The Recession Is Over

From the WSJ:

The latest to weigh in on the debate is Christopher Rupkey, the New York-based chief financial economist at Bank of Tokyo-Mitsubishi UFJ. In a note this morning, he says a V-shaped recovery — in which the economy not only recovers but rebounds strongly — is “maybe not as far-fetched as you think”.

...

As for claiming the recession may have already ended, he points to a series that in the past has proven a remarkably good indicator of business cycle troughs: weekly claims for unemployment benefits. That series peaked in the week of March 28 when a seasonally adjusted 674,000 new claims were filed; it has since retreated though it remains historically high. If that peak holds, it means the recession likely ended in April or May, he said.

I agree that using the numbers for unemployment are a good leading indicator, but it is only one of the measures. The only thing that I would caution those using it as an indicator would be how the numbers are playing out. Why are the numbers going down? The same reason they shot up so quickly. Unemployment benefits were extended, so many of the unemployed that were not "on the books" because they had exhausted their benefits were suddenly back on the books. Now benefits are starting to expire and those long unemployed are beginning to drop "off the books" again, not because they found work. So while the numbers show unemployment improving, it may be a bit of a false hope and some noise in the data.

What I am watching is job growth, not unemployment shrinking. When the employed can go to work and not fear a pink slip then the recession will be over. I think many are at the point where they have cut the fat so much that they can't cut much more. Those with benefits that have been less than motivated to find a job are going to start looking aggressively. Once the State and Federal Governments figure out how to cut some fat we will be ready to begin building again.

I am in the camp that thinks the recession may be over or soon will be. The thing about recessions is that they aren't officially recognized to begin or end until it has already occurred. They are like the housing market in this respect. If you are waiting for housing prices to "turn around" before you buy, then you have already missed the "sweet spot" that you have been waiting for.

As for a "V" recovery, I just don't see that happening. I think this December will see better numbers than 2008, but only slightly. However, I think that will be the stimulus that consumer confidence needs to begin the upswing. So look for slow to no growth from here to October. In November and December it will begin to pickup as the other side of the "U" recovery begins. By summer 2010 we will definitely be on the upswing, but hopefully with a more moderate angle than the mid 2000's.

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Open Letter To California State Legislature

I encourage everyone to contact their representative to express your own opinion, whatever those may be. Find out who your representative is here: http://www.legislature.ca.gov/port-zipsearch.html

The following is copy of an open letter that I sent to my representatives.

Dear State Representative:

I am writing to express my deep disappointment that the State Legislature has not yet come to an agreement on the State budget.

I do understand that the State budget is a large and complex issue that should not be taken lightly. I feel that I have been abandoned by the California State Government. The State Legislature should be required to be locked in session until the State budget has been resolved.

I am watching intently and waiting for a resolution. My expectation is that the entire Legislature, yourself included, will take the necessary steps and come to an agreement on the State budget and not play the blame game. Instead, you will work with your colleges to come to a decision and a State budget resolution that moves the State and the lives of the 33.8 million Californians forward.

Unless decisive and final action is taken soon, I will have to conclude that the you and the other members of the California Legislature do not have the ability to govern the Great State of California efficiently and effectively and are not worthy of re-election.

I hope and pray that you and other members of the California State Legislature will be able to prove to me that this is still the Golden State and not just a painted brick of lead.

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NBER Announces Recession

The National Bureau of Economic Research (NBER) has announced that December of 2007 has the peak of economic activity. This confirms what many already felt. I recall talking with my Brother-in-law in just prior to New Years Eve in December of 2007 about this. I told him that despite the fact that it had not been announced that we were in a recession, we were in a recession.

Calculated Risk has been using December 2007 as the beginning of the recession for some time now in his research.

From NBER: Determination of the December 2007 Peak in Economic Activity

The Business Cycle Dating Committee of the National Bureau of Economic Research met by conference call on Friday, November 28. The committee maintains a chronology of the beginning and ending dates (months and quarters) of U.S. recessions. The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.
...

The committee determined that the decline in economic activity in 2008 met the standard for a recession, as set forth in the second paragraph of this document. All evidence other than the ambiguous movements of the quarterly product-side measure of domestic production confirmed that conclusion. Many of these indicators, including monthly data on the largest component of GDP, consumption, have declined sharply in recent months.

So there it is. We have been in recession for one year now. The only question remaining now is how long will it take for the contraction to end.

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FDIC Friday Failure

Friday is the most common day for your friendly neighborhood regulator to lock the doors of your the local bank and take it over. The FDIC is keeping busy these days with yet another bank failure. On August 22, 2008 The Columbian Bank and Trust, Topeka, KS was taken over by the FDIC. That brings us to a total of 9 this year. The real question is if the failures of 2008 are the beginning of a 1980-1993 period or more like the period of 1994-2007? The answer to that will be in the numbers for 2008-2009.

Click image for large view of graph

The FDIC has been getting prepared for the coming bank failures for some time now. The FDIC announced on Tuesday, August 22, 2008, that in the second quarter 117 banks and thrifts were considered to be trouble. That is the highest level in 5 years.

From MSNBC.com: Mortgage mess puts more banks at risk

The mortgage mess that has upended millions of homeowners’ finances is now taking a bigger bite out of the nation’s banking system.

And while depositors with insured accounts face little risk of losing their money, the insurance fund’s top regulator said it may have to borrow money from the Treasury to make good on that promise to consumers.

...

So far, only nine lenders have failed this year, the largest of which was Pasadena, Calif.-based IndyMac, which was taken over by the FDIC in July with about $32 billion in assets and $19 billion in deposits. It was the second-largest financial institution to close in U.S. history, after Continental Illinois National Bank in 1984.

Those failures have depleted the insurance fund, which now stands at $45 billion — less than the FDIC is supposed to have on hand, according to Daniel Alpert, an investment banker at Westwood Capital.

...

Bair also told the Wall Street Journal the FDIC couldn’t rule out the possibility that it may have ask the Treasury for capital to tide it over through the coming round of bank failures. The money would be used to pay depositors insurance claims, and then paid back after the assets of the failed bank are sold.

I suspect that 2008 will round out with a total bank failure of 14-17 failures. If you have any uninsured deposits, now may be a good time to shuffle some funds to make sure you are covered. Nothing like finding out your not covered after it is too late. You can visit the FDIC and read about how FDIC insurance works to make sure you are covered. If you have about 20 minutes, you can view this informative video provided by the FDIC which explains what Deposit Insurance is all about. You can skip to the "Common Ownership Categories" section or other relevant sections to hear just the part about how you are covered as an individual.

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A Reflection in the Pond

The United States is not the only economy that is having challenges. China's growth has "slowed" to just over 10%. The U.K. has had issues with bank failures, public confidence, high energy prices and other common problems.

From MarketWatch: Bank of England dove urges quick rate cuts

"I think we are going into recession and we are probably in one right now," Blanchflower told the Guardian newspaper. "It's not too late to stop it but we have to act right now. Monetary policy has been far too tight for too long."

Blanchflower was the only member of the nine-person MPC to vote for rate cuts in May and June. Details of the MPC's July policy meeting will be released Wednesday.

Also Monday, the Ernst & Young Item Club, a closely-watched forecasting group, said the British economy will struggle to avoid recession in 2009, likely growing by just 1%.

Surging inflation pressures leave the Bank of England unable to move interest rates despite the coming slowdown, spelling trouble for household consumption and making for further falls in the housing market, said Peter Spencer, the group's chief economist.

"We have already seen a housing crisis that has morphed from a credit crunch to a general collapse in confidence as prices have tumbled," Spencer said. "Our worry is that without the usual medication from the Bank of England -- which would have nasty inflationary side effects in this environment -- the consumer will follow suit, moving from their current state of denial into a state of despair."

...

Already-overstretched households will likely see real disposable income growth of 1% in 2008 and 1.5% in 2009, the forecast said. Tougher credit repayments will limit consumer spending growth to just 0.2% in 2009. Rising inflation, tighter lending standards and sharp reversals in housing and equity markets will keep consumers under pressure, the forecast said.

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It's the Stupid Economy

I saw this posted at a couple of blogs and couldn't resist passing it on.

From the Daily Show with Jon Stewart:

http://www.comedycentral.com/videos/index.jhtml?videoId=176740

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California Leads Starbucks List

Starbucks has released its full list of store closures. During the quest to have a Starbucks on each corner many were opened in areas that showed large growth in residential homes. I suspect that the areas being closed had large numbers of building permits during the real estate boom. Starbucks probably used the number of permits as a gauge for the amount of growth in population expected. As we all know now, many of these numbers were deceptive. Much of the homes were actually vacant and being purchased by speculators (notice I did not say investors) and flipped for profit to more speculators. Homes that were being flipped to other speculators often were never lived in. This occurred a lot booming areas such as Temecula and other Inland Empire cities which are now suffering most of the real estate slump.

Click on graph for larger image

A total of 617 stores are on the list with California closing the most followed by Florida and Texas. 88 (14%) stores in California, 59 (10%) in Florida and 57 (9%) in Texas.

Visit the full list of store closures and to see if your favorite store is being decaffeinated.

Some of the local cities that are getting store closures are:

CORONA

2

FONTANA

2

ONTARIO

3

RANCHO CUCAMONGA

1

RIVERSIDE

2

UPLAND

1

The list includes stores near the neighborhoods of Sierra Lakes in Fontana and Dos Lagos in Corona.

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A Little Perspective

For those of you that are worried about all the banks failing and not having any money I thought I would provide you a little bit of perspective. The following graph provides some perspective on the bank failures that have occurred since 1934. This data is directly from the FDIC.


Click on graph for larger image


As you can see today's bank failures pale in comparison to the 80's S&L crisis. Despite the shaky economy, the banking system is a long way from a crisis.

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This Too Shall Pass

Forget all the statistics put out by the Government and other private sector reports. Confidence in the banking system stinks! It stinks more than anyone can imagine. Government reports are just now starting to inidicate that the economy is not as hot as they would like. I have known this since October of last year. Many will recall in private conversation that I have been predicting recession. It has been here since December in my opinion. The stats just take a while before they can call it a recession.

Some might want to argue what a recession is. There is an offical definition of what a recession is. According to widespread definition, a recession occurs when real growth of the nations Gross Domestic Product (GDP) is negative for two or more successive quarters of a year. Humbug! The people of America have been in recession for some time now!

We have all seen the headlines. IndyMac was taken over by the FDIC. Just another bank failure in 2008. Banks fail. It happens! IndyMac is just the latest of 5 bank failures this year. It certainly won't be the last bank failure. For a list of bank failures since October 1, 2000 visit the FDIC.

So banks have failed in the past. What is the problem. The problem is that hundreds of customers are rushing to IndyMac to get their money and they can't get to it. According to Peter Viles at L.A. Land customers are waiting in lines for hours and are fainting in the heat.

The FDIC was established in 1934 in response to the bank failures that occurred in the depression. As banks failed, customers rushed to get their money. This resulted in runs on the banks. Sound familiar? To instill confidence in the banking system and to prop up the banking system, the FDIC was created and insures all deposits up to $100,000 per depositor.

What happens when a bank fails? Check out the Frequently Asked Questions about Deposit Insurance.

Why are so many customers rushing to get their money? In my opinion, they have no confidence in the FDIC or the banking system. They feel more comfortable losing money to inflation with their cash in their mattress where they can see it and touch it than they do losing money to inflation with it in the bank where it can be tied up by locked doors. So many have been swindled into bad loans, are losing their home, losing their job, and paying so much for fuel and food that they can barely survive. Pile on top of that the uncertainty of when the housing market will recover, how bad inflation will get, how long fuel prices will cost you more than a house payment, and what direction the next president will be taking the nation.

Many have theories and ideas as to what the answers to those questions are. All I will offer is this too shall pass. There now, don't you feel better.

The president tells you to "take a deep breath." Not much confidence instilled there. That is the problem. The government is not able to restore confidence. Instead of telling everyone to just relax, try to do something or at least pretend to do something that will make us FEEL better. Until you do that nothing will get better. When you figure out the magic words that makes us think it will get better, then this too shall pass.

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Starbucks begins store closures

Starbucks has release a list of the first of 600 stores it will be closing. Starbucks has become known for having a store on every corner. Sometimes more than one in the same shopping center. They were opening stores in areas that had areas of growing real estate values. The prevalence of Starbucks in such neighborhoods caused some to drive their buying and investment activities based upon the presence of a Starbucks. If there was a Starbucks in the neighborhood it was considered to be growing in value and a good place to buy. With sagging home prices and a faltering economy, Starbucks is becoming a less needed luxury. They are becoming a victim of the "latte factor." People are finding that they can save $100-$400 a month by just not going to Starbucks. Is your local Starbucks closing?

For a complete list, visit the Starbucks list announcement. Arizona appears to have been spared.

#9583 - NATIONAL & 36TH
3506 NATIONAL AVE
SAN DIEGO, CA

#10630 - HWY 111 & RANCHO LAS PALMAS
71743 HWY 111
RANCHO MIRAGE, CA

#10710 - FLORIDA & SANDERSON
2801 W FLORIDA AVE
HEMET, CA

#10813 - CANYON SPRINGS & CORPORATE
2692 CANYON SPRINGS PKWY
RIVERSIDE, CA

#10888 - RAMONA & MISSION
4467 E MISSION BLVD
MONTCLAIR, CA

#11029 - LA PAZ & VALLEY CENTER
14689 LA PAZ DR
VICTORVILLE, CA

#11896 - SAN JUAN & MILLER
1280 SAN JUAN RD
HOLLISTER, CA

#13745 - PCH & BOAT CANYON
636 N PACIFIC COAST HWY
LAGUNA BEACH, CA