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Plunging Consumer Confidence and Treasury Yields, Economic Depression Is Here
The Market Oracle ^ | 6-29-2010 | Mike Shedlock

Posted on 06/29/2010 9:57:07 PM PDT by blam

Plunging Consumer Confidence and Treasury Yields, Economic Depression Is Here

Economics / Great Depression II
Jun 29, 2010 - 01:46 PM
By: Mike Shedlock

Is that a 3-handle I see on the long bond and a 2-handle of the 10-year treasury? Why yes it is.

Treasury Yields - Weekly Close

The week is not over yet but this looks rather ominous. Treasury yields are back where they were in April of 2009 at the start of the so-called "recovery".

I am not quite sure why the 3-month treasury displays as a flatline at .5. The flatline is closer to 0.

Consumer Sentiment Plunges

Inquiring minds note that the Consumer Conference Board Confidence Index Drops Sharply.

The Conference Board Consumer Confidence Index® which had been on the rise for three consecutive months, declined sharply in June. The Index now stands at 52.9 (1985=100), down from 62.7 in May. The Present Situation Index decreased to 25.5 from 29.8. The Expectations Index declined to 71.2 from 84.6 last month.

Those saying conditions are “good” decreased to 8.0 percent from 9.7 percent, while those saying business conditions are “bad” increased to 42.4 percent from 39.5 percent. Consumers’ assessment of the labor market was also less favorable. Those claiming jobs are “hard to get” increased to 44.8 percent from 43.9 percent, while those saying jobs are “plentiful” decreased to 4.3 percent from 4.6 percent.

Consumers’ short-term outlook, which had improved significantly last month, turned more pessimistic in June. Those anticipating an improvement in business conditions over the next six months decreased to 17.2 percent from 22.8 percent, while those expecting conditions will worsen rose to 14.9 percent from 11.9 percent.

An Economic Depression is Here

Either the present conditions are about to move back up or the expectations index is about to plunge as well. I expect the latter. Expectations for improvement are way too optimistic, not that a reading of 71 is optimistic at all. It isn't.

Structural problems are immense and the sad fact of the matter is those problems cannot be cured by more deficit spending. Krugman is correct about a depression, just wrong about the cure. Logically the disease and the cure cannot be the same.

By the way, a depression is not coming, we are clearly in one, a deflationary one at that. Once again, those chanting hyperinflation all missed the boat by light-years.

Various safety nets like food stamps, unemployment insurance, and of course people no longer paying their mortgage and living in their houses for free all mask over the depression.

Depression is The Price We Pay For Budgetary Murder and contrary to Krugman's belief, further budgetary murder cannot possibly cure anything.

Understanding The Problem

Before you can fix anything, you have to understand what the problem is and what caused it.

What causes depressions is an unsustainable runup in credit and debt that precedes it, NOT a failure to go deeper in debt.

Anyone who understands 5th grade math should be able to figure that out. Unfortunately, Nobel prize winning economists can't.

Congress, the Fed to Blame

In this case, a spendthrift Congress coupled with loose monetary policy at the Fed, effectively encouraged housing and other speculation. The depression we are in now is a result of massively failed policy. The same policy cannot possibly be the cure.

Give Congress the boot and vote in those against bank bailouts, Fannie Mae bailouts, excessive military spending the US simply cannot afford, and other free-lunch policies.


TOPICS: News/Current Events
KEYWORDS: buyspam; depression; doomed; economy; recession; recovery

1 posted on 06/29/2010 9:57:12 PM PDT by blam
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To: blam

The inflationistas have been deriding David Rosenberg’s prediction for a “two handle” on the 10 year for months and months now.

Hmmm.

The CPI and PPI prints suggest that we not only have no inflation, we have slight deflation - for the past two months (CPI) and three months (PPI).

And now, the 10 year has a two handle.

Where oh where is the inflation that the bulls were worrying about?


2 posted on 06/29/2010 10:03:28 PM PDT by NVDave
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To: blam

Government debt is deflationary.

Demographics are deflationary when you have 77 million Baby Boomers hitting retirement age from 2007 to 2025 (all of whom desperately want to get out of their mcmansions and into little retirement condos).

The loss of credit availability to the private market is deflationary. The world has 50% less credit availability today compared to 2006.

Rising unemployment is deflationary.

Global overproduction of goods, services, and buildings is deflationary. The world has too many shopping malls, too many cargo ships, too many cars, too many computers, too many aircraft, too many factories, too many office towers...in short, too much of everything.


3 posted on 06/29/2010 10:07:12 PM PDT by Southack (Media Bias means that Castro won't be punished for Cuban war crimes against Black Angolans in Africa)
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To: NVDave

It’s in the universities — 30% to 40% hikes in rates after many years of 7% to 10% hikes. Of course, we all now who runs higher-ed.


4 posted on 06/29/2010 10:10:19 PM PDT by ProtectOurFreedom
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To: Southack

When the SHTF, have a list, people. We need to take care of business.


5 posted on 06/29/2010 10:12:07 PM PDT by Hoosier-Daddy ( "It does no good to be a super power if you have to worry what the neighbors think." BuffaloJack)
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To: blam
We're just having a recoveryless recovery. That's all.

sarc/

6 posted on 06/29/2010 10:17:22 PM PDT by FlingWingFlyer (Hey America! Had enough "history" yet?)
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To: blam

Interesting. BTTT.


7 posted on 06/29/2010 10:18:46 PM PDT by PGalt
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To: Hoosier-Daddy

If it comes to that, those on the list will have long since fled for greener pastures. Good luck.


8 posted on 06/29/2010 10:31:24 PM PDT by thecabal (Destroy Progressivism)
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To: Hoosier-Daddy

And befriend a good herbalist/chemist, for when pharms are unavailable. Food does no good if you die from not having meds.


9 posted on 06/29/2010 10:31:50 PM PDT by Gondring (Paul Revere would have been flamed as a naysayer troll and told to go back to Boston.)
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To: Southack

I agree with you on deflation but when the government has to continually print money to pay interest on those debts we will eventually see inflation as our currency is devalued.

Regardless, either scenario is not good and we are in big trouble!


10 posted on 06/29/2010 10:32:58 PM PDT by volunbeer (Dear heaven.... we really need President Reagan again!)
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To: NVDave

What is a two handle? What is the significance?


11 posted on 06/29/2010 10:34:14 PM PDT by ModelBreaker
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To: Hoosier-Daddy
When the SHTF, have a list, people. We need to take care of business.

The recovery blueprint is simple: The Consititution.

12 posted on 06/29/2010 10:35:55 PM PDT by DTogo (High time to bring back the Sons of Liberty !!)
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To: thecabal

i have a very long memory, and always need in a good stretch of the legs.


13 posted on 06/29/2010 10:36:53 PM PDT by Hoosier-Daddy ( "It does no good to be a super power if you have to worry what the neighbors think." BuffaloJack)
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To: Southack

Looks symmetrical, with no upside. No short term or long term upticks, so the market is going negative across the board. The Great Unwinding.


14 posted on 06/29/2010 10:39:27 PM PDT by Hoosier-Daddy ( "It does no good to be a super power if you have to worry what the neighbors think." BuffaloJack)
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To: blam

Bump


15 posted on 06/29/2010 10:41:32 PM PDT by Jet Jaguar (*)
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To: DTogo

Amen, but with all the corruption in government, I really don’t see this story ending without a lot of blood-shed, honestly.


16 posted on 06/29/2010 10:46:28 PM PDT by Hoosier-Daddy ( "It does no good to be a super power if you have to worry what the neighbors think." BuffaloJack)
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To: ModelBreaker

Sorry - trader lingo.

A “two handle” means that the first digit of the 10-year Treasury yield is a “2” - as in “2.990%” in yesterday’s market, or “2.95%” in the overnight market.

The significance: If we’re supposed to have inflation, then treasury yields should be going up. Indeed, that’s what the “smart” people on Wall Street and economists were projecting.

Here’s an example of what I speak:

http://online.wsj.com/article/SB10001424052748703523504574604351415337492.html

Here we are, halfway through the year, and we’re going firmly in the wrong direction to these forecasts.

Oh, and the other end of the yield curve? Golly, let’s have a look at those projections for 2+% yields on the 2’s, shall we?

http://online.wsj.com/article/BT-CO-20100629-712036.html

Huh. LOWER than the panic-buying of late 2008. Really? What does that tell us?

Well, it tells us that these clowns couldn’t forecast rain in Seattle, that’s what.


17 posted on 06/29/2010 10:53:36 PM PDT by NVDave
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To: Hoosier-Daddy

America began with a lot of blood shed. Nobody wanted it then, nobody wants it now, but it’s probably coming.


18 posted on 06/29/2010 11:03:43 PM PDT by DTogo (High time to bring back the Sons of Liberty !!)
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To: Southack

but we are paying thru the nose for services like airline travel,health insurance,car insurance.....


19 posted on 06/29/2010 11:41:27 PM PDT by cherry
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To: Hoosier-Daddy

Money is coming out of corporate bonds and is coming out of stocks. Money is going into credit default swaps (betting on company failures) and into government bonds (flight to safety).

Congress just punted the most recent “bailout” (unemployment extension) and the ECB is telling Spain that it won’t renew its special $400 Billion line of credit this week.

“Everyone” knew that both of the above would get renewed...now, not so much.

If there was a better way to bring on deflation faster, the current world governments haven’t missed it.


20 posted on 06/30/2010 12:30:02 AM PDT by Southack (Media Bias means that Castro won't be punished for Cuban war crimes against Black Angolans in Africa)
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To: Southack

“in short, too much of everything.

and how do you get rid of stuff?

A good apocalyptic war should take care of that.


21 posted on 06/30/2010 2:45:59 AM PDT by vanilla swirl (Where is the Black Regiment?)
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To: vanilla swirl
A good apocalyptic war should take care of that.

All joking aside, I would expect someone to start one soon, if Iran had nukes, or the NORKs, we would probably already be in one.

22 posted on 06/30/2010 4:46:21 AM PDT by calex59
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To: blam
I guess in this area, people can rightly say it is Bush's fault. He had 8 years to reign in spending by proposing downsizing entitlements when things looked pretty rosy (people could stomach less spending when unemployment is 4.8%) and use his veto pen, but he hit the accelerator.

Now we have a communist congress and executive branch and sheeple think the cure is "not Bush". Some people are slowly waking up, but I think it's too little, too late with Axlerod and Soros pushing every marxist program of government economic controls that can be written. Now we have the Euro house of cards caving and Obozo won't be able to convince them to keep over spending.

Prepare for the worst.

23 posted on 06/30/2010 5:47:33 AM PDT by uncommonsense (Conservatives believe what they see; Liberals see what they believe.)
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To: blam
US Futures Shoot Lower After Horrible ADP (Jobs) Report
24 posted on 06/30/2010 6:36:07 AM PDT by blam
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To: NVDave
RBS: Equity Investors Are The "Worst Cult In History," Prepare For The "Cliff Edge"
25 posted on 06/30/2010 6:39:11 AM PDT by blam
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To: vanilla swirl; All

In fact, that is what the Russian economist, Kondratieff, suggested is the natural result of these cycles. The end of the “K-wave” cycle, which is about 70 years long, is war, he suggested.

For those who want to attribute these things to cycles, I strongly recommend reading up on the “super cycle” or “K-wave” which is inspired by Kondratieff’s work. Kondratieff was an interesting and tragic character in economics; an ag economist in Russia (can there be a more miserable and futile position?), he was tasked by Stalin to examine who allocated capital more efficiently - the capitalist west or the centrally-planned Soviets?

K came back and said “for all their boom-bust cycles, the capitalists” - in a sort of fore-runner of guys like Schumpeter, Kondratieff said that the destructive phase (ie, deflationary side of the wave) caused capital to be re-allocated into the better manager’s hands, to set up for the next expansion. However, in the deflationary side of the cycle, excess capacity has to be either destroyed or re-deployed.

Well, the destruction of international excess capacity, Kondratieff suggested, is what resulted in wars.

And, in fact, subsequent to Kondratieff’s death in the gulags (Oh, you didn’t guess that already? Stalin was pissed at the results of his study), we see in WWII that the world had HUGE excess capacity going into WWII.

How did the US economy roar out of WWII? We bombed the competition into rubble. And then we sold them the stuff with which to rebuild... because we were the only guys left with huge capacity to produce. Convenient outcome for us, eh?

Look back at the history of the 1870’s and the “Long Depression” and we see that Europe had over-capacity as the US industrial capacity was ramping up in a HUGE way.

Right now, we have Europe and the US with over-capacity, Japan with too much capacity... and China is ramping up in a huge way, which India hot on their heels.

I don’t think that we’ll see a war this time ‘round tho. Too many nukes. Which means that we’re going to see some extravagantly silly policy ideas on what to do with all this excess capacity.

Never forget that there is NO idea that is too silly to gain consideration by Ivy League academics.


26 posted on 06/30/2010 8:04:07 AM PDT by NVDave
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To: NVDave; All

“I don’t think that we’ll see a war this time ‘round tho. Too many nukes. Which means that we’re going to see some extravagantly silly policy ideas on what to do with all this excess capacity.”

Not quite so sure of that. Iran wants a big conflagration to reveal their 12th Imam. If that is what they believe than that is what WILL happen sooner or later. True enough the eagle and the bear may not be exchanging nukes over the north pole but there still is opportunity for plenty of destruction.


27 posted on 06/30/2010 8:25:16 AM PDT by vanilla swirl (Where is the Black Regiment?)
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To: uncommonsense

Your lack of intelligence is stunning.


28 posted on 06/30/2010 10:24:36 AM PDT by Southack (Media Bias means that Castro won't be punished for Cuban war crimes against Black Angolans in Africa)
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To: Southack

Ah, a Bush apologist. Your lack of information on my intelligence is absolute, your judgment is suspect, your inability to admit to uncomfortable truth is obvious, and your decorum is completely void. Please don’t bother me any further with your ignorance.


29 posted on 06/30/2010 11:34:26 AM PDT by uncommonsense (Conservatives believe what they see; Liberals see what they believe.)
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To: uncommonsense

It’s unlikely that you have the mental firepower to comprehend much of what you are shown, anyway.

Good riddance. Your posts merely lower the average IQ on display in this place.


30 posted on 06/30/2010 12:03:23 PM PDT by Southack (Media Bias means that Castro won't be punished for Cuban war crimes against Black Angolans in Africa)
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