Has The Economic Recovery Started? Is The Worse Over? The Unvarnished Economic Data

This headline greeted me this morning:

World markets surge as US data boost recovery hope

http://news.yahoo.com/s/ap/20090402/ap_on_bi_ge/world_markets

US Data? What US data can they be talking about? GM, Chrysler and Ford posted huge additional losses. http://news.yahoo.com/s/ap/20090402/ap_on_bi_ge/world_markets

The article then went on to say some very surprising things: “Nearly every sector in Asia charged higher, with carmakers like Toyota Motor Corp. and Nissan Motor Co. rallying on U.S. auto figures that were less dismal than feared.” Really, rallying on US auto figures – just what were those figures? Less dismal? They seem very dismal to me – after all you didn’t expect car sales to be zero did you?

‘Investors were encouraged after U.S. car sales jumped by nearly 25 percent last month from February, beating the typical rise and underpinning hopes of a turnaround in the American auto market — critical for Asia’s giant auto companies.’ What? Auto sales “jumped” by 25% last month – I don’t believe it, do you? (I don’t believe it for good reason – I know the real numbers).

SEE: http://www.msnbc.msn.com/id/30024711

http://mcauleysworld.wordpress.com/2009/04/03/auto-bubble-bursts-march-09-auto-sales-down-40-tax-dollars-to-fund-high-risk-auto-loans/

“A rebound in pending U.S. home sales in February from a record low, as well as improving manufacturing activity, added to a growing belief the most severe global downturn in decades may be moving close to a bottom.’ What? Housing sales are up? Where? By whose count? Manufacturing activity is up? By what measure and whose numbers? I’ll provide the unvarnished numbers shortly …..

“Still, the upbeat evidence distracted investors from more sobering news the U.S. private sector continued to shed hundreds of thousands of jobs last month — a worrisome sign as investors brace for Friday’s report on nationwide job cuts.” Yes, those pesky unemployment numbers – preliminary projects announced yesterday were absolutely awful – specifics to follow.

You can imagine my surprise when 3/4 of the way through this same article the following sentence appears,

“With the economic crisis still far from over, analysts warned of more painful market volatility as the recession unfolds.”

Recession unfolds? Unfolds? One would think the recovery was underway based on the previous statements. This is beyond shoddy journalism, this is unethical reporting.  

My point is this, the data suggest we have not hit bottom, plain and simple. I’m looking forward to the “turn around” as much as the next person. I’m looking forward to it more than youmight guess. Unfortunately, that turnaround is expected to beging in 6 to 12 months and today’s data does not dignal an earlier start. Misrepresenting where we are at now can cost individuals a fortune with bad investment advise and can harm the recovery by setting false expectations that can only lead to disapointment. The truth is this; the economic elevator from hell that we are all riding, is still heading down. It’s descent may be slowing but there is no sign that it is about to stop.

I’m glad to see that stock prices are rebounding from their 12 year lows, but as unemployment continues to grow and as the prosepcts for profits and dividends remain bleak, there is more than a possibility that these gains will be surrendered and that the markets will test new all time lows. Spending, taxes and the possibility of runaway inflation remain serious concerns.

Remember this, the Stock Market is not the economy. During many of the years which made up the Great Depression (1929 – 1941) , the stock market “went up” while the economy deteriorated. In fact the DJIA went up in 6 of the 12 years of “The Great Depression”. http://www.nyse.tv/dow-jones-industrial-average-history-djia.htm 

Wildly incorrect headlines maybe spurring people to re-enter the markets prematurely. Without a return to broad based profitability and dividend payments increased stock prices may not hold. Beware a “Bear Market Bounce” and don’t confuse “trading activity” with “investment activity”. Good Luck and lets hope for the best.

Hope aside – here are the unvarnished numbers.

Auto Sales: 

US Auto sales are down, horrifically down. The report above so badly misrepresents the true state of auto sales in the US, I have to question the author’s ethics. The numbers simply don’t support, in anyway, the statement made above. The statement above can actually be harmful. If one were to believe auto sales were on there way back, one might fight necessary change to correct “broken business models”. What do the numbers show?

Sales of new cars and trucks are down 36.8% in March 2009 compared to March 2008.

The Boston Globe reported this yesterday: “Automakers began 2008 expecting the worst year for U.S. auto sales in a decade. So far, they’re getting what they anticipated. Sales dropped by double digits in March, even for usual stalwarts like Toyota. And with fragile consumer confidence, falling home values, tightening credit and high energy prices, it may be some time before auto sales recover. http://www.boston.com/business/articles/2008/04/01/us_auto_sales_fall_in_march/

Current sales figures indicate 1,000,000 fewer cars will be sold in the US in 2009 than last year and last year was one of the worst years in memory.  http://www.boston.com/business/articles/2008/04/01/us_auto_sales_fall_in_march/ Continued sales reductions mean continued cutbacks, not growth , new jobs or new auto plants. 

Remember 1 year ago, March 2008, GM sales figures were down 19% compared to March 2007, Ford’s sales were down 14% over March 2007. http://articles.latimes.com/2008/apr/02/business/fi-carsales2  Chryslers sales were down  21.2% in March 2008 from March 2007. http://www.autoobserver.com/2008/03/march-car-sales-down-j-d-power-report-says.html .

Having a year in which year to prior year sales drop 40%, after a nearly 20% drop in the prior year, is horrific. There has been zero increase in auto sales – not a 25% increase – net auto sales are down 40%.  

The March 2009 sales drop is twice as large as the sales drop in 2008. You may be asking, what did they base these incredible claims of increased car sales on – it is this – car sales increased from February to March. The fact is Car sales always increase from February to March. Car sales last year, one of the worst years for car sales in memory, still reflected an increased number of cars sold between February and March. The important or meaningful comparison is March 2008 to March 2009 sales numbers. By that measurement sales are down by almost 40%. As to car sales, the economic elevator has not even begun to slow, it is still acelerating. To misrepresent this number does a disservice to everyone.  To claim that the data presents a picture of a recovering car market is false. Year to year sales are down 40%. In 2008 when sales were down 1/2 that amount the press described the drop as “falling of a cliff”. Now that the sales drop is twice that large, it is being reported as signs of a turnaround. GM’s sale decrease between January 2008 and Jaunuary 2009 was 49%. http://www.thetorquereport.com/2009/02/gm_sales_plunge_49_percent_for.html GM’s auto sales in February 2009 were down 53.1% from February 2008. http://www.mlive.com/business/index.ssf/2009/03/auto_sales_continued_slide_gm.html  These numbers are simply horrible. To suggest this paints a picture of a “recovery” or “turnaround” is dishonest.

Home Sales:

First, some related news, “Modified Mortgage Refinances Continue to Re-default”, “US bank regulators continue to report escalating re-default rates on mortgage loan modifications. Data being assembled by bank regulators is showing a steady trend of rising month-over-month loan work-outs falling back into delinquency within six months.” “One very troubling point is that, whether measured using 30-day or 60-day delinquencies, re-default rates increased each month and showed no signs of leveling off after six months or even eight months,” John Dugan, head of the Office of the Comptroller of the Currency, said in a statement. Defaults rose consistently across all loan types, but subprime loans understandably had the highest re-default average.” http://www.mortgageloan.com/modified-mortgage-refinances-continue-to-redefault-2743

Mortgage refinancing is up, but refinancing does not indicate an increase in home sales. Real estate investment purchasing is down 18.1% from a year prior. http://news.nationalrelocation.com/2008/03/

Last year (March 2008) existing home sales fell 19.1%. The median home price was $200,700, down 7.7% from March 2007. http://www.realtor.org/press_room/news_releases/2008/04/existing_home_sales_slip_in_march  March 2009 home sales have declined 8.6% from last year. http://www.realestateabc.com/outlook.htm The median price of a home today is $170,3000. So despite a drop in price (Value) of the medican home by $30,000,(17%) sales continue to decline year to year. The percentage decrease is smaller this year, but I’m not sure that is a signal that the elevator is slowing. As mortgage defaults or forelcosures continue and as unemployment numbers continue to worsen, I don’t know that a housing recovery can be predicted. What doesn’t need to be predicted, it can be stated, Home Sales did not incease as reported, they decreased again, from March 2008 to March 2009. The decrease was by 8.6%. Home sales were said to be at “crisis” levels in March 2008 and we have a further reduction so far this year. While there is no need to panic, these numbers so no signs of a pending recovery. Claiming that home sales increased is  a simple lie. The are down by 8.6%.

New home sales posted 331,000 seasonally adjusted annualized units in December. New home sales were off 13.9% from November’s pace and 44.8% below the pace in December 2007. http://www.garealtor.com/ConsumerInformation/LeadingEconomicIndicators/tabid/394/Default.aspx

Meanwhile US banks experienced a 149% increase in bad loans in 2008. http://news.yahoo.com/s/ap/20090402/ap_on_bi_ge/world_markets

“banks face many risks in the coming months due to souring loans and investments which will impair capital through large credit writedowns. The central tenet of this site is that writedowns = reduced capital = reduced credit = reduced growth prospects.” “Loan losses for U.S. commercial banks are expected to rise to 3 percent by the end of 2010, from 1.5 percent in the third quarter of 2008, hurt by an increased percentage of bad loans, greater consumer leverage and faster problem recognition by banks”, ” Loan losses might even surpass the 3.4 percent loss levels reached in 1934 during the Great Depression as the industry has taken on increased structural risk in addition to mortgages that should become more apparent during the cyclical slowdown” http://www.creditwritedowns.com/2009/01/deutsche-bank-loan-losses-will-double-in-2009.html

Unemployment

In it’s Budget Plan the Obama Administration predicted that the recession would bottom out some time before year end 2009 or in a worse case scenario, in early in 2010. Unemployment levels were predicted to bottom out at 8.1%. This prediction was made 3 weeks ago, in early March 2009.  http://seekingalpha.com/article/124458-obama-s-unemployment-forecast-much-too-rosy . Those predictions have already proved to be overly optimistic as the February unemployment numbers (released in March) indicated that the unemployment rate had, in fact, already hit 8.1%. http://www.bls.gov/news.release/empsit.nr0.htm  An additional 651,000 jobs were lost in February 2009. Unemployment increased 1/2 a percentage point in February. Unemployment last year (February 2008) was 4.8%. Unemployment increased 60% in the 12 months between February 2008 & February 2009 . http://www.bls.gov/news.release/laus.nr0.htm

Preliminary unemployment numbers for March continue to be bleak. “There is no sign of even a temporary easing in the downward pressure on employment,”Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a client note. http://www.nydailynews.com/money/2009/03/19/2009-03-19_new_jobless_claims_fall_more_than_expect-2.html

Initial claims have topped 600,000 for seven straight weeks, a level that many economists say is consistent with another huge drop in net payrolls when the Labor Department issues its monthly employment report next month. Net job losses could top 700,000 in March, Shepherdson said, which would bring total losses to above 5 million jobs since the recession began in December 2007. http://www.nydailynews.com/money/2009/03/19/2009-03-19_new_jobless_claims_fall_more_than_expect-2.html

Unemployment for March 2009 may hit 9%. The unemployment rate in March 2008 was 5.1%. Unemployment this March is almost twice as high. http://www.bls.gov/opub/ted/2008/apr/wk1/art01.htm 

Economic Output

“Reports from the twelve Federal Reserve Districts suggest that national economic conditions deteriorated further during the reporting period of January through late February.  Ten of the twelve reports indicated weaker conditions or declines in economic activity; the exceptions were Philadelphia and Chicago, which reported that their regional economies “remained weak.”  The deterioration was broad based, with only a few sectors such as basic food production and pharmaceuticals appearing to be exceptions.  Looking ahead, contacts from various Districts rate the prospects for near-term improvement in economic conditions as poor, with a significant pickup not expected before late 2009 or early 2010. http://www.federalreserve.gov/fomc/beigebook/2009/20090304/FullReport.htm

“US economic output slumps.” “The United States economy shrank at a rate of 3.8 per cent in the fourth financial quarter of 2008, formally plunging the country into recession, the US government has said. The figure marked a sharp drop compared to the third financial quarter, in which the growth rate fell by only 0.5 per cent, the commerce department said on Friday.” http://english.aljazeera.net/news/americas/2009/01/20091301517711306.html , http://www.cbo.gov/ftpdocs/99xx/doc9957/01-07-Outlook.pdf

World growth is projected to fall to ½ percent in 2009, its lowest rate since World War II. Despite wide-ranging policy actions, financial strains remain acute, pulling down the real economy. http://www.imf.org/external/pubs/ft/weo/2009/update/01/index.htm

Economic Report: Industrial Production: US industrial production, output at the nation’s factories, mines, and utilities, decreased a hefty 1.8% in the month of January, after falling a downwardly-revised 2.4% in December, according to the Federal Reserve. After declines in five of the last six months, production has decreased 10% in the past year, an astonishing number. The report was significantly below estimations, as economists were expecting a 1.5% decrease in output. Capacity utilization, a key gauge of inflationary pressures, fell to 72% from 73.6%. This is the lowest level since February 1983, and 9 percentage points below its average level from 1972 to 2007. Lower capacity usually leads to slower inflation, as producers compete with each other for work. http://alhambrainvestments.com/blog/2009/02/18/economic-report-industrial-production-3/

Global Business Cycle Indicators: Leading Economic Indicators declined in February. The weaknesses among the leading indicators have remained widespread in recent months. http://www.conference-board.org/economics/bci/pressRelease_output.cfm?cid=1

National Economic Update: “Recently released data indicate that the economic contraction has intensified at a pace associated with severe recessions. Two consecutive quarters of negative real growth, striking job losses and deep declines in both manufacturing and services output defined year-end 2008. While the economic outlook remains bleak for the first half of 2009, a few indicators suggest that the pace of contraction may slow in coming months.” http://dallasfed.org/research/update-us/2009/0901.cfm The rate of contraction “maybe” slowing in the months ahead – not that the descent on the economic elevator to hell is slowing at this time. 

Durable Good Orders Drop: Durable good orders also painted a grim outlook. “Demand for U.S.-made durable goods fell for the sixth straight month in January.  Orders for durable goods  such as PC’s,  planes,  and washing machines fell 5.2% in January. Orders fell in every major sector”. http://www.chartingstocks.net/2009/02/jobless-claims-jump-durable-good-orders-drop/ After a small uptick  in February early indications for March are not good. For both the Philly and New York Fed manufacturing reports, the new orders index fell in both February and March. Both surveys have data for a given reference month that overlaps two actual months (the March report includes data from both late February and early March). http://gain.econoday.com/byshoweventfull.asp?fid=437975&cust=gain

The datum does not suggest the recovery has started, but the descent into hell maybe slowing. We are still descending, but not as quickly. Lets hope the policies being implement are the correct ones and we don’t suddenly accelerate into oblivion. I, for one, doubt that we can spend our way out of recession or borrow our way out of debt.

Obama “Deregulation Caused This Crisis” – An Ignorant Claim Or Political Spin?

Obama continues to blame the current financial crisis on “deregulation”. Either Obama knows that  claim to be false or he is ignorant of how this crisis evolved:

The path to our current cirisis started with these steps;

Step 1).  Mortgage Underwriting standards were lowered – begining in the early 1990′s. http://www.foxnews.com/story/0,2933,424945,00.html

The Federal Reserve’s Board of Governor’s created a new set of standards to govern Mortgage Lending practices. http://www.foxnews.com/story/0,2933,424945,00.html 

The Federal Reserve’s involvement in creating this problem gives one reason to question if the Public should trust the Federal Reserve to oversee the proposed bailout. 

The lowered standards minimized the importance of a borrowers Credit History, Downpayment, Job History or Income. These “tried and true” criteria were called “outdated”. The Boston Federal Reserve created a Manual outling the  “new criteria” in 1992.   http://www.foxnews.com/story/0,2933,424945,00.html 

These rules were “pushed” by Fannie Mae to the extreme. Those who co-operated were rewarded.

One lender singled out by Fannie Mae for special praise for following these new criteria was Countrywide:

Countrywide tends to follow the most flexible underwriting criteria permitted under [Government Sponsored Enterprises] and FHA guidelines. Because Fannie Mae and Freddie Mac tend to give their best lenders access to the most flexible underwriting criteria, Countrywide benefits from its status as one of the largest originators of mortgage loans and one of the largest participants in the [Government Sponsored Enterprises] programs. When necessary — in cases where applicants have no established credit history, for example — Countrywide uses nontraditional credit, a practice now accepted by the [Government Sponsored Enterprises].

Or take a 1998 sales pitch from Bear Stearns, which also followed the Boston Fed manual:

Credit scores. While credit scores can be an analytical tool with conforming loans, their effectiveness is limited with [Community Reinvestment Act] loans. Unfortunately, [Community Reinvestment Act] loans do not fit neatly into the standard credit score framework… Do we automatically exclude or severely discount … loans [with poor credit scores]? Absolutely not.

Given these lending practices mandated by the Fed and encouraged by Fannie Mae and Freddie Mac, the resulting financial problems for financial institutions such as Countrywide and Bear Stearns are not too surprising.

Noted Economics Professor Stan Liebowitz, University of Texas (Dallas) states, “such reckless behavior by [Fannie Mae and Freddie Mac] has lead to their financial meltdown and to the financial problems for the whole country. During Franklin Raines’ chairmanship of Fannie Mae, they were a major proponent of relaxing standards.”

Step 2). Congress blocked suggested reform aimed at correcting the crisis early on. Take a look at Congressman Barney Frank, Chairman of the House Financial Services Committee, Wikipedia Biography.  http://en.wikipedia.org/wiki/Barney_Frank  The Bio not only claims that, ” Frank “sits at the center of power.” but boasts, “In 2003, Frank opposed Bush Administration and Congressional Republican efforts for the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis of 1980′s. Under the plan a new agency would have been created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry. “These two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis,” Frank said. He added, “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.” http://en.wikipedia.org/wiki/Barney_Frank

Also read Senator Christopher Dodd, (Dem CT) Wikipedia Biography. That biography notes,  “Dodd was elected to the Senate in the 1980 election“, From 1995 to 1997, he served as General Chairman of the Democratic National Committee.” Dodd is Chairman of the Senate Banking Committee. The biography goes on to note, “The Center for Public Integrity has criticized Dodd for “being the leading advocate in the Senate on behalf of the accounting industry.” Political consultant and commentator Dick Morris wrote that Dodd had received more from accounting firm Arthur Andersen than any other Democrat and bore responsibility for trying to shield accounting firms from investor fraud liability in cases such as the Enron scandal.” Arthur Anderson was forced to surrender it license to practice Accounting in the US. The Biography goes on to note, “Senator Dodd was involved in issues related to the federal takeover of Fannie Mae and Freddie Mac.” “The Housing and Economic Recovery Act of 2008 before Congress in the summer of 2008, Treasury Secretary Hank Paulson sought provisions enabling the Treasury to add additional capital and regulatory oversight over these government sponsored enterprises. Dodd denied rumors these firms were in financial crisis. He called the firms “fundamentally strong” said they were in “sound situation” and “in good shape” and to “suggest they are in major trouble is not accurate” . He suggested observers were panicking “There’s sort of a panic going on today, and that’s not what ought to be. The facts don’t warrant that reaction, in my opinion,” http://en.wikipedia.org/wiki/Christopher_Dodd

The Congress also blocked other legislation intended to tighten accounting standards and increase regualtory oversight of Fannie Mae.   http://www.govtrack.us/congress/record.xpd?id=109-s20060525-16&bill=s109-190

http://www.washingtonpost.com/ac2/wp-dyn?pagename=article&node=&contentId=A58272-2002Jul11&notFound=true

Contrary to Obama’s Claim – there have been no Congressional Proposals to de-regulate Fannie Mae or Freddie Mac in the last 10 yrs. Fact – Democrats prevented any regulatory changes proposed to limit Fannie & Freddie’s activities – to return to “traditional mortgage underwriting”.

Step 3). The men appointed to run Fannie and Freddie abandoned their public duties for private gain. One hid his true salary from Congress, two others were accussed of lying to Congress, three have plead guilty to criminal charges and paid millions of dollars in Civil Fines. Three have taken special “VIP Loans” from Countrywide Bank – Countrywide is under FBI investigation for Securities Fraud. To read a more detailed summary of their misconduct see: http://mcauleysworld.wordpress.com/2008/09/21/the-fannie-mae-five-five-key-players-who-broke-the-system/ 

This informatiopn copmes from public records – either candidate Obama knows his accusations are hollow political spin or he is truely ignorant of what has transpired.

If you can’t admit what caused a problem – you can’t fix the problem.

Top Democrats Charged with Fannie Mae Oversight – Took “Special Loans”

Dems deny knowing loans had VIP rates

Friday, June 13th 2008, 8:55 PM

WASHINGTON – The two key Democratic senators who reportedly got sweetheart deals on mortgages from Countrywide Financial Corp. said Friday that they didn’t know they were getting special treatment.

Connecticut Sen. Christopher Dodd, chairman of the Banking Committee, and North Dakota Sen. Kent Conrad, chairman of the Budget Committee and a member of the Finance Committee, both tapped into a little-known program that waived points, lender fees and bent borrowing rules for VIPs, Portfolio magazine reported Thursday.

“As a United States senator, I would never ask or expect to be treated differently than anyone else refinancing their home,” Dodd said in a statement.

The lawmakers’ participation in the VIP program came to light just days after similar revelations about Jim Johnson, one of Sen. Barack Obama‘s vice presidential vetters, led to his resignation.

Conrad, the Budget Committee chairman, said it was Johnson who referred him to Countrywide in 2002.

“If they did me a favor, they did it without my knowledge and without my requesting it,” Conrad said.

Countrywide, whose overaggressive lending policies helped fuel the mortgage crisis and led to the devaluation of its stock from $45 a share to $5, reportedly is being investigated by the FBI for securities fraud.

http://www.nydailynews.com/news/us_world/2008/06/14/2008-06-14_dems_deny_knowing_loans_had_vip_rates.html

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