Tuesday, May 4, 2010

Recovery Fake Out: America Becoming Zombie Nation

Television has a mesmerizing effect on people. It offers the uncanny ability to either engross the viewer or put them to sleep. On that latter point, just ask the hosts of late-night shows, like Jay Leno, who do their audience counts within the first fifteen minutes of the show because after that, Americans are nodding off "en masse."

TV is a kind of drug for the modern masses. Viewers tend to believe just about anything they see or hear on the tube, so when the major networks and their cable outlets keep chirping that the US economy is on the road to recovery, people automatically go along. After all, who wants to believe that the recent economic crisis - that actually had its roots in the late 90s - isn't already over? Nobody wants to be the party-pooper. We all need to get moving toward a brighter future. Right?

Well, some of us aren't convinced, especially since we've seen little evidence that the government or Wall Street has done anything to prevent another global economic meltdown like the one we witnessed in the fall of 2008, and since $8-12 trillion worth of extended benefits to the Wall Street zombie financial firms and another nearly $1 trillion in excess government spending (most of which went to near-bankrupt state treasuries), has produced no new jobs and few tangible results that look even remotely like a growing economy.

No, the troika of Wall Street, Washington and the well-kept, neat-and-tidy media non-investigators have pulled the wool over America's eyes again. And why not? As a nation, gullible Americans keep trusting governments, investment advisors and media pundits who say things are "getting better" even when we see no evidence of such in our personal lives. Have you or your spouse or any of your friends gotten a raise lately? Are firms fighting over the services of you or your buddies? Are you turning down lots of job offers? Are malls and strip centers opening new stores? Are restaurants and small businesses expanding? Are local, state and federal governments concerned more about dealing with tax-receipt surpluses or bone-crushing deficits?

Are prices going up so fast you can't seem to keep up? (Don't answer that yet.) Or are they somewhat stable in most areas? Food and fuel prices have remained fairly constant for over a year now.

Truth of the matter - sorry to keep harping on this, but nobody seems to get it - is that the downturn hasn't ended. In fact, it may be in a debt-induced state of near-term denial. Sure, Wall Street and stocks in general have recovered magnificently, but they did so on the back of billions of dollars worth of government no-interest loans (bailouts) and trillions worth of guarantees. It's what they do. They were given money and told to invest and spend. It wasn't that difficult of a task.

Right now, though, doubt is creeping back into the formula. Stocks may have reached an emotional and intellectual peak, a point at which neither enthusiasm nor analysis would lead an astute investor to buy. Then there's Goldman Sach, Greece and the rest of Europe to worry about, to say nothing of that growing oil slick in the Gulf of Mexico.

Of course, behind the scenes are millions of unsold homes in bank inventories, more foreclosures soon to come down the pike and those 8 million unemployed people on extended, extended benefits who still can't find reasonable work.

We also cannot leave out the Treasury and the Fed...

According to a new missive from Agora Financial (I neither support or decry their positions, and I am in no way affiliated with them), the US Treasury has already borrowed money from these sources:

Little Luxembourg, no bigger than Rhode Island, gave us $104.2 billion. Russia has us on the hook for another $120 billion. Brazil, nearly $140 billion. Secretive banks in the Caribbean, nearly $190 billion...

Those thugs that run Iran, Iraq, Libya, Nigeria, Indonesia, and Venezuela? So far — along with a half-dozen other oil-producing nations — they've got us dangling for another $191 billion in I.O.U.s.

Great Britain just loaned us $214 billion. D.C. borrowed $523 billion from bankrupt state governments. And, as if the bank bailouts weren't bad enough, we're in hock another $630 billion to Wall Street financial firms and other buyers.

Japan owns a $712 billion slice of America. China owns a staggering $776 billion call on our capital. And guess who tops the list? The Fed itself, which uses dollars they print to buy up $4.785 TRILLION of their own debt, just to keep the prosperity illusion alive.

All they're saying is that your pension plans may soon be obliterated by either a massive crash, debt explosion or spiraling inflation. The smart money is on the first two. Inflation is still a decade away. It simply cannot occur within the framework of a struggling economy with high unemployment (the government's own U6 reading is at 17%).

After Monday's wild ride upside, Tuesday was a real bummer, bringing Greece and most of Europe back into focus. Globablly, markets were hammered and the US was not spared by PPT intervention, late-breaking "good" news or any of the usual clandestine tricks. This one looks like the real deal. Unless Friday's April jobs report is a real hummer, stocks and the economy will continue down, probably slumping through the remainder of the second quarter, into the third.

Dow 10,926.77, -225.06 (2.02%)
NASDAQ 2,424.25, -74.49 (2.98%)
S&P 500 1,173.60, -28.66 (2.38%)
NYSE Composite 7,337.25, -205.87 (2.73%

The tone of today's decline was stark. declining issues overwhelmed advancers, 5611-1013. New highs eked out a small advantage over new lows, the smallest margin in many months, 169-98. That's a scary notion: that there may be more daily new lows than new highs some time soon. We had become so accustomed to seeing a huge gap there, but that particular metric, if it turns over, could be forecasting a major downturn. Volume was magnificent, close to the highest levels of the year, another ominous sign.

NYSE Volume 7,379,542,500.00
NASDAQ Volume 2,869,652,750.00

Oil was sent lower by speculators spooked by a weaker Euro, dropping $3.45, to $82.74. Gold trended lower for a second straight day, down $14.10, to $1,168.60, while silver took a spanking, losing $1.00, to $17.82.

This is not a pretty picture. despite $trillions of stimulus worldwide, massive bailouts and extraordinary measures by governments around the planet, nothing has been able to keep the global economy from continuing to contract. The recent upturn in GDP is mostly a chimera, short-lived and over-hyped. Nobody went bust except the bottom of the market: families, individuals and small businesses. All of the big firms were saved and are now operating as zombies. They have no real life of their own. All their numbers are crooked or cooked or both and the mood - not just in America, but globally - is dour.

We're at a critical turning point, and if there's no "sell in may and go away," a "June Swoon" is almost certain.

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