Realizing, that Economists have successfully predicted 10 of the last 2 recessions, the mistake so many people make is they rely on someone else’s analysis of the data instead of looking to the source materials and coming up with their own. All joking aside we are getting ready to start back down into the second half of a double-dip recession and nothing the government can do or say is going to stop it. Why? Because, there are still very serious structural problems with our economy right now and they all seem to be pointing in the same direction and that direction is back down, and down hard. Currently, we have little or no jobs growth, we have rising mortgage credit defaults, there is the commercial property crisis still to be worked out, and with Greece and other European examples fresh in our minds, any further spending would pretty much guarantee a great big economic contraction. It’s one thing to engage in deficit spending when you are investing in things like infrastructure which appear as assets on the public balance sheet but another thing completely when we throw stupid money in the form of direct payments to individuals ….we absolutely have to stop spending money to fund any more direct payments to individuals …. you know, like extending unemployment benefits, welfare, things like that, because for all of the billions of dollars invested the public gets absolutely nothing back… Except the debt.
As most of you know, I was against the pork laden stimulus package from the start, even so, if we had to do it anyway then why couldn’t we have used it to create jobs and produce something with tangible values? People! We have just finished wasting several trillion dollars that we used to pay bonuses to bankers, wages to bureaucrats, and the mortgages and credit cards of irresponsible consumers. As we head into the next leg of this recession, the ECRI says that half of the long-term unemployed people still without work as the next free fall begins, will stay that way through the entire next leg, that means we need to get people back to work quickly so we don’t drag half of long-term unemployed America into the next downcycle because it is going to be a long one. Either way you look at it we are in for serious troubles AND we are still on the hook for all of the trillions Obama has spent and so far all we have gotten back is more government and bigger government which makes matters worse.
Why is a double-dip all but certain? Because there is absolutely nothing positive going on right now, and spending by consumers has no dynamic to sustain it. Think about it: Old people have lost their interest income, one out of four mortgages are upside down, credit card rates are skyhigh unless you are a super beacon, easy mortgage lending is gone for the foreseeable future, and all of the homeowners whose homes were lost to foreclosure will not be able to reenter the market any time soon. Lenders of all colors are stuck with trillions of dollars of worthless home equity loans which the government can’t fix if it wanted to. We’re not just in a recession, we’re in a negative economic mega cycle and with nothing to support the start of significant growth of any kind, the other foot is ready to fall. Thank goodness Obama managed to jam through those huge healthcare taxes (I mean reform) just in case small business owners are able to find a way to keep their doors open somehow. And to add to the drama, so far I haven’t heard anybody discussing the upcoming layoffs from the public sector, a reality check, which is just 30 days out when the states and counties and cities all start their next fiscal year on June 30th!
For those who still remember their calculus, I expect the yield curve to invert because the first derivatives have been in a free fall for all of 2010, this has created more than one inflection point as the second derivative takes us from concave up, to concave down. Conclusion: I would not be invested in equities in this market under any circumstances and I would have all of my own money in cash and cash equivalents and commondities like ….. Gold!!!