PODCAST-TRANSCRIPT-WEEKLY-UPDATE-2009-MAY-29 (FRANCONOMICS.COM)
Worst Recession in 50 Years, Worst Unemployment Figures in 25 years, No one is prescient (not even Roubini) when it comes to predicting Stock Markets, etc.
Hello, welcome to the weekly economic podcast from Franconomics.com for the week ending May 29, 2009. I am Sam Mishra, your favorite economic podcaster. Now, we are projecting that the Value Drain or looting of America by the wall-street bankers, and colluding regulators has overtaken the American Economy in terms of dollars drained. Where as the American economy is a 14 trillion dollar economy, by which we mean that whereas the yearly GDP or Gross Domestic Product of the United States is 14 trillion dollars per year, the value that has been drained out of Americans now stands at 20 trillion dollars.
How did we come up with this number? If you have read our second in a series of Value Drain articles published on http://www.franconomics.com, you have already appreciated the math behind the $13.7 trillion value drain.
Lets start the podcast with some dismal statistics: The U.S. economy shrank at a 5.7% annual rate in the first quarter, less than the originally calculated 6.1%. Boy, so a decline of 5.7% is not that bad? Please, it is still close to 6%! And following the 6.3 percent pace of decline in the last three months of 2008, the 5.7% drop for the first three months of 2009 has capped the worst six-month performance in five decades, as in FIFTY YEARs. And the Friedmenites keep trying to save banks, and keep peddling greed, and keep chiming the status quo as in we should leave the excutive compensation of the banks to their board of directors. Please!
In other dismal statistics, factories have been hit hard by the recession, and U.S. manufacturing output is expected to decline 12% this year, Also, the market for new homes remains weak. In April, new-home sales were flat, and at an annualized rate of 352,000 homes, were down 34 percent compared with April 2008. Further, the National Alliance to End Homelessness has predicted that at the current rate, the recession will result in 1.5 million additional homeless people within two years. The only good news we have for you is that corporate profits rose 13% from the dismal fourth quarter. But who cares right, when corporations keep laying people off? It is the employment and unemployment numbers we care about as the real measure of the economy here at Franconomics.com.
So, let’s discuss the ramifications of the current unemployment statistics. While you will have to wait until the next podcast to get to our analysis of the unemployment figures for the month of May, which will be out only this coming Friday, we already know that unemployment is at 8.9%, and rising. What is uncomfortable about this number is that this unemployment figure is at a 26-year high! But wait, what is unethical and unacceptable on this front is banks raising fees on everything from overdrawn checking accounts to increasing interest rates on credit cards, using the rising unemployment numbers nationwide as an excuse. Banks are now saying that as unemployment rises, consumers have become riskier, and the higher fees reflect that risk. Banks are also raising some account fees to compensate for higher borrowing costs and to keep prices in line with other financial institutions. What other financial institutions? Aren’t they all part of the same ponzi scheme: insurance, bank holding company, mutual fund company, hedge fund company, consumer banking, business banking, investment banking? And Larry Summers & company are trying to save these banks? Saying that millions will lose their jobs? Well, millions have lost their jobs on main street Mr. Summers. Stem the tide there, as in Main street, if you can. Don’t keep helping Wall Street and your future employers in Wall Street! The Average American can now see through your pranks.
A real economist should take into account this unemployment in the rank and file American household while calibrating the severity of any recession, and not just quarter over quarter negative GDP growths. In any case, because of rising unemployment, now one in 8 mortgages is delinquent – i.e, either behind schedule or in foreclosure. And foreclosures are now routine amongst households who did not take out sub-prime or Alt-A loans. For the foreclosure data released for the first quarter of 2009, of all the loans in foreclosure during the first quarter, 49.8 percent were prime loans and 43.2 percent were subprime. For the listeners who want to revisit the difference in their heads between subprime and prime, prior to the ponzi schemes of banks with liar subprime loans, all mortgage loans were under the prime loan category, as in loans to individuals with high credit ratings, and with a decent mortage interest rate, as in 15 or 30 year fixed mortgage rates. So, if 50% of all foreclosures are now in households who took out these traditional loans, and who had decent credit ratings, we have to ask ourselves, is the housing bubble fully deflated, or will more of these decent American households with prime loans bite the dust in the next few quarters? And what will be the economic ramifications with these new jobless and homeless people on the streets? Will the efforts of the Treasury and the Federal Reserve to save the market cap of banks and to ensure that banks like Goldman pay their executives top bonus again in 2009 not backfire this time around? We think it will! This collusion between the politicians and the bankers to keep milking the gullible American, whether he owns a prime mortgage, or a sub-prime mortgage, has to end! When there is no job security for a meaningful length of time any more, for look at what had happened to GM, Chrysler, and their dealers and suppliers, when Obama goads Americans to take advantage of low interest rates and buy that first home, it sounds really hollow. Come on, do you really want to buy a house when you know that prices are still falling, and prime borrowers with good credit ratings are being foreclosed. If I were you, I would learn the art and science of buying a foreclosed property. I would not do a normal home buying transaction in this situation. If I don’t have the courage to buy a foreclosed property, I would wait until the housing bubble is completely burst.
Let’s end this podcast with a roundup of stocks, bonds, gold, and crude. The Dow Jones Industrial Average rose for its third straight month in May. It's up 29.8% since its March low but remains almost 40% down from its all time highs of more than 14,000. The Nasdaq Composite is up 39.9% since its March low. When this market bounce initially happened, Mr. Nouriel Roubini, who calls himself a web entrepreneur on his Twitter profile, and who has been quite prescient in calling the housing bubble a bubble as early as 2006, said that this was still a bear market, and the bounce was nothing but a dead cat bounce. And the markets have dead cat bounced 30%? A 30% positive move upward is not a dead cat bounce! Those who must have listened to Mr. Roubini have missed this upward move of 30%. Folks, what does this tell you? Don’t listen to experts when it comes to trading the markets, or investing in the markets. In particular, no one can predict short term where the markets will go tomorrow. For our purposes of analysis here, what is to be noted is that to go past its all time highs of 14,000 plus, the Dow will have to move another 5500 points up; and 5500 is 65% of 8500. In other words, the markets will have to move another 65% up from its present valuation before we can say that the bear market is over. So, we are still in a bear market, the stocks have to go more than 65% up to make new highs, and when that will happen is beyond analysis for anyone, whether it is a prescient Roubini or a colorful and often wrong Jim Cramer. One thing is clear, as long as unemployment keeps climbing, and foreclosures keep going up, and mortgage defaults keep rising, all this talk about whether the bear market is over and whether the bull market has started is meaningless. The focus should be on whether the administration should keep massaging the status quo, or should there be radical change. The status quo is that bank jobs and non-manufacturing, non-producing, non-value-adding jobs done by parasites for which they have been pocketing millions in bonus which keeps getting drained from the taxpayer’s pockets through conduits such as TALF, TARP, pPiP, such extraneuous bank and financial jobs should be saved. And manufacturing jobs, where you actually produce some tangible goods, are expendable. Teaching jobs are expendable. Homes where the home-dweller can’t pay the mortgage should be pulled back by the bank and sold again. But banks which could not manage their business and would be bankrupt without taxpayer assistance are hallowed institutions and need to be saved, and their top executives should be made multi-million dollar bonus. Wrong emphasis on wrong things. Wrong policy making by the elitists. This is not change. This is more of the same old same old.
Ok, from stocks, let’s move to bonds. Mortgage bond yields are now higher than before the Fed announced March 18 it would expand purchases of those securities to drive down interest rates on new loans. In fact, Yields on Washington- based Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds climbed to 4.69 percent towards the end of this week. In other words, Fed’s plans to load up the asset side of its balance sheet with toxic assets from the likes of Freddie and Fannie and drive down mortgage rates is not working, and home-buyers should take notice that both 15 and 30 year mortgage rates have climbed upwards in the last couple of weeks. In fact, this concern that Federal Reserve’s efforts to revive the global economy by driving down borrowing costs are failing; might have been the cause of the US Treasueries (as in the 10 Year and 30 year bonds issued by the US Treasury) biggest rout in four months towards the end of this business week ending May 29, 2009. No wonder Geithener is in China, to pursuade the Chinese not to dump US Bonds. If the Chinese dump some, yields will rise further, and inflation will not be far behind. And that is the last thing forclosed jobless Americans need right now.
We have come to the end of this podcast, and in the next podcast we will analyze the almost certain GM bankruptcy. We will also analyze the 100 day progress report of the US Treasury, which was brought to our attention since the last podcast. We noticed one thing, which is quite troubling. The report includes positive endorsements from banks for what it is doing. What do the US Treasury Officials who wrote the report think? That Americans are Stupid??
Tune in again next week for your next weekly podcast. If you noticed, we skipped a podcast for the last week. We decided to give the staff of Franconomics time off for the memorial day weekend. I was there on Myrtle Beach to celebrate with the bikers and the hundreds and thousands of African Americans who marched peacefully on either side of Ocean Avenue until wee hours into the Sunday Morning. It was a good experience, as was successfully ducking one cop, and one park ranger in Jackson Hole Wyoming, both of whom wanted to give me tickets for speeding, but got convinced that I was a poor blogger who would benefit immensely without the financial burden of a speeding ticket. Between you and me though, the burden of a traffic ticket is nothing compared to the social, mental, physical, and financial burden of a mortgage one can’t pay down the line, so WATCH OUT for that wolf on the door, as in the greedy banker who will rob you twice: once while signing off on the mortgage and pocketing a good bonus on the mortgage backed security, and again by foreclosing you and kicking you out of your home, in case you miss 3 mortgage payments because you lose your job or what have you….
So the tip for the travelers amongst you is, don’t cross the legal speed limit in Jackson Hole Wyoming, the cops there have nothing better to do than catch you and give speeding tickets. And for the homebuyers amongst you: watch out. Are you really thinking straight when you sign that 30 year mortgage and giving 30 years of your life to that financial institution? Thank you for listening, and I am Sam Mishra from Franconomics.com, Thank you. You have a great week ahead, stay well, and take care of yourself and your family.
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