recovery

The top 20% are prospering and spending money; the bottom 80% are not, but thanks to vast wealth disparity, the top slice of households can keep consumer spending aloft. This provides an illusion of "recovery" that masks the insecurity and decline of the bottom 80%. There is statistical and anecdotal evidence supporting both a "we never left recession" and "the economy is recovering" interpretation. The key to making sense of the conflicting data is to understand that there are Two Americas. Roughly speaking, we can divide the U.S. economy into "Wall Street"--the financialized part of the economy which encompasses the FIRE (finance, insurance and real estate) economy and its bloated partner in predation, the Federal government--and "Main Street," the looted, overtaxed remainder of the "real economy" which isn't a Federally supported corporate cartel (i.e. the military-industrial sector, the "healthcare"/sickcare sector, Big Agribusiness, etc.)

One of the most idiotic decisions of 2010 will be the NBER's choice to pick the summer of 2009 as the end of the recession. As every upcoming quarter will confirm, GDP will decline more and more, and previous GDP numbers will be revised lower and lower, until it is confirmed that not only was the Q3 GDP substantially lower than expected (as the inventory boost is revised markedly lower), but that future periods will see flat if not negative economic growth. But even if one does believe the GDP number (which most do not, and certainly not David Rosenberg... who, nonetheless, does give credit to the PCE deflator...hmmm), the reality is that even at that growth rate, the current "recovery" which should now be 1.5 years in, is underperforming the average 2nd year recovery by over 50%. In other words, we continue to exist in a no-man's land of economic development, in which an outright collapse is solely prevented by the $3 trillion in monetary and fiscal stimuli to date, which tomorrow will grow to over $4TR. The second this Keynesian heroin is taken away, it is guaranteed that the economy will crash and burn, and the true GDP will manifest itself as it promptly catches up to where it should be: roughly 5-10% lower... and if the contraction in the shadow banking system persists, all the way up to 30%. Watch out below.

A week ago, we presented a comprehensive analysis by Moody's highlighting the key items in the cash flow statement of non-financial corporate America. Not surprisingly, we noticed that one of the biggest sources of cash over the past several years, in addition to cutting expenses to the bone and the resulting surge in unemployment, was the lack of investment in organic growth opportunities, via a plunge in Capital Expenditures, meaning that a revenue flat lining is the best most companies could hope for as most have now given up on traditional top-line growth and instead are either hording cash or investing it in an occasional M&A transaction. Now, in addition to that, courtesy of the Fed's free money policy resulting in surging input prices (see Jones Apparel), the next shoe to drop on the path to an upcoming EPS collapse for the S&P is the imminent drop in gross, operating and net margins for these very companies which are now seeing a contraction at both the top and bottom line. Today, David Rosenberg dissects this issue further, and sees nothing good on the horizon.

A headhunter firm is either helping GETCO build the 21st century equivalent to the atom bomb, clustering every single HFT trader under one roof for the most destructive group of momo lemmings ever assembled, or the Obama recovery is truly working... for those who know nothing but how to frontrun what remaining traders are left.

Oops...

White House Press Secretary Robert Gibbs made a rather startling statement in a press briefing on September 21st. He acknowledged that the economy is bad and he further stated under questioning that the recovery would take several years.

On Monday the NBER reported officially that our Recession began in December, 2007 and ended in June, 2009. While that is nice to hear, in my opinion, when you get down on the ground where most of us are, it doesn't feel as if it has ended.

Last week the government released the latest unemployment data. Bloomberg, always ready to roll up the sleeves to help its friends in government (get reelected), was running a headline that “Companies in U.S. Added 67,000 Jobs in August.” While I haven’t had time to go through the minutiae of the report, I find myself scratching my head at Mr. Market’s rather positive reaction to the report, given the bullet points...

Nothing on the economic front, just Tim Geithner speaking and the budget balance…

We like Erin Burnett: after all she is ranked 33 on the Fortune 40 under 40. Who can not like someone who has managed to get that high in the rankings on pure talent, although some recent CNBC appearances did seem to indicate a slight, shall we say, bias, when her guests tend not to disagree with Ms. Burnett's misperception of the world. Indeed, in a recent appearance on Meet The Press, the youngish CNBC anchor made some statements that go straight to errorchecking and bias validation. At 47 minutes into the  interview (extracted) Ms. Burnett says: "I think the problem is you have the fastest job creation in this recovery than you have in any recession in 25 years... Technically speaking this recovery has not been tepid." Alas, we are not sure who fed the CNBC employee these "facts" and figures, but they are patently false.

News out of the Irish government is that Anglo Irish bank will be split into a funding bank and an asset recovery bank, saying that the bank's "own plan in its current form does not provide the most viable and sustainable solution." Those who are familiar with Lehman will recall that this was a plan expected to be put into place for Lehman, in which a CRE-asset holding division would be spun off and allowed to roll off its assets. This plan was scrapped as it was deemed unviable. Glad to see it will work in Ireland.

Michael Burry, who needs no introduction, was on Bloomberg TV earlier discussing his latest investment allocation, which no longer focuses on shorting real estate via the cheapest possible instrument, and instead is going long cash assets in the form of farmable land (oddly enough, not multi apartment commercial real estate), small tech, and, yes, gold. “I believe that agriculture land -- productive
agricultural land with water on site -- will be very valuable in
the future. I’ve put a good amount of money into that.” Burry, just like Zero Hedge, laments the surge in cross-asset correlations, which makes all hedging strategies virtually impossible, and is a primary reason for why so many rational investors have decided to depart from the market: "I’m interested in finding investments that aren’t just
simply going to float up and down with the market. The incredible correlation that we’re experiencing -- we’ve
been experiencing for a number of years -- is problematic." Lastly, Burry agrees with the Paulson-Greenspan view on gold, but not any of the other Paulson "Recovery" themes we presented in extreme detail over the weekend: "Paulson's big in gold, and that's something that is interesting to me given how I see the world playing out, but other than gold I haven't really bought into any of the other theses." (And no, you still can't eat it, dammit).

The ever insightful Don Coxe of Coxe Advisors has released a transcript of his recent discussion on why the rally is fizzling. Aside from everything else, which as usual is spot on and must read, any paper that has the following statement: "In the New York Times today, Paul Krugman got into one of his splenetic rages but he is a terrific and articulate exemplar of the post-Keynesian (that claims to be Keynesian) school, which basically doesn’t believe that government deficits are bad, (they are good) and paying for things in the next generation or the generations after it is okay where it to get us out of what we are in now, so as far as he’s concerned, stimulus has to be done by increasing government deficits" is worth its weight on tungsten. Coxe also does the best summary of why the market has is barely changed both YTD and on a 1 Year basis: "We have a buildup in cash (in print money that is) and we have a buildup in gold, and beyond that there’s not much going on. That’s why the S&P is up about 1% year over year and it’s hardly of the kind of environment that’s going to get those investors who left the stock market after the Flash Crash, saying “We don’t believe the market is any realistic place for ordinary individuals anymore”— this is not going to get them running back in to buy stocks." But don't believe him- after all, there are thousands of paid for newsletters and momentum models, that promise they can time each and every up and downtick, and will certainly make you a trillionaire if not a billionaire (sic).

Heck of a job ...

Paul Farrell's take on Jeremy Grantham's recent essay Seven Lean Years (previously posted on Zero Hedge) is amusing in that his conclusion is that should Obama get reelected, his entire tenure will have been occupied by fixing the problems of a 30 year credit bubble, and if anything end up with the worst rating of all time, as the citizens' anger is focused on him as the one source of all evil. "Add seven years to the handoff from Bush to Obama in early 2009 and you get no recovery till 2016. Get it? No recovery till the end of Obama's second term, assuming he's reelected -- a big if." Also, Farrell pisses all over the recent catastrophic Geithner NYT oped essay, which praised the imminent recovery which merely turned out to be the grand entrance into the double dip: "In his recent newsletter, "Seven Lean Years Revisited," Grantham tells
us why expecting a summer of recovery was unrealistic, why America must
prepare for a long recovery. Grantham details 10 reasons: "The negatives
that are likely to hamper the global developed economy." Sorry, but
this recovery will take till 2016."