Economic scenario worsens in the US

Jun 3, 2011

Baltimore, Maryland

On Wednesday, the US stock market took its biggest drop of the year. Thursday, the Dow shed another 41 points.

Treasury yields - on 10-year notes - fell below 3%.---------------------------------------------- Don't Miss! ----------------------------------------------

He's the Oracle of Omaha.

He's the world's most successful investor.

Your guess is right.

The Warren Buffett Quiz. Click Here to participate. It's Free!


US financial stocks took their worst beating in 10 months.

Even gold gave up ground yesterday, with a $10 drop.

What spooked investors?

Maybe they're catching on. There's already a 'double-dip' in the housing sector. Now analysts are talking about a double-dip in the entire economy. They don't know it, but the economy has probably already dipped. Properly adjusted for inflation, growth is negative. Further adjusted per capita, it is even worse.

The ISM manufacturing index dipped in May.

"Horror for US economy as data falls off cliff" says a CNBC headline.

CNBC seems to be hiring writers from the London tabloids. The story continues:

"It seems that almost every bit of data about the health of the US economy has disappointed expectations recently," said Mark Riddell, in a note sent to CNBC on Wednesday.

"US house prices have fallen by more than 5 percent year on year, pending home sales have collapsed and existing home sales disappointed, the trend of improving jobless claims has arrested, first quarter GDP wasn't revised upwards by the 0.4 percent forecast, durables goods orders shrank, manufacturing surveys from Philadelphia Fed, Richmond Fed and Chicago Fed were all very disappointing."

"And that's just in the last week and a bit," said Riddell.

"And right now, the economic data is suggesting that however measly you may think a 3 percent yield is on a 10-year Treasury, the yield should probably be a fair bit lower given what's going on in the US economy," said Riddell.

"You've also got to wonder at what point the markets for risky assets start noticing, too."

"QE3 anybody?" asks Riddell.

Riddell is right. Almost all the news is bad. The press talks about a soft patch' for the recovery. But there is no recovery.

The latest jobs report puts the number of jobs created last month about 140,000 short of expectations. There were 177,000 new jobs created in April - barely enough to keep up with population growth. But in May the number of new jobs, according to ADP, dropped to 38,000.

And here's the report from AP:

WASHINGTON (AP) - Hiring may be slowing after months of healthy job gains that helped drive economic growth.

The government's May jobs report, to be released Friday, is expected to cement evidence that the economy has weakened in the face of high energy prices, scant pay raises and a depressed housing market. Analysts have been rushing to scale back their forecasts for job creation.

Persistent economic weakness could also imperil President Barack Obama's prospects in the 2012 election. Pressure to focus on debt reduction was heightened Thursday by a warning from Moody's Investors Service. The credit rating agency said it might downgrade the nation's credit rating if the government failed to make progress in raising the debt limit in coming weeks. Republicans say they will agree to raise the limit only if Democrats back deep spending cuts.

Higher gas prices have left less money for consumers to spend on other purchases, like furniture, appliances and vacations. And average wages aren't even keeping up with inflation. As a result, consumer spending, which fuels about 70 percent of the economy, is growing sluggishly.

In recent days, economists have sharply reduced their expectations for hiring in May. Nomura Securities now projects a gain of 85,000, down from 175,000 earlier this week. The consulting firm High Frequency Economics cut its estimate to only 50,000, from an earlier target of 200,000.

And don't talk to us about housing!

More news:

And more thoughts...

*** Want to know what else sucks?

Associated Press adds a few things:

- The number of people applying for unemployment benefits remains stuck at a level that signals weak job growth.

- Factories received fewer orders for computers, autos, industrial machinery and other goods in April.

- Small businesses are hiring less. May marked a second month of weakness after solid gains in February and March.

And we'll add some things of our own. Australia, for example. Its economy is shrinking at a 4% annualized rate. And car sales...especially sales of small cars - GM's sales went down 1% in May, just when people should be preparing for their summer motoring vacations. And China. No one knows what is going on there, but where we're sure something sucks.

Always looking on the bright side, we ask: so where is the light at the end of this tunnel?

Answer: a long way off.

*** Societe Generale is either a great bank...or merely an absent-minded one.

Most banks won't tolerate analysts with original - or negative - ideas. SocGen is an exception. The headquarters is in Paris. But in London, it has several strategists and analysts who are some of the best thinkers in the business.

Maybe they get away with it because the French managers in Paris don't know what they are up to.

Our friend Dylan Grice, for example, is calling for hyperinflation in Japan. And here is another SocGen strategist, Albert Edwards, predicting that the yield on the 10-year T-note will fall to 2% and the S&P will drop 70%.

Dear Readers will notice that this is not a happy scenario. They will also be quick to identify it: it's a Great Correction!

*** The poor bear. He took a good whack at the stock market in '08-'09. And then, chased by the feds, he retreated to his lair. And there he has waited...patiently...brooding, preparing his next move.

This week, we heard him growl. Whether he has come out at last...and whether he will give investors a good chase...we don't know. Only time will tell.

Stay tuned.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Recent Articles

A New Infrastructure Boom March 26, 2019
Selva Freigedo talks about the potential in 5G network and how it could transform the way we communicate.
A 40 Somethings Guide to YouTube Hits March 20, 2019
Vivek dwells into a new YouTube phenomenon.
As the Economy Slows Down, Maruti and Two-Wheeler Companies Cut Production March 19, 2019
The country's largest car maker has cut production by more than a fourth.
In Supporting Demonetisation, RBI Behaved Like an Old Uncle Not Willing to Take a Stand March 13, 2019
The minutes of the meeting of the RBI Board which happened before demonetisation have been released.

Equitymaster requests your view! Post a comment on "Economic scenario worsens in the US". Click here!

4 Responses to "Economic scenario worsens in the US"

Sumit Basu

Jun 3, 2011

I am a regular reader of Daily Reckoning for the last one year. I was slowly turning skeptical about your thesis that the US economy is in a great correction and everything will come down after Bernanke's steroid is taken away. But the events during the last few weeks made me change my opinion and now I am convinced that your predictions about the course the US and world economy will take in short to medium term cannot be more correct. I am amazed that Bernanke and some of the nobel laureate economists could not see it coming the way you saw it months ago. Thank you for sharing some of your wisdom to lay readers like me.



Jun 3, 2011

I think it's about time you moved out of the US coz I can clearly see you getting drowned in negativity very soon. There's not an iota of positivity in any of the articles you write and what you're writing is totally out of context to a lot of economies. Hope Daily Reckoning is either custom made for India or it doesn't get published here at all. I for one will surely unsubscribe if I see one more negative and hopelessly pessimistic article.
May God give you light.


Maulik Suthar

Jun 3, 2011

Dear Bill.

Here are some quotes which may help.

Mountain-high though the difficulties appear, terrible and gloomy though all things seem, they are but Maya. Fear not, and it is banished. Crush it, and it vanishes. Stamp upon it, and it dies.

---Swami Vivekananda

Be a hero. Always say, “I have no fear.” Tell this to everyone—“Have no fear.”

---Swami Vivekananda
The whole secret of existence is to have no fear. Never fear what will become of you, depend on no one. Only the moment you reject all help are you free.
---Swami Vivekananda

Fear is death, fear is sin, fear is hell, fear is unrighteousness, fear is wrong life. All the negative thoughts and ideas that are in the world have proceeded from this evil spirit of fear.

---Swami Vivekananda

Maulik Suthar
Gandhinagar, India



Jun 3, 2011

Respected Bill Bonner & Eq.Master Team !
Your eloquent prognosis prompts me to cite a very relevant analogy that comes to my simple mind in this context (so as to fortify only) the wisdom inherent therein !! I am not an economist nor do I have any experience in handling such sensisitve matters etc.

An individual somehow got both his feet entangled in the Quick sands ! When he was struggling to pull out one feet therefrom the presuure exerted on the other feet made it go further deeper into the quicksands!!

The present precarious predicament being encountered by the Greatest Economy in the recent past(just like the two legs of the person cited in the example above (the two legs of the person could eminently BE SUBSTITUTED WITH the QE 1, QE 2 when you have an apt/appropriae analogy of the exact scancenario of that economy ??

I hasten to conclude !!

Equitymaster requests your view! Post a comment on "Economic scenario worsens in the US". Click here!