I sure hope they have a lot of lipstick in Washington and on Wall Street. Because they’re going to need it to gussy up the latest economic news!
Just over the past several days, we’ve learned that …
* The economy created a pathetic 38,000 jobs in May! That was a massive 78 percent plunge from April and the worst reading since September. It also missed forecasts for a reading of 175,000 by a country mile!
These were the ADP Employer Services figures, and the government’s “official” data always differ somewhat. But ALL the latest numbers tell the same story: The job market is losing steam!
* Manufacturing activity is decelerating fast! The Institute for Supply Management’s benchmark index plunged to 53.5 last month from 60.4 in April. That was the lowest reading in 20 months, and far worse than “experts” were looking for! The service sector index also tanked.
* Home prices are setting fresh lows! The S&P/Case-Shiller Index fell 3.6 percent in March. That year-over-year decline was the worst since November 2009, and it leaves prices in 20 top metropolitan areas at the lowest level in eight years.
Meanwhile, April housing starts plunged almost 11 percent and permit issuance dropped 4 percent … pending home sales just tanked 12 percent — far worse than the 1 percent decline economists were expecting … and industrial production ground to a halt in April, confounding economists who were looking for a gain.
Treasury Secretary Timothy Geithner wrote an op-ed back in August 2010 called “Welcome to the Recovery.” Maybe he should have named it “Mission Accomplished” … because his starry-eyed optimism seems every bit as misguided as President Bush’s a few years earlier.
Economy’s Achilles Heel? It Was
“Bought and Paid For” in Washington!
How could the economy possibly be weakening again, when we just officially emerged from recession two years ago?
How could this possibly happen, when the Paul Krugmans of the world promised that if we just borrowed and spent a few gazillion dollars, everything would be peachy?
And how could we be staring down the barrel of a serious slowdown, when Fed officials like Ben Bernanke swore on a stack of bibles that quantitative easing would save the economy?
Because “bought and paid for” recoveries are inherently unstable and self-defeating! If governments and central banks could truly vanquish the business cycle by just printing, borrowing, and spending all they wanted with no consequences, wouldn’t every single one of them have done it before?
The reality is, the economic and political fallout from borrowing and spending so much eventually becomes too much to bear— and you just can’t do it anymore! I believe that’s where we are now …
The $14.3 trillion debt ceiling is putting shackles on Congress and the administration. So are global creditors and ratings agencies, who are increasingly punishing nations that think they can run up huge deficits and debt burdens.
Meanwhile, the Fed’s QE programs have wildly inflated commodity prices and jacked up our cost of living. But because the Fed can’t print jobs and boost wages — only fuel speculation by pumping the asset markets full of easy money — we’ve hit a wall. The “real economy” can no longer support these artificially inflated “financial economy” prices.
Immediate Steps to Take!
First, if you haven’t already taken some profits off the table on your long positions, please do so now. This is the time to pare down your risk levels, regardless of what you’re hearing on CNBC.
Second, dump any stocks exposed to the weakest parts of the economy. That would include sectors like banking, construction, and retail.
Third, if you’re looking to turn this economic CRISIS into a major profit OPPORTUNITY, I urge you to check out my Safe Money’s Crisis Trader service. It’s designed to help you navigate all the treacherous twists and turns in the market.
Until next time,
Mike
{ 5 comments… read them below or add one }
Mike,
Do you guys publish the returns of your recommendations somewhere on the free M&M. I would like to see them before I pay for advice.
thanks
The economy is like a massively obese patient who is close to dying. We have had a number “heart attacks” over the years, but now we’re rapidly getting to the point where the cost and effort to keep the patient alive well outweigh any benefit. The QE is like the drugs that doctors use to revive patients who have crashed. At first they work, bring the patient back. After the 4th or 5th time, permanent damage is done to the patient’s body, part of it dies. At that point, the patient cannot reverse course. If things continue, after while, the revival drugs just won’t work anymore and the patient is dead. Early on, the doctor administering the drugs should be counseling the patient on major lifestyle, diet, and changes that need to be made. Reduce weight, exercise, build up good muscle, don’t eat sweets. We’ve been warned and the consequences are the death of our economy. I fear that we are already beyond fixing, as the changes needed are like a patient needing to lose 50% of his body weight in a short period of time. It is going to require a strict amount of fiscal discipline that I simply do not see Congress or the President having. I hope I’m wrong, but I’m putting my money on the patient dying.
My thoughts are exactly matching this comment, over two years ago I said to friends that the worlds economies are like a very sick patient who is close to dying….but instead of dying the patient is given morphine to ease the pain…it allows a feeling of everything feels better now such as our own economies being stimulated with trillions of good money after bad…but like the patient, economies at some point cannot keep taking such stimulation without a price to pay. Central banks and Governments really had no option but to print their way out of the crash mess else the world economies would never have seen such a recovery…but bought and paid recoveries never work long term. The first subtle signs of a fracturing economy are appearing as the morphine is wearing off, this serves as the first major warning of the bears return and like the warning 3 years ago it will be cast by the masses of economists and experts as just a correction and indeed another buying opportunity. QE3 will make it’s debut in the near future as Bernanke grapples with a stock crash and world leaders look for a way out of saving their necks or financial system shutdowns. We are in a 5 wave move in the markets…we have had wave 1 down from 2008 and very likely completed wave 2 up from the 2009 lows….only once all the bears are dead will the market top, that has virtually happened…mission accomplished from our leaders. Next comes wave 3 down….be prepared, this will be very swift and savage compared to 2008 and will shock….wave 4 up will be the result of QE3 in a desperate intervention to save us from the end….but many many months later wave 5 down will all but vanquish those last dreams and hopes and create the biggest buying opportunity ever for those who still have cash.
Our dilemma is simple. Years ago when high inflation was in play, the washington bureacrats (Federal Reserve Board/Treasury) became frightened and signed on to free trade agreements that flooded the USA with cheap goods and services….which helped to lower published/tracked inflation. This saved the federal bureacrats their jobs. The bad news….it hollowed out our job market. Manufacturing jobs, and now service jobs, flowed overseas. We traded low inflation for jobs. To offset the job losses, the feds printed money, borrowed money and lowered interest rates. The latter fueled a real estate bubble. In the late 90′s thru 2005, real estate and health care were the only two private sector industries showing growth and holding up a dying economy. Real estate crashed and health care bankrupted us. We can’t raise rates because the real estate market would implode further, and the higher rates the Feds would have to pay on our debt would tip the USA into insolvency. Too many politicians have “kicked the can” down the street. We are now at the end of the street.
The only solution is a 100% pro-USA trade policy (as China is doing) combined with a draconian (50%) reduction in federal departments, employees and budgets. We need a new type of politician with guts and no desire for re-election to implement the changes necessary to save the USA.
Asian giants! You live next door to Asian Giants! They have computers too! They play markets too! They have astounding, propaganda free intelligence! They work your markets like giant penny arcades! They own your Yankee Doodle ass! Asians, the big players on the scene! Like a cat with a mouse! A Yankee Doodle mouse! A communist Chinese, “Centeral Planning Committee” in Beijing decides how much money goes on the table! Feds respond, dance to tune set by commies! Even Stevie Geithner follows their strict admonisions! Obama begs, at their feet, even bent over backwards with a handful of soft soap if necessary! “All the World’s a stage” and America is a puppet on an Asian string!