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Mark's Market Blog

9-13-09: Unemployment and the False Housing Recovery

By Mark Lawrence

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The market continued its inexorable climb to, um, well, wherever it's inexorably climbing to. Personally, I think this market should have died a couple weeks ago, but for two things: China continues to prop up their stock market, and in the modern global economy propping up one props up all. And everyone with big money expects the market to go down, and the market must work to confound most everyone.


S&P 500 March 9 2009 to September 11 2009

Small banks are seeking a program to provide funds to small-scale, stressed banks on the cusp of a default. Treasury Secretary Timothy Geithner has been suspiciously silent on such a proposal. He may be reluctant to let returning TARP funds roll out the door in such a politically charged climate -- one where every penny of government spending or influence can be decried as socialism. But without some plan, Geithner and the government risk something far worse: cronyism. By pouring hundreds of billions into banks that made the most critical mistakes of the credit crisis, the government rewarded influential institutions. By ignoring small banks, it risks shunning a Main Street already bitter over a perceived inequity about who gets help and who doesn't.

Switzerland has the world's most competitive economy, according to an annual index from the World Economic Forum. America came in second place for the first time. In its ranking of the "soundness" of banks, America fell to 108th position, behind Tanzania.

The Labor Department reported Wednesday that job listings are down 1.1 million, about 25%, from a year ago. Unemployment, now at a 26-year high of 9.7 percent, is "unacceptably high" and will remain so for "a number of years," said Lawrence Summers, director of the White House National Economic Council. In addition he noted the commercial real-estate market is under pressure, and small businesses are having trouble tapping credit.

Americans living in poverty rose to 13.2% in 2008 from 12.5% in 2007. That's the highest poverty rate since 1997.

More than 2/3 of US GDP is consumer spending. With over $57 trillion in total public and private debt, the days credit-fueled consumer spending are over. With a crescendo of talking-heads proclaiming that a U.S. recovery has already started, recent reports of U.S. consumer credit show that this claim is nothing short of absurd. Total U.S. consumer credit plunged by $21.4 billion in July alone, the biggest drop on record, and the sixth, consecutive monthly decline. With vast numbers of jobs being lost, the amount of credit available to Americans collapsing at the greatest rate in history and with U.S. banks planning further cuts in credit, there is zero possibility of any real growth in U.S. consumer spending.

Has the U.S. housing sector bottomed with inventories of unsold homes declining, as has been widely reported? U.S. banks are deliberately keeping millions of already-foreclosed/repossessed homes off the market - a totally artificial and obviously temporary reduction in supply. The U.S. is on pace for more than 4 million foreclosures/repossessions this year alone, yet U.S. banks are on pace to sell less than 2 million foreclosed/properties this year. On the bright side, Zillow.com says my house has increased in value by 46,500 in the last 30 days, $82,000 in the last 60 days. Maybe I should take out an equity loan and throw a big party in Honolulu for all my friends. . . Oh, and $82,000 in 60 days, you mustn't think that's a bubble or anything, that's just people coming to realize the true value of my beautiful house. Another $45,000 next month will also be completely normal and proper. House prices always change as fast as stocks, right?

General Motors is hoping to jump-start its revival by guaranteeing car buyers that if they don't like their new Chevrolet, GMAC, Buick or Cadillac, they have 60 days to bring it back for a full refund. The vehicles must not have more than 4,000 miles on them and the drivers must be current on their payments. GM said it plans to continue its campaign through 2010. The company has been spending about $2 billion a year on advertising. "This is a Hail-Mary pass," said De Lorenzo, publisher of autoextremist.com, a Web site that follows and is often critical of the auto industry and GM. "After this, if they can't move the needle ... I'll begin to be concerned about GM's future."

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