Outlook: 2010 Q2 update

I can think of only one thing at this stage to describe the general state of affairs, BORING.  But in fact it really is not boring.  Just the slow and methodical deterioration of just about everything.  Everything except for equity and commodity prices which continue to rise, even to the disbelief of some economists now.  We all knew the bounce was coming, and that it would be big, but I just did not think it could be this big.  The scene on the PIIGS is getting worse, as Greece is sinking deeper into the abyss, yes they will probably be bailed out, but like all sinking ships, the pumps do not run forever for free.  I plan to post on this soon.

But first, and I doubt I really need to say this, but just to cover my tracks, this is not an improving economy.  Brings me back to the housing calls when sales turned up based on government spending and everyone called for the end, never mentioning prices which continued to fall.  Today with ridiculous amounts of government aid house prices have held steady!  And that aid is coming to an end.  Anyway, here we go.


Unemployment. This has been flat now since the beginning of the year, and just a tad bit below my line.  My previous post gives you plenty of details inside the numbers, so I recommend looking at that, as this headline number, although bad, does not tell the entire story.  There is no fixing this number, and as state and cities realize they do not have enough money.  The biggest employer of late, the government, is going to close the hiring window.  If you are not following the fight in New Jersey, please watch the video at the end of this post.  This is a pause, not a turn, the turn up will likely take 3+ months longer than I show, but it is coming.  Having a job through this depression will be a very good thing!

Inflation continues to not be a real big factor, which should disturb you given all of the money being created.  But, you need to also account for the money being destroyed... which you will see in the consumer credit numbers further down.  So, gold prices of $3000/oz seem a little unrealistic given this chart.  Really, none of the talking heads makes any sense, interest rates have been at zero for 16 months and where is the inflation?  Although "deflation" is no longer laughed off of the airwaves as a ridiculous doomsday scenario.

The stock market continues upward, and now not only am I surprised, but so are a lot of folks that follow the market.  So far we have retraced 60.8% of the drop from the top.  For those that follow Fibonacci ratios, retraces are usually between 38.2% and 61.8%.  Even I have to admit I am surprised, but it will likely head up another 600pts from today to get nearly perfect.  Do not get lulled into this rally.  Nothing about this is healthy or normal.  The turn down starts before I publish the Q3 update. I will put money on that.

Golds charge up has paused... finally.  The funny thing with this is that it is completely de-coupled from the US Dollar.  I really do not have a lot to say on this one.  It is a tremendous rise up from 2001, and it should start falling with the market as money gets destroyed.

National debt remains on track, I am only off by $100 billion which ain't so bad.  Sadly, we really want this number to keep climbing.  Once it turns down, we will be in real big trouble. We have picked our direction, and although it kept the good times rolling for a couple more years, it is now too late to turn back. 

And consumer credit continues to head south.  This is just not good, not good at all.  To re-iterate, this is probably more accurately depicting the destruction of money.  Folks went out and got lots of credit for toys, and now are working to pay off their debts.  No new toys are being purchased, which means no new toys need to be manufactured.

And here is your housing market.  Sales dropped off after version 1 of the tax credit (which estimates put the cost of between $10-20 billion).  I suspect the last of the spike to happen in April, as this is the last tease to sucker everyone into the old adage that you should buy a house, as it is an investment. 

And here are the prices, $20 billion apparently cannot turn the real estate market around.  Prices continue to be the most important factor, and they continue down.  Conservative (optimistic) estimates call for a drop in prices of at least another 10%, obviously I think that figure is not real. 

Quick footnote, the FDIC is very busy, so far only 50 banks have been closed this year.  This is just shy of the 29 banks closed to this point in 2009 (for 2010 we still have 2 more Fridays which is when the FDIC typically pulls the trigger). 


And now for the New Jersey budget fight.  It is about 13minutes long.  This is by far I think the most vocal of the governors fighting legislators, except for maybe the fight in California.  He is fighting the 500lb guerrilla of the government, the teachers union.  They have been untouchable until now, as who is opposed to providing money to teach the children?  But, every stat you look at shows we spend more money and get very poor results from the public school system.  Expect to see more of this...