Hello all!
Things continue to worsen in the markets as the unemployment rose to 5.7%. This was the highest rate in four years.
"Aug. 1 (Bloomberg) -- The U.S. unemployment rate rose to the highest level in more than four years as employers cut jobs again in July, increasing the threat of a deeper economic slowdown.
Payrolls fell by 51,000, less than forecast, the Labor Department said today in Washington. The jobless rate rose to 5.7 percent, from 5.5 percent the prior month. As recently as April, it was 5 percent. A separate report showed that manufacturing stagnated in July as companies were hit by rising raw-materials costs and slower spending.
``This is further evidence the economy is in a recession, probably a shallow recession,'' said Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts, referring to rising joblessness. ``It will be a major drag on consumer spending.''
The last time the unemployment climbed so much in three months was at the end of the last U.S. recession in 2001. Payroll cuts combined with decreasing property values, stricter lending rules and near-record energy prices to send consumer confidence levels close to the weakest in 16 years in July."
Final Take/Rant:
Stocks did not react well to the news. Stocks were down as much as triple digits on the DOW. I don't really know what to say here folks. We are in deep trouble. The news continues to get worse each day.
The strapped consumer is now starting to lose their job at a time when they are up to their eyeballs in debt. This combination is frightening because it leaves you with zero options.
When you have zero cash and no job, saving the house will be the last of their concerns. Finding their next meal is going to become priority number one. I can't stress to you how dangerous this situation is becoming.
The government has to wake the hell up and start making tough decisions. Going on TV daily and attempting to calm the masses simply isn't cutting it anymore. Things are not OK! They are deteriorating by the week. A serious economic downturn/collapse is waiting in the wings if things do not change.
The focus of the government and Treasury must switch towards trying to save America versus trying to save Wall St. Interest rates must rise in order to protect the consumer from inflation. Housing must be fall to affordable levels. Financial institutions must take their losses and start failing versus sucking up all of our tax money via government bailouts.
The stimulus didn't work so its time to change our economic policies. Shut down the discount window. If financial institutions fail then they fail. They made bad bets. Thats how capitalism works. I would rather see the Fed temporarily nationalize the banks versus Fannie/Freddie if that is whats needed to be done in order to save the financial system. Take the money that is wasted at the discount window and start trying to create jobs with it. Its our money and we are suffering!
The liquidity and stimulus from the Fed has done nothing but postpone the losses that must be taken by both the homeowner and the financials. The longer we wait the worst this economic downturn will be.
I mean look at GM today.
"Aug. 1 (Bloomberg) -- General Motors Corp. reported a second-quarter loss of $15.5 billion, the third biggest in its 100-year history, because of plunging U.S. sales and the declining value of truck leases. The shares fell as much as 11 percent.
The deficit of $27.33 a share compares with a profit of $891 million, or $1.56, a year earlier. Excluding costs GM considers one-time, the per-share loss was 4 times bigger than analysts projected. Labor strikes contributed to a $9.9 billion drop in North American revenue, and sales worldwide tumbled 18 percent to $38.2 billion."
Continued
Look at those numbers. The company lost $15 billion in 1 quarter. $15 billion!!! What does this tell you about the health of the consumer. From what I have heard, car sales have virtually disappeared in the last month. Leases are now pretty much gone. No car has any resale value when the dealer gets it back so they have no desire to do leases anymore. Borrowing the money for them has also gotten expensive so leases make no sense from this standpoint either.
These losses are becoming fricking ridiculous. Banks like Merrill, Wachovia, and Washington Mutual continue to puke up billions in losses quarter after quarter. How many bad quarters is it going to take before we realize that some or all of these institutions are insolvent.
I mean Merrill announces a $10 billion quarterly loss and then comes out days later and announces another $5.7 billion dollar loss. This is insane. This tells me they don't even know what they have on their books because housing is deteriorating at such a fast pace. They obviously would have preferred to announce these losses all at once.
In my eyes and others, Merril did this for one of two reasons. Either they were about to get downgraded by the ratings agencies if they didn't do something, or they were hurting for cash so they decided to get what $$ they could by selling some of their CDO garbage.
Bottom Line
Housing continues to worsen and Wall St.'s balance sheets live in die by housing prices. If housing continues to plummet, so will Wall St.
Because of this, continuing to inject stimulus into failed companies is a waste of time and money. We all know that houses will drop because they are still unaffordable. People are out of work and suffering from serious inflation and high gas prices. Fed policy must make the American consumer its number one priority.
I love America and to see it being destroyed like this truly breaks my heart.
Its time for change and its not too late! If we take the right steps we can turn this around.
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