Sunday, April 17, 2011

Outlook: 2011 Q2 update

Everyone but everyone is now on board with the economic recovery.  Well, I should not say everyone, as I am not.  But I am disagreeing with the Federal Reserve, US government, economists, and a whole slew of others.  On my side... the US taxpayer.  Yeap, the poor person that has to get up, put gas in the tank at $3.79/gallon, go to work and pay taxes and the heating bill, and then get groceries on the way home.  Well let us see what the charts say.

Unemployment, the headline number continues to fall, but as my new graph shows, the actual unemployment is also improving, but look at the size of the improvement.  Not all that much.  This is definitely a jobless recovery, and I am not sure how you can use the word "recovery" given this type of data.

Inflation climbed this quarter, but only a percentage point and a half, and given the volatility of the number, I am not reading much into it.  Most of it can be attributed to rising oil prices.  QE2 which is the latest "easing" by the federal reserve is ending in June, and unless there is a QE3, we should see the true picture, and even with QE3, the picture will just take more time to emerge.

So far so good on the stock market, but a turn is now way overdue, or at least in my estimation.  I am afraid of another 200 points up are left, but I am still feeling good so far (all of 3 months into this).  The amazing thing (and this assumes we turn soon) will be all of the money pumped into the monetary system, and we are still 1600 points beneath the all time high on the Dow. 

And for gold, it is just unreal.  Parabolic rise at this point is the only way to describe it.  Given the inflation numbers, there is just no justification for this at all.  When it crashes, and it will, it will be spectacular.  The only question is when now, and guessing the top with no skin in the game is the safest method, as it could continue like oil did a few years ago. 

I still feel good about the debt issue, come this fall the debt should slow in its rise, but don't look for a miracle.  Big election will be 12 months away at that point, and so all parties will be courting voters, and there are lots of them that want/need handouts.  Only thing that will stop this is bond traders, and that will not happen any time soon. 
Right on time, on Nov 16 I wrote that Portugal would be asking for a bailout in 3-6 months,and now 5 months in they have finally caved in, and are asking for a bailout.  So now the focus turns to Spain.  But before we dive into that, note that every country that made it to the 400pt spread from the German bond rate has then failed, and that seems to be the magic number.  Spain is 200pts below that, and that is comfortable for now.  The wrench in the system however is that the ECB has started to RAISE interest rates.  Those that are close to default cannot afford higher interest rates.  Almost seems like suicide.  I will however modify my projection for Spain failing, as I have to keep in mind they cannot ask for a bailout.  So from here, 9-12 months.  It will be very interesting to follow this. It now appears that Greece WILL default, and I think that happens in 2012.  This will be very bad, as it is the other countries within the EU that are holding the debt, so if they are keeping their heads above water, and Greece comes back and says they cannot pay, what are the odds they will help anyone else?  Very slim.  This is not at all a good thing, and it seems to be marching to a very predictable beat. 

The interesting thing with this is that revolving credit continues to drop (credit cards), but non-revolving (auto loans etc, but not home loans) is back on the increase.  It is very very interesting, my read is that people only now believe that things are getting better (since Jan).  The nay sayers would say that now is the time for things to fall apart.  Either way, deflation is still occurring.

Now I am starting to wonder about my call on this, and I may have been too optimistic.  I project about a 8-9% decline this year, and well things are off to a rocky start.  There is no support for prices any longer, and I cannot see a white knight anywhere on the horizon.  Time will tell, but things are not looking good for the housing market.Mortgage rates are up, loans are down, and buyers are staying in their apartments. 

We are still on track for this year.  Things are holding together, but the foundation definitely has gaping holes, and water is starting to makes its way into the holes.  3 more months of ok should be in store, but once again, and as I said at the beginning of the year, the 2nd half of this year could be pretty rough.  Europe is the #1 problem right now, but the US congress is also gearing up to start imposing austerity measures and this will certainly slow the US economy and send it into depression.  But look for the bond market to really dictate the measures, as one blogger reported, you could take all of the cuts proposed by the President, and Rep Ryan, combine them and still not balance the budget (not even close).  We need to cut $1 Trillion from the budget, each year!  I love the news reports, this plan or that plan will cut $4 Trillion over 20 years.  Do the math and it is nowhere close to what is needed. 

One issue I have noticed is that since these posts come so infrequently, not everyone reads them in a timely manner.  I have looked for a widget to build a email list, but ads and silly stuff come with it, sooo... if you wish, email me and I will build an email list that will be pinged when I post.  Best I can do for now.  Email is patrick14384 (at) (sorry the cryptic, but lots of robots rummaging around the web). 


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