Friday, July 24, 2009

Long TIme No Post

Three and a half months since my last post. Why? Frankly I got tired of it. Tired of being depressed about the state of our economy. Tired of everyone I know telling me things are turning around. Tired of hearing some friends and colleagues attest that the worst is past us and citing CNBC as their source.

But I am tired of it no more. I am angry again. And here is why.

Yesterday I read several headlines from CNBC to AP to Yahoo to even President Obama himself state that things are turning for the better. (some) Banks are making profits again. Existing home sales improved May to June. Companies like Caterpillar are posting upside surprises to their earnings. The stockmarket rocketed past 9000. Jobless claims went from 700k+ per month when Obama took office to 400k per month in June. The recovery is here and in fact it may end up (if they are right) being the shortest recession ever. How amazing! Considering the dire straits we were in just six months ago, our leaders at the Treasury and Federal Reserve have picked us up and we will be walking, no running again soon. I wonder if everybody feels better.

Shouldn't we look at these signs of turnaround a little closer before declaring a turnaround, though?

Take Banks. There are several known (and unknown) direct reasons for their sudden health, but chew on this indirect ultimate cause: The US money supply has DOUBLED in the past one year! The US Government collected 30% less personal and corporate taxes so far this year than last year ($11.13T to $787B), meaning companies and citizens are making less. Read that again: Twice the money supply, but 30% less income. You may be thinking where is all that new money? Doesn't it seem funny (and wrong) that the government hands out lots of free money and suddenly banks are profitable (and paying record bonuses again no less)?

And that doesn't even speak to the inflationary threat from increased money supply. I suspect the only reason we have not seen massive inflation (yet) is that all that new money has not left the banks vaults except in the form of bonuses to the bank executives who have fooled us into thinking they have saved themselves (and us very soon I suppose). One thing is for sure, that new money is definitely not creating any new jobs (more on that below).

I hate to blame Obama because I don't see him as any worse (or better) than any other president. But it is all happening on his watch now, and he actually campaigned on change. Is this any kind of change? What kind of change gives the Federal Reserve even more power than it had before to cover up its constituents' (the banks) bad mistakes? And hurt the common folks in the process? Is that change we can believe in? I am as fair and open as anybody when it comes to considering Obama's goals and actions. But I don't blame Obama as much as to point out that no matter who the president is this situation was allowed to happen.

Then there are all the earnings upticks. Caterpillar (one of many examples) surprised on its earnings yesterday so the market cheered and bid its stock up along with all the other stocks. But look any deeper. They have laid off 17,000 of their workforce (in 2009) with more to come. Their equipment sales were down 49%. Their profits were down 66%. This is a company that is supposed to benefit from the stimulus! Does that look or feel like a recovery?

And jobs. Even I can't deny that first time jobless claims going down by 40% is a good sign, right? Well, official unemployment is at 10% and hasn't slowed its assent, which means those who lost their jobs earlier are not finding work. In fact I read yesterday that there are 6 jobless for evey 1 job available compared to 2 to 1 in April 2008. In fact 6 to 1 is the highest ratio ever since records started being kept in 1949. Is that good news? Doesn't that make the lower new jobless claims number feel a little cheap?

And then there is the housing market. Existing home sales are up from last month. For the third month in a row! (http://news.yahoo.com/s/nm/20090723/ts_nm/us_usa_economy_5) This one is the most foolish reports of them all. It should be a crime to report this data in this fashion. Does it seem honest in light of the chart below? (see that blip up at the end of the red line? that is the three month uptick. Look how many upticks like that since the peak in early 2005).



I hope I have successfully made my point. I cannot understand why all the mainstream press, from Fox to NBC on the spectrum and everything in between feels the need to tow the line. All the reporting is one sided. Our fourth estate has become a cheerleading section. It is irresponsible in my opinion to present the idea to the American people that things are about to get better when most of the data clearly indicates otherwise.

I hate to bring you down if you have bought into the green shoot idea. And I hope I am wrong in my outlook for our economy. But despite being pessimistic about the economy, I am optomistic about our society. I know we can overcome the hard times ahead of us because Americans are the best in the world and banding together to help each other and others. And that hasn't changed. But it is foolish to believe that things are going to turnaround soon until the unemployment rate actually takes a turn for the better, and retail sales start an uptrend. And none of those two things seems imminent in the data I review.

Thanks for your time.