01/13/12 Johannesburg, South Africa – Yesterday’s trading revealed nothing of importance. Small moves in stocks and gold. And oil dipped below $100.
But the news has been generally “good” ever since the European Central Bank made it clear that it will print money rather than see major banks or minor nations get what is coming to them. Like its US counterpart, the ECB will not permit a major bank or sovereign debtor to go bust.
“ECB sees signs of let-up in debt crisis,” is today’s headline in The Financial Times.
Let’s see…the news report goes on to tell us that Spain and Italy were able to sell 22 billion euros of debt yesterday, proving that they can still finance their deficits…and that, therefore, we have nothing to worry about.
To whom did they sell their bonds? We don’t know, but we presume the buyers were banks who were investing money they got on favorable terms from the ECB. So, you see, dear reader, that their willingness to buy the debt does not necessarily mean that either buyer or lender is solvent. Probably, neither is…
But with fears of a debt debacle in Europe off the front page headlines…the financial world has seemed rather benign, especially in America.
US stocks have rallied since October. The latest unemployment report from the feds was surprisingly upbeat. The dollar is strong. And US consumers are now re-leveraging, going deeper into debt in order to buy things.
Does this mean the Great Correction is over and done with?
Nah…
Europe is either already in recession…or entering recession. Leading indicators in the Old World are plunging sharply…
Manufacturing in the US is softening… And European sales affect 20% of US corporate revenue… A strong dollar actually makes it harder for US companies to sell their products overseas, and it reduces the contribution made by foreign subsidiaries to US earnings reports.
Oil, meanwhile, has remained near $100 despite a sell-off in commodities and “risk-on” assets. This leaves both business and consumers with little free cash to spend…and squeezed profit margins. Already, corporate profit margins are beginning to come down…as they should.
The Fed came out with its “Beige Book” this week. Our reading of the report — which includes updates from 10 districts around the country — is that conditions haven’t gotten any worse…but that they haven’t gotten any better either.
Most important, the two key ingredients in household wealth — wages and housing values — remain in a slump. None of the 10 districts reported much improvement in either area.
So, even if consumers did go on a bit of a shopping spree over the holidays, it is unlikely to continue. Because there is nothing behind it.
Remember, this time it IS different. This time there is nowhere to go but down.
Households could increase their debt levels in the ’80s, ’90s and ’00s only because 1) they began at a fairly modest level, and 2) housing prices were going up. While household debt has come back down to levels of the early ’00s…they have a long way to go before they are back to the long-term averages of the ’60s, ’70s and ’80s.
As for employment, the latest numbers were better than they had been but hardly a sign of a real recovery. From the “WorkBlog” at The Washington Post:
On Friday, we got the December jobs number: +200,000. That’s good, but not good enough. I posted a graph from the Hamilton Project showing that, at that rate, the labor market wouldn’t recover till 2024. But perhaps that’s too pessimistic. The Economic Policy Institute took a look at the same numbers and concluded that a growth rate of 200,000 jobs per month would lead to a full recovery in seven years or so. That’s nothing to celebrate, but it’s better than the Hamilton Project’s estimate of 12 years. It’s also a bit odd: Isn’t this a simple matter of taking job losses and dividing by monthly job gains? Well, no. The date of our eventual recovery depends on some crucial unknowables about the future of the American labor force.
The blogger doesn’t mention it, but even while the unemployment rate might go back to ‘normal’ in 7 to 12 years, the latest figures show household income still going down. That’s not going to do much for household budgets or purchasing power. Or their borrowing power, for that matter.
Who’s going to lend to households when both their ability to repay (their wages) and their collateral (their houses) are going down?
And what are aging baby boomers going to retire on, if they continue to borrow against declining collateral?
Our verdict: The higher borrowing and spending at the household level in December was a fluke, we believe, not a sustainable trend. The Great Correction continues…
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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Bill,
a article for you to read
http://finance.yahoo.com/news/inside-fed-2006-coming-crisis-124207691.html
it mentions this, in 2006 Geithner suggested that Mr. Greenspan’s greatness still was not fully appreciated, an opinion now held by a much smaller number of people.
“Who’s going to lend to households when both their ability to repay (their wages) and their collateral (their houses) are going down?”
who? who is going to lend to them? what is this, a joke?
I’ll tell you who will lend to them. absolutly everyone on the planet, that’s who. and I’ll tell you why. because whoever holds currency holds DEBT currency, and the only way to get ahead with DEBT currency is to LOAN THAT DEBT OUT to some other sucker to pay off.
don’t worry. anyone anywhere who has anything at all will be hounded by hordes of infestors desperately trying to loan them anything they can.
but of course THOSE infestors will be the slow dull-witted small ones. they rely on someone agreeing to repay their debt. the smart infestors will give up on loans entirely and go straight to taxes. they give the politicians money – in return the politicians make someone else pay for it. it’s a win-win for the infestors and the politicians, and it doesn’t require any debt-payer anywhere to actually say “yes” by signing anything. what a deal!
Payday Loans for everyone !!!
Weeee, this investing stuff is easy.
The Mogambo rides again.
Hey Gman, since I’m one of the slow dull-witted ones,
maybe you can help me calculate the APR on a loan which
returns 15% in 12 days. That’s right; SHWEET.
SUCKAHS.
“Hey Gman, since I’m one of the slow dull-witted ones,
maybe you can help me calculate the APR on a loan which
returns 15% in 12 days. That’s right; SHWEET.”
what’s your loss rate? and how much do you pay your enforcers?
30-year treasury rate closed at the low of 2.91% for the week. Amazing!
http://1.usa.gov/A03N21
Germans are paying their government to hold their money. Yes, bond rates are reported to be negative by this site.
http://www.gold-eagle.com/editorials_12/summers011112.html
The 10- and 30-year triple-A yields continued to break records. Both reached all-time lows, at 1.76% and 3.29%, respectively, according to Municipal Market Data.
The Bond Buyer’s 20-bond GO index declined 21 basis points this week to 3.62%. That is the lowest the index has been since April 13, 1967, when it was 3.54%.
The Bond Buyer’s 11-bond GO index also declined 21 basis points this week to 3.36%, which is the lowest it has been since Feb. 9, 1967, when it was 3.33%.
Important post. Its so foolish that many of the governments are not trying to balance their expenses and generate more employment opportunities but rather trying to print money to meet up the expenses. How long they will be able to manage it? Since inflation is growing in rocket speed, they must face the situation and cover up with mainstream opportunities.
Who is going to stop these bank, government, and corporate crime syndicates around the world? Oh there for a minute I forgot they make the rules so what they do are not crimes.
Gloom, doom, sure, boom next – like the implosion of the global monetary/financial scam, long overdue. What will finally trigger the thing or succession of many things? Not anything obvious, such as Greece defaulting or this or that bank collapsing. While you are standing on your front door advicing Evangelos not to come in this time, the real culprit sneaks in from your back door. But not to worry, it is something much too modest and innocent to be recognized for what it will turn out to be.
The leadership problem is that an increasing number of people in the world are miserable, hopeless, suffering, and becoming dangerously unhappy because they don’t have an almighty good job — and in most cases, no hope of getting one.
A good job is a job with a paycheck from an employer and steady work that averages 30+ hours per week. Global labor economists refer to these as formal jobs. Sometimes leaders and economists blur the line between good jobs (formal jobs) and informal jobs. Informal jobs are jobs with no paycheck, no steady work. They’re found in, but not limited to, developing countries and include basic survival activities such as trading a chicken for coal. These jobs do create subsistence and survival, but not real economic energy. They are held by people who are not only miserable but, according to Gallup, suffering their way through life with no hope for a formal job — no hope for a good job.
Wow, Chairman, I didn’t know the Amish were such a miserable lot.