Doom and Gloom we ain't out of the woods yet

[AllentownJake]

Stocks

First you have the potential that the stock market is severly overvalued. If earnings don't catch up with prices of stocks something is going to give and it isn't going to be pretty. There is a term for an asset increasing in value while the actual value of the asset has done nothing to appreciate. It is called a Bubble.



Foreclosuers and Housing

There is over a 300% increase in the number of severly deliquent loans on Fannie's books. July, August, and September were the worst quarter in foreclosures in the history of the country in sheer numbers. This chart means there isn't going to be much improvement.

Increasing unemployment and under employment guarentee these numbers are going to increase.



GDP

The GDP growth in the 3rd quarter would have been negative without Cash for Clunkers, First Time Home Owner Tax credit, and other stimulus spending.

The problem you face for demand forward programs like Cash for Clunkers is that it will spur economic activity in one quarter at the expense of economic actitvity in the next. Keeping the program running longer or re-instating the program will run up against the law of diminishing returns.

The same can be said about the Home Owner credit. People who were thinking about buying a house are incentivised but in this tough credit market the people that qualify is lower than normal conditions. Therefore there is a limited pool to pull from and this program will run up against diminishing returns as well.

Stimulus spending keeps the problem from getting worse but there needs to be activity increasing under the spending otherwise you will simply have borrowed money to return yourself to the condition you were in where you started spending. Most of the stimulus money is spent on maintaining existing structures or tax cuts not on investing.

Consumer spending was down in September after being up in July and August. Could be the end of the vacation season or could be a larger trend. It should be up in November and December but the numbers should be compared to 08 spending not to September or October 09 for obvious reasons.



Consumer credit is being cut or interest rates raised right before the Holiday Season. This could have a disastrous effect on retailers in the 2009 Christmas Season. There are some who believe the credit crunch is a result of new regulations from congress, since those regulations were relatively tame, I believe this is about reducing risk exposure of the banks who are having their own capital problems.


We are still in the middle of this mine field and there is going to be a lot more bad news for a while.

[natrat]

1. as the dollar declines other asset classes MAY adjust upwards-stocks,commodities, real estate

Faber: Dollar Will go to a Value of Exactly Zero Eventually

By Rocky Vega

10/30/09 Stockholm, Sweden – In an interview with Bloomberg, the editor and publisher of the Gloom, Boom, and Doom Report Marc Faber discussed his strong views on the dollar. Here are a couple of his key comments, paraphrased below…

* There’s this huge debate between the inflationists and the deflationists… I belong more to the camp that looks at inflation and deflation from a different perspective. In the sense that in every system you can have some prices going down up and some prices going up. Say if you have a glut in consumer goods, then consumer goods prices can go up. But if you print money and have a zero interest rate, then home prices theoretically could go up, or stocks, or commodities. In any event your cash purchasing power goes down, that’s a symptom of deflation.

* The worst investments in an inflationary period, when you print money and have large fiscal deficits are, of course, long term bonds and then cash. The best is to have foreign currency and commodities… also equities can protect you to some extent because they adjust upward as the currency goes down.

* Regarding the dollar he says, “well, it will go to a value of exactly zero eventually.” When pressed for a timeline he explains, “Looking at Mr. Obama and his administration it should already be there, but I think it will take roughly ten years until people really realize that the fiscal position of the US is a complete disaster.”

The video came to our attention via Seeking Alpha’s coverage of Marc Faber on the US dollar and stimulus. You can watch the entire video below.


http://dailyreckoning.com/faber-dollar-will-go-to-a-value-of-exactly-zero-eventually/

[AllentownJake]

2. Inflation

has been relatively low in the third quarter. Of course that is a time bomb people are talking about that could go off.

Oil and Gold prices have appreciated in the past 6 months.

[TexasObserver]

3. "The GDP growth in the 3rd quarter ... "

" ... would have been negative without Cash for Clunkers, First Time Home Owner Tax credit, and other stimulus spending."

I agree with that statement, and that's why I have said I like some of the things the president has done regarding the economy. Real estate has seen a rise for the past four months, and the $8000 tax credit for first time home buyers is a good reason, along with reasonable mortgage rates for qualified borrowers.

The president has helped generate activity in the important auto and real estate sectors.

I don't know how it plays out the next six months. Right now, I'm still in the camp seeing only a dip in the stock market indices, but not another big fall. I think we're through the worst of it for the stock market, but can't yet know if unemployment bottoms out now, spring, or next summer. I hope it is bottoming out now, and will begin its climb back in November-December.

[AllentownJake]

4. The problem with programs that push demand foward

Is you encouraging purchasing in one time period at the expense of purchasing in another.

I'll stand by my assesment that auto sales will be down for a while as will home sales at the end of the $8000 tax credit.

Even if these programs were extended I believe there will be a strong law of diminishing returns on the effectiveness of the programs in subsequent quarters.

If earnings don't catch up with price, the stock market is headed for a big fall.

[TexasObserver]

6. The Senate has passed a bill to extend the $8000 tax credit.

Until April, 2010.

The idea with such stimulus programs is to get those with good credit and savings to go out into the market and make purchases they wouldn't otherwise make. It's working. One of my children is buying his first home right now, and the reasons are (1) great prices, (2) low down, (3) low interest rate, and (4) $8000 tax credit. And the son of a friend is doing likewise. Both our sons are in their late 20s. Neither would be buying a home without the programs, and they would not be spending that money otherwise, except to the extent they currently pay rent.

These programs are designed to help, not fix, the problems in the economy. They're band aids until the economic recovery starts producing jobs, and that may be another 9 months.

[AllentownJake]

7. We aren't disagreeing

on the purpose of the programs. Like I've said before, I see a lot of band-aids. I see little surgery. It reminds me of another President and it saddens me cause I know how this story ends.

[ipaint]

5. 85% of the people taking advantage of the housing credit

were going to buy anyway.

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/09/29/BUCH19U14D.DTL

[Hidden Stillness]

8. ONLY "The Financial Industry" is Doing Well

As someone who lives in Michigan, a State where we have had terrible unemployment for several years now--it is not at all new, and is still ignored--I know that things are getting worse. It is like the early and mid-1980s, when we had two horrible, but short-term, recessions with high unemployment (that only ended because they had the guts to raise taxes, and take over and regulate the S&Ls, etc.). Our (Michigan) State Department of Energy, Labor and Economic Growth just revised our unemployment rate upward a couple of months ago, to an actual figure of 22.8% (!--Depression levels), we have increasing foreclosures, personal and business bankruptcies, increasing personal debt, and have had stagnant wages for some 35 years.

I do not know much about the economy as an "expert," but I know that the only return-to-work that we had was when the Congress's Cash-for-Clunkers was really rolling; it was fabulous. Factories that were almost idle, opened up new shift, and recalled people who had been sitting at home for over a year. The day after they cut it off--dead. The strange, secret "panel" that gave recommendations for the treatment of the auto industry, though, did some bizarre things, like cut off dealers from the connection to the factory--which left them unreimbursed for their stock, after they had paid for it--and which killed all lawsuits for unsafe vehicles, negligence, etc. The auto industry made great profits while the program was on, and when it ended, collapsed.

As for housing sales, new homes, etc. (another fake figure), from what I understand, the figure was a sale other than to a real person purchasing the home to live in. I can't remember the exact description now, but I heard how it was done, and it is a Republican-style fake figure--it is not a true home sale to a person, it is a "sale" to the construction corporation to build, or something like that. All home sales, new and already existing, have been flat for years.

The Obama Admin, also continues the fake accounting first started by Reagan, I think, that of putting out a fake "glowing, favorable" figure--for sales, employment, etc.--to be heavily covered by media; then, a month or so after, ignored by then, a "revised downward" number that is closer to the horrible truth. This is done all the time, by all of them, now. Remember, the Obama Admin. just put out the outrageous lie that the cost of living has not gone up this past year--(!!)--just so they could cheat people out of the annual Social Security increase. Their figures are lies.

[AllentownJake]

9. This administration policies

Look closer to Herbert Hoover than FDR and listening to them they speak the same language of Herbert Hoover. It is really sad.

There is a misconception that Herbert Hoover didn't do anything during the depression. Look him up and read what his policies were and think if they sound familiar. Hell Hoover even had a national volunteer drive.