Top 12 Indicators That the Economy Is Still Bad

On a serious note, Eddie Bauer (Nasdaq:EBHI) has filed for Chapter 11 on Wednesday. The company is known for outdoor-like clothing. It is said that CCMP Capital Advisors LLC has bid $202 million in cash for its assets.

Other buyers may also make bids while the company is under court protection. Bankruptcy rumors had been swirling as Bellevue, Washington based Eddie Bauer struggled with slumping sales amid the recession. This is probably still the beginning of the end for many specialty retailers and "non-necessity" purveyors.

Consumer prices meanwhile rose less than expected in May and posted the steepest annual drop in 59 years, according to government data also released Wednesday, fresh evidence that the recession is keeping inflation in check.

The bad news here is that deflationary-forces are still prevalent, and if prices are not rising that's a sure sign that demand is waning.

Low prices will make it easier for the Federal Reserve at its meeting next week to keep a key short-term interest rate near zero, where it has been since December.

Bond yields ticked up earlier this month on concerns that signs of an improving economy would force the Fed to raise rates later this year. But most economists consider a rate increase unlikely until next year.

Another sign that the economy is still bad is that people like me are buying so-called "recession-resistant" investments like B&G Foods (NYSE:BGS) . I targed their "Enhanced Income Securities" (EIS) which trade under the symbol BFG.

Each EIS consists of one share of common stock plus $7.15 of 12% senior subordinated notes due 2016. Thus each quarter, when a dividend is paid (currently 17 cents) an EIS holder receives a 17 cent dividend PLUS $0.2145 in interest for a total quarterly payout of $0.3845.

I'm told that approximately half of B&G's shares trade as common stock, while the remainder are part of the EIS. So in a potentially deflationary economy, where there's high unemployment, companies that sell "comfort food" like maple syrup and affordable foods like Cream of Wheat and Los Palmas Mexican foods most likely will do okay. Meanwhile we are comforted by the nice dividend.

I'm also holding more "defensive" positions like VZ, T, Novarits (NYSE:NVS) and Varian Medical (NYSE:VAR). This isn't like me except when I sense there are "more shoes to drop and more cockroaches in the walls" of our economy.

And now for the humorous side of my article. Yes, even in a bad economy we have to laugh and keep our sense of humor. So here are the "Top 12 Indicators that the Economy is Still Bad":

12: CEOs are now playing miniature golf.

11: I got a pre-declined credit card in the mail.

10: I went to buy a toaster oven and they gave me a bank.

9: Hotwheels and Matchbox car companies are now trading higher than GM in the stock market.

8: Obama met with small businesses -- GE, Pfizer (PFE), Chrysler, Citigroup (C) and GM (GMGMQ.PK), to discuss the Stimulus Package.

7: McDonalds (MCD) is selling the 1/4 ouncer.

6: People in Beverly Hills fired their nannies and are learning their children's names.

5: The most highly-paid job is now jury duty.

4: People in Africa are donating money to Americans. Mothers in Ethiopia are telling their kids, "finish your plate; do you know how many kids are starving in America ?"

3. Motel Six won't leave the lights on.

2. The Mafia is laying off judges.

And the most favorite indicator of all…

1. If the bank returns your check marked as "insufficient funds," you have to call them and ask if they meant you or them.

Disclosure: Of the stocks I've mentioned in this article, BFG, VZ, T, NVS,VAR are the only ones I'm currently long in.

Comments

[Peter Cooper:]

If you want the Macro picture of global output and trade have a look at these charts which overlay the position today onto the 1930s:
arabianmoney.net/2009/.../
The deficits are bigger than in the 30s and the decline in trade is steeper - watch out below!

Jun 18 06:53 AM

[carsons7:]

Marc Courtney might be misleading investors by recommending BGS (B&G Foods), as it pays a $.68 dividend, and will only earn $.62 in 2009 and $.69 in 2010. When all the earnings of a company goes to pay the dividend, the results are usually a house of pain for the shareholders.

Jun 18 08:25 AM

[buoy:]

I like the "Hotwheels" comparison. :)

Jun 18 09:12 AM

[sunnsea:]

Because the bubble was even greater than in 1929, then the collapse will be worse and the response has to be more drastic. Basically, you can't worry about your carpets getting wet if the house is burning down and the firemen are trying to put out the fire..


On Jun 18 06:53 AM Peter Cooper wrote:

> If you want the Macro picture of global output and trade have a look
> at these charts which overlay the position today onto the 1930s:
>
> arabianmoney.net/2009/.../
>
> The deficits are bigger than in the 30s and the decline in trade
> is steeper - watch out below!

Jun 18 10:33 AM

[Donald Ingram:]

Most everyone compares the present to the 'Crash of 29' and the Great Depression, which is perfectly acceptable since this is the only occurrence in history that is similar to today.
However to say "its the same as" is to ignore the facts of the day in the different eras. Case in point during the 'Dirty Thirties' there were 180 million less Americans! It was a production society, not a consumption society. The U.S. was a creditor nation, not a debtor nation. Self reliance was prevalent instead of relying on the 'Nanny' state. Community was much more close knit instead of being fractured and compartmentalized as the present.
The only REAL commonality is the fact that the two events share the same dividend - suffering amongst the people.

Jun 18 10:55 AM

[Larry House:]

Thanks for an interesting read, Marc. That is more than I can say for many posts.

Jun 18 11:22 AM

[TinyTim:]

LOL

Jun 18 02:57 PM

[stwo1:]

Love #8 :)

Jun 18 04:38 PM

[Marc Courtenay:]

Thank you Larry, and I appreciate all the feedback and interesting comments an article like this generates. Your comments are read by the authors and we learn a great deal from them.


On Jun 18 11:22 AM Larry House wrote:

> Thanks for an interesting read, Marc. That is more than I can say
> for many posts.

Jun 18 08:12 PM

[Graham and ...:]

Dear Donald:
All your differences are in favor of the original 1930s. That's why the modern 1930s figure to be worse.


On Jun 18 10:55 AM Donald Ingram wrote:

> Most everyone compares the present to the 'Crash of 29' and the Great
> Depression, which is perfectly acceptable since this is the only
> occurrence in history that is similar to today.
> However to say "its the same as" is to ignore the facts of the day
> in the different eras. Case in point during the 'Dirty Thirties'
> there were 180 million less Americans! It was a production society,
> not a consumption society. The U.S. was a creditor nation, not a
> debtor nation. Self reliance was prevalent instead of relying on
> the 'Nanny' state. Community was much more close knit instead of
> being fractured and compartmentalized as the present.
> The only REAL commonality is the fact that the two events share the
> same dividend - suffering amongst the people.

Jun 19 08:49 AM

[maryanne:]

BGF is good to have, also OTT, the only other US-traded EIS (Rest are all in Canada) Great piece on humor, we really need it during those trying times

Jun 19 06:09 PM