DOOM is an appropriate title for this post. With the Dow tumbling to the lowest point of the year there is no shortage of changing sentiment about this so called “Jobless Recovery”. As Joe Biden rides around all over the country in Ben Bernanke’s helicopter pitching the idea of a “Recovery Summer” or maybe even the “Summer of Magic Leprechauns with Pots of Gold” these days, it might be worthwhile to see what the actual financial community is saying about the direction we are headed.
June 29 (Bloomberg) — Confidence among U.S. consumers sank in June more than forecast as Americans became distressed over the outlook for jobs and incomes.
Stocks plunged as the confidence data, combined with Conference Board figures showing China’s economic outlook improved less than previously estimated, added to concern the global economy is slowing. Unemployment and the turmoil in financial markets precipitated by the European debt crisis raise the risk that household spending will falter.
“What we need are consistent job gains, not just a month or two,” said Richard DeKaser, chief economist at Woodley Park Research in Washington, whose confidence forecast was the lowest of those surveyed. “Until we get that, I don’t think we’re going to see any gains in consumer confidence.”
The Standard & Poor’s 500 Index closed at its lowest level since October 2009, and the yield on 10-year Treasury notes fell below 3 percent for the first time in more than a year. The S&P 500 decreased 3.1 percent to close at 1041.24. The 10-year Treasury note’s yield slid to 2.95 percent at 5:05 p.m. in New York.
The second quarter’s biggest worries took an unwelcome curtain call on Tuesday, hitting global markets.
The trifecta of trouble—European debt woes, China’s slowing growth and the stagnating U.S. recovery—conspired to put the quarter on the cusp of being the worst for U.S. stocks in more than a year.
All three concerns flared anew in a grim highlight reel just ahead of the quarter’s end. In response, the Dow Jones Industrial Average tumbled 268.22 points, or 2.65%, to 9870.30, its first close below 10000 since early June.
At the FOMC meeting last week, the Federal Reserve acknowledged that all is not well with the outlook for the future. The committee changed the language in their statement, taking a decidedly pessimistic tone, noting that conditions “have become less supportive of economic growth on balance”. That’s putting it mildly.
Conditions are not supportive of growth…but we don’t need the Federal Reserve to tell us that. All the data released in the past few weeks have confirmed what we are afraid of: the chance of a double-dip recession is gaining ground.
We have been anticipating a return to economic contraction in the US since early this year, and the fundamental and technical data that we track have now deteriorated to the point where the double dip scenario has become a virtual certainty as we head into the second half of 2010. First, the weekly leading indicator (WLI) tracked by the Economic Cycle Research Institute (ECRI) has dropped sharply this year, and although the ECRI has yet to suggest that the index is confirming a return to negative growth, there is compelling evidence to the contrary. Chad Starliper of Rather & Kittrell analyzed the 13-week annualized rate of change of the WLI and made the following observations.
The normal reported growth rate is an annualized rate of a smoothed WLI. However, when the 13-week annualized rate of change is used – shorter-term momentum – the decline in growth has fallen to a very weak -23.46%. The other times it has fallen this fast? All were either in recession or pointing to recession in short order (Dec. 2000).
“Based on evidence that has always and only been observed during or immediately prior to U.S. recessions, the U.S. economy appears headed into a second leg of an unusually challenging downturn,” wrote John P. Hussman, President of Hussman Investment Trust on Monday. The fund manager, whom Business Insider notes has been bearish for awhile, made the prediction in a post Monday on his firm’s website bluntly entitled “Recession Warning.”
The gold price could smash new records as investors pile into bullion on fears of a worsening economic outlook. The spot price today flirted with the all-time high of $1,264.90 (£838.93) reached last week.
“Debt on government balance sheets and worries that the world could be heading towards a double-dip recession are driving the gold price higher,” says Charles Cooper at Oriel Securities.
In my opinion the Recession that was time-stamped by the Economic Bureau of Economic Research (NBER) to have begun in December 2007 has not ended and continues today. How can the NBER declare an end to this Recession with unemployment at 9.7% when the Recession began with unemployment at 4.6%?
The basic causes of the Great Recession began in the Housing Market and the community banks on Main Street. Those problems have been masked by numerous failed attempts at mortgage mitigations as house prices stabilized during the period when the government was offering tax credits for first time homebuyers as well as existing homebuyers who wanted to move. Those programs ended on April 30th for contracts and for closings effective this week by the end of June 30th.
No wonder these geniuses at the G-20 needed $1.2 billion in security for a three day summit. I’d imagine there are a lot of angry folks out there who are begining to understand the devastation spending and debt is bringing us.