This Recession, It’s Just Beginning

[hipmatt]

http://www.washingtonpost.com/wp-dyn/content/article/2008/06/26/AR2008062604030.html

So much for that second-half rebound.

Truth be told, that was always more of a wish than a serious forecast, happy talk from the Fed and Wall Street desperate to get things back to normal.

It ain’t gonna happen. Not this summer. Not this fall. Not even next winter.

This thing’s going down, fast and hard. Corporate bankruptcies, bond defaults, bank failures, hedge fund meltdowns and 6 percent unemployment. We’re caught in one of those vicious, downward spirals that, once it gets going, is very hard to pull out of.

Only this will be a different kind of recession — a recession with an overlay of inflation. That combo puts the Federal Reserve in a Catch-22 — whatever it does to solve one problem only makes the other worse. Emerging from a two-day meeting this week, Fed officials signaled that further recession-fighting rate cuts are unlikely and that their next move will be to raise rates to contain inflationary expectations.

Since last June, we’ve seen a fairly consistent pattern to the economic mood swings. Every three months or so, there’s a round of bad news about housing, followed by warnings of more bank write-offs and then a string of disappointing corporate earnings reports. Eventually, things stabilize and there are hints that the worst may be behind us. Stocks regain some of their lost ground, bonds fall and then — bam — the whole cycle starts again.

It was only in November that the Dow had recovered from the panicked summer sell-off and hit a record, just above 14,000. By March, it had fallen below 12,000. By May, it climbed above 13,000. Now it’s heading for a new floor at 11,000. Officially, that’s bear market territory. We’ll be lucky if that’s the floor.
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In explaining why that second-half rebound never occurred, the Fed and the Treasury and the Wall Street machers will say that nobody could have foreseen $140 a barrel oil. As excuses go, blaming it on an oil shock is a hardy perennial. That’s what Jimmy Carter and Fed Chairman Arthur Burns did in the late ’70s, and what George H.W. Bush and Alan Greenspan did in the early ’90s. Don’t believe it.

Truth is, there are always price or supply shocks of one sort or another. The real problem is that the underlying fundamentals had gotten badly out of whack, making the economy susceptible to a shock. The only way to make things better is to get those fundamentals back in balance. In this case, that means bringing what we consume in line with what we produce, letting the dollar fall to its natural level, wringing the excess capacity out of industries that overexpanded during the credit bubble and allowing real estate prices to fall in line with incomes.

The last hope for a second-half rebound began to fade earlier this month when Lehman Brothers reported that it wasn’t as immune to the credit-market downturn as it had led everyone to believe. Lehman scrambled to restore confidence by firing two top executives and raising billions in additional capital, but even that wasn’t enough to quiet speculation that it could be the next Bear Stearns.

Since then, there has been a steady drumbeat of worrisome news from nearly every sector of the economy.

American Express and Discover warn that customers are falling further behind on their debts. UPS and Federal Express report a noticeable slowdown in shipments, while fuel costs are soaring. According to the Case-Shiller index, home prices in the top 20 markets fell 15 percent in April from the year before, and Fannie Mae and Freddie Mac report that mortgage delinquency rates doubled over the same period — and that’s for conventional home loans, not subprime. United Airlines accelerates the race to cut costs and capacity by laying off 950 pilots — 15 percent of its total — as a number of airlines retire planes and hint that they may delay delivery or cancel orders of new jets from Boeing and Airbus. Goldman Sachs, which has already had to withdraw its rosy forecast for stocks, now admits it was also too optimistic about junk bond defaults, and analysts warn that Citigroup and Merrill Lynch will also be forced to take additional big write-downs on their mortgage portfolios.

[LA_Renter]

[quote=hipmatt]http://www.washingtonpost.com/wp-dyn/content/article/2008/06/26/AR2008062604030.html

So much for that second-half rebound.

Truth be told, that was always more of a wish than a serious forecast, happy talk from the Fed and Wall Street desperate to get things back to normal.

It ain’t gonna happen. Not this summer. Not this fall. Not even next winter.
[/quote]

That has been my sentiment through the entire first half of this year. These bear market rallies are becoming comical. I have to admit I enjoy watching CNBC on these big downward movements just to see the expression of the permabull pollyannas..(you mean there really isn’t a Santa Clause…Oh NO!). We have just witnessed one of the largest financial bubbles in the history of the markets…..POP! What do you think the correction is going to look like??

[LA_Renter]

[quote=hipmatt]http://www.washingtonpost.com/wp-dyn/content/article/2008/06/26/AR2008062604030.html

So much for that second-half rebound.

Truth be told, that was always more of a wish than a serious forecast, happy talk from the Fed and Wall Street desperate to get things back to normal.

It ain’t gonna happen. Not this summer. Not this fall. Not even next winter.
[/quote]

That has been my sentiment through the entire first half of this year. These bear market rallies are becoming comical. I have to admit I enjoy watching CNBC on these big downward movements just to see the expression of the permabull pollyannas..(you mean there really isn’t a Santa Clause…Oh NO!). We have just witnessed one of the largest financial bubbles in the history of the markets…..POP! What do you think the correction is going to look like??

[LA_Renter]

[quote=hipmatt]http://www.washingtonpost.com/wp-dyn/content/article/2008/06/26/AR2008062604030.html

So much for that second-half rebound.

Truth be told, that was always more of a wish than a serious forecast, happy talk from the Fed and Wall Street desperate to get things back to normal.

It ain’t gonna happen. Not this summer. Not this fall. Not even next winter.
[/quote]

That has been my sentiment through the entire first half of this year. These bear market rallies are becoming comical. I have to admit I enjoy watching CNBC on these big downward movements just to see the expression of the permabull pollyannas..(you mean there really isn’t a Santa Clause…Oh NO!). We have just witnessed one of the largest financial bubbles in the history of the markets…..POP! What do you think the correction is going to look like??

[LA_Renter]

[quote=hipmatt]http://www.washingtonpost.com/wp-dyn/content/article/2008/06/26/AR2008062604030.html

So much for that second-half rebound.

Truth be told, that was always more of a wish than a serious forecast, happy talk from the Fed and Wall Street desperate to get things back to normal.

It ain’t gonna happen. Not this summer. Not this fall. Not even next winter.
[/quote]

That has been my sentiment through the entire first half of this year. These bear market rallies are becoming comical. I have to admit I enjoy watching CNBC on these big downward movements just to see the expression of the permabull pollyannas..(you mean there really isn’t a Santa Clause…Oh NO!). We have just witnessed one of the largest financial bubbles in the history of the markets…..POP! What do you think the correction is going to look like??

[LA_Renter]

[quote=hipmatt]http://www.washingtonpost.com/wp-dyn/content/article/2008/06/26/AR2008062604030.html

So much for that second-half rebound.

Truth be told, that was always more of a wish than a serious forecast, happy talk from the Fed and Wall Street desperate to get things back to normal.

It ain’t gonna happen. Not this summer. Not this fall. Not even next winter.
[/quote]

That has been my sentiment through the entire first half of this year. These bear market rallies are becoming comical. I have to admit I enjoy watching CNBC on these big downward movements just to see the expression of the permabull pollyannas..(you mean there really isn’t a Santa Clause…Oh NO!). We have just witnessed one of the largest financial bubbles in the history of the markets…..POP! What do you think the correction is going to look like??

[LA_Renter]

Here is good write up from John Mauldin this week that I think accurately reflects what we can expect.

“The Slow Motion Recession

Last October 5, I wrote a letter called The Slow Motion Recession. The basic premise then and in this space since then has been that we are either in recession or a lengthy period of very slow growth and that this slow growth will continue for some time. The cause of the lackluster growth is the bursting of the two bubbles of the housing market and the credit crisis. These are not problems that can respond quickly to the Fed cutting interest rates, but will need several years to correct. These deflating bubbles will put pressure on consumer spending and thus on corporate profits.

At the end of the day, it is earnings which drive the price of stocks. And if earnings are under pressure, we are going to see the stock market to continue to be under pressure. In a Slow Motion Recession, with growth depressed in the latter half of this year, it is going to be hard for the stock market to gain any real traction. As I have been writing for some time, in a recession the US stock market typically falls 30% or more. We are now down almost 20%. It would not be surprising to see the markets fall another 10%, at least from the perspective of history.

And inflation is not helping. Inflation is often more damaging to stock prices than a slow economy. Inflation, especially in a slow growth economy, eats into profits and can be hard to pass on to customers who are under spending pressure. And while inflation may slowly go away over the next year, it could be a factor for the remainder of the year.

While we should see some rallies in July and August, I think the trend is going to be lower, as the earnings projections are going to come down, and guidance is likely to be soft for many companies.

A Slow Motion Recession, a Muddle Through Economy, and inflationary pressures are not a prescription for a robust bull market. Further giving cause for concern, the recent rise in consumer spending is largely attributable to the stimulus checks being spent. This will be largely over by the middle of the next quarter. As gas and food prices eat into more and more of the average US consumer’s ability to spend money on other discretionary items, there will be pressure on almost any company that has exposure to the US consumer.”

[LA_Renter]

Here is good write up from John Mauldin this week that I think accurately reflects what we can expect.

“The Slow Motion Recession

Last October 5, I wrote a letter called The Slow Motion Recession. The basic premise then and in this space since then has been that we are either in recession or a lengthy period of very slow growth and that this slow growth will continue for some time. The cause of the lackluster growth is the bursting of the two bubbles of the housing market and the credit crisis. These are not problems that can respond quickly to the Fed cutting interest rates, but will need several years to correct. These deflating bubbles will put pressure on consumer spending and thus on corporate profits.

At the end of the day, it is earnings which drive the price of stocks. And if earnings are under pressure, we are going to see the stock market to continue to be under pressure. In a Slow Motion Recession, with growth depressed in the latter half of this year, it is going to be hard for the stock market to gain any real traction. As I have been writing for some time, in a recession the US stock market typically falls 30% or more. We are now down almost 20%. It would not be surprising to see the markets fall another 10%, at least from the perspective of history.

And inflation is not helping. Inflation is often more damaging to stock prices than a slow economy. Inflation, especially in a slow growth economy, eats into profits and can be hard to pass on to customers who are under spending pressure. And while inflation may slowly go away over the next year, it could be a factor for the remainder of the year.

While we should see some rallies in July and August, I think the trend is going to be lower, as the earnings projections are going to come down, and guidance is likely to be soft for many companies.

A Slow Motion Recession, a Muddle Through Economy, and inflationary pressures are not a prescription for a robust bull market. Further giving cause for concern, the recent rise in consumer spending is largely attributable to the stimulus checks being spent. This will be largely over by the middle of the next quarter. As gas and food prices eat into more and more of the average US consumer’s ability to spend money on other discretionary items, there will be pressure on almost any company that has exposure to the US consumer.”

[LA_Renter]

Here is good write up from John Mauldin this week that I think accurately reflects what we can expect.

“The Slow Motion Recession

Last October 5, I wrote a letter called The Slow Motion Recession. The basic premise then and in this space since then has been that we are either in recession or a lengthy period of very slow growth and that this slow growth will continue for some time. The cause of the lackluster growth is the bursting of the two bubbles of the housing market and the credit crisis. These are not problems that can respond quickly to the Fed cutting interest rates, but will need several years to correct. These deflating bubbles will put pressure on consumer spending and thus on corporate profits.

At the end of the day, it is earnings which drive the price of stocks. And if earnings are under pressure, we are going to see the stock market to continue to be under pressure. In a Slow Motion Recession, with growth depressed in the latter half of this year, it is going to be hard for the stock market to gain any real traction. As I have been writing for some time, in a recession the US stock market typically falls 30% or more. We are now down almost 20%. It would not be surprising to see the markets fall another 10%, at least from the perspective of history.

And inflation is not helping. Inflation is often more damaging to stock prices than a slow economy. Inflation, especially in a slow growth economy, eats into profits and can be hard to pass on to customers who are under spending pressure. And while inflation may slowly go away over the next year, it could be a factor for the remainder of the year.

While we should see some rallies in July and August, I think the trend is going to be lower, as the earnings projections are going to come down, and guidance is likely to be soft for many companies.

A Slow Motion Recession, a Muddle Through Economy, and inflationary pressures are not a prescription for a robust bull market. Further giving cause for concern, the recent rise in consumer spending is largely attributable to the stimulus checks being spent. This will be largely over by the middle of the next quarter. As gas and food prices eat into more and more of the average US consumer’s ability to spend money on other discretionary items, there will be pressure on almost any company that has exposure to the US consumer.”

[LA_Renter]

Here is good write up from John Mauldin this week that I think accurately reflects what we can expect.

“The Slow Motion Recession

Last October 5, I wrote a letter called The Slow Motion Recession. The basic premise then and in this space since then has been that we are either in recession or a lengthy period of very slow growth and that this slow growth will continue for some time. The cause of the lackluster growth is the bursting of the two bubbles of the housing market and the credit crisis. These are not problems that can respond quickly to the Fed cutting interest rates, but will need several years to correct. These deflating bubbles will put pressure on consumer spending and thus on corporate profits.

At the end of the day, it is earnings which drive the price of stocks. And if earnings are under pressure, we are going to see the stock market to continue to be under pressure. In a Slow Motion Recession, with growth depressed in the latter half of this year, it is going to be hard for the stock market to gain any real traction. As I have been writing for some time, in a recession the US stock market typically falls 30% or more. We are now down almost 20%. It would not be surprising to see the markets fall another 10%, at least from the perspective of history.

And inflation is not helping. Inflation is often more damaging to stock prices than a slow economy. Inflation, especially in a slow growth economy, eats into profits and can be hard to pass on to customers who are under spending pressure. And while inflation may slowly go away over the next year, it could be a factor for the remainder of the year.

While we should see some rallies in July and August, I think the trend is going to be lower, as the earnings projections are going to come down, and guidance is likely to be soft for many companies.

A Slow Motion Recession, a Muddle Through Economy, and inflationary pressures are not a prescription for a robust bull market. Further giving cause for concern, the recent rise in consumer spending is largely attributable to the stimulus checks being spent. This will be largely over by the middle of the next quarter. As gas and food prices eat into more and more of the average US consumer’s ability to spend money on other discretionary items, there will be pressure on almost any company that has exposure to the US consumer.”

[LA_Renter]

Here is good write up from John Mauldin this week that I think accurately reflects what we can expect.

“The Slow Motion Recession

Last October 5, I wrote a letter called The Slow Motion Recession. The basic premise then and in this space since then has been that we are either in recession or a lengthy period of very slow growth and that this slow growth will continue for some time. The cause of the lackluster growth is the bursting of the two bubbles of the housing market and the credit crisis. These are not problems that can respond quickly to the Fed cutting interest rates, but will need several years to correct. These deflating bubbles will put pressure on consumer spending and thus on corporate profits.

At the end of the day, it is earnings which drive the price of stocks. And if earnings are under pressure, we are going to see the stock market to continue to be under pressure. In a Slow Motion Recession, with growth depressed in the latter half of this year, it is going to be hard for the stock market to gain any real traction. As I have been writing for some time, in a recession the US stock market typically falls 30% or more. We are now down almost 20%. It would not be surprising to see the markets fall another 10%, at least from the perspective of history.

And inflation is not helping. Inflation is often more damaging to stock prices than a slow economy. Inflation, especially in a slow growth economy, eats into profits and can be hard to pass on to customers who are under spending pressure. And while inflation may slowly go away over the next year, it could be a factor for the remainder of the year.

While we should see some rallies in July and August, I think the trend is going to be lower, as the earnings projections are going to come down, and guidance is likely to be soft for many companies.

A Slow Motion Recession, a Muddle Through Economy, and inflationary pressures are not a prescription for a robust bull market. Further giving cause for concern, the recent rise in consumer spending is largely attributable to the stimulus checks being spent. This will be largely over by the middle of the next quarter. As gas and food prices eat into more and more of the average US consumer’s ability to spend money on other discretionary items, there will be pressure on almost any company that has exposure to the US consumer.”

[Raybyrnes]

Argument seems to be supported. For the more economic minded people Louise Yamada is a pretty good read

http://welling.weedenco.com/

Enjoy

[Raybyrnes]

Argument seems to be supported. For the more economic minded people Louise Yamada is a pretty good read

http://welling.weedenco.com/

Enjoy

[Raybyrnes]

Argument seems to be supported. For the more economic minded people Louise Yamada is a pretty good read

http://welling.weedenco.com/

Enjoy

[Raybyrnes]

Argument seems to be supported. For the more economic minded people Louise Yamada is a pretty good read

http://welling.weedenco.com/

Enjoy

[Author]

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