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Ever Wondered How You Know You Are In A Depression? David Rosenberg Explains
- Budget Deficit
- China
- Consumer Credit
- Copper
- David Rosenberg
- default
- Excess Reserves
- Federal Deposit Insurance Corporation
- Government Stimulus
- Hungary
- Jamie Dimon
- Merrill
- Merrill Lynch
- Moving Averages
- NASDAQ
- New York Stock Exchange
- program trading
- Program Trading
- Quantitative Easing
- Real estate
- Recession
- recovery
- Rosenberg
- Sovereign Default
- Unemployment
- White House
- Yield Curve
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:
YOU KNOW YOU ARE IN A DEPRESSION WHEN ...
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.
MARKET THOUGHTS
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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oh FFS dude, and you ARE a dude, ZH is about as far from "feminist" as you'll get - stop using words you've heard some radio jock use, and don't know the definition of. . .
this cultural meme of blaming females for going to college, getting further education and the jobs that are then available is complete horseshit. . . "a country of men raised by women" - grow the hell up you guys! if you didn't have a "father figure" in your life, there MAY have been a reason. . .
it's so old blaming females for being in the workforce - tell me, where else should they be? working class women have always worked, and last time I checked, money is how you survive here (unless you're very conversant with forming self-sustaining communities). . .
cultural gender roles have passed the sell-by date, and they've always smelled bad. . . the "dad" provides for "family" hasn't worked since the 80's at least, and amrkn business surely made the shift to women, who were cheaper to hire than men. . . the jobs for life crowd just refuses to wake up and smell the coffee.
blaming women for getting degrees and jobs, while refusing to recognise that the blue collar jobs any guy could default to in the past have been outsourced by corporations who don't give a damn about humans, just share prices and a huge bonus for the boys at the top - that is willfully shallow thinking.
Wow ... so in a perfect world women rule ... good luck
Carthates,
Was that anger partly directed at me? Because I would like a serious converse with you on this subject. No "jobs for life crowd" here. I work hard now and fully expect to work harder in the near future. The good news is I have a job, but the bad news is I will die at my desk. Also, in my family I'm no James Brown.
The point I was trying to make was that the alterior motives of the women's movement included the divide and conquer technique. Judging by the emotional responses here, they largely succeeded. It's not man vs woman, it's us vs them. "last time I checked, money is how you survive here"...is the debt/taxes hamster wheel! They took the hard money away and replaced it with soft money a long time ago. With hard money, a family could save and by saving spend more time with each other and their neighbors. With soft money, more has to be produced tomorrow to cover the debts of yesterday.
The international financiers are pure evil. They don't care about money...what money? If they need money they just print it. They care about control. Control over you, me and everyone else. Control over what our children and grandchildren learn and, by extension, think about the world around them.
Me...I want my natural rights back, and so should you. I want to take my civil liberties and shove them uncivily up some Rockefeller's ass. Then take his worthless green paper out of my pocket and cram it down his throat until he chokes.
+4 un-junks !!
Ever Wondered How You Know You Are In A Depression?
When the President is scheduled to appear on The View.
Obama and his jut-chinned arrogance have become a low-rent burlesque. How appropriate that he must now resort to variety show bookings.
Vegas next? Or straight to Princess cruises?
+ 100% ... Unfortunately the probable next step is Leader of the Free World ... Oh, he already did that
I vote he be placed on "Dr. Phil" for analysis -- better yet, "Jerry Springer!", especially if throwing folding chairs is involved!
You know it,s a depression when your local central town pubs (bars) close down when they used to be packed,when you get to work earlier than you used to because there are fewer people on the road and when you go to the cinema and your one of 5-10 people watching the film.But hey what do we know,obviously the people who make the world tick know better thats why the stock markets going up.If the pub,roads and cinema were all full the stock market would be going down.Obvious really when you are in the know.
I'd be careful with the anectdotal evidence. It's summer, people are on vacation and there's no school in session, so I get to work earlier than I do during the rest of the year.
The movie business is in a world of hurt all of its own creation. $10 tickets, $8 snacks, what was once a cheap family outing is now $50 or more, and has thus lost its allure since the quality of movies has become utter crap.
I cannot speak to the bar scene as I don't frequent any. Most bars are run by idiots who either skim the profits or otherwise run them into the ground. I would also blame the MADDness of zero tolerance drunken driving laws that add to the economic woes of bars and restaurants alike.
Actually the movie business is doing gangbusters. They had their all time highest revenues last year. One of the few industries that is holding up.
http://www.the-numbers.com/market/
Yeap, the pub I go to once a week to get shitz faced no longer allows name brands during happy hour only the class b liquer is covered, definitly depression time. After 10 years see ya later my Irish lads.
It's INFLATION - b/c the economy always has to go grow....and other fairy tales.
Deflation would seem to be the prevailing trend in my neighborhood, Beverly Hills CA. Lots of office space for lease/sale, lots of houses suddenly on the market and used Range Rovers for 10's of thousands less than a few years ago...
What if the fed printed a bunch of money and no one actually wanted anything new...b/c suddenly they didn't even want the stuff they already had, which they couldn't afford in the first place...which is why they took out the 2nd mortgage on their house (b/c housing prices always go up)
Suddenly things like extra cars, elective plastic surgery (tits especially), giant SUVs, extra houses, meals out...etc etc etc suddenly become less appetizing.
deflation...could be much more serious than inflation, and this is the first time in my life i've ever hear the word tossed about, like that other serious word...austerity.
Tyler + Rosie = TLA
NFLX can do well even during a depression. We spend 9.00 a month, get one movie, send it back and get another, etc. Most can afford that.
A new Ford SUV where the smaller engine costs more than the V6, 35,000+. I think not.
The insanity goes on, but when it stops the entire planet will know.
No shorts. Gold, PMs and a trade or two.
Netflix is our choice as well. We pay for 2 at a time, and they send them as fast as you can watch them. We upgraded to a Blu-ray player and it has web access so we can watch any Netflix instant movies any time in any quantity for no extra cost. We just won't go back to the "movies" with this setup. Try stopping the projectionist when you gotta pee.
I've always been a cinema addict - but I'm now on the Netflix 3-at-a-time plan. . .
the lack of screens for independent films, documentaries, and low budget movies hasn't helped. . . and I have little tolerance for a theatre full of people yammering on about their daily minutiae, acting like the cinema is their front room, not a public space. . . add to the mix the dreaded cell phone ringing, and the inane chatter that they throw up. . . constant eating (my god, can no one go 2 hours without a feed bag??), ticket prices. . .
nah, I'll stick to watching what I want at my own convenience, where I can get lost in the actual movie, not the distracted crowds. . .
Hey, David Rosenberg - you forgot the easiest way to tell when you are in a Depression!
The yield curve inverts. Happens every time.
Just wait for it......
How about: you know you're in a depression when 40 million Americans can't feed themselves without government help; when you look around and see all kinds of projects that desperately need to get done, but 25% of the labor force has nothing to do; when record numbers of people are homeless, but record numbers of houses sit empty. Something's wrong here.
Sounds like its time for a VAT !!!!! england has one !!
I'm having a good year ?????
ECRI? But Ed Yardeni says not to worry about it. Too much weight in mortgage apps, so keep buying, plebes!
It is a madhouse friends. Get a farm, some guns and gold as I have said. Get some brother in laws and friends to buy next to you. I thought nothing else mattered but indeed the chilling post above (2017...thx Gully) adds in the police. You have got to have relatives in the local police department or it is all for not,,,, sick but that is what I am figuring out this AM...
BTW,,,, Cash stash ? Dumbest thing I ever heard. I recall the original War of the Worlds film where a man was trying to buy a seat on the truck with a suitcase full of cash. It was more than obviously worthless...
Right.
If this hypothesis is true:
...then the "law" cited above is utterly pointless and if still maintained as an argument for anything, it's a red herring.