DOWNTIME Part 14 – It’s Up, It’s Down for the Count
The fickleness of the stock market as a predictor of the economy versus just a responder to the economy played out clearly in the past week. On March 5th, CNN reported that the market had broken a five-day losing streak, bouncing off of twelve-year lows. “The markets opened higher and never looked back, following reports that China’s economy may be improving.” Umm. Well, they looked back the very next day and the day after that and the day after that. The price of tea in China was a silly reason for the market to rise in the first place, but we must remember it is overseen by a combination of villains and village idiots.
The China Syndrome
When the U.S. stock market leaped like a fish out of water because Beijing promised a $585-billion stimulus plan, I had to wonder that none of the gurus of the market were smart enough to figure out that this plan will not help the U.S. In fact, it is far more likely to hurt the U.S. First, the plan will almost certainly focus on hiring millions of unemployed Chinese workers from the 70,000 factories that have closed in this present depression to fix Chinese infrastructure using Chinese natural resources in order to employ as many Chinese people throughout the Chinese economy as possible. That may help sustain some sort of market for American products, but most of what they buy will likely be cheaper Chinese products in order to put still more Chinese people to work. The government has a rural revolution to prevent, and it controls the economy directly.
Second, and more important, 70,000 Chinese factory closures should make it obvious to anyone that China is no longer running a surplus economy, so where is it going to get the $585 billion? The obvious answer is that the obvious source would be cashing in (not rolling over) the hundreds of billions it holds in U.S. Treasury bonds, which it has been tempted to cash out anyway. With little present demand for Chinese products in America, it is certain that China will not be accumulating huge quantities of U.S. dollars that it has to figure out where to park. So, it has no reason to buy treasury bonds. More importantly, it now has no means of buying treasury bonds because it certainly will not have any surplus to invest when it is pouring an extra $585 billion into its own economy.
If China stops buying U.S. bonds, the U.S. bond rate will have to go up to attract other major buyers, and that makes the long-term unsustainable cost of the United State’s own bailout and stimulus plans all the higher. But the market meisters clearly don’t think that many steps ahead. They say, “Oh, China’s going to give birth to a new boom! Have a cigar … made in China!”
China also stated that its manufacturing has gone up for the third straight month. That news does not add up with the 70,000 factory closures. Either the news coming to Americans is vastly out of whack, or the Chinese government is lying about manufacturing going up. We, of course, know that communist countries never lie in order to avoid mass revolts.
The fact is that China’s manufacturing cannot go up because no one is buying. So, unless they are manufacturing just to manufacture, they are lying. Common sense also tells you that, if manufacturing had been on the upswing for three months, China would not be announcing a $585 billion stimulus program to put people back to work. The reason no one on Wall Street can see these facts can be summed up in one word: “denial.” The good ol’ boys are so thirsty for the good ol’ days, they’re seeing mirages in their desert.
Jobs on the Runs
On the job front, the news last week was equally conflicting. First, word hit the press that the number of newly unemployed was expected to decrease from 650,000 to 630,000. The next day the Labor Department said that jobs actually fell off by 638,000. So, the market heated up. A day later, the news was that the numbers did just the opposite; they broke old records. One source said the economy had shed almost 700,000 jobs in one month! (The government revised its claims to 651,000, a slight bump up from 650; so who you gonna trust? For December, the government had said 580,000, which they just revised up to 680,000. That’s a clue.) Then the news became even worse. One day unemployment was expected overall to rise to 7.9%, but the next day it actually rose to 8.1%. So, the market plummeted.
Such rapidly rising unemployment raises the question, with the U.S. being China’s largest trading partner, who is it that China is manufacturing for such that it can claim manufacturing is on its third straight month of increase? That the market went up in response to the false claims of Chinese growth and the false claims of diminishing job losses shows that investors are selectively hearing what they want to hear. In a word: “denial.”
The End is Everywhere
Elsewhere in the news, big-time bailout beneficiary AIG announced its largest quarterly losses in history, meaning a push to the trough for more government bailout money to follow the previous bad money. Then Fed Chairman Ben BreakTheBanky announced that banks will be needing a lot more bailout money. News also came out that U.S. manufacturing plummeted almost 9% in the fourth quarter to a low it hasn’t seen in over a quarter of a century (and that’s the decline that happened BEFORE a dismal Christmas sales season. One-in-eight houses were now behind on their mortgages or in foreclosure. The almighty Citibank became a penny stock (less than a buck a share), bringing to question the bank’s ability to breath even with the government ventilator that was stuffed down its throat. GM’s auditor produced a life-support report that reiterated GM may cease to be “a going concern.” Ford’s credit rating plunged as it announced it would have to dilute its common stocks by selling new shares to raise money. All bank stocks went down like dead and smelly fish over a waterfall.
By the end of the week, the market went from what was a completely ludicrous rise in the first place to a new tanking low. Someone even rendered a photo of the Merril Lynch bronze bull, long the icon of Wall Street, slumped dead on the sidewalk. Seems there is a lot of bull lying in more ways than one on the sidewalks of Wall Street lately.
Speaking of stock losses, Nestle’s has taken the beef out of its stock while putting the bull back in bouillon, betting that it’s cheap beef bouillon will carry it through the depression when that is all people can afford. While banking stocks are falling off the shelf, food banks are on the rise. Nationwide demand at food banks has increased 30%. If you’re going to buy stock, stock the shelves of food banks. At least, you’ll be helping someone. The silver lining came in the form of news that there is room for a whole new nouveau riche at the Half-price Hamptons where mansions are now renting for fifty cents on the dollar against previous years. And the surest sign of the times was that Starbucks came out last week with instant coffee, putting itself on the same shelf as Sanka.
Overall, the U.S. rate of fall accelerated greatly. Said one U.S. economist, “So much for the surprising strength in U.S. productivity late last year.” He must have been living in an alternate reality because anyone who believed there was surprising strength in U.S. productivity last year is in the same camp as those who readily believe Chinese productivity has risen for the last three months, even though 70,000 factories have closed. Wait until they see what is happening to U.S. productivity as the post-Christmas blues settle in during the first quarter of this year! We won’t even know those numbers until April.
Where’s the Bottom?
So long as the rate of fall is accelerating, we’re nowhere near the bottom. A bottom is when the economy starts showing a net increase in jobs, instead of a net loss. We’re still expanding the rate at which we lose them, and, so long as we are seeing a net loss at all, we’ll still be falling. Anyone thinking we’re anywhere near the bottom is a blind fool with his eyes closed under sunglasses in a darkened, sound-proof room.
Finally, this weekend the national debt was set to clear $11 trillion. Ahh, it seems like only yesterday that it cleared $10 trillion. The national debt appears to be climbing faster than the economy is falling. The extra money must be going into bonus checks to reward the architects of our demise. Meanwhile, another $580 billion bailout is already in the works in Congress. This time to be borrowed against the future as money for the FDIC to rescue the customers of failed banks or, more likely, just printed out of thin air. I thought we bailed out the banks to avoid that possibility. No wonder the national debt is climbing at the rate of a trillion dollars a quarter.