As the summer of recovery rolls on let’s take a look at the government’s short term memory hole. To begin our journey through the land of make believe we will start with the 1st time unemployment number that was being hailed as showing a drop. However, what the government failed to mention, and their media arms in the mainstream must have missed, is that the week of the 4th of July is a shortened week which lowered claims. Additionally, if the number was not seasonally adjusted there is a gain in the number.
“The advance number of actual initial claims under state programs, unadjusted, totaled 463,560 in the week ending July 3, an increase of 22,560 from the previous week.”
Further bruising the administration and the rose color glasses crowd was the recent independent Inspector’s General report criticizing the government’s closing of car dealerships.
“A report released Sunday by the special inspector general for the government’s bailout program raised questions about whether the Obama administration’s auto task force considered the job losses from the closings while pressuring the companies to reduce costs.
Treasury didn’t show why the cuts were “either necessary for the sake of the companies’ economic survival or prudent for the sake of the nation’s economic recovery,” said the audit by Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, the $787 billion stimulus program known as TARP.
“Treasury made a series of decisions that may have substantially contributed to the accelerated shuttering of thousands of small businesses,” investigators said.
Those decisions resulted in “potentially adding tens of thousands of workers to the already lengthy unemployment rolls – all based on a theory and without sufficient consideration of the decisions’ broader economic impact,” the report said.”
It made no sense to close down car dealerships because they added no cost to the companies which were bailed out, GM and Chrysler. These were independent business people who took the risk and actually bought the products the manufacturers need to sell. These independent risk takers had their livelihood ripped from them by government fiat. I wonder if these business owners look forward to their next capital venture. Of course there were charges of political motivation for the closings, but beyond those debated charges, the closings did nothing to reduce labor cost (which are significantly higher compared to right to work states and Japanese competitors here in the U.S.) or help the bottom line of GM who along with GMAC needed multiple rounds of government help. The government dictated closings merely interfered with a system called “the market” which would have handled more fairly and efficiently the shedding of excess. Instead, the government politically chose winners and losers which immediately added to local unemployment at the same time these politicians we claiming to be creating jobs.
For a little salt in the wound, I direct you to the banking regulation bill recently passed. Not only did the Federal Reserve manage a massive power grab and escape a full audit, but the banks themselves are facing easier rules. So much for populist outrage. Is there any doubt that when Dick Durbin said last year that “frankly, the banks run the place” he uttered a truth older than Andrew Jackson or even Thomas Jefferson’s battles with the institutionalized fractional reserve banking establishments, global in scope?
“The world’s banks appear to be winning a reprieve from tough new capital requirements and curbs on risk-taking, as regulators and central bankers are moving toward less stringent rules than initially proposed.”
Another manipulated number coming out of the “happy days are here again crowd” was the initial report of JP Morgan’s earnings released last Thursday. These numbers drove the markets at the end of the trading week, however JP Morgan had simply drained reserves they had held against losses and applied them to another department as “profit.”
Dick Bovespoke with CNBC this morning about JPMorgan’s earnings, and how they are slightly misleading about the real state of the bank.
• 0:45 Jamie Dimon is not telling us what JPMorgan will be doing to offset the costs of financial reform; he will likely be adding new charges for accounts.
• 2:30 These are manipulated earnings based upon the company moving reserves and counting them as earnings, if you are a bear on the stock.
• 3:00 This is not a good number for JPMorgan in anyway, shape, or form.
• 4:00 Banks are all going to do the same thing, explaining away reducing the amount of reserves they have. But if the economy is not as strong as they suggest, those reserves will come back.
• 5:00 Can we trust the banks’ vision on the economy? They are now increasing their vulnerability, but they may be wrong about the economy.
• 6:00 Regional banks will show some increase in revenue, but the majors will not.
• 7:20 Banks are shrinking their loan portfolios, reducing the money supply at the highest rate since the depression, and there is no way the economy can grow robustly if that money supply isn’t high.
• 9:00 Jamie Dimon missed it completely on housing; there is no indication they knew what was happening.
When you are in an environment where banks top line profits and assets (loans) are not growing, when you in all realistic terms are in a depression (no matter how mild to 80% of Americans, 30 months is not a recession), this is a recipe for disaster. Getting money at next to nothing from the Fed and then plowing this money back into government bonds at 3-4% does not help the saver and consumer reliant on banking institutions. All it does is suppress the value of their currency and savings and to date has not helped them by providing any sort of loans. There is practically no small business lending. The small businesses which create 70% of the jobs in America.
Banks are not loaning to small business and people with good credit scores are reluctant to buy; many are hesitant to take on new loans due to uncertainty over things such as government taxation, health care, cap and trade, carbon taxes, sin taxes and just general interference. With a return to some sensibility on one front, banks have reeled in some of their loose lending practices which has greatly reduced the pool of people by weaning out questionable or poor credit category customers. The bottom line is TARP and the government’s alphabet soup of money spending programs aimed at kick starting lending which is so crucial to an economy built on spending have not worked. Now as these programs are winding down things are turning south in a much more noticeable way to everybody except the administration’s acolytes. No longer are we at a standing eight count, we are about to need the smelling salts.
Still don’t believe me? Here comes more. The ECRI, which is the leading economic indicator index highly touted last summer in the bear market rally, has been down for seven straight weeks. It is down -9.8%. Never before in the history of this index has it hit 10% without a recession.
I refer you to my previous statement about the 30 month time frame we are dealing with in terms of this current “recession”. What does that mean to have a recession in a recession? More euphemisms will not change the harsh reality that virtually every data point has now rolled over from simply sufficient and not in massive decline to a real negative. This was even reflected in the recent Fed minutes which downgraded the outlook of the economy over the next five to six years.
“The euro hit a two-month high against the dollar as news of the Federal Reserve’s continued concerns broke, adding to the uncertainty created by the release of the latest US retail sales figures, which showed a second consecutive monthly fall.”
Form more proof of the fairy tales told by men and women looking to get elected, Zero Hedge pointed to a story in the South China Morning Post that estimated 65 million houses are vacant in China. In a country where the average income is slightly over $3,000 American dollars and only 1/5th of the country is able to afford houses, this is a bubble ready to explode for one of America’s chief trading partners and 5th largest bond holder. With American pension funds and the consumer not able to pick up any slack in the bond market, this does not bode well for America’s credit rating or value of the dollar. Recently Moody’s downgraded not only Spain but Ireland. America may have some time left as first the government will tax the citizenry to secure the bond payments, but this can only last for so long.
“China just announced that its Q2 GDP came in at 10.3%, just below a consensus estimate of 10.5%. Surprisingly, for some odd reason the market seems to believe this “data.” Although in retrospect, based on China’s bottom up GDP goal-seeking, the number, which we will show in a second is completely irrelevant, could very easily be true, based on two just-announced stunners about the Chinese economy…. Yet this data pales in comparison with disclosure from a recent article in the South China Morning Post, in which an economist at the Chinese Academy of Social Sciences noted estimates from electricity meter readings that there are about 64.5 million empty apartments and houses in urban areas of the country! This number is five times larger than the roughly 12 million in total US public (3.89 million) and shadow (8 million as estimated by Morgan Stanley) home inventory available currently.”
A little known index is the BDI, or the Baltic Dry Index. This index is significant because it essentially measures how much demand there is for commodity movement and thereby production. It is the cost of leasing the large tankers that ship the raw materials that people ultimately consume as finished goods. It is the bottom of the economic cycle. This index has been down for 35 straight days and has dropped, or 16% to around $1,700 a day to lease the transports. This means little unless you compare that to three years ago when it was around $11,000 a day to feed the bottom of the economic food chain.
For one final shot across the bow of the American investor and consumer we will take a peek at one statistic most people know, housing here in the U.S. The Home Builders Index is down to 14 on a scale of 1 to 100 with 100 being the best. This isn’t golf. The low score does not win.
“The D.C.-based National Association of Home Builders’ monthly Housing Market Index, which measures confidence among its members, fell to a 15-month low this month. The Index stood at 14 in July, down from 16 in June. Any reading below 50 indicates builders think market conditions are poor.”
Why is confidence so low? I suppose when you are building 580,000 homes a month and only selling 320,000 that may be a cause for concern. With the expiration of the home buyers tax credit the market will be forced, heaven forbid, to only include willing buyers and willing sellers and prices will surely have to decline further due to excessive inventory and inflated initial values. Existing home sales also continue to sag.
“WASHINGTON (July 1, 2010) – Following a surge driven by the home buyer tax credit, pending home sales fell with the expiration of the deadline for qualified buyers to sign a purchase contract, according to the National Association of Realtors®.
The Pending Home Sales Index,* a forward-looking indicator, dropped 30.0 percent to 77.6 based on contracts signed in May from a reading of 110.9 in April, and is 15.9 percent below May 2009 when it was 92.3. The falloff comes on the heels of three strong monthly gains as home buyers rushed to take advantage of the tax credit.
For cheerier news, I suppose the cap on the gulf oil well is holding and the government says the leak they discovered is insignificant and unrelated. Wait, we might want to continue to check on that situation as well in a later post.