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Reality-check on U.S. “economic recovery”

Articles & Blogs - US Commentary

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U.S. equities are rallying again today, and (as usual) it is a rally with no basis in reality. Most of the enthusiasm comes from another string of corporate quarterly results which “beat expectations”. I had hoped that the sheep were starting to clue-in to this silly game, however it appears there is a still a large pack of Pavlov's Dogs out there – who respond to their propaganda cues without a moment of actual thought.


The truth is that all of the companies “beating expectations” are still reporting steadily worse results year-over-year – and in many cases, much worse results. Among the few exceptions are U.S. financial corporations. However, since accounting-fraud was legalized in the United States (see “FASB strong-armed into mark-to-fantasy accounting”), their bottom-lines have had absolutely no connection to their business operations.


The obvious point here is that if expectations are set low enough, it is almost impossible not to exceed these “estimates”. The question that must be asked is this: given that all these “market experts” are claiming that the U.S. economy is “turning the corner”, then why are all these same “experts” continuing to predict terrible bottom-lines for U.S. corporations – every quarter?


The other element fueling today's rally is the continuing stream of propaganda pretending that both employment and the U.S. housing sector are “stabilizing”. This aspect of U.S. propaganda is especially egregious.


The optimism in U.S. housing is built entirely on the fact that declines in U.S. home prices have not been as bad as before – when they were falling three times as fast as during the Great Depression. This is a result of several factors.


First and foremost, U.S. banks are holding millions of foreclosed properties off the market. In this case, the numbers don't lie. There were 1.9 million foreclosures in the first 6 months of 2009, and Realty Trac (an industry-friendly group) predicts at least 4 million foreclosures this year – meaning that the rate of foreclosures will continue increasing. How is this “stabilization”?


These foreclosure numbers become even more interesting when we look at the ratio of foreclosure-sales relative to total sales. With total housing sales forecast at 4.8 million (after a recent jump in sales) and (at least 4 million foreclosures this year alone), foreclosure sales would have to account for over 80% of total sales in order for U.S. banks to clear their inventory as fast as they are taking on new foreclosed properties.


In fact, foreclosure sales have never exceeded 50% of total sales, and in the last two months have only averaged 35% of total sales – meaning U.S. banks are selling much less than half of their foreclosed properties. This means that contrary to fraudulent reports that housing inventories are “moderating”, all that is taking place is that more and more properties are simply being taken off the market – unsold.


The other important point about U.S. banks holding millions of foreclosed properties off the market is that foreclosure sales are the primary force pushing down U.S. housing prices. It should be expected that with U.S. banks holding millions of foreclosed properties off the market that U.S. house prices would be (temporarily) less-bad.


As I have pointed out many times, U.S. delinquency rates are at all-time, record highs – meaning that when the dust settles at the end of this year, U.S. foreclosures will likely be well over 4 million units (meaning all the other numbers I discussed will get even worse). In addition, we are only months away from the largest wave of mortgage re-sets (see “U.S. mortgage crisis to get MUCH worse in 2010-11”) - which will last for two years.


Meanwhile, broke-and-retiring U.S. baby-boomers will have no choice but to dump $1 to $2 trillion of real estate onto the market, to make up for their under-funded retirements (see “U.S. pension crisis: the $3 trillion question”), and the HUGE cuts which must be made in government programs for seniors, to begin to reduce the $70 TRILLION (or so) in U.S. unfunded liabilities. This means at least a decade of vast amounts of new inventory being dumped onto the market. This is “stabilization”?


Then we come to U.S. employment fiction. Weekly lay-offs have “improved” (by a measly 10%), meaning there are 'only' about 2.5 million lay-offs per month, compared to a normal month where there would be less than 1 million. Lay-offs are 2 ½ times greater than normal, and this is called “stabilization”?


Fraudulent government numbers are claiming that there is only a net job loss of less than 500,000 jobs per month (which is an historically terrible number). However, the reality is that with 2.5 million lay-offs per month, there must be at least 1.5 million (net) jobs lost each month – based on those weekly numbers (see "U.S. economy to lose 20 MILLION jobs this year"). These are Great Depression-like numbers.


The fact that job losses are “stabilizing” at Great Depression levels is not good news for anyone living in the real world. Meanwhile, the collapse in the U.S. retail sector is just beginning to to impact retail sector employment (see “The Death of the U.S. Consumer Economy”), and U.S. state governments are just beginning to make the painful budget (and employment) reductions they must make – as a response to the largest plunge in state revenues in history.


In short, the “big picture” of the U.S. economy is completely clear, it's in terrible shape and rapidly getting worse. Meanwhile, the U.S. propaganda-machine continues to fuel the U.S. fantasy-rally with nothing more than “smoke-and-mirrors”.


Caveat emptor.

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