that inflation is not a threat nor has it been at any time in recent memory. The Fed has successfuly snuffed out any chance of inflation and then some. Not long ago I mentioned as evidence the flat yield curve and the Tips spread. Not convinced? How about the two year treasury yield suggesting the fed is at least 75 basis points too tight. Another back of the napkin calculation taking Q107's nominal GDP growth of 4.7% and subtracting the Fed Funds rate of 5.25% causing a trend in the economy toward negative growth of almost 3/4%. Negative growth means monetary policy is too tight. In other words.............the only thing that can derail this goldilocks economy is an overzealous Fed targeting housing (succeeded) and employment (succeeding - I'm a little troubled by April's weak job number especially the downward revisions for Feb and March). Do they realize their policy has a lagging consequence? I'm starting to wonder. So as many are suggesting the Fed should declare victory on inflation and worry about growth again. I believe the Fed target rate should hit 4.5% by the end of the year. Bookmark this now and come back and see..........

Upside Surprise

Some great news that might well depict and end to the argument of Goldilocks and a soft landing. Factory orders were 50% higher than expected, durable good orders exceeded expectations, and the ISM number was the best in 11 months.....

U.S. Factory Orders Rise Sharply
Orders to U.S. Factories Jump in March by the Largest Amount in a Year

"WASHINGTON (AP) -- Orders to U.S. factories surged in March by the largest amount in a year, an encouraging sign that the recent slowdown in manufacturing may be ending.

The Commerce Department said Wednesday that total factory orders rose by 3.1 percent in March, pushed higher by a big jump in demand for commercial aircraft and the biggest rise in the category that tracks business investment in new equipment in 2 1/2 years.

The increase was far better than the 2 percent figure that analysts had been expecting and offered hope that manufacturers were beginning to experience rising demand after a recent weak period brought on by troubles in housing and auto sales.

The good news on factory orders followed a report from the Institute for Supply Management that its closely watched gauge of manufacturing activity rose to 54.7 in April, the best showing in 11 months......."

By Martin Crutsinger, AP Economics Writer

For Link Click Here

London Home Prices on Fire

Despite recent interest rate increases in the UK, home escalation continues proving that the fundamentals of income growth and supply and demand are the key factors..........

London Homeowners Reap $150,000 as U.K. Prices Jump (Update3)

"April 16 (Bloomberg) -- London homeowners gained an average 76,000 pounds ($150,000) on the value of their property in the past year, triple the median salary, as U.K. house prices rose the most since 2004, the country's biggest property Web site said.

Asking prices for a home in the British capital reached an average 379,846 pounds in the four weeks through April 7, up 25 percent from a year earlier, Rightmove Plc said today. The cost of an average house in the U.K. rose 3.6 percent on the month and 15 percent from the previous year, the most in almost three years.

Three interest-rate increases since the start of August have failed to contain a housing boom that has driven up the price of a parking space in the London borough of Kensington and Chelsea to equal that of a home in the Midlands. Soaring property values are stretching mortgages to six times salary and prompting young people to live at home with their parents for longer. ........"

By Jennifer Ryan - Bloomberg

Story Link Here

California High Tech Hot

Don't look now, but the hot Silicon Valley job market is gaining more and more recognition.....


"As might be expected in the state that houses the Silicon Valley, California employs more technology workers that anywhere else in the country and pays them the most.

A report released Tuesday by AeA, formerly the American Electronics Association, said California leads the country in the number of high-tech jobs (919,322), the most tech jobs added (14,402) and the highest average annual wage for a position in the technology industry ($95,294).

In 2006, the report says, the high-tech industry added nearly 150,000 jobs for a total of 5.8 million in the United States. This growth is faster than the 87,400 jobs added in 2005, and the two years of growth represent an increase of four percent. ......

.....The leading states by high-tech employment in 2005 were California (919,300), Texas (445,800), New York (299,900), Florida (276,400), and Virginia (261,000). 2005 data are the most recent available at the state level. "


Silicon Valley / San Jose Business Journal - 12:37 PM PDT Tuesday, April 24, 2007

Story Link Here

Growth Mode Again in Silicon Valley

It's been 6 years in the making but Silicon Valley has rebounded and is firmly in growth mode again. As it did in the last cycle, this economic prosperity will work it's way through the rest of northern California and the central valley........

In growth mode, Cisco to lease Milpitas campus
410,000-SQUARE-FOOT COMPLEX EMPTY SINCE IT WAS BUILT IN '00

"Following in the footsteps of several valley high-tech leaders, Cisco Systems is acquiring more space to house its growing workforce......

...."It's fair to say we've been hiring since 2004," said Blum, who said part of the growth is due to the company's acquisitions.

In January, Cisco reported that it employs almost 55,000 people worldwide, 15,000 of whom work in the valley. The total represents a net increase of 2,700 from the previous quarter......

.....Cisco's new lease is another sign of the valley's economic resurgence, already illustrated by land and building acquisitions by Apple, Google and Yahoo. Last April, Apple announced plans to buy 50 acres in Cupertino for more than $160 million and just acquired another site earlier this month. In June, Google bought $319 million worth of real estate in Mountain View's Shoreline Technology Park.

And in July, Yahoo worked under the radar to buy 46 acres in Santa Clara for about $50 million....."

Link Here

By Katherine Conrad
Mercury News

CA Job Growth Trumps Bearish Forecasts

Excerpts from the Sacramento Bee

State economy weathers storm
Unemployment rate is steady; jobs increase in capital area

"In the face of a housing market downturn, California's economy is holding its own. Sacramento's seems to be doing better than that.

Statewide unemployment held steady at 4.8 percent last month, as employers added 18,500 jobs, the Employment Development Department reported Friday. It was a good but not great month for job creation and was slightly behind the pace of a year ago, said Howard Roth, the state's chief economist.

Sacramento's unemployment, meanwhile, dipped four-tenths of a percent to 4.9 percent. More important, the region's payrolls increased by 5,400 jobs. .....

.....The construction sector added 1,700 jobs......Commercial and industrial construction are doing very well, said EDD labor market consultant David Lyons.....

......Overall, payrolls have increased by 2.2 percent in the past year, another indication of the economy picking up some steam. Over the past few months, year-over-year job growth had fallen below 2 percent....."

By Dale Kasler - Sacramento Bee

Link To Story Here

Sheep and Foreclosures - A Sign of Good Things to Come

Warren Buffett didn't make billions by betting on the obvious. Most of the wealthiest Americans made their great wealth by taking risk as contrarians against the sheep and herd mentality of their time. You can't beat the market unless you are a step ahead of it............

From Bizjournals.com 4/17/07

"The number of California homeowners getting default notices last quarter reached its highest level in almost 10 years.........Last quarter's default level was the highest since 47,912 default notices were recorded statewide in the second quarter of 1997. Defaults peaked in first quarter 1996 at 61,541."

Ok, now let's get a little perspective by looking at headlines and analysis from 1997.........

From Dataquick News January 1997

"Lenders started foreclosure proceedings on 39,495 California homeowners during last year's fourth quarter. That was up 1.0 percent from 39,106 for the third quarter and up 4.9 percent from 37,648 for 1995's fourth quarter (see chart), according to DataQuick Information Systems.
The quarterly numbers peaked at 44,686 during last year's first quarter (Q1-06) when lending institutions implemented stricter policies in their handling of mortgage delinquencies. "

So then, what did California prices do when mortgage defaults peaked in 1996? Well let's take a look......

1996 $177,270 -0.5%
1997 $186,490 5.2%
1998 $200,100 7.3%
1999 $217,510 8.7%
2000 $241,350 11.0%
2001 $262,350 8.7%
2002 $316,130 20.5%

(source realestateabc.com)

Just like condo conversions signaled the peak of the housing market in 2005, it appears notices of default and foreclosure activity coincide with the bottoming of the market within a year or so. Mind you, California also suffered significant job losses in the early to mid 1990's, not the case now, where a quarter of a million jobs were created in last year. So this correction and snap back will be quicker than in the mid 90's. So are you a sheep or? See below to see how quick the headlines turn..............

Bay Area home prices jump May, 1997

The median price paid for a resale house in the nine-county Bay Area was $260,000 in April. That was up 8.8 percent from $239,000 in March and up 11.6 percent from $233,000 for April last year (see chart), according to DataQuick Information Systems.

SoCal Home Sales and Prices Surge August, 1997

The median price paid for a Southern California home was $169,000 last month, up 4.3 percent from $162,000 a year ago. The year-over-year price jump was the strongest since July 1991 when prices jumped 4.5 percent during a post-Gulf War wave of optimism about the economy.

SoCal Home Prices Surge December, 1997

The median price paid for a Southland home was $172,000 in November. That was up 0.6 percent from $171,000 for October and up 6.8 percent from $161,000 for November last year.

Quotes and Headlines courtesy of DQ News Archive

Inflation still not a threat - Again

Sorry for the intermittent recent posts, been crazy busy at work, but more importantly let's talk about inflation, or the lack thereof. The core CPI rate increased only 0.061% in March, much less than expected and a great deal less than last months .02% gain. To cut to the chase there is basically no core inflation except for some lagging data derived from the owner's equivilant rent calculation from housing. Without all the fancy analysis just look at two things the TIPS spread (retreating) and the 10 year treasury (retreated to 4.68% today). The markets aren't seeing any inflation. So Chairman Bernanke, please lower the Fed Funds rate to match the market and keep prosperity rolling - 4.5% sounds good for now.

Some excerpts from leading ecnomists courtesty of the WSJ -

"There is no genuine inflation 'problem.' As we have argued on numerous occasions, we have been witnessing a reasonably sharp cycle in shelter costs particularly owners equivalent rents [an estimate of how much homeowners would charge to rent their residence] (which account for a huge 30% of core CPI). When OER inflation was low in 2003-2005 as residential house prices boomed, core CPI was flattened. When OER accelerated through 2006 even as residential house prices flattened out, all of a sudden a 'core' inflation problem emerged… If this economy has an inflation 'problem,' it is only coming from one source -- rents i.e. the imputed cost of housing." - Richard Iley, BNP Paribas

"Excluding the gain in OER, the core CPI was flat, suggesting a flat reading or possibly a 0.1% gain for the Fed's preferred inflation reading, the core PCE deflator. Gains in OER appear to have peaked in November of last year, and today's data suggests a deceleration from housing related-effects is underway. The core CPI itself appears to be decelerating, bucking a seasonal bias upwards in March, and is up 2.45% over the past year. Today's core inflation news is comforting. " - Steven Wieting, Citigroup Global Markets

For WSJ subsribers link to the full analysis and story here Link

Jobs Stronger Than Expected

Job Growth for March came in better than expected. In addition, January and February job numbers were revised up again.......


Jobless Rate Dips to 4.4 PercentFriday
Unemployment Rate Drops in March As Companies Add 180,000 Jobs

WASHINGTON (AP) -- Employers ramped up hiring in March, driving the unemployment rate down to 4.4 percent, matching a five-year low. It was a surprisingly strong performance in an economy that has otherwise shown signs of sluggishness recently.

The new snapshot, released by the Labor Department on Friday, also showed that employers boosted their payrolls by a strong 180,000 in March, the most since December. Workers' also saw their paychecks get bigger. The fresh figures suggested that companies are not feeling a need to dramatically clamp down on hiring in the face of the slower overall economic activity and the deep housing slump.......

.......The report was stronger than economists were expecting. They were calling for the economy to add around 135,000 new jobs in March, and for the unemployment rate to actually edge up to 4.6 percent.

The 4.4 percent unemployment rate, which dropped down a notch from 4.5 percent in February, matched the rate in October, which was the lowest in five years.

Friday April 6, 10:02 am ET By Jeannine Aversa
Associated Press Economics Writer


For Story Link Here

Just The Facts Please

Here are some interesting statistics from Larry Kudlow's latest show also posted from his blog Link Here

Kudlow's February's Facts that shows the "Goldilocks" economy is still in play:

- This week stocks had their best peformance in 4 years

- 152,000 jobs were created in the U.S. just slight below the last 6 mos average

- Industrial Production was up 1% last month alone

- Housing starts were up 9%

- The National Association of Realtors reported existing home sales were up 3.9% , the largest monthly gain in three years and the third consecutive monthly gain.

- The National housing affordability index is the most affordable in 2 years

California Job Market Keeps Rolling

For those of you who were ready to write off the California economy and job growth because of last months seasonal aberration wait........................................

Don't count your chickens before they hatch. The 5th largest economy in the world added 27,600 jobs last month for a total of 261,000 new jobs in the last twelve months. With all of those jobs, is it possible that we are near the end of the housing slump? Could a buyer's pent up demand bubble be forming from short term fear and pessimism due in part to media fear mongering? Time will tell................


For the Official Stats from the California Emplyment Development Department click Link Here

Time for the Fed to Cut

Memo to the Fed. Inflation is a lagging indicator, job growth is a lagging indicator. It's becoming obvious that the only thing that could derail this Goldilocks economy is an overzealous Fed worrying about non existent inflation. The last six months average of core inflation is 2%, well within the Fed's comfort level. For greater articulation read below........

Why the Fed Didn't Raise Interest Rates
Inflation is running above the levels that Bernanke has targeted, but he's holding off on hiking rates because of the risks

From Peter Coy - Businessweek 3/21/07

Imagine you're driving a car with a blacked-out windshield and a loose steering wheel. Now imagine that your car is the $13 trillion U.S. economy. That should give you some idea of what it feels like to be Federal Reserve Chairman Ben S. Bernanke. Yes, in a word: scary.

Bernanke and the other members of the Fed's Open Market Committee pleased the stock market Mar. 21 when they voted to keep the federal funds rate at 5.25%, and slightly softened their anti-inflation stance in the accompanying statement.....

...Accounting for Lag Time

Give credit to Bernanke: He still wants to get inflation back under 2%, but he's willing to let it happen a little more slowly than he expected when he took over as chairman in February, 2006.
The U.S. economy really is like that car with the blacked-out windshield (so you can't see ahead) and with loose steering (so there's a big delay between the time you turn the steering wheel and the time you get results).

Inflation, in particular, responds with a long lag to whatever the Federal Reserve does. It stays high for awhile even after the economy has begun to slow. If the Fed didn't compensate for the lag, it might oversteer and put the economy in a ditch. Recognizing that, Bernanke and the other FOMC members are willing to allow some extra time to see if the tightening to date, from a funds rate of 1% to a current rate of 5.25%, will gradually cool inflation.

The last recession shows how long you sometimes have to wait to see inflation finally fall. In the late 1990s, the Fed raised rates nearly two percentage points to stamp out inflation. But the first victim of the rate hikes was growth. The economy tipped into a recession in March, 2001. Even then inflation stayed stubbornly high. Core inflation excluding food and energy prices didn't fall below 2% until January, 2003, notes David Rosenberg, chief North American economist of Merrill Lynch (MER). By then the Fed had already slashed interest rates more than five percentage points. A good thing, too—if the Fed had waited to cut rates until inflation had already fallen, the 2001 recession would have been much longer and deeper.

Subrime Bigger Hoax than Y2K?

Put me in the camp that agrees this subrime headline grabbing issue is a big hoax to get eyeballs and sell fear..........

Subprime concerns overblown, fund manager says
Shakeout will be 'most hyped disaster that never occurred since Y2K'

SAN FRANCISCO (MarketWatch) -- The shakeout in the subprime-mortgage business won't escalate into a disaster capable of undermining the U.S. housing market and the economy, the chief investment strategist at fund-management firm DWS Scudder said Monday. ...

The subprime sector is too small to have such a big impact, according to Robert Froehlich, who is chairman of the investor-strategy committee at DWS Scudder, a division of Deutsche Bank AG ....

...."For all this to occur, the subprime-mortgage collapse has to be big enough and important enough to set the wheels in motion. And the fact is that it isn't," he wrote in a market commentary Monday. "It will be the most hyped disaster that never occurred since Y2K." ...

....Froehlich said Monday that, like Y2K, investors are worrying too much about a subprime-fueled disaster that probably won't happen.

"The subprime-mortgage market is big, but it's not big enough to push the U.S. economy into a recession by causing a credit crunch," he added. .......

By Alistair Barr, MarketWatch

Read this story Link Here

Soft Landing or No Landing at all?

From the Wall Street Journal

U.S. Payrolls Grow by 97,000As Jobless Rate Slips to 4.5%

"U.S. payrolls expanded last month at their slowest pace in two years as a steep drop in construction payrolls offset strength in the service sector.

However, employment in previous months was revised higher, the unemployment rate fell and hourly wages posted a strong gain, suggesting that the economy remains in solid shape despite a recent spate of weak data. The jobs figures should dampen expectations of any Federal Reserve rate cut in the near term. Fed funds futures contracts have recently priced in a rate cut as early as the second quarter........

Nonfarm payrolls increased 97,000 in February after growing an upwardly revised 146,000 in January and 226,000 in December, the Labor Department said Friday. Last month's gain was the slowest since January 2005. Previous reports showed job growth of 111,000 in January and 206,000 in December.

The unemployment rate fell 0.1 point last month to 4.5%. Average hourly earnings increased six cents, or 0.4%, to $17.16. That was up 4.1% from a year earlier.

The February payroll gain was in line with Wall Street expectations of a 100,000 rise. Other parts of the report were stronger than expected, however. Economists had expected a 4.6% unemployment rate and 0.3% rise in wages.

The jobs data should ease fears that a recent soft patch in data will turn into a more pronounced downturn. Gross domestic product grew just 2.2% during the fourth quarter, and recent data have pointed to similar sub par growth in the first quarter as well. ..........."

By BRIAN BLACKSTONE and JEFF BATER

California No. 2 for worldwide exports

From the Sacramento Business Journal

California set a record for its export sales in 2006, Northern California World Trade Center officials said Monday.

California exported merchandise last year valued at $127.7 billion, a 9.3 percent increase over 2005. The amount does not include export of services. The Golden State's four largest export sectors were computer products, machinery, transportation equipment and chemical products, the local trade group reported. Computer and electronic products came in with a value of $44.5 billion. Machinery was next with $14.8 billion and transportation equipment and chemical products followed with $13.5 billion and $8.6 billion, respectively.

California's top export markets were Mexico, Canada, Japan and China. Mexico held its top spot for California exports with sales of $19.6 billion. This was the first time Canada, with $14.2 billion, surpassed Japan in the state's export market rankings. Japan ranked third with $13.9 billion, and China finished fourth with $9.9 billion. Exports from California to China have nearly tripled since 2000, expanding from $3.5 billion. California is the top U.S. exporting state to China......

For rest of arcticle click Here

U.S. Wages Skyrocketing

Like past economic cycles strong economic and corporate growth leads to higher wage growth. So all the naysayers have relingquished first the "jobless recovery", and now the "unequal recovery" arguments that are going the way of the dodo bird.

Worker Productivity, Salaries Increase

Worker Productivity Jumps 1.6 Percent; Employee Wages, Benefits Climb 6.6 Percent

WASHINGTON (AP) -- The efficiency of workers rose at a modest pace in the final three months of last year, far below the gain originally estimated, while worker wages and benefits soared.

....The report showed that labor costs for each unit of output soared by 6.6 percent, far higher than the 1.7 percent increase initially reported.....

.....It was the biggest quarterly increase in labor costs since a 9.1 percent surge in the first three months of 2006. Both gains were attributed in large part to big bonuses paid to high-income workers....

Associated Press - By Martin Crutsinger, AP Economics Writer

Link to story here

Fed Officials Reiterate Confidence in U.S. Economy, Markets

From Bloomberg Financial News:

March 5 (Bloomberg) -- Federal Reserve officials reiterated the U.S. central bank's confidence in the economic outlook today and played down last week's decline in share prices.

The three officials, who all vote on interest rates this year, reinforced Chairman Ben S. Bernanke's message at a Feb. 28 congressional hearing that there's a ``reasonable possibility'' growth will pick up later this year.

....The Fed's expectations for growth have ``not materially changed,'' Fed Governor Randall Kroszner said in Washington. Governor Kevin Warsh said ``the U.S. economy continues to demonstrate extraordinary resilience, no doubt supported by the ability of financial markets to absorb substantial shocks.''

St. Louis Fed President William Poole said history may prove that last week's slump was ``hardly a wiggle in the value of equities.'' He added that financial markets indicate that investors, like the Fed, don't anticipate a recession.........

....``We do not see a recession on the horizon,'' Poole said to the Global Interdependence Center Abroad in Chile conference in Santiago, Chile today. He said the current slump in the housing industry has yet to affect the broader economy. ``We have seen little fallout from the end of the housing boom,'' he said. ....

By Steve Matthews and Anthony Massucci

Article Link Here