No Signs of Economic Recovery in Sight

Here is just a sampling of signs that the economic recovery is nowhere is sight:

California is issuing IOUs for billions of dollars of current obligations. State workers to be furloughed three days per month.

Unemployment rate hits 9.5%, with 467,000 jobs shed. Job losses accelerating from previous month with estimates for unemployment to exceed 10% up to 11%.

Automobile sales are still suffering despite massive incentives. Consequently, gross margins are being compressed. Sales without profits is not a recipe for long-term survival. Lear (LEA) and other suppliers to file for bankruptcy relief as sales slow and margins disappear.

Once the current buyers of vehicles have bought at heavily discounted prices, sales will continue downward cycle as all who could afford and wanted to buy will have already done so.

People who are unemployed or who fear job loss are not going to buy cars or fund an economic recovery. This is a nonsensical fallacy.

The recent stock market rally is not based on improving fundamentals. It is based more on the herd mentality of Wall Street. The investment laggards must buy into the fool's rally to supposedly avoid falling further being competitors.

Unfortunately for them, their clients are not going to participate in the recent rally; instead, they will suffer further losses as the market retreats.

The FDIC has already shut down more banks this year than last year in its entirety by a factor of two.

Home prices are still declining. The only increase in home sales relates to foreclosured properties or those in the midst of foreclosure.

Consumer credit is constricting at a rapid pace and banks reduce credit risk and the cost of that reduced credit is ballooning. Hardly the condition for a return to prior consumer buying habits.

The U.S. dollar is being continually devalued due to outrageous defecit spending. The value of the dollar versus other currencies will continue to decline if the profligate spending continues. It may already be too late to stave of a tidal wave of inflation once the world economic recovery returns in full force, two, three or more years from now. Don't expect an economic recovery until unemployment begins to decline for a substantial period of time and consumer credit eases.

China has already indicated its intention to rely less on the dollar as the sole global reserve currency. As that movement expands, borrowing costs for the U.S. will continue to rise.

The American taxpayers is being stressed to the max even before the cost of a new health care system and of environmental "cap" and "trade" are factored in.

Similar to California, state governments throughout the country are on the brink of collapse due to the failure to align actual current revenues with prior outdated prognostications of revenue. State legislators lack the political backbone to curtail spending even in the face of economic catastrophe AND just as every individual household must do when sources of income decline.

There are no "green shoots" of any lasting consequence. Whatever "green shoots" supposedly existed were manufactured by government manipulation of our capitalist system.

When the government no longer respects contracts or the rule of law that has governed business relationship from time immemorial (with few exceptions) in favor of general notions of the public good or socialist tendencies, we are not fomenting the conditions for economic recovery but just the opposite as entrepreneurs and businesses can not rely on the sanctity of their negotiated arrangements.

Disclosure: LEA, no position

Comments

[conceptwizard:]

Yep...does not sound good does it. Nice article. I concurr with the general overview. So where do we go from here? Who is going to lead us out of this mess, not further in? Throwing money at all the wrong places did not work. More of the same will not work. No new ideas are forthcoming. We are content at this stage to wait and see. We have throw trillions at "to big to fails" financials and dinosaur car manufacturers. Well that was a great plan. The only way out of this mess is to creat jobs by feeding trillions to taxpayers directly and small businesses. But now that we already did that the wrong way we cant afford to do it the right way, wthout putiing the dollar in the bottom of the ocean. Instead we are controlled by debt.

Jul 05 04:03 AM

[Kalpa:]

Good synopsis. Also, good comment, above by conceptwizard. I will use this piece on my blog tomorrow! You never used the word deflation, but I think that's fairly obvious. I disagree that things will turn around and be inflationary in 2-3 years. Where would that come from? Bill Gross just said it will take at least "a generation" of a "new normal" in this month's newsletter.

Jul 05 01:22 PM

[Grizzly-Red...:]

Great summation of the current state of affairs. Pretty much sums up everything I've been thinking the past couple of months. If we, the average investors can see this, why can't the Government see it? This won't be solved until we quit bailouts, quit deficit spending, quit adding new taxes in a time of Depression (cap-n-tax, health care). And that won't happen until we get a Government that is truly fiscally responsible and makes the hard, not popular choices. Well I guess it won't happen. Those inverse Bear ETFs are looking pretty good.

Jul 06 12:23 AM

[Michael J. ...:]

Thanks for the comment. Logic tells me that SKF and SRS should be good buys, but they have not responded well to all the negative financial/housing news. Then again, I think second quarter earnings are going to be questionable and gross margins will be down. So, a change in sentiment could occur at any moment if the government just stays out of the way and let the market correct itself.


On Jul 06 12:23 AM Grizzly-Redneck wrote:

> Great summation of the current state of affairs. Pretty much sums
> up everything I've been thinking the past couple of months. If we,
> the average investors can see this, why can't the Government see
> it? This won't be solved until we quit bailouts, quit deficit spending,
> quit adding new taxes in a time of Depression (cap-n-tax, health
> care). And that won't happen until we get a Government that is truly
> fiscally responsible and makes the hard, not popular choices. Well
> I guess it won't happen. Those inverse Bear ETFs are looking pretty
> good.

Jul 06 04:54 AM