recovery

Today's must see TV comes from the following interview of Pimm Fox on the consumer and the economy with retail expert Howard Davidowitz, who in 10 minutes provides more quality content and logical thought than we have seen from CNBC guests in probably all of 2010 (except of course for that one time when Erin Burnett kicked out Mike Pento, but that's a different story). Where does one start? Probably at the end: "I am not surprised by the strength of retail sales, because i knew that 30% of consumers are responsible for retail sales, and these 30% did much better because of the performance of capital markets. I don't think it is indicative of anything going forward. I don't think the economy is going to get any better. If you look at our fiscal and monetary policy, we went two trillion in the hole last year. Two trillion... to produce this... and unemployment went up to 9.8%! We've spent two trillion we're printing money we're going bananas. Our balance sheet, we've got $2.6 trillion on there, and what;s on there government securities, and MBS." And here is the kicker for the world's biggest hedge fund, which at least one person besides Zero Hedge appears to get: "If interest rates go up a point Bernanke's bankrupt. Everything he's bought is underwater. All the MBS are underwater, the whole country is underwater." Does anyone see the issue now with why rising interest rates, aside from predicting a "recovery", may also, courtesy of its now $2 billion DV01, "predict" the insolvency of the Federal Reserve?

With the Federal Reserve now openly endorsing the ponzi scheme nature of the US stock market, it would be expected that any releases out of the Fed or its regional offices would be strictly within the limits of preapproved propaganda. Which is why we were stunned when we read the following research piece released from the Dallas Fad, titled: "The Fallacy of a Pain-Free Path to a Healthy Housing Market" in which we read unpleasant facts that traditionally are relegated only to the dark and murky world of the blogosphere. Among these are the following pearls: "Prices, in fact, have begun to slide again
in recent weeks. In short, pulling demand forward has not produced a
sustainable stabilization in home prices, which cannot escape the
pressure exerted by oversupply", "About 3.6 million housing units,
representing 2.7 percent of the total housing stock, are vacant and
being held off the market....Presumably, many are among the 6 million distressed
properties that are listed as at least 60 days delinquent, in
foreclosure or foreclosed in banks’ inventories." (the bulk of which are still populated by squatters who pay no mortgage, yet who are not booted by the lender banks, and who instead can redirect the money to uses such as iPad purchases), and this stunner: "With nearly half of total bank assets backed by residential real estate, both homeowners on the cusp of negative equity and the banking system as a whole remain concerned amid the resumption of home price declines.....The latest price declines will undoubtedly cause more economic dislocation. As the crisis enters its fifth year, uncertainty is as prevalent as ever and continues to hinder a more robust economic recovery. Given that time has not proven beneficial in rendering pricing clarity, allowing the market to clear may be the path of least distress." This is a stunning admission: in essence the Fed itself is advocating for mark-to-market, and the ensuing bloodbath that would ensue with bank book, and market, capitalization. Will this proposal by authors Danielle DiMartino Booth and David Luttrell see more traction at the Fed or promptly disappear in someone's inbox? Our money is on the latter.

For the duration of what I estimate to be a 10 year economic slowdown (we are entering year 4), you will hear countless experts proclaim that the economy has recovered. Economic recovery evangelists were temporarily silenced earlier in the year, but they have now come out in force.In today's FOMC statement, the Fed actually had the chutzpah to say: "The economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment".

Bernanke looks like he's terrified ...

Bernanke: Economic Recovery 'May Not Be' Self-Sustaining

Bernanke: Could Buy More Bonds Depending On Inflation, 'How Economy Looks'

Bernanke: Getting 'Awfully Close' To Range Where Prices Start Falling

Bernanke: Could Be 4-5 Years Before US Sees 'More Normal' Unemployment Rate

Bernanke: Defends Plan To Buy Treasury Securities

Bernanke: High Unemployment Rate 'Primary Source Of Risk' To Economy

Bernanke: Double-Dip Recession 'Doesn't Seem Likely'

There is propaganda, and there are facts. For anyone seeking just one concise, definitive and completely true (as in fact-, not hope- based) explanation of what has happened to the American economy in the past 2 years, we suggest this presentation by former OMB director David Stockman, whose 10 minute appearance on the CNBC's strategy session left the hosts with absolutely nothing to retort. Among his observations: the government sector for the first time in history is shrinking: "the reason is that governments are broke... we are going to have to cut back government employment." And it gets scarier: "if you take core government plus the middle class economy (65 million jobs), that's the breadwinning economy, if we take some numbers - how many jobs in the "core economy" in November - zero; how many jobs since last December: net zero; how many jobs since the bottom of the recession in June 2009: still a million behind from when the recession ended." As to whether the economy can grow without employment growth: "I can't imagine how it can because employment growth generates income growth which is the basis for spending and saving ultimately and we are not getting income growth out of the middle class." And the stunner: the job "growth" has come almost exclusively from the part-time economy (two-thirds). Why is this a major problem: "there is 35 million jobs in that sector, with an average wage of $20,000 a year: that is not a breadwinning job, you can't support a family on that, you can't save on that. Those jobs will not generate income that will become self-feeding into spending." As for the biggest condemnation, it is reserved to what Zero Hedge has been claiming for two years now is a completely broken market: "I can't explain the market... I don't know what it is pricing today, I don't think the market discounts anything anymore, it is purely a daytraders' market that is trading off the Fed, trading off the headlines. One day it is manic, the next day it is depressive, and we can't draw any conclusions." And scene.

Another day passes, proving that you have economic propaganda (is the Dow at 36,000 yet, solely on ponzi hot potato passing between 3 computers and 2 primary dealer), and then you have reality. A quick look at KR stock indicates that not all is good with the largest US supermarket chain. Sure enough, earlier today, the company announced it was lowering the top end of its full-year profit forecast. Kroger projected per-share earnings of $1.65 to $1.78, compared with its previous forecast of $1.60 to $1.80, according to a statement today by the Cincinnati-based retailer. The consensus is $1.78. It was, however, the commentary from the conference call is most telling: The slow economic recovery is hurting grocery sales and consumers are “cautious in their spending,” Chief Executive Officer David Dillon told analysts on a conference call. The recovery is slower and weaker than Kroger had expected and competition remains “intense,” he said. Hear that: the economy is "slower and weaker"...Although that only pertains to such irrelevant items as food and drink. And who needs those when you have Kindles to keep you fed and warm at night.

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...