Cash For Clunkers
This article is a look at the US's recovery, Europe's recovery, Asia's (China) recovery, and how they all tie together. While US manufacturing has been improving, mainly because of exports, it is also flattening out. Ditto almost everywhere else. This is a sign of what's coming.
Some notable correspondences submitted by David Rosenberg's fans to the Gluskin-Sheff strategist. All are worth a read, although inbetween we get this glimpse of what Rosie really thinks: "We will come out of this cycle with tremendous inflation, but the primary trend for the next 3-5 years, the length of time it will minimally take before this global deleveraging cycle fades, is deflation." We knew Rosie was a long-term hyperinflationist.
There’s nothing wrong with throwing a little money at a problem to make it go away. There’s equally nothing wrong with throwing a little borrowed money at a problem to make it disappear, as long as you have the means to pay that borrowed money back. But what happens if you throw a lot of borrowed money at a problem, and the problem doesn’t go away? If you’ve ever experienced a situation like that you can probably understand how Europe feels right now. It just unleashed a magnificent $1 trillion euro bailout and the market responded with a selloff by the end of the week! So what happened? That money was supposed to make the problem go away, after all. And it was a lot of money. Why did the market respond to it with such disdain? We believe the market’s reaction is confirming what we have long suspected: that these bailouts provide next to no long-term value. They don’t produce real jobs. They don’t improve productivity. They just prolong the precarious leverage game played by the financial sector, and do so at tremendous cost to taxpayers. "Bailout and Stimulate" has been the rallying call for governments and central banks since the beginning of this financial crisis – and it has certainly had its impact over the last two years, but not the type of impact we need to propel real, sustainable growth. - Eric Sprott
April New Homes Sales Jump To 504K From 439K On Scramble To Catch Last Days Of Homebuyer Tax SubsidySubmitted by Tyler Durden on 05/26/2010 10:12 -0400
Earlier this week, existing home sales surged, and now new home sales follow through as homebuyers take advantage of the last month to offer a homebuyer tax credit. The April number was 15% higher than the revised March 439K, and soundly beat expectations of 425K units. Alas, as with every other forward push contraption the government has come up with, this only means that May and future home sales, will once again revert to the trendline as the tax credit has now expired (for now). Compare the recent spike in the chart below to that observed in the month Cash for Clunkers ran out: the 1:1 correlation is unmistakable.
"There are classic signs indeed that the recession in the U.S. ended last summer — output, sales, etc. But the depression is ongoing and the reason we say that is because real personal income, excluding handouts from the government, has barely budged. In fact, real organic personal income is nearly $500 billion lower now than it was at the peak 16 months ago and this has never occurred before coming out of any technical recession. It is a depression, as the chart below attests — that is the trendline for real household incomes, until the government comes in to top them off with handouts, subsidies and extended jobless benefits. The share of U.S. personal income being derived from Uncle Sam’s generosity has risen above 18% for the first time ever." - David Rosenberg
Is the Consumer Really Back? Well, It Depends On If You Believe What the Government Tells You or Whether You're An Independent ThinkerSubmitted by Reggie Middleton on 05/03/2010 08:16 -0400
As long as you believe what you are told, all is well in consumer spending and retail land... But you've got to believe!
When I make a mistake I will admit it.
In my analysis of consumer spending I asserted that the sources of increases in spending were (1) a draw-down of savings and (2) the redirection of defaulted mortgage payments to spending. I was half-right which another way of saying I was half-wrong.
I missed one the basic laws of economics, Bastiat's "Broken Window Fallacy." Ouch!
The NBER said Monday that it's too soon to call the recession over, although many of its members think it is. Is it over? Is there a flaw in their analysis?
The U.S. economy’s recent growth has been underpinned
significantly by government policy, yet this short-term cyclical
support will likely fade in the second half of 2010. As a result,
investors should take advantage of the tighter credit spreads and focus
on de-risking their portfolios in order to prepare for the increasing
long-term secular headwinds stemming from the growing deterioration in
public sector balance sheets in many developed economies.
Mark Kiesel, PIMCO Managing Director
A lot of conflicting data came in last week. There is a lot of positive news, but does it all add up to a recovery or is the cyclical recovery headed for a stall? Nothing has changed the underlying conditions that would relieve the credit freeze. And without credit, the economy will stall.
In our recent post, Coming to America, we encouraged readers to study Nail Ferguson’s concerns voiced in the Financial Times – A Greek crisis is coming to America. It does not take a wild imagination to see that ballooning debt levels on government balance sheets pose a grave systemic risk to the global economy and capital markets. This is precisely why we are left with our tongue on the floor when we hear Nobel laureate Joseph E. Stiglitz describing the prospect of a US or UK default as absurd, “particularly in the US because all we do is print money to pay it back.”
This is the first report of a series of 3 reports on the state of the economy as we enter 2010. Part II will appear Wednesday, and Part III will be posted on Thursday. Econophile, as usual, has a different take.
One of the early year themes we have been discussing on our subscriber site has been our expectation for an increase in market volatility. Probably about three weeks back we wrote, “Unlike the consensus and big Street houses which have been predicting/expecting falling volatility in 2010 after an already accomplished death defying drop in volatility during 2009, we’re not so sure shorting volatility is such a wonderful investment idea right here. Although we could be dead wrong, we believe 2010 will present us with a great opportunity to buy volatility. We could be very close right now.” We’re not reprinting this to proverbially pat ourselves on the back as the year is still very young. Secondly, anyone spending time patting themselves on the back in this business are usually about 15 seconds away from having the proverbial rug pulled out from under them. Anything can happen, so judgment is reserved for now as we’ll just have to see what happens on the financial market front as we move forward. We think an increase in volatility is in store not only for the financial markets, but also in a much broader context we’d like to discuss in this missive. We want to quickly talk about another type of volatility – economic volatility. And we want to take a look at the long term in the hope that perhaps we can “see” the future more clearly. Here’s the question that may indeed morph into an investment theme for 2010 and beyond that we’d like to pose. Looking ahead, will the US economy be more or less volatile than we have experienced over what is close to the last thirty years? Yes or no? If indeed were are anywhere even close to the mark regarding our thoughts that economic volatility will increase, then that has direct and meaningful implications for equity and broader business valuations. Let’s start digging through some facts.
US Tries To Maximize Its Equity Return In Bankrupt Automakers, Tells Americans Not To Drive Recalled ToyotasSubmitted by Tyler Durden on 02/03/2010 11:57 -0400
This whole Toyota recall thing has had us puzzled. The scale of the recall keeps getting bigger and bigger, the hit to Toyota stock greater with every single day. This is extremely uncharacteristic for a company that has taken PR fallout containment (not to mention quality) to an artform. Which, one would speculate, may implicate other forces in this dramatic collapse in everything that Toyota has stood for. The just released announcement from the US Government, in which the government is telling Toyota Owners to "stop driving the recalled vehicles" (can Congress quickly make this into a law please?) which is a defacto endorsement of buy American, and not just any American, but cars made by bankrupt and spun off automakers, in which the country has a major equity stake in via TARP and loan facilities, could be a big clue as to what the behind the scenes play here is. As everyone knows, Cash For Clunkers was a benefit exclusively to Japanese automakers, with Ford barely sneaking into a top 5 spot for cars sold. Well, now it's time for Uncle Sam to demand his pound of flesh; if that involves a "recall" and a huge hit to Toyota's sales and market cap, so be it.One thing for sure: with the various spending freezes , we won't be seeing another Cash For Clunkers for years to come, if ever... Or we may, if and only if, Toyota's reputation has been destroyed beyond measure.
An interesting observation emerges when one analyzes the various holders of non-revolving consumer credit. While the traditionally largest players in non-revolving consumer credit provisioning, commercial banks and finance companies, have been materially curtailing their lending of auto loans (the primary form of non-revolving credit and which also includes student loans, as well as boat and trailer loans) with their combined holdings declining by 5% year over year (from $989 billion to $940 billion), another actor has jumped in to take their place. It should not surprise anyone, that with a 68% increase in non-revolving credit holdings over the past 12 months, this entity is none other than the Federal Government.