Truth Begins to Dawn: No Recovery in Our Economic Recovery
The crack of dawn that would shine through economic denial has taken longer to come than I thought when I prognosticated that turbulence would begin last fall, which I said would cause people to realize there has been no recovery in our “economic recovery.” But here we are.
Citigroup now agrees: no recovery in our “economic recovery”
Even the economic blunderheads that run America’s biggest banks are starting to realize there is no recovery … and (bigger surprise) perhaps there never was:
“We believe the diagnosis that the U.S. economy has healed from the 2008 trauma may be overstated or incorrect,” said Citigroup’s economist, William Lee. “This may explain why expectations have been disappointed following the recent flood of apparent downward surprises regarding the growth outlook.” (“Wall Street’s mystery: Where’s all the economic growth?“)
By “downward surprises,” Lee was referring to the U.S. economy’s growth, which was revised down to a meager 2.2% for the fourth quarter of 2014, and which is estimated to be only 0.1% in the first quarter of 2015. That, of course, was no surprise at all if you’ve been reading this blog.
Last fall, the market bulls were bellowing about U.S. growth of 5%, even as the market began to heave beneath them. They were predicting, at least, 3% growth for the first quarter of 2015 and throughout 2015. I said they were wrong. Now GDP results are in, and the first quarter came in about as dead as you can be without going negative (0.2% growth). Here’s another surprise down the road that will come as no surprise to you since you’re reading this blog: That GDP growth number will be revised to a negative number. Then people will express their surprise that we were actually experiencing economic contraction during the winter of 2014-2015.
I’ve written consistently on this blog for years what Citigroup is apparently just now realizing: there is no recovery in this recovery, and I’ve precisely anticipated all the downward motions. I’m not prescient. I just don’t live in denial.
I’m glad Citigroup is finally starting to see reality, but they represent too few, too late.
Analysts now skittish about economic recovery in 2015
Practically all stock market analysts and economists sounded like bulls last fall when I was saying an October surprise would be the beginning of the end for the stock market. Half a year later, there are a lot of people who are no longer so sure 2015 will be the year of recovery they predicted.
After a poor showing for first-quarter profits, a growing number of analysts are making noise about possible decrease in corporate earnings in the second quarter. Suddenly, they’re not so sure 2015 will be the good year for stocks they were certain of last fall. They’re not even certain last fall was as good as they thought it was.
While company profits didn’t drop quite as much as some were starting to fear late in the quarter, that was only due to cost-cutting measures, not due to company growth. Earnings per share were spared only because so many companies bought back shares, which spread profits over a smaller number of shares. If not for buybacks, earnings per share may have been the worst since 2009.
More importantly, the U.S. stock market appears to have hit a ceiling since the nosedive it took last fall. Contrary to fall’s mass national delusions of a recovery that was building up steam, U.S. stocks have not been able to sustain any rise since then:
That looks like the graph of a patient who had a heart attack last October, who then moved into some spiky arrhythmia as the government kept applying the paddles of Q.E. Lite (QE4) and who is now flatlining. This is not a patient who is likely to do well, and it wouldn’t take much to push him over the edge.
What happens in economic circumstances this weak is that the market bulls try to maintain their bullheaded optimism. They keep trying to talk and bet the market up, but the market won’t go up because its new ceiling is due to serious systemic problems. While the bulls are banging their heads against the ceiling, along comes some big event (a black swan event) that blows the whole thing up because it is so unstable.
(As I’ve said, Q.E. was the fuel that was heating the market up, and without Q.E., it ain’t gonna happen. It was the artificial life support. The confirmation of that is in Europe, where Q.E. has begun, and stocks started rising right away.)
My personal recovery from betting my blog
Going back through old articles, I discovered that I never actually bet my blog on my prediction of a market crash. I thought I had because I had written that bet into an article, but, in reviewing what I actually published, I see that I wisely stopped myself short of going that far and took that out before publishing the article.
I only bet my blog on the prediction that the market would become volatile in the fall due to building headwinds and the end of Q.E. and that this volatility would reveal, at last, that there has been no recovery in our recovery. (Because the government didn’t quite end Q.E. as promised, the patient has been kept minimally alive, but the volatility is evident, as is the patient’s inability to re-establish rising health after the shock of last fall.)
The realization that there is no recovery in our economic recovery may be dawning slowly, but it is easy to see that the volatility appeared right on schedule and that the market’s inability to sustain any further rise is starting to give a message. That realization is starting to dawn even within the darkened chambers of economists at major banks like Citigroup.
Still, other banks, like Bank of America, believe “fundamentals of the economy are still strong.” So, there remain minds that are deep in denial about the fundamental flaws in our economy. Regardless, realization that there has been no recovery will eventually force itself upon them, too. MARK MY WORDS!
As David Stockman, President Reagan’s budget chief, says, the bullish attitude in stock and bond markets is “downright astounding — even stupid.” Yes, it is.
While a clearer perception of reality dawns, there remains a flood of denial to overcome. Stockman cites, as an example, the fact that there are over five trillion dollars held in bonds that promise they will pay investors back less than what the investors paid for them. Is that not clear denial of the fact that bonds are no longer worthy investments? If masses of people still buy them, knowing for certain they will lose money, you have to ask what is wrong with their thinking.
Our average of a recession every seven years means another recession is now due, even though we haven’t recovered from the last one. What happens when you get a recession when you haven’t recovered from the last recession while the governments of this world have exhausted all their stimulus capability?