Guest Post: Why The U.S. Economy Could Go Haywire
Submitted by Dan Dorfman courtesy of TrimTabs Money Blog
Why The U.S. Economy Could Go Haywire
Americans participating in a recent Gallup poll showed the highest level of confidence in an economic recovery in a year. Sounds great, but you can’t ignore the nearly 13 million unemployed, the 46 million people on food stamps and the roughly 29% of the country’s homeowners whose mortgages are under water. They would find it hard to subscribe to the poll’s sunny conclusion. On the other hand, there’s no getting away from a bevy of seemingly increasingly favorable economic data, which, more recently, includes falling weekly jobless claims, four consecutive monthly gains in the leading economic indicators, somewhat perkier retail sales and a pickup in housing starts and business permits. Pounding home this cheerful view is the media’s growing drumbeat of increased economic vigor.
Confused? How can you not be? But President Obama has to be elated at this widely perceived peppier economy. During much of his presidency, he’s been roasted by some critics as an economic illiterate, with one Internet poster recently reading: “Obama had a dream and we got a nightmare.” Now, though, thanks to the public’s growing acceptance of the idea that things are getting better, Obama’s approval ratings are on the rise. Even a number of his Wall Street critics are starting to acknowledge his chances of winning a second term have greatly improved and some believe he’s almost a shoo-in should the current economy continue to pick up steam.
The favorable economic news has also been a big plus for the stock market, what with equities off to a rousing start in 2012 and the Dow recently ballooning to a four-year-high of around the 13,000 level.
That also sounds great, but there’s still a lingering amount of economic scare talk around that’s probably a lot scarier than most haunted houses, namely the chatter and economic commentaries that raise such ominous prospects as a new U.S. recession, a global depression and unemployment in the West (Europe and the U.S.) reaching 20% or more and further toppling of European governments.
It all raises the obvious question: are we out of the woods yet?
No, says James Dale Davidson, an editor of Strategic investment, a Florida newsletter, who writes in the latest issue that “the U.S. economy is staggering, like an over-the-hill boxer trying to shake off a jab to the chin.”
Of concern to Davidson, among other things, are an unfavorable demographic trend (an aging population) and a global debt crisis, both of which he views as essentially insoluble, a contraction here of real personal income, a developing recession in Europe, which will mean a downturn in the U.S., and the prospective toppling of more European governments on top of the seven that have already toppled, a grave situation magnified by the shaky financial condition of European banks.
All told, there are about $87 trillion of assets in the world banking system, around $40 trillion of which are estimated to be in European banks. On average, Davidson points out, European banks are woefully insolvent and leveraged at 26 to 1, meaning, he said, a 4% loss would wipe out their capital. Conservatively, he points out, these banks are about $300 billion short of the capital needed just to make adequate provision for the sovereign debt they hold.
To our economic bear, the handwriting is on the wall, contending “there is no longer a question of whether Europe will fall into a downturn. It already has.”
Davidson further notes that slow growth (which is the case now) has always been an indication that the economy was sinking into a recession, was already in a recession, or was just emerging from a downturn. In this context, he believes the most likely scenario is that we will soon find ourselves in a recession since there is very little in recent data to encourage optimism about robust growth.
This year’s economic and financial news, as Davidson sees it, will detail the painful and gradual awakening of investors to the grim reality. Among what he sees as headline developments:
–Savings rates will rise again following a plunge in home equity values that the Financial Times estimates at $650 billion.
–P/E ratios will continue to be compressed as the prospects of real growth evaporates.
–We will move from “a rising tide lifts all boats” buy-and-hold market to a stock picker’s market.
–With median incomes falling and little prospects of real sustained growth, it will be a rare company that realizes significant gains in top line revenue. In essence, you’ll have to find the next Apple to capitalize on dynamic growth.
Davidson also serves up equally grim tidings for our nation’s retirees. “The welfare state is broke, busted, and the expectation of retirement for the majority of people will be exposed as, at best, an even more illusive dream, and, at worst, a hoax.”
With speculation rife that it’s only a matter of time before Greece defaults despite a recent bailout package, as well as the prospects of other countries also defaulting, it’s worth taking note of a frightening observation from Citibank’s chief economist, Willem Buiter.
Focusing on the threat of disorderly defaults–which we’ve already seen in such riot-torn nations as Greece and Italy–Buiter contends such disorderly defaults “would drag down not just the European banking system, but also the North Atlantic financial system and the internationally exposed parts of the rest of the global banking system that would likely last for years, with GDP falling by more than 10% and unemployment in the West reaching 20% or more. Emerging markets,” he observed, “would be dragged down, too.”
So there you have it, a slew of scary events, any of which could clobber the economy and the financial markets at any given moment. How real such risks are is anybody’s guess, but the message from our worrywarts is clear: there’s still plenty of economic danger ahead.
One of the more famous Yogi-isms might sum it up best: “It ain’t over till it’s over!”
What do you think? E-mail me at Dandordan@aol.com
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Metals bitchez!
Hugh Hendry made a public appearance this week in a Barron's interview. He was talking about hyper-deflation and discussing the danger of owning "too much" gold. Looks like his Japan bet is also paying off huge:
http://www.ftense.com/2012/02/hugh-hendry-betting-on-deflation.html
Oh yeah - that's my problem: Too much gold.
The horror.
If anyone feels they have too much gold, I'm willing to take the excess off your hands for a nominal fee.
I charge only $50/oz and for disposals larger than 5 oz, I will personally come and haul it away at your convenience at no additional charge.
Well Mr. Dorfman could have noted that the stock market usually anticipates the actual economy by 6 months - but he didn't - he just quoted from someone, Dale Davidson (and who the hell is he??) who probably couldn't tie his shoe laces if he had three hands.
The American people are and have always been an optimistic people with a belief in our ability to overcome adversity with our own efforts. That has not changed. Corporations and banks in the US have better balance sheets that at any time in this last decade. The opportunity for growth is within reach.
Yes, there are problems but not the kind laid out in this article. EU countries will save EU banks - it is just that simple - they have already said so. So draggin out the boogeyman of under capitlaized EU banks is just another attempt to drive fear into the equation when in fact things are actually looking.
Cheers
I am going to get a job teaching economics in Peru, taking my guns and gold with me.
Here is what you need to know about the American economy.
http://research.stlouisfed.org/fred2/graph/?s[1][id]=LNU01300000
Well good luck with that - by the way, you might look into traffic laws in Peru before you drive a car in that country. The Peruvians will welcome your gold but not your guns.
"this sucker could go down"
Americans are indeed known for their optimism... But that's adjusted from can-do optimism to entitlement optimism.
the Wile E. Coyote moment nears, when the collective "we're U.S.A.! The rules don't apply!" attitude is rudely acquainted with Economic Gravity 101. (But as long as they refuse to look down and see they've missed the bend in the road, I guess they're OK...)
I think it was H.L. Mencken who said, "nobody ever went broke underestimating the intelligence of the American public."
Let's hope the thieves at the top don't make gold illegal, or tax it at 75%, or declare us all economic terrorists for taking down the God blessed currency of the U.S. of A.
""nobody ever went broke underestimating the intelligence of the American public."
....or was it, overestimating the unintelligence of the American public.
Or: No one ever went broke overestimating the power of the marketing forces (nod to Edward Bernays) to program people to be stupid.
Operation Sock Puppet is in full action today.
Hello, Sock Puppets @ The Ministry of Interwebz Criticism of Dear Leader Refutation Office!
<waving my ballsack vigorously>
"Beware of gallop that leave horseshit in wake."
Neoconfucius
Do you suppose they'll allow me to continue to work at the university when I'm 89? Sounds like I may have to.
As an aside: Yes, Dan Dorfman is still alive.
Is this guy related to Kent Dorfman (Flounder)?
Fat, drunk and stupid is no way to go through life, son.
"Redo those buttons ! Dress that belt buckle ! Straighten that cap ! And goddamn it, tuck up those pajamas !"
So I guess he's driving us to the Food King...
Maybe Hugh is trying to convince TPTB that he has no gold?
why would Japan sell foreign assets if there are domestic yen liabilities? Just print the yen; that's what they do.
"Sounds great, but you can’t ignore the nearly 13 million unemployed, the 46 million people on food stamps and the roughly 29% of the country’s homeowners whose mortgages are under water."
Ignore it?? SURE YOU CAN!!!
Most American Sheeple will believe whatever the Magic Sqwauking Box they stare at in the living room every night tells them!
High gas prices? It's the fault of "EVIL SPECULATORS!" now. per Pelosi, not the Oil Whores In The White House!" like said in 2008!
Foodstamps?? That's just B.S. You don't see any food lines on the NBC Nightly News, do ya? No MSNBC Reporters reporting outside the gas station with the highest prices for miles around? No CBS stories about the homeless livingunder bridges?
Oh, and your kid's family living in your basement because he can't find a job? They don't actually EXIST, that's just FOX NEWS making things up again!
TV is for stupid people.
Every single one of Obama's speeches reiterates the same sentence:
IT'S EVERYONE'S FAULT BUT MINE!
What do you expect from a zambo?
Obama will go down like a dotcom i'm telling ya!!!
+1 Flyover
you know am really sad that only 30K or 40K people view ZH on daily basis where it should have at least 500K views per page... This tells me that there are so many idiots in this world!
We can not change our world unless we decide to change ourselves, it's very hard when you have people hooked on MSM induced stupor.
Trust me when the shit hit's the fan this website will become the New Bloomberg.. I trust the ZH's
When the shit hits the fan - this website will cease to exist.
When shit hit's the fan, you can come and browse the old archives
And so will the internet when they shut down the DNS servers like that "fix" for malicious software on or about 3-8-12.
Tyler: How about posting your TCP/IP addresse(s) so we can do an end-run around these government assholes?
ZeroHedge IP addresses:
http://188.126.66.66
http://188.126.66.68
http://178.209.48.14
Or, you could use 'nslookup www.zerohedge.com', if you're running Linux...
Trust no one.
That is to good to be true.
Hmmm....a Tyler terminal
You a tattoo artist?
Are you looking into getting a tattoo of the Bernank on your lower back?
Zero Hedge is an incredible website ... my #1 stop each day. However, for it to become a "go to" site for the masses it has to become more user friendly. First off, it's a financially technical website. Most zombies don't even understand interest rates let alone hdge funds, PIIGS, ETFs and the such. Iet personally took me about a year before I was able to understand what all you financial heads were talking about. I'm StILL learning almost every day something new. I love it! But ...
If Tyler wants this to be a Go-To site he should take a page from the Drudge Report or Business Insider and have easy to understand headlines with a "so what?" for each headline. Also, lots of pretty pictures work as well. :)
I'm pretty content with the site as it is. The level of analysis is at a high level and to "dumb it down" for the masses would mean removing a large part of what makes this site so insightful and thought provoking.
I guess you want the Tylers to improve their grammar as well?
Fuck that.
I think you need to keep your ignorance to yourself and get schooled up on these things.
No one wants to dumb-down this site. Its not for mass consumption. You can go to the Huffington Post if you'd like... Don't let the door hit you on the ass on your way out.
And if you like it, donate something.
If it's not the kids living in the basement.... WHO IS!?!?.?!?!?!
BASEMENT MONSTERS!!!!
CALL MYSTERY INCORPORATED!!!!
yabadabadooooooo.... Scooby Doo where are you!!!
Everyone I know that wants to work and IS WORTH HIRING is working.
If you or your "friends" are not I suggest you get off your ass and make something of yourself.
but a whole lotta people I know have jobs with half the required skill set they used to hold. If you used to do risk modeling and now you create MIS reports for 60% the money, yes, you're still employed. But no, you ain't exactly happy about it.
... and so, while the "US-economy-gone-haywire scenario" will be rife with unimaginable horrors, we believe that the "pre-haywire period" will be filled with unprecedented opportunities for profit...
"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way--in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only." - Charles Dickens, A Tale of Two Cities, Book 1, Chapter 1
Great quote.
Quote out of Kathimerini,
The United States, the biggest contributor to the IMF, welcomed the bailout deal, but said on Wednesday that Europe should do more to prevent any risk of contagion.
"We believe that the IMF should continue to play a constructive role in Europe, but IMF resources cannot be a substitute for a strong and credible firewall,» Lael Brainard, the U.S. Treasury Department's under secretary for international affairs, said before a Group of 20 meeting this weekend.
Hell lets bail everyone out, Its only ink and paper!!
You know, I think we should start calling bail-outs "bail-ins," as all they do are to suck the masses deeper into the hole.
It's not even ink and paper. It's a few keystrokes.
What's let's say JPM leverage? 1:4 now?
who cares that millions are underwater on their mortgages and food stamps from the big four bank perspectives. It is all peanuts. 80% marginally or even fully employed. they will continue their marginal spending. It's all about multinationals and dollar devaluation. and what sort of investors is he talking about? there are no investors, there are only big banks who take positions and the meager remaining trading community has to go along with them. the only real problems are the rising and soon to be skyrocketing energy costs, global debt, the european banks leverage and the US banks exposure to the Eu in general. is it around 17-20%? What is their leverage now?
If people themselves actually cared, they'd be on ZH or in their Senator's face screaming.
Most are watching the game....
Food stamps, TV, religion, dope and all is well!
While doing a bong hit I noticed your error:
Food stamps, TV, religion, pharmaceuticals and all is well!
Fixed it. No charge.
"could" go haywire? ... that's a bit optimistic ...
That's what I was thinking.
Remember the jobs numbers are all seasonally adjusted, but not weather adjusted. There is a reason things are seasonal, and much of it has to do with the weather. Since the weather has been mild this winter, the seasonal adjustments are over-adjusting.
There is a reason the central banks are flooding the system with liquidity, they know that this so-called improvement is illusory.
THE Plan: Infinite growth on a finite planet.
What could possibly go wrong?
The government jokers (BLS) are giving themselves a contingency plan for what happens in case Obama loses the election and is no longer around to boost their government salaries and government pensions.
It'll be halfway through Mitt Romney's term and the BLS will "revise" unemployment up by 5% and use it as an excuse to get another Socialist in office.
hundreds of thousand of govt jobs have been eliminated, and fed govt salaries have been frozen.
SO learn some facts and go back to flipping burgers and being jealous.
Typical statist disinformation. Sponging a living is welfare, not work.
Well... it's good "work," if ya can get it.
Besides, by the time I die, I expect everyone to be either a ward or "employee" of the state.
Roughly $6.3 trillion is spent by governments in the United States -- about 40% of GDP. The U.S. now has twice as many government workers as factory workers, a complete reversal of 1960 numbers.
We hide the fact that so many lives depend on government jobs by hiring out / privitisation. Many hook-and-line republicans think this was done to shrink goverment. Rather, it has the very appealing affect of hiding from prying eyes the exact numbers of people who are, for all intents and purposes, working for the government / employee dependents of govt largess. 40% of all dollars spent in the economy go for direct / hidden govt employees!
This is pretty much like what the Dems did in the 1960s to hide the massives costs of expanding social security, creating the Great Society: They moved the unfunded liabilities that would accrue off the balance sheet. (Imagine a business similarly pretending a $20 million 20-year baloon payment loan didn't exist on its balance sheet for years 1-19... CFOs go to jail for those lies, but if you're a Congressman who stands behind such fraud... You retire rich as %#$@.)
Our unfunded NPV liability for all these promises is something like $5 trillion annually (real deficit wise) and lump value, I've seen numbers ranging from $68 trillion to $110 trillion.... Good luck at taxing yourself out of that hole!
But as for government employees, many former welfare folks or formerly unemployed are currently employees of grant program beneficiary companies, shells that look private, but produce nothing anyone wants ( good only for their onwers, empployees- -- and politicians), all of which would vanish into the "nobody actually voluntarily buys what we're selling" heap.
Fed gov't salaries HAVE NOT been frozen. Obama just proposed a 2% accross the board incease. Stop lying.
So why do we need another debt limit increase?
ahahahahahahahahahaha...
AHahahahHAHAHAHAHAhHAhaahahahahaha...
*breaths*
AHAHAHAHAHAHAHAHAHAHAAHAHAHAHAAHAHAHAHAAHAHAHAHAHA...
you still think there is a difference between repulicrat and democin.
Mitt Romney not a socialist... AHAHAHAHAHAHAHAHAHAHAHAHAHAHAHHAAHAHA!
YOU get YOUR facts straight: Roney is not a socialist but a FASCIST.
He is the number one corporate-cronyism whore this country has ever seen, wraps himself in the flag daily, and he will not hesistate to destroy anyone that gets in his way.
The thought of that man in the Oval Office wielding the powers of the Patriot Act, secret arrest, secret military trials and hidden prisons and the ability assassinate ANY Amerian without one day in court or the targeted American not even having a single idea he is even under watch...THAT IS A TRUE HORROR STORY UNFOLDING IN OUR LIFE-TIMES.
If someone held a gun to my head and said either choose Romney for President or the Anti-Christ, I would have to say, 'Shoot me!'
Socialist = Fascist = Statist
Get over your "-ism" addiction.
Jim, I hate to burst your bubble, but that current guy...what's his name?.....oh yea Obama is already up there wielding the powers of the Patriot Act and assasinating American Citizens....or did you forget October 2011?
So spare me the warning and realize that Obama is Romney and Romney is Obama. There appears to be a choice but either one will do for the corporates.
http://www.outsidethebeltway.com/u-s-drone-strike-kills-16-year-old-amer...
The 'Merican Sheeple don't want a choice. They want Yankees/Red Sox. A choice would require them to turn off the TV and think.
To use Ron Paul's one-word synopsis: he's a "fake."
You mispelled the middle part there...you are missing an H.
"get another Socialist in office.".
I think you mean fascist. And regardless which party wins this fall, we will have, yet, another one in the oval office.
"Authoritarian" There, that covers it all! (statist folks on the Right toss "socialism" all over the place in order to hide their desire to control via authoritarianism; people on the Left toss "fascism" all over the place in order to hide their desire to control via authoritarianism.)
Most anarchists understand this, it's why their primary (and should be, ONLY) tenet is that there be NO centralized, coercive power. If people wish to form their own groups then that's their business, but others should not be force-ably coerced in to participating in anything that they don't wish to participate in.
Dan Dorfman, I remember his old CNBS gig when he moved stocks ala Jim Cramer
Wasnt that "Kent Dorfman?" Oh, no wait that was Flounder in Animal House...Oh, wait..it IS the same guy. Wow small world
Yeh, Dan was the perennial pessimist/bear/realist and Myron Kandel was the super optimist.
its really simple. More debt cant be the answer to the problem of too much debt.
Yet that is the only card we have left to play. Its over. Your sitting with a crappy hand, your bluffing to extend the game, but eventually you will be called, and you'll have to show em, and then you lose. ie.. we all lose.
The only hope is for something to interrupt the hand, before you are forced to throw down. Let's say, for the sake of providing an example, something like, maybe, World War III starting up.
Hope is the longing for a condition for over which you have no agency. (definition constructed by Derrick Jensen and an audience)
Our "agency" is that we can drop the cards and walk away, realizing that this is but a game, a game of death, and that we need to realize what life is really about (promoting/engaging in sustainable, responsible actions).
Just recieved 3 Finish gas masks for 11 bucks a peice from cheaper than dirt.com from the Fedex man. Are you getting ready??
for what? at its worse this depression etc will not be some madmax thunderdome shit. Hell look at what happened to Iraq. We collapsed the nation, destroyed their infrastructure and electric grid, put 100k soldiers in there and what happened there? Its wasnt thunderdome. It was a mess but life still went on.
You people need to get a grip.
I have a grip and my tone is calm and resonable. I just thought they were dirt cheap for 11 bucks why not? Have you seen the tear gas and petro bombs in the strrets of Greece? Do you really really think that can't ever happen here?? I think people that think that cant ever happen in the USA need to get a grip and wake up. I hope i never have to use them. They would be for trying to get out of or through an area where that sort of thing could be going on. Its possible, and you can't convince me otherwise. If you want to stay asleep than that is your choice, sleep I don't care. I don't believe it will be "mad max" here either. It's not "mad max" in Greece right now either. I don't think there is anything wrong with taking a few precautionary measures when thinking about the well being of my family. Believe me, I think that "hope for the best" is just as important as "prepare for the worst". I am hoping for the best but I am not seeing anything in the markets or what investment banks are doing, or what Governments are doing to persuade me to think that the crisis is over and were in a recovery or whatever other hopium is out there to make people go back to sleep. This HAS to end badly, and who knows how bad it will have to get. Do you know? Would you be willing to bet all your money on that?
Out of curiosity... are you in a major metropolitan area?
Not to mention that events like Fukushima can come out of nowhere. $11 is a really cheap insurance policy.
I don't know what Ivory Tower you're broadcasting from, but most folks here do have a grip.
What backs the USD? Faith. That's it. When the charade is over, then what?
The US is a lot different, and bigger, than Iraq, and the amount of the world that is based on USD, while slowly shrinking, is enormous. And what do they turn to when people realize a USD isn't worth a pre-82 penny?
Iraq's infrastructure and electrical grid is nothing compared to the fickle US grid and such. Christ, even now SoCal is blacked out on a hot day, Texas has to buy from Mexico, and nuclear reactors are shut down for "maintenance" because they're leaking. That'll get a lot better once utility workers realize they aren't getting paid in anything of worth, won't it?
Pull your head out of your ass, stop trolling, and take a good, hard look at the way things are shaking out. Sure, if you've got a 100,000 hectare ranch in South America, 10 years of supplies and a private army to defend it, you'll be fine. I prefer, as an Eagle Scout, to "Be Prepared"....
You need to get a grip. Did you conveniently forget the billions of dollars we spent and continue to spend there to rebuild their infrastructure? Who's going to do that for us, hmm???
Or the civilian dead.
That too, thanks. An occupying military force is worse than a Mad Max scenario in fact. At least in a Mad Max scenario your enemies are easily scattered and picked off one by one.
or the women told not to get pregnant, because DU has destroyed both male & female DNA. . . (includes military being sent back "home" too, DU takes no "sides" in this)
FEMA, baby. Tommy's Holiday Camp, the camp with a difference. Never mind the shackles.
You BEEN to Iraq. They blow up order of a hundred peeps a day that we hear about.
You BEEN to Iraq. They drive around between blast walls when they can drive.
You BEEN to Iraq.
Life went on under POL Pot - Stalin - Hitler but I don't think you need to celebrate that fact.
Not 1 in 1000 mericans would last a week in Iraq type conditions. Hell the video game and cell phone deprivations woud be too much for you dears to tolerate.