Recession Could be Deepest on Record for Britain
30 October 2009
Commenting on GDP figures released on 22 October, which showed the economy shrank by 0.4% between July and September, Liberal Democrat Shadow Chancellor, Vince Cable said, "for all the hopes of a quick recovery, these figures make it clear we are still in the longest and what could yet become the deepest recession on record.”
For all of the stimulus that has been thrown at the economy, it’s clear that massive structural problems still remain, particularly in the banking sector and with unemployment.
The GDP figures add serious concerns over the realism of government plans to deal with the burgeoning public debt. It’s critical that ministers outline a credible plan to how they will deal with the deficit and the growing unemployment. Speaking on unemployment, this legacy situation is likely to linger for years after the recession ends and radical measures need to be put in place to avoid repeating mistakes that were made in the 1990s, which left millions out of work.
Prospective MP for Redcar, Ian Swales said, "the fact that the country is still in recession is more bad news. With unemployment already at high levels and more threatened, we desperately need a turn around in the country's fortunes. While other countries like France and Germany are growing again, we are still faced with decline and a collapsing currency, due to the reckless policies of the Labour Government."
At Least Families are Getting Together More…
29 October 2009
According to figures recently released by the Center for Responsible Lending, nearly 3 million houses are expected to be foreclosed by the end of 2009 in America...and there are 8 million still to go!
What happens to people who lose their houses? Many are being forced to move into homeless shelters. Only three years ago, foreclosures rarely forced someone into homelessness. But today 10% of people in shelters have lost homes to foreclosure, according to a report “Foreclosure to Homelessness 2009”. It’s just another example of the dark side of asset bubbles like we’ve seen lately.
The New York Times ran a story a few days ago of a woman that lost her house…sleeps in her car…stays with friends…tries to find work…and eventually, runs out of options and checks into a homeless shelter.
What’s a little odd about this story is that this woman has three grown children, six grandchildren and even a great grandchild. Now, what’s going on here? Are all those kids so heartless that they won’t take in grandma? Or is grandma so insufferable that no one can stand being around her?
I like to take the ‘glass half full’ attitude and this reminds me of what is so nice about recessions – it brings families together, as well as improving manners. Grandma knows she needs to watch her behavior or she’ll be sent packing to a homeless shelter.
Once you knock grandmas down it’s harder than ever for them to get back up. Why? They’re not as flexible as they used to be…ta da pshhhhh. Besides, they have no way to earn money.
Mortimer Zuckerman, editor of US News & World Report, provides the following figures:
Of Americans who are out of work, more have been jobless for longer than at any time since 1948. More are exhausting their unemployment benefits before finding a new job than ever before. And if they are lucky enough to find work, they’ll work the shortest workweeks (less work = less pay) since 1951.
In other words, the baby boomers have never seen times so tough – for themselves, as well as for their children. More than 11 percent of Americans depend on the government for their daily bread. There are 6.2 million more people on food stamps than when the recession began. And there are more than 6 people waiting in line for each job opening, up from 1.7 when the recession started.
The baby boomers meanwhile figure they will have to keep working longer than expected – 63% say they expect to delay retirement in order to build-up more retirement savings.
This is bad news for younger workers, who were hoping the boomers would get out of the way to free up some jobs. Among young Americans, unemployment hasn’t been this high since 1945.
It’s tough times all around – young people, baby boomers and even grandmas, but on the bright side, at least families are getting together more.
Can We Do Back-to-Back Bubbles?
28 October 2009
How about this recovery? It’s almost miraculous. No jobs…no sales…no credit…no problem!
Look at the stock market…and oil…and gold…and London property!
Real estate agents in London say they’re sold out…and prices are being pushed up. Well, asking prices that is. As for sales prices, that’s another matter. But hey, property is moving again.
The good news is that London is a finance centre – driven by finance and finance seems to have gotten out of rehab. It’s party time again!
The Wall Street Journal is talking about a “full recovery” in luxury goods sales by 2011. And Wall Street itself is pricing stocks as if the record profit margins of 2005 and 2006 are just around the corner.
In other words, investors’ expectations have not changed. They think things will return to the way they were during the previous ‘Bubble’ days.
How could that happen? A full recovery implies a number of things:
- The ‘Son of Bubble’ will be as big as the dad
- All those people without money, jobs or credit will magically start spending again
- The baby boomers will stop saving for their retirements and begin to party like it was 1999
Keep in mind that ‘Bubble’ spending, sales and profit figures were made possible by borrowing. People spent every penny they earned and then “took out equity” on their houses in order to spend even more.
At the height of the bubble period, Americans were taking out more than $500 billion per year. Now, they’re putting back nearly $500 billion a year in savings.
I don’t like to be a party pooper, but there is no way to return to the Bubble days by saving.
What I see happening is a typical post-crisis bounce…powered by easy cash and credit from the feds. How long can it go on? How far can it go? No one knows. But if you want answers, I’ll go way out on a limb. It won’t go on forever. And it won’t go to the moon. And most likely it won’t be long before the whole thing comes crashing down.
The only way to keep this market surge going is by creating another bubble. And this economy just doesn’t contain the required market fundaments to support another bubble…on contrary, it actually contains opposing fundamentals.
“The stock market has never been this overbought”, noted analyst, John Hussman states.
Hussman adds that the only time stocks were this overbought was on 28 November 1980. That was the last rebound in the great bear market that began in 1966. Afterwards, stocks fell another 30% before finally hitting bottom in August 1982.
Just be prepared, as I smell a crash coming. Maybe it won’t be next week or the week after, but everything is pointing in that direction.
Global Recession Could Result in 25 Million Job Losses
27 October 2009
The Organisation for Economic Cooperation and Development (OECD) warned today that in spite of signs of recovery in major economies, the global recession could mean 25 million people will lose their jobs.
The news comes after the Office for National Statistics (ONS) revealed that unemployment in the UK grew by 210,000 to 2.47 million in the three months to July – the highest level since 1995.
The latest figures take the unemployment rate to 7.9%, up from 7.8%, according to the ONS.
However, while the 25 million is slightly less than an earlier forecast, Paris-based OECD said intervention is required by governments in order to prevent the sharp rise turning into long-term joblessness.
The organisation added that so far, 15 million jobs have been lost and another 10 million is forecasted to go by the end of next year.
According to the OECD, the unemployment rate across the 30 most industrialised nations hit 8.5% in July – the highest since the aftermath of the Second World War.
However, the US, Ireland and Spain have been worst affected, due to the property market crash and the banking crisis.
OECD chief, Angel Gurria, said: “Employment is the bottom line of the current crisis. We should not assume that growth will take care of this.”
Everyone is Celebrating 10,000, but We’re Still Short of the Mark…
26 October 2009
There was a great deal of partying and celebrating recently when the DJIA broke through the 10,000 point level and we can kind of understand. I mean it’s been more than a year since it’s been at this plateau and only seven months ago, it was at a 12-year low of 6,547.
Sure, this is good, but let’s not get ahead of ourselves and lose perspective on reality.
For one thing, this recent milestone has had much more to do with the financial sector than the performance of the ‘real’ economy, where business fundamentals are still extremely weak and the industrial base continues to shrink (possibly permanently, if some darkest fears are proven correct). Most of the initial problems that created the recession in the first place remain unresolved. The potential for dramatically more mortgage defaults, bankruptcies and bank faults is substantial.
Can this surge be explained logically, based on current economic fundamentals or should I say, lack of economic fundamentals? One thing to keep in mind – improbable things happen and probable things fail to happen. We’ve all seen this since the beginning of 2008. How probable was it for oil to fall from $143 to $30 in six months? It would have seemed probable that inflation would be high by now, but it isn’t.
The muted activity within the real economy is a seriously negative forward indicator and goes hand-in-hand with continuing job losses. On top of that let's not get too excited by a retrace to 10,000 – when the markets started to fall last year, we said don't expect it to be a straight downward spiral. Then back in March, we forecasted a classical Fibonacci retrace above 12,500, so we’re still a bit short of that mark. If we don't make that mark, then the next leg-down could be lower than 6,547...much lower and it could be beginning any day now.
Keep in mind our equity advisor, Sam Liddle, recently told an audience here in Bangkok that he wouldn't be surprised if the market holds on to these gains for the rest of this year and doesn't correct from any over-bought positions until next year. Sam has a fantastic record of reading the pulse of the market, so this should be seen as a best timing indicator. In closing he was quick to point out, there is great uncertainty in this market and things can change extremely quickly. And like I wrote above, improbable things happen and probable things fail to happen.