Lilguy

This Recession Ain’t Over

No set of USG data seems more appropriately disputed than its employment and unemployment figures, and I thank you for pointing out new (to me) reasons for its inaccuracy.

The fact that the DOL/BLS has announced that it miscounted the labor force last year by some 824,000 points out the numerous erroneous assumptions and sloppy methodologies for counting who's working and who's been laid off or can't get into the workforce.

I'll really be interested to see how the 2010 census affects these counts. I expect the results will be even more discouraging than the results we've seen so far.

Thanks for this excellent piece.

It's Looking More Like a V-Shaped Recovery

This guy isn't just drinking the kool-aid, he's making it and trying to sell it to everyone.

I won't take the time CautiousInvestor did above (he's always thorough and thoughtful) to refute the arguments in Mr. Lieberman's article. It's too ludicrous for further comment.....

Market Cycles: A Look at the Historical Evidence

I'm with Whidbey on this one. If one wants to use cycles as a basis for investing, then one has to go out to those realllllly long-term ones, measured in centuries. And unless you do add up all those cycles simultaneously and do it right (LOL), you're unlikely to see gains in the market.

I think most of those involved in the stock market are just trying to figure out whether the market (or individual stocks more likely) will be up or down in their particular investment timeframe. For HFT computers, that's micro-seconds; for most day-traders, that may be a few seconds to a few hours; for longer-term investors, that may be a year or more (time to take advantage of LT tax gains); and, of course, some just buy & hold on the assumption that, over time, the stock(s) will do better than alternative investments.

So, like beauty, what the cycle is and where we are in it is all in the eye of the beholder.

Commerce Department's Revised GDP Shows a Delineated Story for the Recession

Jake at EconomPic has taken Mr. Galt's argument one step further: He has calculated that, without the revision, the annualized rate of GDP decline from Q1 to Q2 was -5.8%. Here's the link for those who want to see Jake's work: econompicdata.blogspot...

But I'm going to take Mr. Galt's and Jake's point at the top of the conversation and expand it: Every change in methodology in official US Government statistics in at least the last quarter century has ended up making the current situation (i.e.--at the time of the change) look better than the previous methodology. So, to add to the GDP argument:

---How about a CPI index change euphemistically called "hedonics" (sort like "preferences") that tries to account for changes in taste--such that, for common example, people are just as satisfied with ground beef as with beefsteak? Result: Lower inflation.

--How about the end of the Fed's tracking "M3"--because it was "not useful"--unless, of course, you wanted to take a measure of the full size of the US money supply.

--How about the re-defining unemployment (U3) to ignore all those who had to settle for part-time work or were so discouraged they quit looking? (Keeps those pesky unemployment numbers down; don't want the riffraff to become informed & unruly)

I would like someone to show me ANYWHERE the USG has made methodological changes that have shown the then-current situation was worse than previously reported. In the immortal words of Clint Eastwood, "Go ahead, make my day."

Consider Yourselves Warned: This Bull Market Can't Last

Hey, Macro Man, you indicator has a better track record than most these days. Enjoy the holiday--and keep your capital dry!

Americans Are Saving Like There's No Tomorrow

The key question is how much longer Americans will save at the current rates--or higher. I hope they sustain or continue to grow their savings, because I don't think this recession is anywhere near its end. (Bottom in mid-2010; very slow recovery, say 1%/yr, for at least a couple of years).

Unfortunately, I'm less confident that Americans (on average) will continue to grow their savings. First, even if they don't have a job (& more won't over the next year or two), they have to buy essentials (OK, they could steal). Second, some will feel compelled to pay down their debt--mortgage & personal; others, in increasing numbers, will default. Finally, all the talk about "green shoots", pernicious advertising, etc., will persuade far too many that "the worst is behind us"--and they will stupidly go out and buy something non-essential.

So, I'm not expecting the savings rate to go much higher, and a year from now it could well be lower as Americans are forced to spend their savings to meet daily needs.

Ugly, but I think realistic.

Official Unemployment Numbers Understate the Problem

Excellent article! Gives a great boost to the argument that we have been in a secular bear market since the bubble burst in 1999. It also makes it hard to believe that there will be a significant economic recovery anytime soon. In fact, it looks kind of grim.

Thoughts on the Fake Reform Agenda

My thoughts on the proposed regs as stated in an instablog:

"OTOH, besides the many trillions of dollars in financial commitments made to the financial sector, now the Administration has introduced new regulations that, like most of Pres. Obama's speeches, sound really good, but actually amount to little. None of the business behaviors that led to the current crisis--excessive leverage, unregulated CDSs, bought credit ratings, usurious consumer credit policies, misguided executive incentives--will be prevented by the proposed regulations, and in some cases they will have absolutely no effect at all--no matter what agency regulates the financial sector."

Here's the link to the broader criticism of Obama' economic policies:

seekingalpha.com/user/...

Distilling the Economic Data: No Recovery News

I think this is an excellent piece in providing some context to all the much-ballyhooed "green shoots" we continue to hear about. More importantly, I think it highlights an important point: This recession (& maybe depression) is DIFFERENT!

I think the most important difference is that it is a recession driven by a global financial crisis. Rogoff & ????? (can't remember the other guy's name--need another cup o' joe!) performed an excellent service in analyzing all recessions for several hundred years, and pointing out the difference between most recession and those driven by financial crises. Bottom line: They are longer, more severe, and recovery is much slower.

Second, I believe the United States in particular is a significantly different country economically, demographically, and socially than it has been in any other recession (or the Great Depression). I believe we are economically far weaker nationally (deficit, debt, BOP, currency--but still #1 here) and as households (lost jobs, lost wealth, greater debt, much smaller middle class) than in the past. Our demographic is shifting older with the consequent impacts on retirement living, retirement expectations (which I have been high until 2008), tax burden of the working. And, finally, it strikes me that today, compared with the Great Depression, we have a substantially larger proportion of whiners who expect someone else (usually the government) to make things right. The contrast with my parents' and their parents' generation couldn't be more stark.

Third, despite what Dr. Bernanke, Romer, et al., may have learned from their studies of the Great Depression, our economic policy initiatives so far--while relatively huge--have been far too timid to substantially diminish the length or severity of the ongoing recession. They have been based on politically-driven view of our economic condition and prospects (see the White House & Treasury estimates of prospective unemployment that underlies the stimulus and TARP assessments, for example; conditions now are worse than either of those assessments worst case projections). They have largely favored Wall Street over Main Street; the total commitments of $12 trillion run 7:1 in favor of bailing out Wall Street rather than rescuing homeowners, workers, and small businesses.

Finally, and pulling the other points together, while I accept Mark Twain's perspective that although history does not repeat itself, it frequently rhymes, I'm not sure this recession is in the same rhythm, much less the same rhyme, as previous recessions. No simple iambic pentameter here, I think we are off on some new alternative poetic direction. And we won't begin to know the outcome of the poem for months or maybe years.

Under these conditions, it is extremely unlikely we will see a sustained upturn in the economy until at least mid-2010. (Note: I have said elsewhere that the economy may turn up momentarily in 4Q on stimulus and holiday spending, but will revert to negativity thereafter.)

Why Stocks Will Collapse This Fall

"Collapse," I don't think so. "Decline," probably so over the summer. My guess is to near March lows.

More to the point, I think the comparison with last year is way off base. We haven't had (nor do I foresee) a Bear-Stearns, AIG, or Lehman meltdown, if only because the USG now views the economic crisis as systemic, not just the misfortunes of a few isolated mismanaged banks, and they have sort-of a plan in place to deal with those situations.

So I think you will hear more of a chink-chink-chink of the market being chipped away at over the summer & early autumn as the economy and business continue to erode at a steady pace, not some large splat like we had last year--especially around Lehman.

Where Is the Economy Headed? Four Bearish Views

I'm kind of in the "W" double-dip camp, but I don't necessarily see the second drop being a whole lot worse than the first. I expect the current bear market rally to sputter as the reality of 2Q becomes more evident and, particularly, as the 1Q accounting fakery of the banking industry can not be replicated for 2Q.

I have for some time thought the market would hit bottom in the 600s on the S&P500. Whether it drops below the 666 intra-day low it hit earlier this year is too fine a distinction for me to make. That said, I don't think we'll venture into the 500s and I believe we'll see the second bottom sometime this spring/summer.

After that, the market is likely to bounce along for quite some time, possibly reaching its current level late this year, trading in a modes range for at least another year, and only years from now approaching its 2007 highs.

It will not be pretty, but it is survivable.

Long-Term Investors Should Think More About Buying than Selling

"We continue to believe long-term investors should think more about buying than selling. Anyone with an investment horizon of five years or longer is not likely to regret buying stocks today."

I consider myself a strategic investor, but I really have a hard time envisioning an investment horizon of "five years or longer" in the current global economic climate. The next 3-5 years promise to be one's of global economic (& political) turbulence in my somewhat pessimistic and often cynical view, so it's hard to think of investing beyond that timeframe. I'm concerned about a number of economic forces (some of them conflicting) that would erode the stock (& other) markets, including:

--Inflation and/or deflation--deflation now, but inflation is wired in
--Value of the US dollar (& parallel increasing reliance on international trade for US economic health)--currently increasing, but decreasing over time in the face of a strengthening China and other economies
--Financial health of US households--less wealth, less pay, more unemployment--all makes increasing consumption (that drives US companies) highly unlikely
--Government intervention in private sector--Some is good (as in being done properly & prudently), some is not--more importantly, there does not appear to be a clear exit strategy that would give investors confidence--and we haven't even really started on re-regulation of the private sector ('tho Pres. Obama's plan to announce corporate tax increases today may be a start)

The result is that, if one has a five-year-plus investment horizon, one has to make a large number of seemingly improbable assumptions about a return to the historic (at least pre-2006) economic and market norm. I believe that is highly unlikely and that a new--and less wealthy and risk bearing--norm will emerge, but I haven't a clue what it will look like.

So, I have little in the stock market and don't plan to invest more soon. For the moment, I'll trust in the "...go away in May" record of the market and re-think my investment strategy in the fall. Until then, I'm playing defense.

How Is April's Fed Statement Different from March's?

In short, the Fed is seeing green shoots, but not the underlying rotted black roots.

Where Are Markets Now? Technical, Fundamental and Valuation Reference Points

Nice overview of the market. I, too, believe the market is going through a soon-to-end bear rally and I suspect it may re-test the earlier lows. (My thought is S&P500 somewhere in the 600s, but probably lower than the devilish "666" current intraday market bottom.)

Key to this is my continuing belief that the financial sector and the household sector (as consumer, investor, and debtor) will continue to deteriorate throughout the year. I can foresee a modest 4Q upturn in the economy as consumers try to be more optimistic and make the best out of a bad situation for the holidays. Then, I think our economy will continue to deteriorate until at least mid-2010. I can't think much further than that with all the balls up in the air.

Still, there may be opportunities for strategic investors to buy good stocks (per valuations above) that are offering stable, high yields. These stocks won't grow for several years (none really will), but they may offer better dividend returns that fixed income alternatives. As for traders, there is always an opportunity--up, down, or sideways--but you better wear your seatbelt and helmet cause its going to be a bumpy ride.

Real Bull Market or Bear Rally? Still Unclear

We are clearly in a bear market rally with the MSM and investors hyping "good" news and discounting the bad news as "priced in." As Mr. Cowie suggests above, the good news from the banks is especially misleading. They has so played around with their balance sheets, aided by direct and indirect (via AIG) taxpayer contributions, that they really don't know (and wouldn't want to say) what their real value is.

This economic downturn will continue, possibly with a bump up in the fourth quarter as households try to have a joyous holiday season, well into next year. Joblessness will continue to increase, home and commercial real estate values (& the assets built on them) will continue to deteriorate, at least one US auto company will go bankrupt--and maybe even a major US bank (despite efforts to bail them out), foreign countries will buy less US goods & services (because the US is buying less of theirs!), and some major Asian (Japanese) and East European banks and major corporations will go bankrupt (& impact their US brethren).

While the trajectory of the downturn may be turning from vertical to some less, we're not even on a controlled glide path, much less making steps towards recovery, at this time. We'll be lucky to hit the economic bottom by mid-2010 and the economic recovery, like the market recovery, will be virtually L-shaped for some time to come.