Bouncing From One Bubble to Another

This post on Zero Hedge should serve as a reminder that people who use one “less bad” statistic to support the case for economic recovery are metaphorically bringing a knife to a gun fight. Economic performance, market performance, and fiscal and monetary policy are incredibly complex subjects that are both interconnected and operate on their own trajectories, but as is usually the case every snapshot in time usually reacts disproportionately to one of the above factors and right now what the Fed is doing certainly seems to be the critical set of actions.

And the scariest part of the chart is the tail end: even with the unleashed dam of liquidity, the market still has a massive retracement ahead of it before it can recover the adjusted losses it has suffered since the last credit bubble. Ironically a 50% run up in the S&P has not been enough to offset on an apples-to-apples basis the unprecedented liquidity efforts let lose by Chairman Ben.

The bottom line is that when viewed from the perspective of liquidity fueling the market, the S&P 500 has never been in a worse situation. And alas, as the Fed’s balance sheet climbs to $4 trillion +, absent a multi-year parabolic rise in stocks, liquidity will increasingly lose its power to sustain markets to historical overbloated levels. But Ben Bernanke will go down in flames, and take down America with him, trying to disprove this hypothesis.

[From Presenting The Liquidity Bubble | zero hedge]

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Stacking the Deck

I fully appreciate the severity of the economic retraction we are currently working through, in fact having written much about it myself here and on my twitter stream. Having said that, I find myself shaking my head in disbelief at the degree to which the media continues to talk down the economy in anticipation, almost hope, that it gets worse.

Case in point, today Good Morning America (I like watching in on Sunday morning) had a segment about declining consumer confidence and they interviewed a husband and wife from a single family, in the kitchen of their very nice McMansion in name-your-favorite-suburb, about their new family budget in light of their economic sentiment. The money quote was when the wife said “we’re absolutely terrified!”.

Tucked in the report was the fact that “the couple both work for the family auto dealership”. Crikey, that’s like asking a homeless person about the state of housing.

The only reason GMA featured this couple is that the producer wanted an interview subject that would present the worst possible forecast on the economy and someone who was taking truly draconian actions in light of current economic condition… yep, someone who works in a “family auto dealership” would certainly fit that bill.


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Economic Indicators Not Encouraging

This is certainly disappointing news. There is no better indicator of economic output to track than transportation numbers and what this indicates is that there is an overwhelming glut of capacity as a result of export output falling to unprecedented levels.

Freight rates for containers shipped from Asia to Europe have fallen to zero for the first time since records began, underscoring the dramatic collapse in trade since the world economy buckled in October.

[From Shipping rates hit zero as trade sinks - Telegraph]

I did my own investigative reporting on economic indicators over the weekend and what I uncovered was not encouraging.

At the local produce market where I regularly shop, I asked the manager what he was seeing. He told me that customer counts were constant but the average shopping basket had fallen by about 25%. Predictably, treats like candies and dried fruit (as well as Marianne’s Ice Cream… definitely worth trying btw) we suffering from the biggest declines, but organics were surprisingly holding their own with the help of price reductions to bring them more in line with non-organics.

Following the produce market I headed over to Hone Depot but not to talk with the store but rather the day laborers that regularly congregate in the parking lot. A few conversations later revealed that local contractor activity has fallen off precipitously, according to a few of the laborers I talked with as much as 80%. This could be a consequence of local contractors cutting costs and doing more of the work they would normally have hired a day laborer for on their own or it could be a function of the work simply not being there, it’s probably a little of both.