As the markets whipsaw back and forth in a nonsensical manner, the greater scheme of things is still unfolding. Analysts who months ago were saying, "We must be at a bottom because it can't get any worse than this," are now eating their words. It has gotten worse. Home sales numbers are worse. Retail sales numbers are worse. Unemployment numbers are worse. Nearly everything except credit spreads have continued deteriorating since autumn.
These analysts were using charts of 30-40 years of economic data (or less) - not coincidently the same length as their careers to date - and noticing that many of the indicators were matching the worst readings of prior recessions of '74, '82 or '90. Therefore, according to their logic, the bottom must have been at hand.
But wait a second. What if the recession was worse than anything they have experienced in their lifetimes? What if we don't have statistics going back further than 40 years on many of these measurements? Then what? These are the questions those same analysts are beginning to ask themselves as numbers fall below levels that were on their charts. They are starting to ponder the meaning of "unchartered territory." This second-guessing and subsequent use of no better word for what they are seeing than "depression," will likely be what leads to the next devastating leg down in the stock market.
Here are a few examples:
The following are a few charts from Calculated Risk:
Above is a chart of total miles driven in the US since the early 70's. It is a 12 month moving average. As you can see, miles driven has fallen below that of even the 70's oil shortages. There has been no shortage of gasoline this time. The fact that gasoline prices have recently fallen in half makes this move even more meaningful.
This is a chart of total US vehicle sales. The gradually sloping upward trend can likely be attributed to growing population over the decades. So adjusting for total population, this chart would be showing an even more drastic decline. Until the auto industry realizes that buyers are waiting for much lower prices, total sales will continue to deteriorate. Judging by the ineptitude thus far in Detroit, I would guess they finally figure that out sometime between "too late" and bankruptcy liquidation.
And finally, we have total housing starts. I wonder what happened to housing starts in the Great Depression. Surely, the number cannot go to zero, but with so much supply looming, what possible reason could there be for this to turn around?
And what about earnings? Well, they've been terrible thus far. Analyst estimates keep getting taken down. Last week they were taken down to -20.2% from -15% the week prior. Remember that these estimates started at +59.3% on July 1st. I would imagine that with this week's terrible reports from Microsoft, Generally Eclectic, and others, we will see another reduction. How low it goes before all the earnings roll in is anybody's guess. But what we know for certain is that there was no legitimate reason for estimates to be that high in the first place. I wrote about this back in early December in "On the Cusp of a Deflationary Depression."
Will the analysts get their way and play the same game for Q1? Or will investors and fund managers wake up to the ruse and front-run their idiocy? You would think that after 5 quarters of missing estimates by 40% or more, these clowns would maybe take a step back and try to figure out what they're doing wrong. Maybe that's giving them too much credit.
Elsewhere, we see other signs of the economy affecting state budgets. Lower tax revenues have caught state governments with their pants around their ankles. Now, after months of finger-pointing and name-calling, services are being cut to prevent total bankruptcy. For example, California Delays Tax Refunds, Suspends Welfare Cheques.
I wonder how the poor are going to react when they go to pickup their monthly handout from the government, and are told, "sorry, not this month." California is not alone. Mike Shedlock writes, 44 States Facing Huge Budgetary Shortfalls. Hungry people are not happy people. Unhappy people leads to social retrenchment and abstinence from outward expressions of wealth - which further reduces consumption. It is a positive feedback loop of social acrimony that is the issue here. I suppose if the states are willing to part with a little bit of their legislative autonomy, the federal government will be gracious enough to lend them a hand.
So with all that going wrong, what else could we think of that could make matters even worse? How about, Obama Administration Firing Economic "Shots Across the Bow" Toward China? Yes, the Obama Administration has taken steps to officially consider China a "currency manipulator." Although the term has been thrown around loosely for years, steps were never taken to make it "official." Now that it appears to be official, the door has swung wide open for trade sanctions.
Perhaps that is the reason behind gold's $40 spike higher today. Perhaps it's something else. It is now sitting at 13 week highs. As I've been mentioning previously, if it holds this level and avoids a massive selloff on Monday, I would have to reconsider my intermediate bearish posture on the yellow metal.
Let me wish my readers a great weekend!