It's July 2009: Where's That Promised Recovery?

Welcome to the second half of 2009, the time when optimists say the global economic recovery will start. It is July 1st, so where is this fabled recovery?

Recent US economic data is not encouraging: the 6.9 per cent savings rate and a slump in the June consumer confidence indicator. House prices may have moderated their rate of fall, but they are still falling.

China crisis

Over in China exports are down 26 per cent amid massive forced bank lending that has prevented the economy from taking a real dive. But a lot of that money has been spent on stock piling commodities, forcing up prices and hitting recovery prospects elsewhere.

Germany is facing its worst contraction in GDP since the Second World War and it is worse in Japan, still the world’s second largest economy. The UK economy shrank by the most in 50 years according to figures for the first quarter that have been revised downwards.

Only in financial markets are there any green shoots of recovery. This is where the government bank bailouts and stimulus packages have been most felt. Indeed, they have prevented a catastrophic meltdown of financial markets.

However, that is not the same as an economic recovery. And just where is the global economic recovery in the second half of 2009 that optimistic pundits have been predicting? Do we need to put it back to the fourth quarter, or early 2010, or perhaps 2011 or 2012?

For let us take a sober business view for a moment. The world economy has clearly taken a massive downturn.

‘We are almost two years into a financial and economic crisis that is far from over,’ said the chairman of HSBC Stephen Green yesterday. ‘We cannot even say that we are past the worst.’

Financial market correction

That is an eminently sensible conclusion. Financial markets look well overdue for a strong correction to reflect a far less rosy reality, and business will continue to be tough going forward.

A further shake-out of global stock markets looks inevitable because markets have priced in a recovery that shows no sign of appearing anytime soon. The risk of deflation is only too apparent with eurozone prices falling 0.1 per cent in June, and further falls in asset prices can only deepen this trend at least in the short term.

Comments

[W.E. Heasley:]

Peter:

The recovery is based on "hope and change" not sound economic policy. Hence you can only "hope they change economic policy".

Jul 01 08:26 AM

[Dave Wrixon:]

The World economy has experienced an Earthquake but that is passing and most areas are actually starting to recover. It is, however, becoming clear the epi-centre is California, which is about to be declared a disaster zone along with much of the rest of the US.
The delinkage that people laughed about earlier is just starting to emerge.

Jul 01 08:48 AM

[Ferdinand E...:]

I've decided to wait another 6 months before expressing any doubt or disappointment. Until then I'm not interested in negative judgements.

Jul 01 09:18 AM

[markfl:]

Recovery is less a question of less/no than what. As a WSJ guest blog post below explains, from 2000-2007 household debt grew at about 1 trillion per year. 1 trillion is 7% of total 2007 US GDP. That 7% dwarfed the actual year-on-year growth in the total economy.

"The painful process of household de-leveraging follows a historically unprecedented rise in household debt. From 2000 to 2007, household debt doubled from $7 trillion to $14 trillion, with debt related to housing responsible for 80% of the increase. By 2007, the household debt to GDP ratio reached its highest level since 1929.

Are these patterns linked with the dramatic rise and collapse of the housing market? In the June 22nd entry for Real Time Economics, Calomiris, Longhofer, and Miles argue that the link is weak. They conclude 'that the reaction of consumption to housing wealth changes is probably very small.'

Findings in our research suggest the exact opposite: the rise in house prices from 2002 to 2006 was a main driver of economic growth during this time period, and the subsequent collapse of house prices is likely a main contributor to the historic consumption decline over the past year."

blogs.wsj.com/economic.../

Jul 01 09:47 AM

[shootpar2001:]

That's fine for you........
But the pols in charge have been saying 'things are better'.
Many are running out of benefits....where is my 'CHANGE'.



On Jul 01 09:18 AM Ferdinand E. Banks wrote:

> I've decided to wait another 6 months before expressing any doubt
> or disappointment. Until then I'm not interested in negative judgements.

Jul 01 11:07 AM

[Mad Hedge F...:]

End of the year says Janet Yellen. I spent the evening with Dr. Janet Yellen, the president of the Federal Reserve Bank of San Francisco. She thinks that thanks to the government’s tax cuts and spending programs, we will be out of the recession by the end of this year. After massive inventory liquidation, the auto industry in particular is poised for a rebound. Financial markets are now in better condition than we imagined possible six months ago. However, the pace of the recovery will be frustratingly slow, and it could take several years to return to full employment. Since the majority of the Fed board members feel that inflation will be stuck at 2% for years to come, deflation presents a greater risk than inflation. We are not by any means out of the woods yet. Rising energy prices and interest rates are a potential drag on the economy. Commercial real estate is at the top of her worry list, as falling rents and capital values could create a downward spiral, further impairing the banks. China’s wishes for an alternate reserve currency are impractical. Answering questions as only a UC Berkeley professor can, she further confirmed my belief that we are looking at an “L” shaped recovery at best. However, she did pour some cold water on my idea that the TBT has further to run. “Inflation running up to untoward levels doesn’t make any sense,” she averred.

Jul 01 11:41 AM

[Ryu Mei Co:]

we have the "green shoot" recovery! oh shucks, it is a "brown shoot"!

Jul 01 11:55 AM

[User 357705:]

Dennis Kneale said its here!

Jul 01 12:00 PM

[ain't no fo...:]

The "less bad" = GREAT! philosophy still permeates the markets, and the government continues to interfere and manipulate with direct investments in the SPX and NYSE through massive buy program activities initiated by its proxies GS and JPM, the hatchet men who performed Paulson's dirty work on Bear, Lehman, AIG, Merrill, etal. last year.

There is talk that the quant funds are facing huge losses and the types of problems they (and WE) experienced in the summer of 2007 may be just around the corner - remember those heady days of August? Whatever the reason, volume has disappeared, and it disappeared long before the excuse "but of course, its summer!" was first uttered by the sugarplum fairy crowd.

Maybe what they meant was "but of course, its Summers!"

With no volume there has been no liquidity, price discovery suffers badly, spreads on equities, indices and etf's widen, and now "transparency" becomes a mockery as a result of actions being taken this month by the NYSE to disguise the origin and size of the program trading stats are meant to restrict said transparency.

So I can give MY opinion about yesterday's consumer confidence numbers, the slightly less horrible housing numbers, the Option Arm and Alt-A resets/recasts still to come, the manipulation of the birth/death model on the employment report that will slap lipstick on the pig tomorrow, the need to look at U-6 rather than U-3, today's mortgage originations numbers, C's increase of credit card rates for 15 million American's just prior to the new rules taking affect, today's slightly less than horrible ADP numbers, pending home sales, and ISM numbers, an unemployment rate that will blow the highly manipulated "most adverse" stress test scenario right out of the water this year, and about a hundred other lines of bullshit that are being pumped by the media, lobbyists and trade groups, the pundits, the brokerage community and our government, but why the Hell bother to waste my goddamn breath?

Hell, I could even mourn the ongoing rape, pillage and destruction of the American middle class over this past decade or so, but would that freaking surprise anyone, or matter one iota at this point?

The fact of the matter is, until our President calls off the dogs in Treasury, the FED, and his own inner circle of economic advisors, this pablum is just gonna keep getting perpetuated and the markets are just gonna continue doing their tantalizing little dance with death.

Until we the People get our markets back, nothings goonna change.

Please Mr. Obama, give us back our markets!

Jul 01 12:19 PM

[User 353732:]

1. For WashDc, Wall St, Hollywood and the MSM its a recovery but then, for our political, financial and cultural bosses, its always a recovery. For the top 1% the good times never stop.
2. For the bottom 25% of Americans, its a depression, interrupted by episodes of transient handouts that create dependece, envy and resentment but build no competitive skills or human capital that can be used to escape from the welfare plantation( the top 1% want it that way)
3. For the rest there is the continued prospect of declining disposable income, compressing net worth and unhappy employment prospects;
one way for the rest to secure a recovery is to start their own small business if they have the personality and financial capacity to do so. I sspect only a small fraction have this option available and even fewer are willing to exercise it.

Jul 01 12:25 PM

[thiazole:]

You are probably right. Hindsight is 20/20 - current sight is very bad. Judging by the number of people (including economists) who were denying that we were even in a recession until late last year, people are pretty bad at gauging the current economic climate. Heck, just look back to the last recession. The height of pessimism was in late 2001, yet that was also the official end of the recession. I remember when the NBER announced the last recession was over (what were they, a year late?), many people said they were just lying to con the masses into believing things were getting better (sounds like today's sentiment, now that I think of it).


On Jul 01 09:18 AM Ferdinand E. Banks wrote:

> I've decided to wait another 6 months before expressing any doubt
> or disappointment. Until then I'm not interested in negative judgements.

Jul 01 01:00 PM

[thiazole:]

Here is a good article which proves the point I made above. This article was from Jan 2002 - 2 months AFTER that recession ended. Of course, the author didn't know the recession had ended and he makes some pretty good sounding arguments that not only was the recession in full force but that it would continue for quite a while longer (using a lot of the same arguments bears make today).

www.time.com/time/busi...

Jul 01 01:27 PM

[thiazole:]

Oh yeah, and I love this quote from that article:

"Long-term interest rates, of course, are otherwise known as mortgage rates — the ones that keep consumers buying homes, refinancing mortgages and generally feeling flush. They have an annoying tendency to act independently of Greenspan's wishes. And expensive money for borrowing consumers — and borrowing corporations — are nobody's idea of economic rocket fuel."

Where have I heard that recently?

Jul 01 01:30 PM

[Fred Voetsch:]

I can remember back to early 2008 when everyone started that "it will all be over in 6 months" talk. We were told that the economy would not recover until housing bottomed (in six months) and yet here we are a year and a half after this all started and we continue to tell ourselves lies.

The smartest people I know of all seem to independently come to the conclusion that we are in for a long, slow period that may last for a few years to a decade or more, in which all classes of assets will be revalued.

Given the data, it is almost certain that the stock market will correct further, either by falling prices or by time passing, as it achieves a valuation more in line with historical bear market periods.

Jul 01 01:49 PM

[WS1835:]

Politicians don't get elected with straight talk. Almost laughed myself silly when McCain adopted that as a campaign slogan. No voter in today's American wants to hear the truth. That is the kind of talk you get from your parents when you are a teenager. All about delayed gratification, responsibility, looking to the future, etc. Nope, none of that. Voters want to be told that everything is stable and under control. That they can get something for nothing and a free lunch is about to be served. It never matters if the story is a lie or not. That is what they want to hear, and whoever says it the most gets elected. Hence, democracies have a habit of occasionally imploding in spectacular fashion.

Any fool can look at the data regarding debt accumulation and leveraging over the last two decades, and know there is no pain-free way out of the woods. Period. Our economy is a slow motion train wreck that will take years to unravel with huge losses along the way. Most of the Western world is in a similar situation.

The current crop of politicians all know the facts, but that really isn't the point. They got elected and they are going to make hay while the sun shines. The longer they can convince the public that it ain't raining, the more hay they can harvest for their cronies. One can only wonder how long the poor taxpayer will stand there getting wet.....

Jul 01 02:23 PM

[Robert Jung:]

Is it an L shaped recovery or the start of the next recession, Depression, or decession, what ever you want to call it? I am looking to the 30's and 70's for insight. I know history doesn't repeat, but it sure does rhyme. I'd appreciate your thoughts.


On Jul 01 11:41 AM Mad Hedge Fund Trader wrote:

> End of the year says Janet Yellen. I spent the evening with Dr. Janet
> Yellen, the president of the Federal Reserve Bank of San Francisco.
> She thinks that thanks to the government’s tax cuts and spending
> programs, we will be out of the recession by the end of this year.
> After massive inventory liquidation, the auto industry in particular
> is poised for a rebound. Financial markets are now in better condition
> than we imagined possible six months ago. However, the pace of the
> recovery will be frustratingly slow, and it could take several years
> to return to full employment. Since the majority of the Fed board
> members feel that inflation will be stuck at 2% for years to come,
> deflation presents a greater risk than inflation. We are not by any
> means out of the woods yet. Rising energy prices and interest rates
> are a potential drag on the economy. Commercial real estate is at
> the top of her worry list, as falling rents and capital values could
> create a downward spiral, further impairing the banks. China’s wishes
> for an alternate reserve currency are impractical. Answering questions
> as only a UC Berkeley professor can, she further confirmed my belief
> that we are looking at an “L” shaped recovery at best. However, she
> did pour some cold water on my idea that the TBT has further to run.
> “Inflation running up to untoward levels doesn’t make any sense,”
> she averred.

Jul 01 02:42 PM

[Mark123:]

More importantly.... Who paid for the dinner???


On Jul 01 11:41 AM Mad Hedge Fund Trader wrote:

> End of the year says Janet Yellen. I spent the evening with Dr. Janet
> Yellen, the president of the Federal Reserve Bank of San Francisco.
> She thinks that thanks to the government’s tax cuts and spending
> programs, we will be out of the recession by the end of this year.
> After massive inventory liquidation, the auto industry in particular
> is poised for a rebound. Financial markets are now in better condition
> than we imagined possible six months ago. However, the pace of the
> recovery will be frustratingly slow, and it could take several years
> to return to full employment. Since the majority of the Fed board
> members feel that inflation will be stuck at 2% for years to come,
> deflation presents a greater risk than inflation. We are not by any
> means out of the woods yet. Rising energy prices and interest rates
> are a potential drag on the economy. Commercial real estate is at
> the top of her worry list, as falling rents and capital values could
> create a downward spiral, further impairing the banks. China’s wishes
> for an alternate reserve currency are impractical. Answering questions
> as only a UC Berkeley professor can, she further confirmed my belief
> that we are looking at an “L” shaped recovery at best. However, she
> did pour some cold water on my idea that the TBT has further to run.
> “Inflation running up to untoward levels doesn’t make any sense,”
> she averred.

Jul 01 04:13 PM

[one eye:]

The Promised Recovery is In Asia, the US Markets are still hoping demand from there will spread here like they did in 2003.

Obama Promised that "things would get worse before they got better". He Never said "when" they would get better.

Meanwhile, Speaking of Promises: Where is Your Promised "Gold to $1,000 and beyond", "This week", of a couple of Months ago.

I would think This month is appropriate. But that would be a Guess on my part.

What part of the July 1st being the first day of the "2nd half of 2009" Eludes you?

Jul 02 05:08 AM

[John Galt:]

Obama also promised to "save or create 4.5 million jobs". He also said that we were in a recession " we may never recover from" if we didn't pass his stimulus bill. He also said that Price to profit ratios looked pretty good... whatever they are... most investers use price/EARNINGS ratios.

Don't just think of a recovery in terms of GDP. Think of it in terms of TIME. It is going to take a lot of TIME to get a meaningful recovery.

Jul 02 02:09 PM

[one eye:]

$: We may get positive GDP numbers later this year, especially since the 4th quarter wiil be compared to a 6% decline in Q4 2008 but the "Meaningful" aspect might not be seen until late 2010 at best.

But the Economy has little to do with Stock prices while stock prices have everything to do with expectations down the Road. The Real stimulus package starts in 2010, will there be an Interim Package?

Expectations can be jacked up by Economists and analysts alike. These will affect stocks not the economy.

Jul 02 10:33 PM

[KJP712:]

A better question would be,It's July 2009,Where is my Stimulus Check?

Jul 03 11:30 AM

[harammph:]

KJ: Its in the Mail.

Jul 04 04:12 AM

[Peter Cooper:]

This article failed to even mention the huge problems with state budgets and how their spending cuts will undermine the action at the federal level. California is about to give a splendid example of this squeeze on state employees and public services this week, see:
arabianmoney.net/2009/.../
As for Janet Yellen, well she would say that would n't she?

Could anybody tell me where the recovery is coming from by the end of the year? Hitting the bottom and staying there is not really the same thing.

Jul 06 01:49 AM