Rebel Traders – Analysis Without The Hype

One persons account of the recent World Economic Forum at Davos:

Many countries have started to see a rebound from last year’s economic recession. But will it last? Economists at the World Economic Forum in Davos warn that paying down massive public debt will be "very, very painful." Deep spending cuts and significant tax hikes may be unavoidable.

For those now in their 30s, Kenneth Rogoff has bad news. "It will be terrible for you," the Harvard University economics professor told a young German at the World Economic Forum in Davos. "Germany’s debt is exploding, the population is aging," he said. "And to be honest, I think your country is going to have average growth of just 1 percent in the coming years."

Rogoff went on to say that, should Germany wish to begin making inroads into its mountain of debt, there is no way around strict savings measures and significant tax increases. "It will be very, very painful," Rogoff said, adding that it will take at least a decade, and possibly many more, for Germany to pay down its debt.

He wasn’t the only one in Davos with a dark vision of the future. Many countries could be stricken with the "Japan illness," Robert Shiller, a behavioral economist at Yale University, told SPIEGEL ONLINE. Following a financial crisis in the 1980s, Japan’s economy remained in the doldrums for years as trust in the economy’s ability to recover evaporated. Few were willing to take risks, sapping the Japanese economy of its life blood, said Shiller. "Such a situation could take hold in many regions of the world."

Such prognoses raise questions about the recent global economic recovery, modest though it may be. Is a second recession just around the corner, part two of what some warn could be a "double dip?" In the fourth quarter of 2009, the US economy grew by an impressive 5.7 percent — but how durable are such gains?

One thing is clear: 2010 presents steep challenges to the world economy. "There is an illusion of normalcy," Rogoff warns. But that illusion, he points out, comes largely as a result of the immense amount of money pumped into the economy by governments around the world. The result — massive public debt across the globe — is "historically exceptional," Rogoff says. The only comparable situation can be found during the Great Depression, he points out. […] (Source: Spiegel Online)

Government plays “fun with numbers”, and hopes you are too stupid to see through the BS.

The Government has attempted to paint the economic stimulus plan as a huge success. Before the bill was passed last year the Obama administration had proclaimed it would save or create upwards of nearly 4 million jobs.

NY Times – January 11, 2009

[…] In the campaign, Mr. Obama vowed to create one million jobs, and after winning election he put forth a plan to create up to three million. The report now puts the figure at roughly 3.7 million, the midpoint of an estimated range of 3.3 million to 4.1 million jobs by the end of next year. […]

But sadly it has not quite worked out as well as the Obama administration hoped for. So recently the Obama administration moved the goal post around the field and changed the definition of a job saved.

In December, the White House Office of Management and Budget changed its guidance, telling [stimulus money] recipients they should start counting every worker whose salary was funded with stimulus money, rather than guessing whether the jobs would have existed in the absence of the federal plan.

Tonight the WSJ reports:

Recipients of economic-stimulus money said 599,108 workers were being paid by the funds in the last quarter of 2009, fewer than the number of jobs attributed to the package in the seven months after it was enacted. The recipients’ reports, published on the official government Web site recovery.gov late Saturday. […]

In his State of the Union address to Congress last week, President Barack Obama said that "because of the steps we took, there are about two million Americans working right now who would otherwise be unemployed."

Those projections are based on macroeconomic models and try to include the number of jobs that exist indirectly as a result of people being hired to work on stimulus projects, or of people receiving food stamps or other aid funded by the stimulus program. […]

My note: Add to that those receiving stimulus money and reporting jobs being saved when they were never in danger in the first place. The Obama administration is playing games with the numbers. Fuzzy math? This more like along the lines of trying to convince your teacher how you can put the square peg into the round hole.

The FOMC has spoken:

Release Date: January 27, 2010

For immediate release

Information received since the Federal Open Market Committee met in December suggests that economic activity has continued to strengthen and that the deterioration in the labor market is abating. Household spending is expanding at a moderate rate but remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software appears to be picking up, but investment in structures is still contracting and employers remain reluctant to add to payrolls. Firms have brought inventory stocks into better alignment with sales. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack continuing to restrain cost pressures and with longer-term inflation expectations stable, inflation is likely to be subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter. The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

In light of improved functioning of financial markets, the Federal Reserve will be closing the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility on February 1, as previously announced. In addition, the temporary liquidity swap arrangements between the Federal Reserve and other central banks will expire on February 1. The Federal Reserve is in the process of winding down its Term Auction Facility: $50 billion in 28-day credit will be offered on February 8 and $25 billion in 28-day credit wil be offered at the final auction on March 8. The anticipated expiration dates for the Term Asset-Backed Securities Loan Facility remain set at June 30 for loans backed by new-issue commercial mortgage-backed securities and March 31 for loans backed by all other types of collateral. The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted.

On Wednesday evening, President Obama will hold his State of the Union address. Advance talk is circulating that President Obama will emphasize a new push to create jobs in America. Short of creating a Works Projects Administration (WPA) type program (established during the Great Depression and was the nations biggest employer before World War II, providing nearly eight million jobs) there is simply not much the President can do.

He can spent more stimulus funds that create a slew of temporary projects which give the illusion that the jobs market is improving, but creating real jobs that last is something that is nearly impossible for the Government to create.

It is often said that unemployment lags the real economy. But, it is different this time. Yes, it really is different this time. How do we know it is different?

The chart below depicts how many weeks people are unemployed. At no time has the duration of unemployment been as high as it is now. The chart says it all…

The President will probably try to convince the people that his administration has already created or saved nearly 1 million or more jobs from the stimulus package last year. But if it is based on the calculations discussed in my previous post on the subject (President Changes Definition), then I would be worried about any promises of new jobs.

All through the late 70’s and the 80’s American’s were told how great it would be in a ‘new global economy’. And many others warned that America’s strength in manufacturing would suffer. And suffer it did, today the United States makes very little. Everything from steel processing, electronics, and even customer support for your American bank is in another nation.

For America, the ‘new global economy’ has been a bust. As consumers we want everything to be cheap, and in that demand for lower and lower priced products they are being manufactured in countries where their employees can be paid just a fraction of what it would cost to be made here in America. Some companies even resort to manufacturing products in third world countries where child labor is used and unsafe working conditions prevail. This is what we get when the Wal-Marts of the world take over and push family run business out, and push cheap products made in China and other countries on the consumer while paying their employees here next to nothing.

Cheap products are one thing, but what are we really sacrificing just so we can get that toy for $5.00 cheaper, or the cheap products (with some even being unsafe) from the million dollar stores across America?

As Americans, are we guilty of creating the demand for cheaper and cheaper products? Are we responsible for the decline of America’s once great dominance in the world as a manufacturer? Or has all of this been a result of a global economy that seized the United States consumer with the enticement of cheap products? All good questions and no easy answer. But I would like to see some large American corporations actually make their products here for a change.

Take Apple (AAPL) for example. Not one product they sell is made here in America that I am aware of. Because everything revolves around ‘more profits’ they have to keep finding ways to make the products cheaper so they employ cheap labor in other nations. We can’t force American companies to manufacturer their products here because they would just move the company to another nation. Perhaps the only way to restore America to a goods producing powerhouse is to boycott any company that does not make their products here at home. But even that would be nearly impossible, because not much is made here anymore so we have little choice.

American’s are held hostage by every company that sells us our televisions, sneakers, clothes, and even the toys for our children. 

Where does it end?

Michael Pento takes a look inside the projections of a “V” shaped recovery, and turns it upside down.

The following article is re-printed for you here with permission from OilPrice.com

Originally published at: http://oilprice.com/article-the-tepee-shaped-recovery.html

The Tepee Shaped Recovery

By Michael Pento

The shape of this economic recovery will not be in a “V”, as many pundits have promulgated, but instead may be the inversion of that letter…which will unfortunately look much more like a tepee. The upcoming downfall will surprise most investors who have been tricked into believing that a government can print and spend their way into prosperity.

Undeniably, there has been a superficial recovery in the economy, which was presaged by a 65% rebound in the S&P 500 since March of 2009. Third quarter GDP was positive—albeit at a subpar and marginal 2.2%—and Q4 of 2009 and Q1 of 2010 should also show positive economic growth as well. But most of that growth will come from an inventory rebuild and not from a sustainable increase in output.

But let me explain why this recovery will severely underperform those of previous recessions.

First we must realize what has previously led the economy out of a recession. It has historically been consumer spending accompanied by a recovery in the housing market.  But we never had a nation-wide bubble in real estate before this previous period. After a bubble bursts, it takes decades before the asset in question can return to its former highs—and that’s without adjusting for inflation. For example, look at the gold market in 1980 and the NASDAQ market in the year 2000. The gold market didn’t return to its nominal high until 2007, some 27 years after its bubble burst. And the NASDAQ is still more than 50% below its former high of 10 years ago. Therefore, if the nature of bubbles also applies to the housing market, we cannot count on real estate to lead the economy out of a recession. Evidence of the continued weakness in housing was displayed by last week’s release of pending existing home sales, which dropped by 16%!

Many economists also believe that the consumer will spend us into a viable recovery. They are mistaken here as well. Household debt as a percentage of GDP was “just” 46% back in 1983—that was the last time the unemployment rate was 10%. Today household debt is 96% of GDP. That’s correct; consumers have more than twice the level of debt as they did during the last serious recession. Can they be counted on to pile on more debt at this juncture? I think not.

But perhaps the most trenchant difference between this era and those of previous recessions is the direction of interest rates. In the early 1980’s, the effective Federal Funds rate was close to 15%  and declined to below 6% by the middle of that same decade, thanks to a precipitous drop in inflation. One cannot underestimate the huge tax cut that was given to investors and the boon transferred to businesses and consumers by having the cost of money plummet in such a short period of time. I would argue that the cost of money and the rate of inflation could and should increase significantly over the next few quarters. But even if I’m wrong, no one can contend that interest rates will provide a tailwind for the economy in 2010 as it did during the early 80’s—the last time unemployment was above 10%.

Finally, in order to believe the economy is on the brink of a lasting recovery we need to see that banks are lending money to the private sector in order to purchase capital goods that are used to create wealth. However, we see the opposite occurring today. Total Loans and Leases at commercial banks have decreased 7.7% from December 2009. The only money banks are lending is to the government. Without capital being extended to small businesses they cannot expand production or hire new employees.

The sad truth is that the real estate market will be in a malaise for years to come. The consumer will not be able to take on and service a substantially increased amount of debt. There will be no relief from falling interest rates or lower inflation and the cost of money may indeed rise despite the Fed’s manipulations. And banks are frozen from lending precisely because the demand from money is down while the compulsion on the part of financial institutions to preserve their capital is overwhelming.

Knowing the truth will enable you to understand that the Fed will not be able to raise rates significantly in 2010. That means that the dollar stands unprotected and will resume its secular decline. Commodities will do well along with foreign stocks. Unfortunately, the rising price of oil and other commodities will put pressure on an already overburdened consumer, who already suffers from stagnant wage and labor growth.

The sooner we face these realities the sooner we can start to deal with them in a legitimate fashion. We can start by defending the value of our currency. Thereby ensuring that the upcoming double-dip recession is not also accompanied by yet more inflation.

Article written by Michael Pento, Senior Market Strategist at Delta Global Advisors for OilPrice.com who focus on Fossil Fuels, Alternative Energy, Metals, Oil Prices and Geopolitics. To find out more visit their website at: http://www.oilprice.com

“There’s something of an illusion of profitability”, says Kenneth Rogoff, Harvard economist. At a gathering of the American Economic Association’s yearly meeting held in Atlanta. Economists from a wide range of backgrounds mulled over the prospects of growth in the United States for the next decade.

[...] experts from a range of political leanings were in surprising agreement when it came to the chances for a robust and sustained expansion:  They are slim.

Many predicted U.S. gross domestic product would expand less than 2 percent per year over the next 10 years. That stands in sharp contrast to the immediate aftermath of other steep economic downturns, which have usually elicited a growth surge in their wake.

“It will be difficult to have a robust recovery while housing and commercial real estate are depressed,” said Martin Feldstein, a Harvard University professor and former head of the National Bureau of Economic Research.

Housing was at the heart of the nation’s worst recession since the 1930s, with median home values falling over 30 percent from their 2005 peaks, and even more sharply in heavily affected states like California and Nevada.

The decline has sapped a principal source of wealth for U.S. consumers, whose spending is the key driver of the country’s growth pattern. The steep drop in home prices has also boosted their propensity to save.

“It’s very hard to see what will replace it,” said Joseph Stiglitz, Nobel laureate and professor of economics at Columbia University. “It’s going to take a number of years.”

One reason is that U.S. consumers remain heavily indebted. Consumer credit outstanding has fallen from its mid-2008 records, but still stands at some $2.5 trillion, or nearly one-fifth of total yearly spending in the U.S. economy.

Another is that many of the country’s largest banks are still largely dependent on funding from the U.S. Federal Reserve and the implicit backing of the Treasury Department.

Kenneth Rogoff, also of Harvard, argued that if the U.S. government ever “credibly” pulled away from its backing of the financial system, then a renewed collapse would likely ensue.

He cited government programs giving large financial institutions access to zero-cost borrowing as artificially padding their bottom lines.

“There’s something of an illusion of profitability,” he said. (Source: Reuters) H/T butch (emphasis mine)

One week ago I said to mark your calendar for on November 6th, 2009 would be the day when your local news reports that the nations unemployment rate reached 10%. Unfortunately I was correct with this economic analysis. I say unfortunately because the statistics reveal that many Americans are facing extremely hard times and today’s report shows that those facing hardship rose yet again.

The top line number says that unemployment now stands at 10.2% (U-3 measurement), but the even worse bit of news was the data under the hood. The more accurate measurement of unemployment (U-6) reveals that the distressed labor situation is now 17.5%. That was another prediction I made that unfortunately came true.

The U-6 data is defined as follows:

Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.

Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not looking currently for a job. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.

The full report is contained here:

Unemployment Data Released November 6 2009

With the more realistic data statistic revealing that 17.5% of Americans can’t find work or who have fallen off the rolls is very troubling. It is often said that unemployment is a lagging indicator. If we were in a cyclical recession I would agree. However this is not a ‘normal’ cyclical recession. This is a recession that grew out of the credit market demise that subsequently impacted every aspect of business, labor markets, and most of all the ability for people to spend money.

It is extremely important to differentiate the type of recession that the Unites States, and a large number of other nations is currently experiencing. A normal cyclical recession is merely an over production of goods and/or services which gets ahead of actual demand. When inventories and production exceed demand then businesses must begin to cut back. That includes cutting production, reducing the work force, and cutting costs. One thing leads to another and it quickly becomes a downward spiral. When demand reaches an equilibrium with output then a steady revenue flow is established once again and soon growth follows until the next cycle.

Cyclical recessions are actually a healthy way of re-balancing the system, to reduce the ‘bubbles’ in the system. But what we have on our hands now is a recession that resulted in runaway credit. In this case it was not a result of over production or too much inventory, it was a runaway production of credit. That runaway credit; along with Wall Street firms and banks capitalizing on that very same credit found every way possible to take that credit and leverage it to extreme levels that once things fell apart it was a monumental disaster that destroyed the foundation of the entire economy.

The parents of this recession are Mr. Wall Street and Mrs. Credit. And the marriage of these two was presided over by the Federal Government who allowed them to breed financial time bombs. Those time bombs were and still are made up of exotic mortgage backed securities, derivatives, and other types of swaps which all sought to take advantage of the runaway credit that went parabolic.

Never in the history of the United States has credit been such an influence in every aspect of our lives, the function of business, and the function of the nation as well. Credit; when kept in check is one thing, but to have allowed credit to grow (via over leveraging) it was only a matter of time before the whole thing blew up, and indeed that is what has happened.

In a normal cyclical recession eventually the demand/supply ratio gets back into alignment. That is the same thing that must happen now but only substantially more so. There is one huge problem however, the Government and banks are refusing to suffer the consequences and restore a healthy balance. Instead the banks are being flooded with liquidity in order for them to make even more credit available. The Government is enacting every possible stimulus measure it can to goose more people to take on more credit to keep the terminally ill credit system alive just one more day.

In 2008 the Financial Accounting Standards Board (FASB) was brought before Congress and they were persuaded to change accounting rules that then allowed the financial institutions and banks the ability to hide the losses in a maze of number games. Everything is being done to ‘prevent’ the natural restoration of the system. The administration is attempting to convince the American people that they are able to report a growing GDP.  But that growth is on the backs of bailouts, stimulus spending to goose the data, and by the changes in accounting rules to name just a very few. All the while the real issue is not being addressed and only festers more and more under the disguise of a shinny new suit, lipstick, and new shoes. Remove that shinny apparel and we still have an economy that is on life support.

One of two things will happen. One is that the system will be allowed to finally balance itself which means the credit system will be allowed to return to healthy levels once again. Doing so will be extremely painful for the economy as it will mean losses will be forced out. The other thing that would happen is the result if the first one does not occur. And that second option will be far worse than anything we have seen yet as the credit system continues to expand by artificial means. The end result of such action is very likely to put the United States in a situation where its own reliance on credit can no longer be extended. The nation will reach ‘end game’.

The nation is at a crossroad, either the Government takes the proper course to balance the system, or it will head down a dead end road. Right now it appears that the Government is revving the engine and is about to head towards the dead end at full speed.

Japan is one of the world economies that relies heavily on having great exports to compensate the costs it faces with having had to cope with a high public and corporate debt during the “lost decade”.

It is also often a bellwether of the global economy, as many of its high-end technological products need a buoyant market for people to consent those types of investment.

And after a transient effect, due mainly to stimuluses, the recession seems to be catching up with the economy in Japan as everywhere else. In August, Japan’s exports fell by 36 %, while the imports also sharply contracted. As the crisis deepens, layoffs have also picked up pace in Japan, thus compounding the issue in some measure.

The ill tidings from Japan bode ill for China, whose economy is largely dependent on exports and who dedicated a great part of its stimulus to increase its capacity and infrastructures. A Chinese slump can be indirectly predicted to be soon in the books by the fall by 27.6 % of Japanese exports to China.

As the effect of the aids start to dissipate, the woobly global economy is now obliged to “walk on its own feet”, and the hope of the Keynesian policies adopted so far, is that the extra government spending will allow the economy to feel new economic “blood” flow into its veins.

So far, that seems uncertain, as a number of structural issues have not been addressed, among others the “hidden debt” in the books of the US banks.

Japan’s exports tumbled 36 percent in August — with car shipments falling by half — and imports also contracted sharply, the government said Thursday, showing the world’s No. 2 economy remains mired in a deep slump.

Declines in automobile and steel exports were especially pronounced, the Ministry of Finance said. Exports fell for the 11th straight month to 4.5 trillion yen ($49 billion).

“We are not seeing an improvement in exports due to a continued slump in global demand,” said Hiroshi Watanabe, an economist at Daiwa Institute of Research. “Japan’s exports were particularly hit hard by stagnant demand in Asia and China.”

Imports, meanwhile, dropped 41.3 percent from a year earlier to 4.3 trillion yen, reflecting weak consumption within Japan, where the jobless rate is at a record high as companies shed workers. Consumer finance company Aiful Corp. said Thursday it will cut 2,000 jobs, or about 44 percent of its work force.

The incoming government of Prime Minister Yukio Hatoyama is seeking to boost consumption and help households with a range of consumer-oriented proposals, including cutting tolls on highways and giving families with children $275 a month through junior high.

But critics say the Democrats, who unseated the long-ruling conservatives in last month’s election, don’t have any clear strategy to achieve long-term economic growth.

Japan’s economy managed to climb out of a yearlong recession in the April-June quarter, growing at an annual pace of 2.3 percent. But with the jobless rate at a record 5.7 percent, growth prospects look murky.

The trade figures showed that the monthly trade surplus, or the amount exports exceeded imports, came to 190 billion yen.

Auto exports in August plunged a staggering 50 percent, while shipments of steel products dropped 43.3 percent, the ministry said. Exports of light oil products fell 59.9 percent due to faltering demand in China and Vietnam, it said.

Japan’s U.S.-bound shipments declined 34.4 percent to 713.1 billion yen, marking the 24th straight month of year-on-year decline. Among exported goods to the U.S., metal products nose-dived 82.2 percent.

Exports to Asia tumbled 30.6 percent to 2.6 trillion yen. Japan’s exports to China were down 27.6 percent.

Japan’s exports to the European Union dropped 45.9 percent to 514.3 billion yen.

A provocative title to give an account of a WSJ article this day. Apparently, the US recession and the harshness of the living conditions in the US are proving a strong disincentive for people to come or to stay in the US.

There is a strange relationship of love/hate with immigration in the US, maybe more paradoxically than elsewhere.

While immigration is always a source of sociological frictions in the existing population in all the countries of the world, for a long time, the US, being itself a nation of immigrants, prided itself on making of its “chosen” immigration a strength in the world.

Unfortunately for the US, tensions have also risen towards immigration, in particular illegal immigration and “latino” immigration, accused as everywhere else of “stealing” anything from jobs to free medical care.  In addition, the slow influx of Spanish-language immigrants and their acquisition of the US citizenship has shifted the balance of the population, the influx particularly focusing the attention, notably around the Mexican border. This induced a pressure in favor both of the Spanish language and of government policies, as many candidates have tried to capture the hispanic electorate.

But now, the cards could be changing in favor of more homogeneity. The recession could indeed “encourage” millions of immigrants to return to their homeland, in search of better conditions as the economic pain continues to last for small businesses and low-qualified workforce. This leads Asian and Hispanic immigrants to make the  choice of returning to their homeland rather than face the harsh US economy or the lack of support for jobless people.

Graph from the WSJ.

In a phenomenon already experienced in Europe in the 1930’s the current crisis could give rise to a return on itself of the US, combined with protectionism and xenophobia. A dangerous mix in times where the leadership is held by weak men and where ideological certitudes have been wiped out by the currents of history.

Maybe this article of the WSJ is one of the most cruel signs of the US decline in world leadership. It is not anymore a place of desire and of envy. It has become a place to flee.

We already know this, but at least there is some press about it now.

Both bank credit and the M3 money supply in the United States have been contracting at rates comparable to the onset of the Great Depression since early summer, raising fears of a double-dip recession in 2010 and a slide into debt-deflation.

Professor Tim Congdon from International Monetary Research said US bank loans have fallen at an annual pace of almost 14pc in the three months to August (from $7,147bn to $6,886bn).

“There has been nothing like this in the USA since the 1930s,” he said. “The rapid destruction of money balances is madness.”

he M3 “broad” money supply, watched as an early warning signal for the economy a year or so later, has been falling at a 5pc annual rate.

Similar concerns have been raised by David Rosenberg, chief strategist at Gluskin Sheff, who said that over the four weeks up to August 24, bank credit shrank at an “epic” 9pc annual pace, the M2 money supply shrank at 12.2pc and M1 shrank at 6.5pc.

“For the first time in the post-WW2 [Second World War] era, we have deflation in credit, wages and rents and, from our lens, this is a toxic brew,” he said. [...]

[...] “The current drive to make banks less leveraged and safer is having the perverse consequence of destroying money balances,” he said. “It strengthens the deflationary forces in the world economy. That increases the risks of a double-dip recession in 2010.”

Referring to the debt-purge policy of US Treasury Secretary Andrew Mellon in the early 1930s, he added: “The pressure on banks to de-risk and to de-leverage is the modern version of liquidationism: it is potentially just as dangerous.”

US banks are cutting lending by around 1pc a month. A similar process is occurring in the eurozone, where private sector credit has been contracting and M3 has been flat for almost a year. [...] Source: Telegraph (ht Butch)

Hot off the wires…

The National Bureau of Economic Research said today in a statement that they may wait until they see significant improvemtnts in the economy before calling the recession over (Do you hear that Dennis Kneal and Larry Kudlow?)

In fact, NBER member Mr. Hall states that the recession may last an additional 18 months and the recent upturn could be “in fact part of a larger decline“. The NBER also stated that they may wait until economic measures surpass previous highs before deeming recession to be over which may be up to an additional 18 months.

So much for everyone in the media calling the recession is over crap.

An editorial by Chuck Young…

All across the United States, billboards are appearing with messages telling people to stop worrying about the recession. Such messages as “Recession 101- interesting fact about recessions, they end” and “Stop obsessing about the economy, you’re scaring the children”. These billboards, now 1,000 of them spread across America, including New York’s Times Square apparently have been funded by an anonymous East Coast donor.

I don’t know about you but these billboards give me the creeps. Everywhere we go it seems as if we are being told how we should think and feel. The government constantly tells us that we should not be concerned about the economy. Back in 2007, then President Bush assured the nation that the fundamentals of the economy were strong and solid. This was at the same time I was writing about how things were not good with the economy, in direct contradiction to what the government was telling you.

The financial media (CNBC et. al.) throughout the early stages of the financial disaster that we are now in would make fun of or ridicule anyone who suggested that the credit bubble may burst. You see, we live in a world where people only want to be told good news. When someone speaks out, or speaks the truth, then those people are quite often made to appear as if they are rebellious and not ‘with the program’.

Well as you know, I am rebellious and that is why I created Rebel Traders. Being a Rebel means that I often have to put up with those who wish to continue drinking the government cool aid and ridicule me. Being a Rebel does not mean that I am a mean or spiteful individual, on the contrary, I am a very generous and caring person who only seeks the truth wherever it can be obtained. As a trader of financial instruments in the equities market I need to understand as much of what is really happening within the economy and of individual corporations in order to better position my funds over the long term, and even to aid in my short-term trades.

The word rebel is defined as a person who resists control or tradition. In this definition I am proud to say that the word fits me perfectly. Actually, in this day and age anyone who uses his or her mind to form an opinion of their very own can be considered a rebel.

Going back to the topic of the financial media I can recall numerous times when they would try to create a picture that everything was wonderful within the economy, business earnings, future outlook, and overall growth of the United States. When in fact the reality of the situation is that the economy is nowhere near that rosy.

During the tech bubble that grew in the late 90s, the financial media disregarded factual information such as corporate earnings sheets (or the lack thereof) and continued to spread the message to the public that the technology sector would keep growing to infinity. In 1999 and 2000 when economists or other market observers would issue caution about the technology bubble they were often ridiculed by the financial media and labeled a doomsayer or perma bear. Not at all dissimilar to the situation we have witnessed over the previous several years now and still continues to this day.

Again, in 2007 with television shows appearing on every cable station on how to flip houses, make a quick buck in real estate, and of course the late night infomercials on how you can get rich buying and selling real estate with no money down. The nation was caught up in the largest credit expansion in history, and a majority of people including the government did not think that anything wrong could come as a result. Throughout the past 25 years, individuals and the government itself have become so deeply entrenched in debt that it was only a matter of time before individuals and the government faced the reality of who is going to pay the bill. Well unfortunately we now know who will be paying the bill, and it is us. So all the while when we kept being told “don’t worry – be happy”, go out and spend, everything is fine, the fundamentals of the economy are strong, and the best line of them all “we have our finger on the pulse of the nation”, it is you and I who are left sitting at the dinner table when the waiter arrives with the bill.

I for one am disgusted by these billboards. The notion that someone would spend their own money to place messages all across America telling people to essentially stop worrying is a form of mind control. While it is true that America is a land of freedoms and liberties not enjoyed by a great number of other nations, it should also be a nation where its citizens are provided the truth by their government, media, and others. It appears to me that the amount of misguided or intentionally deceptive information has been on the rise over the past decade.

As children we are always taught and told “don’t worry everything will be okay”. The human species is conditioned from birth to always expect that someone will always fix anything that is wrong. Anytime something goes wrong in life there will be someone who will make it all better, but we know that is not always the case though we are conditioned to expect it. We have become a nation of intellectually dependent people, meaning that everything we feel or believe is what we are told to feel or believe. And those who feel or believe differently are ridiculed or even considered a rebel. The financial disaster that we have witnessed over the past several years is a perfect example of people being provided wrong information by the government and the media, we kept being told not to worry, that the economy was sound while others like me were writing that they were wrong.

Even I was ridiculed in 2007 for my beliefs and views. Why? Because people don’t want to hear bad news, like I said the human species is programmed from birth that everything will always be okay and I was telling them that it wasn’t. Just like during the tech bubble in the late 90s and early 2000’s the financial media kept telling people to buy and buy more as prices continued to drop within the equity markets. Many of those companies that the financial media told you to buy are now not even in existence. People lost significant, if not all, of their life savings by simply holding out hope that everything would end up being okay because that is what they were being told and how we have been conditioned to believe all along.

In 2007 articles were appearing in magazines, on television, and even on the Internet that everybody should be out buying in real estate hand over fist. Wall Street firms were doing their part to make it easier and easier for more and more people to play the game of flipping real estate, issuing new mortgages to anyone that had a heartbeat all for the purpose of capitalizing on the buying and selling of mortgages from one Wall Street firm to another. All the while the individual homeowner struggling to make ends meet was unsuspecting of what lay ahead. His mortgage, unknown to him was being bartered on Wall Street for whenever profit could be extracted from it. And when the housing and credit bubble came to a screeching end and violent crash it is all of us who suffered. And to those homeowners who have perhaps now lost their job and can’t pay the bills, or even provide enough food for their family are being told “don’t worry be happy” by these disgusting billboards across the nation.

What I’m trying to convey here in this article is that Americans have become programmed to always think that problems will be resolved and everything will always be fine. The billboards, if taken literally would have people start going out spending money again thinking that everything is now okay when they should continue to pay down debt and be thrifty with their money. There are still very significant risks to the economy, the unemployment situation, and to the credit markets themselves. The debt of the nation and of the people themselves is at an unsustainable level. These billboards provide a false hope, they provide an almost George Orwellian 1984 feel. I would not be surprised to learn that these billboards were funded by the Wall Street firms themselves, the very same firms that taxpayers have had to rescue.

As one of the billboards says “Stop obsessing about the economy, you’re scaring the children” I say that perhaps we should allow the children to be scared for once. Maybe then the children of today will grow up to be more financially responsible of their own money and to not always expect others to fix all the problems. In a way the billboards are a form of mind control, instead of people getting mad about what has been done to them by Wall Street firms and the government, they are just being told to stop worrying.

Congress and Wall Street are connected at the hip, laws and regulations that govern the financial institutions are all too often drafted and created by the very institutions that we as taxpayers have had to now suffer the consequences of.

America… start thinking for yourselves, form your own ideas and beliefs, not those that which are pounded into you by the mainstream financial media and the government talking heads.

The financial balance sheet of the United States is in the worst condition in history, and it will be you and I who are going to be stuck with the tab for their mistakes. And as the hard-working Americans who are struggling every day to make ends meet, losing their homes, and losing their jobs are being told to stop worrying about the economy it is those who created the mess to begin with who will reap great rewards at the expense of the taxpayers and those losing their jobs and income.

My fellow Americans, you are being brainwashed and perhaps not even know it.