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From the Rust Belt, a Ray of Sunshine

By Rick Ackerman Posted on January 8, 2010, 4:31 am EST Last Updated January 8, 2010, 7:18 am EST

Here’s a ray of friggin’ sunshine that came a-waltzing into the Rick’s Picks chat room yesterday:  “Good afternoon, gentlemen. Everybody loaded up with E-Mini S&P contracts for tomorrow’s POSITIVE jobs report?  More good economic news today, retail sales up much better than expected for December. E-Mini probably up 15-20 points tomorrow. Yee- haw!”   What makes this comment particularly interesting is that the subscriber who made it lives in Michigan, the very heart of the nation’s Rust Belt. Were we perhaps being churlish to point out that the “much better” retail sales were actually only modestly better than the dismal numbers that had been expected? We did, but Mr. Sunshine was undeterred. “Come on, Rick, he responded. “Things aren’t that bad out there.  Businesses around here are actually doing quite well.”  Where is “around here,” we wanted to know? And which businesses? “Basically, all businesses,’ he replied. “A guy I went to school with who runs a real estate company said business was up substantially from last year. Our local paper mill is running three shifts steady.”   

This-market-has-seen-its-lows

Now, if the credibility of the alleged global recovery hangs on the fact that one Upper Michigan paper mill seems to be humming, and that one Realtor in the same neighborhood has an upbeat anecdote to tell, we’re just not buying it — especially with no corroborating evidence whatsoever in our own town — Boulder, Colorado. One might think that because Boulder turns up on virtually everybody’s Top Ten Places to Live list, that the local economy would be relatively resistant to the Great Recession. In fact, business-tax revenues have fallen so steeply that the town has had to make unprecedented cuts in services. Moreover, few expect things to improve in 2010, and even deeper cuts are being anticipated for next year.  As for the local housing market, although prices have not collapsed as they have in such places as Florida, Arizona and California, the real estate business is on life support. We know about a dozen local Realtors personally, and all of them say this is the worst business environment they have ever seen. One of them who made a lucrative living working the low end — hard-to-qualify buyers — has traded down to the point where he lives so to speak, in a shed and now drives a subcompact instead of a Hummer. Another friend, an erstwhile very successful commercial broker, has moved into health insurance. And so on, and so forth.   

If Things Are So Bad… 

“If things are so bad,” Mr. Sunshine persisted, “and PEs are supposedly too high, then why is the market continuing higher? If things were as bad as you guys say, the markets should be cratering. I’m not saying its all good, but the economy seems to be improving.” There are of course many reasons why the stock market is moving higher – but none, we would argue, that are tied to the condition of the economy or to prospects for the future. The U.S. stock market and others around the world have benefited from a huge excess of financial liquidity, and that is all there is to it. The final word on this went to a chat-room denizen who was probably less bearish than most of us:  “Markets peak during the good news. This one has already priced in recovery. I doubt we head straight down, but with PE’s set to be sky-high, even with decent profits, there has to be a lot more downside than upside.”    

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  • Rich January 8, 2010, 8:38 pm

    Nice pic of Little Miss Sunshine.
    Whole thing remindful of weather forecasters who do not look out the window.
    Quants see 2009 SPX reported earnings up 90% from 2008, and 2010 SPX reported earning up 33% from 2009. Maybe.
    The accuracy of earnings forecasts not dissimilar from weather forecasts…

  • Nitram January 8, 2010, 6:59 pm

    NE Pa USA May I suggest to get a glimpse on one’s net worth go to http://www.zillow.com and type in one’s home address. Click on the 10 year chart on the value of your home in the past 10 years. What becomes troubling is rates haven’t started to rise “YET,” and Joe Six Pack” believes the the US Government controls the rates.

  • mario cavolo January 8, 2010, 6:27 pm

    More Economic Optimism Fresh off the Press on the China Situation from Mario

    Stop paying attention to bubble doom sayers and pay attention to the realities of why the China expansion will continue as seen from a fly on the wall.

    The EXPANSION OF ALL MOTHER EXPANSIONS

    1. China is RIGHT NOW the SAME as the U.S. postwar expansion.
    2. It is fired by huge supplies of FUEL. What is the FUEL? CASH. Trillions of it in the private AND gov’t sector far beyond debt levels. So even with the concern over a gov’t GDP/debt ratio, they HAVE the CASH; the fundamental difference that makes ALL the difference in the world, just like a corporation with 1 billion in debt but also 2 billion in cash.
    3. Embracing American Capitalism N0w..it will be trouble later but now internally it is in the American style boom stage, not yet the bust stage. We’re talking years to go…
    4. Remember here already Is big bureaucracy! While everyone is freaking out in America about the gov’t getting into the banking and other businesses. Here in China, that’s how it already is and its NOT any more of a mess. My online bank account with ICBC is amazing..I can trade stock funds and gold and foreign currencies instantly right in my savings account online!!!
    5. They Building A New Country just like the U.S. started doing in the 50’s.
    MASSIVE expansion of Subways and Hi-Speed Rails. I’m talking half a dozen subway lines being added in each city, not one or two!! Hi-speed rails connecting all major cities at 300+km per hour. They won’t NEED as much oil for airplanes when hispeed train travel is a real option.
    6. Highway building and Automobile boom is also unprecedented
    7. Foreign Investment pointing HERE…2nd half of 2009, its way back up again.

    REAL ESTATE REALITY
    8. Rising Real Estate…”bubble” price problems are in limited areas…not the main sector of middle class society where prices are NOW averaging USD $70-$120 p sqft for a normal, new, reasonable, nice apartment in 90% of the country’s cities. Does that sound like bubble prices?????

    9. Rising Stock Market – admittedly peaky but again with CASH behind it in an unprecedented regional power-shifting economic expansion.

    REAL JOBS

    Really pay attention to this comparison of how much more comprehensive a job for a regular worker / low manager in China is compared to the U.S. This is the reality of typical employment in China with a Chinese Company (with multinationals the salaries are much higher)
    1. A Low Salary (yes I mean low as in the equivalent of minimum wage)
    BUT add the equivalent of + 50% more in benefits
    2. Transportation buses: You are picked up and dropped off as needed for your shifts.
    3. Arrive and eat breakfast!!! 3 meals a day in the onsite cafeteria
    4. Paid Housing!! Shared 2-6 person dorm depending on level. Private apt for managers.
    5. Medical Coverage!! MUST understand that medical expense here are dirt cheap WITHOUT insurance. I’m talking $2 for a doctor visit, $5 for Zithromax, $10 for xrays, $10 for various blood tests, $50 for a CT scan and $100 for an MRI!!
    6. Paid National Holidays 3x/year!!
    7. Paid Overtime/Triple Time!!
    8. Liberal Maternity Leave!!

    Its not a perfect job, but its SECURE and STABLE. Yes there are concerns here, of course But whereas in America making minimum wage at Walmart, getting taxed and having to pay your own rent and your own auto/insurance expenses, you are in MUCH worse shape than a typical Chinese making $500 per month who can still put 50% of it IN THE BANK because they don’t have the $1000 per month in standard budget expenses every American household has.

    PUBLIC TRANS

    With half a dozen subways and 10 buses at each stop and zillions of scooters and bicycles in each city, they don’t NEED cars to get a job!!

    ENERGY

    SERIOUS commitment to green energy – massive wind farms, solar, natural gas, LPG, AND many new nuclear plants. (Shanghai taxi company runs its 50,000 VW’s on LPG!! Did anyone outside of China know that?)

    INTERNAL SPENDING – YES

    For example, the Auto boom is VANITY-driven. But they are not NEEDED, just the newest, greatest modern addition to the nouveau life they have discovered here, right along with I-phones, LCD TV’s, etc. 200,000,000 + Chinese are NEW middle class upgrading their private lives with the American style vanity of the 80’s. REMEMBER they still today have relatively no credit card debt and no mortgages on their homes. In China it is all about the concept of FACE – you MUST understand it.

    MAIN STREET BUSINESS – YES

    Indicator: My AmCham Shanghai jobmail emails are loaded with job offers again.
    Indicator: My corporate trainer friend says the past four months has picked back up again on corporate training budgets.

    Stop wondering and worrying on the China question, as you are getting this from a fly on the wall. Let the above picture of China reality sink in once and for all, spread the word and plan accordingly. China is FINE (fine enough) internally, as is India, too.

    I am putting together a Summit On The New Reality 2010 Conference in Los Angeles mid-March – stay tuned for details on that event. Will be doing a call for investment-related speakers. My new radio show on money: http://www.blogtalkradio.com/grassroots-talks-money Mondays 8pm

    Cheers, Mario

  • Bob January 8, 2010, 2:00 pm

    I am a chiropractor practicing in Northern lower Michigan and can assure you that on this side of the Mackinac Bridge things are anything but rosy. Our patient visits have fallen off noticeably and the word I am getting is that folks are cutting back even to the point of not wanting to part with so much as a measly 5-6 dollar Medicare co-pay.

  • Senor Cuidado January 8, 2010, 12:44 pm

    Dear Pumpers:

    Here you go. Below is a link to a timeline chart of our past (and our future). Notice the strong rally through the end of 1929 continuing into Q1 of 1930… followed by utter grinding devastation. Read the sickening permabull commentaries from the market experts of the era:

    ——1927-1933 Chart of Pompous Prognosticators——–

    http://www.gold-eagle.com/editorials_01/seymour062001.html

    And why is old chart also a timeline of future? Because everyone old enough to have experienced the horror, and to have stood guard during the modern era against a repetition of the horror, is now very much DEAD. That is the “cycle of opportunity” that the financial engineering banksters exploit.

    Glass-Steagall could never have been repealed in the 1970’s or 1980’s because there were still enough victims of the Great Depression alive to be able to block and thwart the bankster agenda. But those victims, guardians, sentries… they eventually all died off and then a few years later Wall Street frontman Hank Paulson swaggered into Washington and proceeded to extort our government and loot our national treasury via a prostituted Administration and Congress, which is a repeat of what happened during President Herbert Hoover’s term.

  • Benjamin January 8, 2010, 12:40 pm

    Even in a bottomless pit, there’s always the point that we won’t ever die from impact.

    More Kool-Aid, anyone?

  • Keith January 8, 2010, 5:43 am

    [The U.S. stock market and other around the world have benefited from a huge excess of financial liquidity]

    Should I expect the excess to stop? Wouldn’t that lead to inflation?


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