Rumor Starts On Wall Street the Recession is Over.  


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Searching for explanations for how well the markets are behaving despite the overwhelming gloom of unemployment, bank insolvency, government interventionism and the worldwide collapse of trade, manufacturing and resolution, I ran right into the blunt, unexpected, fresh rumor among the traders at the end of the day that the recession is over. This startling measure was not on an idle blog.   This was a respected tout at the grim tidings Calculated Risk.  These folk are snappy.  I would call them bright and cocky like Somalian pirates if this was not momentarily a negative.

Market action at the end of the day was incredible. I’m missing the rumor…

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Rumor is the recession is over…


Done.  Recovery starts now.  I know it is anecdotal, but there it is.  In markets, anecdote is what you get before the thundering herd shows up.  All metrics are rear view mirror stuff.   The future is a rumor.   Wells Fargo reports profits, Goldman Sachs does a secondary stock offering, POTUS makes his “glimmers of hope speech,” Ben Bernanke says he is “fundamentally optimistic,” and there we have it, rally time.  The contrary evidence is everywhere.  The chief of the NYSE says the March rally was day-traders gaming volatility.  UBS just cut its global workforce by 11%.  The US has “disinflation,” whatever that means (and it sounds like politically correct deflation), with an overall price decline not seen since 1955.   The California high-end real estate market is a tomb.  Credit cards are blowing up like AQ cells.  TARP banks are refusing to lend.  Where is the good news?  

No New Bad News Does Not Mean Good News.  

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The US economy looks to be paralyzed and that might be generous.  The declines continue if perhaps at a slower rate than the cliff-diving of  Q1 ’09.   It’s more like an out of control somersault.   The sweaty political class has done the worst damage, with the TARP and stimulus package and grotesque $1 trillion budget all in train to retard recovery for decades.  The markets are halved from October 2007 and showing the profile of a major and even historically frightening bear market.   The 12% unemployment number in California and Michigan and elsewhere by this summer is generally accepted.   There is no crippling  jolt that we have not already imagined.   Perhaps we are getting used to the abyss.    Perhaps this looks like a handhold on the way down.  Of course this makes no sense.  Mitigating metaphors are meaningless in a depression.    Is this a bottoming?  Is this a claw back?  Of course I do not believe it.  No new bad news is not good news at all.

Sunspotlessness and the Markets.

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NASA correspondent Bob Zimmerman and I have been watching the solar minimum for the last months.  It is a puzzling tale of NASA predicting that we are any month now going to return to the 11-year cycle of minimum to maximum to minimum that we have recorded for two hundred years.  Then it doesn’t happen.   The sun has not been this inactive since 1913.  We may be in a deep solar minimum.  No one can be sure.  There is a surprisingly limited amount of information about the sun and its sunspots, dating back at most to  the 17th century.  Does it affect life on Earth?  Yes.  Lack of sunspots is associated with climate change, even a mini ice age during the Late (Baroque) Renaissance.  I know it is folly to connect the lack of sunspots for 2009 with the strange behavior of the markets for 2009.    I also know it is folly to say that the recession is over.  I  also know it is futile to predict what happens next to the markets.  This is my way of reminding myself that we don’t know what we don’t know, and we never did know what we don’t know.  We are blind into the deep solar minimum.  We are blind  into the deepening recession.   How long can the solar minimum last before it is worse than 1913?  One more year.  There is a horror prediction.  One more year of a sagging bear market, of falling house prices, of climbing unemployment, of vanishing credit, of withering trade.   Of missing sunspots.
  • Patience

    One of Larry Doyle’s articles a month or two ago reported a prediction that the DOW would rise 1000 pts. but then drop again. I can’t remember if the prediction was that all gains would be wiped out but I have a sense that’s just what was implied.

    I think the administration’s happy talk is an attempt to distract from the bad news right under our noses, i.e., increased unemployment and home foreclosures, etc. I have a feeling that a lot of small businesses are tanking as well — it’s just not as easy a statistic to quantify. And commercial real estate foreclosures are indeed on the rise.

    The credit crisis still awaits attention. Talk of stimulus for rail transit is just that — talk. Rail projects take YEARS to design and devise so they won’t be stimulative in a timely manner to help us now.

    The POTUS seems to think cheap rhetoric is enough. He’s neglecting fundamentally important issues that are germane to our current economic crisis. Dallying in Cuba ain’t gonna solve our problems — he needs to get a clue and get to work.

    • Portia Elizabeth

      Patience — you’re s o right. It’s a distraction to be sure and it’s no small coincidence that all this happy talk comes just as people are mad enough to protest. But hey, maybe BO really believes his own hype and thinks his pep talk will persuade us all that things are peachy. Sad, isn’t it?

  • I’mFedUp

    I think this is more BS from the White House and George Soros manipulating the markets. Sounds familiar…kind of like last September. I don’t love being a naysayer, but I don’t see anything positive coming from the loony left’s ridiculous spendathon.

  • Doc99

    On a related matter, This from Paul Krugman:(HT-Ace of Spades)

    …History shows that one of the great policy dangers, in the face of a severe economic slump, is premature optimism. F.D.R. responded to signs of recovery by cutting the Works Progress Administration in half and raising taxes; the Great Depression promptly returned in full force…

    Kool Aid wearing off?

    • Docelder

      Kool Aid wearing off?

      Probably, but the underlying fact is those vulnerable to Kool Aid haven’t necessarily built up any immunity to it. Is the Kool Aid in the message itself… or in the person hearing the message? I think it’s the latter, and if it weren’t for the Kool Aid we have now… we would have just had another flavor of the same stuff.

      • oowawa

        Doc99 & Docelder: Well, there’s a second opinion elaborating the first diagnosis. Two docs can’t be wrong!

  • Portia Elizabeth

    This talk of the recession being over is just more sweet lies coming out of the White House. BO thinks he can lift his hand and part the waters, or walk on them. So of course he believes that a word or two from him is all it will take to restore America’s confidence and cure the economy. Such arrogance only serves to scare sane people even more. My money’s going to Canada if I ever get any.

    • oowawa

      From Zen Koans for the 2nd Great Depression:

      Being broke and on the sidelines is soooo soothing.

      Freedom’s just another word for “nothing left to lose.”

      Blessed are the bankrupt.

      What is the sound of no coins jingling?

      • Ellen D

        Been down so long it looks like up to me.

    • if i ever get any.it.s going in a mason jar to be buried in the back yard..

  • oowawa

    We’re in a bear market rally. The bad news ain’t over folks. You might say, this is the eye of the hurricane, and what’s coming will be far worse than the storm’s first wave. Market anaklyst Karl Denninger writes on Market Ticker this morning:

    the banks are gambling with the free money we the taxpayers have given them, along with boosting our costs. Between the two even though credit quality is going through the floor they’re managing to siphon off even more money for their executives, and because this sort of thing makes stock prices go up the government likes it.

    Right now the financial headlines have a repetitive theme: “Stocks Rally Despite Losses,” “Street Shrugs off Bad News.”
    Enjoy the sunshine while it lasts, but batten down the hatches, gird your lines, etc. The Day of Reckoning is Nigh! We’re teetering. One minor “black swan” could trigger the collapse.

    (end prophecy.)

    • oowawa

      gird your lines should be “griddle your loins!”

      • Arabella Trefoil

        Darn it. I just girded my lines. Do you mean to tell me that I have to ungird them now? All that work for nothing.

      • Portia Elizabeth

        “griddle your loins” sounds pretty painful.

  • Linda C.

    I was looking at the graph more closely. If you notice the intitial drop in value of the 1929 crash of 49 percent then it took almost another 12 months for the value to drop to a total of 56 percent. This current downturn is accelerated with the total value decreasing over 3 months instead of the 12 months in 1929.

    If we move our current stock value graph back by several months so that the precipitous drops from 2008 matches with 1929, a more ominous picture appears. As “getfitnow” points out that we have even started the commercial loan defaults yet.

  • Arabella Trefoil

    Can anyone link economic cycles to White House pets? Maybe having a pet cat in the White House (Clinton/Socks) is an economic stimulus. Did Obama make a fatal gaffe when he brought Bo the Dog on board?

    If Hoover’s pet dog Laddy Boy is any inidication, I think dogs as White House pets are bad juju.

    http://en.wikipedia.org/wiki/Laddie_Boy_(dog)

    And who can forget Liberty, Gerald Ford’s dog. Of course the Roosevelts had Fala, but they also had the Great Depression and WWII.

    Conclusion: The experts are misreading the signals. Cat in the White House = economy good
    Dog in the White House = economy bad

    • Arabella Trefoil

      The Kennedy family had a pet pony named Macaroni. Obama should have bought a pony for his daughters and named it Baked Ziti. Then the economy would have rebounded.

      Bo = fatal error on Obama’s part. Bo + OB = Boob.

      • Portia Elizabeth

        Arabella– you can always be counted on for a witty word and a good laugh. Thanks! We’ll need a sense of humor to make it through this time.

      • should get a unicorn.they are always good luck..

  • getfitnow

    Also on the horizon are commercial foreclosures.

    • politicalidentitycrisis

      I agree with you. We may see malls closing here in MPLS.

      http://www.bizjournals.com/twincities/stories/2009/04/13/daily33.html

      • Peggy Sue

        General Growth Properties [one of the largest mall property operators in the US] filed for bankruptcy yesterday. A “mere” 25 billion dollars in debt. Larry Doyle or one of his essay links alerted readers of this recently.

        As for commercial real estate? This is the other shoe dropping. And it “will” have an impact.

        Don’t believe the “glimmer of hope” mantra.

    • of course they have to sell stuff.and folks aren’t buying..no money..

  • Linda C.

    There has yet to be a fundamental and much needed structural change in the financial system. The powers that be have decided that there is nothing wrong with how things are. They conclude that this crisis is only an aberrational in a perfectly good system. That of course make those that have benefited from the system very happy and we are seeing a temporary surge in the stocks because of it.
    As with all things business, the bottom line is the bottom line. They have been putting off this day of reckoning for years and are just putting it off a little more now. How many “jobless recoveries” can the American worker sustain before we wake up and realize that there has been no real recovery.

    Reaganomics doesn’t work. I see most of Obama’s policies the same structural trickle down economics that have pervaded and influenced our government actions for the majority of the last 25 years.

    As a side note I was listening to NPR. It was estimated that if all of the foreign tax havens were closed for the uber rich, the average American’s taxes could be reduced by 12 percent with no loss in IRS revenue.

    The US financial institutions are conducting “their own stress test”. Creative accounting will only go so far. No wonder why they are doing so well.

  • Patrick Henry

    Interesting Article John…Thanks..

    Yep…Thinks are getting stranger and stranger..you are right on your points..

    interest that Bank and
    Financial institution Earnings..(No surprise there) are driving the Markets ..while GM and Indrustry and Alot of people are on the Brink of Bankrupcy..

    Th same Old wall Street Hustle as usual..Do just enough so obama can say his Plan is Working and sucker in what Money is left out there..

    There just are not many Placers investors and Average Savers can Go…Some Bonds were actually selling with NEGATIVE Returns..and most State Penson Plans have taken Hugh hits..

    my Local paper Today…”Community Hospital laying off 93 employees”…Oregons Only
    School for deaf People..
    shutting Down …Shriners Hospitals for Children Closing…

    Local Sheriffs Department laying off Five officers…County Represenative urges people to get Guns and defend themselfs…”

    Just where did all that Stimilus Money go Barack…Same place as the “Katrina” Money..?

    No wonder We had such a Good tea Party Today..

    You just can’t baffle em with Bullshit anymore..Obama…and you have to decide which of your Multiple Personalitys is going to DOMINATE..

    I guess We already know..with your domestive and Foreign Policy positions..

    Like Bowing ang Groveling and bad mouthing the United states..

    No suckerrallys for Me…way to Early…

    • avwrobel

      Nice rant