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Welcome to the “Square Root” Shaped Recovery
I am not of the “V” or “W” persuasion, but see a “square root” shaped economic recovery, a “V” followed by a long, modest rise.
After a gut churning plunge in 2008 and early 2009, we are now seeing a bungee cord bounce back. GDP growth could see rollicking great 3%-4% annualized growth rates through Q1 2010. After that, you’re going to need a triple shot espresso to stay awake, because growth will settle down to a more somnolescent 2% annualized rate. You can’t have robust growth without credit or consumers, both of which are still missing in action in our last conflagration.
It’s anyone’s guess how much toxic waste lies buried in bank balance sheets. The banks certainly are not talking. So it’s going to be a long time before they return to bidding for market share with free credit cards, low teaser rates, and liar loans, or their next generation iterations. The “shadow banking system” proved to be just that, a shadow. There are still great swathes of the credit markets that have yet to make any recovery at all, like securitized home loans, auto loans, and credit card debt.
Anything real estate related, commercial or residential, once a big part of GDP, will be dead weight. Another albatross around the economy’s neck are thousands of states and municipalities that are sucking money out of the economy faster than the federal government can pump it in. Past recessions have never had to deal with this.
Since we are not creating the new industries essential for real job growth, I believe the unemployment rate will stay stubbornly high at around 10%, much like Germany has seen for decades. The jobs that decamped for China or vaporized on the Internet are never coming back. It’s hard to see where the 27 million jobs we need to accommodate natural population growth and immigration and get us back to a 5% jobless rate are going to come from. The total job growth in the last decade was zero.
With tens of millions wiped out, and most of the rest recovering from a halving of their net worth, don’t hold your breath for a consumer spending boom. The 25% of homeowners who are underwater on their mortgages aren’t going on a spending spree any time soon. Sure, there were a few more in the stores this Christmas, but most of those were probably shoplifters. Frugality is here to stay.
The economy is also going to have to kick its addiction to government stimulus spending, which has accounted for the bulk of the actual growth we have seen in 2009. If all of that were not bad enough, headwinds in the form of rising interest rates are certain to hit sometime in 2010, either to rescue a collapsing dollar, or because of a sheer volume of government borrowing, or both. What growth we will see in the global economy will be 80% an emerging markets story.
As much as I’d like to shout from the roof tops that happy days are here again, I see nothing but storm clouds on my Doppler radar. Rising interest, stubbornly high unemployment, no credit, and large chunks of the economy dead in the water are not what economic booms are made of.
For more iconoclastic and out of consensus analysis, please visit my website at www.madhedgefundtrader.com .
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Banks "pleading" with hedge funds to increase borrowing from them - what a great country !!!
DOW / SP500 daily chart continues to show signs of being overbought.
The weekly trend is bullish / neutral : ie a moderate uptrend.
Keep in mind that trends with longer time frames have more influence over trends with smaller time frames.
The bear market rally from March 2009 will not end until the weekly chart turns down.
http://www.zerohedge.com/forum/market-outlook-0
Here's all you need to know about the author and his credibility.
Don't worry, we'll tax our way out of this.
The economy may “have to kick its addiction to government stimulus spending,” but will the government? Only this past week, I passed a real estate sign along Interstate 5 near Williams, California, offering two-story homes for sale in a new development. It read: New Homes * Zero Down * Government Program.
A bank is going to back that deal along Williams. And the guy who gets that deal again may not pay again; and the banker ain’t gonna pay. Neither the borrower nor the banker went to jail last time. They didn’t suffer anything. Guess who did? And it’s recovery time again! says Goldman Sachs. It’s time to start all over! Guess who pays? And pays and pays.
It’s clear we have arrived at a predictable juncture. In the process of building bubbles, the feature which is avoided is justice. Justice requires punishment of the guilty. If burglars are caught stealing and urged hopefully to never steal again and then turned loose, justice has not been served. Who’s to blame if they return to steal again?
Taxpayers paid the penalty for the bankers’ high risk and fraud gone bad. The bankers were rewarded with bonuses. If the bankers do it again, who’s to blame? The government. As long as the bankers can get the money out of the U.S. Treasury and the Fed, they will keep going forever. That is, until the taxpayers stop them.
Below are outlines of political reform and hope from Bill Gross in his Investment Outlook | January 2010 | PIMCO. For this to work, the reform must include laws and regulations with teeth. In other words, laws broken must mean jail time for the perpetrators and repossession of bank resources by the taxpayers. That said, could it be “The Bond King” is changing his stripes?
_________________________________________________
“Question: What has become of the American nation? Conceived with the vision of liberty and justice for all, we have descended in the clutches of corporate and other special interests to a second world state defined by K Street instead of Independence Square. Our government doesn’t work anymore, or perhaps more accurately, when it does, it works for special interests and not the American people. Washington consistently stoops to legislate 10,000-page perversions of healthcare, regulatory reform, defense, and budgetary mandates overflowing with earmarks that serve a monied minority as opposed to an all-too-silent majority. You don’t have to be Don Quixote to believe that legislators – and Presidents – often do not work for the benefit of their constituents: A recent NBC News/Wall Street Journal poll reported that over 65% of Americans trust their government to do the right thing “only some of the time” and a stunning 19% said “never.” What most politicians apparently are working for is to perpetuate their power – first via district gerrymandering, and then second by around-the-clock campaigning financed by special interest groups. If, by chance, they’re ever voted out of office, they have a home just down the street – at K Street – with six-figure incomes as a starting wage.
“What amazes me most of all is that politicians can be bought so cheaply. Public records show that combined labor, insurance, big pharma and related corporate interests spent just under $500 million last year on healthcare lobbying (not much of which went to politicians) for what is likely to be a $50-100 billion annual return. The fact is that American citizens have never been as divorced from their representatives – and if that description fits the Democratic Congress now in control – then it applies to Republicans as well – past and present. So you watch Fox, or is it MSNBC? O’Reilly or Olbermann? It doesn’t matter. You’re just being conned into rooting for a team that basically runs the same plays called by lookalike coaches on different sidelines. A “ballot box” pox on all their houses – Senators, Representatives and Presidents alike. There has been no change, there will be no change, until we the American people decide to publicly finance all national and local elections and ban the writing of even a $1 check for our favorite candidates….
“If 2008 was the year of financial crisis and 2009 the year of healing via monetary and fiscal stimulus packages, then 2010 appears likely to be the year of “exit strategies,” during which investors should consider economic fundamentals and asset markets that will soon be priced in a world less dominated by the government sector. If, in 2009, PIMCO recommended shaking hands with the government, we now ponder “which” government, and caution that the days of carefree check writing leading to debt issuance without limit or interest rate consequences may be numbered for all countries.
“… Germany, in fact, has just passed a constitutional amendment mandating budget balance by 2016. If these trends persist, the simple conclusion is that interest rates will rise on a relative basis in the U.S., U.K., and Japan compared to Germany over the next several years and that the increase could approximate 100 basis points or more. Some of those increases may already have started to show up – the last few months alone have witnessed 50 basis points of differential between German Bunds and U.S. Treasuries/U.K. Gilts, but there is likely more to come.
“The fact is that investors, much like national citizens, need to be vigilant and there has been a decided lack of vigilance in recent years from both camps in the U.S. While we may not have much of a vote between political parties, in the investment world we do have a choice of airlines and some of those national planes may have elevated their bond and other asset markets on the wings of central bank check writing over the past 12 months. Downdrafts and discipline lie ahead for governments and investor portfolios alike. While my own Pollyannish advocacy of “check-free” elections may be quixotic, the shifting of private investment dollars to more fiscally responsible government bond markets may make for a very real outcome in 2010 and beyond. Additionally, if exit strategies proceed as planned, all U.S. and U.K. asset markets may suffer from the absence of the near $2 trillion of government checks written in 2009. It seems no coincidence that stocks, high yield bonds, and other risk assets have thrived since early March, just as this ‘juice’ was being squeezed into financial markets. If so, then most ‘carry’ trades in credit, duration, and currency space may be at risk in the first half of 2010 as the markets readjust to the absence of their ‘sugar daddy.’ There’s no tellin’ where the money went? Not exactly, but it’s left a suspicious trail. Market returns may not be ‘so fine’ in 2010.”
William Gross
Managing Director
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2010/Let%E2%80%99s+Get+Fisical+January+2010.htm
Why not just hit the search feature at the FT.... Especially to revisit a classic.
http://www.ft.com/cms/s/0/303ab4a8-4bb2-11de-b827-00144feabdc0.html
BGZ up ridiculously too. All from 10:26 am today.. hmmmmm Gold is rocketing out of the gate. WTF is going on?!?!?!?!?
I was cruising along right there with you Madman, until this little tidbit:
That little comment colors the rest of the article and detracts from your credibility.
Otherwise, you were right on the button.
Fact remains that observation was as on the money...
Miles, do you mean the observations in general or the one about most of the Christmas shoppers being shoplifters? If the former, I agree. If the latter, I must demur.
Looks like the shoplifters spend a bit o' money anyhow, eh?
As a total percentage of the increase. I can tell you that where I live law enforcement is abuzz with the ramp up in highly organized shoplifting. I also know that this problem is endemic throughout the US and may well be competing with identity theft scams on the ladder of loss provisioning.
OK, I see. I can agree about the shoplifting statistics. I was just referring to the hyperbole about "most" shoppers were thieves. Nothing more than that. Just as I would object to a statement that most or all ZH posters are tinfoil hat wearing xenophobes. A few, yes. Most? No.
Unemployment is 22.5% bro not 10
The stealth bull market will power on, as stocks continue to climb the "wall of worry."
The Cyclical Trend Indicator is currently bullish...and is expected to remain there until Mid Feb. Expect a modest pullback around that time...just enough to add to winning positions.
I am Anonymous.
Everyone see this? Blankfein has to answer to congress.
http://dealbook.blogs.nytimes.com/2010/01/10/congress-will-question-big-...
How in this environment is QID "and" FAZ up over 500% on SUnday selling??
This is reported on Scot Trade, TD Ameritrade, and ETrade.
I have been scratching my head all day.
How could 2 ETFs both have this level of rise and only be "mistakes"???
I am just curious:
Who is the Mad Hedge Fund Trader?
Perusing his website, I read of his claims to fame and experience yet cannot find a name anywhere.
Why would someone who gets invited to the White House, who
supposedly rubs elbows with the Rich and Influential, who reportedly delights over adverts of his former abode in the WSJ be so humble as to hide behind the catchy MHFT moniker??
I for one would take his comments a lot more seriously if I had a real name. Short of that, the only thing that comes to mind is an old Carly Simon song.....
Sorry but I smell a rat. Somehow I think ZH can do better.
His name is John Thomas. On his site, click thru to his radio show archives, where he openly announces his name.
My criticism of MHFT is that I think he too often writes solely for the sake of seeing his name in print. This post was exemplary. There is no new or interesting content or analysis in it whatsoever--just general observations about the economy and some muddled predictions about the future, none of which are particularly enlightening. Anyone with sufficient interest and background knowledge to read ZeroHedge already knows this stuff and had done the same analysis in his/her mind, so what's the point of posting this?
Blah, blah, blah. Please, tell me something I don't already know.
ummm, in case you didn't know, ZH itself is anonymous people.
Some think they know who the original TD is.
Some think they know who the original Marla is.
Remember, ZH is about content and the message, not the messenger.
Sincerely,
Jerry Garcia
Hey Jerry - Some folks will never break free since they like the way I do it to them. BTW, my response is at Bruce's...
- Love Rahm
I'll go over right now to check it out.
Hope Fitzgerald is still being kind to you, Rahm.
crap so much for my "breaking legs" recovery....
Buy silver and gold when you can, and hold on tight.
We are so BEYOND PHUCKED, we can't even catch the bus back to Phucked.
"we can't even catch the bus back to Phucked"
that's funny. i'm gonna borrow that one... :^)
The worst part of it is how government is actually killing itself to bailout wall street. the continued market moves higher just make borrowing cost greater for everyone (our government included) except for those who have access to the fed discount window. The end result once more is a massive transfer of wealth out of the middle class into the baking class.
effectively we are paying 4% interest so wall street can borrow at zero percent to keep the market propped up. As this spread grows the cost to the middle class and the amount of wealth transfer grows as well
Therefore you have two very conflcting forces working at each others throat. all of them lead to a bad result for the american consumer.
Brace for impact. TPTB will bent, twist, distort facts, print money, invent new smoke and mirrors and other ways to misrepresent conditions and facts, in order to stay in power and prevent a crash.
Perhaps the best case scenario will be a slow grind a la Japan for the next 20 years or even longer.
However, the tower of Babel (debt) will eventually collapse under its own weight and the brazen and shameful Ziggurat of Babylon (Capitol) will be demolished and re-built by an Alexander (the American patriots.)
Why did FAZ go from $16.42 to $100.99 on Sunday with 43,000,000 shares????
Re you guys still losing money on FAZ?
Give it up....the stealth bull market will continue.
I am Anonymous.
Financial Times confirms the greater than 500% increase
over this weekend...sounds like someone is doing well.
where did you get the FAZ info. I'm not seeing it
Both on Scott Trade and ETrade sites.
It is not showing up anywhere else.
Unusual trade for Sunday morning...the ultimate "after hours" trade and by the way, what does this portend for tomorrow? I have never observed anything like this before... have you?
the only plausible reason for that change (from one who has traded fas and faz extensively since just after they were introduced in late 08) is that someone would need to have advance notice of a major nuclear attack on the u.s.
it is simply some goofy error.
don't get me wrong, I'm holding some FAZ now but I'm not expecting to be rich tomorrow a.m.
10-4...and thanks... I also sent Scottrade a question on this matter...
I have a question. Who is buying stocks and where are they getting the money? The "retail" investor, who supposedly represents a significant percentage of market purchases has not returned to the market. Stocks go up because of demand. Could it be that banks and other entities are getting money at close to 0% and speculating in stocks - and that is what's driving the market up?
I think I can speak for most of us here that this article is quite insulting to our intelligences. Besides being terribly banal and completely unoriginal, assertions of 10% unemployment and 3%-4% growth in 2010 are enough to reveal this writer as someone who is living in some alternate reality of his own making.
TO: 189168, who said: "quite insulting to our intelligences. Besides being terribly banal and completely unoriginal, assertions of 10% unemployment and 3%-4% growth in 2010 "
In defense of the author's words about GDP growth, which are posted below and highlighted as are yours, you may want to consider re-checking your intelligence after re-reading the original GDP growth predicition:
"GDP growth could see rollicking great 3%-4% annualized growth rates through Q1 2010. After that, you’re going to need a triple shot espresso to stay awake, because growth will settle down to a more somnolescent 2% annualized rate."
The author calls for 3-4% in Q1 and 2% thereafter.
Big difference
when you look at everything in the pipeline I see no way of avoiding a depression soon - I doubt extend and pretend can work past 2012 at the very latest. Years from now I think they will peg the end of 2007 as the official start of the depression even though the next big fall will just be called a double dip recession at first until they are forced to tell the truth.
1. Demographics people have been saying since the 80's we were going to have one about now (I think most pegged the decline to start in 2010 even back then)due to most prime consumers turning the age where they stop consuming much.
2. Coming CRE defaults which are going to be very large.
3. Next wave of foreclosures when the rates reset and even more people walk away from underwater mortgages + the shadow inventory of foreclosed homes now that arent officially listed for sale.
4. Consumer debt is not an option any longer to drive recovery like in the past not to even mention our huge federal debt.
5. Its just a matter of time until these artificially inflated equity and commodity markets around the world have a hard crash and if you think cunsumer spending is bad now wait until the psychological effect from that sinks in.
Since you recognize so readily the pejorative effect of unemployment on the economy why would you not also see that increasing unemployment and its effects on consumption will lead inevitably to a second downturn?
Perhaps it is time to flee the jurisdiction of the IRS.
I could have written that and Im jobless from the building industry for a year now.Just how much do these guys get paid to write this stuff? Any openings?
the market is on viagra....the erection will wear off in about 4 hours,,,
Brilliant ! You're right ! markets only go up ..... never down.
Thanks, i generally agree with your point of view. Markets generally remain surprisingly robust. When do you think the two could converge a bit more? Or do you take them as separate entities?
This is the true shape of the "recovery":
http://www.stockphotopro.com/photo-thumbs-2/stockphotopro_26930DXV_no_ti...
Welcome to the stair shaped "recovery". Descending stair.
Some quarters of stability, then a sharp drop. More quarters of stability, then a new drop.
In my field we'd call it a sawtooth waveform riding on decreasing DC bias. Slope up from x=1 1 to x=1.5, then fall to x=.8, slope up to x=1.3, then fall to x=.6 ... etc. Ever decreasing bias (in this case oil energy) overall with short term growth that's corrected due to spiking energy costs every time. I love the stairstep photo, but there will be more "recover" after each fall than the flat line a step shows. The bottom awaits both - life as it was in 1850.
I too am of the descending stair camp when it comes to real money and in the United States. Outside the US and dealing in fiats as unit of measure (BTW I am not a gold bug), all bets are off.
Unless we change something to bring new productivity into the US, we will face descending stairs out into the future.