"Why Government Spending Won’t Inspire Consumer Confidence"
"Why Government Spending Won’t Inspire Consumer Confidence"
by Bill Bonner
"Blood ran in the streets again yesterday. The Dow fell another 258 points. A few more days like that and the index will be below 10,000. That ought to make an impression. Among other things, it should help people realize that there has been no recovery…not even a weak one. And there won’t be a recovery, ever. Not of this economy. Today, a chorus of indicators chants a warning. The copper market — down 23% in September — tells us recession is coming. Falling demand for gasoline hints at the same message. Oil — under $80 a barrel — heralds recession. The 10-year US note, yielding all of 1.7%, also screams ‘recession.’ And so do the ‘junk’ bond market and the financial sector — both of which are acting like it was ’07-’09 all over again.
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And it looks to us as though the feds can’t turn this around. Every time, since WWII, when consumers slowed down, the feds intervened. They got the economy revved up by giving it more. This time they can’t do it. Because more no longer works. It no longer pays. Give the consumer more credit? The Fed’s key rate has been at zero for three years already. What else can it do? Further inputs of energy or investment won’t pay off either. Because the innovations that led to such spectacular growth over the last 2 centuries have been fully implemented. Who doesn’t have an automobile? What farm lacks a tractor? Yes, they can be refined and improved…but the era of 5% growth is over — in the developed world.
Trouble is, the economies of the developed countries — and their governments — evolved in an era of growth. They depend on it. Without it, they die. And what can we do? We have to wipe away our tears, turn our backs, and move on. We have to say ‘adieu’…and turn the page.
You know the old expression, attributed to a Rothschild, “buy when blood is running in the streets.” Is it time to buy now? Well, it is certainly true that there are some bargains. Especially in the emerging markets. Our Family Office chief financial strategist, Rob Marstrand, is recommending a stock whose P/E ratio is now below one. You could buy the whole company for what the company will earn in profits between now and next June. It’s a food company that is priced for what Rob calls “vegetable Armageddon.” There’s so much blood in the streets around company headquarters that the cabbages have turned red. Does that mean it is time to buy? Maybe. But the broad market probably has a ways to go…a long ways. Maybe another 3,000 points down. And maybe it will take another 10 years to get there. Stay tuned…
And you think you have problems? Check this out, from The Wall Street Journal:
LEHIGH CRES, Fla. — "Joseph Reilly lost his vacation home here last year when he was out of work and stopped paying his mortgage. The bank took the house and sold it. Mr. Reilly thought that was the end of it. In June, he learned otherwise. A phone call informed him of a court judgment against him for $192,576.71. It turned out that at a foreclosure sale, his former house fetched less than a quarter of what Mr. Reilly owed on it. His bank sued him for the rest. The result was a foreclosure hangover that homeowners rarely anticipate but increasingly face: a “deficiency judgment.”
“Now there are foreclosures that leave banks holding the bag on more than $100,000 in debt,” says Michael Cramer, president and chief executive of Dyck O’Neal Inc., an Arlington, Texas, firm that invests in debt. “Before, it didn’t make sense [for banks] to expend the resources to go after borrowers; now it doesn’t make sense not to.” Indeed, $100,000 was roughly the average amount by which foreclosure sales fell short of loan balances in hundreds of foreclosures in seven states reviewed by The Wall Street Journal. And 64% of the 4.5 million foreclosures since the start of 2007 have taken place in states that allow deficiency judgments.”
- http://dailyreckoning.com/
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