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Why Won’t the Economy Recover?

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July 12, 2011 – Comments (5)

 

OUR STORY SO FAR

**the Prez has dumped $ trillions in fiscal spending into the economy

**the HeadFed has pumped $ trillions into the banking system

Both are at least an order magnitude bigger than anything ever tried before or even fantasized about.

SCORECARD

the result:

**unemployment is below 10%, but still at a painful 9.2%, and shows no sign of improving

**U6, the real unemployment rate, is a shocking 16%: one person in six is unemployed, underemployed, or given up looking for work

**GDP growth is at anemic 2%, and may actually fall below that level in the next few quarters.

**home prices have plunged at record rates, and are still going down

**consumer confidence is at record low levels

**the ‘middle class’ has lost so much wealth, that we will have to think of a new name for them

WHADDUP?

OK, I agree: none of this makes any sense. We are going 1 + 1 = 0?? I can hear the wisecracks now: well, smarty pants, what would you do? Nothing: do nothing. Let Congress cut taxes and cut the Federal budget. Tell Helicopter Ben to sit on his hands for a while. There is an old saying ‘when you are in a hole, stop digging’. Surely it must be obvious by now that none of this fiscal or monetary wheely-popping is helping?

Or, try this one: when your investment portfolio is in trouble, maybe you stop trading so much and take a break?

 

 

5 Comments – Post Your Own

#1) On July 13, 2011 at 1:25 AM, awallejr (85.55) wrote:

Let's see.  The market hit Satan numbers in 2009 at 666.  Today it is over 1300.  While we were shedding millions of jobs in 2009 at least we aren't pacing that now. While GDP might be 2-3 % now at least it isn't negative 12 %. Yeah Greece sucks, who cares, aside from the fearmongerers.  Sounds like the same thing the press pulled on leahman.  Shark attack it, let it collapse and move on to the next target.  Since when did Italy all of a sudden go on death watch?  Simply because the press says? Why didn't they say this last month?  The press loves bad news, they don't care about good.  Bad news sells more.

It is all baloney.  The market is correcting because people are profit taking after a sharp run up.  The debt ceiling is causing uncertainty, however, and I blame Democrats and Republicans for that.  Boot all incumbents out please come 2012.

U6 unemployment is misleading. Back in 1929 you had one bread winner, so a 25% unemployment rate hit hard.  But today you generally have two breadwinners per family.  One going to part time is not the same hit to the household compared to a sole breadwinner losing his job in 1929.

Once Congress increases the debt limit which, unfortunately (I say that since it would be nice to actually see debt ceilings decline instead of increase) they have little choice, the market will start to rise again.

If your portfolio is in trouble do what I have been shouting about for years now, buy high yielders like mlps, bdcs, reits and quality yielders like T/VZ etc, then continue to reinvest the income stream and hence ever growing it.  Stop listening to the noise. Listen to ESPN instead.

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#2) On July 13, 2011 at 2:38 AM, ElCid16 (95.83) wrote:

Since when did Italy all of a sudden go on death watch?  Simply because the press says? Why didn't they say this last month? 

I hope you don't think the press dictates what country is or isn't in trouble.  How about we be a little more reasonable and let the markets determine what country is in trouble.

"Italian Yields Reach Nine-Year High as Debt Crisis Spreads"

http://www.bloomberg.com/news/2011-07-08/german-notes-snap-three-day-gain-as-exports-exceed-forecasts.html

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#3) On July 13, 2011 at 3:42 AM, Raambo20 (< 20) wrote:

The Economy is not recovering for a number of reasons. Companies may be hiring abroad but not in the U.S. so as to pay lower wages and remain competative. The main problem as I see it however, is that companies will not start hiring until consumer spending starts to increase, whats the point in hiring new people to create/service if there is no demand for services/products?

The continued stimulus that the Fed has created has created a lot of inflation, and not a lot of economic growth. This inflation has a large impact on consumer spending. The more money you need to spend on groceries and on gas, means you have less discretionary income to spend. In my own view, I think following the sharp cuts made in many municipalities and on the federal level, the economic prospect does not look good for some time. 

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#4) On July 13, 2011 at 11:36 AM, edwjm (99.87) wrote:

Warren Buffet's solution is impractical and raises too many constitutional issues.  But I think it has to be admitted that it would work.  Declaring any office holder who aggrivates the deficit inelgible for re-election would indeed cure the deficit problem at once!

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#5) On July 13, 2011 at 2:17 PM, awallejr (85.55) wrote:

I hope you don't think the press dictates what country is or isn't in trouble.

Well aside from the fact that my above post was scotch imbued in the writing, the media can very well dictate opinions and perceptions.  And I submit the media simply loves bad news and will push it.

Bond yields are very much attuned to perception of safety.  The greater the risk (or perceived risk) the higher the yield.

From your above link:

"The reality now is that those pesky bond vigilantes have caught sight of Italy, and that is basically all that matters,” Michael Riddell, a London-based fund manager at M&G Investments, said in his blog on the company’s website."

So what were we hearing?  Contagion is spreading. If Italy defaults what will that all mean.  Market drops in fear of this.

Please, if Italy was even nearing the possibility of collapsing why did German bond rates go down?  German financial system would get crushed as well if Italy collapsed.

Bloomberg, for example, is notorious in my book for making things up in trying to explain daily market moves.  And the media certainly can influence public opinion and sentiment with its spinning.

 

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