Now, about that “double dip.”
By now, even the most bullish commentator has begun to acknowledge that the Stimulus high is ending and we are likely entering a “double dip” recession later this year.
It is not difficult to see why, every indicator worth anything is pointing to a massive drop in GDP coming shortly. The ECRI, which has a 100% accuracy rate for predicting recessions has just posted its fastest collapse in history and is already at levels indicating another recession is a “sure thing.”
GSEs Celebrate Geithner's Invitation To The "Recovery" With A Demand For $3.3 Billion In New Taxpayer CapitalSubmitted by Tyler Durden on 08/09/2010 12:36 -0400
Last week the Treasury Secretary penned an Op-Ed titled "Welcome to the Recovery" which in retrospect now appears was a terrific top tick indicator. First, the NFP number immediately following was a major disappointment and confirmation that the economy continues to follow a downward path despite trillions in fiscal and monetary stimulus. It has gotten so bad that if the Fed does not announce some form of new QE tomorrow, stocks will likely experience an unpleasant downward kneejerk reaction. The alternative, of course is just a bleak: once input prices surge, should QE2 be enacted, and banks use a new influx of risk-free reserves to bid up commodities of all shapes and sizes, currently record corporate margins will plummet, and corporate earnings will suffer correspondingly. Yes, this will occur 1-2 quarters in the future, and with a market preoccupied with the here and now, and a once-over scan of rosy headlines, the realization of what QE will do to earnings will be appropriately delayed. Yet a more notable indication of just how ill-timed Geithner's pamphlet is, was today's announcement by Freddie Mac that lost $4.7 billion and needs a fresh $1.8 billion from the Treasury. This follows last week's Fannie report of a $1.2 billion loss and a request for another $1.5 from Mr. Geithner. So yes: welcome to the recovery indeed - make sure you have your begging hat in hand when you visit the SecTres to congratulate him on a job truly well done.
While some industry participants are heralding the recovery in commercial real estate, other experts warn that this is a false recovery and it's too early for such proclamations...
The Homeless Recovery?...No, we're not referring to some type of improvement in the homeless problem domestically. Unfortunately with what is happening both in residential real estate and labor markets, that problem probably gets worse before it gets better. It has been some time since we have looked at the National Association of Home Builders housing index numbers, but believe it's important to do so now. Especially given the ECRI message of the moment showing us the potential for a proverbial double dip in the macro economy itself. You already know the recent NAHB monthly reading in the now absence of the homebuyer tax credit was not good at all. Same deal with month over month new and existing home sales. But as we have done in the past, looking at the NAHB numbers in isolation is not the key issue. As we have shown you in prior discussions and is important now, the NAHB data has shown us its own leading tendencies historically that have proven to be important watch points. Will it be so again? If housing "double dips", what impact will that have on the macro economy and by extension financial asset prices? And of course we use the characterization housing double dip very loosely as it assumes a prior period recovery, which itself is very much debatable. The charts do a lot of the talking here, so we'll try to keep the commentary brief.
While Obama is in Michigan touting the wonders of fiscal stimulus and what he terms the "Recovery Summer", the Fed came out with the minutes of their June meeting. In it they say they expect 5 or 6 years until we've achieved a recovery. Here is the data and it doesn't support Obama's assertion.
Why isn't our economy recovering? I ask that question often and have written about it many times. Perhaps a better question is: what needs to happen in order to make our economy grow? I offer some solutions.
For Those Still Clinging To Hope, Here Is David Rosenberg: "This Is The Weakest Post-Recession Recovery On Record"Submitted by Tyler Durden on 07/14/2010 11:02 -0400
To all those fewer and fewer optimists who believe the economy may avoid a double dip (or alternatively suffer the realization it never really got out of the depression in the first place), David Rosenberg provides a glimpse just how tenuous the so-called recovery has been, even despite the unprecedented attempts by everyone at the top to shepherd the economy into growth at any cost, and the daily reminder from Ben Bernanke that risk is dead and the Fed will never let capital markets drop again. As for the future, Rosie asks the logical question: how is it that earnings are expected to grow by 20% in 2011, when it is becoming increasingly obvious that GDP growth next year will be negative?
If we see retail sales follow the same precipitous one month drop of NFP, the YoY rate should drop from last months 6.9% to ZERO. Last June the index of retail sales was 343.1 vs. last month's 362.52 so zero YoY would mean that the monthly rate, expected to print -0.3% on Wednesday would in fact print -5.4%. Now that frankly seems like an inconceivable no. as it would be the worst number we've seen since the series started in 93. However, I have to think that even if we make up the divergence over a couple of months something like -2% tomorrow would cause people to fundamentally question the recovery. Personally, I think all we are doing is remove a lot of the noise created in the data by the census jobs and we should see retail sales drop back to the levels suggested by claims and possibly even the ABC consumer buying climate question. Unfortunately, that should cause people to question the recovery!
The debate of China's double dip may have just been sealed after the "Conference Board corrected its
April gauge for the outlook of China’s economy, saying its
leading index for the country rose the least since November,
rather than registering the biggest gain in 14 months. The gauge compiled by the New York-based research group
rose 0.3 percent, less than the 1.7 percent gain reported on
June 15." Ignoring for a second the fact that such massive swings in amplitude imply either a malicious data misrepresentation intent or weapons grade stupidity, the second derivative in Chinese growth has now peaked, just at the time when the country for whatever optically political reason decided to unpeg its currency. We are now looking forward to the official rescinding of that decision, and a resumption of the peg. Of course, the fine gentlemen at the Conference Board, have come up with some trivial excuse, namely that the previous release contained a “calculation
error” for total floor space on which construction began, but it is now too late - the discrediting is beyond terminal. And anyone who believes this same agency for its monthly "consumer confidence" reading should ask themselves repeatedly if the CB did not, by mistake or just by following guidelines from above, drop the minus sign.
Michael Hudson: "Europe is committing fiscal suicide – and will have little trouble finding allies at this weekend’s G-20 meetings in Toronto."
Markets have viewed China’s willingness to move to a more “market” determined value of CNY as an indication that Chinese officials believe the global economy is strong enough to weather a CNY revaluation. However, I contend just the opposite. What if China fears increased risk reversion as the worldwide economy slows down during the second half of the year? What if they are moving away from a peg to the USD because they are afraid that USD will appreciate significantly during an onset of risk aversion? Given the increasingly likely double dip scenario, China’s move toward a “market” based CNY value may ironically only exacerbate global imbalances.
It is obvious that the government's policies to revive the economy are not working. As soon as the stimulus money runs out, we will see GDP backtrack. Instead of trying the same failed policies over again we should try something new. That is, deleveraging the economy. Until that happens the economy will stagnate. (See: Japan) Here are some proposals that will allow the economy to recover, quickly.
Activision CEO Robert Kotick can make some mean Modern Warfare games, but that will not be sufficient to get him back on CNBC again. Ever. CNBC's poor Julia Boorstin gets clotheslined (metaphorically, although it would be funny in real life) when she asks Robert whether the American consumer is back on track, no doubt hoping for a fervent yes as the cue cards said. At that point the man whose top line lives and dies by the vagaries of the 18-45 year old's spending habits takes a two second pause and replies: "We don't think so. I think that from a a macroeconomic perspective we definitely are in a challenging time and nothing that we see would give us encouragement that the economy is going to materially change any time soon." At this point the CNBC producer is rabidly screaming to cut to Joseph Cohen, who based on h....er extensive knowledge of stuff, and pets.com, sees the S&P at 1250 shortly, thanks to the US consumer who is now coming back with a vengeance and buying Gulfstreams. At which point someone asks h...er why Goldman's popularity rating is 4%.
Another look under the hood of what is driving consumer expenditures...
While the current economic data appears rosy, it won't be sustained without credit or rising wages or job growth. Much of existing spending is from a drawdown of savings and various transitory stimulus programs. These things won't last.