Think About It

No commentary here, and this is a short post, but I just want you to think about it - are we creating a stimulus package bubble?

Consumer spending was apparently up 4% last month while incomes continued to decrease. Does not sound sustainable in my book but I am not the math guy.

This link suggests from stats that a double-dip recession is certainly possible. Personally, I think it is almost inevitable given the continuing debt load in the U.S. and elsewhere. The only question in my mind is the timing of the second dip - and on timing I have not been too acurate to date so do not look for any predictoins from me. I feel fairly certain it will happen, I just do not know when the government stimulus tank will run out of gas.

http://www.nakedcapitalism.com/2009/08/what-does-double-dip-recession-look.html

Disclosures: None.

Taxpayer Cash for Clunkers

I have spoken to a number of people with differing viewpoints on the cash for clunkers program. I think we all agree that it was not well thought out in terms of logistics. Rumor has it that dealerships are getting rejection letters on their submissions and paper-work is backing up - at the dealerships and government desks. Due to g0vernment rejections, some dealerships are quitting the program. And a program planned to last to perhaps November is shut down the first week because no one can predict how much has been spent to date. Yep, another government brain freeze.

Aside from the usual government major F-up factor, let's have a discussion on the pros and cons of the program. One pro is that car dealerships are getting some sales. I have gotten comments, however, that we are kicking the sales can down the road. Those with a clunker are taking advantage of the program and will not buy another car for years to come. To this I say, so what. Dealerships are desperate for sales and the fact that they are getting perhaps a bit of relief now at the risk of future lagging sales is not to me a big deal. They will in time sell what they sell and they need to be prepared for an extended down-turn from the past.

Another comment I saw said this program is taking cheap used cars out of the market for those who can only afford cheap used car transportation. I admit that a lot of gas-guzzling cars (including my 1995 Ford Explorer) will leave the market and that might put a bit of a pinch on used car supply, but right now I see no shortage of used cars at decent prices on the lots (I was at some today) so I am not sure this is going to be a big problem. After all, the low car sales the past couple of years has led to a burgeoning used car supply.

I am also told that scrap metal prices are diving due to the program. Unless you are a scrap metal salesman, is this really a problem?

Overall, I like the program, despite its flaws and, yes, I hope to take advantage of it. Yes, some taxpayer money is being spent here, but in my mind a much wiser expenditure than the tens of billions on AIG, Citigroup and Bank of America. The latter three are all companies that got us into this mess and we can, I think, do much better without them.

Disclosures: I still own a clunker.

I'm Shocked To Find Extreme Recession Going On In This Economy

Bloomberg reports the economy is worse than previously thought and, indeed, the worst since the Great Depression. Wow, I am simply shocked. Not shocked at the news but shocked that this is just now coming out. Anyone who can fog a mirror should know this already. The fact that official stats are just catching up is what is shocking.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a5_5Vq2hV3EQ

So why is the market at a point where the P/E on the S&P is 24? You tell me.

And Another One (or Five) Down

Five more banks down for the count. That makes 69 (no jokes please) this year. That is more than in all the years the last decade combined. It does not compare to the S&L crisis in terms of number of institutions but comparisons in terms of $ are becoming significant. What's a few billion here or there after the trillions in support we have just had?

http://www.bloomberg.com/apps/news?pid=20601087&sid=a3KVKk_i5_cM

Cash For Clunkers

Okay, I cleaned out my 1995 Ford Explorer with 171,000 miles on it last weekend and accidentally threw away the registration. While I am in the process of replacing it, so I can do the cash for clunkers deal, the deal is stopped. There are rumors it will resume and have more money, which I hope happens - for personal reasons. While I acknowledging my personal desire to take advantage of it, I must say I am disgusted that we have back stopped AIG for many tens of billions that could have been spent on this worthwhile program that reduces gas consumption and pollution while helping car companies. This is simply disgustipating that we have spent our money where we spent it. By the way, billions of the AIG money flowed directly to Goldman Sachs on CDS obligations (Paulson's company) and they are giving out good bonuses with our money. Like I said - disgustipating.

Disclosures: I have a clunker.

Take Notice - This is Big

Naked Plug!!

Yves has provided me with plenty of material over the past few months and Naked Capitalism is one of my favorite sites, so when Yves' book "Econned" (I like the title) comes out, I will be at the front of the line.

http://www.nakedcapitalism.com/2009/07/book-countdown-3210.html

The Most Important Thing You Will Read This Year

I would like to take credit for this - or have done it myself - but here is a very, very informative piece from Zero Hedge on why any recovery for us, as in U.S., is - well - not happening any time soon. This whole piece is well worth the read. Seriously, this is not fluff, it is full of data. I like data; it is much better than "indicators." Indicators are flawed and expecting the stock market to predict a recovery is as reliable as expecting it to warn you of our last bubble - that worked out really well, didn't it.

http://www.zerohedge.com/sites/default/files/The%20End%20Of%20The%20End%20Of%20The%20Recession.pdf

The authors are inviting anyone and everyone to quote from them as long as we give them credit, so here are some of the fun parts:

• Consumer spending, 70% of the economy;
• Former IMF Chief Economist Ken Rogoff: “The kind of deleveraging we need to see takes six or eight years … The retrenching of the U.S.
  consumer is a huge adjustment the whole world is going to have to
  absorb”.
• Ratio of U.S. licensed vehicles to ownership is still trough the roof despite a significant drop-off in sales;
• Household debt still near record highs;
• Business sales down 18% YOY, a record decline;

And that folks is just from the first 16 pages of a 72 page presentation. I was on the edge of my seat the entire time. I could add more here but it is a pretty quick read - bullet points and graphs - so I implore you to go and read it. You have to decide what you will do with these tea leaves. I know what I am doing.

Disclosures: None.

Microsoft, American Express and Amazon Gonna Hurt

Let me start by disclosing that I have put options on Microsoft and American Express. Not a big deal as I bought them a while ago and they are nearly worthless. They will improve tomorrow, but I ain't retiring on them any time soon. Still, I feel a bit justified in my picks given that they are all showing poorer quarterly profits than most anticipated and are down around 5-6%.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aPlycL0a_BH4

And You Know We are Out of the Woods When . . .

When Swiss banks run out of room for gold bullion we know everyone thinks equities are the right place for their money, that inflation is not a risk and that everything is honky dory. Need I say more . . .

http://www.mineweb.co.za/mineweb/view/mineweb/en/page34?oid=86392&sn=Detail

Bad News - Banks May Need to Come Clean (Probably NOT!!)

As this link explains the FASB is considering rules to make banks record financial assets at fair value. Now this would be disastrous for many banks recording assets at fantasy values (a reason PIPP is not working) and the last thing the banks (or Administration) wants is them being transparent (at least at the moment). FASB has already delayed some transparency plans for these very reasons and expect them to do so again. Seriously folks, the last thing this economy needs is financial institutions telling the truth. We would rather, much rather, invest based upon make believe. My daughter likes ferry tales too.

http://www.mineweb.co.za/mineweb/view/mineweb/en/page34?oid=86392&sn=Detail

CREmated Update

I posted yesterday briefly on commercial real estate (CRE) going down the tubes. Just providing a couple of links on the same subject:

http://www.calculatedriskblog.com/2009/07/real-estate-commercial-and-residential.html

http://www.calculatedriskblog.com/2009/07/hotel-revpar-off-175-yoy.html

Did I mention that Calculated Risk is my favorite site on real estate?

Disclosures - See above at the beginning of this post. Otherwise, none.

(CRE)amated!

CREamated!

I have spoken here often on how commercial real estate ("CRE") follows residential in falling off the cliff and how lately it has really, really been taking a dive. I thank Calculated Risk for educating me in this respect. We have way, way too much CRE, including hotels, retail space, office space and the like. AND I MEAN WAY TOO MUCH!! We have twice the retail space per person as any other country and most have a fraction - a small fraction - of what we have. And for the government to now be acknowledging that CRE may be a problem is, well, a vast understatement. We will see.

http://www.calculatedriskblog.com/2009/07/bernanke-cre-may-pose-risk.html

Pinching the Pensioners

I have read a good bit on pension problems, and I mean major problems. I am part of the 401(k) crowd, so pension talk does not normally peak my interest, but it has so infected what I am reading that you cannot ignore it. There are still a lot of people near or in retirement these days dependent on pensions to retire that it is a major issue, especially for baby Boomers. A lot of these are government workers and, seemingly, a lot live in California - an area particularly hard hit this time around. It would appear that the California Public Employees Retirement System (Calpers) is in need of an infusion, which means current employees will undoubtedly need to increase contributions and reduce eventual benefits. In short, they have both short and long term pain ahead.

http://pensionpulse.blogspot.com/2009/07/californias-100-billion-whooping.html

This is one of many reasons why I think - while we may be reaching a bottom - we will be bottom feeding for years to come. I do not see a bounce, just stabilization, in our future for years to come.

By the way, pension pulse has a lot of good pieces on our pension problems. The are many and far spread.

Real Estate Stabilizing but Foreclosures - Not Yet

Apparently foreclosure activity, at least in CA, is not at peak yet and may pick up in the third quarter. Prices seem near a bottom but loan defaults, especially on higher priced real estate, seem to still be on the increase and banks are finally taking action on these homes. There was some talk that banks were holding foreclosed homes off the market because conditions were so horrendous. We will see where this leads.

http://www.calculatedriskblog.com/2009/07/dataquick-california-mortgage-defaults.html


Disclosures: None.

On The Fence

I sincerely apologize that I have been radio silent for the past week. In part it has been due to dealing with a new child but frankly it is mostly due to me not having any conviction on where we are economically. I have been seriously negative on our economic prospects this year, but lately there are signs of this recession (depression) reaching a bottom, so I have been sitting a bit on the sidelines. I still have extreme reservations on many fronts like unemployment, ARMs resetting, commercial real estate, consumer spending and the like, but certain economic signals are saying we are reaching or have reached a bottom.

I am not saying we are at bottom, but even if we are, the real question now (and for the next five to ten years) is, where do we go from here? People assume after a bottom that you resume you climb and go right back to where you were. Well, tell that to folks owning real estate in southern California or Las Vegas. Getting to the bottom is one thing and moving up from it is entirely different. I am sorry that I have to go and tend to family but I will be back and add more substance.