Tuesday, May 12, 2009

Sir Alan Opines Anew While America Grows an Underclass

It was reported today that Alan Greenspan espies an approaching bottom in housing, and that pronouncement allegedly spurred a turnaround in the Dow averages. EBR would simply comment that Mr. Greenspan is a hired hand for PIMCO; his pronouncements tie into PIMCO's strategy and are therefore worth no more than Bill Gross's or Mr. El-Erian's comments.

Of course housing construction cannot go much lower. In real terms, though, house prices can go much lower, as they are still well above historical averages relative to incomes and household net worth.

An interesting chart was posted at Zack's today:
Concomitant with the new economy of the 1980s and 1990s, more and more of the unemployed were long-term unemployed. This would not be and was not a "big deal" when unemployment was low. Now that U-3, the headline measure of unemployment, is around 9% and U-6, the broadest measurement of underemployment is around 16%, this ratio is a bad sign. Though hard to discern from the chart, this is the lowest ratio since the chart begins in 1948. It therefore indicates that the greatest percentage of the unemployed in essentially the post-War era consists of long-term unemployed rather than short-term unemployed.
300,000 census jobs won't do the trick of putting long-term unemployed workers back to work. Neither will fixing potholes and accelerating other "shovel-ready" heavy construction jobs. And neither will government-subsidized automobile sales, which are really just more loans.
Unless salaries of those with jobs go on a drastic uptick, what will stimulate the real economy is lower prices. The Fed, however, is on its usual inflationary jihad. Thus gold continues to outperform the NASDAQ. In turn, the NASDAQ, which consists for the most part of unleveraged companies, is up a bit on the year, where the S&P 500 is down a bit on the year and the Dow 30 is down over 5% already on the year, even accounting for dividends.
In keeping with what still may be negative surprises for those who believe that China will lead the world out of its depression, Bloomberg.com is out with a headline tonight that is downbeat, as all of the most informed news I have seen of China has been lately: China’s April Industrial Output Grows Less-Than-Forecast 7.3%.
Personally I doubt that 7.3% number, as regular readers of this blog know.
No doubt, some growth in output is coming. Governments and central banks are too powerful not to get some growth. But it seems to this observer that there has been far too much trickery, and far too much hiding the extent of this economic downturn (a la not publicizing wholesale sales down an astounding 20% or so year on year) from the public, for the stock market to have fully discounted how bad things have gotten. We should also recall that in the economic and stock market recovery in 1932-37, stock prices tracked the increase in dividend payments. No matter what happens to GDP, GNP etc. over the next few quarters, dividends on common stocks almost certainly will not rise in keeping with reported earnings.
Skepticism of news out the government and its enablers has been a profitable strategy the past 2 years. One always wants to open to a new theme, but right now one is not clearly visible. Dry powder is helpful in many such circumstances.
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