Here Comes The Double Dip Recession

There’s been many letters and symbols used over the last year to describe the shape of the U.S. economic recovery. There’s the strong V-shaped recovery; the square root shaped recovery to connote a strong recovery followed by a period of flat to no growth; and the W-shaped recovery favored by those believing in a double dip recession.Tech Ticker guest Michael Pento has a new twist on the discussion. Pento, senior market strategist with Delta Global Advisors believes this is a tee-pee shaped recovery with the top of that tee-pee having already formed in the fourth quarter.Pento is negative on America’s near term economic prospects for three main reasons: too little bank lending, too few jobs and too much public and private debt. “I’ve never seen a v-shaped recovery occur when commercial bank lending was down 7% year over year. So, small business are not getting loans to create capital goods and to expand and hire individuals,” he observes.Exacerbating the problems at home, is what he describes, as a weak economy abroad. With China looking to clamp down on growth, the EuroZone struggling with its own debt problems, Pento asks, “Where is the growth going to come from in demand from overseas?When he says “demand” he’s referring not only to products and services but also to our growing debt burden. As the price of servicing our deficit grows, when the Federal Reserve tightens monetary policy, Pento is confident others will realize what he already does: the situation in the U.S. is “worse than Greece.”The way he sees it, there’s a strong potential for a bond and dollar crisis when China starts selling Treasuries. “Tell me which shape recovery that will yield for the United States?”

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Niall Ferguson says, U.S. Empire in Decline and on Collision Course with China

The U.S. is an empire in decline, according to Niall Ferguson, Harvard professor and author of The Ascent of Money.”People have predicted the end of America in the past and been wrong,” Ferguson concedes. “But let’s face it: If you’re trying to borrow $9 trillion to save your financial system…and already half your public debt held by foreigners, it’s not really the conduct of rising empires, is it?”Given its massive deficits and overseas military adventures, America today is similar to the Spanish Empire in the 17th century and Britain’s in the 20th, he says. “Excessive debt is usually a predictor of subsequent trouble.”Putting a finer point on it, Ferguson says America today is comparable to Britain circa 1900: a dominant empire underestimating the rise of a new power. In Britain’s case back then it was Germany; in America’s case today, it’s China.”When China’s economy is equal in size to that of the U.S., which could come as early as 2027…it means China becomes not only a major economic competitor – it’s that already, it then becomes a diplomatic competitor and a military competitor,” the history professor declares.The most obvious sign of this is China’s major naval construction program, featuring next generation submarines and up to three aircraft carriers, Ferguson says. “There’s no other way of interpreting this than as a challenge to the hegemony of the U.S. in the Asia-Pacific region.”As to analysts like Stratfor’s George Friedman, who downplay China’s naval ambitions, Ferguson notes British experts – including Winston Churchill – were similarly complacent about Germany at the dawn of the 20th century.”I’m not predicting World War III but we have to recognize…China is becoming more assertive, a rival not a partner,” he says, adding that China’s navy doesn’t have to be as large as America’s to pose a problem. “They don’t have to have an equally large navy, just big enough to pose a strategic threat [and] cause trouble” for the U.S. Navy.

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“The Worst Is Yet to Come” If You’re Not Petrified You’re Not Paying Attention: Tech Ticker, Yahoo! Finance

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The green shoots story took a bit of hit this week between data on April retail sales, weekly jobless claims and foreclosures. But the whole concept of the economy finding its footing was “preposterous” to begin with, says Howard Davidowitz, chairman of Davidowitz & Associates.”We’re in a complete mess and the consumer is smart enough to know it,” says Davidowitz, whose firm does consulting for the retail industry. “If the consumer isn’t petrified, he or she is a damn fool.”Davidowitz, who is nothing if not opinionated (and colorful), paints a very grim picture: “The worst is yet to come with consumers and banks,” he says. “This country is going into a 10-year decline. Living standards will never be the same.”This outlook is based on the following main points: * With the unemployment rate rising into double digits – and that’s not counting the millions of “underemployed” Americans – consumers are hitting the breaks, which is having a huge impact, given consumer spending accounts for about 70% of economic activity. * Rising unemployment and the $8 trillion negative wealth effect of housing mean more Americans will default on not just mortgages but student loans and auto loans and credit card debt. * More consumer loan defaults will hit banks, which are also threatened by what Davidowitz calls a “depression” in commercial real estate, noting the recent bankruptcy of General Growth Properties and distressed sales by Developers Diversified and other REITs. As for all the hullabaloo about the stress tests, he says they were a sham and part of a “con game to get private money to finance these institutions because [Treasury] can’t get more money from Congress. It’s the ‘greater fool’ theory.””We’re now in Barack Obama’s world where money goes into the most inefficient parts of the economy and we’re bailing everyone out,” says Daviowitz, who opposes bailouts for financials and automakers alike. “The bailout money is in the sewer and gone.”

Elizabeth Warren – Americans’ Trust “Shattered”

Americans’ trust in the financial system has been “shattered” in the past 18 months, says Elizabeth Warren, the Harvard law professor who chairs the Congressional Oversight Panel. She says we’re on our way to restoring that trust, but only as the nation’s elites wake up to a new reality:“What we’re having to do is change an entire culture.

Let’s be clear:  The folks who’ve been running these multibillion-dollar institutions – they are accustomed only to talking to other people who run multibillion-dollar institutions. And the rest of you can stay far, far away. What has fundamentally changed is they’re now taking taxpayer dollars. And the taxpayers think that gives them a seat at the conversational table and the decision-making table. And it’s taking a while for those CEOs to figure out the game has changed. And I do believe the game has changed.”

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Elizabeth Warren

Warren acknowledges that some Wall Street CEOs keep acting as if the old rules apply.

She is appalled at Wall Street’s continued practice of handing out oversized bonuses, as evinced by the latest revelations about AIG’s 2008 pool or recent increases in bonuses across the industry.

The idea that firms need to pay up to retain top talent “carries zero” weight with the bailout monitor, who also disagrees with the criticism the Obama administration is overreaching in its dealings with Wall Street. The president, she says, is calling shots as a major shareholder, representing the taxpayer.

“We’re going from a world in which folks at the top only talked to each other, and maybe their regulators on occasion,” Warren says. “It was a very quiet and very private conversation involving billions of dollars. Once you take taxpayer money…. it’s a three-way conversation.”

In that light, Warren believes there will be more public “conversations” like the AIG hearing. She believes faith in the system may be restored by a modern version of the Pecora Commission, which investigated the banking industry after the 1929 crash, although she dodged our question as to whether she would want to lead it, as some have proposed.

A Good Financial Lesson For All

cashstackLesson:

A man is getting into the shower just as his wife is finishing up her shower, when the doorbell rings. The wife quickly wraps herself in a towel and runs downstairs.

When she opens the door, there stands Bob, the next-door neighbor. Before she says a word, Bob says, “I’ll give you $800 to drop that towel.” After thinking for a moment, the woman drops her towel and stands naked in front of Bob After a few seconds, Bob hands her $800 and leaves.

The woman wraps back up in the towel and goes back upstairs. When she gets to the bathroom, her husband asks, “Who was that?” “It was Bob the next door neighbor,” she replies. “Great!” the husband says, “did he say anything about the $800 he owes me?”

Moral of the story :

If you share critical information pertaining to credit and risk with your shareholders in time, you may be in a position to prevent avoidable exposure.

Where the $200,000+ Crowd Lives

Where the $200,000+ Crowd Lives

cnbc

by Paul Toscano
Friday, February 27, 2009
The White House’s budget for fiscal year 2010 calls for tax  hikes on wealthy Americans.  In this case, that means couples making over $250,000 a  year and individuals $200,000 a year. Under the budget plan, these households  (about 3 percent of the total) would experience tax increases of $318 billion over the next 10 years.  Here’s a look at the states that will be most affected by the tax hike and how they voted in the last presidential election.

Source: US Census Bureau (Housing Data), MSNBC (Election Data)

1. District of Columbia

% of Households Earning $200K+: 8.4%
Total Households: 251,039
Median Income: $50,318
Households Earning $200K+: 21,194

Election Results:
Obama: 93%
McCain: 7%

2. Connecticut

% of Households Earning $200K+: 8.0%
Total Households: 1,320,714
Median Income: $64,158
Households Earning $200K+: 105,433

Election Results:

Obama: 61%
McCain: 38%

3. New Jersey

% of Households Earning $200K+: 7.5%
Total Households: 3,149,910
Median Income: $65,249
Households Earning $200K+: 235,278

Election Results:
Obama: 57%
McCain: 42%

4. Maryland

% of Households Earning $200K+: 6.9%
Total Households: 2,082,458
Median Income: $65,552
Households Earning $200K+: 142,694

Election Results:
Obama: 62%
McCain: 37%

5. (Tie) Massachusetts

% of Households Earning $200K+: 6.2%
Total Households: 2,449,133
Households Earning $200K+: 152,348
Median Income: $57,681

Election Results:
Obama: 62%
McCain: 36%

5. (Tie) California

% of Households Earning $200K+: 6.2%
Total Households: 12,200,672
Households Earning $200K+: 757,411
Median Income: $56,311

Election Results:
Obama: 61%
McCain: 37%

7. Virginia

% of Households Earning $200K+: 5.7%
Total Households: 2,932,234
Households Earning $200K+: 165,998
Median Income: $58,950

Election Results:
Obama: 53%
McCain: 46%

8. New York

% of Households Earning $200K+: 5.6%
Total Households: 7,099,940
Households Earning $200K+: 399,014
Median Income: $49,267

Election Results:
Obama: 62%
McCain: 37%

9. Hawaii

% of Households Earning $200K+: 4.5%
Total Households: 439,685
Households Earning $200K+: 19,876
Median Income: $63,104

Election Results:
Obama: 72%
McCain: 27%

10. Illinois

% of Households Earning $200K+: 4.4%
Total Households: 4,759,579
Households Earning $200K+: 208,385
Median Income: $51,279

Election Results:
Obama: 62%
McCain: 37%

11. New Hampshire

% of Households Earning $200K+: 4.2%
Total Households: 501,505
Households Earning $200K+: 20,899
Median Income: $65,652

Election Results:
Obama: 54%
McCain: 45%

12. Colorado

% of Households Earning $200K+: 4.1%
Total Households: 1,859,965
Households Earning $200K+: 76,216
Median Income: $59,209

Election Results:
Obama: 54%
McCain: 45%

13. Washington

% of Households Earning $200K+: 4.0%
Total Households: 2,501,509
Households Earning $200K+: 99,636
Median Income: $57,178

Election Results:
Obama: 57%
McCain: 41%

14. Texas

% of Households Earning $200K+: 3.9%
Total Households: 8,244,022
Households Earning $200K+: 313,681
Median Income: $45,294

Election Results:
Obama: 44%
McCain: 56%

15. Minnesota

% of Households Earning $200K+: 3.8%
Total Households: 2,062,681
Households Earning $200K+: 77,772
Median Income: $57,932

Election Results:
Obama: 54%
McCain: 44%

“Worst Is Yet to Come:” Americans’ Standard of Living Permanently Changed

The Worst is Yet to Come

The Worst is Yet to Come

American’s standard of living is undergoing a “permanent change” – and not for the better

There’s no question the American consumer is hurting in the face of a burst housing bubble, financial market meltdown and rising unemployment.

But “the worst is yet to come,” according to Howard Davidowitz, chairman of Davidowitz & Associates, who believes American’s standard of living is undergoing a “permanent change” – and not for the better as a result of:

  • An $8 trillion negative wealth effect from declining home values.
  • A $10 trillion negative wealth effect from weakened capital markets.
  • A $14 trillion consumer debt load amid “exploding unemployment”, leading to “exploding bankruptcies.”

“The average American used to be able to borrow to buy a home, send their kids to a good school [and] buy a car,” Davidowitz says. “A lot of that is gone.”

Going forward, the veteran retail industry consultant foresees higher savings rate and people trading down in both the goods and services they buy – as well as their aspirations.

The end of rampant consumerism is ultimately a good thing, he says, but the unraveling of an economy built on debt-fueled spending will be painful for years to come.

Posted Feb 17, 2009 EST by Aaron Task