Aug 21 2009, 12:41 AM
Recovery… What Recovery?
Long time readers know that I don’t buy the claims of economic “recovery” in the slightest. Often times I see folks on CNBC asking, “when will things get back to how they were?” The simple answer is…
NEVER.
The US has entered a New Normal… a new economic climate… and it is one dominated by:
§ Higher consumer savings
§ Lower consumer spending
§ Rising unemployment
§ Lower corporate profits
§ Increased Government spending/ transfer
§ Reduced private sector growth
§ Excess capacity
§ Reduced production
§ Excess bank reserves
§ Reduced lending
This is, in a nutshell, a bleak economic picture. It is, however, reality. I know the media is now rife with folks predicting the end of the Recession. I even know “smart” analysts who are saying the same at independent research firms.
In terms of the REAL economic picture, these folks are completely misguided and wrong. The US is facing the worst economic contraction since the Great Depression. This is NOT a plain vanilla recession. And while stocks may (and I emphasize that word) have staged their major bottoms in March, the US economy has yet to remotely turn around.
Consider that:
§ 34 million Americans are on food stamps
§ 18% of incomes coming from an already broke government
§ Seven million people will run out of unemployment insurance by Christmas (add their families and you have 13 million folks becoming destitute)
§ Tax receipts are at their lowest levels since 1932
§ 32 states have budget problems ($121 billion in total deficits) and the Federal Government is running a $2 trillion deficit
§ Civil unrest growing: National Guard May Be Called to Alabama
§ Industrial capacity for May ’09 was 68%: an ALL TIME low (roughly 1/3 of our plants and production facilities are doing nothing at all).
§ Rail carload volume for 1H09 is down 19% from the already plunging level of 1H08.
§ Even after laying off people and cutting costs, Quarter over Quarter Corporate Revenues and Profits fell 17% and 33% respectively in 2Q09.
Hard to get the word “recovery” out of the above. However, economics is a dark art, and in the hands of a deft accountant, you can dream up all kinds of nonsense, including a positive GDP… which we are likely to get in 3Q09.
However, with the Feds even openly acknowledging that their GDP findings are wrong (see the numerous revisions to the downside over the last year), this will be largely meaningless to anyone outside of the DC beltway.
On that note, the next time you see or hear anyone proclaiming that the recession is over, feel free to forward them the above list of data points and ask for their explanation as to how those items spell recovery.
Good Investing!
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