Recovery Will Mirror the Decline?

Leo Kolivakis's picture

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Anonymous's picture

There are many remaining economic land mines out there.

The most prominent, however, for the domestic GDP is the distressed State of California. Cali is the largest GDP and effective buying income generator in America. NY State isn't even a close second. Cali also generates more Fed tax revenue than any other State by far.

I've lived here my entire life and have never seen such corporate and personal wealth destruction taking place everywhere in the State.......excepting the barren deserts.

CA is home to nearly half the option ARM and Alt-A dogshit loans set to peak in the system in an average value of $ 446k. There are empty commercial properties popping up at alarming rates, meaning cash flows for the extend/pretend CRE game are drying up fast. Tenants are most definetely in the driver's seat on rent rate resets for a long time. It is EERIE !!

If that weren't bad enough, the notoriously underfunded public sector pension system is being held together with projected annual return values averaging 8 %.......clearly imaginary bookeeping for the near term with a flood of gold-plated government boomer retirees going out early on buyouts.

State, County, University and municipal employee wages have been furlough-shaved by 10-15% and it is still not even close to the cuts necessary for 2010. Ditto for private sector employees. Friday has become the new Saturday. Thursday has become TGIT !!

My point is that severe distress in Mississipi, Louisiana, or Arkansas is one thing. But when the largest GDP contributing State is on its ass for at least the next 7 years.......coupled with NV, AZ,Fl, and a host of other non-Sunbelt is just delusional to believe the consumer here will come roaring back soon to help on a National level.

Non-Stimulated Consumption will be aligned with mandatory replacement in CA, meaning an anemic pace. That means the projected inventory ramp up will be muted at best.

So I have to ask.....where is a new accelerated demand coming from to rebuild a National economic landscape when the largest State in the Union and the World's 8th largest economy is on feeding tubes ??

Maybe living in Cali has simply distorted my view of the green shoots.

Anonymous's picture

Wait this market out? If you are an investor, you make money when the market goes up AND when it goes down. Death Spirals anyone?

Anonymous's picture

Fiat money has been around for hundreds of years across many nations. Surely there must be an example of a Depression with Quantitative Easing. So please stop making comparisons to the last Depression just because it is the most familiar.

Anonymous's picture

Time to wait this market out. No consumer $ = no corp earnings/recovery. Recent increased manuf and productivity is merely due to exhausted inventory levels. Businesses simply must restock or close thier doors, there is no middle ground. Consumer still facing decreasing credit lines, lower wages, less hours worked, past sources of discretionary money vanishing, HELOC gone, mortgage upside down, and growing negative sentiment (not confidnece). This is a simple formula for ongoing problems that will be with us well thru 2011, at least. Do your homework, the same analyists that gave you your confidence in early 2008 have again returned to soothe your wounds and apprehensions today. Be safe and wait this market out until at least after Qtr 4 earnings. Yes you may miss a few run-ups, but the current risks far outweigh the profit potential.

TeresaE's picture

If I was basing my assumptions on the previous post-WWII recessions, then I might buy a V shaped recovery.

But I look to the last catastrophe to play out to this severity (and it wasn't as severe as what is lurking around the corner now), the depression.

Most people know that the stock market crashed in '29.  What they don't realize is that is rebounded and set new highs.

Then it crashed again.  Just not as dramatically as '29.  Before the second crash, the papers, government and bankers were screaming, "crisis averted," "the recession is over" and "stocks have bottomed."

And rose again before plummeting to basically nothing in '33.

It took WWII to end the depression.

Not Washington.

Not the Federal Reserve

Not the bankers

Not Wall Street

but WWII and the instant decrease of our population and increase in production.


This time there are BIG differences overlooked by nearly all the "experts" and pundits.


We have NEVER kited checks at the rate we are kiting them now.  We have never been prepared to add MORE to the government debt.  We have NEVER produced so little, with such a fat, lazy & apathetic population.


Those three facts and history lead me to believe the best we will get is a zigzagged shaped recovery with a distinct downward trajectory.


IF we don't implode first.  Party on.






Missing_Link's picture

Yes, but read Leo's article again.  This depression is a different beast than the Great Depression due to liquidity.


I agree that we'll see a zigzag-shaped recovery, but the overall trajectory is likely to be up or sideways, and seldom down for long.

brodix's picture

So it's Mission Accomplished?

Anonymous's picture

I think there is a good case to be made for downturns to occur at election times.

Bush oversaw the crash of the economy, which helped Obama into office. Obama was held hostage by his campaign financiers, and when he cgave them everything they asked for, the market ramp started again. Remember Obama's March 6 'buy' call?

So we are now looking for the next election of CONgressmen, who after securing power, will probably oversee another significant decline in the visible economy (the stock market).

The divergence between the real economy and the stock market is already enormous, and now some are predicting it will get bigger? Thats great, but tell me when this BS ends. That seems to be the tough part.

Anonymous's picture

This is a moron story. The stock market has a mind of its own? It is called pass the bag. The productivity story nothing more than something to cover up the fact that the economy collapsed in the first half of the year. We are witnessing an attempt to steal what is left, not the underpriced companies, but the remaining assets of the working people of the world. The only productivity gain was the increase in the capacity of Wall Street to steal money from people. Bear markets generally take stocks back to their true value, the indexes covering up all the stocks that go to zero on the meantime, money stuffed in the pockets of their promoters. No one can explain why the stocks that dominate a market disappear in the next market, ala GE, LU, AIG, MSFT, INTC, CSCO, ENE, WCOM, so on and so on. The losses in these stocks is roughly 50% of the current SPX, yet it is forgotten by the renewal of AAPL and the invention of high flying GOOG. This is merely a promotion of another attempt to pass the bag. 2% dividends have never supported stock values long term. 3% dividends have never supported stock values long term and anything under 4% hasn't provided a long term buying opportunity.

Can anyone explain to me why we are continuing to see roughly 4/10th of 1% of the working population of the US lose their jobs weekly and the street and government call this a recovery? This is roughly the amount represented by the filings for unemployment weekly and a sizable number of Americans aren't eligible for this benefit, meaning it understates the job losses. If we were expanding employment at a normal pace, the size of these job losses wouldn't be this large, meaning the typical 350K or so jobs created weekly in a real expansion aren't there. Thus the 200K to 300K monthly job losses are a fraud, as are the GDP figures. Wall Street has machines running these stocks to entice people to buy. The SPX at a 2% dividend is a sell for the long term, not a buy. Deflation is a irreversible condition.

Anonymous's picture

I have a feeling that loading up cheap long dated out of the money puts is gonna pay off big. A little foray into junk equity in the meantime wouldn't hurt either :D.It just doesn't pay to sit on the sidelines and sulk as the gravity challenged markets ramp up month after month. Some of my perma-bullish friends have started talking the way they used to in 2007, even mocking me for exiting all the stocks I held at a loss.Time is ripe for a crazy run-up as all the retail comes in followed by the inevitable return to mother earth.

Leo Kolivakis's picture

"This website does not give investing advice, douchebag."

If they listen to your advice, they will lose a fortune. -)


Yossarian's picture

Do losses even matter under this regime?  Seriously, what happens when there is a default? To make a complex process very simple, banks shovel the bad debt onto The Fed balance sheet in return for freshly printed money (figuratively speaking).  The Fed just creates this money and can continue to add assets to "grow their way out of their bad debt problem."  And even if their balance sheet were severely impaired, how would anyone know and would they even care considering that, as long as the public is duped by the fraud that is the current fiat currency system, The Fed can continue to print money with which to run their "business."  Oligarchy. 

They steal from us everyday's picture




Missing_Link's picture

Why mid-2010, exactly, Monsieur Nostradamus?

Anonymous's picture

Productivity is a BS statistic. Companies increase "productivity" by cutting wages and other forms of compensation. Problem is that in a 70% consumer-driven economy cutting worker's compensation gives them less money to spend, which ultimately cuts into profits. I just don't see how you go from 17% unemployment and the next wave of option-ARM resets in 2010 to a new economic golden age.

Hephasteus's picture

With economic brilliance! These are the finest most brilliant minds on the planet. With enough accounting fraud they can do anything!!!

Leo Kolivakis's picture
"We're Not Out of the Woods Yet": Bank Rally to Stall in Q4, Rosner Says

Everybody, it seems, knows the banks face future losses from commercial real estate, still-rising foreclosure rates, and credit card delinquencies, among other loan types.

Investors are currently ignoring the “massive losses” ahead for the industry and instead are focusing on the various and sundry ways the government is helping banks recapitalize on the cheap, says Josh Rosner, managing director of Graham Fisher.

But Rosner, who turned bullish on the sector last spring after making some very prescient warnings in 2007, says the bank rally is likely to end by late October, when investors start discounting what’s ahead. “We’re not out of the woods yet,” he says.

Furthermore, Rosner says there are other risks to the industry that aren’t being priced in currently, most notably the FDIC’s ability (and need) to raise fees further as its insurance fund dwindles to dangerously low levels.

The FDIC is likely to hold off until the industry becomes healthier, Rosner says. But "when you think you've got earnings visibility as an investor, all of a sudden you really have to say 'hold on, what are the assessments going to be for the insurance fund'?  It has to be significant. At some point the industry has to pay back the FDIC."


TeresaE's picture

You hit on another oft overlooked situation.  Crain's Detroit had an article about the FDIC coming after the regional and smaller banks.

They have already paid over 40% more in fees this year and the FDIC has notified them all that they will be paying MORE this fall alone.   Every dime sent to the FDIC/government is one less dime for their securitization and for any consumer/commercial lending.

My small business savings account with Comerica is now charging me three times the fee for "FDIC insurance" than they are paying me in interest.  (and don't forget the added injury of paying taxes on the "interest").

Banks are (again and again) slashing credit and raising rates on everything they can.

How long before us paying fools get fed up and shove our money in our mattresses, IF we still have money or a job?

Leo Kolivakis's picture

Ummm, I went long stocks in late February and so what if the markets went up 50%? We can easily go up another 20% from here.

bjennings's picture

So after a near 50% rise in the markets you are just now coming around to the idea of a recovery.  How timely you all are.  How many folks do you think you got to buy into shorting the market since March?

They steal from us everyday's picture

This website does not give investing advice, douchebag.

Frank Owen's picture

I don't think I've come across that term on ZH before...

Leo Kolivakis's picture

Bruce et al.,

I understand your skepticism but you have to understand that EVERYONE is still worried and thinking exactly like you, which is why the rally will continue. Pension funds have been mostly distrustful of this rally and many have stayed on the sidelines. Their biggest fear is that it will continue heading up and they will have to chase equities higher. Classic retarded response. When all the pensions jump back into stocks, that is when I will be looking to get out.

Of course, I am not recommending you jump into financials here. You are better off sticking to the Nasdaq-100 (QQQQ) or ML semiconductor holders ETF (SMH) or a networkers ETF. I still like Chinese solar stocks and am heavily invested in them. Gold could be the next asset bubble...we shall see.

As for liquidity, with sovereign wealth funds like the Chinese Investment Corporation (CIC) and the Norwegian Petroleum Fund pumping billions into stocks and bonds as well as hedge funds, there is more than enough to go around. Moreover, the banksters on Wall Street are printing money on spreads and profiting from their trading operations.

People need to understand that the power elite want inflation, not deflation. They will do everything in their power to get inflation again. Will it work? I am not sure because the deflationary headwinds - including an aging global population retiring on next to nothing and debt hobbled consumers facing higher taxes - will act as a serious anchor to inflation that we had in the 1970s.



Charley's picture

In previous downturns, the V-shaped recoveries were an artifact of Washington's interest rate squeeze to purge the economy of inflation. Both 1991 and 2001 were shallow bowl shaped recoveries, and differed significantly from the previous engineered events. This downturn, although not shallow, will, resemble 1991/2001 downturns.

In other words, it will be both deep and bowl shaped, provided there is any recovery at all. It is not altogether clear that the debt hobbled economy can sustain such an event.

Hephasteus's picture

It is bowl shaped it's just that QE is warping the bowl.

Bruce Krasting's picture

I am on another page than you on this Leo. I think this is setting up as a perfect storm opportunity. All the QE stuff will be ending this fall. I am convinced that the POMO stuff is propping up all markets at this point. The ST subsidy stuff like clunkers and new home credits are ending too. The high end RE market is an absolute disaster. We are looking at a reverse trickle down economy at some point soon.

Shorts are almost non existent at this point so there is a market risk to that as well. The Wall Street recovery does not jive with all those angry people we see every day.

Many thought that Septemeber would be a cruel month. That is probably the best reason why it is not.  I always thought that October was the month for trouble. We shall see.



taraxias's picture

TPTB blew it. The market has rebounded off the March lows much too steeply and much too fast. If you missed out getting in again in March, what's the upside in getting in now? What's the downside risk? You decide.

Thanks for your contribution, Leo.


5THTURNING's picture

   I usually watch the bond market? What's up?

Are they now the dumb money? Is this what happened

in other "V"  recoveries? He said this is like the 30's was that

supposed to be a "V" until the government in 37/38 messed it up?

Wow, good luck when the whole market is government.

I can't have that kind of faith..when I don't see

"free" market anywhere I don't get the rules do you?  

capitalisa's picture

Sounds like a dead cat bounce to me.  A lot of "hope" in that analysis.

Missing_Link's picture

People have been saying that since March.  Time to put the dead cat theory to rest.

Anonymous's picture


As always, insightful.

However, you have been saying for months now that pension funds would be herding into stocks. Has it already began, or are they waiting to be convinced? I, for one, would be shaking in my boots if I waited and then bought in, even when doing so with dips.

I read today that Buffet is selling stocks and buying bonds. As widely publicized, insiders are selling.

I don't trust going long at this point, and will be inclined to sell what much of my stock should sentiment shift.

TumblingDice's picture

Wouldn't a move to more liquid assetts indicate lack of long term trust of the stability of the system? If that is the trend, to seek liquidity instead of long term illiquid investment, then it seems like the confidence just isn't there.

Also, increasing productivity doesn't neessarily lead to increased profits. As you said, companies are achieving this increased productivity by slashing costs and lowering their cost of labor; but these are exactly the costs that companies spend that actually return back to them as demand. I do not have the data but I would venture to say that when productivity rose previously, it was probably because of a rise in revenue, and not because of a reduction in costs. I do not see this productivity increase being healthy at all if it acts as a headwind for demand. Continued debt overhang along with increasing rates, along with productivity increases thans to layoffs are not the proper foundations for a healthy recovery.

Concerning the stock market, I do not think there is an overflow of liquidity out there, even with the various shifts in strategy for more liquid assetts (Man Group, HFT etc). The number one indicator I use for liquidity is margin debt, and it does not look like it is making a comeback.

I agree with your conclusion, assett bubbles do not end well, but this one may not even begin well.

Anonymous's picture


MinnesotaNice's picture

Interesting perspectives... but I am just not feeling a V-shaped recovery in the stock market it in my gut yet... and I have to feel it before I can act on it... herd mentality never works for me... but you have more exposure than I in that area... but I will just sit safe and sound in my storm shelter right now with my finances intact.

Missing_Link's picture

You're investing based on emotions, Minnesota.  Always a bad idea.

MinnesotaNice's picture

I don't know... I have made a lot of good trades... it's more like a 6th sense... like when birds sense an upcoming storm... but I do have one short position that I am holding onto because of emotion... and I refuse to let it go... and eventually I will be right... 1 year, 5 years, 10 years... :-)

bulldung's picture

Unfortunately herd mentality is reality. The hard part is staying near the front to avoid eating dust(powdered Bulldung)

Anonymous's picture

The hard part is staying near the front to avoid eating dust(powdered Bulldung)

Or powdered building.