"Sobering" Indeed.

Obama referred to today's jobs data, a loss of 263,000 jobs (roughly 100,000 more than economists expected) as sobering. Well, I agree, but to say it was unexpected is to buy into those that thinks we are in recovery phase. To me we are in the lull before the storm. By the way, of over 80 economists surveyed, none, not one, predicted the number to be as high as 263,000. That reality is sobering.

http://www.google.com/hostednews/afp/article/ALeqM5jNat8FSYDU-6wVcrkdfTsuIylT4g

http://www.bloomberg.com/apps/news?pid=20601087&sid=aTo1p6Los8CI

But if you really want something sobering, I suggest the following link. As the author points out, if you are expecting consumers to start spending more money for an economic rebound then you are sadly mistaken. They are already spending at very high (record) levels in terms of a percentage of personal income and as a percentage of GDP. And even that is not really lifting us out of this recession absent government support. Even though consumers are pretty much spending as much as they can, the economy is still struggling. So I don't expect things to improve from here.

http://www.financialsense.com/Market/panzner/2009/1001.html

And as this piece points out, we are in for a world of hurt due to the size of the private debt that has built up. We may do well in the short to medium term while government spending/stimulus props us up, but that will in time end and then we are all in for a world of hurt.

http://www.nakedcapitalism.com/2009/10/the-recession-is-over-but-the-depression-has-just-begun.html

Now I hate repeating myself so much, but let's consider the math and see where it leads us:

• the unemployment rate is nearing a two decade high;
• those with jobs are working the these least number of hours per week ever (roughly 33);
• adjusted for inflation, hourly wages are at their lowest in three decades;
• overall debt, government and private, is at record levels;
• foreclosures are mounting on both a residential and commercial level;
• there are an estimated 13 months worth of shadow inventory of houses, i.e. those that will be for sale but are being held off the market for one reason or another;
• When closing costs are considered, nearly 50% of all homes are under water on their mortgage;
• We have now reached a record in terms of unemployed people who are staying unemployed beyond their unemployment benefits;
• We also have a record in terms of job availability for the unemployed with job openings only there for one in six who are unemployed;
• Our economy is over two thirds reliant on consumer spending, which is a totally unsustainable model going forward;
• Financial companies have doubled their GDP contribution in the past decade or so, though it is now obvious that they are not adding any benefit to the economy; and
• I am tired of repeating all this bad news with seemingly no one paying attention.

Folks, I am not saying when the problems will sink in and take hold, but they have to at some point. At the very best, our economy will be stagnant for years to come, probably over a decade. More likely, in my opinion, we have a world of hurt on the way with the only question in my mind being when will this reality sink in? You tell me. Until then, with the market near record amounts since March 9, I am personally going to hunker down for a while and see what happens.

Disclosures: None.

Conspiracy Theories Abound!

Recently there has been a number of articles and blogs on Zero Hedge and some other conspiracy theory type blogs. I do not comment here either way, but I must admit it is a fun read. First, I link an NY Times article on Zero Hedge, a blog that came out of no where this year to be a cult favorite. Second, the first article quotes from Jim Chanos, of Kynikos Associates, which is the subject of a good bit of discussion at the second blog I link, which to me is a good bit more entertaining. Indeed, it has movie, or series, written all over it if it were not perhaps true or close to it.

First Link

http://nymag.com/guides/money/2009/59457/

Second Link

http://www.deepcapture.com/

If you are bored and want some entertainment, both are worth a few hour of fun reading. And imagine if half of what they say it true.

Disclosures: None.

I Don't Get This Math

Yes, the savings rate is up, but if you look at this chart, you will see it has a long way to go to get back to historic norms. With the wealth evaporation of the past two years, mounting job losses, aging baby boomers past their peak and other considerations, one has to wonder where the savings are coming from, even at this low level.

http://www.businessinsider.com/chart-of-the-day-personal-saving-rate-2009-9

Moreover, Bloomberg is reporting that consumer spending was up significantly in August. Indeed, the biggest jump since 2001 and not all of it was due to cash for clunkers.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aSbaO.gu.aps

Yet first time unemployment claims were higher than expected last week and foreclosures - residential and commercial - are on the rise.

http://www.bloomberg.com/apps/news?pid=20601109&sid=ak__6D.HTBQM

Finally, might I add that we as a country still have record amounts of debt.

http://blogs.reuters.com/rolfe-winkler/2009/09/30/krugman-and-the-pied-pipers-of-debt/

While on an individual level we have begun to deleverage (either through payment or default) on a government level we are increasing debt to dangerous levels. And there may be a limit to how long China and Japan will continue to fund our spending spree. Most Treasuries are now being bought by the Fed and foreign purchases were down 40% in the second quarter versus the first, so the government punch bowl may be taken away sooner than many expect.

There is something about this math that does not calculate for me. How can we make less, spend more and increase savings? The only answer I can think of is government stimulus. And government stimulus is not the same thing as an economy rebounding. And when that goes away we will see the recession in full bloom. Some view recession as a bad thing. While not dismissing the financial and other pain people will feel in a recession it unfortunately is the only cure for our excessive debt levels. It is a correction to many years of economically unsustainable spending on our part.

Disclosures: None.

The Sky is Falling!!

This is terrible, absolutely terrible!!! Compensation limitations may put Citigroup and Bank of America at a recruiting disadvantage. Oh my! I am not sure I will be able to sleep tonight!! Oh what will they do, what will they do?!

http://www.bloomberg.com/apps/news?pid=20601087&sid=av0Tkl_Q_pro

This Bodes Well!

Stocks are at their highest valuation in five years. Think about that a moment. Between two and five years ago we were in a roaring economy, or at least we thought. Things looked fantastic. Housing was booming, consumers were spending, businesses were opening left and right, yet the valuations on the stock market were less than they are today. Today we have housing continuing to struggle, consumers ramping up their savings rate, unemployment on the rise, commercial real estate beginning a long fall, foreclosures on the verge of an Alt-A explosion, and debt, on a government and individual level, still in record ranges. Yet we have the highest stock valuations in five years. Yep, that bodes well for the market.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ae0oGD7XmN9U

Disclosures: I have a number of put options.

The Voodoo that Feds Do

Okay, I just migrated away from my blog without saving an hour worth of work and it is all gone. So without all the verbage I had written, here are some well worth the read links about how the Fed is doing, and has for decades done, a terrible job and is in no small part responsible for the mess we are in, and is in no small part responsible for the new bubble we are seeking to build to get out of the last. I only hope they fail miserably so that we can suffer and take our medicine now. I for one do not want to put our mistakes on my children to deal with.

http://www.nakedcapitalism.com/2009/09/5324.html

http://www.calculatedriskblog.com/2009/09/fed-and-subprime-lendng-watchdog-that.html

To the Moon Alice!!

I think the market is taking off from here, not. Why not, let me count the ways:

• consumer debt, while a smidge lower than it was at the beginning of the year, is still near historic high;
• unemployment, while slowing, is going to go over 10%, perhaps 12%, and real unemployment is much higher, so this does not bode well for an economic recovery;
• commercial real estate is heading into the dumper big time. I need not link anything here if you are reading up on things, but daily there are articles on how hotels, malls and the like are suffering;
• residential real estate is reaching a bottom but, absent first time home buyer incentives, is still sucking wind. Builders still cannot hope to make money, especially if you include condos, which most stats do not include;
• the market has climbed to a very high P/E, even in good times. This glass is the more than half full society is bound to come back to Earth;
• there is a well known shadow inventory in the housing market. This is based on banks not foreclosing, homeowners not listing properties they would like to sell and the like. While official inventory is reduce down to less than eight months supply, we will see . . .; and
• the too big to fail banks still have significant toxic assets on their books. No one, including them, knows how much.

And so folks, I continue on the doom-and-gloom troop. I dare you, convince me I am wrong.

Disclosures: None.