Posts Tagged 'recession'

Bear Market Rally or Dead Cat Bounce

Watching “The Kudlow Report” last night was almost surreal.  It seems that everyone has forgotten about the last 18 months of economic destruction that has taken place in the Country behind a one-day “bounce” in the stock market.  People are now talking that the bottom has been reached; we are on the way out of the recession; and these are not Govt officials or CNBC talking heads, but supposedly legitimate investment professionals who have many years of experience.


Let me give you four reasons why the stock market will continue its march to 5000 over the next 8 months:


1)      All the ARM and other adjustable mortgages have not yet went into default.  Experts estimate another $200B-$400B worth of mortgages are trending towards default and ultimately foreclosure.  This means the underlying problem – housing – has not been fixed so why the optimism?


2)      People still cannot get credit so the auto and real estate industry will continue the steady decline into the abyss.


3)      Over 600,000 jobs were lost LAST MONTH!  And the pace is increasing not decreasing.  If people are till losing their jobs then how can they contribute to the economy?  If people don’t contribute (i.e. spend) then how will the economy recover?  It won’t.


4)      Commercial defaults and bankruptcies are starting to rise.  Businesses with no “business” go bankrupt.  When they have no money to pay their employees or keep the lights on then they also have no money to repay their loans and credit lines.  Experts predict a possible $1 trillion in defaults from the commercial sector in the next 18 months.


My question to the investment “professionals” who failed to see the recession coming, does this sound like a recovery to you???


Where the Hell is Paul Krugman?

As much as I admire the President, it seems that he is not filling key positions with the right people for the job. Paul Krugman should have been Treasury Secretary because Tim Geithner sat as head of the New York Fed since 2003 and did nothing to prevent the crisis. Krugman might be an opinonated SOB, but that makes it more worthwhile to put him in the hot-seat and let him figure this out. Or forever shut him up.

Oh yeah, Krugman also won the Nobel in Economics and wrote the book on Depression Economics in 1999. (updated in 2008) So he must know something about the topic.

Besides it looks like ol’ Tim is up to Hank Paulson’s tricks again by helping his friends on Wall Street and backhanding the U.S. taxpayers.

GDP Accurately Reports Economy with a .3% Drop

With the U.S. economy shrinking at a rate not seen since 2001, most everyone has acknowledged that we are in for a long recession and it won’t be good.  Many on Wall Street predicted more a more drastic decline so the market rose during the day. I predict that they will get their wish when the report comes for the 4th Quarter of 2008. With numbers ranging from 1-5 percentage drop, my estimate is 4%. Keep in mind that the GDP rose 2.8% in the 2nd quarter so dropping to a negative number just one quarter later is significant.

If the GDP numbers were not bad enough, there is more bad news that we received in the Commerce Department report:

3.1% Decline in Consumer Spending (Biggest drop since 1980)

6.1% Unemployment Nationwide (trending to over 9% for 2009)

6.4% Decline in Spending on Clothing and Food (biggest drop since 1950)

It looks like we will have one hell of a hole to climb out of in 2009 and beyond. Don’t be discouraged at the prospect of overcoming this near impossible task. Americans have that, “Never Give Up” attitude and I expect a complete reversal of fortune in the 1st quarter of 2011.

This Recession Is Not All Bad for the U.S.

At least we will be able to move up on the Household Savings Rate for developed countries. Easy credit and cheap money has allowed the U.S. to fall in a false sense of security about the health of the global economy. The rapid rise then fall of the price of gas allowed Main Street to really get in touch with their frugal selves and force them to think more about their financial decisions. There are more benefits to living through an economy in recession:

Pollution Levels will Fall: Due to the high cost of gas and loss of discretionary income forcing people to stay home or carpool.

Family Time will Increase: Because parents will not have money to give to kids to go to the mall or gas up the family car.

Internet Adoption will Skyrocket: Due to people cutting back on phone and travel costs. Even the most technology illiterate person will venture into the unknown world of this newfangled contraption called e-mail.

Productivity On the Job will Rise: Due to the widespread layoffs and fear of “Will I be next,” growing amongst employees in every corner of America.

These are just a few of the “pluses” of living through a recession. Many will argue that the negatives outweigh the positives, but I look at the glass from a half-full perspective. Another aspect that people ignore is the feeling that the good times were never going to last forever. We all knew that the big bonuses could not be sustained but we cashed the checks anyway. We knew that our credit score was in the low 600s and our income could not justify the $5,000 a month mortgage note, but we sure out-Jones the Joneses. Sure that leased BMW 760iL was a little high at $1795 per month, but we could pay Paul later, right after we wrote this check to Peter. Vacation now; pay Visa next month. For those of you who can relate to any of this, shame on you, for those who cannot then you are in a better position than 80% of America so stop complaining and go back to work.