Re: SC91

http://www.moneyandmarkets.com/five-economic-storms-raging-now-2-33662

Five Economic Storms Raging NOW!

......Any economist fixated on so-called “signs of a recovery” needs to have his head examined.

As I’ll prove to you in a moment, the hard-nosed reality is that five major economic cyclones are in progress at this very moment.

The storms are not abating. Nor are they changing direction. Quite the contrary, what you see today is, at best, merely a deceptive calm before the next, even larger tempests......

Storm #1.
Plunging Jobs

On Friday, the Bureau of Labor Statistics announced that job losses were running at a slightly slower pace than in the first quarter. So Wall Street cheered.

But it’s a joke, and the 539,000 additional Americans out of work aren’t laughing.

Nor are the 23 million people — 15.8 percent of the work force — who are officially unemployed … are struggling with lower paying part-time jobs … or have given up looking for work entirely.

Look. In December 2007, there were 138.1 million jobs in America. Now, there are only 132.4 million.

So even if you accept the government’s tally of the narrowest unemployment measure, 5.7 million jobs have been lost.

Plot those figures on a chart and the picture is absolutely unambiguous: Jobs in America are collapsing. Right here and now!

Where’s that “slightly slower pace of collapse” they’re raving about? You’d need a microscope to see it.

Storm #2
U.S. Housing Starts Down 77.6 Percent!

Housing is the nation’s largest industry. With it, the entire global economy boomed in the mid-2000s. Without it, a recovery is next to impossible.

The big picture: Housing starts, the best measure of the industry’s health, peaked at an annual pace of 2.3 million units in early 2006.

Now, they’re running at barely more than a 0.5 million units.

That’s a decline of 77.6 percent — three-quarters of America’s largest single industry wiped out.

Yes, back in February, there was a tiny uptick: Starts rose from 488,000 to 572,000. And everywhere we heard voices cheering the “spectacular” jump in housing starts.

What they didn’t tell you is that the so-called “jump” was actually smaller than six of the seven minor upticks we’ve seen in housing starts since 2006. Nor did you hear them say much when this measure fell anew in March.

This industry is not recovering. It remains in a state of near total collapse.

The only major change: Lenders have given up waiting for a recovery that never comes. So they’re throwing in the towel, unloading huge inventories of foreclosed properties at fire-sale prices. And they’re calling that a “recovery”?


Storm #3
Auto Sales Down 44 Percent!

At their peak in February 2007, U.S. and foreign-owned companies sold automobiles in America at an annual pace of 16.6 million units.

Last month, their sales pace plunged to 9.3 million, a decline of
44 percent (including the best performers like Toyota and Honda).

Again, as with housing, we saw a tiny uptick in the prior month, hailed by high officials as a “sign” of improvement. Yet, as with housing, it was weaker than all prior “signs of a turn” over the past 26 months — each of which was followed by a sharper plunge.

Any lights at the end to Detroit’s dark tunnel? Only those of three speeding freight trains:

The Chrysler bankruptcy, despite all the talk of a “quick and easy” procedure, is not only frightening U.S. car buyers away from the Chrysler brand, it’s also scaring them from other U.S. and foreign makers. And it’s not only hurting auto dealers and parts suppliers, but also smacking auto lenders. Meanwhile …

GMAC, the nation’s largest auto lender, is already in its death throes, with the government now estimating it could suffer additional losses of a whopping $9.2 billion over the next two years. Will the Obama administration bail it out? Perhaps. But it would still have to downsize its operations, throwing another monkey wrench into General Motors’ sales. Meanwhile …

General Motors is now sinking even more rapidly toward bankruptcy than it was just a few months ago. According to last week’s New York Times column, G.M., Leaking Cash, Faces Bigger Chance of Bankruptcy …
“Even after receiving $15.4 billion in federal loans, General Motors is once again on the brink of financial collapse.

“The automaker’s first-quarter earnings released Thursday showed that G.M. was losing more money and sales than it was in late December, when the government began its bailout.

“With its cash reserves down to the bare minimum and its revenue plunging, G.M. seems more certain each day to be heading toward a bankruptcy filing. …

“The company’s chief financial officer, Ray Young, called the drop … ‘a staggering number,’ and said consumers were showing increasing concern about G.M. products because of the potential for bankruptcy.”

General Motors’ CFO added: “Once you start losing revenues, you get yourself into a vicious cycle from which you cannot recover.”

Sound familiar? It should. It’s the same vicious cycle I’ve been warning about for many moons — falling revenues prompting mass layoffs, and mass layoffs driving down revenues.

Storm #4
Biggest Decline in Consumer
Credit Ever Recorded!

Any economist counting on the consumer to get things going again had better go back for some more Rorschach tests …

… because you don’t need a therapist to interpret the image depicted in my chart below. It shows very clearly how the nation’s lenders are dumping consumers and making a mad dash for the exits:

In the third quarter of 2007, banks dished out $44 billion in net new loans on credit cards, autos, and other consumer credit (excluding mortgages).

Then, just 12 months later, in the third quarter of 2008, that giant credit machine collapsed to a meager $8.7 billion, a decline of 80 percent!

But the collapse didn’t end there. In last year’s fourth quarter, not only did new credit disappear, but lenders actually pulled out of the consumer credit market to the tune of $19.5 billion.

And they did it AGAIN in the first quarter of this year, pulling out another $12.2 billion.

It is the biggest collapse in consumer credit ever recorded.

Now do you see why I’m recommending a shrink for any economist fixated on a recovery?

They know how important credit is. They know that few Americans have the savings to splurge on consumer goods. And they’re tired of knowing that a recovery is virtually impossible without credit.

And yet here we are, with the biggest-ever collapse in consumer credit — and they’re still searching for the “signs”!

Storm #5
Big Banks!

Whether the government lets big banks fail or not, the impact on the economy is similar: A massive contraction of bank loans and credit, sabotaging attempts to revive credit flows and stimulate the economy.

Reason: These banks must build capital quickly, and the only realistic way to do so is by cutting back on their lending.

The official stress test results released Thursday on 19 U.S. bank holding companies were supposed to help determine exactly how much capital they’ll need, and the total came to $75 billion.

That’s no small amount. But the stress tests will go down in history as the world’s most elaborate effort to paint lipstick on a pig.

To show you why, first, let me provide our analysis based on data from TheStreet.com Ratings, the Comptroller of the Currency (OCC), and the banks’ first-quarter financial statements. Then I’ll show you why I believe the official results grossly underestimate how much capital the banks will need and how much pressure they’ll be under to slash lending.

We find that …

Seven institutions — JPMorgan Chase & Co., Citigroup, Wells Fargo & Co., Goldman Sachs Group, GMAC LLC, SunTrust Banks, Inc., and Fifth Third Bancorp — are at risk of failure and may have to cut back lending dramatically to stay alive.
Eight institutions — Bank of America, Morgan Stanley, PNC Financial Services Group, US Bancorp, BB&T Corp., Regions Financial Corp., American Express Co., and Keycorp — are borderline, meaning they could be at risk of failure with worsening economic or financial conditions and will also have to cut back on lending.
Only four institutions — MetLife, Bank of NY Mellon Corp., Capital One Financial Corp., and State Street Corp. — appear to have adequate capital to withstand worsening conditions. But even they may voluntarily cut back their lending in an attempt to maintain their current financial health.
Moreover, of the $11.6 trillion in assets held by the 19 institutions, those likely to cut back dramatically represent $6.56 trillion, or 56.5 percent, of the assets; while borderline institutions hold $4 trillion, or 34.7 percent.

Only $1 trillion — just 8.8 percent — of the assets are held by institutions with adequate capital, based on our analysis.

In contrast, the government is trying to persuade us that most have plenty of capital … the rest can easily raise it … and none will have to slash lending in a way that would sabotage the prospects for an economic recovery.

So what explains this vast discrepancy between the official conclusions and ours?

The simple answer: Three unmistakable deceptions in the government’s stress tests …..

Go to the website to read about the details of these deceptions.



Edited 1 time(s). Last edit at 05/25/2009 10:47PM by Wizard.