Thoughts for Friday 12-07-2012
Today is December 7. On this day in 1941 the United States Navy was literally destroyed in Pearl Harbor in a clandestine attack.
Yet today, the USA faces another clandestine attack of major proportions and it is not very much of a secret, but no one is paying any attention. In fact, it is front an center of everyone on this planet, albeit hidden by smoke screens like the US 'Fiscal Cliff' and yet most are not paying much attention.
What most are asking, “What the hell is going on with the markets”? Yet every day you see reports and articles that we are on the brink of a global recession, but the markets continue on as if there isn't a thing you should be concerned about. Seriously, is a disaster necessary to bring you and the markets into reality? Most likely you are going to see a kick-ass market decline because of 'unintended consequences' of political financial irresponsibility that has been going on for decades.
The US 'fiscal cliff' drama now being played out on the World's stage is merely a diversion of bigger things to come. The real crisis is unfolding before your very eyes like a Tsunami first stage of waters slowly receding from the shoreline misrepresenting the real cataclysm that will soon be on its way.
What I am talking about is the coming major world wide recession (depression?).
Myself, plus a handfull of other financial analysts, are certain we are going to see the truth slapped in our face whether we want it or not. It will be a good thing in the long run I think. Like when daddy took the belt to your butt, it woke you up. Similarly, this coming butt smacking is going to wake you up to the fact that bad fiscal management is not to be tolerated.
The coming recession is going to be a dozy I am afraid and it is just around the corner and there is no place to hide. There is no high-ground for 'Joe Sixpack' to escape the rising waters and many are going to perish financially. There will be few lifeboats available except for the very lucky and those who prepared for the onslaught of a global recession.
“The Global Economy is on the brink of a recession with 58% of 29 OECD countries experiencing business cycle contractions.
. . . OECD defined global contractions together with the percentage of 29 OECD member countries experiencing slowdowns. It is evident that whenever 50% or more of countries enter contraction that the odds of global recession are very high.
The conclusion is that the world economies are in a precarious state . . . there is cause for concern for contagion to the U.S., . . . a fall into recession in the U.S. is likely to be a very rapid one.”
Mr. Picerno points out in the following article that there is plenty room for doubt concerning a recession, but there is also significant reason to believe we are actually in one right now. Seeing both sides of the problem is necessary for intelligent decision making. I just wish I could say the same for our elected officials.
“Lakshman Achuthan of Economic Cycle Research Institute toured the TV circuit again yesterday to revive and defend his firm's long-standing forecast that recession risk is high (see interviews on Bloomberg, and Yahoo Finance).
He asserted that the recession started several months ago, noting that this past July marks the peak in the current business cycle for the U.S. The supporting evidence for this analysis, he explained, is patently clear in the behavior of three indicators. It all sounds plausible, but there's plenty of room for doubt too.”
One key signal to an impending recession is a declining Manufacturing Index. Having fallen to it lowest level since 2009 remains a clear signal that things are not well in Mudville tonight. I would not expect to see the Markets to hit a home run anytime soon; certainly not this year and maybe not next year either.
So much for the 3rd Recovery (or is that 4th?) in the current depression: following the Chicago PMI which posted a solid beat on horrendous internals, today's Manufacturing ISM came in just as expected, at least by those skeptical of all the sugar high economic data the US population was spoon fed in the past few weeks.
At 49.5, the headline PMI print was the lowest since July 2009, the biggest miss to expectations of 51.4 in 5 months, and down from 51.7. Also, as most know, as sub-50 print indicates a contraction in the manufacturing space, usually a precursor to overall recession.
Particular data points of note: Employment down from 52.1 to 48.4; New Orders slide from 54.2 to 50.3, and in the worst news for GDP Exports declined, Imports rose and Inventories plunged - which was to be expected after a huge inventory build up in Q3 pushed GDP much higher in the period.
Expect even more downward GDP recessions on today's ugly data. Finally, while the bulls would love to blame the collapse on Sandy, it was not mentioned anywhere in the release and the ISM's Holcome said just one respondent even mentioned Sandy in the release, which means the manufacturing reality will only get worse as the full impact of Sandy is internalized.
Maybe it is just me (and being over 40) but I have a lot of difficulty understanding just why the younger set doesn't understand the serious financial problems being faced. I suppose the unemployed do, but an alarming percentage of the unemployed voted for the one man that promises to make things worse. He is going to tax the ones that make employment possible and extend the unemployment benefits. Tell me, please, just how is that going to promote employment and prosperity?
Wake up folks, smell the simmering fires of discontent, rising world unemployment and look at the reality around you; unemployment may be in your future too. As Ayn Rand stated: “You can avoid reality, but you cannot avoid the consequences of avoiding reality.”
The world no longer makes sense to most people over forty years of age. Much of what we thought was true is now denied. What to us is obviously false (or at least always was) is now accepted as being true. Truth cannot be changed by repeating falsehoods. Nor can it be altered by more people believing untruths. But, when these fantasizers overwhelm society with their false beliefs, society will no longer function.
The avoidance of reality has overtaken our society. The consequences of doing so have been building for decades and will soon overwhelm us. On our current path, much of what we knew and cared about will be destroyed.
Having moaned and groaned in the previous paragraphs about the coming disaster and recession, maybe a depression is what we need. I have written before that the only way out of this looming disaster is to have a 'real' disaster so the politician's can honestly point fingers of blame at each other and actually be telling the truth for a change.
Scott Minerd has written a thought provoking article about today's situation in the Keynesian Depression. The current crop of clueless politicians obviously can't figure out how to balance a check book or reduce spending so how are they going to stop a financial fusillade of bad debt issues coming to fruition?
The United States is more than four years into its current form of economic purgatory. The government pronounced the recession over in June of 2009.
That announcement does not conform with reality or even subsequent government suspect data. To believe the recession ended requires a bizarro interpretation of economics where bad is actually good and good is actually bad. 21st Century politics sees no need for truth.
When government believes itself to be responsible for the economy and convinces the people of that, it has put itself into a box. The reality is that government does not create wealth or economic abundance. (They can create poverty, however.) The country’s economic problems began decades ago.
In trying to cover them up with economic interventions (stimuli), government actions prevented the economy from correcting the imbalances that caused slow growth. After decades of such interventions, the economy no longer is able to function efficiently.
We are coming off the biggest boom in the history of the world. Thus far all the Keynesian dollars expended have had little effect other than to make this country poorer. We are set up to have a Depression greater than the one in the 1930s.
A Depression is not a good thing. Yet in this case, it may be the one event that can prevent a chapter in future history books entitled “The Demise of the Great American Empire.”
The “greatest generation” handed us a gift and we fumbled it away by allowing government to run wild.
Having thought about a looming disaster, I would hope not as the pain of a catastrophic decline will only hurt innocent bystanders and NOT the ones that created this house of cards. It would be nice to see some of the 'banksters', lying politicians and the crooked elite found guilty and put in jail. Yes, it would be nice, but don't hold your breath for something like that to happen.
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Written by Gary