Saturday, July 25, 2009

The "Real" Economy is Getting Worse - The Daily Reckoning Weekend Edition

Celebrating A Decade of Reckoning
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The Weekend Edition - July 25-26, 2009

  • Economies that actually make 'stuff' aren't doing so bad...
  • The Mogambo Guru on financial circulatory systems...
  • Alan Knuckman on how to become a better investor...
  • Chris Mayer examines the mortgage debacle beyond subprime...
  • Reflections from Vancouver from Byron King...
  • A brief history of monetary madness from Bill Bonner...and more!

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    The Daily Reckoning's Highlight of the Week:
    The "Real" Economy is Getting Worse
    Vancouver, Canada

    The jobless rate hit a 26-year high of 9.5% last month - and many economists are betting for the jobless rate to hit 10%.

    "Of the June total," reports the Labor Department, "1,235 mass layoffs were reported in the manufacturing sector."

    "All the indicators in the real economy," said Bill Bonner in his final speech at the Agora Financial Investment Symposium in Vancouver, "are actually getting worse."

    And is it any surprise? What exactly does America make anymore? We have been a nation of consumers for the past decade, spending and borrowing to buy the gee-gaws and gadgets that our friends in the Far East have been so busy producing. But now, consumers are saving...they aren't buying flat-screen televisions...or new cars...or much of anything for that matter.

    And it goes without saying that since the housing bubble has popped, the one sector that was actually producing - the building of residential and commercial real estate - is failing miserably as well.

    Caterpillar announced its results for the second quarter too. Profits were down 66%. In other words, while the banks were making money speculating with taxpayer's money, Caterpillar was trying to make things and selling them to customers. Caterpillar not only makes things; it makes things that help other companies make things. Things with motors...big things...things that make noise and give off exhaust...things you use to dig holes and move dirt...things you need if you're going to have a real economic recovery. Unfortunately for CAT, these things aren't selling.

    So what does this tell us? suggests that there is no real economic recovery at all. The real economy is suffering...sinking...and shutting down.

    The banks are not earning their money helping Caterpillar expand. They're making their money not because of a recovery, but because there isn't one. In other words, they're profiting from the financial stress of the early stages of a depression. There's a post-crash bounce...and the government is sending a lot of money their way.

    As for a real recovery - forget it. There's no evidence of it. Unemployment is getting worse. Housing is still going down. Profits are going down. Those aren't the things that presage a recovery...they herald a deeper, darker depression.

    The depression darkens because people are not just being laid off - their jobs are disappearing. They do not get called back to work. Instead, they stay unemployed until they run out of unemployment benefits...and then the statisticians in Washington drop them off the unemployment rolls. Currently, the first batch of those people to reach the end of their benefits came this week. Last we looked, the Pennsylvania legislature was passing a law so they could continue drawing benefits for a few weeks more.

    Unemployment, trade, defaults, foreclosures, bankruptcies, prices, name it and you have to go back to the end of WWII to find similar numbers. Of course, at the end of the war, the wartime economy shut down. Millions of people who have been in uniform...or making tanks and airplanes...were suddenly out of work. Economists thought the economy would go right back into the Great Depression. Instead, it boomed.

    But what was normal for so many years is not normal any more. Now, consumers are paying off debt faster than any time since 1952. The government, however, is making up for them. Goldman may no longer be able to push more credit onto the public; but it can push one heckuva lot of debt onto the public sector. Wall Street firms helped households ruin themselves in the Bubble of 2003-2007. Now they're doing the same for the government, helping the feds raise money on a scale never seen before in human history.

    [Indeed, 'normal' is hard to come by these days, as
    The Rude Awakening's Eric Fry pointed out in his speech at the AF Symposium on Wednesday. If you couldn't join us in Vancouver this year, don't worry - we've been recording all the main session presentations for you, so you don't have to miss a single insight or forecast. Get your AF Symposium audio recordings here.]

    The above is just an excerpt from Bill's standout essay from this week. You can read it in its entirety on The Daily Reckoning site - it's an essay you don't want to miss. Get it here.

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    ALSO THIS WEEK in The Daily Reckoning: This was a unique week for The Daily Reckoning, because we were in contact with 4 of the 5 authors of this week's essay - not something that happens very often. In the essays below, you will learn how to become a better investor, look beyond subprime at the rest of the rot in the mortgage market...and more! Read on...

    Financial Circulatory System
    by The Mogambo Guru
    Tampa Bay, Florida

    "Billionaire Warren Buffet, who is not given to hyperbole and outlandish forecasts, says that he expects inflation to be as bad as it was in the '70s."

    How to Become a Better Investor
    by Alan Knuckman
    Chicago, Illinois

    "Being ahead of the energy curve is the place I want to be. When things don't develop as planned the losses at lower levels are manageable and probability is on our side that eventually prices will move up."

    Beyond Subprime
    by Chris Mayer
    Gaithersburg, Maryland

    "The bigger problem is that the mortgage bubble infected a number of areas beyond just subprime. The subprime crisis was the first to drop, like a marathon dancer that falls to the floor exhausted. But there are still other dancers on the floor ready to topple over too."

    Reflections from Vancouver
    by Byron King
    Pittsburgh, Pennsylvania

    "No net new jobs? That ought to scare you. The Census Bureau predicts that the U.S population will grow over five years. But the numbers of new jobs will remain static. That is, for every job gain there will be a loss."

    A Brief History in Monetary Madness
    by Bill Bonner
    Vancouver, Canada

    "Without the sweat of honest toil on it, money seems to play a pernicious role in history. There are no examples - none - where it produced genuine prosperity. Instead, when a nation suddenly runs into some easy cash, it is soon spending more than it can afford...and getting into trouble."


    Our fearless leader, Bill Bonner, made the final speech at the AF Investment Symposium on Friday. "I'd like to start by thanking all the DR readers here," said Bill to the audience, "you have my sympathies. You have to read 1,500 pages a year - and in ten years it's been 15,000 pages."

    That's right. The Daily Reckoning recently celebrated a birthday - our little publication turned 10 this month. We celebrated by "roasting" Bill at an intimate gathering at the Pan Pacific Hotel in Vancouver this past Wednesday night.


    Addison Wiggin, started working on the DR in the early days of the Internet Age...when they weren't quite sure how this 'daily e-mail' thing would work - but they knew it was something they had to try. Addison fondly recalled that in those days, he and Bill shared a tiny desk in an office in Paris, and every time Bill got up from the desk, he would knock the power cord out of Addison's computer, erasing all the work he had done that day.


    But the DR has come quite a ways since then. We have figured out the ins and outs of Internet publishing (for the most part) and we now have five international versions. Sometimes we are right, and sometimes our forecasts and musings are wrong...but that won't keep us from publishing these daily reckonings. We hope you enjoy them.

    Here's to ten more years,

    Kate Incontrera
    The Daily Reckoning

    P.S. Don't worry if you missed out on Bill's closing speech this year - we've recorded all of the main session presentations, and they're available in both CD and MP3 form. This way you can listen to Bill, Byron, Chris, and all of our AF editors on your commute to work, or from the comfort of your living room. Until midnight, Monday, July 27th you can get these recordings at 40% off - secure yours now.

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    Couldn't join us at the Agora Financial Investment Symposium this year?

    Never fear - we've been recording all the main session presentations, and making them available to you. And until midnight on Monday, July 27th you can get these recordings at a significant discount.

    Don't miss out on any of the insights and advice that have been packed into these 4 days...get your Symposium recordings here.
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