Economy in Shambles; Markets Crashing
Wow. It's only Monday and the markets are getting creamed. The SPYs are down 4.34%, the QQQQs are down 3.65% and the IWMs are down 4.75%. The bottom line is the markets are not happy with the way things are going. And there is plenty of reason to be unhappy.
First, let's take a look the economy. What follows is a piece from my blog from earlier today titled, "If It Walks Like a Recession and Talks Like a Recession":
The standard press definition of recession is two consecutive quarters of negative GDP growth. However, the National Bureau of Economic Research -- the organization that officially dates recessions -- uses a broader definition:
The committee places particular emphasis on two monthly measures of activity across the entire economy: (1) personal income less transfer payments, in real terms and (2) employment. In addition, we refer to two indicators with coverage primarily of manufacturing and goods: (3) industrial production and (4) the volume of sales of the manufacturing and wholesale-retail sectors adjusted for price changes. We also look at monthly estimates of real GDP such as those prepared by Macroeconomic Advisers (see http://www.macroadvisers.com). Although these indicators are the most important measures considered by the NBER in developing its business cycle chronology, there is no fixed rule about which other measures contribute information to the process.
Let's look at each of these items:
Remember we're looking at the change without transfer payments. That makes the spike in May of this year meaningless. Note the year over year trend line has been dropping since July of 2007. Also note the percentage change is nearing 0% over the last few months. In other words -- personal income isn't looking that good.
Note the year over year percentage change in employment growth has been dropping since April 2006 and is now negative.
Note the unemployment rate has been increasing since January of last year.
Industrial production's year over year rate of change has been dropping all year.
Capacity Utilization has been dropping since the end of the third quarter of 2007, although the last three months have seen incremental increases.
The ISM manufacturing number has been dropping since 2004 and recently took a big drop into recessionary (below 50) territory.
The Chicago NAPM number has shown two strong months although the readings for the rest of the year have been borderline recessionary.
All of these numbers tell the story of an economy in a recession. My guess is the NBER will date it from the beginning of this year.
Now -- let's take a look at the markets to see what they tell us.
The SPYs (S&P 500) has been dropping for the last year. It has fallen roughly 32%. Also note the following:
-- Prices are in a clear lower low/lower high pattern. This is a classic bear market formation.
-- Prices are below all the simple moving averages (SMAs)
-- Prices are below the 200 day SMA by 21%.
-- All the SMAs are moving lower
-- The shorter SMAs are below the longer SMAs
On the one year chart, notice that prices have consolidated in two triangles. The first lasted two months and occurred at the end of 2007. The second lasted for most of 2008 but prices broke through the lower support line at the beginning of September. Prices have fallen almost 35% from their high at the end of the summer in 2007. Finally, note that prices are at their lowest point of the last year.
On the IWMs, notice that 64 has provided incredibly strong technical support for the last year. Now prices have moved through that area.
Also note that all three averages gapped down earlier today -- another bearish signal.
So -- why is all of this happening? Didn't the Wall Street bail-out stop the economy's bleeding?
No. There are plenty of problems across the globe right now. Europe is now in the same situation as the US.
French President Nicolas Sarkozy, whose country currently holds the EU's rotating presidency, on television read out a common statement from the 27 EU nations that said each "will adopt all the necessary measures to protect the stability of the financial system."In a similar statement to Britain's parliament, Prime Minister Gordon Brown pledged to "look at every aspect -- liquidity, capital and regulation -- with other countries."
[Europe races to shore up banks] ReutersFrom left to right: Luxembourg's Prime Minister Jean Claude Juncker, Germany's Chancellor Angela Merkel, France's President Nicolas Sarkozy, Britain's Prime Minister Gordon Brown and European Central Bank Governor Jean-Claude Trichet at a summit on the international financial crisis in Paris.
The declarations followed the surprising move on Sunday by Chancellor Angela Merkel of Germany, Europe's biggest economy, to guarantee all individuals' bank accounts, a day after she had criticized Ireland's unilateral guarantee of its banks' liabilities.
Germany's guarantee put pressure on smaller countries to follow suit. On Monday, Austria, Sweden and Denmark joined the list of countries that improved their deposit-guarantee plans. Spain said it would also move if no concerted EU action emerges.
On Monday, Germany's DAX was down 7.1%, while France's CAC-40 fell 9%. The FTSE 100 index of leading British shares slipped 7.9%.
European countries' economies have become deeply intertwined in recent years, including a single market, and a common currency and central bank used by 15 nations. So far, however, EU governments have found little they can do together to react to the crisis.
On Monday, France and Belgium were seeking a way to keep bank Dexia SA afloat as shares in the Franco-Belgian municipal lender fell more than 20%. That followed second attempts to rescue Germany's Hypo Real Estate Holding AG and the Benelux bank Fortis NV over the weekend.
In other words -- the US has exported a ton of toxic mortgages to, well, everybody. Now we're all in this together.
Now -- let's consider something really scary. We haven't heard a damn thing from Asian banks about any of this yet.
I'll be on KTLK tonight from 9-10 CST to talk about this situation.
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I am trying to find someone who will help me find an outlet for a problem shared by thousands of middle and low income Americans. I have listened for two weeks about how much help the people facing foreclosure need. Not to mitigate their situation, but I haven't heard anything about helping those of us who rent. My husband and I have both lost our jobs, we have no savings, and are about six weeks away from living on the street with my son. I haven't heard anything about helping people like us, although there must be hundreds of thousands. With foreclosure, it takes weeks/several months before you lose your home. With renters, eviction takes only 30 days. Is there a plan to help us? Is the country prepared for the increasing number of Americans with no home? We are in worse shape than homeowners. Please tell me how I can get help for families like ours.Our family is desperate.
We didn't take on leases that we knew we couldn't afford. Our financial background was scrutinized by our landlord. We deserve help more than those who bit off more than they can chew. WE NEED A VOICE AND HELP.
If you could tell me who else I might contact, I would appreciate it. Thank you for your help--you have the ear of the media and the candidates.
Google "section 8 housing"
I don't know much about it, or if it would help you, but it's a place to start.
Hale, perhaps you don't want to be a lightening rod for freedom, or a blog leaders who helps rally us to the Constitution through Knowledge, regarding the only thing that really matters:
The Economy.
The one thing they teach us less and less about in school,where they still don't teach kids how credit works, to balance a checkbook, open a bank account or avoid the traps the Banks lay for the young, poor and unwary. An entire generation of dupes coming up every 12 years to ground up by the system because they have no Knowledge--and that's not by accident.
Historyshould be Economics. When they cover the Revolution, they should mention that war came after the Bank of England became outraged over the Colonies printing their own script! I was all about the money, from day one. You can cover the Rothschilds involvement in the Civil War. You can explain how the Robber Barons created the FED and the Depression and got out of the market months ahead of everyone else, how that increased their wealth, power and control of our Country. You can use Economics and monetary policy to educate us in a way no one else is.
Flags, and mottos, and all the rest are nothing compared to the power of money and those who wield it. Show us how we can change this system by showing us how it has failed us, the People, and give us a way to go.
Well, I hope you speak to our Constitution as being progressive with regard to monetary policy. Because, your charts and articles continually prove that a centralized, privately controlled fiat currency is regressive. In fact, it is slavery.
Mr.Stewart
You might be right about a lot of things, but I'm not convinced we're all in this together.
Last night tuned in to the English language segment of the Taiwan national shortwave radio broadcast, and caught a few minutes of their on-air talk show personalities discussing the world financial mess.
Their main theme, put very politely of course, was that since American culture was one glorifying excessive deficit spending, and gluttonous waste, that this crash was inevitable. They contrasted it with the Asian value of saving for a rainy day and abhorring personal debt, and how their banking system hadn't bought into the subprime mortgage investments very heavily and shouldn't be much affected.
Whether it's just whistling Dixie or not, looks like at least those who run at least one Asian state radio are taking the old ten-foot pole approach.
$700B just doesn't go as far as it used to.
Re foreign banks: not to worry. We're bailing them out, too. Haven't you heard?
"Now -- let's consider something really scary. We haven't heard a damn thing from Asian banks about any of this yet."
Hey, thats where my money is, you can stop scaring me now Hale.
I would highly recommend reading Kevin Pillips book "Bad Money". Way back in late 2007 he wrote that exactly what is happening now would happen. His very complete book lays out the case that the US has become a country of debtors, from the top to the bottom. Credit card debt is widespread, recent graduates have horrific student loans, secondary mortgages are maxed out and cut off, and on top of all that the financial sector willfully decided to steal a vast amount of money by selling loans to people they knew would not be able to repay. 60 Minutes has an outstanding segment laying out very clearly how these crooks went about their business.
There is more than $60 trillion dollars in Credit Default Swaps and Collaterized Debt Obligations out there in the market, completely unregulated. Banks who sold these include Bear Sterns, Lehman Brothers, AIG, Citi, the list goes on. The private debt of the financial sector is currently at $15 trillion dollars, one and a half times the total Gross Domestic Product of the USA. These are two boulder teetering on the edge. about to fall on us.
Conceivably we could, and should, prosecute these people for treason, for betraying our country.
I mean, really, think about TV: Desperate Housewives, Sex in the City, CSI, a mix of sex,violence, torture and over consumption in a degrading social milieu where values are skewed, right and wrong turned on their head, and torture happens 12 times per episode. Do you think this anaestheticizes us to these things? I do. Beyond being a simple distraction like American Idol to keep our minds off the coming storm, I believe that we are being programmed to accept some fundamental changes in our society--and none of them for the good.
We have come to extol the virtues of great wealth, and then seen that wealth turned against us as an economic weapon. We are told to go shopping at the beginning of a war and rack up more debt for the bankers who prop up the war machine. We buy things because the notions of civic duty, community and giving something back have been beaten out of us. And now we will pay.
The New Dictionary of Cultural Literacy, Third Edition. 2002.
"No one ever went broke underestimating the intelligence of the American people.
People can easily be persuaded to accept the most inferior ideas or useless products." attributed to H. L. Mencken.
And so it has always been with us. We are all small town rubes at the Carnival of Life and we get taken by the Banker's snake oil sales every single time!
Maybe it's because under all our bluster and road rage we really are a very simple people who, for some unexplained reason, still expect truth and honesty and fair play from business and government, and are always surprised when we don't get it.
Or maybe it is advertising and the media--they know how to get inside our heads, make us want things we shouldn't, buy more than we can afford, and tell us fairy tales about how it will be alright.
oops... our greatest EXPORT... export not import ... duh
In my opinion, we in America have a "Job Crisis" ... that is the real culprit behind our mess. Does no one see that when our manufacturing started to move overseas and those jobs were lost forever, traditionally high paying blue collar workers had to move to jobs in the service industry that pay half or less of what they were making... when the middle class wages are eroding what happens to the sales of goods? it decreases.. that is economics 101 ... if no one is earning enough to pay for a new car they don't sell! the line has been that the economy is great, imports are up!.. because our greatest import is bonds. I'll say it again, our greatest import is debt! .... the sale of our equity and property, not manufactured hard item widgets ... debt. Union busting, free trade, and a so-called world economy ... trade is not free unless the foreign parties have to play by the same rules, have to pay their workers a decent wage... I've heard that "we cannot compete" our union workers are paid too much... so they have won and our jobs are gone and our wages are eroding to third world standards so now we will become a third world nation of debt, low wages and whatever else comes with it... like borrowing from the chinese to wage a war, but hey, the rich are getting richer... and the economy is fundamentally sound right?
and you can use these same words when the climate also goes tits up.
is it true that our biggest export item lately has been debt, in the form of bonds backed by mortgages?
Every western country has done this, from the US to Europe & the UK to Australia, New Zealand. So who is buying the bonds? Asia
This is why the Asian banks are silent Hale, Just ask HSBC for comment
Obama and a majority House and fillibuster proof Senate will fix everything quick as promised.
When Obama gets elected with a majority in the House and fillibuster proof in the Senate, he will cure everything within months as he promised, correct? Let's see what he can do. I want to see him do something other than catchphrases and inspiring speeches. Once he gets elected, what does his inspiring others have to do with anything of substance or importance, like fixing this mess? He is all for the bailout, now he has an opportunity to make it work. I want to see the same critical analysis from Bondad in one year to see how well Obama is doing. I mean, the president controls the economy of trillions, doesn't he. Alright, I am inspired for him to fix everything like he says he will. Lets all get inspired.
well, then, let's elect mccain and see how much more the republicans can destroy in the next four years.
90 days to 6 months will provide the needed "floor" for housing values; in the meanwhile, the whole thing is coming apart; Bernanke stated there were 10,000 home defaults daily; that was the urgency of getting the package done..... BUT NOoooooooo, the children in Congress do not know who to play nice and cannot be relied on to do anything expedient; what of we were attacked by a foreign country!!! well, we don;t need to as we are taking down the U.S. on our own!!! Trillions of value lost, all our investment banks gone, 4 million foreclosures and counting, millions out of work, and Iraq, a black hole that is sucking us dry....... somebody's gotta go to jail and i would start at the top;
I want some of what you are smoking. Try 18 months to 2 years in places like miami and sou. cal. this will be a long ride. But now that they got the first bailout through, the next one, in December or January will be much easier. Dr. Housing Bubble .com
somebody's gotta go to jail and i would start at the top;
Don't count on it. If Mc Cain's elected, we'll have a 'debtor's prison'. Count on it. After all, accoutability starts at the bottom, and works it's way up. No one at the top actually ever gets held accountable for the misery they cause or the billions that they steal.
Even with Obama, there are just so many fish to fry, these guys will get off scott free. Nope, we're just gonna have to get out of this thing our selves!!! Pull our selves up from our bootstraps, all that kind of thing....
"do nothing" = allow true free market principles to trump managed market shenanigans. deep recession, painful, but shortlived ...well, normally when confined w/in a keynesian, centralized private cartel, the Fed.
"bailout" = dumping more fiat currency into a defunct fiat economy, creating stagflation and/or hyperinflation, bringing on a prolongued depression. Creating a "need" for a New New Deal.
Obama will deliver the Amero, the North American Union, and the sale of the New World Order. W. prepped the constitution.
Prove me I'm wrong and support HR 2755 to phase out the Federal Reserve and let us return to Austrian economics and our Constituttion - sound money and only Congress issuing it.
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