With the systemic problems facing the United States and now being officially in bear market territory, this will be a challenging holiday weekend for many Americans. Already many are planning to curtail any major traveling and are opting to stay at home and possibly doing a barbeque at home because of high fuel costs. […]
Related Posts:
■Bipolar Housing: Lessons from the Great Depression: Part XI. Understanding the Impact of Asset Deflation and Consumer Inflation.
■DOW down Nearly 20 Percent from Peak: Lessons from the Great Depression: Part XII. Is the DOW now Tracking with the California Housing Market?
■The Sham of our Current Unemployment Rate Numbers: Lessons from the Great Depression: Part X. Data Mining.
■The Psychology of Ben Bernanke: The Great Depression was caused by the Federal Reserve. Was he Talking About the current Great Depression that is Sprouting Under his Watch? Lessons From the Great Depression: Part XIII. The Federal Reserve.
■The Plague of Housing: Why we Will Feel and Be Poorer Because of the Housing Bust.
With the systemic problems facing the United States and now being officially in bear market territory, this will be a challenging holiday weekend for many Americans. Already many are planning to curtail any major traveling and are opting to stay at home and possibly doing a barbeque at home because of high fuel costs. Aside from the high cost of fuel, Americans are feeling the pinch of a demoralizing housing market that is causing equity to evaporate as each day goes by. The wealth effect is in full onslaught impacting the psyche of the American consumer. That ever resilient consumer is finally showing an Achilles Heel.
Americans are spending more money on basic necessities and moving away from all things real estate. Nothing can demonstrate this contrast more than comparing Family Dollar Store and Home Depot performance for the year:
Family Dollar Stores operate in 44 states and have 6,400 stores. They normally sell daily items for the house including food, cleaning and paper products, home décor, beauty products, toys, pet products, automotive items, and electronics. They cater to a lower income bracket in our population but are showing surprising strength. Just look at the above graph and nothing can highlight this more. Family Dollar Stores are up 14.14% for the year while Home Depot is down 16.41% for the year. What does this signify? It means families are spending more and more on cheaper daily cost of living items and foregoing big-ticket items. Expect this trend to continue. A family is going to put food on their table before putting a granite countertop in the kitchen.
Oil now seems to be taking the main stage as the topic du jour. I was watching CNBC after the market closed today and the progression of stories seemed to play out as follows: Oil, GM, Iran, Iraq, and finally housing. Keep in mind that the reason the dollar is falling is because of the horrific fiscal mismanagement which was played out in the world credit markets, much of it linked to real estate. In fact, real estate was the vector to spread the disease that is infecting the global economy.
Don’t Tase me Broad
Eli Broad, the billionaire founder of KB Home and philanthropist is now sounding like a doom and gloomer. Earlier this week Broad came out stating that “this is worse than any recession we’ve had since World War II.” As more and more people jump into the bear camp, Broad also mentioned that investors would be “better off in cash” although what form of cash he did not specify:
“July 1 (Bloomberg) — Billionaire investor Eli Broad said the U.S. economy is in the worst recession since World War II and a recovery in the housing market is “several years” away.
“This is worse than any recession we’ve had since World War II,” Broad, 75, said in an interview yesterday. Broad, the founder of homebuilder KB Home, said the U.S. should avoid a depression on the scale of the 1930s because the country now has sufficient “safety nets.”
With home sales and prices declining and consumer confidence at a 28-year low, “I don’t see it turning around very quickly,” Broad said. The economy expanded at an annual rate of 1 percent in the first quarter, the Commerce Department said last week. That caps the weakest six months of growth in five years.”
I think the point of “safety nets” is important because I’m starting to see this argument take hold. Now, instead of people denying the recession they are now trying to discuss the magnitude of the recession. I’ve read a few people make the point that we will not face problems like those that we had during the Great Depression because of safety nets. Now unless you’ve been living under a rock, we are having major problems:
*Click to watch brief clip
There is a growing number of homeless people. In fact, we have a few tent cities here in Southern California. How is this not a problem? Where is the safety net here?
Also, they are telling us that no banks are imploding like during the Great Depression. Oh really?
Unemployment in California is at 6.8%. If we actually look at the details of the BLS report more carefully, the national unemployment rate is near 10%:
Just because we won’t live through the exact same things as the first Great Depression doesn’t mean that this economic downturn will be a walk in the park. Try asking someone that has lost their job, has no access to credit, and has run out of unemployment benefits how easy things are. This is a tough economy and things will only get worse. You have to remember that during that time, the stock market crashed in October of 1929 yet the market bottom was in 1932. Many banks failed after 1932. You can view the stock market as a leading indicator of what will come on main street although many on main street are already feeling the pain.
This will be Part XIII in our continuing Great Depression series. Given that this year will showcase a very crucial election, I think it would serve us well to look at some key aspects of the inaugural talk of Franklin Delano Roosevelt in 1933. Amazingly you will find some of the rhetoric to the point and downright brutally honest.
1. Personal Story by a Lawyer from a Previous Asset Bubble. Can we Learn from the Past and How will the Housing Decline Impact You?
2. Lessons From the Great Depression: A Letter from a former Banking President Discussing the Bubble.
3. Florida Housing 1920s Redux: History repeating in Florida and Lessons from the Roaring 20s.
4. The Menace of Mortgage Debts: Lessons from the Great Depression Series: Part IV: Where do we go After the Housing Crash?
5. Business Devours its Young: Lessons from the Great Depression: Part V: Destroying the Working Class.
6. Crash! The Housing Market Free Fall and Client #10 Contagion.
7. Winston Smith and the Bailouts in Oceania: Lessons from the Great Depression Part VII.
8. Sheep Back to the Slaughter: Lessons from the Great Depression Part VIII: All the Change and Bear
Market Rallies.
9. A Bubble That Broke the World
10. The Sham of our Current Unemployment Numbers
11. Understanding the Impact of Asset Deflation and Consumer Inflation.
12. DOW down nearly 20 percent and in Bear Market Territory.
First Inaugural Address of 1933 - Nothing to Fear Except the Fed
“I am certain that my fellow Americans expect that on my introduction into the Presidency I will address them with a candor and a decision which the present situation of our Nation impels. This is preeminently the time to speak the truth, the whole truth, frankly and boldly. Nor need we shrink from honestly facing conditions in our country today. This great Nation will endure as it has endured, will revive and will prosper. So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself-nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. In every dark hour of our national life a leadership of frankness and vigor has met with that understanding and support of the people themselves which is essential to victory. I am convinced that you will again give that support to leadership in these critical days.
In such a spirit on my part and on yours we face our common difficulties. They concern, thank God, only material things. Values have shrunken to fantastic levels; taxes have risen; our ability to pay has fallen; government of all kinds is faced by serious curtailment of income; the means of exchange are frozen in the currents of trade; the withered leaves of industrial enterprise lie on every side; farmers find no markets for their produce; the savings of many years in thousands of families are gone.
More important, a host of unemployed citizens face the grim problem of existence, and an equally great number toil with little return. Only a foolish optimist can deny the dark realities of the moment.”
Can you imagine any politician having the backbone to tell the American people this in our modern era? Most of the same problems hold. Values have shrunken. Government faces massive shortfalls in tax revenue. Income is hurting. In fact, there is nothing Pollyanna about this speech except the ability to confront the brutal facts of reality. Whatever your perspective both economically or politically, he was able to tell people the reality of the situation unlike Hoover who was trying to maintain the decadence and falsehood of Coolidge prosperity which was fading with each day of the Great Depression. And of course Hoover wasn’t to blame for the depression just like Bush isn’t solely to blame for our economic hardships, but make no mistakes, both sat idly by and did absolutely nothing as Wall Street raided the American piggybank and left the public holding the bag.
My belief is this is a once in a generation economic struggle. Time has sufficiently passed from the Great Depression that many have forgotten the lessons taught to us. The Gramm-Leach-Biliey Act repealed this safeguard in 1999, nearly 66 years later. I suppose enough time had passed to think human nature had somehow evolved. Let us continue with the inauguration:
“Yet our distress comes from no failure of substance. We are stricken by no plague of locusts. Compared with the perils which our forefathers conquered because they believed and were not afraid, we have still much to be thankful for. Nature still offers her bounty and human efforts have multiplied it. Plenty is at our doorstep, but a generous use of it languishes in the very sight of the supply. Primarily this is because rulers of the exchange of mankind’s goods have failed through their own stubbornness and their own incompetence, have admitted their failure, and have abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men….
The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.
Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy and moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits. These dark days will be worth all they cost us if they teach us that our true destiny is not to be ministered unto but to minister to ourselves and to our fellow men….Restoration calls, however, not for changes in ethics alone. This Nation asks for action, and action now.”
The money changers? Talk about taking it to the source. Instead of raking Hank Paulson and Ben Bernanke over their lack of backbone in helping the dollar, they have allowed them to continue on their current path. They have done nothing to help the dollar! You feel poorer because these people are allowing the depreciation of your currency with no intervention. They have the ability to raise rates but won’t. Low rates and lax enforcement of minimal lending standards got us into this mess and apparently they think this will still get us out. Paulson is now calling for more power for the Fed. Bwahahaha! You have got to be kidding me. Clearly in FDRs talk he was making a biblical parallel with the money changers but how many people would get that reference now a days? You’d have to say something like, “we will need to throw out the free loaders from the Real World home and vote off Ben Bernanke from the island. Please text your vote on your iPhone now!”
“If I read the temper of our people correctly, we now realize as we have never realized before our interdependence on each other; that we cannot merely take but we must give as well; that if we are to go forward, we must move as a trained and loyal army willing to sacrifice for the good of a common discipline, because without such discipline no progress is made, no leadership becomes effective. We are, I know, ready and willing to submit our lives and property to such discipline, because it makes possible a leadership which aims at a larger good. This I propose to offer, pledging that the larger purposes will bind upon us all as a sacred obligation with a unity of duty hitherto evoked only in time of armed strife.”
Clearly times were so tough, that many people psychologically were ready to commit to a new form of living their lives. The decadence of the Roaring 20s had brought on a major hangover and many were ready for the morning after remedy. We live in a similar parallel. Can you do without your Hummer? Do you really need three cars for your household? Must you have that plasma TV and put it on your credit card? Is consumption at the mall really the pinnacle of success for our country? Can you forego the family vacation this year? Do you need that McMansion? We have been on a once in a lifetime spending binge and we’ve just mortgaged our future for it. Was it worth it? Many people will be asking these questions at the kitchen table.
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Related Posts:
■Bipolar Housing: Lessons from the Great Depression: Part XI. Understanding the Impact of Asset Deflation and Consumer Inflation.
■DOW down Nearly 20 Percent from Peak: Lessons from the Great Depression: Part XII. Is the DOW now Tracking with the California Housing Market?
■The Sham of our Current Unemployment Rate Numbers: Lessons from the Great Depression: Part X. Data Mining.
■The Psychology of Ben Bernanke: The Great Depression was caused by the Federal Reserve. Was he Talking About the current Great Depression that is Sprouting Under his Watch? Lessons From the Great Depression: Part XIII. The Federal Reserve.
■The Plague of Housing: Why we Will Feel and Be Poorer Because of the Housing Bust.
Via [DrHousingBubble]
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Applied Materials (NASDAQ: AMAT) shares are falling today after an analyst at Citi downgraded the stock to “Hold” from “Buy” and cut their price target on the stock to $20 from $25, citing a decline in semiconductor orders from chip-makers. If you think this stock won’t be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on AMAT.
Updating the story with the final numbers heading into the week end. The market looked sad again today, so I thought I would spot-check 
When Tom talked about 
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