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Just eighteen days after bum rushing Congress into passing an $800 billion dollar stimulus bill they didn’t have the time to read, and America wasn’t allowed to see, (because the economy was in such dire straights)…President Obama, on Tuesday, March 3rd, took an unprecedented step by an American President, and told America to buy stocks…

Hmm?

If only 18 days earlier the U.S. economy was on the verge of collapse, an environment so urgent that it required President Obama to break a promise to the American people of publicly posting any stimulus, or bailout bills online for at least five days, before any votes would be taken…

What changed over those 18 days that made it such a good time to buy stocks?

And now that the Widows & Orphans have been drawn back into the market, who’s exiting just in time… as all these terrible Q1 earnings begin to be reported?

Earnings that will reflect a 3:1 ratio of lower (vs. higher) 2009/2010 earnings estimates for the S&P 500.

http://news.moneycentral.msn.com
/ticker/article.aspx?Feed=BW&Date=20090306&ID=9674081&Symbol=SGP

Earnings that will reflect a collapsing ratio of durable to non-durable consumer goods purchases, as noted by Merill Lynch Economist David Rosenberg. People may be spending money on groceries and buying throw-away Chinese trinkets at Wal-Mart, but they are not buying automobiles, appliances, electronics, or making major purchases.

http://www.realclearmarkets.com/The%2520Market%2520Economist%252005%252009%252008.pdf

And there is the elimination of 50% of all available consumer credit, as banks literally turn off the credit spigots, and slash existing credit limits on home equity lines, consumer loans, and credit cards. And given that 2/3rds of U.S. GDP comes from consumer spending - will that be good for stocks?

http://www.forbes.com/2009/04/05/meredith-whitney-transcript-intelligent-investing-credit.html?feed=rss_mostemailed

“In the fourth quarter alone, half a trillion dollars of lines were cut from the consumer, half a trillion. I think there’s going to be $2.7 trillion in lines reduced. So, a 50% cut of the lines outstanding. ”
– Meredith Whitney

But what about all those TARP funds that Paulson, Bernanke, and Geithner have pumped into the banks to stimulate lending to the US consumer?

Does this look like banks are lending money to the consumer?

And if credit is being turned off, won’t consumers just dig into their savings accounts?

What savings accounts?

http://seattletimes.nwsource.com/html/nationworld/2008898320_scared21.html

“A MetLife study released last week found that 50 percent of Americans said they have only a one-month cushion — roughly two paychecks — or less before they would be unable to fully meet their financial obligations if they were to lose their jobs. More disturbing is that 28 percent said they could not make ends meet for longer than two weeks without their jobs.”

50 percent said they have only a one-month cushion or less before they would be unable to fully meet their financial obligations.

28 percent said they could not make ends meet for longer than two weeks.

29 percent of people earning $100,000+/year said they’d struggle to pay bills after a month.

86 percent have cut back spending.

With so much of America living paycheck to paycheck, what about the security of those paychecks?

There have been 7 consecutive negative revisions to the governments “official” unemployment numbers, each adding +100,000 jobs lost to the prior months numbers. Those are the continually revised “government” numbers. Here’s the real numbers…

Don’t believe those numbers?

Here’s another source coming up with basically the same numbers. Leo Hindery is the former CEO of AT&T Broadband. Here’s his take on the jobs issue and the real unemployment numbers in America.

http://www.thenation.com/doc/20090420/hindery_riegle

“There are 12.5 million officially unemployed workers, and America’s nominal unemployment rate is 8.1 percent. But these numbers tell less than half of an already dismal story that just keeps getting worse, with record increases in the number of Americans claiming unemployment and the highest number of officially unemployed workers on records dating back to 1967. When we more accurately and honestly include the 10.7 million workers who are underemployed–either part-time of necessity (8.6 million) or otherwise marginally attached (2.1 million)–and the 3.7 million who are in the “labor force reserve” (because they have abandoned their job search), then the unemployment rate rises to a staggering 16.7 percent.

In all, there are 26.9 million unemployed Americans, who have little or no financial safety net–and, sadly, there are several million more to come. With only 3 million job openings, mostly at the entry level, we cannot be at all surprised that our food kitchens are serving millions of people, our homeless shelters are filled to capacity and Hooverville-type tent cities are cropping up in every region of the country.”

But what about global demand you ask?

Japanese exports are down -49%.

http://money.cnn.com/video/markets/2009/03/25/markets.asia.032509.cnnmoney/

German exports are down by -20%.

http://news.bbc.co.uk/2/hi/business/7934402.stm

And the Baltic Dry Shipping Index has collapsed by 30% over the last month alone.

But those are international stats you say… what about the US?

YRC Yellow Freight just announced the closing of an additional 11 truck terminals, and Amazon.com just announced the closing 3 distribution centers.

http://www.ttnews.com/articles/basetemplate.aspx?storyid=21581

http://www.vnunet.com/vnunet/news/2239394/amazon-shut-shipping-facilities

And here’s thelatest shipping stats for the US railroad industry for the week ending March 21st:

http://www.logisticsmgmt.com/article/CA6646845.html?industryid=48465

“Weekly railroad volume was estimated at 29.3 billion ton-miles by the AAR which was down 13.6 percent from the same timeframe last year. And for the first 11 weeks of 2009, the AAR said U.S. railroads reported cumulative volume of 3,007,032 carloads, which is down 15.6 percent from the first 11 weeks of 2008. Trailers or containers at 2,055,140 were down 15.5 percent, and total volume at an estimated 319.2 billion ton-miles was off by 14.4 percent year-over-year.”

And what about housing and foreclosures?

We’re not even half-way done with foreclosures, as the 2nd wave of prime, jumbo, and option-arms is yet to come:

Watch CBS Videos Online

And Meredith Whitney says US Home Values may fall another 30%…

http://www.housingwire.com/2009/04/07/analyst-home-prices-could-fall-another-30-percent/

April 7, 2009 11:45 AM CST

Analyst Meredith Whitney, well-known for her work at Oppenheimer & Co. and now at her own firm, told cable television news outlet CNBC Tuesday morning that she expects home prices to fall another 30 percent — a bearish prediction that, if correct, means that U.S. banks and mortgage lenders may yet have their worst work ahead of them.

“Home prices cannot bottom while liquidity is still contracting from the economy,” she told the news outlet, predicting that peak-to-trough home price declines will average 50 percent nationally before the nation’s housing crisis is over.

And the next shoe to drop is commercial real estate. Here’s a quote from Daniel Alpert of the RGE Monitor:

“Commercial real estate is just beginning to generate a melt-down of epic proportions. There were $3.3 trillion of commercial mortgages outstanding at the peak of the bubble, of which $830 billion were multifamily mortgages (rental apartment buildings) which we regard as relatively stable. The remaining $2.5 trillion, however, are secured by office buildings, retail centers and malls, hotels and hospitality properties and industrial buildings. Hotels have already hit the wall – we are seeing the disaster that is Las Vegas beginning to be played out all around the country. Retail centers are beginning to lose “in-line” tenants (local retailers, as opposed to national anchor tenants) or are waiving rents in order to keep such tenants from departing and turning shopping centers and malls into ghost towns. Office buildings, generally more resilient, have already seen a dramatic drop off in asking rents and a huge pick up in vacancy that is almost certain to increase. All of these factors take time to translate into mortgage defaults, but that translation is well under way as of this quarter. We expect $300 to $500 billion in lender losses from commercial real estate.”

And today, the IMF suddenly upgraded it’s projected losses for the banking system from $2.2 Trillion Dollars to $4 Trillion dollars.

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6047929.ece

From The Times
April 7, 2009

Toxic debts racked up by banks and insurers could spiral to $4 trillion (£2.7 trillion), new forecasts from the International Monetary Fund (IMF) are set to suggest.

The IMF said in January that it expected the deterioration in US-originated assets to reach $2.2 trillion by the end of next year, but it is understood to be looking at raising that to $3.1 trillion in its next assessment of the global economy, due to be published on April 21. In addition, it is likely to boost that total by $900 billion for toxic assets originated in Europe and Asia.

Banks and insurers, which so far have owned up to $1.29 trillion in toxic assets, are facing increasing losses as the deepening recession takes a toll, adding to the debts racked up from sub-prime mortgages. The IMF’s new forecast, which could be revised again before the end of the month, will come as a blow to governments that have already pumped billions into the banking system.

While in retrospect, March 3rd did turn out to be a good day to buy stocks,
I think today will turn out to be an even better day, to have sold them.

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