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Friday Night Frights – Aug. 6, 2010

The over/unders were 5. The private sector added jobs but Census workers are now out of work; the result was a net loss of jobs. The participation rate was revised down to 64.6% from 64.7% so the monthly jobs report shows unemployment holding steady at 9.5%. Yes, Virginia the numbers are all make believe. People aren’t participating in the labor market because there are almost no jobs to be had. The real unemployment number is just over 21%. Consumers aren’t consuming; this is understandable because they don’t have jobs. They are holding onto their dollars until the eagle grins. Consumer credit outstanding shrank for the fifth straight month in June. Second quarter Gross Domestic Production was revised to 2.4 percent growth compared to 3.7% GDP growth in the first quarter. The worst depression since the Great Depression just keeps getting more depressing. Much of the first half growth was attributed to inventory adjustments. So we are setting up for a second half decline. Unless consumers go on a wild spending spree, businesses won’t be restocking inventories. Second half growth will have a hard time topping 2%. We predicted this back in March. The next sixty days on Wall Street will likely be ugly. Don’t believe me? Goldman Sachs is now betting on deflation. After all, what can business do? Cut costs by laying off more workers? Maybe, but that just adds to the deflationary spiral. Also, liquidity is drying up; the money supply isn’t growing; the banks aren’t lending. The …

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Friday Night Frights 07-30-2010

The over/unders were 5. It’s a push. Five banks failed. “My feet hurt” and “I’m tired of giving in.”* Citigroup agreed to pay $75 million in fines. When the subprime problem began to unravel Citi lied to regulators, claiming they only had $13 billion in exposure to subprime loans when they really had closer to $43 billion in exposure. When Citi’s losses started to cascade, the government ultimately bailed them out. In reaching the settlement, Citi did not admit or deny wrongdoing. Only real people go to jail, not corporations. About 19 million homes were vacant in the second quarter. Home ownership is at the lowest level in a decade. More than 3 million home owners will receive foreclosure notices this year and more than one million will lose their homes to foreclosure. For every house on the market there are at least two homes sitting vacant, waiting to be sold; it’s called “shadow inventory”. Shadow inventory doesn’t include people who want to sell but can’t because the market is so weak. Mix in high unemployment and the fact that wages for 98% of Americans have dropped over the past 30 years and you have the recipe for further declines in home prices. You might think more problems in the housing market would be bad for the big banks but it would be foolish to bet against them. The megabanks actually make money on foreclosures; it’s the rest of the economy, the small banks, the local businesses, municipalities, and families …

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