Posted on 11/20/2009 6:06:25 AM PST by randita
10 Reasons to Believe That We're in a Depression
by: Marvin Clark November 19, 2009
As the economy drifts listlessly going into this holiday season, thoughts of sugar-plumbed call options and zombie companies (Fannie Mae (FNM), Freddie Mac (FRE), and Citibank (C)) are dancing in the heads of day traders, fund managers and CNBC.
Hooray, hooray, everything is OK! Well, not quite. While Wall Street is feasting on the greatest secular bear market bounce in history, Main Street is experiencing persistent and formidable economic famine, the likes of which, have not been seen the Great Depression – which recorded the second greatest secular bear market bounce in history.
10. Look at the macroeconomic data.
Tuesday’s retail sales number, up 1.37 %; excluding autos, were up .2%. The year-over-year number was -1.74%! The world ended September 15, 2008, with the demise of Lehman. Financially, October 2008 was the dark side of the moon, yet, October 2009 still lags? The GPD is in a funk.
9. Look at the market’s technical data
On CNBC’s Fast Money last week, a dazed and beaten Louise Yamada pointed out there are “green shoots” of stock distribution appearing in the market; rising volume on falling days and falling volume on rally days. Additionally, the market’s chart pattern still roughly traces 1932-1941 period. We are near the 1938 bounce during the Great Depression. Money was and can be made in a depression.
8. Look at the market’s fundamentals
On November 6, the Wall Street Journal reported that, with 88% of companies reporting earnings, year-over-year was down 15%. However, earnings estimates by analysts were beaten by 80% of the reporting stocks. Sales are down but layoffs and cost cutting are allowing the market to believe in this Immaculate Conception rally. At some point, currency exchange manipulation by international corporations and lower wages, or fewer workers employed, invariably leads to the destination of painful contraction and negative growth.
7. Consumers
Consumers are toast and retailers are beginning to blink for the holidays. The housing index is rolling over; flat in November at 17, revised downward in October from 18 and September recorded its high of 19 since falling down into single digits. Wednesday morning, housing starts showed a drop of 10.6%, on a seasonally adjusted annual rate, to 529,000 units. In 2006, housing starts were closer to 2,000,000 units. Unemployment is 10.2% ( for U-3; for U-6, the unemployment figure is 17.5%), the housing ATM machine is gone, wages are weak (except on Wall Street) and the market rally has helped institutions more than retail. Credit card lines of credit are truncating, loans are for those who don’t need them and many consumers are too gun-shy to use credit if they could.
6. Municipal Governments
John Maudlin latest piece did a brilliant job dissecting the bleak future of state income shortfalls. A jobless recovery with missing sales taxes will create at minimum 10 more California fiscal basket cases in 2010. The first round of stimulus money actually bailed out states – that’s why new job creation was so muted. Municipal defaults will emerge next year to terrorize investors.
5. Federal Government
Washington doesn’t have the stomach to break up banks that are too big to fail and to seriously reregulate the financial industry. The reverse merger of Washington DC by Wall Street in 2008 makes this so. Much of the financial products that the feds have guaranteed, to the tune of $24 trillion, are so complex that they are only understood by their creators - the borrowers. This ensures that we can sweep our current problems under the rug today to inflict more pain tomorrow. Even if we do not bring back mark-to-market anytime soon, at some point the battered dollar will force interest rates to rise and drive the economy down. Also, certain people in high places need to be replaced. Sadly, they will keep their jobs.
4. The global economy
Countries are diversifying away from the dollar and into gold and other hard assets. So should we (SGOL, SIVR, GDX, GDXJ, IAU, and GLD). They recognize that our fiscal and monetary policies are out of whack and no one in the US, either businessmen or politicians, is putting country before profits or reelection. This is the mindset that formed the greatest generation. South America, circa 1980s, here we come. Also, many countries are recovering faster than the US because their actions in the crisis aimed at repairing their economies, not individual companies.
3. Baby Boomers and retirement
Baby boomers who’ve lost jobs in this period realize their chances of finding one last job before retirement, at their last income level, are extremely low. The “severance package” class of unemployed, and the employed but leery worker, will not return to their previous spending habits. Years ago, they were told to save long-term in the stock market through index funds and to dollar-cost average, to buy more real estate you they could afford because both stocks and real estate rise over time, to fund their retirement accounts and buy company stock, to trust municipal bonds, and they would be alright. Unfortunately, as they near retirement, too few baby boomers are alright.
2. Income and wages
Either global competition, or inevitable draconian changes in fiscal policy to address our growing federal debt, or both, will reduce US wages for many years to come. To increase productivity, wages have been flat for the past 10 years. It was masked by the irrational stock and real estate markets. Without America discovering the “next new thing” our previous standard of living will accelerate downward. State and federal governments will desperately tax income sooner rather than later. These factors enhance the chances of the next leg of our depression.
1. The 21st Century
Every champion, eventually, must retire from the ring. The US is no different. And that is the primary reason most professionals have gotten some portion of the last three years wrong. Any data set from the 20th century is obsolete without significant adjustments. Linear extrapolation of historical patterns of growth, revenue, and consumption, without correctly modifying credit, demand and demographics, plus the impact of technology, domestic tariffs and regulations, and Realpolitik, is like placing a compass inside a magnetic field. Good luck.
No one can take away the fact that America owned the 20th century. However, in the 21st century, cheap land, cheap labor and a younger demographic profile, suggests that in 20 years, the reins of power will be in the adolescent hands of a rapidly growing Asia. So, we invest in their currency (CYB, ICN, and BZF), finance their growth (DRF), and sell them the raw materials (DBN) that they will need to build tomorrow.
For now, besides military weaponry, our number one export is entertainment (DIS).
Ping
More details please... and fast. :-)
Forgot one: The RATs are in power, therefore anything which cannot be laid directly at Bush’s feet will be understated by the LSM.
Guess what? Even in a good economy, if companies realize they can get just as much production from fewer personnel, they won't be doing any rehires. That treand has been around for a number of years. If they do hire more employees, they will most likely be contract workers. (lower wages and NO bennies)
I said we were - months ago here on FR. Per usual, I was ridiculed.
Not by me.....you can only keep blowing on a balloon with a gaping hole in it for so long.
My fondest daydream is that one day if we are back in control, little Timmy Tax Cheat will end up being some big gay bruiser’s bitch in prison.
Well they are in a boat with ten holes and five corks. No matter what hole they plug the boat will sink. Inevitable. I take 50% of what I earn and buy old silver US coin. I do not even pay much attn to the price. It will be a lot worse than the 30’s in my opinion.
Thanks for the ping!
Speaking of the FHA take note another horror story
I’m glad he mentioned the fiscal crises going on at the state and local level.
Unless the states reform the public pension plans and rein them in, as well as the so-called OPEB benefits, and until they get entitlements under reform, they will continue to be in deep stuff, and the SEIU and others will be screaming bloody murder about “essential service cuts,” “public safety,” “the children” etc. in their emotional appeals to taxpayers to keep paying more. Trouble is, the taxpayers are tapped out.
Obama is keeping them barely afloat right now with the so-called “stimulus,” most of which is simply a direct transfer to states and local units, to keep funding their unionized labor forces and keep the pension funds from really falling off a cliff. The stimulus creates no jobs, its simply a band-aid. Its kicking the can down the road...
Great piece. Sadly wrong in only one key respect ... it is overly optimistic. Our number one export is not entertainment, not even close. Our number one export is claims on future tax receipts!! (treasury debt).
bump for later
A recipe for disaster. RUN! RUN AWAY as fast as possible! By time this guy gets to the bright side of the moon and agrees with you, the Depression will have hammered you all like a tent peg.
My youngest sister and my youngest son are like that - a 2x4 between her political eyes and my son's common sense peepers barely make an impact.
He has recovered from his ways. He is a true conservative now. He’s done things I never dreamed he’d do. Taking on all comers: college friends, family, etc. His metamorphasis has been nothing short of astonishing. It took 3 years.
But this “prepping” thing sticks in my craw, I must say.
Personal story here:
I’d tell you how I came to meet him, but, trust me...you would never believe it. That is why God made FReepmail. LOL
That said, the reason I’m so ticked is that he is normally so amazingly decent and smart. This “not being ready in case the shit hits the fan” bugs me more than you know, especially with him having 4 critters (as we call them)
He’s a good man. I’m going to straighten him out if it’s the last thing I do.
After all, how can you give up on a man that saves cookies? Yeah...cookies. I mailed him some of my world class, artfully decorated Christmas cookies in 2006. (and beyond) I came to learn he saved a representative collection of those cookies....to this day. Mind you, I’ve continued to send him cookies for Christmas; he saves a sample of each of them.
He’s sentimental. Last of the romantics. Makes sure those roses are in my hands the morning of Valentine’s Day. We are, at the moment, about 2,000 miles away (I’m in S.Utah but moving to TX soon) But it’s like being married.
Nevertheless, if he doesn’t get his act together and prepare for the Nitwit in Chief destroying this economy, I swear to you, on the head of my only child:
I’m going to punch him right in his Indian nose! And I’m not kiddin’ either!
Fits me to a "T". I was thrown out of work in July; severance just ran out. I am now living on SS and unemployment. Unemployment will run out next summer.
Somehow, I have to bridge the gap between being 63 and 65. At 65, at least I can take advantage of medicare/medicade (if it still exists.)
I have two realestate properties. Both are for sale. If I can sell both of them, I should be ok. If I can't, then I'll allow foreclosure to take over, rent a nice little apartment, and live out the rest of my life on SS and my "retirement" savings.
And I'm better off than most!
Consumer recovery???? Nope....not any time soon; probably not within my lifetime. And certainly not under the present islamic, muslim administration.
You’re not alone.
My aforementioned sweetie, hauling around his Master’s Degree, is now earning exactly 1/2 of his salary in 2007. He was laid off for almost all of 2008.
You have my heartfelt prayers. Hang in there.
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