05/04/10 Baltimore, Maryland – The lies that bind…
News Flash:
WASHINGTON (AP) – Consumer spending rose in March by the largest amount in five months but the gains were financed out of savings, which fell to the lowest level in 18 months. A slight rise in incomes added to concerns that the recovery could weaken unless income growth increases more rapidly.
This is supposed to be a recovery. Everyone thinks it’s a recovery. All the papers say so. Investors are betting on it. Politicians and economists are congratulating themselves for it.
The only trouble is, the things that need to recover so that there can be a genuine recovery are not recovering.
On the surface…
Monster.com says the job situation is improving.
Case & Shiller say the housing market is improving.
Yesterday’s news also told us that Europe has agreed to bail out its problem child, Greece. The New York Times:
ATHENS – Greece announced on Sunday that it had reached agreement on a long-delayed financial rescue package that would require years of painful belt-tightening, but the deal might not be enough to stop the spread of economic contagion to other European countries with mounting debts and troubled economies.
The bailout, which was worked out over weeks of negotiations with the International Monetary Fund and Greece’s European partners, calls for 110 billion euros, or $146 billion, in loans over the next three years intended to avoid a debt default.
And so, on the back of this good news, the Dow recovered what it had lost on Friday. Oil traded at $86. And gold edged up 2 bucks.
Up, down, up, down – suddenly, the stock market seems nervous. Maybe it is beginning to realize that the recovery story is a lie…a fake-out…
We have a feeling that the present volatility is going to be resolved by a decisive move to the downside. So, we’ll keep our ‘Crash Alert’ flag up the pole for a bit longer.
Of course, we’ve been wrong about the timing before. And if we’re wrong this time, don’t bother to send us an email. Some of the world’s most important fortunes have been preserved by selling too soon. We won’t mind being a bit premature again.
“This recovery has nothing in common with typical post-war recoveries,” we told our audience in Las Vegas on Saturday, “because the recession has nothing in common with the garden-variety recessions of the post-war period. This time it’s different…”
Which is to say, this time it’s the same…it’s coming back to normal…not getting more bizarre.
In the meantime, unemployment benefits have been extended three times. Now, they’re going to expire with some 15 million people out of work.
The first-time house-buyer credit has expired too.
And the feds have already shot off their monetary and fiscal ammunition… They’ve already used more stimulus than any time government ever used.
And what did we get for it? After $8 trillion worth of banking and financial guarantees…plus deficits greater than any the country has seen since WWII…
…all we get is a small upturn in the key figures. They’re still terrible. They’re just not getting terribler…at least, not right now.
What do you expect? The figures can’t do down forever. They’ve got to turn up. But they look more consistent with a zombie economy and a long, drawn-out correction than with a real, robust recovery…
But wait. The government keeps track of these things, doesn’t it? And it reported on Friday that the US GDP grew at an annual rate of 3.2% during the first quarter.
Well, well, well…guess that settles it. We are wrong again. Recession is over. Break out the champagne. That makes three quarters in a row with positive GDP growth.
But hold on…
The GDP number is just another one of the lies that bind investors and consumers to bad ideas and keep them coming back to bad habits. More on that later in the week…
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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Hey Back to your Trade of the Decade…
It was actually Japanese Stocks, not small cap japanese stocks.
Also I said at the time why not short the japanese bonds.
See your Trade of the Decade
http://dailyreckoning.com/our-new-trade-of-the-decade/
And my comment there about the Jap bond
Your work is superb, I look forward to it daily.
Also why is the Trade of the Decade not for real investors which you said yesterday?
gdp may be up using deceitful cpi deflators but has anyone looked at gdi lately? hmmm?
mr bonner: please start crunching some numbers on the amount of money not being spent on shelter due to pending foreclosure or mortgage renegotiation!!! i call this the “great rent holiday”, the gas and electric get payed BUT THE MORTGAGE DOES NOT!!! if this is related to job loss then the mortgage lender is just as on the hook as the government is when it pays unemployment, indeed the government mandates that people be allowed to stay in their homes for many months before they can be evicted. if a speculator or homeowner nearby mails his or her keys to the bank because of a decline in the value of the house vis a vis the mortgage it is a slightly different but related dynamic. it is astounding to me that you and addison are ignoring this event… the street level liguidity it is creating is massive, however it can not go on forever, while it happens it can quite likely create a big inflation scare. is one of your premium services already lasered in on this??? you guys have been called alot of things, stupid is not one of them, unless you are in a race to irrelevance with the touts and louts and cnbc please address this
GDP is the most misleading, most manipulated and most unuseful economic statistic amongst all the misleading, manipulated, unuseful economic statistics…
The economic propaganda issuing forth from this government grows ever more transparent by the day. The data is rarely presented in context by the media and it has become such a joke that the headline rarely matches what is reported in the article.
A double dip is inevitable, it will only be called a double dip, because the media has convinced itself the recession is over, although even the academics refuse to state such a thing for the record.
Nothing has gotten better, and the wall street indexes are a facade for government manipulation. Watch the last half hour of trading on a down day to see economic miracles occur before your very own eyes.
I like cash for now, and as long as the other currencies are falling its a fine position, when you’ve got all the nukes, it makes your currency a bellweather.
Rough weather ahead, trim your sails.