Thursday, April 16, 2009

Sucker's Rally

The stock market is rallying from its lows, the Wall Street Journal reports that jobless claims fell to their lowest level since January, indicating that the recession is nearly over, and Wells Fargo, Goldman Sachs and JP Morgan have all reported good first quarter earnings - the country's economic problems are abating, right?

Uh, not quite. Certainly the people who run the country - i.e., the bankers and hedge fund managers - want you to think so. You see, they lose money when you - the sucker - are not buying or selling stock, buying products, buying houses, buying on credit, etc. When you are saving money - as many people have been doing for the first time in a long time - the boys who run the country get very mad and push the meme that you HAVE to get back to purchasing stuff or the country will face economic collapse/armageddon.

We have heard this from the CNBCers and others on TV, we have heard this from the politicians in Washington and New York City, we have heard this from the Obama administration - get back to buying, people, the economy is getting better and all will be well again soon. Consumer purchases, coupled with the trillions the government has "lent" to the financial industry and banks along with the stimulus money, will get this economy back on track and everybody working again.

But is this really the case? Are things getting better or just getting worse a little slower than they have been in recent months? Should we buy into the "Things Are Getting Better" meme we're hearing from the same people who told us the subprime mortgage problem was self-contained and the global economy wouldn't suffer if the U.S. fell into recession?

Probably not. The news is STILL pretty bad. Goldman Sachs made a profit first quarter because they didn't count the month of December in their earnings report - when they lost $1 billion. Subtract $1 billion in losses, add billions in free taxpayer-provided TARP money (via AIG) and no wonder they showed a profit! Gee, must be great to have so many ex-Goldies like Hank Paulsen in power to make sure you get taken care of, eh?

JP Morgan and Wells Fargo also added TARP money to their balance sheets (and like Goldman, they promise, no really, they promise they're going to pay it back soon, they swear...) and reported good first quarter earnings. But what they're not telling you is just how bad the credit card defaults are going to be coming down the pike. Capital One did though and here's how Zero hedge reads that news:

Some very ugly credit card charge-off data just out from Capital One. The February annualized rate of 8.06% has spiked by over 1% month-over-month to the current 9.33%, a very troubling deterioration, especially as to what it may portend for delinquency data from bigger brothers such as AXP, but also for the credit card securitization market as well as for upcoming rating agency actions on not just this name, but the entire credit card industry.
In addition, foreclosure rates are increasing (they're up 24% in the first quarter) and mortgage default rates are spreading into higher priced, upscale neighborhoods, meaning the problem is getting worse, not better. Are increased credit card chargeoffs and a spreading foreclosure problem signs the problems are getting better?

obless claims have reached 6 million for the first time ever as home foreclosures hit a record high - meaning that at least in the short term the foreclosure problem is going to get worse, not better. More foreclosed homes means more added home inventory which means more falling home prices which means no, we haven't hit bottom in the housing market yet. Here's Bloomberg News describing the problem:

“A flood of bank-owned properties is hitting the housing market as the U.S. recession deepens. The unemployment rate jumped to 8.5 percent in March, the highest since 1983, as 663,000 jobs were lost, according to the Labor Department. Home prices fell 19 percent in January from a year earlier, the fastest drop on record, according to the S&P Case/Shiller Index of 20 U.S. cities. The measure has fallen every month on a year-over-year basis since January 2007. Mortgage applications declined last week for the first time in a month, a sign that even with borrowing rates below 5 percent may not be enough to spur a housing recovery.”

And we haven't even gotten around to talking about the potential hyperinflation coming down the pike from Bush's two wars, Paulsen's TARP and Geithner's TALF plans, Bernanke's 24 hour printing press at the Federal Reserve and Obama's stimulus spending - all bought on the nation's credit card (and notice too how the idiots out teabagging themselves yesterday conveniently forgot about the Bush/Paulsen contribution to the problem...)

Does it still sound like we've hit the turnaround on the economy?

The hucksters on CNBC are all sweaty under the hot TV lights telling us "We have hit bottom - depression over!!!!", but remember, they're also the same clowns who told us there were no problems in the first place.

So I'd wait a little while before buying into "The economy is turning around" meme.

Unless you're a sucker, of course.
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