The Potemkin Village Called Recovery

Do you think this spike in US economic activity in Q3 2009 is the beginning of the next up leg?

Better think twice.

Not one of the major problems like exploding deficits, unemployment, quirky wars that are now questioned by the US's own top Asia specialists in a Washington Post interview, a collapsing dollar because the Fed feeds the banks money to keep the major indices at levels that have nothing more to do with fundamental reality, has been solved.

Western "powers" keep doing what they are used to do: Let's counter a problem with fresh debt.

A look at Thursday's advance estimates for US GDP growth makes me scratch my head. Adding to all problems described is the worrisome trend that Obama's orgies of nationalization started. While private disposable income fell 3.4% quarter over quarter in Q3, federal expenditures point towards more socialization with a quarterly surge of 7.9%, only surpassed by growth in the military sector that spent 8.4% more than in the quarter before.

A 10% shrinkage of GDP is Called "Recovery"? OK, War is Peace

A look at YOY absolute figures shows that GDP shrank more than 10% from $14.441 Trillion in 2008 to a mere $13 Trillion. Remembering home prices fell 7.8% YOY, according to this report from the Phoenix Business Journal, and seeing that the cash for clunkers initiative will cost the taxpayer $24k per car I am not at all confident that we see any fundamental turnaround but one constant: More and more GDP is created by waging wars: An F-18 crashing in Afghanistan is economically positive as it will add a billion and some change in replacement costs to the next GDP figures. This is the perversion of war: Bomb it and make money rebuilding it.

But in a time where the biggest warlord on the world, maybe a bit more eloquent than his predecessor Dubya, becomes Peace Nobelist, I can as well trust that all figures reported by US statistical offices are true to the 3rd digit after the decimal point, can't I?

On-the-ground research offers not much hope: When did you last meet somebody discussing his next big ticket purchases as he was looking into a happy money-filled future?

Middle Class Gets Wiped Out in Europe

Meanwhile, the middle class is getting wiped out. One of the last surviving Slovakian car suppliers with Austrian roots told me the car market is being split into 2 segments: Ultra-compact cars and the luxury class.

But there are also glimmers of hope: By now he can undercut Chinese competitors by up to a third and has the advantage of shorter transport distances. All that would be needed next is an upturn in Europe: Quiet harbors, less commercial road traffic show no such signs unfortunately.

Investment-wise I remain with my perma-preference of gold and silver as we have not yet seen the big whopper on Wall Street that will come on the same silent path as in 1929: When nobody expects it anymore, we'll see the most overvalued period of stocks coming to an end that is very likely to happen maybe already in November.

Comments

[Mad Hedge F...:]

bvs The scariest costume I saw on Halloween worn by a kid dressed as the Dow Jones Industrial Average. Listening to all of the gnashing of teeth and hand wringing after the Friday close about broken trend lines, accelerating downside volume, and crisscrossing moving averages, you would think that a time machine had just magically transported us back to the dark days of March, 2009. The volatility index (VIX) has popped from 20% to 30% in a week. Impressive. A new CNBC poll says that two thirds of investors are now expecting a “W” shaped recession, and that the next big move in the market is down. Once all of the performance chasers finally got the equity weightings they should have had last March, the market could only go down. We cut through support in the S&P 500 at 1050 like a hot knife through butter. Next stop: 980. Then hold your breath.

Nov 01 08:15 AM

[W.E. Heasley:]

Excellent article.

GDP is reported but its then pointed out the number is wrong.

Unemployment is reported as 9.8% but the Real Unemployment rate according to the Atlanta Fed is north of 16%.

Reports of 30,000 jobs created but that was wrong as the number is more like 20,000 (either number being anemic).

Then they have the gall to come out Friday and state they “saved or create” (Jobs Saved: the ultimate non-statistic statistic) 650,000 jobs. That the Stimulus Plan is doing what it was suppose to (apparently it was suppose to barrow and finance Government Jobs that are Union Jobs that are Obama Supporters).

Private Sector disposable income plummets, consumer spending plummets, yet Jared “the King of Spin” Bernstein doesn’t seem interested in spinning another tall tale on this subject (at what point does the length of Jared Bernstein’s nose poke through the Ozone Layer).

The Debt Ceiling needs raised but no comment. Its more like the updraft is: Dr. Strange Keynes or how I Learned to love Debt.

Nov 01 08:32 AM

[User 353732:]

Orwell and Kafka are the presiding Idols of the US Regime.

In WashDc they build temples to Orwell and the high priests of deceit chant in Newspeak:
Big Govt is good; middle class is bad. Regulation is good; entrepreneurship is bad. Profligacy is good; frugality is bad. Consumption is good; work is bad. Fiat dollar is good; real money is bad. Instant gratification is good; self control is bad. Entitlements are good; responsibilities are bad. Rule of men is good; Constitution is bad. Captivity is good; liberty is bad.

In Wall St they build totems to Kafka and declaim that the unreal is real and non being is being.
Bonuses up and middle class incomes down: proof of recovery. Free , limitless credit for Banks and no credit for small business: proof of recovery. Luxurious excess for the kleptocrats and job losses for ordinary Americans: proof of recovery. Increased spending by Wall St Bosses and decreased spending by ordinary Americans: proof of recovery. Rising oil prices and falling discretionary income for most American households: proof of recovery. Foreclosures up and auto sales down: proof of recovery.

Boom for Wall St; depression for Main St: irrefutable proof of recovery. US Regime struts;middle class cowers. All is well, the recovery is a "V" .

Nov 01 09:08 AM

[logicalman:]

i guess i should not be surprised by the bearish comments over the weekend.....but a 5 to 6% correction after a 65% rise of the march lows is little cause for jubilation by the doom & gloom crowd..my advice is start buying now if you missed out so far...try 10% now, another 10% if the mkts. drop another 10%...i doubt we will see 900 on the s%p, but if we do then load up....you may never have this chance again!!!

Nov 01 08:30 PM

[jerrydd:]

You would rather the gov talk down the economy?

Below is my and similar to Obama's plan. It's congress that is keeping us broke, mostly by repubs lying and obstructionism with some oil, coal state dems. And let's not forget the Repubs, Neo-con's motto, drive the gov into the ground and let it die on the vine. They are the ones who made the debts, bailed out the banks, car companies and AIG.

If the below would pas, we would be doing very well in 2 yrs.

We can have a stimulus that costs almost nothing to the taxpayer, in fact paid a lot by Iran, Russia, oil dictators!!

How is start up loans for RE companies and energy eff ones. Let most anyone with a good business plan through the SBA get start up loans to build or install windgenerators, solar CSP unit, CHP, small lightweight, aero 3 wheel EV's, etc. Then loans to buy, install, etc these.

Loans for home, building eff upgrades from windows, insulation, etc are next.

All these can be paid for in energy savings in 5 yrs so no new income costs either. This will create about 3 million jobs directly and probably 6 million indirectly of people supporting them.

Next is a fossil fuel tax to pay their full cost of the direct, indirect subsidies we already pay in our income tax, health care, etc. it's time those who make, benefit from those costs to pay them It should be a $1.50/gal on oil and about double the price of coal.

But you say a tax will kill the economy. Not if it's put in over 2 yrs each month and loans given to buy more eff cars, etc. Switching truck, semi's to NG is very cost effective now being under 50% of the cost of diesel/gasoline. The beauty of this is oil, coal will drop in price making Iran, Russia, oil dictators pay most of the oil tax, coal is only 25% of your electric bill so it won't go up much.

But new, more eff cars, trucks, EV's, PHEV's and mass transit will create more new jobs too.

The fossil fuel tax revenue, 1/3 would go to a tax cut so those people paying it have the extra money needed if they continue to use the same amount or better, use less and have extra income, the more likely outcome. 1/3 to to help switching to more eff cars, trucks, homes, buildings and 1/3 to balance the budget fossil fuels have been a large part in making.

So this program would have a net increase of about 8-10 million jobs of both direct and supporting those who have the new jobs, solve our imported oil problem, let us leave the Persian gulf between the 2 are about $1T/yr in a few yrs if we don't, stop subsidizing our enemies, oil corporations and balance the budget.. All at little cost to the gov, in fact get rid of our debt on our children and make our country strong again.

Or we will be broke, at war, our enemies strong and we will be weak. To me it's the only real patriotic way to go.

Nov 02 11:40 AM