Wednesday, March 25, 2009

Complacency Already?

What a difference 20% makes!

EBR's proprietary video review is flashing its first contrary warning signal in some time.

Here are summaries of the headlines of each of the six different featured videos as of now:

1.  Geithner says the USD remains the reserve currency (Whew!);
2.  Corcoran's Liebman bullish on housing;
3.  Someone named Pinalto predicts recession will end this year (this passes for bullish nowadays);
4.  Bob Doll of Blackrock says stocks are in a bottoming process (he alone is a marvelous contrary indicator);
5.  Someone with the wonderful name of Brynjolfsson likes the Fed's move to purchase Treasuries (forty years ago I would have wanted some of whatever he's smoking!);
and perhaps best of all, the  inscrutable:
6.  "Grose Says Globalfoundries Meets Licensing Requirements".

So we have 5 of what passes for bullish comments given that the MSM now accepts that the economy is actually in a banana, and one "huh?" video caption.  That's problematic.

In addition, there may be some confusing language coming out of various commentators.  CR of Calculated Risk stated today:

. . . And that means the recession is moving to the lagging areas of the economy.

It is not clear what CR means by that, but whether or not the stock market has bottomed, it is highly unlikely that the economy has bottomed.  In other words, the economic indicators that predict the course of the economy months out are predicting that conditions will get much worse.

For example, the Economic Cycle Research Institute's coincident indicators are only down 5% year on year.  However, ECRI's indicators that look forward many months are down 24% year on year, and one year ago they were already down 10% year on year.  This about 34% decline in total of their leading indicators is by far a record for this organization that began operations in the late 1940s.  What it says is that there is likely much worse to this economic banana coming than has ever occurred since the Great Depression, and we have already witnessed the implosion of the U. S. housing and auto industries, plus of course the bankruptcy and bailouts of essentially all of the leading financial companies in the country.

Sheila Bair added to the optimism as quoted yesterday:

FDIC’s Bair Says Signs of Credit ‘Thawing,’ Banks Making Money 

By Steve Geimann

March 24 (Bloomberg) -- Federal Deposit Insurance Corp. Chairman Shiela Bair said steps to help the financial industry are working, and some banks are starting to make money.

“We are seeing some signs of thawing,” Bair said in an interview on Bloomberg Television. “Many banks are making money.

‘‘I’m starting to get more optimism,’’ Bair said. 

When Ms. Bair has to come on Bloomberg to tell you of her mood (optimistic), you must pretend that you have ice water in your veins and resist this blandishment with all your strength.  Her own agency, the FDIC, is facing bankruptcy (the Gov't will bail them out). Whether or not she is lying through her teeth about her mood is irrelevant.  Sheila Bair is worried about much more than the level of the stock market or the price of gold.  She simply wants the banking system to survive in a way that it did not in 1930-33, when one of every three banks went bust.  Whether the Dow hits 4000 in the meantime is irrelevant to her.

Copyright (C) Long Lake LLC 2009


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