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The Fat Lady Hasn't Sung Yet
Enough already of all those silly, unduly sunny and unrealistic economic predictions that are proving to be as accurate as those woefully inept forecasts we get from the local weatherman.
One of the latest such nonsensical predictions, a declaration by General Electric's CEO, Jeffrey Inmelt, that "the (economic) crisis is over," couldn't have come at a worse time, judging from the bum tidings that followed his glowing forecast.
Abraham Lincoln once said "Tis better to be thought a fool than to speak and remove all doubt." Maybe Inmelt ought to take note of that observation.
Judging from Thursday's dismal economic disclosure--higher than expected June layoffs of 467,00, the 18th consecutive month of job losses--the GE boss is obviously way off base. Those layoffs boosted the unemployment rate to 9.5%, the loftiest level in 26 years, and the number of unemployed Americans to 14.7 million.
Also raising serious questions about Inmelt's rosy outlook are several other harsh economic facts that he ignored--namely:
--The rising number of foreclosed and abandoned homes, now at roughly 2 million.
--The ongoing surge in credit card defaults and delinquencies, prompting credit card companies to curb consumer borrowing.
--Falling incomes and stagnation in wage growth, leading to sharp cutbacks in consumer spending.
--Sharply declining values and mounting delinquencies in commercial real estate. The shoe, it's widely felt, has already dropped in this area, based on the mushrooming number of empty and boarded-up retail outlets and restaurants and the ballooning amount of vacant office space.
Judging from the market's immediate reaction to the jobs news--a wicked 223-point dive that day in the Dow Jones Industrials--obviously a lot of investors are signaling that they, too, believe Inmelt is all wet in his positive economic outlook. Importantly, those job losses--which are widely expected to head higher--raise renewed doubt about the widespread bullish argument that all the bad news is already discounted in the marketplace.
For some thoughts on where we stand now, I rang up veteran investment adviser Martin Weiss, who made some super economic forecasts last January, among them warnings of massive job cuts, much steeper real estate losses, major financial problems at the giant banks and an inevitable Wall Street meltdown. His current outlook--if he's right again--suggests Inmelt, economically speaking, could probably use a seeing-eye Lucky or Lucy.
Weiss, 62, known in Wall Street as the Grim Reaper and head of Weiss Research in Jupiter, Fla., concedes there has been a temporary economic stabilization in some sectors. But he hastens to note that's by no means unusual after the precipitous economic declines of 6.3% in the fourth quarter of last year and 5.5% in the first quarter of this year.
The economy, as Weiss sees it, "is at a high between the storms," a prelude, he believes, to a good deal more economic anguish.
Why more anguish? For starters, Weiss, author of the Ultimate Depression Survival Guide, currently on the New York Times' best seller list, contends the administration--in its efforts to revitalize the economy--is addressing the symptoms, not the causes, such as the housing crisis, the shortage of liquidity and the excess debt in the world economy. The government may be pumping liquidity back into the system and has said it would back millions of dollars of credit, but the fact is, says Weiss, "the credit and liquidity crises have not been resolved."
Making matters worse, he says, are the next time bombs. For starters, he points to the remaining toxic asset problems, notably the bad debts on the books of financial institutions. "They haven't removed all the garbage, which is still poisoning the economy," he says.
Weiss is by no means alone in his worries about toxic assets because the extent of this problem is still an unknown at many banks, in turn leading to more cautious lending practices and an unwillingness to take risk despite Uncle Sam's billions of dollars of bailout money. Alarming here is said to be the threat of more--or perhaps substantially more--bank writeoffs
The financial plight of California, a $1.8 trillion economy which is unable to come up with a working budget, is defaulting on its short-term obligations and is broke, is viewed as another time bomb. As such, Weiss sees a rash of downgrades of the state's credit by the credit agencies, which will make it either extremely expensive or impossible for California to roll over its maturing debt. Weiss also raises the risk that California's financial woes could spread to other state governments.
Yet a couple of other ticking time bombs, according to Weiss, are the prospects of a big selloff in insurance stocks, followed by a slew of industry bankruptcies, and falling long-term Treasury bond prices, a reflection of the burgeoning deficit and increasing concerns about the credit of the U.S. Treasury and the stability of the dollar.
Wall Street estimates, factoring in the stimulus package, call for the GDP to grow 0.5% in the current quarter following an expected 2% decline in the second quarter, and gains of 2% in the fourth quarter and 2%-2.5% in the first period of next year. Too exuberant, our bear says. Given his worries and bleak outlook, Weiss expects a resumption of a large economic decline later this year or in early 2010 on the order of about a 6% GDP retreat.
What are the implications for the stock market? Weiss's outlook: another bloodbath, with the Dow Industrials tumbling to about 5,000 later this year or in early 2010. Describing the market as grossly overvalued on current price-earnings multiples, which Weiss notes are totally inconsistent with those at the bottom of bear markets, he thinks investors would be well advised to sell into every rally. "And I would do it before it's too late and time runs out," he says.
"It ain't over till it's over" was one of Yogi Berra's more colorful Yogi-isms. That's precisely Weiss's view when it comes to the sagging economy and the falling market. He takes it one step further, predicting a lot more chaos before it's all over.
Dandordan@aol.com
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Dan, you may mock Martin Weiss as the mother of all Cassandra's, but many of his prophecies over recent years have been spot on. When others were chanting "this golden age would never end", I for one chose to look forward to every new report Martin Weiss published and I found a lot of valuable facts in them. Essentially, many of his messages have been right on the money. As an Australian political and financial strategist it seems I was apparently able to convince our Federal Government about what was coming and our Federal Treasurer, Wayne Swan, took prudent moves early. Australian residential property, expensive in terms of multiple of family income, has remained stable which underpinned our banks. All of our four major banks have AA ratings - there are only nine in the world. Our home loan interest rates were wisely re-set at close to the natural rate. A modest amount of cash stimulus was made to families to overcome the drain earlier wrongful Central Bank interest policies had done. Australian politicians from both sides for decades have had a traditional disdain for running up public debt. So lucky unique us, started off with no net public debt. We have remained in positive growth. An important lesson was learned in Australia from the 1991 recession. US Monetary Policy operatives learned nothing. Dan, why not mock all those who got it wrong? Thanks partly to Martin, Australia got it right.
Corporations that own our politicians and own our mainstream media have no allegance to America. The corporate Draculas are gathered around the patient and are sucking the economic blood out as fast as they can.
Soon America will suffer a seizure and never recover.
Unfortunately, the Obama administration is no better than Bush when it comes to the economy.
Only he's spending more. Is there anyone who not scared about our economy? Perhaps it's time to
bring President Clinton back?
Nothing will happen until we address the elephant in the room. JOBS. I dont care one wit about the global economy, we created it and we shouldnt be sacrificed for its success. We need to close offshoring tax incentives and loopholes and bring jobs back home. We need to stop allowing foreign companies to own more than 50% of American companies. We need to stop allowing foreign companies to dump cheap knockoffs of traditional American products on our soil. This is forcing companies out of business and offshore at the same time. A trade war??? Bring it on. Most of these countries need us way more than we need them. Thats not how we became the greatest economic engine on earth. Nothing irks me more than an economist, an American no doubt, telling us how good it is for the worlds economy to send them our jobs because we were getting paid too much.
We need to address the status of illegal immigrants and start prosecuting the people who hire them.
We need to bring back the Glass-Stegal Act.
We need to rescind NAFTA because after that "giant s u c k ing sound" is through we are dead.
Wall Street has figured out how to make and lose billions just by trading paper back and forth. No more bailouts. Bring jobs back to the states and that problem will work itself out when regular Americans (the forgotten 95%) have expendable income.
Too bad politicians are owned by the very self serving perpetraitors of the fall of the American Economic Empire. That is why it will never happen.
On the bright side, California may fully legalize marijuana , which would start a worldwide legalization change reaction.
At least we will be happy. Poor but happy.
If you want to know when the economy will truly recover, the secret leading indicator is know as the JBL WOOFER SIZE" indicator.
A scared and cowed populace only purchase speakers with woofers that are 6 or 8 inches , or even smaller. They are so fearful that they are afraid of the slightest notice. You have only to peruse the JBL home speaker line to notice that unless you spend several thousand dollars you cannot get a full range speaker with over an 8 inch woofer. The last speaker with a 10 inch woofer, the RM10 bookshelf speaker, was discontinued a year ago.
If the economy starts to really come back, JBL will make full range speakers with 10, 12 and 15 inch woofers for the home.
Subwoofers do not count in this calculation. They are for home theater "booms and explosions", not music.
Just go to jbl . com and look at bookshelf and floorstanding speakers.
I hope Goldman does not sue mean for revealing a secret.
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The coming strip mall crash is coming.
It wont be small.
Regular mortgages are statring to go bad (non subprime)
Commercial Real estate of many forms is in trouble. Strip Malls, Full blown Shopping Malls, Office buildings, Manufacturing factories. Retail buildings.
but Dennis "The World's Largest Tool" Kneel on CNBC said the recession is over and Jim "Another Massive Tool" Cramer said we should be buying real estate like there is no tomorrow-what's a fool to do with his $? Maybe I'll take it to the bank and put it in a 1% paying CD or savings account (thanks Fed!)
Buy something in euros instead, or Yen, etc...
The crisis might be over for the big corporations and Wall Street, but for everyone else it continues on the downward slope. It shouldn't be a surprise, seeing as the majority of government money has gone to prop up big financial corporations and doing little for anyone else.
The Obama economic plans are pure Bush Lite. It's big corporate welfare, while throwing a few rebate dollars to everyone else. All for big corporations and trickle down for everyone else. The infrastructure projects might get started in 2010, if they hurry!
Nothing constructive has been done in Washington on jobs.
Nothing constructive has been done in Washington on housing evictions.
Nothing constructive has been done in Washington to extend unemployment to those running out.
Nothing constructive has been done in Washington regarding health care.
Nothing constructive has been done in Washington regarding financial security for Americans.
Nothing constructive has been done in Washington to punish the frauds responsible for the recession.
Nothing constructive has been done in Washington to change the system that caused the mess in the first place.
The global economic crisis is not over as some of the analysts might be suggesting. Probably playing a psychological game by telling everything is turning back to normal.
An addition to these problems is the grave situation in South Asia. World political leaders need to take more effective measures to revive the economies back and make the job market more attractive.
I am hoping Mr. Weiss is incorrect,....
But I am planning accordingly with my stock investments should he be right,... I do think we have one more 'crash' (at least mini-crash) left before a real (if slow & agonizing) recovery starts.
From the gist of what I have read - I don't think the DOW will crash to 5000,... but back to the 6500 range is possible by the end of the calander year.
Keep your powder dry folks!
General Electric's CEO, Jeffrey Inmelt
Is a manager, trying to convince the "Animal Spirits" that it's a new day, all is right with the world again, and great things are in store for GE........... given how much the bozo gets paid is directly correlated to GE's stock performance, and suspecting that the only things that will contain the horrors that lurk deep in GE capital's books is an economic boom, I'd be singing the same tune if I was in his position.
But I'm not in his position, and wouldn't touch that monstrosity of a company with a 50 foot pole.
As for Jobs, pfft GE is OUTSOURCING them to India thanks to Hillary Clinton's (D, Punjab) "Leadership"
Anyone interested in the details should read the transcripts of the US-India Business Council's 34th Anniversary "Synergies Summit", paying particular attention to the statements made by US Secretary of Commerce Gary Locke.
Partial statement "The United States has announced a new programme to fast-track high-technology trade with India from which General Electric's India division will be the first Indian company to benefit."
"If you come to a fork in the road, take it." - Yogi-ism #324
Judging from what's ahead..........we've come to a fork in the road.
Thanks for a real post.
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