Really? You think?

From Bloomberg:

Roubini said more than half of the 5.7 percent expansion reported yesterday by the government was related to a replenishing of inventories and that consumption depended on monetary and fiscal stimulus. As these forces ebb, growth will slow to just 1.5 percent in the second half of 2010, he said.

“The headline number will look large and big, but actually when you dissect it, it’s very dismal and poor,” Roubini told Bloomberg Television in an interview at the World Economic Forum’s annual meeting in Davos, Switzerland. “I think we are in trouble.”

Roubini said while the world’s largest economy won’t relapse into recession, unemployment will rise from the current 10 percent, posing social and political challenges.

All on needs to do is look past the headlines, do a little personal research, in order to come to the conclusion that the economic recovery is not a recovery at all.

My views on the economy are, well, pessimistic at best and apocalyptic at worst. Anyone who reads the site on a regular basis is well aware of that, so I will not continue on explaining why I hold those views.  What I do find interesting, however, is the administration cannot get send a consistent message out.

First off we have Larry Summers claiming the economy is doing well, the recession is over, and that job growth will be back by this spring.

Really?

By a technical definition, yes, the recession is over – the GDP was positive as of the last report.  This was thanks for the government spending, but if you look the economic data out (Non-manufacturing index, even some regional fed reports) you can see contraction or signs of contraction.  If that is the case how will we see job growth in a matter of months?

Anyway.

White House economic adviser Christina Romer said “Of course not. For the people on Main Street and throughout this country, they are still suffering, the unemployment rate is still 10 percent.”

And that is the key, I think.

The technical definition is positive but it due to limited and very specific factors, the people who drive the economy – the consumer – still hurt and are not spending. The very engine that drives the economy is broken and once the government spending dries up we’ll be heading back into what every economist will be able to call “a recession” once again.

Goldman Sachs, Morgan Stanley and the like were throwing around their GDP estimates yesterday afternoon.  While the market consensus was 3.2%, the numbers were really all over the board.  At one point, Goldman actually revised their estimate down to 2.7%; however, it looks like everyone was off:

The U.S. economy grew at a 3.5 percent pace in the third quarter, the best showing in two years, fueled by government-supported spending on cars and homes. It’s the strongest signal yet that the economy has entered a new, though fragile, phase of recovery and that the worst recession since the 1930s has ended.

I feel the most important part of the story is burried toward the end:

A top concern is whether the recovery can continue after government supports are gone. Many economists predict economic activity won’t grow as much in the months ahead as the bracing impact of Obama’s $787 billion package of increased government spending and tax cuts fades.

This makes me ask how much of the GDP number was propped up because of Cash for Clunkers and the 1st time home buyers tax credit.

Americans always had the “bigger is better” attitude. At the end of the 20th century the mentality that was pervasive through all aspects of society seemed to grow by leaps and bounds. Super size meals, 4500 sq ft houses for a family of three, and massive vehicles served as constant reminders of how American citizens were following the excess lifestyle.

The perfect example of this unsustainable lifestyle was the Hummer brand.

As General Motors limped into government bankruptcy, the company looked to reduce their product line in the hopes of finding a way of surviving after bankruptcy came to an end. Pontiac got the axe. Saturn was almost sold off; however, the deal fell apart, leading GM to pull the plug on the brand. Saab was sold off to a small Swedish company, and General Motors pushed off Hummer to a Chinese based heavy equipment manufacturing firm.

On Friday, October 9th, 2009, the deal finally closed.

What has taken place with the Hummer brand is a perfect example what is happening to the United States in general. American excess lead to an unsustainable lifestyle and, as a result, others are picking up our former assets for pennies on the dollar because our economy can no longer support itself.

I have no real easy way to begin this post, so I will be direct and to the point: The stress on the economy is worse now than it was last year at this point, and I fear the situation will become significantly worse in the very near future.

While I am not an economist, nor do I claim to have any economic knowledge others do not, looking at the data presented in the public domain really makes me to question what is going on in our economy – and – it makes me believe something isn’t right.

The media will point to improving economic numbers, but what is being reported as “improving” is less than encouraging. How about we look at what is improving by focusing on what is NOT improving.

Negative

• Port traffic is down 15% YoY (less goods going in and out)
• Hotel occupancy down 15% YoY
• Auto Sales down to spring 2009 levels after cash for clunkers ended
• Chicago and Dallas manufacturing activity down
• Debit 12T
• Unemployment roughly at 20% when looking at all stats and removing government assumptions
• GDP -.07 for the last quarter
• Dollar falling
• Oil at 72
• New Housing Orders Down

Positive

• Retail sales better than expected
• Higher Consumer sentiment
• Service Sector Grew last month

With all seriousness I have to ask the obvious question – How can economists say that we are currently improving? Just about everything is point to poor economic performance.

Do you happen to remember the trigger for our recession / depression? It was the banking crisis that started in late 2007 and came to a head in 2008. Has that underlying, fundamental, issue been addressed?

No.

Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc.

“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview today in Paris. “The problems are worse than they were in 2007 before the crisis.”

…

Stiglitz, former chief economist at the World Bank and member of the White House Council of Economic Advisers, said the world economy is “far from being out of the woods” even if it has pulled back from the precipice it teetered on after the collapse of Lehman.

“We’re going into an extended period of weak economy, of economic malaise,” Stiglitz said. The U.S. will “grow but not enough to offset the increase in the population,” he said, adding that “if workers do not have income, it’s very hard to see how the U.S. will generate the demand that the world economy needs.”

The Federal Reserve faces a “quandary” in ending its monetary stimulus programs because doing so may drive up the cost of borrowing for the U.S. government, he said.

“The question then is who is going to finance the U.S. government,” Stiglitz said.

The potential nail in the coffin is the U.S. debt. Remember the 12 Trillion number above? Yea, that. The Congressional Budget Office is well aware the debt is out of control and has waved the warning flag – the United States may be unable to service its debts.

If the ratio of debt to GDP continues to rise, lenders may become concerned about the financial solvency of the government and demand higher interest rates to compensate for the increasing riskiness of holding government debt. Eventually, if the debt-to-GDP ratio keeps increasing and the budget outlook does not improve, both foreign and domestic lenders may not provide enough funds for the government to meet its obligations. By then, whether the government resolves the fiscal crisis by printing money, raising taxes, cutting spending, or going into default, economic growth will be seriously disrupted.
…
The systematic widening of budget shortfalls projected under CBO’s long-term scenarios has never been observed in U.S. history.

The government is basically telling use that the United States is on the path to bankruptcy, if it is not already there.

Just to recap – The underlying banking issue is not under control, the government debt is nearly unsustainable, and our economic numbers do not point to a turn for the positive.

From my perspective, the economic reality we live in points to the United States sitting on the brink of economic hardship unlike anything this nation has ever faced.  As the US is the largest consumer economy in the world, the collapse would send shockwaves to every corner of the globe.

So, what could be the cause?

Since the banking system is basically bankrupt, and the FDIC is out of money, the collapse of a “too big to fail” bank could easily be the trigger…  As could a massive decline in the price of the dollar… or other world government deciding they will no longer loan money to the U.S. Basically major market event that would stress the financial institution has the potential to be the trigger for the next leg down in this economic cycle.

Such an event could come at any time, and what scares me the most is my fear that the trigger may be sooner than later.

As noted back on 9/21, auto sales were in the tank after the “cash for clunkers” program stopped. Individuals in the auto sales noted the drop off was back to early spring sales numbers.  Now we know just how bad sales were…

General Motors Corp. says sales fell 45 percent from a year earlier. Chrysler Group LLC says sales slid 42 percent. Ford Motor Co. was down 5.1 percent, breaking a two-month streak of gains.

Cash for Clunkers created a false demand, GM and Chrysler continue to circle the drain, and it will only continue as there are no drivers (no pun intended) for the market to turn.

Just some random thoughts…

Gran Torino is an AMAZING movie.  A movie that should have gotten a lot more attention than it did.  Yes, it did make 100M+ but no Golden Globes, Oscars or Critic Choice awards.  Not even nominations.  Clint got shafted big time.

Pineapple Express is very disappointing. Not much more to say than that. Oh, well, Rosie Perez looks exactly the same way today as she did when she made White Men Can’t Jump.

I’ve taken it on.  I’ve decided to read the entire House health care bill (H.R.3200 – America’s Affordable Health Choices Act of 2009).  With so much news, information and misinformation about the bill I want to know the exact truth – for myself.  I plan on posting my notes (unbiased).

The economy is NOT doing well – don’t listen to what the government (or media) is saying. Why?  Several reasons.  Corporate revenues are falling, jobs continue to be lost, consumer spending continues to contract, personal income continues to decline, July Port traffic fell (US companies are not exporting good) and gold is rising.  In short, the stock market gains of the last several months is based on false hope as well as technical trading.

It is amazing what a few days of exercise can do in terms of how one feels about their physical appearance and capabilities.

I cannot stand my Dell laptop.  It’s an overheating boat anchor that is less than a year old.  I know who I’m never buying from again.

Anyway…

The actual title of the article I just read was “US loses just 345,000 in May, raises hopes”

JUST 345,000?

Employers throttled back on layoffs in May and cut the fewest jobs in any month since the financial crisis erupted last fall — raising the brightest hope yet that an economic recovery will take hold later this year.

But with companies still reluctant to hire, the nation’s jobless rate rose to a quarter-century high of 9.4 percent, and it likely will keep rising into 2010, possibly within striking distance of its post-World War II peak of 10.8 percent.

“Less bad, yes,” Ian Shepherdson, chief U.S. economist at High Frequency Economics, said, summarizing the economy. “Good, no.”

The press is still in the “Less bad” mood, but this is still significant as the nation is now at 9.4% (reported).  More over, people are starting to revise their end estimates.  Previously economists were saying this wouldn’t go beyond 10%, now it is expected that unemployment may hit almost 11%.

Two large issues are on the horizon – taxes and energy cost.

1) The massive amounts of money spent for a stimulus that hasn’t worked will be coming back to haunt us soon.  As a result, the government will need to find a way to raise money in order to continue paying benefits.  There is only one way this will happen: raise taxes.  If they raise business taxes, that will impact earnings.  In turn, companies will look for cost savings in order to boost their profits.  Where do you think that will start?

Employees.

As such, more layoffs would come back into play.  While, possible, not as bad as 600K per month layoffs none the less.

2) Energy.

Oil/Energy is once again getting out of control for reasons NOT based on demand.  If energy continues to move toward $90, earnings will once again be impacted.  Again, here we go.  Companies will slow spending, construction will diminish, the consumer will cut back which means retail will hurt…  and there we go, layoffs will start once again as companies attempt to rightsize for the market conditions.

This is a bad cycle we are in and, I fear, it is going to be a prolonged cycle.

Let’s continue on the economic posting theme, shall we?

Nouriel Roubini, the economist who predicted the entire financial crisis several years ago, has come out and stated the economy may face even more difficulty next year.

I still expect that economic growth in the U.S. is going to be negative through Q4, and that we’ll see positive growth in Q1,” Roubini told Reuters in an interview on the sidelines of the Seoul Digital Forum.

“The U.S. recession is going to be U-shaped, lasting roughly 24 months,” he added. “Compared to the current consensus that says we are practically at the end of the recession … my view is: no, it’s going to last another six to nine months before it’s over.”
…

Roubini stood by a recent article in which he mentioned the possibility of a “perfect storm” in 2010.

“There is even a risk of a double dip, a W-shaped recession at the end of next year,” he said, a combination of rising oil prices, rising public debt and increases in real interest rates, rising concerns about inflation and the expiration of a number of tax cuts in the United States.

While I was originally skeptical of Roubini when I first read his work, I’ve since come to pay attention to his works. The price of oil – remember yesterday how Saudi Arabia thought the world could handle $80 oil… yea, not so much – the debt we’ve put on the books in trying to save the economy, and inflation may do use in when it comes to economic recovery.

Sure, anything can change. We are not even out of the woods with our current situation, so talking about what may come next is pure speculation, but I’ve had a lot of fear about energy, debt and inflation ever since the crisis started up. I’ve always thought it would come back to haunt us. I’m glad to see I’m not the only one.

Not trying to be a fear monger here, I’m really trying to keep the positive of life in mind, but I do have to point out that Continued Unemployment Claims have hit a record high.

In the week ending May 16, the advance figure for seasonally adjusted initial claims was 631,000, a decrease of 12,000 from the previous week’s revised figure of 643,000. The 4-week moving average was 628,500, a decrease of 3,500 from the previous week’s revised average of 632,000.

The advance seasonally adjusted insured unemployment rate was 5.0 percent for the week ending May 9, an increase of 0.1 percentage point from the prior week’s unrevised rate of 4.9 percent.

The advance number for seasonally adjusted insured unemployme;nt during the week ending May 9 was 6,662,000, an increase of 75,000 from the preceding week’s revised level of 6,587,000. The 4-week moving average was 6,480,500, an increase of 131,000 from the preceding week’s revised average of 6,349,500.

The fiscal year-to-date average for seasonally adjusted insured unemployment for all programs is 5.071 million.

One must keep in mind that unemployment is a lagging indicator, but an initial claim of 631,000 is still significant. The record high of 6.66 million shows just how bad things have been in terms of employment in the U.S. during this recession.

Remember, as the automotive industry continues to “right size” one can reasonably expect the employment number to be negatively impacted.