Wednesday, April 8, 2009

Economic Recovery? HA!

Alrighty Folks,

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!:

We don't need to produce things folks if no one has the desire to buy them. The Baltimore news reported over the weekend that there are 57,000 cars sitting in Baltimore Harbor with nowhere to go!

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!

Housing Numbers

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:

My Take:

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.

Bottom Line:

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!


Joey said...

Nice work.....

Hope all is well Jeff!


Jeff said...



Hope your trades are working well.

Jeff said...


All banks pass the stress test! Rally on!!!! What a shocker....NOT

What a joke:

"For the last eight weeks, nearly 200 federal examiners have labored inside some of the nation’s biggest banks to determine how those institutions would hold up if the recession deepened.

What they are discovering may come as a relief to both the financial industry and the public: the banking industry, broadly speaking, seems to be in better shape than many people think, officials involved in the examinations say.

That is the good news. The bad news is that many of the largest American lenders, despite all those bailouts, probably need to be bailed out again, either by private investors or, more likely, the federal government. After receiving many millions, and in some cases, many billions of taxpayer dollars, banks still need more capital, these officials say.

The federal “stress tests” that the examiners are administering are the subject of fierce debate within the banking industry.

Regulators say all 19 banks undergoing the exams will pass them. Indeed, they say this is a test that a bank simply will not fail: if the examiners determine that a bank needs “exceptional assistance,” the government, that is, taxpayers, will provide it."

Anonymous said...

From a Forbes article in discussion with a Portfolio Manager, Khaner;
"My fear is that since this test is to be self-administered by the 19 banks, the results may turn out to be more favorable than if an outside third-party performed it. It is fair to say that under these crushing circumstances most of us wouldn't fail a test where we got to grade ourselves."

Now that says it all doesn't it.

On the upside though it's a long weekend time to take the TARP of the sailboat and think some pleasant thoughts for a change, the upcoming Sailing season.


Jeff said...


Enjoy your sailing this weekend.

I just did a post on Wells this morning. I am totally disgusted at whats going on right now.