recovery

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."

In addition to the traditional (and much discredited) argument of quadrillions of cash on the sidelines (which conveniently ignores the quintillions of debt also on the sidelines), the other last remaining point that bullish pundit like to point out is that the PE on the S&P is oh so very low compared to historical level. Putting aside the fact that the last 30 years of economic data have been perverted by a cost of credit which has declined from 15% all the way to zero, and with no additional place to go, and as such any historical comparisons are now moot as the Fed is pretty much out of options (aside from monetizing of course, and outright debasing the dollar), the primary reason why investors continue to put little credit in the "miraculous" corporate profits explosion, and thus give companies subpar P/E, is that the entire profit recovery has been predicated not on GDP growth (which explains the constant skittishness about macro events), but on declining labor costs, and as the following JPM report points out, "the latest profit recovery (the three red dots) is reliant on declining labor costs like none before it." What investors really want to know is how much more wage deflation can America take before it all collapses into a huge stinking deflationary mess? And by sowing the seeds of deflation at the heart of the corporate economy, who in their right mind would expect a wage-driven inflation (a monetary-event catalyzed hyperinflation, in which the Fed just goes berserk and decides to print $1 quadrillion tomorrow, is a different topic altogether).

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.”

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.

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?