We seem to have hit a crossroads in the financial markets. Stock markets around the world have done rather well the past four weeks. The excitement of drinking from the punchbowl has blinded many a savvy investor. The more they drink, the more they assume that the worst is over.
Is it? Ben Bernanke appearing on CBS' 60 Minutes several weeks ago sparked this rally when he said he saw "green shoots." I am not sure what he looks at but I don't see any "green shoots." Historically, the final upturn takes place five months before the end of the recession. That indicates the recovery will start in August. Maybe it will but I won't bet on it quite yet. The signs are much too ominous.
Unemployment is still a huge problem. The chart below shows the bread line growing. This chart is the official government numbers. What it does not show is all the folks who are self-employed who have closed their doors, who have been beaten up unmercifully or who are cutting back on their wages. It also does not include those who have been furloughed by government as we are seeing in California. Ditto for those who have had hours or wages cut. Finally, it does not include those who have been on the rolls too long and are categorized as "discouraged workers." If you add those numbers, the true unemployment rate is 19.8% up from 19.1% in February.
For those who point out that we are nowhere near a Great Depression when the unemployment rate was 25%, these numbers simply take your breath away. (Thanks to John Williams andshadowstats.com and agorafinancial.com for data)
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In our town of Sonora, tucked away in the foothills near Yosemite National Park, unemployment is starting to hit very hard. After losing Mervyns a few months ago, we now have Gottschalks liquidating as of last Friday and the lumber mill, our third largest employer, will bring down the axe starting in July. We are just a microcosm of the rest of the world and a good indicator of the future.
My point in all this is quite simple. Until the unemployment numbers start to improve, this recession is far from over. Get used to it. Politicians will continue to grin at the cameras and tell us how they have gotten the train back on track. Financial advisors will keep on telling us to hold on for the long term as the economy snaps back and our President and his advisors will beam at us, give us a "thumbs up" and breathe a sigh of relief while exclaiming that we have pulled out of the "big one."
Markets around the world gyrate wildly on a daily basis. Meanwhile, consumers are spent out. Tomorrow will be a consumer credit report. It is widely expected to show declines. Consumers are now "de-leveraging." This means they are paying down credit cards, reducing home loans and not taking on new car purchases. This is exactly the wrong dose of medicine at the worst possible time. The governments around the world are fighting tooth-and-toenail to stimulate their economies. This consists of drowning the planet with cash, newly printed cash, I might add. Somehow they think that we are all going to grab a fistful of greenbacks and rush out to incur a mountain of debt. That worked well a few years ago but consumers are scared and spending is slowing, not accelerating.
To pull out of this one, consumers need to spend. They need to stop the bleeding of home prices. They need to buy more cars and they need to basically start on rampant shopping sprees. It is not happening anytime soon.
Nevertheless, the G-20 meeting in London last week was deemed an overwhelming success. They agreed to triple their funding to the International Monetary Fund. They agreed that banks and loose credit have been the villains and pledged to tighten up regulations on all financial firms. They agreed that bank secrecy and offshore havens is over. And lastly, while they did not specifically guarantee any specific stimulus, clearly this is the continuing trend. Canada just announced today that they will print more money. They too are going "loonie." (note: the Canadian dollar is known as the "loonie")
When the G-20 wrapped up their meeting, they could not resist the glamour shots. If their new policies don't give you some warm feelings, the picture below is bound to give you all the confidence you need to believe that the end of this global recession is rapidly drawing to a close!
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