Recovery… What Recovery?

Long time readers know that I don’t buy the claims of economic “recovery” in the slightest. Often times I see folks on CNBC asking, “when will things get back to how they were?” The simple answer is…

NEVER.

The US has entered a New Normal… a new economic climate… and it is one dominated by:

§  Higher consumer savings

§  Lower consumer spending

§  Rising unemployment

§  Lower corporate profits

§  Increased Government spending/ transfer

§  Reduced private sector growth

§  Excess capacity

§  Reduced production

§  Excess bank reserves

§  Reduced lending

This is, in a nutshell, a bleak economic picture. It is, however, reality. I know the media is now rife with folks predicting the end of the Recession. I even know “smart” analysts who are saying the same at independent research firms.

 In terms of the REAL economic picture, these folks are completely misguided and wrong. The US is facing the worst economic contraction since the Great Depression. This is NOT a plain vanilla recession. And while stocks may (and I emphasize that word) have staged their major bottoms in March, the US economy has yet to remotely turn around.

Consider that:

§  34 million Americans are on food stamps

§  18% of incomes coming from an already broke government

§  Seven million people will run out of unemployment insurance by Christmas (add their families and you have 13 million folks becoming destitute)

§  Tax receipts are at their lowest levels since 1932

§  32 states have budget problems ($121 billion in total deficits) and the Federal Government is running a $2 trillion deficit

§  Civil unrest growing: National Guard May Be Called to Alabama

§  Industrial capacity for May ’09 was 68%: an ALL TIME low (roughly 1/3 of our plants and production facilities are doing nothing at all).

§  Rail carload volume for 1H09 is down 19% from the already plunging level of 1H08.

§  Even after laying off people and cutting costs, Quarter over Quarter Corporate Revenues and Profits fell 17% and 33% respectively in 2Q09.

Hard to get the word “recovery” out of the above. However, economics is a dark art, and in the hands of a deft accountant, you can dream up all kinds of nonsense, including a positive GDP… which we are likely to get in 3Q09.

However, with the Feds even openly acknowledging that their GDP findings are wrong (see the numerous revisions to the downside over the last year), this will be largely meaningless to anyone outside of the DC beltway.

On that note, the next time you see or hear anyone proclaiming that the recession is over, feel free to forward them the above list of data points and ask for their explanation as to how those items spell recovery.

Good Investing!

Graham Summers

this is no good news...umemployment is still getting worse, as we can see in the jobless claim..

have you ask , why manufacturing improve with umemployment still increasing...sound odd , right???

Philly Fed rises to highest level since Nov. 2007

WASHINGTON (MarketWatch) - Manufacturing firms in the Philadelphia region said business was improving in August, the first increase in nearly a year and the highest reading since November 2007, the Federal Reserve Bank of Philadelphia reported Thursday.

The Philly Fed index rose to 4.2 in August from negative 7.5 in July, the bank said. "The region's manufacturing sector is showing some signs of stabilizing," the report said.

Readings over zero in the diffusion index indicate that most firms said business is getting better, or at least getting no worse. It was the first positive reading in the index since September 2008 and just the second since the recession began in December 2007.

The new orders index edged six points higher, from negative 2.2 to 4.2, also its highest since November 2007.

The shipments index increased 10 points to 0.6. Employment indexes remained negative.

The prices paid index rose to 10.0, the first time since last October than most firms reported paying higher prices.

Looking ahead, most firms saw better times, with expectations index rising to 56.8 from 51.9.

OIC, DOW is up saved by below news:

U.S. Stocks Advance as AIG Says It Expects to Repay Bailout

By Kayla Carrick

Aug. 20 (Bloomberg) -- U.S. stocks rose for a third day as American International Group Inc. said it expects to repay the government and data on manufacturing and economic indicators added to evidence the recession may be ending.

AIG rallied 13 percent for the top gain in the Standard & Poor’s 500 Index after Chief Executive Officer Robert Benmosche said the company also hopes it will be able to “do something for our shareholders as well.” Google Inc. added 3 percent after being added to Goldman Sachs Group Inc.’s “conviction buy” list.

The S&P 500 added 0.5 percent to 1,001.39 at 10:06 a.m. in New York. The Dow Jones Industrial Average rose 20.4 points, or 0.2 percent, to 9,299.56. The Nasdaq Composite Index increased 0.6 percent to 1,981.3.

Stock-index futures fell before the open of exchanges as the Labor Department said applications for jobless benefits rose to 576,000 in the week ended Aug. 15 from a revised 561,000 the week before. The number of people collecting benefits the week earlier was little changed at 6.24 million.

The S&P 500 has climbed 47 percent from a 12-year low in March amid speculation the worst of the recession has passed. Edward McKelvey, a senior economist at Goldman Sachs, said yesterday the contraction may already be over. He cited the gain in industrial production in July, helped by the government’s cash-for-clunkers program, along with the likelihood that output will continue to grow because of depleted inventories.

Google, the owner of the world’s most popular search engine, climbed 1.9 percent to $452.44.

Per-share profits topped analysts’ estimates by an average of 9.9 percent for the companies in the S&P 500 that have reported results since June 17, data compiled by Bloomberg shows. Earnings slid 29 percent on average, a record eighth straight quarter of falling profits.

To contact the reporter on this story: Kayla Carrick in New York at kcarrick1@bloomberg.net

Last Updated: August 20, 2009 10:06 EDT

US stocks climb on oil rally
Posted: 20 August 2009 0521 hrs

	Photos 1 of 1 Two traders on the floor of the New York Stock Exchange

NEW YORK - US stocks climbed for the second straight day Wednesday, buoyed by an oil price rally after a sharp drop in US crude reserves suggested revived demand in the recession-stricken economy.

The blue-chip Dow Jones Industrial Average rose 61.22 points (0.66 percent) to end at 9,279.16, rebounding from an 86-point loss stemming from a China-led Asian share slide.

The tech-heavy Nasdaq composite climbed 13.32 points (0.68 percent) to 1,969.24 while the broad-market Standard & Poor's 500 index added 6.79 points (0.69 percent) to 996.46, just shy of the 1,000 point.

Stocks were under pressure in early trading following a broad-based decline in Asia, with Chinese shares slumping into a so-called bear market.

But the shares moved into positive territory after oil prices shot up on fresh government data showing depleting oil stockpiles that lifted market sentiment, dealers said.

"A jump in oil prices helped the energy sector lead a turnaround that took the broader market to a solid gain above near-term resistance levels," analysts at Briefing.com said in a client note.

Market action Wednesday came a day after shares rebounded largely on better-than-expected earnings reports from the retail sector. But investors remained cautious as indicated by the light volume over the past two days.

For the second straight session, fewer than one billion shares exchanged hands on the New York Stock Exchange, "suggesting that there hasn't been much conviction behind the recent moves," Briefing.com said.

Following the rebound, stocks are down less than one percent week-to-date after Monday's 2.4 percent drop, which marked the stock market's worst single-session percentage loss in six weeks.

Despite the recovery, analysts predict greater market volatility ahead.

"The good news is that there should be enough bulls sitting on the sidelines to keep US stock market pullbacks from becoming meaningful, but with global market sentiment turning negative toward stocks, we expect to see selling pressure build in the US stock market even though signs of incremental improvement in our economy continue to emerge," said Frederic Dickson, chief market strategist at D.A. Davidson & Co.

Leading the gains Wednesday were energy stocks, including Chevron, up 1.82 percent to 68.16 dollars, and ExxonMobil, up 2.27 percent to 68.00 dollars.

Computer maker Hewlett-Packard dipped 0.30 percent to 43.83 dollars after it reported a 19 percent fall in quarterly net profit.

Alcoa dropped 3.41 percent to 12.48 dollars after an analyst downgraded the aluminum producer's stock.

The bond market rose. The yield on the 10-year Treasury bond fell to 3.463 percent from 3.526 percent on Tuesday while that of the 30-year bond dropped to 4.294 percent from 4.348 percent. Bond yield and prices move in opposite directions.

- AFP /ls