Six Signs Economy Is Turning the Corner 43 comments
Rick Newman
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The Great Economic Recovery Hunt has been underway for about half a year, and the quarry bag is still pretty empty. A few optimists have tried to wring hope from fuzzy statistics showing that retail sales or housing starts or some other indicator aren’t as bad as they could be. But with the unemployement rate at 9.5 percent and going higher, that’s been unconvincing.
A recovery that will actually feel like one is probably a year away, at best. But we may finally be seeing signs that some parts of the economy are turning the corner. Here are six:
Booming bank profits. Goldman Sachs (GS) earned a scorching $3.3 billion in the second quarter. JP Morgan Chase (JPM) earned $2.7 billion. Citigroup (C) and Bank of America (BAC) reported less impressive numbers, but each still turned a profit despite mounting losses on consumer loans. To be clear, the banks’ profits have been subsidized by the government’s TARP program and a bunch of other emergency measures meant to provide very cheap capital to the banks. And it’s obviously problematic that a few Wall Street banks are earning a fortune with taxpayer assistance. But the whole financial bailout was intended, first of all, to get the nation’s financial system back on its feet. One toe at a time, it’s happening. The real test is whether a healthier financial system will help the broader economy recover—or bankers just gorge on the profits, keeping loans as tight as ever.
CIT’s lonesome meltdown. Last fall, the feds were so panicky about the economy that just about any bank in a whiff of trouble got bailout funds. The CIT case suggests that the bailout spigot is finally closing. CIT Group is a nonbank lender that services a lot of small- and medium-sized businesses. It’s lost almost $3 billion over the last year and is at risk of declaring bankruptcy. So far, despite company pleas, the government has refused to toss a life preserver. If CIT goes belly-up, it could harm hundreds or thousands of businesses dependent on its loans. But unlike last fall, the government isn’t jumping in just to prevent borrowers and investors from worrying. We already have systems designed to deal with failing companies, like the bankruptcy process and FDIC takeovers. Letting those run their course might cause some pain, but it’s a sign that the system is once again working the way it’s supposed to.
The Federal Reserve’s reality check. The Fed has finally joined the mainstream in its outlook for job losses, after months of optimistic projections that seemed out of touch with the real economy. The latest Fed projections are for the unemployment rate to range from 9.8 percent to 10.1 percent for all of 2009, which means it will peak at some number higher than that over the next few months. The Fed’s prior forecast was about 0.6 points lower. It’s not good news that the Fed sees a worse job outlook than it did a few months ago. But the Fed’s rosy numbers were falling behind reality, making its projections seem more like government propaganda than the combined wisdom of the nation’s economic cognoscenti. More realistic numbers give the Fed’s outlook more credibility—and that is good news, especially since the Fed board members also predict that economic growth for the rest of the year will be a bit stronger than they believed a few months ago. It would be nice to believe that.
The glacial P-PIP rollout. Relax. You’re forgiven if you can’t remember—or never knew—what the government’s Public-Private Investment Partnership was supposed to do. This is the plan to subsidize the purchase of “toxic assets” (now lovingly known as “legacy assets”) from banks, to get the worst money-losing investments off their books so they’ll start lending money again. It’s a complicated program funded by—you guessed it—taxpayer money, with dubious prospects that the money will be returned. Anyway, the P-PIP isn’t officially dead, but it hasn’t kicked off yet either, and it’s a couple of months past the original estimated start date. It turns out most banks have been able to raise money on their own, which could eliminate the need for yet another government life-support program. If P-PIP fades away with little notice, few will complain.
500 failed banks. Don’t’ worry, they haven’t failed yet, but FDIC chief Sheila Bair may have told a group of senators that 500 additional banks could close before the financial meltdown is over. That’s according to Republican Sen. Jim Bunning of Kentucky. The FDIC typically doesn’t predict bank failures, and an FDIC spokesperson has been downplaying the number and saying Bunning got it wrong. But it’s plausible. Many more banks than that failed during the S&L bust of the ‘80s and ‘90s, and even 500 failures would constitute a small chunk of the 8,000 or so banks in the United States. Here’s the important thing: Last fall, a rumor like this would have sent the markets plunging. This time, the markets didn’t even notice.
Action at AIG. The disaster-prone Insurance giant recently sold a car-insurance division for nearly $2 billion, and it’s rumored to be close to selling its valuable American Life Insurance Co., or Alico, to MetLife, for $15 billion or more. This is great news for taxpayers who have lent AIG more than $80 billion so it can wind down its business without triggering a panic. The only way for taxpayers to recoup their money is for AIG to sell off its assets at the best possible price. Since last fall, the only bidders have been bargain-hunters hoping for fire-sale discounts. But a thaw in the credit markets has finally brought out serious deal-seekers. We could even see bidding wars for some AIG assets. Ah, the good ol’ days.
Disclosure: no positions
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This article has 43 comments:
The economy may be turning the corner for a select few but try going and telling that to the people who lost jobs last week or who found out during last weeks round of stellar earnings that more cuts are on the way. The job losses will eventually go down because at some point you reach the bottom of how low you can go in regards to staffing before you are forced to close your doors.
The majority of earnings that were positive last week, (excluding financials), were based on cutbacks of people and costs, not real top line recovery. The rally in tech will probably go down as the biggest mistake yet as we move forward unless of course the eating of computer chips and smart phones results in the defecation of currency.
The markets are way over valued at this point and I’ll start to drink from the fountain of economic recovery if things are looking better in December or January. The funny thing is that I hope we are recovering but I would be going against everything I know if I gave into that theory at this point.
Worse, I keep reading stories from the "experts" that this is the "new normal" and we won't see anything but an "L" shaped improvement which is really no improvement at all. It's only more of the same.
My old job of twenty years is gone and the plant permanently closed. My new work is "perma-temp" employment at a lower wage. Worse yet, the new lower wage took two hits this year already as, on each further sign of business weakness, purchasing sent out a blanket email advising their perma-temp crew to expect a smaller check the next week. That's happened twice this year ... so far ... and we were advised to go somewhere else if we didn't like it.
The retirees and government workers around here are the few who don't seem to be suffering economically. With declining tax revenues from people like me I don't see how they can expect even that to continue. I'll make 1/3 the income this year I made three years ago. With that shrinking income my tax contribution is also shrinking. With current federal/state tax collections falling off a similar cliff, it's clear I'm not alone in my new near destitution.
I'm glad the bankers have returned to record profitability and you see nothing but better things in their future. They've crippled the nation but they managed to ensure their own survival and comfort all the same and at "our" expense by raiding the US Treasury. I'd recommend they invest some of their new found wealth in building higher walls around their estates and adding extra security. "Let them eat cake" has been tried before and it never works out as you'd planned.
they are making money by being allowed to run over my back by a government whose interests is to serve them and not me.
It appears to me the GDP growth may come almost entirely from the trillion + of government borrowing. This amount represents a large percentage of total GDP. When stimulus ceases and if consumer demand is not strong around Christmas, the economy may stall again. At the moment back-to-school retail trends don't seem at all consistent with recovery. Consider Sears' "Christmas in July." It seems as though some retailers anticipate a bleak fall.
You must discount the banks "earnings". They depend upon how much to reserve for their endangered loans. If unemployment continues to rise even Jamie doesn't know! They must show profits to sell some more shares if things continue to deteriorate.
The title of this article should be changed to "SIX SIGNS THAT I GET PAID BY CNBC"!
Mr.Newman ... The day you mention US TREASURY DAILY STATEMENT or US WITHHOLDING TAX REVENUES in one of your article is the day I will take you seriously. Otherwise, get a real job!
"Don't worry, they haven't failed yet"...Maybe this should have been the title.
CIT's issues reflect much broader issues with weak consumer spending, distress in small business sector, and fragile retailer sector. Only when the smart money, after extensive due diligence, comes in and verifies that all the bad news has been priced in, and are willing to invest at this stage of the economic cycle, should retail investor feel safe to get back into the market with full force.
It is a new economic age in America. It will be many years before it ever turns a corner and many never rise to the country it once was, mostly because of poor monetary policy, debt load on consumers, manufacturing, budget deficit, national debt, unemployment with lack of high paying jobs, housing, net worth evaporated, baby boomers putting pressure on entitlement programs.
I dont know anyone can think we are turning a corner at a point where housing is stll dropping like a rock, manufacturing is all but gone and the consumer is broke with more taxes coming in some form or another.
AMSC and APWR are going to rocket given China enormous spending on Wind Power
Option: Increase efficiency by de-monopolizing government management of transportation and power generation infrastructure design. It is too hard for small business innovation to implement ideas with Congress as a filter. We need to tinker.
The Internet boom resulted when communications infrastructure was de-monopolized in 1984.
> banks horded the $$ given to them – again proving their 'heart'.
> self employed/small businesses who's income has dropped (in MANY cases dramatically) are NOT eligible for ANYTHING xcept a food stamps stipend.
> people can't find work
> banks aren't modifying enuf mortgages...
so any recovery will be prolonged & SLOW by pretty much the same people who caused it; but who are now benefiting again.
i truly thought Obama was smarter than this.
...."processes" can take just one quarter, or one year, or maybe a decade or more, and moreover I wouldn't just yet wish to bet my life on who and what exactly we are going to find around that proverbial corner....(it could well be a bunch of other thugs and thieves in different sheep's clothing)
....but "humour" aside...one thing that you mention that I would definitely discount...is those "booming bank profits" (particularly of those particular banks you mention)...that is, I wouldn't trust the accounting and either the "creation" of assets (bearing in mind that god created the earth and the heavens and the seas and etc. in just seven days) or the removal of liabilities or so called "write downs"...and "write offs" and etc. etc.
( & BTW I wish that I could simply "write down" (and also write off and completely forget about through some fancy juggling) any losses I ever might incur on my personal or household budget)....
But basically I wouldn't trust any of them any further than I could throw them....and they all still have some pretty huge buildings all over the place....not to mention of course also having "that special software" that was "stolen" from Goldman Sachs and other such
excellent skimming and money making "tools".....that I probably could never learn how to use....
No I would not buy a used car from any of those characters....
but you are probably right that there are at least some signs and mixed signals that things may be turning around....but when exactly, and how much so, and precisely for whom....we had better leave unanswered for the "time being"....(or even for the time not being)
This was in the early '70s onward. I distributed tapes to universities and did other things. Sometime in the late 70's or early 80's, I can't remember which, I went to GA Tech to give a 1 day class to some bright folks from DARPA who were looking into some technology solutions to make a distributd network that would be resistant to single and even multiple-point failures.
It was an easy class - those were extremely bright folks.
Long story short: in a couple years the network was in operation in the educational infrastructure, courtesy of DARPA and the universities and some additional government grants and free license to use the technology (UNIX and its underlying networking capability) from a monopoly telephone system.
Later on it was commercialized with the results we see today, both good and bad.
The "innovation" came from a monopoly industry that was permitted in order to satisfy strategic national goals since 193* - universal telephone service. They were permitteed a cost+9% (if I recall correctly) pofit annually.
The break-up of the Bell System was nothing more than the result of clamoring of new entrants that saw a profit opportunity. They promised lower cost, greater innovation, etc.
Well, the lower cost has now been proven an obvious lie. The innovation could have been provided by the Bell System, but that was suppressed to some degree by the constraints under which it operated (strategic goal and limited profit), Congress or any government entity could have encouraged the innovation by just changing the goals and accounting/profit under which the Bell System operated.
In spite of that, what you proclaim as the benefits of the new telecommunications environment was begun under the old regime. Internetworking, electronic switching, micro-electronics - all products of Bell Labs, Western Electric and AT&T. All before 1984.
Last note: wait until the next fire in a "central office" switch in underground New York as happened in 1978. See if you get your basic phone lines back in less than 3 days dealing with umpteen profit-oriented vendors.
During that "crises" we diverted No. 3/5 ESS switches in-transit and on production lines destined to other customers to New York. Programmers and anybody else in the Headquarters group that had installation experience and could be spared was TDY'd to New York to help in the rebuild process.
Our phne system was the envy of the world and our service and cost unparalleled. I seem to recall $6.96/mo included 1 handset, 1 line maintenance of all wiring, inside and out, and 1 phone number to call to get anything fixed or replaced.
Service was pretty good too.
Compare that to now.
HardToLove
On Jul 19 11:01 AM Bill James wrote:
> <snip>
> We need to tinker.
>
> The Internet boom resulted when communications infrastructure was
> de-monopolized in 1984.
Let me give you another hint. The trend for the markets and the economy is still down. This is but a monster sucker's rally within the broader meltdown but within 2-3 months the meltdown will resume. Elliott wave followers call this rally Primary 2 and they predicted it would happen in advance and then called the start of it nearly to the day. Folks like Prechter said it would be the biggest rally of the meltdown yet and that it would fool many sheeple into believing the meltdown was over. In reading your post I guess he was right again.
After Primary 2 ends will come Primary 3 - a massive collapse which will lead to lower lows. It will occur because the debt that has already gone bad and yet has been hidden on bank balance sheets will begin to stink so badly that no amount of kitty litter will cover it up. Once the stench becomes unmaskable then the truth will come out and it will crash the system. Again, the debt is already bad its just that accounting tricks have been allowed to cover it up and kick the can down the road. But you can't fool all the sheeple all the time and sheeple are beginning to awaken.
Just remember back to the crash of 29-32 and all the times that people thought it was bottoming and turning around. Each time they were wrong.
Welcome to the great depression of 2009.
The govt. is supposed to protect "depositors" not banks.
When I start hiring again I'll be hiring a lot less people with "degrees" and more people with "common sense."
Look at what "the smart people" with "degrees" have done to our financial systems and somehow they want society as a whole to think that they're still,... "smart."
Also, we have a separation of church and state in this country.
We need to have a separation of business and state as well, it's long overdue! Those on the "left" do have a point when they say that it's "capitalism for the people and govt. socialism for big business."
All the "lobbyists" on "K" street or anywhere else should be outlawed! They can sit down at their kitchen table and write a letter to their congressman or senators just like me or anyone else!
I can't remember the last time I played golf with my congressman or senators, can you?
And we need to get o-u-t of these *outsourcing* deals disguised as "free-trade" deals. Look at the disaster called "NAFTA!" It was and is a COLLOSAL mistake!
*Our government* exists to take care of The People, not to ensure the success of business.
Perhaps we need to educate all "the smart people" with "degrees" about exactly what it is that "Capitalism" means.
We need to get "big business" O-U-T of our government!
President Eisenhower was right!
Housing defaults got us into this, supposedly, and as far as I know, this has only gotten worse and with the unemployment numbers still growing, it will only continue to get worse. How long and when will the banks have to declare these losses to the market??
Credit card payment default is increasing at an alarming rate along with auto loan payments.
Commercial real estate and REIT's owning commercial real estate will not have access to trillions of dollars to refinance which is what everyone is talking about. Even if they can get private capital, they will dilute the existing share holders and drive down the value of their holding.
Retail sales are still declining and many retailers are shutting their doors - hurting the job market and commercial real estate.
The auto industry layoffs will be increasing the unemployment numbers for the next few months and who knows if GM and Chrysler will even be around in three years. Thanks for giving them my tax dollars!!
Unemployment has turned our consumer society into a black hole in space. There is no relief in sight!
The travel industry is taking a huge pounding and business travel is way down.
Fannie Mae and Freddie Mac are barely hanging on and with the onslaught of foreclosures coming down the pike, they will need another shot in the arm to survive.
AIG, GE, and other large institutuions will be suffering and probably need government aid to survive. There goes my money.
National healthcare will take away jobs, discressionary income for the wealthy and add a whole new level of government that we will have to pay for.
Cap and trade will make everything we use, buy, and have in our lives more expensive also. Just what we need at such a fragile financial time.
I could go on and on! I don't see where things are getting better. At least not on main street!
Actually, in regards to CIT, the news isn't even that good. What seems likely to happen is the few "valuable" pieces of their line of business will be acquired, and the rest flushed down/out through bankruptcy. JPM is said to be interested in acquiring their factor business ( the purchase of accounts receivable at a discount, a form of business financing typically found in the garment/apparel industry).
Any other fairly credit-worthy accounts will end up with one of the other lenders still around (BAC, C, etc.)....the others will end up going under.
On Jul 19 10:15 AM RiskReturnOptimizer wrote:
> Private equity or major bank (like JPM) buying up CIT will confirm
> that the worst is over ... if the smart money is not willing to bet
> on economy bottoming and valuation being cheap enough, I'm not sure
> retail investors should be overly confident.
>
> CIT's issues reflect much broader issues with weak consumer spending,
> distress in small business sector, and fragile retailer sector. Only
> when the smart money, after extensive due diligence, comes in and
> verifies that all the bad news has been priced in, and are willing
> to invest at this stage of the economic cycle, should retail investor
> feel safe to get back into the market with full force.
Though I've been pretty bearish for a while now, I hate to get stuck in my own point of view, so I try to find articles from the other side. If this is the best bull case out there, then we're in for far more trouble than I imagined.
Sometimes an article just doesn't manage to make the point you started out wanting to make and you're better off just scrapping it. This was one of those times.
1. Booming bank profits: Mostly as a result of investment banking and trading, and a good chunk of the underwriting took the form of capital raises by banks, REITs, and investment banks staving off insolvency.
2. CIT's Lonesome Meltdown: Surely this is some sort of joke. I don't know what to say to this.
3. The FED's Reality Check: This I suppose is positive, though it would be difficult for the FED to stick to it's earlier predictions given that the official unemployment rate is already 9.5% and we are halfway through the year.
4. The Glacial PPIP Rollout: We simply don't know if this is encouraging or not. Given the FASB rule changes, there is now a disincentive to trade some of the "troubled" assets. The holders have greater flexibility in valuation if there is little or no market. Time will tell.
5. 500 Failed Banks: I don't know what to make of this either. It would be odd to interpret this as a sign of coming prosperity, or even stability.
6. AIG Action: This bit is awesome. There is now a possibility that the taxpayer will not lose 100% of their investment in AIG. IMHO, this is the best of your six "reasons."
I think you can probably do better: Surging growth in China? Impending green energy boom? US equities up 7% in a single week? This would bring the total number of "reasons" to 9.
So with my BBA, I'm out of work, I can't afford to move, and there are no jobs. Soon, I'll be looking for that transition to welfare, or maybe I'll just look for a refrigerator box. Thank you, Mr. President.
I'm not reassured by these indicators as tax collections are in the toilet and letting CIT drop is an indicator that a fairy godmother is expected to rescue governments rather than jobs and middle-American businesses. Indicators cite din the article are mostly Wall St. monopoly games.
I don't see how this works if voters wake up other than at the point of a gun.
> RiskReturn,
>
> Actually, in regards to CIT, the news isn't even that good. What
> seems likely to happen is the few "valuable" pieces of their line
> of business will be acquired, and the rest flushed down/out through
> bankruptcy. JPM is said to be interested in acquiring their factor
> business ( the purchase of accounts receivable at a discount, a form
> of business financing typically found in the garment/apparel industry).
There's hope! www.claridenleu.com/re...
$3B in short-term financing arranged!
><snip>
HardToLove
Can I suggest a small change?
Perhaps, your comments, could simply have read -
It is a new economic age !
On Jul 19 10:58 AM conceptwizard wrote:
> Nice post. its nice to hear optimism.
>
> It is a new economic age in America. It will be many years before
> it ever turns a corner and many never rise to the country it once
> was, mostly because of poor monetary policy, debt load on consumers,
> manufacturing, budget deficit, national debt, unemployment with lack
> of high paying jobs, housing, net worth evaporated, baby boomers
> putting pressure on entitlement programs.
>
> I dont know anyone can think we are turning a corner at a point where
> housing is stll dropping like a rock, manufacturing is all but gone
> and the consumer is broke with more taxes coming in some form or
> another.
I think the secret, is no longer a secret!
On Jul 19 02:28 PM Did U Think The Ponzi Scheme Would Last? wrote:
> I'm going to let you in on a little secret. The global financial
> system is bankrupt. In addition, when you talk about taxpayers paying
> for this or that bail out you are badly mistaken since our government
> has no money and neither do taxpayers. No, the bailouts are not being
> paid for they are being financed with more debt. This debt absolutely
> ensures that the US is a debt slave going forward and thus cannot
> recover. This is a debt death spiral.
>
> Let me give you another hint. The trend for the markets and the economy
> is still down. This is but a monster sucker's rally within the broader
> meltdown but within 2-3 months the meltdown will resume. Elliott
> wave followers call this rally Primary 2 and they predicted it would
> happen in advance and then called the start of it nearly to the day.
> Folks like Prechter said it would be the biggest rally of the meltdown
> yet and that it would fool many sheeple into believing the meltdown
> was over. In reading your post I guess he was right again.
>
> After Primary 2 ends will come Primary 3 - a massive collapse which
> will lead to lower lows. It will occur because the debt that has
> already gone bad and yet has been hidden on bank balance sheets will
> begin to stink so badly that no amount of kitty litter will cover
> it up. Once the stench becomes unmaskable then the truth will come
> out and it will crash the system. Again, the debt is already bad
> its just that accounting tricks have been allowed to cover it up
> and kick the can down the road. But you can't fool all the sheeple
> all the time and sheeple are beginning to awaken.
>
> Just remember back to the crash of 29-32 and all the times that people
> thought it was bottoming and turning around. Each time they were
> wrong.
>
> Welcome to the great depression of 2009.
247wallst.com/2009/07/.../
HardToLove
On Jul 19 06:33 PM H. T. Love wrote:
> On Jul 19 02:46 PM Old Trader wrote:
On Jul 19 02:28 PM Did U Think The Ponzi Scheme Would Last? wrote:
> I'm going to let you in on a little secret. The global financial
> system is bankrupt. In addition, when you talk about taxpayers paying
> for this or that bail out you are badly mistaken since our government
> has no money and neither do taxpayers. No, the bailouts are not
> being paid for they are being financed with more debt. This debt
> absolutely ensures that the US is a debt slave going forward and
> thus cannot recover. This is a debt death spiral.
>
> Let me give you another hint. The trend for the markets and the
> economy is still down. This is but a monster sucker's rally within
> the broader meltdown but within 2-3 months the meltdown will resume.
> Elliott wave followers call this rally Primary 2 and they predicted
> it would happen in advance and then called the start of it nearly
> to the day. Folks like Prechter said it would be the biggest rally
> of the meltdown yet and that it would fool many sheeple into believing
> the meltdown was over. In reading your post I guess he was right
> again.
>
> After Primary 2 ends will come Primary 3 - a massive collapse which
> will lead to lower lows. It will occur because the debt that has
> already gone bad and yet has been hidden on bank balance sheets will
> begin to stink so badly that no amount of kitty litter will cover
> it up. Once the stench becomes unmaskable then the truth will come
> out and it will crash the system. Again, the debt is already bad
> its just that accounting tricks have been allowed to cover it up
> and kick the can down the road. But you can't fool all the sheeple
> all the time and sheeple are beginning to awaken.
>
> Just remember back to the crash of 29-32 and all the times that people
> thought it was bottoming and turning around. Each time they were
> wrong.
>
> Welcome to the great depression of 2009.
BUT, new American job creation is years off, perhaps a lost decade of job creation is being legislated in Congress, with a newly socialized energy and health industry, I anticipate years of high joblessness, perhaps a lost decade,
Are we waiting for 2020 to get new American jobs?
Well I would take the 3 million that Obama promised in his campaign??
where are they, ghost jobs??
Love your comments, except this one.
I have been saying for over three years, the last depression was just a warm up.
Welcome to the True Great Depression.
and the end of a once great empire.
On Jul 19 02:28 PM Did U Think The Ponzi Scheme Would Last? wrote:
> Welcome to the great depression of 2009.
On Jul 19 05:28 PM whisperonthewind wrote:
> So with my BBA, I'm out of work, I can't afford to move, and there
> are no jobs. Soon, I'll be looking for that transition to welfare,
> or maybe I'll just look for a refrigerator box. Thank you, Mr. President.
I don't know much about this huge mess, but I'm sure there are more than 6 signs that we are nowhere near the bottom yet.
So it will take a long time to get around it.
I expect unemployment to rise to about 15% before it starts to come down, consumer spending will remain sluggish for another year, and a few thousand additional businesses will close.