Guest post from Bob Rinear of Invest Yourself
Lunatic Fringe: Bernanke And The Dissolution Of The American Dream
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Today's Look at "Official" Economics
Everyone fashions themselves as some form of genius, no matter what the topic. I'm not saying that as an innocent bystander either, I toss my hat in that ring every day. The problem however is that if you have to opposing opinions, one of them will ultimately have to be wrong, and it's to your ability to figure out which one is indeed "right". What brings this up is that this week the NABE (national association of Business Economics) came out and declared that the recession is over. How they arrived at that conclusion is interesting. Evidently they interviewed some 44 of the "best" economists and almost to a tee they told the NABE that indeed we have weathered the storm and things are moving along quite well.
Now I obviously have a problem with that. Why? Well it's my position that we weren't in a recession to begin with we had already fallen into depression. Then to make matters somewhat worse, I tend to think it's getting worse, not better. So, here's "Bob" the publisher/editor of the Financial Intelligence Report saying "we are in a depression and it's going to get worse long before it gets better" and on the other side of the coin you have the NABE saying the "recession is over". Obviously one of us is wrong.
The way that you establish a theory is by providing "facts" and then linking the facts to a logical conclusion. So, with that in mind, I'm reminded of the "business roundtable" that just took place a couple weeks ago. This was the take away from their meeting:
The recent Business Roundtable Survey results showed that 49% of all CEO’s expect their sales to be flat or down in the coming 6 months. 51% expect an increase. 79% of all CEO’s surveyed expect their capital spending to be flat or down in the coming 6 months. 87% of all CEO’s expect to do no hiring in the coming 6 months
Hmm. half of the CEO's expect flat or sagging sales, 80% say their capital spending will be flat or down and almost 90% don't expect to hire anyone. Is that the stuff of recovery? Is that how business acts at the "end" of a recession?
I personally wouldn't think so, I'd think that if indeed we were on a path to a sustainable recovery that businesses would be looking to expand. But again, I'm not a great think tank like the NABE, I'm, well, just Bob. Yet Bob questions the next item on his "is this a recovery?" list. Let's look:
Delinquencies among U.S. commercial mortgage-backed securities surged to by a record amount to 3.64% in September, vs. just 0.54% one year ago, Moody's said today. Hotel loans were worst off, rising to 4.97% from 4.18% in August. Mutifamily delinquency rates hit 6.09% from 5.51%
Oh boy, there's that logic thing getting in the way again. If we are "out" of the recession, why are MBS's coming delinquent at a record pace? In my shallow mind, one might have thought delinquencies would be slowing, no? Okay, so business isn't hiring, or expanding, delinquencies are still hitting records, maybe housing has some bright glimmers for us? Let's look:
Every 13 seconds, there’s another new foreclosure filing somewhere in America. Not a typo- every thirteen seconds. There are now more than 6600 foreclosure filings a day. Yep - sixty six hundred a day. There have been roughly 2 million foreclosures so far during the crisis and an assistant secretary from Treasury, Michael Barr, said that another 6 million families could face foreclosure over the next three years
Oh boy. Once again I'm confronted by this damn logic thing. Logic dictates that you cannot have 6600 foreclosures a day, with millions more to come, and somehow the economy is now "out" of the recession. Maybe in the science of Wall Street, logic is a barbaric relic of a bygone age, like they said about gold back when it was 300 dollars an ounce?
Have we found nirvana in the growth of jobs? well unfortunately no, over a half million people a week are still signing up for unemployment benefits, and the Governments own doctored and painted non farm payroll reports show that we are still losing 250,000 to 400K jobs a month. I ponder curious about how the NABE comes away thinking that the recession is over, when we cannot create a single "net" job, and instead have unemployment rising? Well of course they call employment a lagging indicator. I'm going to dispell that right now.
In the past READ AGAIN< IN THE PAST, employment WAS a lagging indicator. What would happen is that during the recession, people would get laid off, they'd cut back spending, and as the number of unemployed rose, they'd simply hunker down.Then stimulus would be pushed out of Uncle Sam, tax cuts, lower interest rates, etc, and business would start to recover and even people that were still unemployed would "feel better" about things, whip out the credit card and start spending again. They felt safe doing it because "the businesses were returning to growth, they'd be hiring and soon I'll be employed". What most people don't understand is that because of that "feel good about the future" emotion, the UNEMPLOYED were using credit to continue spending, which ultimately led to the businesses actually doing better. As the business did better, they hired more people and "bingo" the recovery was in. So, it was always the fact that consumer buying, based on credit, is what ultimately got the businesses expanding, and then ultimately hiring again.
In this case, that option is gone. There is no house to refi. The home equity lines of credit have been shut down. The credit card agencies have reduced the public's outstanding credit available. Lending standards rose. In other words, The jobless are NOT going to increase spending, which would rocket the business community back to a period where they have to rehire to meet demand. Sorry, not happening this time. 1) there's NO credit. 2) because business has cut back so hard for the past 2 years, capacity utilization is at record low levels. That means they can increase their business output many times over, just by expanding the work week of the people already there. Without the consumer going into hock on credit to buy "stuff" and services, business cannot expand. So, joblessness is no longer a lagging indicator. Without credit, joblessness is the current indicator. No hiring, no recovery. Period.
Okay, so if it's not jobs, if it's not stronger housing, it's not businesses looking to expand, where is the NABE coming off with the idea of "the recession is over?" I'll tell you where. The same mutant economists that didn't see any problems in the first place. Now consider that for a minute. This band of complete miscreants didn't see the single largest financial disaster of the last 80 years coming. When it hit they said it wasn't going to be a problem, it was nothing to worry about. And now they say it's over.
Do you believe them? I'm going to assume that you have more mental capacity than a garden hose, and that "no" you don't. Because frankly a bigger lie would be hard to come by. We are not coming out of a recession, we're mired in a depression. But because telling the brain dead masses that we are in a depression would make them do the logical thing, which is to hunker down and save money, they have to lie to them. See, they perverted us from a manufacturing nation, that thrived on exports, to a "consumption" society, where pushing people in debt to sustain a lifestyle over their means was not only normal, it was desirable. Well, no "consumption" society has ever existed before and frankly the idea of it is absurd. No nation ever got richer, by going into more debt. Yet this is the BS they preach to us daily. Go figure.
The astounding thing in my mind, is the "speed" at which our Country is being attacked by so many fronts. It's not just joblessness, or debt levels, it's cap and trade, the green movement, the healthcare push, more wars in more countries, cash for clunkers, cash for appliances, banker bail outs, "Diversity Czars", everywhere you look there's something new to deal with. Isn't it enough to just have to deal with the economy, versus being pushed and pulled in a million other directions at the same time? I think so, but then again, the conspiracy nut side of me screams "they took the economy down just so they could get their other pet agenda's pushed forward, and that's why the rabid push for all this other garbage while America is reeling in it's second ever depression". The unfortunate part is that my conspiracy side is right.
Yet today, amid much fanfare, and blowing of Kazoo's, we busted over DOW 10,000. Why? Because of the robust economy? Nope. Because Intel's Revenues fell 8% on top of the fall last year? Nope. Because they can. Period. We've had so much bank stimulus shoved into the market, so much monetizing of debt, so much "malarky" that it's going into the market. Don't forget folks, with housing and jobs in the toilet, they are willing to manipulate the market higher, for a multitude of reasons. For each tick higher it goes, that's one more pension plan that won't implode immediately and need a bail out. That's one more retirement fund that won't get a redemption call. From Uncle Sam's viewpoint, keeping the market up is the only thing keeping the commoners from revolt.
So, enjoy the game while it lasts. Just know that without the trillions in funny money, without interest rates at virtually zero, without "mark to fantasy" accounting, without cost cutting, the market would be at 5000, not 10,000. Oh and by the way, it's still going to get there.
Now onto the market itself:
Today they managed to squeak us up and over 10K. We said Sunday night that we felt they'd pull out the stops and try and keep the market moving higher and they have. It really doesn't matter if it's a house built of cards or not, Up is up, and we like tagging along with it. The looming question however is very simple, how long can they keep this going? No one knows. Wait, I "take that back". I'm sure Turbo tax Timmy Geithner knows. Benji "I got a helicopter" Bernanke knows. Hanky "Panky" Paulson knows. But we aren't in their club. The Treasury secretary doesn't call me several times a day like he does Goldman Sachs and JP Morgan. Us lumps have to try and figure it out on our own.
Just try and get your arms around the fact that the market doesn't belong "way up here" and that it's being pushed there. If you understand that, you've won half the battle. Now there are a handful of ways this can play out. We Could see the market move up, pause, move up, pause and keep on going to January. Or, we could see the market put in a big "last ditch push" and then after half the earnings are out, see us roll over for a good pulldown. One thing is certain, 2008 wasn't friendly to a lot of hedge funds and mutual funds. They didn't get their year end bonus's so they could buy the G.I. Joe with the kung Fu grip. They want that bonus, and they'll probably let it all hang out in hopes of achieving it.
In 2008, as the market was crashing, our 401K plan gained 3.8%. Not much, but with no short funds to play with all we could do was hop in and out during recognizable bounce areas. This year, we are up 38.2% as we speak. Naturally I don't want much of that to evaporate, so I'm paying very close attention here. Although they have the momentum, although Uncle Sam is in the background, each day of up, brings us closer to the inevitable down. So, we all need to pay close attention here.
In the short term, with GS, IBM, and Google coming out with earnings, they can probably keep the happy talk alive for another day, but we are getting overdue for another "pause" if nothing else. We'll continue to "lean long" but keep our hands near the sell button.
On Sunday I think I'll tell you the "silver" story, so you understand a little more about the manipulations in that particular area. As we've preached for eons now, Gold and Silver are going to end up being the storehouses of value we're going to need to own as the dollar vanishes from the global reserve scene. Stay tuned it's going to be fun!
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