A Dangerous Game of Confidence

I'm going to be very brief and get straight to the point:

Wall Street brokers, Real Estate Hustlers, their touts and pundits seem to think their dangerous con game can prevail despite a major decline in the real economy.

Well, I have news for them: They may have lured a few investors into this most recent stock market rally. But they're certainly not convincing the hundreds of millions of consumers and businesspeople who have to deal with the worst housing deflation, the highest long-term unemployment, and the most chronic credit squeeze ever recorded.

What? You need proof?

1st: Credit — one of the best barometers of consumers' appetite for spending. Either they can and won’t or can’t. Doesn’t matter which.

Compared to the prior year, new borrowing has now suffered its deepest plunge since the 1940’s.

In fact, this is only the second time in the past 60 years that we've actually seen consumers borrow less than they're paying back. The last time was in 1991; this e, the decline is more than TWICE as bad and lasting a lot longer. I don’t know what your doing but I ‘m investing in debt retirement rather than in new debt.

What about the so-called recovery? Well, there was none whatsoever in consumer credit. It has continued plunging virtually nonstop.

#2: Consumer confidence.

Every single survey — by the Conference Board, the University of Michigan, and others — confirm the same trend: Consumer confidence plunged massively as the housing market collapsed.

Then, it rallied moderately with the Obama stimulus package.

And now, it's suddenly suffering a new plunge ... and that spells trouble for the entire U.S. economy.

Ditto for small businesses. The National Federation of Independent Business (NFIB) just reported that its optimism index plunged to a low of 81 in March of last year, enjoyed a moderate rally, and is now falling again! The main reason, according to NFIB, small business credit is in a DEEP RECESSION.

All this is very obvious to virtually everyone in America except the denizens of Wall Street & inside The beltway. Beware. Be afraid, be very, very afraid of anything coming out of the Beltway to “help small business”. It will amount to another over-reach by government. Another form of takeover of private enterprise. It’s tough enough when you borrow from a regulated bank or a private equity “loan shark” like GE Capital. They want just a little bit of control in exchange for they capital. How much control will GovCo Loans Inc take?

Equally obvious, as I explained here last week, are the three main reasons for this great malaise:

The U.S. housing market is now locked into a chronic, long-term depression/deflation, with housing starts over most sectors in a disaster zone, exsiting home sales stalled, commercial equities in the danger zone and high value properties (over 5 Million) seeing unprecedented value deflation.

In just three years, 79 percent of America's largest industry, impacting more  Americans than any other, was wiped away.

Despite a series of government agency programs to shore up the industry ... plus $1.25 trillion poured in by the Fed to buy up mortgage-backed securities ... plus a big tax credit for new homebuyers ... housing starts perked up only a tad.

In fact, this recovery was so small, even after massive government efforts and even at the highest point in their recovery this year, the housing industry recouped less than one-tenth of its historic three-year bust from 2006 to 2009.

Worse, the housing industry has now resumed its decline with foreclosures rising sharply again!
Long-term unemployment in the United States is now the worst since the government began keeping records over 60 years ago.

A record 4.39 percent of the work force — or 46.2 percent of the unemployed — have been out of work for 27 weeks or more. That's DOUBLE the worst level ever recorded and TRIPLE the peak level seen in five of the past six recessions.

Plus, on average, America's unemployed have been out of work for 35.2 weeks, also the highest on record.

Most American consumers and business people clearly see all this in the real world. So they refuse to believe Wall Street b.s. and Washington propaganda. They are fed up and voting "NO" with their dollars each and every day. Do NOT fall victim to those who would lure you back into the same kinds of stocks and bonds that torpedoed your portfolio last time.

Buy down your debt. If you have anything left over, save it. Cash. Hard money, gold & silver. Pick your spot in real estate, but be careful! As The Will Rogers quote says: I buy Real Estate because they ain’t makin anymore of it” still rings true – it has to be the right real estate for your portfolio and there may be more deflation still ahead.

More about that next.

Comments, questions, dissagree - agree ?  

Graphs from Money & Markets