But this is a lie, and Bernanke knows it. Just one look at this weeks jobs number and he knows we're not recovering.
But, what is he supposed to say, “We're in the eye of a poop storm”? Just how long can Bernanke and the politicians keep telling us it’s getting better when we know they’re lying? Are you better off now than you were two years ago?
Yes, economists still think our odds of a double dip are low, but our economy is weak. And weak after adding trillions of our tax dollars to the economy; the banking sector was refinanced, the government screwed around with housing, and Obama became the CEO of the auto industry. But did it help? Or did all this money just flow to the pockets of the heads of banks, auto manufacturers, and Freddie and Fannie?
Hiring is almost non-existent. Even our esteemed VP doesn't believe that everyone will get their job back.
In poll after poll, confidence numbers are falling like a barometer before a storm. Consumer’s aren’t happy. National debt has jumped to a level not seen since the forties! The stimulus money has been wasted and there is no more on the horizon. The presses are burning up from being run 25 hours a day. Europe is drowning in debt. Even China is experiencing problems. No one has the money to buy even their cheap goods for cash and the IOU’s are piling up.
We can't even get into the commercial real estate fiasco here; we don't have the space for it.
Let’s Take a Look at Why the Market Could be Headed Off a Cliff
Past recessions began because the Fed would raise rates to control inflation, and then over shoot the target and raise the rates too high. The resulting recession could then be controlled by the Fed lowering rates.
Today, we have no more ammunition, unless we buy more presses to print more money. Or maybe we can convince everyone that all is well. Actually, it's not as if deceiving the public is difficult. They’ve been doing it for the past three years.
But this “depression” or whatever you call it cannot be turned around without a sharp re-balancing of our financial system. Everything needs to improve. Home prices need to come down to affordable levels. The unemployment picture has to be repainted.
Try to imagine what will happen if our national debt leads to the downgrade of our triple A credit ratings?
Consumer spending needs to come back sharply and this won’t happen unless the government stops meddling. The markets must be allowed to stabilize on their own. Interference from the government has caused too much turmoil. They must step back and let businesses either sink or swim. No more bail outs. The money never gets to where it’s needed anyway.
Politicians aren’t Believable and Consumers aren't Confident Anymore
Consumer confidence plunged piercingly this month due to job uncertainties. Wages are weak, household debt is high, and the news is steadily going from bad to worse. People are starting to see through the garbage coming out of Washington. There just aren’t enough earnings by the people who are working to stimulate 75% of the economy.
The only reason anyone was able to support the recent market run up was because they borrowed through credit cards or against their equity. That option is gone this time. Consumers also know that the economic stimulus is dying off and never really made it to their pockets anyway. It’s no wonder they're scared, just look at how unemployment insurance is stalled in Congress. For this week alone, this converts to more than a million people who will start to lose benefits.
Retail sales fell hard in May as consumers cut back on buying clothes and cars. Total spending fell 1.2%. And with consumers accounting for about 75% of our growth, things aren't looking so hot. With current unemployment numbers, there's no chance that any of these people are ready to run out and spend money.
Furthermore, another 40 plus million are now on food stamps. That's up over 20% from last year to this year. Over 45% of everyone currently on unemployment have been out of work for over six months. And VP Biden doesn't believe these jobs will ever be recovered. We're only now having a peek at what unemployment numbers really are without the Census workers.
Why Smart Traders are Shorting the Market
Anyone cheering a recovery is overlooking the fact that tax credits have expired. The bottom fell out of the housing market right after the credits ran out. This is why home sales fell over 30% in May.
Remember what happened with Cash for Clunkers? When people were paid to buy cars, sales skyrocketed. As soon as the program ended, sales plummeted. People simply shifted purchase plans forward and took advantage of a government handout.
Now consider that the Bush tax cuts will expire on January 1, 2011. The Democrat Congress has no plans to renew these cuts and massive tax hikes will hit.
Consumers who are just getting by will get nailed. The eight year old tax gift is being yanked, and you guessed it, the economy will nose dive.
According to Arthur Laffer in "Tax Hikes and the Coming 2011 Economic Collapse," when the Bush tax cuts terminate, the highest personal income tax will jump from 35% to 39.6% . The highest federal dividend tax rate will soar from 15% to 39.6%. The capital gains tax will hurdle from 15% to 20%. And the estate tax will ZOOM from ZERO to 55%! And none of this includes the tax hikes from all the bills the Democrats have rushed through legislation that are set to go into effect.
The reason all this has happened is because Bernanke and the Wall Street Democrats couldn't admit the housing bubble was about to implode, even though it was clear as day. And when the bubble did finally blow, our Fed fool finally woke up and used Congress and the Treasury Department to bail everything out, the banks, bondholders, and Wall Street, at the taxpayers' expense. But the bailouts didn't do anything to alter the underlying problem. And they didn’t do anything to get the money to the street. The money was used to solidify their positions, by lining their friends’ pockets!
Even Meredith Whitney, the Banking Analyst for CNBC, Thinks Housing is Heading for its Double Dip
It’s undeniable that the housing market is headed for a double dip, thanks partly to ARM resets. Adjustable Rate Mortgages were some of the riskiest loans made during the housing boom. Many borrowers have been left owing much more on their homes than they are actually worth.
The amount of debt wrapped up in these Option ARMs is much worse than what was owed in the sub prime debacle. If everyone fails to understand this, the second round will begin and banking volatility will wreak havoc! ARM resets will be tougher on the economy than the sub prime. As a result, we will see further bank failures, job losses, foreclosures, delinquencies, and economic hardships.
With billions of dollars in ARM resets programmed to take place this year, this crisis won’t be as bad as the sub prime, it’ll be far worse! There are two reasons for this:
1. Lenders fashioned these ARM's with “teaser” features, including making lower minimum payments for the first few years before the loan reset to a higher payment schedule.
2. Even worse was a feature called “negative amortization” where you didn’t pay back any principal. Actually with negative amortization loans, your loan balance increased over time. Amazingly, every time you made a payment, you owed the bank even more. These loans allowed buyers to own houses they couldn’t afford any other way.
Your biggest concern should be that over $750 billion worth of Option ARMs were issued between 2004 and 2007. The reset time will be upon us shortly. The big banks like Bank of America, JP Morgan Chase, and Wells Fargo will be in for a rough ride as a result of this. Their exposure to these Option ARMs is probably the largest.
The next phase of the real estate disaster is upon us. It’s just shifted from sub prime to Option ARM, and with many economists predicting that unemployment will stay in the double digits, foreclosures will only accelerate. This will add to bank losses, which will add pressure to the financial system and the broader economy.
According to Meredith Whitney:
The U.S. housing market will experience a second recession, forcing banks to post additional loan-loss reserves. Most investors are not banking on a double-dip in housing. You’re going to see banks post additional reserves associated with this double-dip in housing, and that means weak performance going forward.
Truly, housing is giving people a reason to pause. This picture I just painted of the future of housing and banking certainly looks depressing, but you can make money by shorting anything housing related. The same thing has been done with the sub prime and we'll do it all over again for this second round of housing woes.
Right now there are too many houses and too many owners in arrears, and RealtyTrac is expecting foreclosures to shoot up to 4.5 million this year from 2.8 million in 2009. An additional 11 million homes are underwater, and still another 2.3 million homes have less than 5% equity. According to the Census, there are presently two million vacant homes trying to get sold. In addition, another seven million plus are delinquent on loan payments.
And to finalize my point, mortgage applications are down over 40% since the $8,000 rebate program ended.
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