Recovery?

Do you believe all the happy talk about economic recovery underway? It's reminding me too much of what we heard in the first halves of the last 2-3 years, that the second half would turn up. But it didn't each time, based on the reality of rotten fundamentals. Call it a syndrome of premature bottom-calling.

For a better take, start with this quote by Megan McArdle on Friday's NPR "Marketwatch":

... I think that there's certainly a lot of bear analysts, who are looking at this and just don't see how it can possibly be sustained.

The United States has gigantic fiscal problems coming down the pike, the Fed has ballooned its balance sheet to a point, where at some point soon it's got to start disgorging some of this massive build up and where is the secular growth coming from? Where is the new growth going to come from in the world economy?

An Op-Ed in the New York Times by Sandy B. Lewis and William D. Cohan (via Huffington Post):

We’re concerned that nothing has really been fixed. We’re doubly concerned that people appear to feel the worst of the storm is over — and in this, they are aided and abetted by a hugely popular and charismatic president and by the fact that the Dow has increased by 35 percent or so since Mr. Obama started to lay out his economic plans in March.

Karl Denninger, admittedly a bear:

I said at the time the PPIP was announced that the only way it would "work" is if the banks were able to cheat - that is, bid on their own assets, thereby taking a known-size hit but exiting their positions, dumping them on the taxpayer. The banks are carrying this stuff at or near par, and to recognize market value would render them all insolvent.

But the FDIC has said "no cheating" - and as soon as Bair came out with that statement the writing was on the wall: No PPIP.

Unemployment increased to 9.4%, and if you look at U6 (my favorite) the rate is really 16.4% (!) Those numbers come off the household survey, as opposed to the book-cooking games.

Now maybe you can tell me how we take an economy with 70% consumer spending, take 16.4% of consumers out of the spending force, add rising (rapidly!) long-term interest rates for mortgages (which will prohibit the banks clearing all that bad paper), shut down the PPIP and tell us all how with a GAAP P/E on the S&P north of the 1999 highs equity prices make sense.

And Charles Hugh Smith's "Why the Present Depression Will Be Deeper than the Great Crash of 1929".

Lots of bad loans are still there, mortgage rates are rising, impacts of California's budget mess are still ahead, Westside housing inventory is at near-record levels, and the dollar is weakened from huge increases in borrowing for stimulus. I can't believe the bear is gone.