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Ever Wondered How You Know You Are In A Depression? David Rosenberg Explains

Tyler Durden's picture


As usual, some terrific points from the man who was far too smart for Merrill Lynch. We are also glad that Rosie caught our observation over the weekend that securitized loans have plummeted by trillions recently: easily the single biggest argument for QE2.

From Breakfast with David:


Congress moved to extend jobless benefits seven times, as has been the case over the past two years, at a time when almost half of the ranks of the unemployed have been looking for at least a half year.

The unemployment rate for adult males (25-54 years) hit a post-WWII this cycle and is still above the 1982 recession peak, and the youth unemployment rate is stuck near 25%. These developments will have profound long-term consequences – social, economic and political.

The fiscal costs of the depression continue to mount, with the White House on Friday raising its deficit projection for 2011 to $1.4 trillion from $1.267 trillion. That gap in the forecast – $133 billion – was close to the size of the entire budget deficit back in 2002. Amazing.

You also know it is a depression when you find out on the weekend that the FDIC seized and shuttered another seven banks, making it 103 closures for the year. What a recovery!

Meanwhile, how are the surviving banks making money? By cutting their provisions for bad debts (at a time when the household debt/income ratio is still near record highs of 120% and at a time when one-quarter of the consumer universe has a sub-600 FICO score – which means they are also ineligible for Fannie or Freddie mortgage financing. The banks thus far have reduced their loan loss reserves between 23% (Cap One) and 73% (First Horizon) – as Jamie Dimon said last week, these are not real earnings.

You also know it's a depression when a year into a statistical recovery, the central bank is still openly contemplating ways to stimulate growth. The Fed was supposed to have already started the process of shrinking its pregnant balance sheet four months ago and is now instead thinking of restarting Quantitative Easing. Of course, we are in this bizarre environment where bank credit continues to contract – last week alone, bank wide consumer credit outstanding fell $2.2 billion; real estate lending contracted $9.2 billion; and commercial & industrial loans slid $5.1 billion.

What did the banks do this past week? They replaced cash with government securities – the $47.5 billion net buying was the second largest in the past three years. As the banks find few opportunities to lend – households are either not creditworthy enough to lend to or are busy paying off debts and companies that do have any expansion plans have enough cash on their balance sheet to finance their initiatives – they are likely to use their $1 trillion in excess reserves buying government and related securities, especially with the yield curve so steep and the Fed ensuring that it has no intention of taking the 'carry' away for a long, long time.

Did we mention that you also know you are in some sort of depression when after two years of record $1+ trillion deficit financing to kick-start the economy, the yield on the 5-year note is sitting at 1.8%? What do you think that tells you? It tells you that the private credit market is basically defunct, especially when it comes to the securitized loans, which played such a critical role in promoting leveraged economic growth from 2001 to 2007 – the amount of securitized credit that has vanished since the credit bubble burst two years ago is $1.4 trillion – 40% of this market is gone. And what replaced it was this rampant government intervention into the economy – aimed at putting a floor under the economy. But insofar as the government stimulus fades and the contraction in credit persists, it will be interesting to see what sort of spending, output and income growth we are going to see in the near- and intermediate-term.

And as a must read tangent, here is Rosie on the market's most recent addiction to barbiturates, lithium, xanax and geodon all at the same time (not to mention the Fed's daily bouts of monetary heroin withdrawal, coupled with the market regulator's taxpayer funded pornography addiction bills). That probably explains it - to trade one really has to be stoned 24/7, or to at least do the 180 degree opposite of what makes sense.


Everyone seems to be basing their view on the economic outlook from what the stock market is telling them – so one week it is a return to recession, and now that the market is surging, we must be in some sort of boom. Coincident indicators out of Europe has everyone convinced that the backdrop is solid and yet the massive fiscal tourniquet has to be applied. Investors are caught in bouts of monthly euphoria and depression – it is amazing that we have all this joy for a market that has made its way back to the middle of the range and a market that is basically flat for the year.

Program trading, algorithms, momentum trading, technicals – all are at play. Meanwhile, the Treasury market has steadfastly refused to budge from a double-dip view, with real rates still under downward pressure, and while the breadth of the market has been decent, this rally has continued to lack volume – down a further 2% on Friday on the NYSE. Meanwhile, we are at another key technical juncture – the Dow and Nasdaq have retaken their 200-day moving averages while the S&P 500 and the Nasdaq are caught between the 50-day and 200-day m.a.'s.

It is amazing that Mr. Market has been able to look through some of the blemishes of the Q2 earnings season, the recent spike in jobless claims, the latest hot spot for sovereign default risk (Hungary), and the ECRI hitting a level that is more negative now than in the worst point of the 1990-91 recession. Even with the recent recoveries, the downdraft in most industrial metal prices since mid-April has been breathtaking – down 18% for aluminum, down 13% for copper, down 27% for nickel, and down 15% for steel. Since China has accounted for 40% of global consumption of base metals over the past year, these price moves would seem to suggest that the economic landing there might be less soft and harder than is generally perceived.


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Mon, 07/26/2010 - 11:03 | 488562 eddybaby
eddybaby's picture

As ever Rosie nails it. It can't be easy holding hard to a balanced view of things with so much BS swirling around, but I'm damn glad he can!

Mon, 07/26/2010 - 12:09 | 488661 B9K9
B9K9's picture

terrific points from the man who was far too smart for Merrill Lynch

Tyler, Tyler, Tyler! Only the first sentence, and you've already violated B9K9's Law:

"As an online financial discussion grows longer, the probability of a suggestion involving lack of awareness or knowledge by the power-elite approaches 1."

Who's the dummy, ML or Rosie? Who knew laws would be abrogated, criminals rewarded and riches absconded? Who knew centuries old jurisprudence & Constitutional provisions would be discarded as mere inconveniences which were preventing rewarding cronies & political supporters?

Rosie, along with other dupes, rubes & dopes (um, that would be most of us), made the fatal mistake of bringing a knife to a gun-fight. Never, ever apply logic & fundamental reasoning skills in an environment where the thugs control all the cards.

I've learned my lesson - how many others have learned theirs?

Mon, 07/26/2010 - 12:32 | 488691 Tense INDIAN
Tense INDIAN's picture

me...but better late than never

Mon, 07/26/2010 - 12:51 | 488718 woolly mammoth
woolly mammoth's picture

b9k9 please keep posting. My favorite quote from you was "Complete moral breakdown as the empire teeters on the edge". Very few have their eyes open but those of us that do have them wide open.

Mon, 07/26/2010 - 14:19 | 488860 ToNYC
ToNYC's picture

personal Observation:

A Failed State begins as Enforcement of its Constitutional Laws decays.

Mon, 07/26/2010 - 13:24 | 488775 DarkAgeAhead
DarkAgeAhead's picture

Yep.  As a fictional system with fictional rules and a fake currency, you can rewrite as necessary, or these days, convenient.

Only the encroaching ecological limits shall bring truth back to this system that we've evolved.

Mon, 07/26/2010 - 13:56 | 488828 Gully Foyle
Gully Foyle's picture


Police have a twenty one foot rule for dealing with knives. That knife may actually beat a gun in a fight.

What amazes me is people are just now using the term "Depression". Where the fuck they been the last couple of years?

This will make you happy.

"At the moment, for example, we are sitting on 5GB from Bank of America, one of the executive's hard drives," he said. "Now how do we present that? It's a difficult problem. We could just dump it all into one giant Zip file, but we know for a fact that has limited impact. To have impact, it needs to be easy for people to dive in and search it and get something out of it."

Mon, 07/26/2010 - 15:35 | 489010 Marla And Me
Marla And Me's picture

The kind of work that Wikileaks engages in, even though I wholeheartedly approve of it, will most likely bring about the restrictions on the internet that we so fear.  If the freeflow of information starts to mess with the oligarch's revenue stream, that flow of information will be stopped before their profits are.  Just look at the White House's response to the leaks. 

Mon, 07/26/2010 - 16:32 | 489125 ThreeTrees
ThreeTrees's picture

"The Internet", that is what we understand to be the unhindered flow of information between organizations, individuals, whatever, can never cease to exist in some way, shape or form.  It might be illegal, but I won't care.  As a member of the first generation to more-or-less grow up with internet access, I feel that the purposeful restriction of access to information freely offered and displayed is a most grievous sin.

Tue, 07/27/2010 - 12:46 | 490397 Marla And Me
Marla And Me's picture

I agree with you.  TPTB can't defy the laws of physics.  They can't contain information flow entirely, just like they won't be able to keep the charade going forever.  It doesn't mean they won't try though.

Tue, 07/27/2010 - 07:55 | 489915 jinzo
jinzo's picture

Indeed the Tueller drill does indicate the danger of a knife.

Mon, 07/26/2010 - 14:16 | 488857 tpberg7
tpberg7's picture

Never, ever apply logic & fundamental reasoning skills in an environment where the thugs control all the cards.  



Thank you for the sober reminder of what is taking place in our world.

Mon, 07/26/2010 - 16:11 | 489066 Cammy Le Flage
Cammy Le Flage's picture

Depends on the cards and if you are able to come up with another game that does not involve cards.  Nothing is finite in the creationary sense.  But some who hold cards (all or some) want everyone to play a card game otherwise the cards are worthless.  Now, come up with a new game that has different pieces - then the cards are worthless and the game is pointless.  No one thing or entity holds all the cards.  Card holders - major ones - just want everyone to think that is the case.   Some may rule the world but the rest of us run it.  Don't play and the game changes.  You need players to have a game.  this one is just now boring.  Yawn.  

Mon, 07/26/2010 - 14:54 | 488926 Ripped Chunk
Ripped Chunk's picture


Mon, 07/26/2010 - 22:04 | 489593 StychoKiller
StychoKiller's picture

I've already bailed out of the market (saved by silkworms! -- golden and silvery silkworms!)

Mon, 07/26/2010 - 14:50 | 488919 TraderMark
TraderMark's picture

Along these lines an incredibly sobering story on dateline nbc on growing ranks of newly poor in Cramerica.  One wonders when these people will rise up and "let them eat cake"


NBC's Ann Curry travels to Ohio where the hardworking poor, with deep traditions in mining, manufacturing and military service, are increasingly seen in food pantry lines ashamed and angry.

Mon, 07/26/2010 - 16:10 | 489069 Temporalist
Temporalist's picture

Thanks for that link.  It is sad and at the same realizes the expectations that Americans have.  They are used to having a lot.  They expect to be like the famous people on television.  They have been told the U.S. is the land of plenty.  They have 2 kids and 2 cars.  They wear gold jewelry.

Of course their manufacturing jobs have been outsourced and the industries moved away but they don't try to farm or raise any food or chickens, rabbits, sheep, goats for milk to sustain themselves.  They don't teach their kids those skills either.

It is a horrible reality that people are accustomed to a way of life that has been inflated away from them and their currency debased, taxes too high to own a home or RE priced too high because of flipping speculators, their tax dollars wasted on programs to make sure people's feelings aren't hurt, health care too expensive and medication exorbitantly high.  Yet the same people vote someone into power that makes promises that they can't keep thus continuing the same cycle of deficit spending.

Anyway I shared the link, thanks again.

Mon, 07/26/2010 - 16:41 | 489141 aerojet
aerojet's picture

Oh, bull-fucking-shit!  Look, anybody complaining about their lot in life in the states has nobody to blame but themselves, even now. 

"I learned nothing in school, fucked around and drank too much, now give me a six figure salary."

If anything, this recession is a wake up call to all those with the entitlement mentality.  Our way of life has not been inflated away from us, homes remain affordable and are  becoming more so, and basically, life in the US is returning to normal post-bubble.  If people no longer have ridiculously high expectations, that's generally a good thing.


Mon, 07/26/2010 - 18:08 | 489255 Cathartes Aura
Cathartes Aura's picture

I rarely watch programming made for amrkn TV, but I did watch your link TraderMark - and it was somewhat eye-opening. . .

afraid I'm going to have to agree with others here, that there seems to be a learned helplessness portrayed, and little sense of responsibility when it comes to what having a "family" means. . . obviously this was edited with an agenda - the young woman who had children 3, 2, and 1 years old, by different fathers, who lives in a van and wants to be a "singer". . . the reality of allowing men unprotected sexual contact has not made much of an impression on her (or them, obviously) - she's 21, with 3 kids??  That's where the education needs to happen!  And for BOTH sexes, not just the women. . . food pantries are band-aids covering hemorrhaging wounds - it's a lack of awareness of how to BE responsible for oneself PRIOR to taking on the responsibility of others. . .

sigh. . . it's a cultural breakdown that's taking place over decades of trinkets 'n' trash, poor nutrition, TV garbage. . . there has to be a point where people face reality and work from that place. . . they've been cultivated as "consumers" - and the jobs have moved abroad. . .

as another reply pointed out - no one was growing food, there were no chickens / goats / gardens, just poverty and learned helplessness. . . I feel for people not being able to find jobs when they want them, but those filmed were not shown to be using their time in more productive ways - and the number of young children was astonishing!  I'm sorry, but if you don't have a job, maybe buy some condoms with that pack of cigarettes. . .

but again, it was a deliberately edited programme, and I think the agenda included feeding a chunk of anger & disgust at "those people" - amrka has been in denial for decades, and only a dose of hard truth is left. . . it's time to wake up.

Mon, 07/26/2010 - 11:07 | 488566 RobotTrader
RobotTrader's picture

Meanwhile, rental car stocks are rocketing, near 52-week highs.

Go figure....

Same goes for car dealers....


Mon, 07/26/2010 - 11:34 | 488602 Kreditanstalt
Kreditanstalt's picture

Anything that pays a dividend will - and is - skyrocketing.  That's how desperate - and myopic - large investing entities are.  I'm totally disgusted with this manipulation-by-no-volume, in which anything consumer-dependent, any financial, real estate or insurer and any company with (some minimal) cash flow soars, whether or not it actually PRODUCES anything real.

(Yes, Netflix, Google, Amazon, I'm looking at YOU!)

Can't short the buggers safely.  Nothing to go long for.  Sit this nonsense OUT...

Mon, 07/26/2010 - 12:30 | 488689 ShatteredArm
ShatteredArm's picture

I'll take Netflix and Amazon over some of those companies that produce anything real any day.  After all, as a consumer, I'll dump that $30/month I spend on two or three movies at the theater before I drop the $18/month on as many movies as I care to watch.  Much better than buying airlines, which have made no money over the past decade and are completely dependent on consumers having a budget for travel, right?

Mon, 07/26/2010 - 14:12 | 488850 the grateful un...
the grateful unemployed's picture

any business which has recurring or subscription terms. Videos sure, restaurants, ka ching, and utilities, you would think. Telecoms, who provides the wireless service for all those iphones?  the business model seeks to deny you the right to own the product, and then rent you the product rights.   dividends are just reverse subscritpion fees, which is why businesses don't like them much.

Mon, 07/26/2010 - 11:47 | 488630 the grateful un...
the grateful unemployed's picture

in the summertime people want to travel, they either fly, and rent a car, or they drive, but since most lease programs cap your miles, you rent a car for that summer trip to avoid the lease penalty. the auto industry has been absolutely genius about manufacturing and selling three cars for each driver, who only needs one. Leasing is like mandatory timeshare ownership. (Imagine you couldn't live in your main house all year?) I expect the marketing people to do the same thing with the housing inventory overhang.  Sell new homes on a timeshare plan, with maximum occupancy rates. 

Mon, 07/26/2010 - 11:59 | 488650 carbonmutant
carbonmutant's picture

Market internals are supporting this rally... at least for today.


Mon, 07/26/2010 - 11:59 | 488651 Astute Investor
Astute Investor's picture

Investors just lovin' leverage - financial, operating - the more the better...

Mon, 07/26/2010 - 11:12 | 488574 Cammy Le Flage
Cammy Le Flage's picture

When someone makes the short video:  "Jane Austen's Fight Club"!

Now that is funny.

Mon, 07/26/2010 - 18:20 | 489268 Cathartes Aura
Cathartes Aura's picture

hahahah!! thanks for that, needed a good laugh. . .

and to Rusty above as well. . .

". . . hippies, heheheh *cough* *cough*. . ."

Mon, 07/26/2010 - 11:13 | 488578 Ivanovich
Ivanovich's picture

Does anyone have the link where one could sign up for Rosie's daily readings?



Mon, 07/26/2010 - 11:15 | 488583 mule65
mule65's picture

Sell on good news.  Buy on bad news.  What's so complicated?

Mon, 07/26/2010 - 11:28 | 488595 Rainman
Rainman's picture

It's too bad people can't eat accounting gimmicks. These past 2 years have seen a bumper crop.

Mon, 07/26/2010 - 13:17 | 488761 LeBalance
LeBalance's picture

Yeah, McDonald's patties are not to be eaten.

Mon, 07/26/2010 - 22:05 | 489595 Moneygrove
Moneygrove's picture

Any like red dye in their burgers ??????????

Mon, 07/26/2010 - 13:35 | 488798 DarkAgeAhead
DarkAgeAhead's picture

That's a good point.

Though we are the CDO's of Nature's economy.

Mon, 07/26/2010 - 11:33 | 488600 John McCloy
John McCloy's picture

   I want to note something I have experienced over the past week. On a visit to family in Long Island I passed a LIRR train station early in the morning a few times which is located in a middle class neighborhood and is adjacent to a 7/11. On most mornings in past years this was a gathering place for immigrant workers looking for work in the A.M. 

    I noticed for the first time in my life three individuals among them who did not fit the cast of characters. 1) A mid 50's bearded white man with a tool bag, jeans boots evidently looking for work. 2) A 40 year old black man with similar gear and a backpack, tool belt. 3) A mid 20's white man with jeans and t-shirt/backpack/work boots. 

   These men lining up with the immigrants is a sight that I believe will become more common across the nation in the coming years. This is pretty indicative to me of the current job situation we are facing and how most are unaware of how seriously this entire economic picture is about to deteriorate especially regarding the middle class. 


Mon, 07/26/2010 - 11:45 | 488625 breezer1
breezer1's picture

went too a truckstop in bangor maine a week ago. sunday , suppertime and the place was 25% full. there for an hour and a half. 16 pumps and not one truck fueled up. this restaurant always had a lineup on sundays. no more.

Mon, 07/26/2010 - 12:09 | 488666 Yardfarmer
Yardfarmer's picture

it's simple and yet perceptive on the ground observations like these that are so telling and invaluable, especially after months and months of a deluge of negative economic indicators and statistical evaluations which chart such a predictable road to financial catastrophe. Information can only take you so far before cold analysis leaves you numb, indifferent and apathetic. There is a bit of art and imagination in this process of connecting viscerally with the effectual and it brings forth the human element, a vivifying and much welcome respite from the dull and abstract crunching of numbers so necessary to the "dismal science".

Mon, 07/26/2010 - 12:42 | 488703 Fish Gone Bad
Fish Gone Bad's picture

Your writing is absolutely beautiful. 

Mon, 07/26/2010 - 15:58 | 489055 mtomato2
mtomato2's picture

Ditto that.  Do you have a book I can buy?

Mon, 07/26/2010 - 16:45 | 489144 aerojet
aerojet's picture

Sorry, but I disagree. Anectdotal evidence, e.g. a one-time observation, is completely untrustworthy data.  How the hell do I know what the truck stop was like at the height of the bubble?  Maybe it just opened last week, maybe their prices are too high, maybe it is in an undesirable location. 

Mon, 07/26/2010 - 18:43 | 489296 Cathartes Aura
Cathartes Aura's picture

reading comprehension fail aerojet.

there for an hour and a half. 16 pumps and not one truck fueled up. this restaurant always had a lineup on sundays. no more.

do you always require first-hand experience of every situation? while I'm a great fan of basing one's decisions on experience, at some point one needs to expand the circle of awareness based on data collected by others, hmm?

Mon, 07/26/2010 - 18:16 | 489252 Red Neck Repugnicant
Red Neck Repugnicant's picture

I, too, enjoy your writing, yardfarmer. Your brain seems fully oxygenated.

However, my nose sort of wrinkled a little when I read the following: brings forth the human element, a vivifying and much welcome respite from the dull and abstract crunching of numbers so necessary to the "dismal science".

A respite?  A refuge from the dull objectivity of science? 

Not really.  Perhaps when Richard Feynman was lecturing on quantum mechanics at CalTech, one could stand in awe of the human element when contrasted with the brain-warping mathematics on the chalk board behind him; but when our politicians piss on our legs and tell us what a wonderful spring rain it is, I am reminded that man is the only kind of varmint who sets his own trap, baits it, then steps in it.1  Peel back the thin veneer of beauty, and the human element makes my bowels gurgle.

1john steinbeck

Mon, 08/02/2010 - 21:53 | 500471 hardmedicine
hardmedicine's picture

yes, i think i love you. 

Please get your book out before they put Lithium in the water so that I might enjoy it.



Mon, 07/26/2010 - 11:52 | 488635 sschu
sschu's picture

seriously this entire economic picture is about to deteriorate especially regarding the middle class

I am in the employment services business and while things have improved over the last few months, we are seeing similar trends as this one.  Where previously many people would not have taken certain types of work that was lower pay or they would have washed out quickly as other opportunities arise, they are taking and keeping jobs way below their previous skill and pay grade.

And many are happy to have anything.

The labor market for 20 somethings, especially males, is still very bad.  The reasons are both economic and these folks are ill suited, from a skills and maturity perspective, to be considered good employees.

The thought that these trends will have adverse long term consequences is absolutely true.


Mon, 07/26/2010 - 15:16 | 488966 FEDstidius
FEDstidius's picture

A lot of young men out of work with nothing to do and no hope for the future. When do they start banding together? What do they start banding together for? Its missplaced energies like we see in Iraq and West Africa that have me the most worried.

Mon, 07/26/2010 - 12:04 | 488658 israhole
israhole's picture

I agree that most people are out of touch with reality.  They believe what they get from their TV's. Perhaps they'll wise up once the cable gets shut off.

Mon, 07/26/2010 - 13:18 | 488762 DR
DR's picture

In my office building I've worked at for the past 12 years the contracted janitors have either been immigrants or college kids. Now they are 50s something white guys...

Mon, 07/26/2010 - 16:47 | 489147 aerojet
aerojet's picture

I fail to see why that is any kind of problem whatsoever.

Mon, 07/26/2010 - 13:47 | 488813 Village Idiot
Village Idiot's picture

deleted - couldn't get a great vid short to paste.


Mon, 07/26/2010 - 14:27 | 488877 ToNYC
ToNYC's picture

A former middle class neighborhood, perhaps. Once the property taxes get through with the low hangers-on, the smart ones will leave and the municipal pensioners will remain as boosters before the ghost town scenario plays out as the Madoff mine on Wall Street gave out. Maybe there is no one to make you money but you?

Mon, 07/26/2010 - 11:37 | 488610 freshman
freshman's picture

It's the Fed's liquidity that lifts the equity. Simple as that.

Mon, 07/26/2010 - 11:40 | 488616 Ura Bonehead
Ura Bonehead's picture

"Program trading, algorithms, momentum trading, technicals – all are at play."


It drives me nuts to watch all the talking head spew tails of earnings, year-over-year rev growth, housing starts, economic recovery, fundamentals, tax policy, diversification, growth/value, consumer spending, sovereign issues, unemployment...

Of course, there was a time when all that was actually important.  But not now.  Not when 70%-plus of volume (given low volumes the number is now over 85%) is computer-based.  The game now is short-term volatility computer trading around a mean.  Yawn.

In that the SEC doesn't have the balls to end all the market manipulation and return the markets to individual and their reps, CNBC needs to fire all their humans and just scroll computer code across the screen all day.  Fundamentals, spundamentals.  Who gives a flip anymore.


Mon, 07/26/2010 - 12:38 | 488697 traderjoe
traderjoe's picture

I've showed a couple of people the charts on ZH showing the correlation between SPY and Aussie/Yen cross, and they aren't too happy to learn the prime determinant in daily stock prices is a "random" currency cross (I know it represents the carry trade, but to the point above - not a 'fundamental'). 

Mon, 07/26/2010 - 11:41 | 488618 hedgeless_horseman
hedgeless_horseman's picture

Buy! Buy! Buy!

July 26 (Bloomberg) -- Mutual funds, pensions and endowments are spending more on stocks than at any time since the start of the bull market, just as individuals grow the most pessimistic in a year.

Institutions pushed equities up to 68 percent of their holdings in July, the highest level in 15 months, from 63 percent in April, a Citigroup Inc. survey showed. The ratio of bullish to bearish respondents in a survey by the American Association of Individual Investors has fallen to 0.68, the lowest level since July 2009, based on a four-week average.

The last time money managers and individuals were this far apart was in March 2009, before the Standard & Poor’s 500 Index began its 63 percent rally, according to data compiled by Bloomberg. It may signal another buying opportunity after concern the U.S. economy will fall into a recession wiped out $1.6 trillion from American equity values since April, according to Fritz Meyer, a Denver-based senior market strategist at Invesco Inc., which oversees $558 billion.

“That’s good news,” Meyer said. “The retail guy has gotten it wrong more than gotten it right. The odds favor a continued, reasonably healthy economic expansion.”

The U.S. equity benchmark has posted an average return of 8.8 percent in the 12 months after individuals’ skepticism rose this high in the past 20 years, according to data compiled by Bloomberg. Bulls are betting that forecasts for the fastest U.S. profit growth in 15 years and economic expansion averaging 3 percent through 2012 will help equities recover after the S&P 500 fell 13 percent in May and June.

Buy Bonds

Bonds are a better investment than stocks, Jamil Baz, who helps oversee $23 billion as chief investment strategist for the New York-based hedge fund GLG Partners Inc., told Bloomberg Television’s “Inside Track” on July 22. Government reports this month showing private employers in the U.S. added fewer jobs than forecast in June and the lowest level of housing starts in eight months raised concerns that the economic recovery will falter.

Futures on the S&P 500 dropped 0.3 percent to 1,097.20 as of 4:36 p.m. in Hong Kong. The gauge, which closed at 1,102.66 last week, is poised for the biggest monthly increase since July 2009. Companies from Atlanta-based United Parcel Service Inc., the world’s largest package-delivery company, to Dallas-based AT&T Inc., the biggest U.S. phone company, climbed after increasing profit forecasts.

The rally trimmed the index’s loss since April 23 to 10 percent. Equities slid the most since the bull market began in May and June on concern Europe’s debt crisis would derail the global economic recovery. Shares rebounded in the past three weeks as 85 percent of the 149 S&P 500 companies that have reported earnings topped the average analyst estimates, Bloomberg data show.

Profit Growth

Profits may rise an average 34 percent in 2010 and 17 percent in 2011, the fastest two-year growth since 1995, according to forecasts tracked by Bloomberg. More than 160 S&P 500 companies are scheduled to post quarterly results this week, including Irving, Texas-based Exxon Mobil Corp., the biggest U.S. oil producer.

Confidence among smaller investors was shaken by the May 6 plunge that erased $862 billion from the market value of U.S. stocks in 20 minutes and the last bear market, said Frederic Dickson, chief market strategist at D.A. Davidson & Co.

Professional investors are more likely to base decisions on the prospects for the biggest two-year advance in earnings among S&P 500 companies since 1995, according to Invesco’s Meyer.

‘Getting it Right’

“My money is on the institutions getting it right,” said John Lynch, chief equity strategist for the mutual fund division for Wells Fargo Asset Management, which oversees $465 billion in San Francisco. Smaller investors “are reluctant to get back in until there is a clearer path, and we know that once the path is clear, it becomes a ‘greater-fool’ theory because the institutions will have already anticipated it.”

The AAII measure of pessimism peaked on July 8 at 57 percent, the most since March 5, 2009. Bullishness has averaged 29 percent during the past four weeks, compared with 45 percent who were bearish, according to the weekly survey.

The last time optimism fell this low relative to pessimism was July 24, 2009, two weeks after the S&P 500 began a 38 percent rally, data compiled by AAII and Bloomberg show. The Chicago-based group asks a few hundred people each week through its website whether they are bullish, bearish or neutral on the stock market in the short term, according to editor Charles Rotblut.

Scared Away

“Individual investors were spooked by the May 6 flash crash and they’re wondering if the stock market is a fair game,” said Dickson, chief market strategist at Great Falls, Montana-based D.A. Davidson, which oversees $25 billion. “Professionals realize there have been changes in the market to prevent a repeat of that. I don’t think that’s been communicated broadly to the retail investor.”

The May 6 selloff briefly sent the Dow Jones Industrial Average down 9.2 percent, its biggest intraday loss since 1987, before paring the drop to 3.2 percent. A “mismatch of liquidity,” selling in exchange-traded funds that fed into stocks, and the use of market orders turned an orderly decline into a rout, a report by federal regulators said May 18.

The Securities and Exchange Commission is testing a program through December that pauses trading for 5 minutes when an S&P 500 stock rises or falls 10 percent or more in less than 5 minutes. U.S. exchanges also offered rules last month to standardize the process for canceling erroneous stock trades.

Europe Crisis

Individuals may limit gains in the S&P 500 as concerns about the economy and Europe’s debt crisis keep them out of the market, said Leo Grohowski of BNY Mellon Wealth Management. Federal Reserve Chairman Ben S. Bernanke said the economic outlook remains “unusually uncertain” in testimony to the Senate Banking Committee on July 21.

Investors have withdrawn $22.9 billion from mutual funds that hold U.S. stocks since April 2009, while piling more than $350 billion into bond funds, according to data compiled by the Washington-based Investment Company Institute. Individuals accounted for the majority of U.S. mutual fund assets in 2009, owning 84 percent, the data show.

Hedge funds that wager on both gains and losses in equities have boosted speculation shares will fall, according to Bank of America Corp. The lightly regulated private pools of capital have on average 27 percent more money in bets on rising prices than falling prices, below the historical average of 35 percent to 40 percent, based on data from the Charlotte, North Carolina- based bank.

Valuations, Fundamentals

“You’re seeing equities struggle because valuations and fundamentals look pretty good to the institutional investor, but the policy headwinds, the questions around sovereign debt, the macro concerns, are really worrying individual investors,” said Grohowski, who oversees $157 billion as chief investment officer at BNY Mellon Wealth Management in Boston. “There’s not one right and one wrong. We think the market is pretty reasonably valued.”

The S&P 500 trades at 14.9 times annual earnings, compared with an average of 16.5, according to data compiled by Bloomberg that dates back to 1954. The index is cheaper relative to estimated earnings for the next 12 months, with a multiple of 11.7, the data show.

Mutual funds, endowments, hedge funds and pensions say they’re preparing for a rally, according to Citigroup’s questionnaire from 120 respondents among those groups. Fifty- four percent said U.S. equities may gain 10 percent to 20 percent, compared with 50 percent in the previous reading.

20% Rally

Bill Miller, chairman and chief investment officer of Legg Mason Capital Management, said in a letter to investors last week that this is a “once in a lifetime opportunity” to buy stocks of large U.S. companies. BlackRock Inc., the world’s largest asset manager, is “overweight” U.S. equities, said Bob Doll, vice chairman and chief equity strategist of the New York- based firm in a July 19 interview on Bloomberg Television’s “Morning Call with Susan Li.”

“It’s been the individual investor that’s been a good contrarian indicator,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott LLC, which oversees $50 billion in Philadelphia. “The stock market will continue to advance. It may be a grinding process, but it will continue to advance, ultimately pulling along retail investors that are notorious for buying high and selling low.”


Mon, 07/26/2010 - 11:44 | 488623 doomandbloom
doomandbloom's picture

Leo said we have a 'bearish disposition'...

Mon, 07/26/2010 - 11:57 | 488645 No Mas
No Mas's picture

And you shall pay the price of poverty for that idiotic disposition!

Think of your family, not the holy grail of ZH.  At some point you will have to admit the errors of your ways and get with the program.  ZH will stop being the propoganda arm of Big Short and speak the truth.  Not just numbers, but the truth of what the numbers mean to this market and the truth is, THEY DON'T MEAN SHIT!!!!

Obama, Harry and Nancy have saved the damn day people.  We are running headlong into a MARKET recovery of historic magnitude! 

Ain't no stopping this train folks.  DOW15K; S&P2000; NASDAQ 5000 under the leadership of the mighty democrat party.

Don't like it? Well post some more unemployment numbers or some GDP revision articles.  Then watch the market.  Numbers bad? MARKET UP!!!!  Numbers good?  MARKET WAY THE HELL UP!!!

Get with it children.  Life doesn't always go the way you think it should.

Mon, 07/26/2010 - 12:09 | 488665 Paper CRUSHer
Paper CRUSHer's picture

"Scotty,have transporter stand-by"

"Beam down a couple of hand-phasers"

"Oh and Scotty,set them to stun position"


Mon, 07/26/2010 - 12:33 | 488685 B9K9
B9K9's picture
Wow, you're gonna be gone soon, so here's the context of my comment below: ***** by No Mas
on Mon, 07/26/2010 - 08:57 #488645

And you shall pay the price of poverty for that idiotic disposition!

Think of your family, not the holy grail of ZH.  At some point you will have to admit the errors of your ways and get with the program.  ZH will stop being the propoganda arm of Big Short and speak the truth.  Not just numbers, but the truth of what the numbers mean to this market and the truth is, THEY DON'T MEAN SHIT!!!!

Obama, Harry and Nancy have saved the damn day people.  We are running headlong into a MARKET recovery of historic magnitude! 

Ain't no stopping this train folks.  DOW15K; S&P2000; NASDAQ 5000 under the leadership of the mighty democrat party.

Don't like it? Well post some more unemployment numbers or some GDP revision articles.  Then watch the market.  Numbers bad? MARKET UP!!!!  Numbers good?  MARKET WAY THE HELL UP!!!

Get with it children.  Life doesn't always go the way you think it should.


You're getting junked not because people necessarily disagree with your POV, but because your post(s) lacks style. An important criterion for playing in the ZH pool is that you have to bring something to the party.

It might behoove you to consider rephrasing your comments in such a way that clearly distinguishes between equity/market activity and overall economic performance. I cannot imagine anyone here who doesn't understand the Fed and their fellow CB butt-buddies are actively pimping the markets.

Big fucking deal. What does that have to do with overall declining credit? (That is, the death spiral for any FRB system.) The bottom line is if we don't figure out some way in which to get people to willingly, no, demand to, contract for credit, all the pump monkey games will be for naught.

Mon, 07/26/2010 - 15:09 | 488953 weinerdog43
weinerdog43's picture

Thanks B9.  I'd just like to add that regardless of one's political persuasion, ALL CAPS  and BOLD are a great way to irritate people who have better things to do.

Mon, 07/26/2010 - 15:45 | 489030 Marla And Me
Marla And Me's picture

Looks like the rules have changed.  No Mas is now up to 33 junks...

"Get with it children.  Life doesn't always go the way you think it should.

Mon, 07/26/2010 - 15:50 | 489039 -Michelle-
-Michelle-'s picture


Tue, 07/27/2010 - 12:50 | 490413 Marla And Me
Marla And Me's picture

Now it's 45.  Is 50 the new 20?

Mon, 07/26/2010 - 13:34 | 488795 subqtaneous
subqtaneous's picture

How do you know you're in a Depression?


Idiots like this actually cheer you up.


Mon, 07/26/2010 - 13:50 | 488819 ElvisDog
ElvisDog's picture

Are you the hispanic Harry Wanger? Seriously, the market is basically flat this year and basically flat for the last 10 years. Is this your "historic market rally"? However, I will give you the chance to explain your prediction. What is the mechanism that will propel the market to S&P 2000? In the 90's we had the Internet. In the 2000's we had the housing bubble. Are you implying that spending $800B paving roads and paying people $1500/month unemployment benefits will usher in a historic bull market?

Mon, 07/26/2010 - 14:08 | 488846 subqtaneous
subqtaneous's picture

I suspect that this post and the other recent posts of Roberto Duran have less to do with the market, or any other economic surreality, than they do with desperately clinging to some notion that Democrats won't be swallowed up by the rapidly approaching leviathan from the abyss.


Mon, 07/26/2010 - 14:31 | 488886 ToNYC
ToNYC's picture

Got on your DOW 10,000 hat?

Mon, 07/26/2010 - 13:54 | 488823 MsCreant
MsCreant's picture


I had reposted the post but hell, he is still up there at 24 junks and B9K9 took care of bidniss. Good dog! Smart damn dog. German Shepards are awesome.


Mon, 07/26/2010 - 13:52 | 488826 woolly mammoth
woolly mammoth's picture

No Mas has 24 junks and is still here. Cool.

Mon, 07/26/2010 - 17:12 | 489174 RockyRacoon
RockyRacoon's picture

I just gave him the 39th junking!  The reason for that has already been outlined.

Give us something to work with.  Accrediting a political party for a market rocket is a bit lame.  On the other hand, that tactic stifles communication so I guess it works in its own way.

Mon, 07/26/2010 - 16:48 | 489149 Temporalist
Temporalist's picture

WTF 36 junks and the garbage is still here?  How about just hiding it after it reaches 20 then people that want to view it can see it and junk it some more?

Mon, 07/26/2010 - 17:14 | 489175 RockyRacoon
RockyRacoon's picture

Hyper-junkees have been removed in the past and it leaves a big hole in the comments.

Best left alone so that context is not destroyed.

Mon, 07/26/2010 - 23:37 | 489709 StychoKiller
StychoKiller's picture

Someone call an ambulance!  This guy/gal has OD'd on Hopium/Koolaid!

What part of Expotential curves is confusing you RE:  reality?

Wed, 08/04/2010 - 03:37 | 502379 MsCreant
MsCreant's picture

46 junks! You go!

Mon, 07/26/2010 - 11:48 | 488631 Kreditanstalt
Kreditanstalt's picture

Well, the irrational exuberance in terms of shopping continues, somehow, with money from SOMEWHERE...

This money these consumers seem to have an endless supply of is truly easy-come-easy-go devalued paper, coming out the wazoo...and the weird thing is you can't see even a whiff of price inflation ANYWHERE...

Death to the consumer!  (please)

Mon, 07/26/2010 - 12:45 | 488706 traderjoe
traderjoe's picture

Inflation: tuition, healthcare, taxes (property, sales, income), gas, oil, utilities.

Mon, 07/26/2010 - 11:57 | 488646 Miss Expectations
Miss Expectations's picture

I expected this article to be, you know you're a redneck when you mow your lawn and find a car.


Mon, 07/26/2010 - 11:57 | 488647 RobotTrader
RobotTrader's picture

Mon, 07/26/2010 - 12:03 | 488657 Rainman
Rainman's picture

I'll leave the face and blue car and take what's left.

Mon, 07/26/2010 - 14:33 | 488891 ToNYC
ToNYC's picture

That's the part that will get your checkbook, little-head follower

Mon, 07/26/2010 - 23:03 | 489674 Tense INDIAN
Tense INDIAN's picture

pretty uneconomic decision

Mon, 07/26/2010 - 19:41 | 489369 Fast Twitch
Fast Twitch's picture

"The trend is your friend till the end when it bends..."

Sun, 08/01/2010 - 19:15 | 498968 Nevermind
Nevermind's picture

No seat belt or shoulder harness. No wonder all the attention.

Mon, 07/26/2010 - 12:01 | 488655 lieutenantjohnchard
lieutenantjohnchard's picture

as a member of the "always" wrong bear club (2007 spy $157 / today $111.5) if i go long will still i be wrong if the market drops? or if the market drops will the "always" wrong bears be right even as they lose money from the long side?

it's so tough being "always" wrong.

Mon, 07/26/2010 - 12:24 | 488677 billhilly
billhilly's picture

I'm there with ya's tough being a realist in an irrational market! 

Mon, 07/26/2010 - 14:34 | 488896 ToNYC
ToNYC's picture

That's the price of playing with the little gun called Logic.

Mon, 07/26/2010 - 12:07 | 488662 williambanzai7
williambanzai7's picture

To the Colonel Bogey March

Geithner has only got one ball,
Summers has two but very small,
Rubin is somewhat sim'lar,
But poor Bernanke has no balls at all.

Mon, 07/26/2010 - 12:22 | 488675 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

We have a depression, for the 95 % of average folks. We have a recovery for the other 5 %. In the end, the average folk are going to run out of money and withdraw their stock market investments to survive. It will end with the HFTs and the prop desks duking it out with each other. The giants will savage each other!

Mon, 07/26/2010 - 22:13 | 489606 Moneygrove
Moneygrove's picture

+ 5.5 trillion bush spent on what ?

Mon, 07/26/2010 - 12:24 | 488679 Amish Hacker
Amish Hacker's picture

Three cheers for David Rosenberg, who I hope will be a frequent contributor to ZH. Smart enough to answer every question, and smart enough to question every answer.

Mon, 07/26/2010 - 12:32 | 488690 Cursive
Cursive's picture

You know you are in a depression when....the stock market goes up every day but 10% of the population aren't paying any bills.

Mon, 07/26/2010 - 12:50 | 488714 Fish Gone Bad
Fish Gone Bad's picture

I was at the OC Fair just after opening day.  I stopped by the box office to see if any decent Train tickets were let loose.  The lady in front of me was buying some lawn seats to see Train.  Her boyfriend asks her where she got the money.  She responded, "The cable bill."  He asked her again, and she says emphatically, "This is the money for the cable bill."

Mon, 07/26/2010 - 12:58 | 488731 Cursive
Cursive's picture

What a country of cheats, louts and deadbeats we've become.  I just got the recent copy of Forbes magazine and the upper right hand corner says, "How to hide your money from your ex."  It's a bull market in lies, narcissism and selfishness.

Mon, 07/26/2010 - 13:03 | 488737 Red Neck Repugnicant
Red Neck Repugnicant's picture

You know you're in a depression when a Republican moves out of the White House after eight years. 

Mon, 07/26/2010 - 13:14 | 488758 earnyermoney
earnyermoney's picture

LOL. You progressives/tax and spend liberals have no solutions. Only blame for the failure of your parties entrenched solutions. That propoganda will having diminishing returns going forward. Barack Obama is your parties version of Herbert Hoover and Richard Nixon.

Mon, 07/26/2010 - 14:00 | 488835 MsCreant
MsCreant's picture

I think Red Neck is a performance artist. He is in character.

Mon, 07/26/2010 - 14:20 | 488865 Village Idiot
Village Idiot's picture

It's Colbert.

Mon, 07/26/2010 - 16:17 | 489086 linrom
linrom's picture

How true.

Mon, 07/26/2010 - 12:36 | 488695 Tense INDIAN
Tense INDIAN's picture

i think they are in a hurry to form the RIGHT shoulder...of the time symmetry H&S.....i think the time for the right shoulder peak is around the end of this month ....they dont have too much time left the ramp up....what say

Mon, 07/26/2010 - 12:53 | 488722 JLee2027
JLee2027's picture

The CNBC talking heads are saying we missed the double dip and a recovery is in progress.  


Mon, 07/26/2010 - 13:41 | 488807 traderjoe
traderjoe's picture

They are now having a segment called "ending the cycle of fear". It seems they (CNBC/MSM) are getting more desperate to prop up the hopium. 

Mon, 07/26/2010 - 16:56 | 489154 Temporalist
Temporalist's picture

The "recovery" has lasted 2 years through a recession/depression.  How one has both a recovery and recession/depression simultaneously only the likes of Geithner, Bernanke, Summers, et al. can try to explain.

Mon, 07/26/2010 - 22:16 | 489613 Moneygrove
Moneygrove's picture

I Would like to  double dip Becky Quick !!!!!

Mon, 07/26/2010 - 12:56 | 488724 lynnybee
lynnybee's picture

I just wish these people would all go away, Robert Rubin, Larry Summers, Geitner, Bernanke, GREENSPAN.    The average American means nothing to them, except for the wallets they can empty into their own bank accounts.    I've seen my own grandma go from having something to slowly being drained trying to help her kids & grandkids because of joblessness.    & me thinks that was the plan all along, get to the few people left who really had some assets & money in a bank, get to them through the other family members who were indebted.     Does anyone remember a time when "banks" were just a community service & if a younger family member needed a loan, they would do a private arrangement between the generations, the old were in a position to help the young ?    RUBIN,SUMMERS,GREENSPAN, GEITNER, BLAH have destroyed the very social fabric of the country & it's the older & responsible citizen who pays the consequences.     Get rid of these people.    I've said my piece.    IT'S A FREE COUNTRY, REMEMBER ?!

Mon, 07/26/2010 - 13:34 | 488797 Commander Cody
Commander Cody's picture

If its moral fabric that's torn, then it goes way beyond the assholes you quote here right on down to ourselves.  Think about it.  And what's free about being debt slaves to the fascist oligarchy?

Mon, 07/26/2010 - 14:24 | 488871 JR
JR's picture

A fantastic post, lynnybee.  You speak of the people who have no voice in this economic tragedy. There’s no doubt that this crime committed against the citizens of the United States is one of the greatest financial injustices ever created by man.  

“But if in the pursuit of the means we should unfortunately stumble again on unfunded paper money or any similar species of fraud, we shall assuredly give a fatal stab to our national credit in its infancy. Paper money will invariably operate in the body of politics as spirit liquors on the human body. They prey on the vitals and ultimately destroy them. Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice.”  --George Washington in a letter to Jabez Bowen, Rhode Island, Jan. 9, 1787

The real menace of our republic is this invisible government which like a giant octopus sprawls its slimy length over city, state and nation. Like the octopus of real life, it operates under cover of a self created screen....At the head of this octopus are the Rockefeller Standard Oil interests and a small group of powerful banking houses generally referred to as international bankers. The little coterie of powerful international bankers virtually run the United States government for their own selfish purposes. They practically control both political parties.” -- New York City Mayor John F. Hylan, 1922....  (And he should see it now!)   
Mon, 07/26/2010 - 14:42 | 488905 lynnybee
lynnybee's picture

you are so kind to say that.   i'm just a stay-at-home Mom who tried really hard to raise 3 kids & am seeing it all deteriorate before my eyes.  no one has ever said that I did a fantastic post, in fact, I've been junked a few times.    I am not like the others on this wonderful ZEROHEDGE website, I'm just a Mom & housewife who's stumbled onto the scam of the century & the ruination of her children's future, through no fault of my own.    my own family doesn't believe a word I say about what is coming, they tell me to get off the net .   I'm scared.   Scared for my elder years, scared for my kids future & feel powerless (except for when I go to the coin guy & buy as much silver a I can afford !!!! ..... stick it to that S.O.B. GOVERNMENT, ASSHOLES !)   My grandma told me a long time ago:   NEVER GO INTO THE STOCK MARKET & DO NOT TRUST THE GOVERNMENT. ......... GRANDMA WAS RIGHT.

Mon, 07/26/2010 - 14:56 | 488930 JR
JR's picture

lynnybee, don’t get off the net.  We need you!

Mon, 07/26/2010 - 15:38 | 489014 desgust
desgust's picture


I am in Europe but your description is exactly that of my everydday life and worries. Only that I get wild and wilder day by day. You are not alone!

Mon, 07/26/2010 - 17:14 | 489178 mtomato2
mtomato2's picture

I'm not sure if anyone noticed, but in four days it will be lynnybee's zh birthday!  If I forget, Happy ZH day, Bee!  Your comments have made my day.

Mon, 07/26/2010 - 18:38 | 489271 lynnybee
lynnybee's picture

you are all so kind ...... i'm not a stock market person, do not even understand a lot of what i'm reading when it's the technical stuff, but, I do know this .......... my direct ancestors came over on the second crossing of the MAYFLOWER & my direct ancestor, Benjamin Fairbanks found in the Revolutionary War & another direct ancestor, Arthur Middleton signed the DECLARATION of INDEPENDENCE !   REVOLUTION IS IN MY DNA.    

Mon, 07/26/2010 - 17:21 | 489190 RockyRacoon
RockyRacoon's picture

We are about the same ZH age, lynnybee.  I am only 1 day older.

You should post more often.

A voice from the "regular folks" is always needed to temper the hyperbole.

Buy silver!

Mon, 07/26/2010 - 17:01 | 489160 Temporalist
Temporalist's picture

While I agree in principal the "people who have no voice" have had a voice they chose to stay quiet or forgot that liberty requires vigilance.  People can vote, people can take an interest in local politics up to national politics, people are the only hope to change not one person promising "hope and change."

"All tyranny needs to gain a foothold is for people of good conscience to remain silent."

- Thomas Jefferson

Mon, 07/26/2010 - 17:20 | 489186 mtomato2
mtomato2's picture

Duplicate post. sorry, y'all.

Mon, 07/26/2010 - 17:20 | 489189 mtomato2
mtomato2's picture

There was a time I would have agreed with you.  Sadly, that time is past.  I don't know anymore whether voting has or ever would have made a difference.  I may get slammed for this, but Reagan was the only one in my short 44 years who was ever worth going to the trouble to get into office.  And I voted then, (at 18) as I have every election since.  I honestly don't know anymore if it has even mattered since.

Mon, 07/26/2010 - 12:58 | 488732 Justaman
Justaman's picture

I know I am stating the obvious but why are the Feds not harping on the banks to lend anymore? 

Because, they need a lender and have found the bigger fool.  Da Banks! 

And the snowball keeps getting bigger and bigger...until it can't be moved anymore. 


I am not economically viable - Bill Foster (1993)


Mon, 07/26/2010 - 13:12 | 488744 Village Idiot
Village Idiot's picture

sage (and easy to understand) words for the sheeple. this kind of information, as written, from legitimate msm sources needs to get out - over and over and over...


EDIT: perceived as "legitimate"

Mon, 07/26/2010 - 13:11 | 488753 Caviar Emptor
Caviar Emptor's picture

Children, don't forget that The Stock Market is a proxy for many things and is not the ultimate barometer of the health of the US economy. 

Rosie's right and today's raft of data just reinforces that we're dipping down without the benefit of having recovered the pre-recession peak. AKA depression. We're just cascading down. Massive government intervention was the only thing standing between our current mess and food riots. 

But as I've said here many times now, the side effects of global interventions combined with 3 decades of "supply-side" economic policies have created a new paradigm, a crazy world in which what worked before not only does not work but worsens the situation. I'm referring to the co-existence of simultaneous deflation and inflation. That is our world for the foreseeable future. While the US general economy deflates there will be simultaneous increases in the cost of living and business cost inputs, feeding a vicious cycle. THe headline numbers will mask this because, simply put, the numbers cancel to close to zero. However adding -1 to +1 gives zero as well as adding -100 to +100. 

Mon, 07/26/2010 - 13:20 | 488768 sethstorm
sethstorm's picture

Congress moved to extend jobless benefits seven times, as has been the case over the past two years, at a time when almost half of the ranks of the unemployed have been looking for at least a half year.

Start giving the unemployment offices a bit more ability to work with those that are dislocated to find suitable, direct-hire work (and not through some staffing agency).  Then get the employers to actually fill them for long durations with those people, even if it takes some work to get them to cooperate.

If there's any need to do any training or retraining, do it when the person has the job.  Not before.


Mon, 07/26/2010 - 13:58 | 488832 Hansel
Hansel's picture

Unemployment won't come down until U.S. wages fall more in line with the wages of countries we keep outsourcing jobs to, and after doing so, default on sovereign obligations because the lower wages can't support the debt we have already taken on.  Not going to happen anytime soon.

Mon, 07/26/2010 - 15:08 | 488949 FEDbuster
FEDbuster's picture

How true.  The last surge in US employment paying a decent wage was the construction industry during the housing boom (couldn't really be outsourced except for illegals flooding across the border). 

I don't think there is another trick up our sleeve.  The debt bubble will collapse, we will have a reformatting of our Country.

Mon, 07/26/2010 - 13:30 | 488781 Pamela Anderson
Pamela Anderson's picture

Look at 10 y yields again @3%... just refuse to go higher...

Mon, 07/26/2010 - 13:37 | 488800 jkruffin
jkruffin's picture

Awesome article on the top 10 scams told to investors by crooked bankers and brokers to facilitate their personal scams.  From the Investing Bible jockies themselves the WSJ:


1 "This is a good time to invest in the stock market."

Really? Ask your broker when he warned clients that it was a bad time to invest. October 2007? February 2000? A broken watch tells the right time twice a day, but that's no reason to wear one. Or as someone once said, asking a broker if this is a good time to invest in the stock market is like asking a barber if you need a haircut. "Certainly, sir — step this way!"

2 "Stocks on average make you about 10% a year."

Stop right there. This is based on some past history — stretching back to the 1800s — and it's full of holes.

About three of those percentage points were only from inflation. The other 7% may not be reliable either. The data from the 19th century are suspect; the global picture from the 20th century is complex. Experts suggest 5% may be more typical. And stocks only produce average returns if you buy them at average valuations. If you buy them when they're expensive, you do a lot worse.

3 "Our economists are forecasting..."

Hold it. Ask your broker if the firm's economist predicted the most recent recession — and if so, when.

The record for economic forecasts is not impressive. Even into 2008 many economists were still denying that a recession was on the way. The usual shtick is to predict "a slowdown, but not a recession." That way they have an escape clause, no matter what happens. Warren Buffett once said forecasters made fortune tellers look good.

4 "Investing in the stock market lets you participate in the growth of the economy."

Tell that to the Japanese. Since 1989 their economy has grown by more than a quarter, but the stock market is down more than three quarters. Or tell that to anyone who invested in Wall Street a decade ago. And such instances aren't as rare as you've been told. In 1969, the U.S. gross domestic product was about $1 trillion, and the Dow Jones Industrial Average was at about 1000. Thirteen years later, the U.S. economy had grown to $3.3 trillion. The Dow? About 1000.

5 "If you want to earn higher returns, you have to take more risk."

This must come as a surprise to Mr. Buffett, who prefers investing in boring companies and boring industries. Over the last quarter century, the FactSet Research utilities index has even outperformed the exciting, "risky" Nasdaq Composite index. The only way to earn higher returns is to buy stocks cheap in relation to their future cash flows. As for "risk," your broker probably thinks that's "volatility," which typically just means price ups and downs. But you and your Aunt Sally know that risk is really the possibility of losing principal.

6 "The market's really cheap right now. The P/E is only about 13."

The widely quoted price/earnings (PE) ratio, which compares share prices to annual after-tax earnings, can be misleading. That's because earnings are so volatile — they're elevated in a boom, and depressed in a bust.

Ask your broker about other valuation metrics, like the dividend yield, which looks at the dividends you get for each dollar of investment; or the cyclically adjusted PE ratio, which compares share prices to earnings over the past 10 years; or "Tobin's q," which compares share prices to the actual replacement cost of company assets. No metric is perfect, but these three have good track records. Right now all three say the stock market's pretty expensive, not cheap.

7 "You can't time the market."

This hoary old chestnut keeps the clients fully invested. Certainly it's a fool's errand to try to catch the market's twists and turns. But that doesn't mean you have to suspend judgment about overall valuations.

If you invest in shares when they're cheap compared to cash flows and assets — typically this happens when everyone else is gloomy — you will usually do very well.

If you invest when shares are very expensive — such as when everyone else is absurdly bullish — you will probably do badly.

8 "We recommend a diversified portfolio of mutual funds."

If your broker means you should diversify across things like cash, bonds, stocks, alternative strategies, commodities and precious metals, then that's good advice.

But too many brokers mean mutual funds with different names and "styles" like large-cap value, small-cap growth, midcap blend, international small-cap value, and so on. These are marketing gimmicks. There is, for example, no such thing as "midcap blend." These funds are typically 100% invested all the time, and all in stocks. In this global economy even "international" offers less diversification than it did, because everything's getting tied together.

9 "This is a stock picker's market."

What? Every market seems to be defined as a "stock picker's market," yet for most people the lion's share of investment returns — for good or ill — has typically come from the asset classes (see No. 8, above) they've chosen rather than the individual investments. And even if this does turn out to be a stock picker's market, what makes you think your broker is the stock picker in question?

10 "Stocks outperform over the long term."

Define the long term? If you can be down for 10 or more years, exactly how much help is that? As John Maynard Keynes, the economist, once said: "In the long run we are all dead."

Mon, 07/26/2010 - 14:10 | 488847 ElvisDog
ElvisDog's picture

Good post. My favorites are "Stocks return 10% per year". Not only is it wrong, but it is mathematically impossible because if GDP is expanding 3% per year it doesn't take that many years before stocks would return the entire world's GDP every year. I also like "the higher the risk, the higher your return", implying that to make the most money you should make the riskiest investments possible.

Mon, 07/26/2010 - 13:48 | 488816 fuu
fuu's picture

Gyrations in silver today are sort of interesting.

Mon, 07/26/2010 - 14:20 | 488863 JLee2027
JLee2027's picture


Mon, 07/26/2010 - 14:14 | 488849 carbonmutant
carbonmutant's picture

After a bunch of morning breakouts volume is no longer supporting this rally.

Traders are beginning to look for shorting opportunities

Mon, 07/26/2010 - 14:15 | 488855 walküre
walküre's picture

Repeat after me:

We are all bullish now. We are in recovery.

We are all bullish now. We are in recovery.

Repeat over and over and over until you finally believe it.

If you still refuse to believe, try sticking your head into the toilet and give it a good flush.

If that doesn't work, try the starter cables on your nipples.

Again, repeat the mantra.

If nothing works, go see a shrink and tell him/her you're so depressed that everyone is supposedly happy and participating in the greatest recovery party ever but you just can't shake that feeling that it's all fake. He/she will probably give you a prescription for some pills and it will all fade away.

When you're cured, call your broker or buy stocks yourself.

You will feel much happier, much more at ease that the Fed is fucking you over and you can participate in it at least by sentiment alone.

Mon, 07/26/2010 - 14:16 | 488856 Gully Foyle
Gully Foyle's picture

When Globalism Runs Its Course ... The Year America Dissolved


It was 2017.  Clans were governing America.  

The first clans organized around local police forces. The conservatives’ war on crime during the late 20th century and the Bush/Obama war on terror during the first decade of the 21st century had resulted in the police becoming militarized and unaccountable.

As society broke down, the police became warlords. The state police broke apart, and
the officers were subsumed into the local forces of their communities. The newly formed tribes expanded to encompass the relatives and friends of the police.

The dollar had collapsed as world reserve currency in 2012 when the worsening economic depression made it clear to Washington’s creditors that the federal budget deficit was too large to be financed except by the printing of money.

With the dollar’s demise, import prices skyrocketed. As Americans were unable to afford foreign-made goods, the transnational corporations that were producing offshore for US markets were bankrupted, further eroding the government’s revenue base.

The government was forced to print money in order to pay its bills, causing domestic prices to rise rapidly. Faced with hyperinflation, Washington took recourse in terminating Social Security and Medicare and followed up by confiscating the remnants of private pensions. This provided a one-year respite, but with no more resources to confiscate, money creation and hyperinflation resumed.

Organized food deliveries broke down when the government fought hyperinflation with fixed prices and the mandate that all purchases and sales had to be in US paper currency. Unwilling to trade appreciating goods for depreciating paper, goods disappeared from stores.

Washington responded as Lenin had done during the “war communism” period of Soviet history. The government sent troops to confiscate goods for distribution in kind
to the population. This was a temporary stop-gap until existing stocks were depleted, as future production was discouraged. Much of the confiscated stocks became the property of the troops who seized the goods.

Goods reappeared in markets under the protection of local warlords. Transactions were conducted in barter and in gold, silver, and copper coins.

Other clans organized around families and individuals who possessed stocks of food, bullion, guns and ammunition. Uneasy alliances formed to balance differences in clan strengths. Betrayals quickly made loyalty a necessary trait for survival.

Large scale food and other production broke down as local militias taxed distribution as goods moved across local territories.  Washington seized domestic oil production and refineries, but much of the government’s gasoline was paid for safe passage across clan territories.

Most of the troops in Washington’s overseas bases were abandoned. As their resource stocks were drawn down, the abandoned soldiers were forced into alliances with those with whom they had been fighting.

Washington found it increasingly difficult to maintain itself. As it lost control over the country, Washington was less able to secure supplies from abroad as tribute from those Washington threatened with nuclear attack. Gradually other nuclear powers realized that the only target in America was Washington.  The more astute saw the writing on the wall and slipped away from the former capital city.

When Rome began her empire, Rome’s currency consisted of gold and silver coinage. Rome was well organized with efficient institutions and the ability to supply troops in the field so that campaigns could continue indefinitely, a monopoly in the world of Rome’s time.  

When hubris sent America in pursuit of overseas empire, the venture coincided with the offshoring of American manufacturing, industrial, and professional service jobs and the corresponding erosion of the government’s tax base, with the advent of massive budget and trade deficits, with the erosion of the fiat paper currency’s value, and with America’s dependence on foreign creditors and puppet rulers.

The Roman Empire lasted for centuries. The American one collapsed overnight.

Rome’s corruption became the strength of her enemies, and the Western Empire was overrun.

America’s collapse occurred when government ceased to represent the people and became the instrument of a private oligarchy. Decisions were made in behalf of short-term profits for the few at the expense of unmanageable liabilities for the many.
Overwhelmed by liabilities, the government collapsed.

Globalism had run its course. Life reformed on a local basis.

Mon, 07/26/2010 - 15:41 | 489021 hedgeless_horseman
hedgeless_horseman's picture

A Reader's Digest version of Rawles' book, Patriots?

Mon, 07/26/2010 - 14:17 | 488859 nit.noi.baht
nit.noi.baht's picture

Nice article form Hussman funds, with particular attention to questioning of Bernanke from Garrett.

Good read...


Mon, 07/26/2010 - 14:20 | 488864 Gully Foyle
Gully Foyle's picture

Broken financial generations – U.S. households only have a median of $2,000 saved in retirement accounts. The median net worth for those 25 to 34 is $3,700. Which generation will support the economy going forward? Social Security beneficiaries make up 19 percent of all Americans.
Mon, 07/26/2010 - 14:21 | 488868 Gully Foyle
Gully Foyle's picture

Fed admits dollars disappearing
Star-News - Google News Archive - Feb 11, 1986

WASHINGTON — A lot of U.S. greenbacks can’t be accounted for.

A study has concluded that $136 billion in U.S. currency — 88 percent of the total circulation—is missing.

In a comprehensive look at personal money-handling habits, Federal Reserve Board economists concluded that individuals over age 18 are holding $18 billion in U.S. coins and cash. That is about $100 per person.

That is, however, only 12 percent of the $153.9 billion of cash supposedly in circuiatAon. Where is the rest?

“I wish we knew where it was.” said Paul A. Spindt, a Fed economist and one of the authors of the study.

Fed economists know that part of it is in the cash drawers of legitimate businesses and some Is held by people under age 18. Neither group was included in the Fed survey.

Spindt said he doubted, however, whether the amount held by youngsters and businesses would total more than 15 percent. That leaves nearly three-fourths of U.S. currency missing in action.

One explanation is that part of the missing money is being u8ed in the “underground” economy, populated by those intent on evading income taxes by dealing on a cash- only basis.

This explanation, however, would account for only part of the funds, because even ill-gotten gains flow back into general circulation at some point.

Other studies have speculated that as much as one-third to two-thirds of U.S. currency winds up in foreign hands. The Fed economists made no estimate of how much has gone overseas, but speculated that a big part of the money is, indeed, being used by foreigners who would rather deal in the stable U.S. currency than In their own currencies.

“We do know that there are some very large shipments of U.S. currency going offshore to various destinations around the world,” Spindt said.

Mon, 07/26/2010 - 14:37 | 488898 nit.noi.baht
nit.noi.baht's picture

I suppose a large part of the money is also in legal circulation in foreign governments, as in the case of Costa Rica where dollars are used extensively vice the Colon...

Mon, 07/26/2010 - 19:00 | 489309 Bear
Bear's picture

I keep my cash with my gold ... I'm not telling where.

Mon, 07/26/2010 - 14:52 | 488917 Econolingus
Econolingus's picture

Evidence of the widening divide from the Idaho panhandle.  I just spent 4 days at "The Couer d'Alene Resort".  the facility is a once-grand monument to casino-style, Vegas-wannabe design of the 1980s, its mauve and teal color scheme accented in chrome.  The building and its fixtures are on the down-arc of their life-cycle, but management still thinks it commands 4-star room-rates (Which it did from me; but which it won't do again), as well as extortionate food service prices ($8 room service pop-corn, not including a $3.50 service fee and an 18% gratuity).  Meanwhile, 18' foot power boats rent for $125 an hour, with a 2-hour minimum, and the Resort Course, with its carnival-clown floating green, ask $160, plus caddy fees. 

The self-styled upper-class was there, but not in the numbers that make this a "going concern", at least not one that can afford the multi-million dollar face-lift that is perhaps a decade over-due--I'm guessing less than 60% occupancy.  Had it not been for two on-site weddings and two low-rent "conventions" (neither of which used the larger meeting rooms) and a rotarian meeting, I doubt their book would have broken the 40% booking threshold.  The waitresses were be-moaning not only a decline in number of parties and average ticket, but also lower tip percentages.

Meanwhile, the local beaches were PACKED.  The tatooed proliteriate, jazzed on 90-degree temperatures and all-time sales prices on Wal-Mart beach-phrenalia, jammed the muni strand and the state-parks in droves.  The beer coolers were full, but the surrounding restaurants not so much,and the longest wait we had all week-end for food or beverage of any kind was at the beach-front beer shack, selling $4 shaved ices and $5 polish sausages.  No bargain, that.  But better than $13 microwave popcorn.

Mon, 07/26/2010 - 15:59 | 489057 aerojet
aerojet's picture

"The tatooed proliteriate"


I'd be careful with the class warfare bs.  I know what you are trying to say, but the "great unwashed" is more American than the country club fucksticks will ever be.  And even though  I am an educated man, I'd rather hang out with the blue collar set, quite frankly.  Not because their conversation is enthralling, nor because they are particularly interesting people, and certainly not because I am accepted in their midst, but rather because they at least do not put on airs.  My only wish is that those folks would smarten up, just a little and reject being slaves to a system that does them no good at all.

Mon, 07/26/2010 - 14:52 | 488923 JR
JR's picture

@ Rosenberg: The unemployment rate for adult males (25-54 years) hit a post-WWII this cycle and is still above the 1982 recession peak…

And the blatant attack by the Oligarchy against its strongest foe, the male, is not over yet… Here, for example, is the fate of a film entitled The Right To Be a Father at the hands of the Oligarch-supported feminist movement:

Human Rights or Wrongs? Amnesty Internationals’ commitment to freedom is questionable by Stephen Baskerville | today


Amnesty has been so captured by political ideology that, far from defending human rights, they have become advocates for violating them.

The latest example comes from Sweden, where Amnesty is no longer fighting for political prisoners but instead advocates for authoritarian ideology. Amnesty sponsored a film competition, but when some finalists produced a film that angered feminists, the film was pulled from Amnesty’s YouTube site. Amnesty denies that pressure from an Uppsala women’s shelter was responsible for suppressing the film, but the shelter itself is gloating about its political clout.

The film, created by four high school students and titled, The Right To Be a Father, is a powerful depiction of how children are taken from their fathers by Sweden’s feminist family courts. Separating children from their fathers is not only a bedrock principle of the war against "patriarchy," but also the bread-and-butter of the lucrative child custody industry, so it is not surprising that the sisterhood would come down hard on the heresy that feminists violate human rights.

The film was nominated for the final stage of the competition. Amnesty posted it on YouTube, and the creators were invited to the film gala in Gothenburg. "But our film was never shown at the festival, and the day after it also disappeared from Amnesty's YouTube channel," says Sara Sivesson, one of the creators. Further, the students claim they obtained an email from the Uppsala feminists bragging, "Thanks to the protests Amnesty did not show the film at the festival and they also dropped it from their website."

The matter was publicized by blogger Joakim Ramstedt, who alleges that his government health benefits were then revoked because of his blogging and that confidential information from his own custody case (he has not seen his five-year-old daughter for over a year) was leaked and posted on the internet in an effort to smear him. Sweden prides itself on protections for privacy and civil liberties, but this may be what we can all expect when a welfare state manages our lives.

This is not isolated. In recent years Amnesty has become a mouthpiece for the radical feminist agenda, to the point of pushing programs that violate human rights. ...

Mon, 07/26/2010 - 15:53 | 489047 aerojet
aerojet's picture

"We're a generation of men raised by women. I'm wondering if another woman is really the answer we need."


Obama was raised primarily by his mother, or am I wrong on that one?

Mon, 07/26/2010 - 18:15 | 489263 Bear
Bear's picture

Why is this junk? It may not be right on topic, but certainly within the scope of a response. Is it that ZH now has Feminist PC police who believe that justice is trumped by ideology or that women have been downtrodden for so long they should now be on top?

Mon, 07/26/2010 - 19:26 | 489351 UncleFester
UncleFester's picture


The flaggers are the one's that still think the Women's Civil Rights movement was about equality.  They will reject the fact that it was funded by the Rockefellers to get the other 50% of the population on the debt/tax hamster wheel while simultaneously getting mom out of the home and getting the kids into gov't nurseries and schools at an earlier age.

Social Engineering Bitches!

Mon, 07/26/2010 - 20:26 | 489430 Cathartes Aura
Cathartes Aura's picture

uh huh, because prior to the 1970's / Rockefeller invasion, there was zero social engineering, amirite?

*eye roll*

Tue, 07/27/2010 - 23:10 | 491435 UncleFester
UncleFester's picture

That's funny, I never remembered typing: "social engineering began in the 1970's."  But since you gave me the *eye roll*, I guess I must have.  Damn my government educated brain, I can't remember.

PS.  Wasn't there a Rockefeller presence on some GA island that help start the hamster wheel back in 1911? 

Mon, 07/26/2010 - 19:28 | 489352 UncleFester
UncleFester's picture

Sorry, duplicate.

Mon, 07/26/2010 - 19:28 | 489353 UncleFester
UncleFester's picture

Sorry, duplicate.

Mon, 07/26/2010 - 19:28 | 489355 UncleFester
UncleFester's picture

Sorry, duplicate.!

Mon, 07/26/2010 - 19:29 | 489356 UncleFester
UncleFester's picture


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