Posted on 04/03/2009 12:45:45 PM PDT by SeekAndFind
I was interviewed on Tuesday on CNBC's "Squawk Box" on my views on the economy, the stock market, the problems with the banks, the Geithner plan and whether there's light at the end of the tunnel.
As I pointed out in the interview, the rate of economic contraction will slow from the -6% of the first quarter to a figure closer to -2%. And next year the economic recovery will be so weak--growth below 1% and the unemployment rate peaking at 10%--that it will still feel like a recession even if we may be technically out of it. So, compared with the bullish consensus that sees positive growth at 2% by the third and fourth quarters of this year and a return to potential growth by 2010, my views are consistently more bearish.
Still, compared with the sharp contraction in U.S. and global growth in the first quarter of this year, the rate of economic contraction will slow down for the U.S. and other advanced economies by year-end. That is only a mild improvement in what is still a severe U-shaped recession, with a very weak and tentative recovery by 2010.
I also pointed out on CNBC that the stock market has predicted six out of the last zero economic recoveries. For the last 18 months, we've had six bear market rallies, and at the beginning of each one of these suckers' rallies the delusional perma-bulls repeated that this was the beginning of a bull market rally. And for six times these perma-bulls were totally wrong as the rally fizzled and new lows were reached. And for six times I correctly pointed out that these were bear market rallies.
(Excerpt) Read more at forbes.com ...
bttt
BTTT
BUMP
Just wanted to share some good news out there amidst the doom and gloom, no matter how small.
I appreciate it!
It seems obvious the recent rally over the G20 meeting should be shorted, maybe for a 10 percent profit.
Well, I guessed wrong. I guessed that the market would start to fall again today.
I don’t hold such a rosy outlook.
Despite retroactively moving back the start of this recession a year or two, the truth of the matter is that it did not begin in earnest until gas prices skyrocketed. This was the wake up call to American business to start contracting in a hurry. This was when inertia finally turned to downward momentum.
Now, that being said, what we are seeing right now is the first “false recovery” of the recession. The decline in the stock market from its highs, along with the small recoveries, was just a normal bear market correction. That is, the market was just retreating from oversold back to normal. And only after that was done, did the recession take over to drive it down much further.
The collapsing bubbles and the chaos that we have seen to date were all based on oversold market speculation. They were doomed when the market corrected from oversold to balanced. They were based on making fast profits from higher risk equities and other instruments.
But only now are we entering in to the territory of the “undermarket bubbles”, those bubbles that would continue to exist in a normal market, but will pop in a recession. And there are some major bubbles on this side as well.
These are the bubbles the government is truly afraid of, and their collapse is what the government is desperate to prevent.
Pension funds, business real estate, alt-a and ARM mortgages, some of the big blue State municipal bonds, hedge funds, insurance companies, etc. Until these bubbles burst, we haven’t seen the bottom.
By comparison, 2009-2010 is like 1930, which was a calm year, with three major seeming corrections and seven total minor ones. It was and is the economy taking a breath before its next plunge.
What we can look for on the street is a whole spate of retail business failures. Unemployment passing 10% and maybe closer to 15%. It took until 1933 for unemployment to reach almost 25%.
But congress passed so truly bad law, perhaps the worst of which was the Bankruptcy Reform Act of 2005, businesses that might loan each other money, or provide goods or services on credit, are afraid to.
Because now, if you loan a business anything, and they then go bankrupt, even before they go to bankruptcy court, the BRA permits them to be stripped of assets by large leverage funds, leaving you and all their other creditors nothing. This will cause a chain reaction of failed businesses.
The bottom line is that this is a false, stock market only recovery, and it will collapse within a week or two, because there is nothing behind it, except wishful thinking.
And sooner or later, the undermarket bubbles are going to go, and things will go to heck in a hurry.
I heard a lot of bad thing about the BRA, even the House "R"'s would allow Cold Cash Jefferson to keep his seat if he voted for it. Which he did of course.
We might get a lower low down to about 500, stretch 450, on the SPX/S&P 500.
Then we get a real rally sometime in the summer that gets us back to the highs you're talking about -- a Fib retracement in some degree, but still a countertrend bull only, and we get to see the Real Bear later on. That'll be the one with the black Newsweek and Business Week covers announcing "The Death of Equities" et cetera.
You can go to their site, but be prepared to do some serious reading to pull it all together. And it'll help if you have a fat pipe and a fast 'puter. They've redone their site and are now fatter.
“Despite retroactively moving back the start of this recession a year or two, the truth of the matter is that it did not begin in earnest until gas prices skyrocketed. This was the wake up call to American business to start contracting in a hurry. This was when inertia finally turned to downward momentum.”
I agree. The move to make the start of the recession Dec 2008 was a political one, not based on economic sense. The real start of the recession was Q3 2008.
My take is that the market (stock market) is currently undervalued, but that the recovery will be an L-shaped one, sort of what Roubini is saying. We dont have any more shoes to drop, financial bubble-wise, in fact the Fed zero interst policy is enough to goose up the banks (like happened in 1992-1995). But real growth is stalled, due to the HUGE threat of higher taxes, regulation and jobkilling socialist nonsense. Next year may be 1-3% growth, but not the 5% growth that kicked in when we cut taxes like in 1980s or 2003. Simulus via govt spending is like amphetimines, the high is short and non-lasting. We saw that in Q2 2008 - a kick of consumer spending that died in a month. We are going to see it again - the ‘stimulus’ will not encourage long-term economic growth but short-term higher spending.
The experience will be like Japan’s.
Obama’s economic plan has no incentive for job growth, and we are 3 million under peak job #s. We wont have net job creation for another 2-3 years. Obama will IMHO have a terrible record on job creation.
Sorry, but the light at the end of the tunnel has to be extinguished as it contributes to climate change.
:)
“The guys on Minyanville.com have been offering the best-guess that this rally will play out in a week or two, we’ll retest the March low going into summer.
We might get a lower low down to about 500, stretch 450, on the SPX/S&P 500.”
Ah, that explains why you aren’t a millionaire.
Such a prediction is utter nonsense. The market lows were put in already. ... and if someone predicts its going lower AND higher, they are just covering their bases.
I think you might have read me wrong. When I say retroactively, some voices are now saying that we are two years into the recession. This is them being overly optimistic, because most recessions would start to be in recovery after two years.
In truth, I am holding to some estimates of the DOW as low as 800-1600 at the bottom of the depression, and remaining below 4000 for as long as a decade.
Simply put, the most the government can deal in are single trillions of dollars. However, their debt is already about 15 trillion dollars, and they have promised another 65 trillion dollars to unsustainable largesse programs.
Thus no recovery is possible until these obligations are renounced. This means defaulting on the national debt, and the cancellation of Social Security, Medicare and Medicaid.
On top of that, a mandatory balanced budget, because no one will loan the US money for deficit spending. And a significantly lower budget to boot, because of radically lower tax revenues.
All things considered, right now and for the medium term, liquidity, not investment, is king. And preferably cash in hand, not stored electronically. Literally, “mattress money”, something Americans haven’t needed since the Great Depression.
” I am holding to some estimates of the DOW as low as 800-1600 at the bottom of the depression, and remaining below 4000 for as long as a decade.”
That’s an absurd prediction IMHO.
IBM alone is at $100/sh and deserves to stay there. The long-term earnings power at 12X PE is above even current prices.
“Simply put, the most the government can deal in are single trillions of dollars. However, their debt is already about 15 trillion dollars, and they have promised another 65 trillion dollars to unsustainable largesse programs.”
Not quite. debt is 11 trillion, going to 19 trillion after 8 years.
“Thus no recovery is possible until these obligations are renounced. This means defaulting on the national debt, and the cancellation of Social Security, Medicare and Medicaid.”
Um, no... we have had these actuarial obligations for decade s and they dont stop the economy from going foward.
OTOH, Obama’s morasse of debt will be so bad that real tax reform will be stymied perhaps forever, and the only ‘entitlement reform’ possible will be some drastic and ugly reduction in benefits.
You are IMHO confusing the effects here - Obama’s deficits are like termites at our foundation, but not like a fire in the house. The USA financial system will still be livable, but will weaken from within.
I expect that just as we had a ‘housing bubble’ in the last 5 years, we may have a good 5 year run of the “BIG GOVT BUBBLE” before any dire things like defaulting on debt happen. (And that would never happen. What we would see instead is 10% interest rates and another horrible recession like we had in 1980-1982.)
The granddaddy of all bubbles looms. The Bank of England has already issued a warning to their government about the likelihood of an national bond collapse. US long term bonds have become so weak that investors are shifting money from long term to short term bonds.
To top it off, the FED is buying T-bills, which creates a closed loop. That is, Treasury issuing bonds purchased by the FED that require additional bond issue to pay for the purchases.
This leads up to a collapse of the T-bill. As things stand right now, not only would investors have to continue purchasing T-bills at their current rate, but close to double their purchases, just to sustain the T-bill issues.
Do not make the mistake of assuming that Obama has had any great impact on the situation at all. This problem has been looming since the 1970s and was created in the first place in the 1940s.
In some of the markets, like derivatives, debt exists in excess of $150T. More than four times the GDP of the entire world. This isn’t repairable, this cannot be patched, it cannot be kept on life support. And worst of all, this debt is in competition with USG debt and our real economy of goods and services outside the financial sector.
The big accomplishment of the G20 was simply to create an international regime to prevent this from ever happening again. But they had no fix for what has already been done.
http://i2.photobucket.com/albums/y25/mluphoup/debtpyramid.jpg
Huh? What the hell did I do to you, and what business of yours is my bank balance?
Such a prediction is utter nonsense.
That's twice in one post.
The market lows were put in already.
Okay, wise guy, put your money where your mouth is. Call your shot. Lever up and go for it. Tell us what you bought, and how much you paid for us, then post the confirms on you profile page. Show us the money. And stay long -- staaaaaayyyyyy loooonnnngggggg...... Remember, you called the low.
Show us, don't tell us, if you're going to come in here and jump nasty. You want to be Mr. Big Shot and kick ass and take names? Fine. Earn it.
Put your money up. Call us when you've posted your confirms where we can see them.
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