Posted tagged ‘recession’

April Economic Picture

May 4, 2009

Corporate Earnings

First quarter corporate earnings statements were released throughout April. Here are the ones I caught as they were announced:

Losses

3M 1st-quarter profit slips 48%
Altria Group 1Q profit drops, but beats view
AMD posts deeper loss, shares fall
AmEx 1Q profit drops 63 percent
AT&T earnings fall
Boeing posts 50 pct decline in 1Q profit
CAT reports first loss since ’92, cuts forecast
Charles Schwab 1Q earnings fall 29 percent
Chevron 1Q profit falls 64 pct
Coca-Cola 1st-quarter profit falls
ConocoPhillips says profit down 80 percent
Delta posts $794 million 1Q loss
Dow Chemical 1Q profit drops 97 percent
DuPont 1Q profit falls, cuts outlook
EBay 1st-qtr profit, sales fall on weak economy
Exxon profit sinks on slumping oil demand
Gannett 1Q profit tumbles as ad declines deepen
GE Q1 earns fall 36 pct, hurt by finance
Kodak posts wider 1Q loss, suspends dividend
MasterCard 1Q profit falls 18 pct
Mattel posts wider loss in 1st quarter
Merck sees 57 percent drop in first-quarter profit
Morgan Stanley loses $578M in 1st quarter
New York Times posts quarterly loss
Nokia profit plunges 90 percent in Q1
Pfizer profit dips 2 percent, sales fall much more
Procter & Gamble profit falls as consumers cut back
Shell 1Q profit down 62 percent
Sony Ericsson posts loss, to cut 2,000 jobs
Southwest Airlines posts 1Q loss
Time-Warner post 1Q loss
Toshiba expects bigger loss, contract job cuts
UPS 1Q profit plunges more than 55 pct
US Bancorp’s 1Q profit falls, but beats estimates
Whirlpool 1Q profit drops on weakening demand
Yahoo Posts 78% Profit Drop, Cuts Jobs

Gains

Amazon 1Q profit, revenue jump on strong sales
Bank Of America Posts $4.2 Billion Profit
Citi Posts A Profit
Goldman $1.66B 1Q earns beat Wall Street estimates

Google Solid Q1
Humana 1Q profit more than doubles
Microsoft Earnings Weak, But No Disaster
Netflix post solid Q1 sales
Pre-Easter bounce helps lift Hershey 1Q profit
Verizon 1st-qtr profit, revenue beat expectations
Wells Fargo Announces Strong Earnings

Don’t get too excited about those bank profits, though. Bank earnings are actually very weak so far. It’s all just accounting magic, mostly due to the FASB suspension of the mark-to-market rule. Wells Fargo made billions on the mark-to-market change. Goldman’s big numbers are also mostly meaningless.

But don’t take it from me. Here’s former bank regulator and current University of Missouri – Kansas City economics professor William Black:

Banking

Since William Black talked about the stress tests in the above video, let’s start with that topic.

As posted previously, the stress tests are asinine for a number of reasons, not the least being that they are designed by the same geniuses who did not see the housing bubble burst coming. Meaningless as they are, however, they did generate a lot of news in April.

Early in the month we were told that all 19 of the nation’s largest banks passed the stress test. But we couldn’t be certain of that because the Fed ordered all the banks to keep silent about their results.

By the end of April there was a leak. The whisper was that Citi and Bank of America actually failed the stress test and both were being told to raise more capital.

The next day, word was that six banks failed the stress test and now need to raise funds. And now, as of today, Bloomberg is reporting that 14 of the 19 stress tested banks are in trouble.

But there’s nothing to worry about – if you’re a bankster, that is.

The Fed says the 19 companies that hold one-half of the loans in the U.S. banking system won’t be allowed to fail — even if they fared poorly on the stress tests.

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004-0123231011-money_burningA source at Treasury said no banks will close based on stress test results. None, even though Citi needs $10 billion more bailout dollars and Bank of America needs $70 billion more.

After several delays, stress test results will be released Thursday, May 7.

 

Failed Banks

Eight banks were added to the FDIC failed bank list in April, bringing the current total for this year to 29 and surpassing the total of 25 for all of 2008. Also in 2008, only 2 banks had failed by April. This means that bank failures are up more than 1000% this year.

sheilabair-sad_tbi-0_74x0_74With so many banks already seized by the FDIC this year, some are wondering, who’s going to bail out the FDIC?

 

Credit Card Crisis

It was only a matter of time before credit card defaults and other concerns bubbled up to the top of the news.

The Greatest Credit Card Debt Plunge Ever

Consumer credit plunged far faster than expected in February, with Americans taking on far less credit card debt.  Credit card debt fell at an annual rate of $7.8 billion, or 9.7 percent. That is the sharpest drop in dollar terms ever (although the records only go back to 1968.) It’s the  steepest percentage fall since 1978.

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Capital One says their current credit card default rate is 8.4% and it is expected to “surge past 10%”.

It should be no surprise that millions of unemployed people are finding it difficult to make their credit card payments. That’s just common sense. And yet, Citibank said higher unemployment won’t lead to credit card losses.

TARP

What was the idea behind the TARP program again? To help banks get back to lending money? So much for that plan. The banks are now lending even less than when the TARP was first launched.

The entire TARP program is becoming very unpopular with the very banks it was supposedly designed to help. Some banks that took (or were forced to take) TARP funds want to pay it back in order to get out from under the government’s thumb. Although Treasury Secretary Geithner doesn’t want the banks to repay TARP, he may not have any legal means to refuse them.

You can’t blame the banks that are healthy enough on their own for wanting to be left alone. Citi has had to go to Treasury to ask permission to pay retention bonuses. The discussion is ongoing.

It’s all about control.

Treasury

geithner3Treasury reported in April that it still has about $110 billion of the original $700 billion bailout fund. Expect that to be used up by the banks that need more capital based on their stress test results.

If the TARP bailout money is almost gone, why is Geithner refusing to let banks pay back the TARP funds they got? Weren’t the taxpayers supposed to be repaid as soon as the banks could manage it?

PPIP

The long-awaited Geithner plan for dealing with legacy securities toxic assets is doing, well, nothing really. Potential investors have shied away, with good reasons. So the deadline for investment applications was extended and the requirements for applicants were loosened.

As of April 29, 2009, Treasury is proud to announce over 100 applications to participate have been received. Wow.

Expanding TARP?

Early in April, Treasury announced it may expand TARP to bail out life insurance companies. It’s a plan scam that helps only bondholders, period.

Fraud?

Say it ain’t so! Neil Barofsky, special inspector general for the TARP, has already launched twenty investigations into possible securities fraud, tax violations, insider trading and other crimes related to the bailout funds.

In the 250-page report Barofsky submitted to Congress he also expressed serious concerns about Treasury’s latest bailout propgram, the PPIP. As Reuter’s blogger Felix Salmon observed, “not only is Barofsky worried about PPIP participants gaming the system, he’s also worried that the whole thing could easily become a front for money launderers”.

Federal Government

000-0404012252Q1 GDP -6.1%.

Budget

Congress passed the $3.5 trillion budget proposed by President Obama, “a level of spending over 10% more than the final year of the Bush administration… [with] almost all of Obama’s wish lists intact.”

President Obama has also asked Congress for a supplemental spending package of $83.4 billion for the wars in Iraq and Afghanistan.

With the largest budget in history passed and two ongoing wars to fund, we learned that the federal budget deficit grew to a record $956.8 billion while federal tax receipts are off 28%.

Revenue

The federal government ran out of cash on Sunday, April 26th, making this the earliest “debt day” ever. With no cash on hand and tax revenue shrinking at an alarming rate, federal borrowing quadrupled.

But the President wants you to know he’s serious about cutting the deficit and spending responsibly. That’s why he ordered his Cabinet to cut $100 million from their combined budgets in the next 90 days. Translated into numbers more like the ones you and I deal with on a daily basis, that’s like cutting “a latte or two out of your annual budget“.

As my dear granny would have said, “oh boy, could you spare it?”

Bailouts

The Congressional Budget Office raised its estimate of what the bailouts will cost taxpayers. As of April 4, the new estimate is $356 billion ($167 billion more than earlier estimates).

Surprise

“And the banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place.” – Sen. Dick Durbin of Illinois

Retail and Commercial Real Estate

3ff5d97338b1d48cMarch retail sales overall fell 1.8 percent. Excluding Wal-Mart, sales fell 5 percent. And Wal-Mart itself saw less of an increase than expected at 1.4 percent in March.

“Strip malls, neighborhood centers and regional malls are losing stores at the fastest pace in at least a decade” and “ghost malls are scaring suburbs“. Commercial real estate defaults quintupled.

The second largest US mall owner, General Growth, declared bankruptcy in April.

On a somwhat related note, office vacancies rose to 12.5 percent in Q1 – the highest they’ve been in three years.

US Auto Industry

Auto sales fell to near 30-year lows in April.

Chrysler

Chrysler

Chrysler made the President happy when it filed for Chapter 11 bankruptcy at the end of April. This means Chrysler will get another $8 billion of taxpayer money to help them “restructure”.

But not everyone is happy with the bankruptcy terms Chrysler proposed.  A group of non-TARP senior hedge fund creditors are fighting to get their clients the settlement they are legally due in a bankruptcy situation. These creditors did not make the President happy.

gm_03181GM

GM will cut 1600 more jobs, force more than 1000 dealerships to close and shut down its plants for most of the summer in order to qualify for more government aid. And indeed, GM received another $2 billion from the Treasury to keep it going another month or so.

GM’s CFO announced that the company will not be making its June 1st debt payment of $1 billion. Instead, they will have “an open debt-for-equity exchange offer for bondholders on June 1”.

Bankruptcy is still a possibility for GM. Preparations are being made for this contingency, with a taxpayer cost $70 billion.

Yet another possibility for GM is a proprosal it made to Treasury that would give the UAW 39% of the company, the federal government 51% and bondholders 10%. Treasury is still mulling the idea over but my bet is that this is how it will go down. A deal that gives the government and a major labor union ownership of the company will be much to enticing for Geithner and Obama to pass up.

fordFord

Meanwhile, Ford is quietly making due without government money, capturing 16 percent of a severly limited car market in March, thanks primarily to its hybrid vehicle, Fusion.

So while Ford is still losing money as most automakers are in this economy, Ford’s stock shares were up in April.

I’m keeping my fingers crossed for Ford. If they can survive this crisis without taking any taxpayer money they will be heroes in my book.

Housing and Personal Finance

Housing

house_ablazeForeclosures were up 24% in Q1. More than 10% of recent FHA loans are delinquent. Even prime mortgage losses are exceeding expectations, at least for JP Morgan.

Housing prices continue to decline according to the Case Shiller Home Price Release for March 2009. Take a look at Mish’s excellent analysis here.

The government’s mortgage modification program seems to be doing little or nothing which should be no surprise to anyone who looked at the details of that program.

Personal Finances

Consumer Prices Suffer First Annual Decline Since 1955, yet consumer spending still fell for the first time in three months, down 0.2%. Americans are re-learning thrift, it seems.

Bankruptcies are still rising, both business and individual. 130, 831 bankruptcy cases were filed in March 2009 – an increase of 46% over March 2008 and an 81% increase over March 2007.

And somehow, in spite of all the bad news surrounding them, consumer confidence rose in April to its highest level since last November. Huh?? My guess is that the average consumer has been watching the Dow and taking it as an indication of the economy’s general health. That and Bernanke’s “green shoots” along with Barack Obama’s “glimmers of hope”.

Having watched the stock market and other economic news much more closely over the past six months than ever before in my life, I can tell you that gauging the nation’s economic health by the stock market is stupid. Wall Street is completely disconnected from reality.

Unemployment

souplineUnemployment rose again in all US metro areas in March. Continued claims remain at an all-time record, 6.27 million.

The government’s official unemployment rate is now at 8.5% but in reality it is now 15.6%.

Unemployment figures combined with housing reports points to an extended period of recession still ahead of us.

Last Words

Trying to figure out what’s happening in the economy and what is ahead is a difficult proposition, perhaps even impossible. A New York Times reporter went to a number of conferences and talks and wrote about the conflicting information he heard – all based on the same data.

Nobel prize winning economist Joseph Stiglitz has blunt criticism of the Obama administration’s economic programs so far. Read the eye-opening Bloomberg interview here.

And finally, just to keep things real, have a look at “The Top 10 Signs You are Living in a Banana Republic“.

March Economic Picture

April 4, 2009

Let’s start with the good (?) news.

Stock Market

The stock market rallied at the end of March. The Dow had its worst January ever and worst February since the Depression, then, in March, turned in its best month in six years.

On March 23, 2009, Joe Weisenthal at Clusterstock wrote:

On the day when Geithner first announced the non-details of his bank plan, the stock market began a hard tumble.

Today, as the government confirms that taxpayer money will be used to replenish bank coffers and help hedge funds make huge profits, stocks are soaring.

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Naturally, some “experts” like Doug Kass and Jim Cramer were quick to call the bottom.  But let’s see where we really are.

four-bears-large1

Judging by dshort.com‘s “Four Bad Bears” chart, it looks like the bottom callers are being a bit hasty. They just may end up on a modern version of the “1927 – 1933 Chart of Pompous Prognosticators“, especially considering that Nouriel Roubini is still predicting an L-shaped recovery.

Banking

The Office of the Comptroller of the Currency reported in March that banks lost $9.2 billion in derivatives trading losses in the 4th quarter.

Citigroup saw its shares drop below $1.00 and hover there for much of March.

Five banks were added to the FDIC ‘s failed bank list.

But good news (for banksters anyway) came from the Financial Accounting Standards Board when it relaxed the “mark to market” rule for bank assets on April 2. With banks no longer required to value assets based on reality, April at least will probably be a good month for banks.

Retail

retailyoyfeb2009

February Retail Sales Chart from Calculated Risk

Retailers reported continued sales declines in February, though not quite as steep as those seen in January.

Call me a doom-and-gloomer, but I suspect most sales increases seen in February and perhaps March (we should see those numbers soon) are due primarily to people getting – and spending – tax refunds. Let’s wait and see what the reports look like later this spring before we get too optimistic.

Wal-Mart, on the other hand, showed February growth of approximately 5% (about twice what was expected). Wal-Mart is doing so well, that on March 19, it announced $2 billion in bonuses to be given to hourly employees:

Wal-Mart Stores Inc is awarding approximately $2 billion to its U.S. hourly employees through financial incentives, including handing out $933.6 million in bonuses on Thursday, after the world’s largest retailer gained market share amid a recession.

In a memo distributed to Wal-Mart employees and obtained by Reuters, Wal-Mart CEO Mike Duke said the retailer is awarding roughly $2 billion to U.S. hourly employees, which includes $933.6 million in bonuses, $788.8 million in profit sharing and 401(k) contributions, millions of dollars in merchandise discounts, and contributions to its employee stock purchase plan.

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And now the not so good news.

Unemployment

Unemployment Claims Chart from Calculated Risk

Unemployment Claims Chart from Calculated Risk

697,000 jobs were cut in February and 742,000 were cut in March. The total number of people claiming unemployment benefits is currently about 5.56 million – the highest number since May 1983.

Broader measures showed the February unemployment rate at 14.8%, or 1 out of 7 Americans unemployed. This figure includes the “discouraged” job seekers and those working part-time jobs who want full-time work.

Unemployment rates rose in all US metro areas in February, with 7 states reporting rates at or above 10%.

Recent photo taken in San Diego. Click for source.

Recent photo taken in San Diego. Click for source.

I keep hearing that unemployment is a “lagging indicator” of the overall economy. Maybe I didn’t get enough government sponsored education, but it seems to me that a real recovery can’t happen until people are working again, earning money they can then spend. When the unemployment rate starts dropping instead of increasing by such huge amounts every month, that is when I’ll start to believe the recovery has begun.

Housing and Personal Finance

With so many unemployed, you know there is nothing good happening in housing and personal finance.

Case Shiller House Prices for January Chart from Calculated Risk

Case Shiller House Prices for January Chart from Calculated Risk

Home prices are still falling.  “The national peak-to-trough decline is now 27%, and it will likely exceed 40% before we hit bottom.  If there’s any good news here, it’s that the rate of decline appears to be stabilizing.

While this is certainly bad news for individual homeowners, it’s actually good news for the economy in general. It is evidence that in spite of all the doomed efforts being made by the government and the Fed to reinflate the bubble, the market is doing its job and the necessary correction is proceeding quite well.

The January drop in home prices is record setting, however, and it does contribute to severe financial problems for individuals. A study released early in March showed one in five US mortgages to be underwater.

Another report said 12% of all mortgages (one in nine) are now delinquent or in some stage of foreclosure. In fact, the rate of foreclosures in February rose 30% over the previous year.

On March 31, an FHA spokesman said FHA loans were “seriously delinquent” at the end of February.

Not surprisingly, foreclosures are especially rising in California.

February New Home Sales Chart from Calculated Risk

February New Home Sales Chart from Calculated Risk

The February new home sales report showed a 4.7% increase, leading many to believe the bottom was in for housing. Not likely, though, since even with the increase the numbers are the lowest sales for February since the Census Bureau started tracking sales in 1963.

Existing home sales also increased slightly in February, though nearly half of those sales were buyers taking advantage of extreme savings on forclosed properties. Many of these buyers, apparently, are foreign investors.

According to a Labor Department report, consumer prices rose 0.4% in February.

The Administrative Office of the US Courts reported bankruptcy filing were up 31% in 2008.

Early in March it was reported that food stamp enrollment had climbed to a record 31.8 million people.

All of which leads to the unsurprising news that consumer confidence is still at nearly record lows and personal savings increased to 5%.

US Auto Industry

The US Auto Industry was all over the headlines again in late March, beginning with a $5 billion bailout for auto suppliers and reports of steep drops in auto sales – 37% in March.

But the biggest headlines appeared when the Obama administration, operating in a weird double standard, forced GM CEO Rick Wagoner to step down – a move that sent GM stocks freefalling to a 74-year low.

GM’s new CEO, Fritz Henderson (former head of GMAC mortgage finance), is apparently more open to the possibility of bankruptcy than Wagoner was.

The Obama administration now plans to take a key role in “reshaping” GM’s board of directors, though Obama also said he has “no intention” of running GM. Good thing, too, since the administration’s  “plan” for the auto industry is pretty lightweight.

A great many comments posted to online articles about the big news at GM boiled down to “if they’re taking government money, the government can do whatever it wants”. Right or wrong, such thinking only highlights the moral hazard of government bailouts of private industry in the first place.

Shortly after the government’s de facto takeover of GM, Ford announced that it would cover car payments for buyers who lose their jobs. GM quickly followed with a similar program.

The Obama administration also announced that the government will guarantee all GM car warrantees (but remember, they’re not running the company). Auto shops run by the DMV maybe? Sounds great!

One last related bit of auto news caught my attention in March. It seems that an increasing number of desperate people, unable to continue making their auto loan payments, are instead setting their vehicles on fire to collect the insurance money.

Federal Government Spending

Early in March, President Obama signed the pork-laden $410 billion government spending bill.

The US Deficit in Global Perspective

The US Deficit in Global Perspective

Also early in March, the national debt hit a record $11 trillion, or about $36,000 for every man, woman and child in America. In the fastest increase of debt in American history, in Barack Obama’s first 50 days as president the Congress voted to spend $1.2 trillion, or “$1 billion an hour”, according to Senator Mitch McConnell.

 

 

In an exclusive interview with the NY Times, Mr. Obama floated the idea of another $750 billion to be given to banks, even though the amount already spent on “financial rescue” is nearly equal to GDP – in other words, the same amount as the value of everything the US produced last year.

All of this was enough to make China worry that the US might not be able to repay its debts. Of course, our dear leader reassured the Chinese that we’re still good for it (even if it means we have to inflate our currency to the moon and back).

Big news was also made in March by AIG and its $218 million executive bonus payments. Taxpayers were outraged (sort of) and Congress moved quickly to pass a 90% tax on “TARP bonuses”.

Signing a retroactive tax would have been a political disaster for the Obama administration, plagued with questions of the “who knew what and when did they know it” variety. Luckily for Obama, New York Attorney General Andrew Cuomo managed to get the AIG executives to return the money before the 90% tax bill landed on his desk. Instead, the administration will look to limit pay at all businesses receiving government money.

If government is going to dictate employee pay, they need to start with Fannie Mae and Freddie Mac. Freddie asked for another $30.8 billion after losing over $50 billion in 2008. Freddie’s $24 billion Q4 loss breaks down to $3000 per second lost yet Fannie and Freddie plan to pay more than $210 million in employee retention bonuses over the coming year.

And we want to retain these employees, why?

The “Newspaper Revitalization Act” was introduced in the Senate during the last week of March. The mainstream media bailout would rewrite tax law to allow newspapers to operate as tax-exempt nonprofit organizations, just as long as they don’t make official endorsements of political candidates. Critics say such a bailout would lead to government control of the news.

That would be different, how?

Also, the US Postal Service is going broke (again).

President Obama’s proposed budget was the main topic of a prime-time news conference in March. Fact checking afterwards showed the enormity of this president’s doublespeak capabilities.

Senator Judd Gregg, who turned down the nomination for Commerce Secretary, said “we’ll go bankrupt under Obama’s budget“. Sounds about right.

Obama Deficit in Pictures

Obama Deficit in Pictures

 

The Federal Reserve

With demand for US Treasurys declining, the Fed launched a “bold” plan to dump another $1 trillion into the US economy.

The Financial Times Alphaville blog posted some early reactions including one from Yves Smith of Naked Capitalism calling the Fed’s move “shock and awe” and comparing it to when that phrase was used at the start of the Iraq war.

Following the Fed’s “shock and awe” announcement, Treasurys continued to decline and the dollar fell dramatically against other currencies. It seems that more than a few analysts are certain the Fed’s plan has killed the dollar.

China and Russia are also skeptical, it seems. They are calling ever more loudly for a new reserve currency.

US Treasury

Tim “Tax Cheat” – “Markets won’t solve the crisis” Geithner (finally) announced his plan to resolve make taxpayers pay for banks’ toxic assets.

For a very limited amount of risk, private investors will “partner” with taxpayers to pay over-market-value for banks’ toxic assets, thus re-creating solvency for the banks. If it later turns out the assets really weren’t worth much, the private investors loses only their small (7%) investment in the deal. The taxpayers will be left holding the bag for the rest.

Even if the private investors make money on any of the deals, the taxpayers are still likely to get fleeced.

Here’s a more detailed explanation: Message from Cumberland Advisors.

Even though the Treasury said they don’t know if this plan will work, the stock market was overjoyed with it, closing up nearly 4% and kicking off the recent rally.

Geithner’s plan has been widely criticized by some heavy economic hitters including James Galbraith, Nassim  Taleb, and Nobel laureates Paul Krugman and Joseph Stiglitz.

And isn’t this plan really just a slightly modified version of the original Paulson-Bernanke plan from September – the one Paulson ended up scrapping, saying it couldn’t possibly work? Yes, actually, that’s just what it is.

Oh, by the way, the NewSpeak term for toxic assets is now “legacy assets“. After all, the only reason nobody wants these things is because we keep calling them “toxic”, right? It has nothing to do with the fact that they are piles of paper representing nearly worthless, defaulted loans. Right?

Last Words

The Quiet Coup by Simon Johnson in The Atlantic Magazine is highly recommended. Synopsis:

“The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.”

And finally, if you have not yet seen Daniel Hannan’s heroic March 26, 2009 speech in the EU in which he calls British PM Gordon Brown (to his face) “the devalued Prime Minister of a devalued government”, click below and enjoy.

Mr. Hannan’s words could should be repeated to the governments and central bankers of every nation.

Peter Schiff Goes Viral

January 26, 2009
Nice article about Peter Schiff in Fortune magazine:

Peter Schiff: Oh, he saw it coming

(Fortune Magazine) — A couple of years ago, when Peter Schiff first began appearing regularly on TV to warn of an impending real estate collapse that would crash the U.S. economy and stock market, he was surprised and disappointed to find that he was rarely, if ever, approached by strangers in restaurants.

“I’d walk down the streets of New York and figure, ‘Gee, you know, I’m on CNBC, CNN,'” says the brash 45-year-old president of brokerage Euro Pacific Capital. “But nobody ever recognized me.”

Those days, as Schiff will triumphantly tell you, are over. Perhaps no market soothsayer has had his profile raised higher over the past six months. As one of the few talking heads who loudly, relentlessly, and more or less accurately sounded the alarm about the mortgage bubble and its consequences – in the process becoming the latest bearish commentator to earn the moniker “Dr. Doom” – Schiff has suddenly emerged as a cult hero and something of a minor celebrity.

Recently he’s even gone viral. One ten-minute video on YouTube that’s packed with some of his “greatest hits” – with, for instance, clips of Schiff predicting a brutal recession and massive credit crunch while prominent debate partners, such as writer and actor Ben Stein and former Reagan economic advisor Art Laffer, make what now sound like laughably optimistic counterarguments – has been viewed just over a million times at last count.

Read the rest: http://money.cnn.com/2009/01/20/maga…tune/index.htm

Over a million views on the video mentioned is fantastic news. I really hope people are starting to actually pay attention and trying to understand what is going on with this economy. And if they’re learning from Peter Schiff, they’ll be so much better off – and so will the rest of us who have known for quite some time that he was right all along.

There’s No Pain-Free Cure for Recession

December 27, 2008

Excellent op-ed by Peter Schiff in today’s Wall Street Journal. Schiff’s analogies and analyses are always right on target and this piece is no exception.

It would be irresponsible in the extreme for an individual to forestall a personal recession by taking out newer, bigger loans when the old loans can’t be repaid. However, this is precisely what we are planning on a national level.

I believe these ideas hold sway largely because they promise happy, pain-free solutions. They are the economic equivalent of miracle weight-loss programs that require no dieting or exercise. The theories permit economists to claim mystic wisdom, governments to pretend that they have the power to dispel hardship with the whir of a printing press, and voters to believe that they can have recovery without sacrifice.

As a follower of the Austrian School of economics I believe that market forces apply equally to people and nations. The problems we face collectively are no different from those we face individually. Belt tightening is required by all, including government.

Governments cannot create but merely redirect. When the government spends, the money has to come from somewhere. If the government doesn’t have a surplus, then it must come from taxes. If taxes don’t go up, then it must come from increased borrowing. If lenders won’t lend, then it must come from the printing press, which is where all these bailouts are headed. But each additional dollar printed diminishes the value those already in circulation. Something cannot be effortlessly created from nothing.

Continue reading…

Economic Survival Tips

December 23, 2008

Articles with tips on stretching your budget are popping up everywhere lately. I found a couple of good ones just this week (links below). Tips include buying used items, using cash whenever possible and learning to tolerate spiders.

Top 9 Good Habits for a Deep Recession

Tolerating Spiders, Using Your Credit Cards, and Other Depression Survival Tactics

My grandparents were children during the 1930’s Great Depression. The thriftful habits they learned during that time stayed with them all their lives. My grandmother had a favorite phrase that I thought was just a joke when I was a child, but it is in fact great advice for hard economic times.

Whenever we would drop something, my grandma would shout, “Save the pieces!” even if nothing was broken. It makes so much sense now, though, that if you did drop and break something you would want to save the pieces so you could try to repair instead of replace the broken object. There you go. Good advice from my granny to me and now to you.

It’s official: U.S. in a recession since December 2007

December 1, 2008

Monday December 1, 2:00 pm ET
By Chris Isidore, CNNMoney.com senior writer

The National Bureau of Economic Research said Monday that the U.S. has been in a recession since December 2007, making official what most Americans have already believed about the state of the economy.

The NBER is a private group of leading economists charged with dating the start and end of economic downturns. It typically takes a long time after the start of a recession to declare its start because of the need to look at final readings of various economic measures.

Employers have trimmed payrolls by 1.2 million jobs in the first 10 months of this year. On Friday, economists are predicting the government will report a loss of another 325,000 jobs for November.

The NBER also looks at real personal income, industrial production as well as wholesale and retail sales. All those measures reached a peak between November 2007 and June 2008, the NBER said.

In addition, the NBER also considers the gross domestic product, which is the reading most typically associated with a recession in the general public.

Many people erroneously believe that a recession is defined by two consecutive quarters of economic activity declining. That has yet to take place during this recession.

This downturn longer than most

The current recession is one of the longest downturns since the Great Depression of the 1930’s.

The last two recessions (1990-1991 and 2001) lasted eight months each, and only two of the 10 previous post-Depression downturns lasted as long as a full year, according to the NBER.

In a statement, White House Deputy Press Secretary Tony Fratto said that even though the recession is now official, it is more important to focus on the steps being taken to fix the economy.

“The most important things we can do for the economy right now are to return the financial and credit markets to normal, and to continue to make progress in housing, and that’s where we’ll continue to focus,” he said. “Addressing these areas will do the most right now to return the economy to growth and job creation.”

President-elect Obama’s transition team did not have an immediate comment on the recession announcement. But other top Democrats said this is further proof of the need for another economic stimulus package, which Obama has advocated.

“With rising costs of living, rising unemployment, record foreclosures and depleted savings, we must do more to help families make ends meet,” said Senate Majority Leader Harry Reid in a statement. “With the cooperation of our Republican colleagues, we intend to send a plan to the White House as soon as possible following President-elect Obama’s inauguration next month.”

The NBER did not give any reasons or causes of the recession. But it is widely accepted that the housing downturn, which started in 2006, is a primary cause of the broader economic malaise.

The fall of housing prices from peak levels reached earlier this decade cut deeply into home building and home purchases. This also caused a sharp rise in mortgage foreclosures, which in turn resulted in losses of hundreds of billions of dollars among the nation’s leading banks and a tightening of credit.

The government has taken many steps to try and prevent the economy from falling into recession, but little has worked to this point.

The Federal Reserve began to cut interest rates in September 2007. In February, Congress passed a $170 billion tax rebate meant to stimulate the economy. But that only boosted GDP during the second quarter.

The financial market and credit crisis worsened during this summer, prompting Congress, the Treasury Department and the Federal Reserve to pump trillions of dollars into the nation’s economy through a variety of programs, including a $700 billion bailout of banks and Wall Street firms and hundreds of billions of lending by the Fed to major companies and lenders.

Source Link: http://biz.yahoo.com/cnnm/081201/120108_recession.html

Of course, some of us have known this all along. Some of us listened almost a year ago when Ron Paul said he believed the U.S. was already in a recession. The other presidential candidates snickered and ridiculed him then. I wonder if anybody is laughing now.

Does this make anybody else sad or angry like it does me? I’d be feeling so much more optimistic about the nation and the economy today if Ron Paul were president-elect. Today not even “I told you so” is helping much.