Get ready for the Knock-Out (XO) Economic Shaped Recovery.
We have the V-Shaped Recovery to which the bulls are eluding to at the moment. We have the bears who point to a W-Shaped Recovery. But what about no recovery?
Do we have any argument that the following caused the recession:
1-Housing Bubble
2-Excess Credit Creation
3-Slowing Consumer Spending
4-Unemployment
5-Loan Delinquencies
Has any of these been resolved? Don't tell me that things have stabilized, they have to more then stabilize, all things equal, if we did not spend like drunken sailor's, I would agree that a normal stabilization warrants positive sentiment, but the level of debt that has been printed just to stop the bleeding is enormously vulgar. On top of that the jury is still out if an actual real stabilization is taking place. There is currently no evidence to state that anything the Treasury/FRB has done has benefited ordinary citizens.
I have debunked many of the myths regarding housing,unemployment, and consumer spending.
tradersutra.blogspot.com/2009/08/few-days-remove-from-payroll-data.html"
tradersutra.blogspot.com/2009/07/better-us-consumer-spending-trends-are.html
tradersutra.blogspot.com/2009/08/housing-smoke-screen-continues.html"
tradersutra.blogspot.com/2009/08/frb-balance-sheet-and-credit-crisis-2.html"
New Mortgage apps are out this morning,they are up 7.5% but they also show 57% of all apps are refi's. Most of these are probably Loan Mods, that will again go bad.
The relationship between housing starts and existing home sales is quite worrisome, we have an industrial inventory led recovery that was predicated on exploding debt levels, quite the opposite of what needs to be executed, mainly lets get the debt and leverage down so we can exit this credit induced recession. Why do continue to build homes that people don't want and cant afford? So we are building more and more homes, and some 90% of all existing home sales are from the foreclosure/distressed/short sale variety. Every single nudge up in sales for homes as well as auto's have come about because of gimmicks, like loan mods and cash for clunkers. Next on tap, lets subsidize GE, Westinghouse, and Whirlpool, Cash For Clunkers II - Home Appliances - Revenge of the Spin Cycle.
We have more and more regional banks failing every day, CRE is in the dumps, there is no credit anywhere, and default trends are still at elevated levels. What has effectively happened is that Wall Street with the help of big brother government has shifted all of its losses and extended its debauchery onto the little man on main street.
Whats worse is every one in the media is drinking the green shoots cool aid. We now have the auto companies increasing production, because that s what government wants even though cash for clunkers is ending, these moron Auto CEO's actually think demand trends are getting better. Its all one big assumption. Careful what you assume.
Wall Street is preparing to pay out huge vulgar bonus's, because this is what they do, bleed everything dry and then pass the buck to taxpayers. They should be shoring up capital getting ready for the next recession which is coming soon.
The economy will be lifted by business's rebuilding inventories, but can they keep rebuilding to the tune of 3% GDP growth for infinity? Sooner or later, the consumer has got to get in gear if there is any hope of averting a full scale depression, which depressingly looks more and more in the cards.
I hear people say Asia is the place, true it is, but that whole region is dependent on China, and our banks are in better shape then theirs, and our banks are mathematically insolvent. Chines banks have to much invested in the stock market and have many bad domestic projects going nowhere.
Obama has dodged every tough decision with regards to banks and financials. A 90 year old man in a coma is more potent then he is. The entire compensation structure has got to change to get risks in line with reward. I am tired of hearing how great Goldman traders are, I used to be one when trading was about real risk and real reward. Anyone can make money when you are implicitly and explicitly backed by government.
Wall Street is having a V-shaped recovery, for every one else there is an XO Shaped recovery.
Why an XO Recovery? Let Me state the following
1-Unemployment is still falling sharply. It will take 3-4 years of above trend line growth to get employers to hire once again.
2- This is more of a solvency crisis, not a liquidity crisis, too much printing, not enough fixing. True deleveraging is in the 4Th inning of an extra inning game. Banks around the world, especially here have had all losses put on government balance sheets with guarantees, this has pretty much stopped corporate deleveraging.
3-Countries that have current account deficits like the US, citizens are dying to cut consumption and save more or doing so, while governments are alerting them to do the opposite. Consumers win on this one.
4-The US Financial System has become a shell game for the uber/ultra wealthy, yet its extremely damaged and getting worse. We have traders, bankers, and executives playing the flute while Rome burns.
5-Too much leverage and far too much debt are crippling end market consumption demand.
6-Global imbalances need to play out, and they will play out to the detriment of the US.
tradersutra.blogspot.com/2009/08/global-rebalancing-is-happening.html"
7-Zero exit strategy. This is just another bubble that is forming. Policy makers are in damned if we do, damned if we don't mode. If they raise taxes, cut spending, reduce leverage/debt, soak up excess liquidity, and stop printing they will undermine their already ludicrous behavior and risk putting the system back into a deflationary recession or stag-deflation, if they continue in their same self destructive path, bond market participants will start dumping bonds hand over fist, reducing the effectiveness of escalating debt issuance, rates rise exponentially, borrowing costs increase and all of that floating rate debt that Americans are saddled with will explode.
8-Do I have to mention Crude Oil and its destructive effects on consumer behavior?
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