...and I truly hope you prepare yourself by getting over
to the webcast which starts at 7pm Central each Tues and Wed followed by a Q&A session. If you believe all the lies on tv, then you deserve what is coming, or you can open your eyes and start defending yourself now!
With the initial jobless claims coming upon us tomorrow, one of the misconceptions
that you will hear almost every day is that the jobs numbers are a "lagging" indicator,
and that as long as they aren't getting worse, it's a sign that we are on our way
to a healing. So, I figured that what I'd do is explain where that came from.
Over the years it was indeed true that the economy would be on the mend before you'd
see a meaningful move higher in employment. This was simply a matter of economic
mechanics over the past 40 years. But this time, it truly is different. Now I know
that most of the time when someone says it's "different this time" you should raise
your eyebrows a bit and take it with a huge grain of salt. More often than not,
it's "never" different this time. So what then makes it different, and why should
we not believe the talking heads?
Once Nixon removed us for the gold standard in 1971, we began building a nation
built on credit and consumption. It was a massive fundamental move from an industrial
nation, to one of services and consumption. Also, almost immediately after cutting
our currency loose from the ties of a "base standard", progress in true wage growth
began grinding to a halt because inflation started to become a drag. When the currency
was pegged loosely to gold, there was only so much money and credit expansion the
FED could do, but when it was cut loose, each dollar the FED printed up lessened
the value of the dollars in circulation. Well, one thing Federal Reserve bankers
have a knack for is printing dollars. So we started getting our first really big
incidents of monetary inflation in the early 70's.
As the economy would contract during recessions, companies would lay off workers
attempting to lower operating costs. This is perfectly normal, and is exactly what
should happen. Even if we lived in a truly free economy, there are always good times
and bad times, that's the market economy's way of keeping things in check. But
when the market is run by a Central bank, they don't like the idea of the bad times,
and try and short circuit it by printing more money and loosening credit via lowering
interest rates. So what would happen is that the economy would begin to slide,
companies would lay off, and then the FED would cut rates and pump money. In a short
period of time, even people that were afraid of being laid off would avail themselves
of all the credit available, and resume spending.
When enough people took advantage of the credit available, even though the unemployment
numbers didn't improve, business conditions would. People were demanding more goods
and services, based on the lower interest rates and available credit, so business
would respond by increasing production. Slowly demand would increase to the point
that they'd have to start hiring workers again to meet the demand. A year later
you could look back at the data and sure enough, economic activity would be shown
to have increased, while unemployment hadn't yet improved. Then finally the employment
picture would improve and things would be humming along again. This is why each
and every talking head on TV will tell you that layoffs and unemployment is a lagging
indicator.
But this time. it truly is different. Those 40 years of availing themselves to easy
credit left the consumer strapped with too much debt. Combine their debt loads,
with the crash in Real Estate and the economy itself, and then toss in the fact
that banks aren't lending as freely as they used to and you have a situation where
the lower interest rates and trillions in printed money aren't being used. Credit
is virtually frozen except for the very highest credit scores. Commercial credit
is frozen as the banks don't want to lend any more money to build more strip malls
and offices. In other words, unlike any other time in the past 40 years, even people
that would love to take on more debt and buy more "stuff", simply can't. So, they
can't create business demand that would eventually lead to job gains.
That is why it's different this time, and why this employment picture is NOT a lagging
indicator. It's a real time snapshot of what's going on at the moment, and this
time around there aren't a lot of mortgage brokers, auto dealers, and credit card
companies that want to lend money to people who might be unemployed, or who don't
have stellar credit ratings. Between the higher credit standards demanded, along
with their hoarding of money to save their own skins, the artificial demand that
free credit has always created, simply is NOT there. On a more terrifying note,
without people buying things they don't need with money they don't have, the true
economic activity of this country is going to be found to be considerably less than
almost anyone imagines.
So, the first thing to take away from this is simply that the unemployment
numbers are NOT lagging indicators, and anyone that tells you they are is lying.
Consider the things that we are seeing each and every day in the news and frankly
you have to be stone stupid not to realize that America has morphed into something
it shouldn't be, something ugly.
On Tuesday the Senate voted to allow ILLEGAL aliens to collect Social Security.
Excuse me? Doesn't the word ILLEGAL mean that they are doing something not law abiding?
It does. So why then would I want to give part of my tax money to the people doing
something illegal? I don't. In fact, not many do. But what the masses want doesn't
seem to count for much any more. Uncle Sam does what Uncle Sam wants and if you
don't like it, what are you going to do? Think about the news items you see lately.
Uncle sides with labor unions tossing bond holders in the toilet. Four centuries
of contract law goes "poof" overnight. The MIAC puts out a bulletin that if you
support Ron Paul the SENATOR, you could be a terrorist. Children are taken from
parents because the parents won't submit to mandatory vaccinations, some of which
are linked to autism. Banks are allowed to mark their holdings to "fantasy", trillions
are pledged to reinflate the economy while bankers want to return TARP money because
they want to give themselves multimillion dollar bonuses. More and more gun controls
for law abiding citizens while criminals with rap sheets a mile long wander the
streets committing crimes over and over. It just doesn't stop. Each day brings
more insanity.
Yet in the midst of this insanity not a day goes by where there's not another push
for something that will simply help keep us sinking. Cap and Trade for carbon credits
is a TAX that you will not avoid. The resulting inflation will be hellish. They
want even stricter emissions laws and mileage laws, yet we know the vehicles will
cost even more to buy. Commercial real estate is bursting at the seams, as they
can't roll over their debt, and some 550 - 600 small regional banks are on the ropes
because of them. You can rest assured that the FED will hand select whom they want
to let die and whom they will rescue, as they consolidate even more power.
If you think that's all the rantings of a lunatic, well good for you, exit now and
enjoy your fantasy. But it's not fantasy, it's headline news each and every day,
and frankly this nation is being sold a bill of rotten goods. Listen up folks,
and listen well. The banks are insolvent. If they weren't we wouldn't need Turbo
Tax Timmy Geithner on the hill this morning trying to dream up ways to further capitalize
banks. The stress tests were bogus, and according to "them" only 10 of them need
another 85 BILLION or more. That's a passing grade? Wake up and smell the coffee.
They were allowed to mark their toxic assets to fantasy, now calling trash that's
worth 20 cents on the dollar being called "par" or worth a dollar, and even with
that, 10 of them still need billions. It's criminal folks.
Speaking of criminal, What have I been saying for weeks now about the market and
how as it moved higher it would suck in more and more people? Well, all the happy
talk you are hearing is designed to do just that, make people feel better, spend
money, think things are getting better etc. That includes our market folks.
Well, today we got the Federal Reserve minutes from their last meeting. Not only was the
economic data simply horrid, there is one line in there that sticks out like a proverbial
sore thumb. "We expect consumer demand to gradually strengthen in response to higher
equity prices". Now isn't that special. Here's your central bankers telling you
that as the market goes higher, they expect consumers to spend more. Do you think
they might have a reason to "help" this market go higher? Ya think, Denossa?!?
Look folks, all I'm saying is that there are two worlds here right now. The real world
and the fantasy world. What you are hearing from Obama, Geithner, Wall Street and
most media is fantasy. The real world numbers are horrid. Let me quote a few interesting
items in the FED report for you:
Labor market conditions deteriorated further in March. Private nonfarm payroll employment
registered its fifth consecutive large monthly decrease, with losses widespread
across industries. Moreover, the average work week of production and nonsupervisory
workers on private payrolls ticked down in March from the low level recorded in
January and February, and total hours worked for this group stayed below the fourth-quarter
average.
Industrial production fell substantially in March and for the first quarter as a
whole, with cutbacks widespread across sectors, and manufacturing capacity utilization
decreased to a very low level. In contrast, the production of communications equipment
edged up in the first quarter. The output of other consumer durables and business
equipment stayed low, and broad indicators of near-term manufacturing activity suggested
that factory output would contract over the next few months.
The latest readings from the housing market suggested that the contraction in housing
activity might have moderated over the first quarter. This turned out to be wrong.
Real spending on equipment and software dropped markedly in the first quarter, with
declines about as steep and widespread as in the fourth quarter of 2008. Orders
and shipments of nondefense capital goods excluding aircraft fell in March, turning
negative again after having been flat in February. The fundamental determinants
of equipment and software investment stayed weak in the first quarter: Business
output continued to drop sharply, and credit availability was still tight. Despite
the significant cuts in production in recent quarters, inventories remained sizable
early in the year.
Where are the green shoots in that report? Maybe I need to put on my rose colored
glasses to find them? Nah I won't bother, there are no green shoots. In the relatively
near future we're going to get sideswiped by Commercial Real Estate's collapse.
We already have Credit Card delinquencies up to record highs and much more will
follow. Foreclosure sales make up 43% of all houses sold, and housing continues
to fall like a rock. The Pension Benefit Guarantee Corp just came out today and
said:
The potential for General Motors Corp. and Chrysler LLC to end their plans has left
the PBGC facing the prospect of adding 900,000 current and future beneficiaries.
The PBGC, which pays retirement income to almost 44 million Americans, estimates
that $77 billion of the automotive industry's pensions are underfunded, with about
$42 billion of that guaranteed by the agency for retirees.
As companies close up and cut back on pension benefits, the PBGC is already in
over it's head. They will be at the public trough asking for more money as almost
a million new beneficiaries are tossed on their backs.
No matter where we look all we see is black holes of debt. Mind numbing horrid debt
folks. I am not just saying all this to blow smoke, I'm warning you all that what
you hear on TV from these puppet analysts and White House officials is pure 100%
class A garbage, and we are NOT in recovery mode. What we have is a coordinated
effort to 1) boost the stock market at any cost 2) tell everyone lies about the
economy so everyone basically thinks "hey things are good, I'm the only one struggling,
everyone else is doing fine 3) hope and pray that the consumer feels so good about
his 401K not falling any more that he once again takes on massive debt to buy things
he doesn't need with money he doesn't have. That in a nutshell is all that's going
on. Period.
What I'm trying to say is that we are in a deep recession that is probably in all
honesty a depression as we speak. The happy talk will give way to panic as this
year rolls into next and it's found that none of this monkey business is going to
save us. Just this morning Japan had to admit that it's GDP fell the most and the
fastest in 51 years. That's the second biggest economy on the planet folks. The
world is in a major funk, and I want you all to be prepared when the next leg down
hits for good. There will be a time when another fortune will be made
riding this market all the way down to DOW 4500 or less. I need you all to know
that indeed it is coming.
In the meantime, be proactive and start preparing by
attending the webcast each
Tues and Wed at 7pm Central and bring your questions.
Larry Potter
http://www.reofunder.com
