Its reality time.
I just got done vomiting after spending several hours watching Bubblevision today. I don't know why I torture myself like this: Perhaps I am a glutton for punishment? All I can say is thank god for Rick Santelli. He is the only rational guy left on CNBC. Others like Mark Haines are getting there but I still see little horns on top of their heads.
Anyways, the majority of the day on this absurd network was spent highlighting the so called "silver linings" of growth seen throughout the economy. According to the "Power Lunch" retards, the economic mustard seeds are starting to sprout as our economy begins to show strong signs of recovery!
I am really starting to get agitated by this constant inaccurate pumping of the economy by this channel. Has anyone ever wondered how many trillions of dollars this network has cost investors that actually believe that this is accurate financial news reporting? I bet the numbers are astounding!
IMO this network should be a subscription service for investment professionals that have the capability to differentiate the snake oil salesman thats "talking his book" from the guys who are actually bringing solid fundemental economic data to the table.
Anyways, let me once again be the "counter weight" to the CNBC pump. The mustard seeds are not sprouting ladies and gents. In fact, if you look at the data you would think that someone hasn't watered them in about 6 weeks!
I suggest everyone reads this piece from the New York Times around US production. As you can see, lack of demand as a result of the struggling consumer has pushed US production into a tailspin:
As you can see above, this is the 2nd largest contraction in US production since The Great Depression. I expect that we will pass the '82/83 contraction within a matter of months the way this graph is falling off a cliff.
In fact, if you look at world industrial output, we are actually contracting at a faster pace than we did during The Great Depression!:
The New York Times explains in the piece above that its going to take years to mop up this excess inventory. Factories will continue to run at a much lower capacity as we lick our wounds and pay off our debts. Anyone thinking that this is all going to turn around by 2010 needs to be put in a straight jacket. There will be mustard seeds sprouting here someday, but its going to be anytime soon!
This is another subject that CNBC loves to go on and on about. Housing sales are up! Mortgage applications are too and blah blah blah blah blah.....
Lets take a look at the real numbers:
Yes home sales are up in February, but all this bump really did was get us back to December levels. Remember January was one of the worst months ever for home sales so moving up from these levels is nothing to write home about. All three of these months are all WAY below where we were during the boom.
Whats also interesting here is you can tell by the increased number of housing applications that there is demand for housing. The problem is no one is qualifying! You can see above that during the boom years when lending was loose, mortgage applications were a great indicator for what home sales would look like down the road because the banks would give a loan to anyone with a pulse.
This graph does a nice job showing you from how tough the lending standards got from 2007-'09 as the housing bubble burst. There is now a huge gap between applications to buy a home(this does not include refi's) and actual home sales. The banks finally learned how to say NO! Sigh...if only Paris Hilton could learn the same lesson....:)
What this chart tells you is home prices are still too high and the banks refuse to lend to someone who can't afford the house! The gap between home sales and applications would be much smaller if housing was affordable. This means only one thing people: Housing prices will continue to fall until this gap is narrowed and buyers can once again qualify.
Don't believe the hype! This bounce is doomed the way I see it. The bulls were barely able to take the market higher despite getting favorable news on the uptick rule today. There was also news of a potential bailout of the insurance industry. This also failed to propel stocks.
I continued to hold the S&P short. The insurance companies are now a very tempting short in my view. Some of them jumped 25-30% on the bailout news. PRU is the name I am looking at on the short side. They have the worst management team of all the big insurers according to my contacts. There is no need to jump in too soon here though. They may run up on the Fed news for a bit.
Until next time!