Saturday, August 15, 2009

You Call This a 'Recovery'? - The Daily Reckoning Weekend Edition

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The Weekend Edition - August 15-16

  • Sorry folks...the worst isn't over...
  • The Mogambo wants to know how you like your books cooked...
  • An excerpt from the newly updated Financial Reckoning Day...
  • These 'green shoots' are sure to be mowed down, says Dan Amoss...
  • Nate Lewis has the Magic Formula to reverse the decline...
  • Bill Bonner takes a look at 'Vandal Economics'...and more!

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    The Daily Reckoning's Highlight of the Week:
    You Call This a 'Recovery'?
    Corolla, North Carolina

    53 economists surveyed by Bloomberg this week said that 'the worst is over' for the economy...clearly, the stimulus is working. Hmmm...let's take a closer look.

    The Reuters/University of Michigan index showed that consumer sentiment declined in early August to 63.2 from 66.0 in July. It is the lowest reading since March, and is significantly worse than the 69.0 reading that economists surveyed by MarketWatch had expected.

    "From a consumer finance position, people are still struggling," said Scott Hoyt, senior director of consumer economics for Moody's "Wages have fallen from the previous year and consumers [still] don't have alternative sources of cash."

    Keep reading to see what Bill has to say about this so-called 'recovery'...

    Guess how many jobs the US private sector has added over the last 10 years? Almost none. Private sector employment is back to levels of 1999. There are more jobs in restaurants and health care...but many fewer in manufacturing. Net gain: zero.

    The only job gains have been in the parasite sector - government. On the evidence, this trend is going to continue. Now, the feds have a new post called "pay czar." As near as we can tell this is a busybody who undertakes to control salaries in the industries that the feds have bailed out. There will be a lot more jobs running the regulatory/bailout apparatus. Then, too, there are all the make-work jobs of the shovel ready boondoggles the feds began in an effort to replace private spending.

    Back in the private sector, 72 banks have failed so far this year. And a record 34 million Americans are getting food stamps.

    Naturally, incomes are falling. Now, imagine the consumer...he's already paying 15% of his disposable income to debt service...and then his income is cut in half! This means that 30% of his remaining income must be used just to service the debt. Impossible to do without big cuts in spending...

    The poor consumer hit the wall in 2007. He was spending all he earned...and paying more of his income in debt service than at any time in the last 60 years. He couldn't continue to living on future earnings - there just weren't enough of them. That is why the finance industry has topped out. It loaded Americans up with enough debt already.

    And it's why the credit cycle has turned. All of a sudden savings rates are back up to 7%. Consumers are cutting back...raising chickens in their back yards...driving less...planting gardens and squeezing their nickels. The private sector is de-leveraging. And there won't be any durable economic boom or lasting bull market on Wall Street until this process is finished.

    [This process isn't at an end yet...and the US consumer isn't going to be able to bail out the world economy this time. And the government certainly isn't going to be able to bail out those who are funding these stimulus packages...but due a to certain legal 'loophole', you don't have to kiss your hard-earned money good-bye. See how you can start collecting - in just a couple weeks.]
    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: As usual, it was a lively week at the Daily Reckoning. From a look at how the 'green shoots' could be mowed down, to an excerpt from the newly updated Financial Reckoning Day, this week had it all. Don't worry if you missed one...we have them all for you, below...

    How Do You Like Your Books Cooked?
    by The Mogambo Guru
    Tampa Bay, Florida

    "If blatant corruption to disguise inflation and incompetence is not enough to convince you to buy gold, then there is nothing I can say to change your mind."

    Social Security? Not Exactly...
    by Bill Bonner and Addison Wiggin
    Baltimore, Maryland

    "And to the retiring boomers' other doubts and insecurities, we might add that US health care costs are expected to rise by 7 percent of GDP over the next 40 years-a rate that is more than twice as fast as other developing nations."

    Green Shoots Do Not See the Mowers
    by Dan Amoss
    Jacobus, Pennsylvania

    "This process could end next week, or next year. That's the annoying part about bubbles: they tend to expand until the last patsy has bought in, and there's no telling how many patsies there are."

    The Magic Formula
    by Nate Lewis
    Binghamton, New York

    "Politicians today, especially in the US...still think they can spend and tax and devalue their way... not to prosperity exactly... but to a continuation of the status quo. The status quo in which they are somewhere near the top."

    Vandal Economics
    by Bill Bonner
    Ouzilly, France

    "Now, the consumer, with no clean signal to guide him, makes mistakes. He may be lured to buy a new car. The central planners may be pleased. They see the effect they desired - more auto sales. But what don't they see?"


    We published an excerpt from Bill and Addison's recently updated Financial Reckoning Day this week. Since the book was first published in 2003, you can imagine how much updating had to be done to the new edition of Financial Reckoning Day, as it was first written mainly as a forecast. And when we say 'recently updated', we mean it. The last update that is in the book took place on June 5 - of this year. We'd call that a timely update.

    If you haven't already, you can get your copy here.

    That's it for us this today. Enjoy the rest of your weekend,

    Kate Incontrera
    The Daily Reckoning

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