Friday, June 12, 2009

Recovery Underway For Now but Consumer Confidence to Take A Hit

By Joshua E. Stone

The economy has showed all the signs I was looking for when it comes to economic data supporting a recovery. In fact the data coming out of the UK is beyond forecasts for the most part. Since this was one of the first economies to start falling, it makes sense this will be the one to start recovering first. I find the forecasts these days for data releases are very incorrect to say the least. There could be a number of reasons for this I am sure, but I am taking it as another sign that no one really knows what to expect in this recovery.
I see signs on the street myself of a recovery taking place, though some of the big projects in town are still waiting for financing so the recovery is not in full force yet. One of the biggest problems is the way the Washington bailouts have kept all the trash stuck under the water. Housing prices are still too high, the stock market is already over valued; worst of all the inflation is simmering with oil at $70 a barrel and gold near 1k.
I fully expect to see oil and gold stay in this range and perhaps surge to even higher levels this summer or next year or even in the coming weeks. The architects of the recovery are failing miserably and they can’t possibly admit it. They have simply ignored the safety harness. Because of all the debt and the decision by the New Administration to focus on healthcare rather than the real problem, energy, we have been set up for a major depression in the not so distant future. Simply put, the “recovery” is already threatened if not derailed by the coming inflation and debt. My guess is this depression will hit us within the next ten years at best. The worst thing is the opposition party seems to be betting on this happening even sooner by the way they scream the sky is falling everyday. I think they will lose the next two election cycles, 2010 and 2012 because the economy will seem to be doing good enough to keep the current majority in power. This will be accomplished mainly with the help of the mainstream media of course, since they are always six months behind the curve on information anyway. They will not report on the major threats facing the US like inflation, energy etc. It will be all about how the opposition foiled and stymied all the efforts of the wonderful party and president who just wanted to pay for our doctor bills. If they do pass healthcare reform, I would expect the depression to kick in much sooner than ten years from now.

All that said, I feel it’s important to remind everyone of something called the Plunge Protection Team. Basically it means that everything in the markets has been being manipulated for a long time already. So with that in mind, I am sure that the New Administration will make sure that stocks and the economy look good enough too keep them and the current majority in power for the next four to eight years at least. They will also use the same rationale that war time President George W. Bush used in 2004: “We can’t change course in midstream.” They have left no stops plugged for this power grab and they are not going to lose it in a mere two years.

It’s easy to predict this one. Some analysts are already doing so. Consumer Confidence is going to go down again. The recent rise in gas prices, coupled with the enormous debts being piled on the tax payer will start taking its toll soon on the consumer. The New Administration has completely disregarded the advice of so many analysts including myself and totally shut out our cries for a Manhattan Project style energy policy. The repercussions of this dereliction of duty make those of us in the financial and business world shudder. As a result I expect Consumer Confidence to start taking some hits as it starts to ease from recent highs made off the record lows recently set by it. This key data is in great danger of taking another plunge now that the policies of the new Administration are becoming clear. Once the policies start being felt then the Consumer Confidence will start taking a sharp plunge. The effects are already being felt at the pump, but this is an early sign and most consumers only have this at the back of their mind as one of those annoying things they can’t face right away because it is still cheap enough to deal with for now. The most disturbing thing for consumers is how fast prices are moving up already. If oil and gold prices stay at current or higher levels, it will leave no room for lower prices while the recovery is in progress. It may even prompt the Fed/FOMC to act with rate hikes too soon. In short the only thing they could have done to get us out of these crises they have not done anything about: the energy crises.
How long this takes to play out is hard to say, I do know the current majority in power in Washington will do what it takes to stay in power for the next four years at least, no matter what it takes, except make energy and fuel cheap. Once we see Consumer Confidence start to fold, the stocks will start doing the same thing at some point. It is quite likely we will see stocks in the S&P near 40% lower than the bottom seen recently in March of `09. I expect this should play out in the next two years if history repeats itself like it usually does.

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