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Economic News Articles in The Great Recession Blog, week of 05/27/2012

Bullheaded optimism presses on in the news. This week the Economic Times reported…

“The bullish momentum on Wall Street extended Tuesday’s gains, when the Dow rose 0.2 percent, snapping a four-day losing streak.”

Perhaps they mean the market is now “climbing at the speed of an ox cart.” It nearly crashed last week, completing the erasure of the entire year’s gains. Is two days of erratic trading after a near crash, followed by a 0.2% upward nudge the continuation of “bullish momentum?” 

 

Unless that was a typo, 0.2% is a sniff. The market did surge more than 2% by closing today, but I don’t believe today’s gain marks any return to an upward trend. The market is flighty right now. Its moves look increasingly desperate and even silly. The last few days in the market moved as smoothly as an ox cart on cobblestone, and today’s rise was based on groundless hope that Europe is actually going to do something effective about the euro crisis. They’ve had a year so far and have not yet resolved anything. Greece is a bigger mess than ever. Spanish bond rates are higher than ever. Yet, the market acts as if the mere talk by Germany of “working out” a bailout for Spain’s banks means anything. Spain has already declined the offer because it doesn’t want Germany’s control, and when has European talk worked out anything in the past year?

So, the upturn is an example of bullheaded optimism (as is this writing in the Economic Times), but it is certainly not momentum. Momentum is not a one-day rally. Momentum speaks of something that has been gaining speed. It certainly speaks of something that has some weight behind it. This has nothing but hot air behind it. You can expect a market that is running out of gas to surge. This was that kind of surge.

As for “snapping” a losing streak, I’m thinking the 0.2% rise rise reported had as much snap as boiled spaghetti. Later in the day, the market did have snap to it, but that was well after the Economic Times got excited about 0.2%.

Let’s go back to last week and see what the Economic Times’ idea of bullish momentum really looked like:

 

Homing in on distorted economic news

Consumer optimism took its biggest plunge in nine months. Home prices hit new lows so there was no upward momentum there. Still, that didn’t stop the creators of the Case/Shiller price index from saying, “We see signs of hope!” They explained that “you have to dig to find the negatives” when it was patently obvious they were digging hard to find the positives. The authors talked of the market having hit a bottom, but “new lows” hardly sounds like a bottom. They do warn us not to expect price increases too soon. No, I guess not, given that the prices are still falling! 

Let me do the digging without trying to spin any optimistic notions and see what the facts beneath the surface really show. The authors find hope in the fact that home sales volume is up in the second quarter. (Their report covers the first quarter.) Therefore, they think the new lows in their first-quarter report will be offset by what is happening now. Well, the number of sales typically goes up as we get closer to summer, even in bad times; so that doesn’t mean much. Moreover, mortgage rates have finally found all-time lows. People know interest can’t go lower by more than a sliver, so they are jumping in on the best interest rates they will ever see at a time when housing prices are the lowest they’ve been since the Great Recession began. This buying will only last for as long as interest rates remain at record lows. Even so the volume uptick was slight. Such a small increase in purchases in the face of new lows in prices and interest tells me the market still has a tremendous amount of inertia against recovery.

One person quoted in the article responded to the increase in sales volume by saying, “Prices will eventually follow, but in fits and starts, and it’s still very possible that they go lower still.” Well, that’s hardly a bottom as the authors of the Case/Shiller index claimed. It is mind-boggling to me how seemingly intelligent people who have specialized in industry pricing for years can be blind enough to say, “You have to pick to find real negatives,” when their own report clearly shows prices are still falling and the lowest they’ve been since the Great Recession began. These guys clearly did not wear eye protection while watching the recent solar eclipse.

The article about their report is more balanced, offering the following caution,

As servicers implement [mortgage fraud] settlement guidelines, we will see an increase in short sales and foreclosures, as a very large number of borrowers … won’t qualify for [principal] write-downs…. This is especially true for those who have failed to make payments or do necessary maintenance for many months. These problems will be especially felt in the former bubble markets.

In other words, the logjam of mortgage foreclosures still hasn’t made its way down the river. When it does, it will suppress prices further. Plain and simple. Supply and demand. People who don’t see this simply don’t want to; but The Great Recession Blog is for people who want to see straight, even if they don’t like what they are seeing. It is for those who want to see what is going to hit them. (This is no place for ostriches.)

Another version of the story reported that the Case-Shiller price index showed home prices rising. To make sense of that, you have to realize that the article writer means that prices rose in twelve out of the twenty cities that the index covers. Since that was a rise in more than half of the cities, the optimistic reporter headlines the story as a “price rise” overall. However, prices fell in eight out of ten cities more than they rose in the other twelve. So, overall, prices averaged lower across the nation. Moreover, some of the areas were prices finally rose are areas that have been the least hit all along, such as Seattle. After getting your hopes up in the headline, the article finally says deeper down, “The index edged down to its lowest level since the housing bubble burst.” That’s the bottom line, and it’s pretty low when you consider that this overall drop in prices happened while thirty-year interest rates came to an all-time low.

Some people might call this a “recovery.” I call it a “hangover.” Houses are hanging over the edge of a cliff. No sooner did the ink dry on the news stories above than the next report came out that said pending home sales fell by the most in one year. Well, so much for that bright lining that was afforded by sales volume. The sales up ahead just fell off a cliff. They now dangle from a large overhang of foreclosures. Jobs are back down and down hard, and the stock market almost crashed. What impact will those changes have on housing prices this summer?

Yes, surprise, surprise, economists were overly optimistic about the job market after all. They anticipated an increase in the report that came out last week, and the job market actually fell. Well, it practically crashed … to be more accurate … just like …

 

European all over us

The big news last week was Europe bringing on the near-crash of stock markets all over the world.  That’s timely by my predictions:

The heat of summer will look like the heat of hell for Europe. Money will flee Europe over the course of this year, including European money.

In fact, summer arrived a month early this year. With that, it’s getting close to time for a mid-year audit of all my 2012 predictions. It’s looking like every one of them is going to be right on the money, but I’ll wait until the end of the first six months. As it stand right now, it looks like we are experiencing another sea change all over the world, just as I said would happen in the spring. So, keep a look out for that midyear audit. If I was wrong, I will just as readily let you know that.

(If you liked this article about last week’s economic news and want to see others as they’re posted each week, please click the RSS feed link in the left sidebar and subscribe. Also, please use the email button to pass it along to friends you think might be interested. They will not get added to any email list.)

 

Recap of economic news articles on The Great Recession Blog last week

(Current week’s news is posted in the right sidebar each day.)

 

Economic indicators and stock market responses in the news this week

05/29 Consumer Confidence Plunges in Biggest Drop Since October 2011 Americans feel worse about the economy than they have in eight months. The Consumer Confidence Index for May stands at 64.9, down from a revised 68.7 in April. Economists had expected an increase to 70.3! The biggest concerns are jobs, housing, and stocks.

05/29 Home Prices Hit LOWS, But ‘We See Signs of Hope’ All three “headline composites” of the latest and widely watched S&P/Case Shiller home price indices ended the first quarter of 2012 at record post-crisis lows, yet experts crow about price increases in some hard-hit regions.

05/29 Home prices RISE in most major U.S. cities Chiller Price Index reports home prices rose in March from February in 12 out of 20 major U.S. cities for the first time in seven months. Paper reports the increase as the latest evidence of a slow recovery taking shape in the troubled housing market.

05/30 Pending Sales Of U.S. Homes Decrease By Most In A Year …indicating the U.S. housing recovery remains uneven. The index of pending home resales dropped 5.5%. Last month was revised down as well. Economists had expected no change.

05/30 Stocks hit by more European woes Stocks fell sharply as worries about Europe’s debt, specifically the Spanish banking system, again shook confidence. Investors flooded into U.S. Treasuries, raising prices and pushing the yield on the benchmark 10-year note down to a record low of 1.656%.

05/31 ADP Employer Services Says U.S. Added Fewer Jobs Than Expected in May The 133,000 increase in employment followed a revised 113,000 gain the prior month that was smaller than initially estimated. The 39 economists surveyed by Bloomberg called for a May advance of 150,000. Businesses may be wary of European struggles.

05/31 Jim Rogers: Govt ‘Makes Up the Numbers’ on Unemployment, Inflation Don’t let declining unemployment rates fool you, says international investor Jim Rogers. The government tinkers with the numbers and doesn’t stop with jobs reports, either. One way it tickers is by excluding people who have stopped looking in despair.

05/31 Jobs, GDP Data Point to Loss of Momentum in Recovery Payroll growth accelerated only slightly last month, and claims for jobless benefits rose last week, suggesting the U.S. labor market is stalling after a strong performance early in the year. Factory activity in the Midwest also slowed considerably.

05/31 Wall St falls on Europe after weak May showing U.S. stocks fell on Thursday and were on track to post the largest monthly drop since September as investors focused on Europe’s mounting credit problems.

06/01 Broader Jobless Rate Jumps to 14.8% [Ignore the absurdly positive spin here, and look at what it says about how unemployment numbers have been long understated, just as I have put forward on this site many times. Look at the graph.]

06/01 Dow erases 2012 gains after ‘terrible’ jobs report U.S. stocks sank Friday, as the Dow erased all its gains for the year, and the 10-year yield on U.S. Treasuries hit another record low, after a U.S. jobs report fell far short of expectations. The report showed less than half the jobs economist had predicted.

06/01 Even Mediocre Job Growth Coming From Wrong Places Job growth was weak. Just as bad: the type of jobs the economy managed to add. Growth is coming ENTIRELY from workers getting part-time jobs. The number of Americans working full-time fell by 266,000 in May, erasing all the gains of the past three months.

06/01 Three analysts sound off on weak jobs report, choppy markets and some signs of hope Only a month ago, surprisingly strong corporate earnings and steady growth in the U.S. economy had investors in a cheery mood. Then “reality happened. The idea took hold at the start of the year that this was a self-sustaining recovery. And then came Europe.

06/01 U.S. Jobs Slowdown Adds to Global Fears U.S. job growth slowed sharply in May to just 69,000 new jobs, a sign of a sputtering recovery that may increase pressure on the Federal Reserve to prop up the economy. The unemployment rate ticked higher to 8.2% in its first increase since June 2011.

06/01 Weak U.S. Hiring Adds to Global Gloom Job report is evidence of a global slowdown. “In February or March, I thought the labor market had achieved escape velocity,” said Patrick J. O’Keefe, the director of economic research at J. H. Cohn. “It appears to me now that that was a premature call.”

06/01 Where is the Fear & Greed Index Today? [Stocks have fallen back off a cliff. The one-week rise was as short as I figured it would be. How are investors feeling?] “Stock price strength has declined rapidly and indicates that investors have recently shown extremely high levels of fear.”

06/03 Investors Brace for Slowdown The U.S. and China show fresh signs of slowing as troubles in Europe flare anew. Investors across financial markets have reacted with increasing alarm at the drumbeat of bad news from all corners of the world. Asian stocks were sharply down early Monday.

06/03 Tokyo stocks hits 28-year low amid global rout Asian shares tumbled on Monday, pushing the broader Tokyo market to a 28-year low, as investors extended a rout of global stocks and worried about a nightmare scenario of euro-zone breakup, U.S. economic relapse and a sharp slowdown in China.

 

Economic predictions / forecasts that made news headlines

05/28 Marc Faber: 100% Chance of Global Recession Faber’s bearish market calls have been followed since 1987 when he warned clients to cash out before Black Monday. Now Faber warns with “100%” certainty that the economies of the world are on the brink of another serious slowdown in Q4 or 2013.

05/31 Jim Rogers: ‘If You Are Not Worried About 2013, Please — Get Worried’ This year, an election year, will be a decent one for the economy although a recession will strike and strike hard in 2013 or in 2014 at the latest, says international investor Jim Rogers, CEO and chairman of Rogers Holdings.

05/31 Pimco’s Gross Warns of Economic ‘Breaking Point’In his June outlook, Gross said stimulus policies by the Federal Reserve and the European Central Bank have led to riskier government bonds with degraded value and paved the way for higher inflation, signaling a potential global economic “breaking point.”

06/01 British Chambers of Commerce cuts growth forecastThe British Chambers of Commerce has slashed its forecast for economic growth this year, from 0.6% to 0.1%. Official figures show the U.K. has taken a second dip into recession. Unemployment will also increase almost one point.

 

 

Euro crisis updates as the Great Recession goes viral

05/27 Lloyd’s ‘has plans for euro collapse’ The insurance market Lloyd’s of London is preparing contingency plans for the possibility of the euro collapsing, its chief executive has said. Mr Ward is one of the first bosses of a large UK business to admit he is planning for the end of the euro.

05/28 Spain’s Regional Rescue Risks Tipping Point On Interest Spain’s plan to help cash-strapped regions sell debt risks piling additional liabilities on the central government as borrowing costs approach the 7% level that pushed Greece, Ireland and Portugal into bailouts.

05/29 Greeks Furious Over Harsh Words from IMF and Germany As Greeks prepare for the polls once again in three weeks, international criticism is intensifying. IMF head Christine Lagarde said Greek citizens must begin paying their taxes, while a German cabinet member referred to Greece as a “bottomless pit.”

05/30 Investors flee Spain as financial crisis spirals When compared to safe German debt, investors in Spanish bonds were demanding an additional 5.41 percentage points, a premium that easily crashed through euro-era records set each day of this week. Stock prices skidded across the world.

05/30 Moody’s, S&P downgrade Danske, other Danish banks Moody’s Investors Service on W ednesday downgraded nine Danish financial institutions, pointing to sluggish economic growth, risks from the euro zone debt crisis and structural changes to the covered bond market, a reliable source of cash.

05/30 Spain faces ‘total emergency’ as fear grips markets Spain faces the gravest danger since the end of the Franco dictatorship as it is frozen out of global capital markets and slides towards an epic showdown with Europe. “We’re in a situation of total emergency, the worst crisis we have ever lived through.”

05/30 Spain fears prompt bond yield rise and euro fall The Spanish government’s 10-year bond yields increased to 6.7% while Germany’s fell to 1.31%. Tensions over eurozone debt also forced the Italian government into paying sharply higher rates on Wednesday .

05/31 European Central Bank Prez Warns Eurozone is ‘unsustainable’ Mario Draghi said the central bank is powerless to stop the debt tornado. “It’s not our dutye” to “fill the vacuum left by the lack of action by national governments on the fiscal front.” Politicians repeatedly underestimated their problems.

06/01 Eurozone unemployment at record high 11% The 17-nation eurozone’s unemployment rate reached the highest level since the creation of the common currency 13 years ago, climbing to 11% in April. The unemployment rate in the broader 27-nation area that makes up the European Union rose to 10.3%.

06/01 Irish Voters Approve EU Deficit-Fighting Treaty Ireland’s voters have agreed to ratify the European Union’s deficit-fighting treaty with “yes” votes reaching 60 percent. Pro-treaty campaigners expressed relief rather than joy because of the stark economic challenges the treaty creates.

 

 

Federal Reserve actions tracked in the economic headlines

05/27 Treasuries Rally May Give Fed Room to Ease Again Decelerating inflation and signs of slowing economic growth have some Fed officials talking about the possibility of more accommodation. New York Fed President William Dudley says central bank will have to act if the economy falters and inflation shrinks.

 

The Iranium Reaction as it makes and shakes the news

05/27 After Talks Falter, Iran Says It Won’t Halt Uranium Work Iran’s nuclear chief, reversing the country’s previous statements, said the country would not halt production of high-grade uranium, suggesting that the Iranian government was veering back to a harder line after talks in Baghdad last week ended badly.

05/28 Panetta: U.S. is Ready to Stop Iran from Creating Nuclear Weapons U.S. Defense Secretary Leon Panetta on Sunday indirectly confirmed recent remarks by the Ambassador to Israel that the U.S. is “ready from a military perspective” to stop Iran from making a nuclear weapon if international pressure fails.

05/30 Israel Defense Minister: “It is impossible to sleep soundly.” “Iranians are saying to themselves: ‘We’ve waited 4,000 years for a nuclear capability, so we’ll wait another few weeks, and we won’t do anything that would provoke an Israeli or American operation’.”Barak said Israel could not close its eyes and wait.

06/01 Obama Order Sped Up Wave of Cyberattacks Against Iran Breaking story about how the U.S. developed the Stuxnet virus and deployed it successfully against Iranian centrifuges. Also hints at how the use of cyber weapons could come back to haunt the United States. Stuxnet was never meant to reach the web.

 

 

U.S. government moves (and blunders) in articles about the economy

05/29 Republicans Wrangle to Remove Mandatory Spending Cuts Agreed to Last Year Reid has also made it clear he will not back GOP efforts to spare the Pentagon from some $50 billion in automatic spending cuts next year in what’s known as “the sequester.” That sets up a fight with defense hawks led by Sen. John McCain of Arizona.

05/29 U.S. Winds Down Longer Benefits for the Unemployed Next month, an additional 70,000 people will lose benefits earlier than they presumed, bringing the number cut off prematurely this year to almost half a million, not including people who simply exhausted the weeks of benefits they were entitled to.

 

 

Other economic updates / miscellaneous news articles

05/27 Pimco’s: US Treasurys Only Real ‘Haven’ Asset Gold, traditionally a good hedge, has taken a beating as investors ditching euro positions are favoring the dollar, and a rising dollar sends gold tanking. So, Bill Gross says Treasuries are the only safe place. Of course, they are what he has to sell.

05/30 ‘Sons of Stuxnet’ virus threaten energy infrastructure Energy infrastructure is more vulnerable than ever in escalating cyber war thanks to “sons of Stuxnet,” which can be created from the virus designed to sabotage Iran’s nuclear program, widely thought to have been sponsored by western government agencies.

06/02 Gold Glitters Amid Market Slide Gold roared to its biggest one-day price rise in three years on speculation of new monetary stimulus triggered by a poor U.S. monthly jobs report. Signs of a faltering U.S. economy were all gold needed to hear to reclaim its safe-haven status.

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