August 5, 2009
Keith sends along two links:
The first is to 'China's stimulus-fueled stock boom alarms Beijing', by Joe McDonald (AP). I quote it below.
But while investors expect the market - up more than 80 percent
this year - to keep rising, Chinese leaders are alarmed. They worry
that too much of the $1 trillion lending binge by state banks that paid
for China's nascent revival was diverted into stocks and real estate,
raising the danger of a boom and bust cycle and higher inflation less
than two years after an earlier stock market bubble burst."
The second link is to 'Rudd's essay is on the money',
by Steve Keen on DebtDeflation.Com. I quote it below.
...Second, these debts were racked up on the back of skyrocketing
asset prices. In several countries, stock prices and house values
soared far above their true long-term worth, creating paper wealth
that millions of households used as collateral for their growing
debts. The value of global financial assets grew from less than 45
per cent of global GDP in 2003 to nearly 490 per cent in 2007...
...Taking 50% of GDP as a level at which normal economic activity might
resume (higher than the 40% level that applied in the 1920s and 25%
level of the 40s-60s), this implies that deleveraging could take
anywhere between 15 years (at the accelerated 8% rate) and 30 years
(at the 'natural maximum' 4% rate)."
...If we rely upon the 'natural maximum' process of deleveraging, we
face a 30 year period in which changes in debt will cut at least 3%
from the growth potential of the economy."
From Rich Kolon we
get this link to this
thread on SmirkingChimp.Com, by Mike Whitney.
Where, may we ask, did the balance of $2.3 trillion in purchasing power come
from? Why the Federal Reserve of course, which directly and indirectly
subsidized U.S. banks (and foreign ones through liquidity swaps) for roughly
that amount. Apparently these banks promptly went on a buying spree to raise
the all important equity market, so that the U.S. consumer whose net equity
was almost negative on March 31, could have some semblance of confidence back
and would go ahead and max out his credit card. Alas, as one can see in the
money multiplier and velocity of money metrics, U.S. consumers couldn't care
less about leveraging themselves any more.'
...An enormous number of banks are holding loans at or close to 'par' that
really aren't. They're holding mortgages at massively-inflated values, even
on defaulted properties, and this is why you are not seeing more foreclosure
sales - that is, why inventory is being held back. If they sell it the
accountants will force recognition of the loss, which will render them instantly
insolvent, but so long as they 'extend and pretend' they are marking these
loans way, way above recovery value. The upshot of this is that these firms'
balance sheet claims on asset values are massively inflated, regulators know
it, and they're intentionally ignoring it."
Rich Kolon and I have
believed for a while now that the FED was juicing the market. The above writer
believes the FED has been using banks as its proxy. The effect is the same, and
$2.3 trillion is quite a lot of juice.
No one wants to use the 'D' word, and the markets behave in an irrational way
that would seem to deny the fact that we are in a Depression. But we are in one.
All the Federal spending programs in the world will not get us out of one. Those
programs will just extend the amount of time it takes us to get back out of the
hole. Modern (liberal) economic theory, as practiced by Bernanke and the boys,
states that anything can be fixed with enough government spending. The theory
is wrong. Massive deficit spending can only delay the reckoning. We are there.
We have arrived. We are at the reckoning. The debt from the go-go years will have
to be substantially unwound. We will have to pay up, and it is going to hurt.
Steve Keen makes the point that when our
borrowing shrinks, Asia's savings will also shrink. The mechanism for that will
be a massive drop in our appetite for imported goods. It is already happening.
The upside of this is, and will be, improved savings rates for us, and a radical
shift in our balance of trade. If everyone in America bought $50 less from China
next year, our balance of trade with that country would swing into balance. This
loss of appetite for foreign goods is exactly what I think is happening right now.
What no economist is talking about is the quality of dollars that are being spent
right now. When Joe American bought a Japanese car, Joe - or his government - was
able to borrow those dollars of profit back from the Japanese. The dollars flowing
back to the U.S. this way were dollars that represented real work and real goods.
The dollars that the FED is using right now to prop up banks and juice the stock
markets are dollars that represent no work and no goods produced. This is going
to bite us big time in the long run. If you were the central bank of China right
now, and saw this happening, would you want to hold dollars or dollar-denominated
treasury bonds? I thought not.
August 3, 2009
From Bloomberg.Com come the following links:
'U.S.
Economy: Recession Eases, Consumer-Spending Slump Deepens', by Shobhan Chandra
'Exxon,
Shell Earnings Plummet as Fuel Demand Slumps', by Joe Carroll and Fred Pals
A related article is from TheStreet.Com.
From Bloomberg.Com come the following links:
Here are two article from SafeHaven.Com.
Red and White D sends this link to
'Fiscal ruin of the Western world beckons', by Ambrose Evans-Pritchard
of The Telegraph.
From Minyanville.Com come these links:
And
'
Five Reasons to Be Skeptical About Second-Quarter GDP', by James Kostohryz. I quote
this article below.
4. With such dismal numbers as those above, and an inventory contraction, how
did the overall GDP number surprise to the upside? First of all, imports fell
dramatically faster than exports – 15.1% versus 7% respectively. Thus, the change
in net exports contributed +1.38% to GDP. Second, government expenditure rose
by 10.9%. Looking forward, both of these contributions to GDP are neither
particularly heartening nor sustainable."
And
'Have We Reached a Top? ', also by James Kostohryz. I quote it below.
However, it's to be expected that during the transition (or topping process),
the distribution of news flow between good and bad will even out for a while."
July 19, 2009
Rich Kolon points out that
if the FED were juicing the market, then by doing so it would relieve some of the
pressures that big corporations are feeling about their pension funds. "For example,
Boeing's pension fund had a theoretical underfunding of over $8 billion as of year
end 2008. Any stock market rally may have reduced that deficit."
From Ben Smith comes this link to
'A 20-Year Bear Market?', by John Mauldin on SafeHaven.Com.
From Keith comes this link to
'Oil at $20? Not as absurd as it sounds', by Derek DeCloet on GloveAndMail.Com.
Keith also sends this link to
'Wave of liquidity washing over China', by Levi Folk on FinancialPost.Com.
And here is a link to
'Ten Reasons the Countertrend Rally May Be Over', by James Kostohryz on Minyanville.Com. This
article contains some of the soundest reasoning I have encountered in the past 6 months. I quote it
extensively below.
...Europe is in trouble -- and more than is realized. Government debt in Europe
is far greater than in the US. The demographics are dismal. Entrepreneurial
growth dynamics are non-existent. Property values are significantly more overvalued
than in the US. The corporate sector is considerably more leveraged than in the
US. The banking system is much more leveraged than in the US and capitalization
levels of banks are grossly inadequate. The monetary and fiscal mechanisms in
Europe to counteract the economic crisis are lame.
[Remember, back in the go-go years, the bankers convinced Congress to relax regulation so that they
could be more like European banks.]
...Many folks are still waxing lyrical about 'peak oil.' And there is much
speculative chatter about buying commodities generally as a hedge against
inflation. These speculations have fueled massive run ups in various commodities
via ETFs which have inflated prices to current levels. Economic disappointments
in Europe and Asia will soon prove such speculations to be untimely and will
cause sentiment on commodities to reverse. This will trigger a dramatic unwind
of these structurally unsound markets in which activity by legitimate commercial
actors is being overwhelmed by financial speculators. I expect crude oil to
revisit the 30s and perhaps even the 20s. Other commodities such as copper,
which the Chinese have propped up through stockpiling, will also collapse back
towards 2008 lows.
...Nonetheless, it will be difficult to make money in US markets in late 2009
and 2010. I see US markets languishing, probably trying to find a range somewhere
between recent highs and the March lows. Perhaps that range could be somewhere
between 750 to 850, with short forays outside such a range. Technology stocks
should outperform in a big way while energy-and-commodity-oriented stocks should
suffer steep declines. Sector and stock selection will be the name of the game
in the second half of 2009 and 2010."
July 13, 2009
Here are four links to Bloomberg.Com, stories that curiously are linked:
'U.S. Stocks Advance, Led by Banks, as Whitney Says Buy Goldman'
And from Rich Kolon,
here is a link to
'Is the Fed Juicing the Stock Market?', by Mike Whitney on Earthlink.Net.
Mr. Whitney, as Rich and I have been thinking, believes the FED has been
buying a lot of financial stocks. That certainly would explain what we have
seen. I quote the article below.
Keep in mind, Bernanke's rip-snorting stock rally has been spearheaded by
the same group of flagging financials which were stretched out on a marble
slab just 3 months ago. Now they have become the darling of the investor
class. How likely is that?"
I would say it was very unlikely. But how convenient to have had a rally
just then so the banks could pull off secondary stock offerings and raise
more capital.
July 10, 2009
Good Reads:
Here is a link to
'June Is Another Weak Month for U.S. Retail Sales',
by Stephanie Rosenbloom on NYTimes.Com.
Here is a link to
'U.S. Michigan Consumer Sentiment Index Falls to 64.6',
by Shobhana Chandra on Bloomberg.Com.
And from Red and White D here is a link to
'This $17 Trillion Divorce Won't Be a Pretty One:',
by William Pesek of Bloomberg.Com.
.................
Fooling People
My father was an old-school carpenter with some unusual gifts. He had an incredible sense
of space. We boys discovered that he could also figure cube roots in his head, a trait
that comes in very handy if you are cutting hip or valley rafters. I once saw my father
draw a pattern out on a piece of canvas. Then he went to the sewing machine and when
he was done, he had a complete fishing vest that fit his big barrel chest perfectly.
My oldest brother inherited all of this. One Christmas Vacation, when he was back from
working on his PhD at Purdue, he brought home a bunch of ripstop nylon and bags of goose
down. Then he laid his material out on the living room floor. With a piece of chalk he
sketched out his pattern. He cut his material. He went to the sewing machine (an old
Singer treddle) and sewed in baffles. He reversed the vacume cleaner motor, filled the
bag with the down, and blew it into the baffled sections. He sewed the sections closed,
sewed in the zipper, and put on his new perfectly fitted down coat.
The human mind can, if it chooses, turn off pain. It can delay and put off pain
for a very very long time.
Casper Wyoming, my home, went through a depression, the real deal, between the years of
1982 and 1989. At the nadir, every sixth house in town was for sale. This, I believe, is
what our country is going to experience in the coming years. Housing is bad now. It
is going to get a lot worse, and the 'housing slump' is going to last for a surprisingly
long time. The whole nation is going to learn the lessons we Casperites have already
learned the hard way.
The biggest lesson is that the 'Dark Figure' of houses not even entering the market for
sale because of lousy prices is going to grow. People will not give up and sell for a
very long time. My '82-'89 experiences tell me that capitulation did not occur for at
least 5 years into the 'event' (call it a recession, depression, whatever). Finally,
after denying the pain for years on end, folks will give up, take their losses, and
move on with their lives.
Denial can last for a very very long time. Instinctively, you already know this. How
many friends do you have who entered into a marriage and then divorced five, ten, or
twenty years later...and when you ask them pointedly will tell you that they knew the
marriage was not going to work within a month or two from its beginning? The decision
to make the break was delayed for a very long time. Not only is man a creature of habit,
he is a creature of denial.
In Psychology one idea is the Gestalt Effect: the moment of sudden awareness, of dawning
realization. For most people Gestalt takes time...a very long time. Even pain so great
that it is debilitating may not be enough to teach people until that pain has been
applied for a very long time. The housing market is going to feel the pain in just
this slow way.
Think back to the television news of the '60s when cities were using fire hoses to control
demonstrators. Think of what happens to the human body when a stream of water under
sixty pounds of pressure hits someone's head. That person is going down. And if
the stream of water is directed at the prone body, it can literally wash it down
the street. The truth is going to whack folks in the head just like that. In housing,
the Gestalt is just going to happen in slow motion. It will take years and years for
the realization to arrive. Then, when it does, it will be brutally shocking.
'You can fool all of the people some of the time and some of the people
all of the time, but you cannot fool all of the people all of the time.' ...Abraham Lincoln
'Markets can remain irrational longer than you can remain solvent.' ...John Maynard Keynes
'Man is a creature of denial.' ...The Bender
July 9, 2009
Good Reads:
Here is a link to
'Stimulus II: The big-budget summer sequel everyone is talking about!',
by Christopher Beam on Slate.Com.
Here is a link to '2009 Year in Review: The Second Chance Saloon ',
by Todd Harrison on Minyanville.Com.
A note from the Orange Section:
The housing Dark Figure is real. My wife and I are living that
scenario, we own a small home in a development that has over 1/2 dozen
foreclosures in it. They have driven down the price of the homes by 30%
to 60%. We cannot afford to sell our house. Our solution is to try
to rent it and then to buy a larger home at these low prices, but that is only
possible because we have 2 incomes, an FHA downpayment in
the bank, and a solid credit score. My sense is
there are many people like us who are essentially trapped in a house
that they bought as a starter house to build equity before moving up.
And this is the rub, the housing bailout the Obama Administration
proposed demonstrates a lack of understanding and incompetence with
regard to this problem. They gave a tax credit to new home buyers and
provided mortgage relief to subprime borrowers. This is asinine. They
bailed out the people that the banks got burned lending to in the first
place. All the banks looked at those low FICO borrowers awash in
government funds and said 'fool me once shame on you, fool me twice
shame on me.' Thus, you have the dark figure.
The Orange Section Proposal:
Extend the Tax Credit to all home buyers and attach a clause that
requires the purchased house to be their place of residence.
Provide Porkulus Funds in the form of Government Loans to underwater
qualified borrowers so they can get out their underwater assets.
Enforce Draconian Credit Standards with regards to down payments.
Ahh ... but then there is the rest of the debt market and in turn the stock
market. This is where Congress has really doubled down and
screwed things up. So lets look at the idea of Government Stimulus.
Basically the idea of Stimulus is that the Government, AKA the largest
fish in the pond, is going to spend some of it's vast resources on the
economy. Sounds great right? Well lets look at this in a more economic
light.
The Orange Section Case Against Stimulus Plans:
Stimulus is essentially a shot in the arm. The government approves some
large sum of money and 'injects' it into the economy by spending it on
various things. We immediately encounter the implicit assumption that
these funds are to be spent properly and wisely. (No really, they can
do it!) Stimulus is typically acquired through borrowing. So while we
gain a one time infusion, we also gain a long term liability.
A better way to think of this is like a Bath Tub. The bath tub is full
of water and that water is all the money in our economy or our GDP.
Stimulus is a one time short term increase in the level of the water.
The water level rises temporarily while the debt needed to pay for the
increase decreases the amount of the government's share of the water can
be spent on anything but interest for a long period of time.
Right now the Government is 28% of the GDP. So 28% of the water is not
available to the free market. 28% is not spent efficiently. Over half
of it goes to paying interest on the Federal Debt. The rest gets spent
on pork, foreign aid, and other wacky crap. Very little goes to growth.
So right now our economic system is burdened with massive debt and an
enormous Federal Government taking up almost 30% of our GDP. This has
squeezed the money available for growth to almost nothing. So what do
we do? Well my view is that we should cut taxes and curtail Government
spending. Instead of increasing our liabilities for a one time capital
infusion, why not have that 28% shrink to 25% and permanently give 3%
back to the public without incurring additional debt?
Of course that would entail giving power back to the people and we know
how well Washington does that. It is time to hold Washington to a
higher standard."
July 7, 2009
Good Reads:
Here is a link to 'No doubt about it - Canada faces very painful recession
decisions', by Jeffrey Simpson of TheGlobeAndMail.Com.
Here is a link to 'House price slide hits recovery hopes',
by Gerrit Wiesmann and Andrew Whiffin of The Financial Times.
Here is a link to 'US consumer delinquencies hit new highs',
by Alan Rappeport of The Financial Times. I quote it below.
This is a link to Bill
Gross's July Comments on the PIMCO.Com site.. I quote it extensively
below.
...The fact is that American consumers have suffered a collapse in
wealth of at least $15 trillion since early 2007. Global estimates are
less reliable, but certainly in multiples of that figure. And when
potential spenders feel less rich by that much, the only model one can
use to forecast the future is a commonsensical one that predicts higher
savings, lower consumption, and an economic growth rate that staggers
forward at a new normal closer to 2% as opposed to 3 1/2%. There's no magic
in that number, and no model to back it up, just a lot of commonsense
that says this is how people and economic societies behave when stressed
and stretched to a near breaking point.
...As unemployment approaches 10%, what is less well publicized is that
the number of 'underutilized' workers in the U.S. has increased
dramatically from 15 to 30 million. Those without jobs, as well as those
individuals who only work part-time and have become discouraged and
stopped looking, total 30 MILLION people. The number is staggering.
...Investors who stuffed themselves on a constant diet of asset
appreciation for the past quarter-century will now be enclosed in a
cage featuring government-mandated, consumer-oriented fasting. 'Non Appetit,'
not Bon Appetit, will become the apt description for the American consumer,
and significant parts of the global economy, including the U.S. Because
this is so, short-term policy rates will be kept low for longer than
cyclical norms, and the outlook for risk assets -- stocks, high yield
bonds, and commercial and residential real estate will involve just
that -- risk."
And finally, here is a link to 'Money vs. Wealth',
by Mr. Practical on Minyanville.Com. I quote it extensively below.
Does anyone think that $270,000 in cash is coming back into stocks
anytime soon?
...It is going to be very hard if even possible to reflate asset prices
from these levels. It is very important to understand this: in a credit
based system it is necessary for people to lend and borrow through the
fractional banking system, which multiplies debt, in order to drive asset
prices higher. So consumers must have the ability to borrow.
With consumer debt as a percentage of disposable income at a near high
of 130% (normal is 50%), the consumer is clearly in no shape to borrow
again. The Fed is powerless without a functioning fractional banking
system. In fact, every time the Fed or the government has another
bailout or stimulus package, that money is very low powered: there is
no multiplier effect. All it does is replace debt that is being
destroyed and perhaps slows the pace of deflation."
Housing and the Dark Figure
The deal is that we have about 4 million homes actively for sale in the U.S.
right now. That is about 4 times the average. Plus, there is a 'dark
figure' out there. I estimate that private individuals hold another
million homes that they'd really like to sell, but won't put on the
market because prices are so lousy. In addition to them, the lending
institutions are holding probably another 2 million off the market for
the same reason: price. Wall Street and the mainstream media have not
caught onto this yet.
Historically, this has to be one of the worst times to own stock in a home
builder.
Earth to markets: there are no green shoots, there never were any.
Squeezes in the near future
As has been pointed out before on this page: there is a limited amount of
money to go around. Money can either buy bonds or buy stocks. The same
dollar can not do both at the same time. The Fed needs to sell bonds
at an astounding rate. It is having a hard time selling bonds at this
increased rate. Bond yeilds will have to go up to attract money. When that
happens money will leave stocks. Stock prices will fall. The Fed and the FED
know this and don't see any way out of it. They are willing to sacrifice the
markets to get the cash into Treasury Bonds. Markets will fall and it will
be very ugly.
July 6, 2009
Here is a link to 'Big June Job Losses Heighten Concerns About
U.S. Revival', by Scott Stoddard of IBD. I quote it below.
The jobless rate rose 0.1 percentage point to 9.5%, the highest since August
1983, according to a separate survey of households. Economists expected 9.6%.
Many analysts say the economy will exit recession later this year. But June's
jobs report, after four straight months of declining payroll losses, fanned
worries that labor markets will be much slower to rebound."
What must concern everyone is the simple fact that consumers drive 70% to 75%
of the economy. If consumers don't have jobs, they won't be spending anytime
soon. No spending means no recovery.
From Keith comes this link to 'U.S. Gasoline Use Falling
- Especially in Northwest', on SeekingAlpha.Com.
I also found this article on SeekingAlpha.Com: '2009 Mid Year Outlook: Expect Deflation and an Oil
Price Drop'. I quote this article below. Bolding and comments in parethesis
are my own.
This response does not mean I agree with what the government is doing. The
government is trying to do its best to combat deflation by creating inflation.
The same people that [who] mismanaged the economy with artificially low interest rates
think that they can create a new bubble to get us out of the dumps and then 'take
away the punch bowl before the party gets good'. Why are these people even allowed
to play the economy? They didn't see a housing bubble, they didn't see the
recession and they denied it until Depression 2.0 was on our door steps.
Having a huge internet stock bubble burst is one thing, but having a housing
market bubble burst is much, much worse. Housing is tied to mortgages and banking
and banking is tied to the entire economy infecting everything.
The most expensive things most Americans ever buy are homes and home mortgages. A
few years ago almost anybody that could buy a home did. If you wanted to buy you
could buy a home and some even bought multiple homes. Bank lending standards were
'you have a pulse, you have a mortgage'. People didn't put the traditional 20% down,
I saw people buy homes and borrow 110% of the purchasing price to pay for closing
costs and put cash in their pockets. We still have a huge over supply of homes, and
we have severely tighter credit markets, people don't have 20% to put down,
unemployment hurts the housing market and we have way more sellers than buyers. That
means the home prices should go down further, or at worst stay level and not go up
for years. We might not be that far off in price in many areas, but we have a ways
to go as far as time."
This writer's thinking, and my own are completely in synch.
June 30, 2009
Here is a link to 'The Suspicious Science Behind Man-Made
Global Warming', by James Anderson of Minyanville.Com. I quote it below.
The whole CO2 theory never did make sense because, as the numbers above show,
CO2 is such a tiny part of our atmosphere. That ppm (parts per million) thing is
revealing, at least for those of us who can still do simple math. In 1998 CO2 made
up 3.66 'parts' of our atmosphere. Other stuff, like Oxygen, Hydrogen, and Nitrogen,
etc., made up the rest. How big was the rest? In 1998 it amounted to 9,996.34
'parts'. By 2008 that ratio had shifted to 3.86 to 9,996.14. What a shift that
was (NOT)!
The other problem with the theory is the supposed unidirectional nature of
CO2. According to the CO2 theory a photon enters the atmosphere, travels through it,
bounces off the earth, travels back through the atmosphere, and then runs smack into a
CO2 molecule in the upper atmosphere, which reflects it back to earth, thus causing
warming. With more CO2 in the atmosphere you get more reflection and more warming.
That's the theory. Note that the increased numbers of CO2 molecules does not cause
more photons to get bounced out into space on the photon's initial trip through the
atmosphere. The bounce only occurs when the photon is moving from earth back out
toward space. Proponents of the theory have never been able to explain why a CO2
molecule would bounce photons on the earthward side, but not bounce photons on the
spaceward side. Nor, have they ever been able to get CO2 molecules to sit up and
do this trick in any lab.
And, after reading the quote above, you should be asking yourself...hey, what
happened after 1934? Well, 1934 was a very warm year, both for the U.S. and for
the globe as a whole. Think Dust Bowl. But what happened from there into the
1960's was global cooling. Hmmm...the earth got warmer (1934), then cooled, then
got warmer again (1998), and now it appears to be getting cooler again. Maybe
that's what is called a natural cycle. Tree ring studies from the Southwestern U.S.
indicate that these kind of cycles have been going on for thousands of years. The
rings also record droughts that lasted for hundreds, repeat hundreds of years before
white men ever set foot on the continent.
From Ben Smith we get this link to 'Carbon Credits: A Scam', on Denninger.Net.
Well, Congress has a need to appear to be doing something about everything. Companies
who pay the tax will, of course, just pass it onto consumers. But with the
Cap and Trade Bill Congress gets to raise tax revenues while also playing the
'Green Knight'. That's political show biz folks.
And here is a link to 'No End in Sight for Recession', by John Mauldin
on Minyanville.Com. I quote it extensively below.
Is it the end of the world? Do we just keep falling? No. At some point, 6 months or
a year from now, the year-over-year comparisons become easier. If you are at 100
and fall to 80, then a year later you're at 88 and -- Voila! -- you have a 10%
increase! And the perma-bulls will be talking it up, ignoring the fact that you're
still down 12% from the peak.
...Again, analysts talked about a turnaround because job losses were 'just'
345,000. That's a higher number than any month in the 2001-02 recession, and
larger than the month after 9/11. That's a green shoot? Yes, we'll see the
monthly unemployment numbers fall, but they're falling from historic highs.
And, based on some research by the San Francisco Federal Reserve, it's likely
that we'll see higher unemployment, and it will persist for a while longer.
...'The long and gradual return to pre-recession unemployment levels implied by
the Blue Chip consensus forecast is consistent with a labor market recovery that
is slightly weaker than that experienced in 1983 and slightly stronger than that
experienced in 1992. However, should labor market conditions instead proceed
along the path taken in the 1992 recovery, the unemployment rate could peak
close to 11% in mid-2010 and remain above 9% through the end of 2011.'
...Personal income from wages and salaries was down $12 billion in May. So how
did income go up? A large increase in "government social benefits" and a decline
in personal taxes accounted for the gain, and then some. The increase was the
effect from the recent stimulus package, which is -- for now -- temporary, and
not the result of a recovering economy. Hardly green shoots. It's just borrowed
money from another (government) source. In principle, it's not much different
from home-equity withdrawal, except that taxpayers are on the hook.
And those government subsidies are going to increase. Look at the graph below.
What it shows is that the average duration of unemployment is at a 60-year high,
and rising. It's now at 22.5 weeks. Unemployment benefits stop at 39 weeks,
temporarily up from 26 weeks. More and more people each week are thrown into
very dire circumstances when they fail to find jobs and lose their benefits.
Care to wager whether unemployment benefits will be extended again when
Congress comes back from vacation?"
Who got the stimulus money, actual checks? The retired folks got it. What
did they do with it? They threw it into savings. Boy, that really stimulated
the economy!
There was a quiet announcement this week from Mittal Steel (the world's largest
producer). Mittal does not see a pick up in demand coming until some time in
2011. Green Shoot anyone? Want some dip with that?
June 29, 2009
Here are two links:
'
Five Things...', by Kevin Depew of Minyanville.Com.
From Lar we get this link:
'Commercial Real Estate to Hit Banks Hard'.
It looks to me like Ford is going to be the big winner of the big 3. The other two are going
to discover they have a fire-breathing dragon in their innards. The Fed is not the ideal
business partner.
The Chinese are not buying bonds like they used to do. Instead they are stockpiling commodities
with their money. That is keeping commodity prices up. When the Chinese quit buying look for
commodities to plunge.
And yes, commercial real estate is going to be the next big wave to hit the banks. It may
affect the banks in a bigger way than home mortgages did. Ouch.
June 24, 2009
Here are links to two good reads:
From Ben Smith we get '
A Tale of Two Depressions', by Barry Eichengreen and Kevin O'Rourke on SafeHaven.Com. I quote it below.
* World stock markets have rebounded a bit since March, and world trade has stabilized, but these are still following paths far below the ones they followed in the Great Depression.
* There are new charts for individual nations' industrial output. The big-4 EU nations divide north-south; today's German and British industrial output are closely tracking their rate of fall in the 1930s, while Italy and France are doing much worse.
* The North Americans (US & Canada) continue to see their industrial output fall approximately in line with what happened in the 1929 crisis, with no clear signs of a turn around.
* Japan's industrial output in February was 25 percentage points lower than at the equivalent stage in the Great Depression. There was however a sharp rebound in March."
From Keith we get 'As China hoards, concern grows about recovery',
by Carolynne Wheeler and Andy Hoffman of TheGlobeAndMail.Com.
June 23, 2009
Here are links:
Here is a link to an interview on
CNBC of Marc Faber.
Here is a link to
'Debt Fret: The Price of Printing Money', by Bill Fleckenstein on Minyanville.Com.
Here is a link to
'Market Correction Could Be Larger Than Expected', by Prieur Du Plessis on Minyanville.Com.
I quote from that extensively below.
'I'm of the opinion that this bear market rally is in the process of topping out.
When a counter-trend rally tops out within an ongoing primary bear market, the odds a
re that the stock market will break to new lows during the period ahead. That means
that the stock market will break below its March 9 lows in coming weeks. A violation
of the March 9 lows would be a shocker to most investors, and it would be a forecast
of an even worse economy coming up.'"
And here is a link sent by Ben Smith to 'Debt Fret: The Price of Printing Money', an article
on Denninger.Net about the liquidity that is in the process of disappearing, and what
that will mean to stock prices. I quote extensively from it below.
...You simply cannot issue $165 billion in Treasury Debt and expect it not to have a major
impact on system liquidity. It is not possible. That which is spent on one thing (in this
case Treasury bonds) cannot be spent on another (in this case stocks.)
The Fed cannot "monetize" this debt without creating an instant dislocation in the Treasury
market - their games thus far have produced a SMALL rumbling of trouble there, but nothing
like an outright monetization campaign would produce.
Bernanke and Obama are backed into a corner, exactly as I predicted would happen. In order
to continue to issue like this in the Treasury market while not driving Treasury rates to the
moon money will have to be "scared" into bonds - which means blowing up the stock market."
Finally, here is a quote from a recent note from the Orange Section. It is so good I have placed
the words in bold.
One of the purposes of the media is to give, or even create a metric by which the average
voter can guage the actions, the activities of the government. The media fails this again and
again. One of the problems is that the average reporter does not understand what a mortgage is,
nor can he or she do simple arithmatic. All a government official has to do is hand a room full
of reporters a sheet of paper with a bunch of numbers on it...to hide what the government has done
or is doing. The reporters will never be able to figure out what the numbers really mean.
We are witnessing deflation on a massive scale. The fall of house prices is worse than what is
being reported and the reported numbers are frightening. One estimate I have come across is that
in the first quarter of 2009 U.S. households lost $1.33 trillion of their wealth. I believe that
number to be conservative. A big part of that loss is in housing. The asset inflation grossly
under-reported by the FED in its inflation numbers is now being deflated. Think of that deflation
as a wide open nozzle on a great big balloon. The FED and the Fed are blowing money in a nozzle at
the other end of the balloon right now. But money is leaving the deflation nozzle at an even
faster rate. That is why I do not think we have inflation right now. We most certainly will
have it soon enough. We just don't have it yet.
I think the next big move in the markets is down, and that the March lows will probably be taken out
if not in August, then in October. This is not your average recession folks. This is the big one.
Production and consumption will come back, but at much lower levels. Housing will come back, but
at much lower levels than before. The world economy will shrink. All levels will be lower.
June 18, 2009
Here are three links sent by Ben Smith.
'Where We Are, Where We're Heading', on Market-Ticker.org.
'This Time its Different*', by John Mauldin
on SafeHaven.Com.
'Thursday Comes: The Fed Watch' on Market-Ticker.Denninger.Net. I quote this one below.
Clearly in September the 'game' got away from Ben; this time they have (so far)
managed to keep things (somewhat) under control. There is of course no assurance
that it will remain under control, and in fact there is every reason to believe
it won't, given that this exercise with liquidity is somewhat like herding cats -
if you're trying to shoot at a specific result you're unlikely to succeed, especially
if the intended attempt is to 'nuance' outcomes (e.g. 'let's drive down bonds and its ok
if stocks decline a little bit.')"
Inflation is something I don't think we have much of it right now (something I will explain later). But
the money the Fed and the FED have been throwing around is strange stuff, in that you can never
predict where it will come squirting out next.
June 6, 2009
Ben Smith sends along this link to
'Julian Robertson Bets the Farm on Inflation', on SeekingAlpha.Com.
And here is a link to
'The National Deficit: Inside the Belly of the Beast', by John Mauldin on Minyanville.Com.
I have been neglecting these pages of late because I have been so terribly busy in
my garden. That pressure should ease there and I should be able to tend to this
garden of pages better in the future.
We are just now hearing the first rumblings out of the bond markets from the damage wreaked
by the Feds in the Chrysler deal (See my May 10 comments). You can bet that all the retirement
fund managers in the U.S. are watching the case the State of Indiana has going against the Feds
for their losses in Chrysler debacle. Seems the State of Indiana Retirement System had some
of the bonds.
The Obama Admininstration just does not get it. It does not understand the wound it has
inflicted on American Corporations via the Chrysler and GM bankruptcy programs. There is going
to be a steep price to pay when funds all over the world finally realize that the American
Corporate Bonds they hold just turned into dross (Dross is worse than worthless. Dross is
something you have to pay someone else to take off your hands.)
I am holding my crystal ball out in front of me. I am reading a headline in the future:
'Geithner mystified by bond market implosion'
June 1, 2009
Rich Kolon sends this link
to 'The Housing
Hurricane Will Howl Again', by Mike Morgan of Barrons.
Here is a link to 'Five Things', by Kevin Depew of Minyanville.Com.
And here is a link to
'Stabilization', by Mr. Practical of Minyanville.Com. I quote it below.
Of course we have stabilized. The government has bankrupted our future to do it. The
government(s) control the LIBOR market, the swaps market, the bond markets with all the
'money' they are printing. They are feeding “money” to banks under the table at an alarming rate.
Those declaring the economy is now recovering do not understand (still) the problem: we
are stuck with too much debt. The government’s solutions are to create more debt, as their
next to be announced PPIP does. But an economy grows from production, not lending at the
wrong price. This is a long term problem; the government has only addressed the short
run symptoms."
"In the United States, in particular, consumers went on a long,
debt-fuelled shopping spree. Household debt rose from about 65 per
cent of income in 1983 to nearly 140 per cent of income by 2007.
"Zero Hedge: 'Most interesting is the correlation between Money Market
totals and the listed stock value since the March lows: a $2.7 trillion
move in equities was accompanied by a less than $400 billion reduction
in Money Market accounts!
'Two-Year
Treasuries Fall the Most in Eight Weeks on Supply', by Susanne Walker
'The Great Reflation Experiment'
, by John Mauldin
'
Buyer Beware: The Bottom Is Not Yet In', by Vinny Catalano.
"3. On the negative side of expectations, real personal consumption contracted
by -1.2%. Durable goods consumption decreased by -7.1%, non-durable goods
decreased by – 2.5% and services were relatively more resilient registering
an increase of 0.1%. Private investment declined by -20.4% with fixed investment
having declined 13.5%, residential investment declining by 29.3% and business
investment having declined by -8.9%. These are dismal numbers and somewhat worse
than I expected.
"It's my view that the flow of economically relevant events -- and perceptions
of these events -- are in the early stages of a transition. In this case, a
transition means the flow of relatively good news will tend to wane somewhat
while there's an uptick in relatively bad news. This is what one would expect at a top.
"Economists and equity analysts have once again made the mistake of projecting
linearly. They have taken second-quarter figures and projected forward from there.
The problem is that the true level of normalized underlying demand is below that
which was reflected in the data in the second quarter of 2009, due to the
pent-up-demand effect. This means that once the pent-up demand effect wears off,
demand will quickly settle back to a lower normalized level. Not only that, from
this lower normalized level, aggregate demand is still contracting at a fairly
rapid pace due to declining employment, real wages, and profits.
...The Chinese are currently compensating for the collapse of the export sector
through massive (and wasteful) public spending and completely irresponsible loan
growth directed by the government. While the Chinese can certainly sustain this
level of fiscal stimulus and bank lending for a while, they will not be able to
grow it from current levels.
'CIT Group Says Its Failure Risks Demise of Customers (Update3)'
'Treasuries Record Demand Damps Concern Supply, Dollar to Doom U.S. Bonds'
'U.S. Budget Gap Exceeds $1 Trillion for Fiscal Year (Update3)'
"What if Bernanke made the same calculation as Greenspan? What if Bernanke
realized that the PPIP would fail and that going to congress to get more
money to buy toxic assets was a losing proposition? Then, he would be forced
to take radical action to assure that the banks had a sufficient 'capital buffer'
to withstand losses on failing assets. He would devise a plan wherein the
banks were able to secure (as Greenspan says) 'large amounts of new equity'
to keep them buoyed above the ocean of red ink.
This inspired me (age 10) to try my own hand at sewing. I made
a few things, and patched my own jeans. Just when I thought I had the hang of the whole
sewing routine I put the needle through the tip of my finger. The amazing thing was,
it didn't hurt! So I carefully raised the needle up and pulled my finger off it. About
ten minutes later the pain came, and it was considerable. I think I nicked the end of
the bone, and the bone objected to that treatment.
"Bender,
"Delinquencies on all consumer loans rose to 3.23 per cent of all
accounts in the first three months of the year, bringing them to
the highest level since 1980. ABA defines a delinquency as an
account that is more than 30 days past due."
"...U.S. and many global consumers gorged themselves on Big Macs of
all varieties: burgers to be sure, but also McHouses, McHummers, and
McFlatscreens, all financed with excessive amounts of McCredit created
under the mistaken assumption that the asset prices securitizing
them could never go down. What a colossal McStake that turned out to be.
"People talk about all the 'cash' on the sidelines fueling the next
leg up in stocks. Those people aren't connecting the dots: That cash
is there because of debt. Take the following example. Joe has $500,000
in stocks, a $750,000 house, and $20,000 in cash as assets. He has a
$500,000 mortgage and $20,000 in credit card bills as liabilities. His
net worth is $750,000. Over a 6-month period, his stocks and his house
go down in price by 50%. He's forced to sell his stocks, because he took
on too much risk. He now has $270,000 in cash and a house worth $375,000
as assets; his liabilities still amount to $520,000. His net worth is now
only $125,000.
"Companies shed 467,000 workers last month, up from a drop of 322,000 in
May. Wall Street expected a loss of 367,000 jobs.
The 'inflation camp' sees what the government is doing and they rightly see that
printing all of this money is inflationary, true. However there are even larger
deflationary forces among us. I believe the inflationists underestimate the size
and scope of the credit bubble. The inflationists are only looking at the
response, but ignore the credit contraction they [the Fed and the FED] are responding to.
"Here's some science that no one with a vested political or financial interest
in climate change would want you to know: The warmest year since 1934 was 1998,
at the height of the strongest El Nino on record. The gold standard for CO2
measurement is taken at Mauna Loa Observatory in Hawaii. In 1998, the
observatory recorded 366 parts per million (ppm) of CO2 in the atmosphere; it
steadily rose to 386 ppm in 2008. In the meantime, the earth has cooled."
"Now let's take that principle a little further. Two weeks ago, I detailed how air,
trucking, and rail shipping are down 20% year over year. Global trade's down about
30% in the major exporting countries.
"* World industrial production continues to track closely the 1930s fall, with no clear signs of 'green shoots'.
"Richard Russell, veteran writer of the daily Dow Theory Letters, commented on Monday:
"Again, to put this in perspective this 7-day window has $165 billion in issuance. The
entire S&P 500 - all 500 stocks - has been trading in the $2-2.5 billion a day range for
the last month or so. That's the capital flow that is represented by all trades in all
500 stocks.
"If our media had an ounce of courage they would be asking why after the largest
stimulus package in history our economy has continued to fall. They would ask why
GM is getting another $7.5 billion, why AIG got over $173 billion."
"You can either play "loose money/green shoots" and accept that mortgage rates will
go into the 7s (at least) or you can play "tightwad" and drive down mortgage rates
through a fear trade into Treasuries, but in the process stock prices will get hammered.
"If you add up all the government bailouts, explicit and implicit, along with actual
government purchases of assets (debt from banks) it comes out to a surreal $30 trillion.
Markets are cheering that things have 'stabilized' and 'things are getting less bad'.
I ask you seriously when the government throws $30 trillion at the 'crisis' (one which
bankers are now claiming is over), can you call that stable? That is like declaring a
patient being kept alive on a heart-lung machine healthy.
