Thursday, April 19, 2012

Bottom-Bouncing Economy

“Bottom-bouncing” is the term John Williams of uses consistently to describe the true state of the economy.  The mainstream media would like you to believe that with every slight uptick in the economy, we have hit bottom and are in a so-called “recovery.”  The upticks are reported with wild enthusiasm, while the downticks are brushed over.  The latest bad news for the economy came from the housing sector.  CNBC reported Monday, “In a stark reversal during the heart of the spring housing market, confidence among the nation’s homebuilders dropped in April to levels not seen since January.  An association index measuring sentiment fell three points, changing course after seven straight months of gains. It now stands at twenty-five; fifty is the line between positive and negative sentiment.   ‘What we’re seeing is essentially a pause in what had been a fairly rapid build-up in builder confidence that started last September,’ said National Association of Home Builders Chief Economist David Crowe in a release.”  (Click here for the complete CNBC story.) 
Economy Recovering or a Bottom-Bouncing EconomyMaybe sentiment is down because actual housing starts are also down nearly 6% in March.  But that’s not really the point to focus on according to—it is the overall trend.  In his latest report, Williams said, “March 2012 housing starts fell by a statistically-insignificant 5.8%, versus February 2012, but that was no more than the 40th-straight month of stagnant business activity.  This period of stagnation, or bottom-bouncing at historically-low levels, followed an unprecedented 75% plunge in housing activity from 2006 through the end of 2008.”  (Click here to go to the home page.) 
Williams says a real turnaround in the economy is unlikely without real income growth.  In fact, not only is there no growth in consumer income, but it has contracted since the 2008 financial crisis as shown in this chart:  
Sinking real estate prices have also stopped consumers from using their homes as an ATM which is another roadblock for a true recovery.  Williams said on Monday’s report, “Temporary consumption gains could be fueled by debt expansion, but that option also is not available to most consumers.  With limited prospects for income growth and debt expansion in the near future, broad economic activity remains likely to bottom-bounce for the foreseeable future, while healthy, sustainable gains in real retail sales remain improbable.”
Charles Biderman, CEO of Wall Street research firm Trim Tabs, says the recovery story is being constantly kept alive because of poor government data.  Biderman laughingly calls government statistics a “bad joke” that unquestionably gets repeated in the mainstream media (MSM).  In Biderman’s “Daily Edge” commentary on Monday, he said, “The government reports garbage, and the morons report that garbage as hard facts.”  Biderman pointed out that car sales were down 6% in March, when the government reported a little more than a 1% increase in the same month.  Biderman goes on to say the government’s data is based on “surveys and guesses.”  (Click here for the complete comments from Charles Biderman.)
Charles Biderman, like John Williams, tries to offer his clients a picture of what is really going on in the economy, not a desired expectation.  What these guys see is not a so-called recovery, but bottom-bouncing at best.  In an election year, QE 3 (a third round of money printing) is a lock before November.   

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