Wednesday, July 22, 2009

"We are now in the early stages of a depression"

More uplifting news from Sprott Asset Management in a report entitled "It's the real economy, stupid" (via Zero Hedge). Highlights (eh, lowlights, I mean):

"We are now in the early stages of a depression. The economic indicators we follow to track real economic activity are all signaling a slowdown of massive proportions. You wouldn’t know it reading the mainstream papers of course – they all focus on the relative decline in the slowdown’s intensity."

In short, the Obama-Pelosi-Reid Stimulus package that was passed, sight unseen, is an unmitigated Keynesian disaster:

Government Tax Revenue Declining:
· 32 of the 46 states whose fiscal year ended midnight July 1, 2009, did not have budgets signed by their Governors. States are grappling with deficits totaling a collective $121 billion...
· Personal income tax, which accounts for more than a third of state revenues, dropped by 26% in the first four months of 2009...
· The US government has spent $2.67 trillion thus far in fiscal 2009, but has only collected $1.59 trillion...
· The US government collected $685.5 billion in individual income taxes so far this year, a 22% drop from the $877.8 billion the government took in during the first nine months of 2008...
· US corporate income taxes plunged 57% to $101.9 billion in 2009, down from $236.5 billion in the first nine months of fiscal year 2008...

Retail Sales Slump:
· The International Council of Shopping Centers (ICSC)/Goldman Sachs same-store sales tally for June was down 5.1% from June 2008, worse than the latest forecast for a 4.5% decline.
· Privately held luxury department store Neiman Marcus Group Inc. posted a 20.8% drop in same-store sales. Abercrombie & Fitch Co.'s same-store sales fell 32%, even more than the 26.6% decline Wall Street had projected. 6

Unemployment Catastrophe:
· The June 2009 jobless rate reached 9.5%, the highest since 1983.
· 4 million Americans have been looking for work for more than 26 weeks, representing 29% of the unemployed – the most since records began in 1948.
· During the last 30 years, Americans who lost their jobs took an average 15.8 weeks to find new positions. In June 2009, the average duration of unemployment was 24.5 weeks, the longest since records began in 1948.
· The number of people collecting unemployment benefits reached a record 6.88 million in the week ended June 27, 2009.
· Approximately six people are seeking work for every job opening, the most since the government began keeping such records...

US Housing Market Failure:
· The annual pace of new home sales is now 342,000, a whopping 32.8% below the rate in May 2008. At the current sales pace, there is 10.2 months worth of inventory overhang sitting on the market, dragging down prices and encouraging potential buyers to wait it out as prices deflate...
· New home sales are down 73% from the all time high of 1,283,000 new homes sold in 2005 (mild recession?)...

Rail Car Loadings Suffering:
· For the first 26 weeks of 2009, US railroads reported cumulative volume of 6,806,892 carloads, down 19.2% from 2008. An excellent quote included in the June report from the Association of American Railroads stated: “Whenever Americans grow something, eat something, mine something, make something, turn on a light, or get dressed, freight railroads are probably involved somewhere along the line. Unfortunately, right now there’s not enough mining, manufacturing and buying going on. So railroads, like most other business sectors, are suffering because of it.”
· Carloads are down 22.5% from the all time high set in the first 26 weeks of 2006.

Stock Market the end of June 2009, the S&P 500 traded at an inflation adjusted P/E ratio of 16.08, implying that investors were willing to pay an average of 16 times earnings for a share in the S&P 500 index. Sixteen times earnings is well below the all time, inflation-adjusted high of December 1999 (44 times), but also well above the lows of 1932 (5.57) and 1982 (6.64). As it turns out, 16 times is almost exactly at the 109-year monthly average P/E ratio – so stocks are trading at their long-term average P/E level in the current environment.

...If this is average – how low is low if investors turn their backs on stocks? There’s the real economy which generates the earnings, and then there’s the investor sentiment/perception which dictates the multiple they are willing to pay for those earnings. We already know that the real economy is in severe decline. What happens if investor sentiment changes?

Sprott foresees one of three stock market scenarios: S&P 500 at 378, 506 or (depression scenario) 189. For comparison's sake, the S&P closed at 954 today.

So the Obama Democrats just rammed through a giant Porkulus package, sight unseen, because it was going to keep unemployment from hitting 8%. It was a complete, abject failure -- just like every other socialist experiment that has ever been tried. Because a central planning model simply can not compete with the free market.

And now the Democrats want to destroy healthcare by nationalizing it.

Shouldn't only one multi-trillion dollar failure be the limit for this vintage of Democrats?

Linked by: Hot Air, Ace, BizzyBlog, Ed Driscoll, Behind Blue Lines, Black Republican, Gina Cobb, Ghost of a Flea, Right Rainbow, Novus2 and Secular Apostate. Thanks!

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