Mystery Economic Theater 2010

[ewmayer]

Oh, good grief ... here we go again ... Guys, can we please try to keep the political/personal flame wars out of the main thread?

Gonna unilaterally impose a moratorium on further "debate" about the Clinton budgets here, because I consider that issue SETTLED beyond any reasonable doubt, to the effect that:

1. The late Clinton budgets were closer to balanced than at any other time in the last few decades;

2. Those budgets benefited to no small extent from the one-time windfall of the still-inflating dotcom stock-market bubble, and as such Clinton deserves no kudos for the good fortune that he exited just before the effects of dotcom blowing sky-high impacted revenues.

3. While Clinton may have had urges to spend large sums on e.g. social programs, having to work with a Republican congress restrained such spending, to some extent.

4. Irrespective who succeeded Clinton, there would have been a massive hole blown in the budget due to dotcom busting. But Bush went out of his way to make things far, far worse by way of irresponsible tax cuts which disproportionately benefited the rich, and (after 9/11) starting 2 wars, the larger of which was completely unjustified and actually detracted from the stated "real mission" of going after Al Qaeda.

5. Quibble all you want about accounting methodologies, the *fact* is that by the only honest accounting methods ever invented, (total revenues - total expenditures), the federal deficit increased every single year under Reagan, Bush Sr., Clinton, Bush Jr., and (so far) Obama.

Call me a forum Nazi, but any more posts containing "debate" about the mythical "Clinton balanced budget" or "budget surpluses" are gonna get deleted with extreme prejudice.

Cheesehead, any more atomic-level post-dissective diarrhea like the above from you will also be subject to vaporization without trial. Robust debate is one thing, your special kind of obsessive "but he said on line 25, paragraph (b) of post #117 in thread #5865384 that ----, which by his own more-recent admission..." is entirely another. (*And* you felt the need to *again* claim a Clinton surplus based on your Holy Table 1.1, which has already been *factually* debunked because it omits Social Security "borrowings", i.e. engages in accounting trickery ... just like every "official Federal budget" of the past 30-or-so years has. We do not base discussion of real economics and finance on accounting fraud here ... you want to do that, do it on your own time, or start a mutual-support thread where you can engage in Ponzi accounting with the folks who ran the Repo105 scam with Dick Fuld.

Fair warning - now, back to our previous discussion about the economy...

--------------------------------

Matt Taibbi has a blog posting about the just-announced departure of Christina Romer from Obama`s economic-policy inner circle:

Are We In a Recession or Not?

To me the interesting thing about Christina Romer’s story is that she decided to leave at exactly the same time a horrific piece of news about jobless claims came out. The country lost 131,000 jobs in July, a much bigger number than anyone expected, and the key reason seems to be that the Obama administration made faulty calculations in its effort to boost unemployment via the government till – the end of Census jobs was apparently a major killer in the recent job stats. “The private sector is still hobbled,” said Robert A. Dye, senior economist at PNC Financial Services Group in Pittsburgh, “and certainly is not nearly strong enough to overcome the drain on the government side.”

This is interesting because Romer was the Obama administration official who was loudest in her advocacy of a much bigger stimulus, with the idea that the administration’s economic strategy should have been based around creating jobs and shaving unemployment as quickly as possible. "You don't get your budget deficit under control at a 10 percent unemployment rate," she said last year. The final stimulus number ended up being $787 billion; Romer reportedly wanted that number at $1.2 trillion and wanted the job creation efforts to be more elaborate and focused on long-term, permanent positions as opposed to stat-juking temp gigs like the Census.

In the end the most telling thing about Romer’s resignation is that she was really the only person close to Obama’s economic inner circle who isn’t a former Clintonite or Rubinite and isn’t either a former Wall Street banker or, like Geithner, a public-sector tool of Wall Street. (Even Orszag’s replacement, Jacob Lew, is a former Citigroup official who worked in the Clinton White House with Rubin). And the reason that is significant is because the economic data being presented to us these days suggests two completely different narratives, depending on your point of view.

If you’re on Wall Street, and you’ve seen the stock markets recover and the banks go from virtual insolvency two years ago back to record profit numbers now, then like Summers you’ll think “everybody agrees” that the recession is over.

If however you’re just some schmuck looking for a job somewhere outside the Beltway and/or lower Manhattan, and you’re noticing that the only easy job openings this year were temp gig taking census surveys (and even those have dried up), then your view of things is going to be no way the recession has ended, “of course not.”

In economics as in all other things, it all depends on how you look at things – and if everyone in the Obama White House is looking at things from the same vantage point, that sucks and is dangerous. Not that Christina Romer was a savior by any stretch of the imagination (one source of mine called her “totally mediocre”), but she was at least not completely a Wall Street pod job – she was pretty much the last inner-circle adviser who wasn’t, and now she’s gone, for whatever that’s worth.

[xilman]

Originally Posted by ewmayer

Call me a forum Nazi, but any more posts containing "debate" about the mythical "Clinton balanced budget" or "budget surpluses" are gonna get deleted with extreme prejudice.

Very well, if you insist: you are a forum Nazi.

I declare that Godwin's Law applies and, anyway, you probably meant to type terminated with extreme prejudice.

Can we now return to our scheduled tedious haranguing please?

Paul

[ewmayer]

Moral hazard aplenty in this NYT piece about the tide of defaults in home equity loans:

Debts Rise, and Go Unpaid, as Bust Erodes Home Equity

PHOENIX — During the great housing boom, homeowners nationwide borrowed a trillion dollars from banks, using the soaring value of their houses as security. Now the money has been spent and struggling borrowers are unable or unwilling to pay it back.

The delinquency rate on home equity loans is higher than all other types of consumer loans, including auto loans, boat loans, personal loans and even bank cards like Visa and MasterCard, according to the American Bankers Association.

Lenders say they are trying to recover some of that money but their success has been limited, in part because so many borrowers threaten bankruptcy and because the value of the homes, the collateral backing the loans, has often disappeared.

The result is one of the paradoxes of the recession: the more money you borrowed, the less likely you will have to pay up.

“When houses were doubling in value, mom and pop making $80,000 a year were taking out $300,000 home equity loans for new cars and boats,” said Christopher A. Combs, a real estate lawyer here, where the problem is especially pronounced. “Their chances are pretty good of walking away and not having the bank collect.”

My Comment: Much as the banks and predatory mortgage lenders are to blame in this, some of the commentary from deadbeat debtors in te article is also disgustingly disingenuous and self-serving, the old "I am but a mere victim of happenstance" dodge. For instance:

But the borrowers argue that they are simply rebuilding their ravaged lives. Many also say that the banks were predatory, or at least indiscriminate, in making loans, and nevertheless were bailed out by the federal government. Finally, they point to their trump card: they say will declare bankruptcy if a settlement is not on favorable terms.

“I am not going to be a slave to the bank,” said Shawn Schlegel, a real estate agent who is in default on a $94,873 home equity loan. His lender obtained a court order garnishing his wages, but that was 18 months ago. Mr. Schlegel, 38, has not heard from the lender since. “The case is sitting stagnant,” he said. “Maybe it will just go away.”

Mr. Schlegel’s tale is similar to many others who got caught up in the boom: He came to Arizona in 2003 and quickly accumulated three houses and some land. Each deal financed the next. “I was taught in real estate that you use your leverage to grow. I never dreamed the properties would go from $265,000 to $65,000.”

My Comment: That`s right, the lender put a gun to Mr. Schlegel`s head and forced him to leverage up in order to finance a speculative house-flipping scheme. And apparently he was never taught in "Real Estate Skool" that speculative investing involves risk ... oh wait, in modern-day America, it doesn`t, at least if you`re a big (individual or corporate) risk-addict and deadbeat. Reminds me of the Seinfeld episode in which Kramer defends the defrauding of insurance companies by saying of the resulting loss to the insurer; "Oh,they just write it off". None of these idiots ever bothers to ponder "...and just where do they 'write it off' to?" Let`s see ... the lender 'writes it off' to a securitizer, who 'writes it off' to one of the government bailout programs ... and if it`s some of the debt that ended up on the Fed`s balance sheet, when they prove unable to sell it back to the private capital markets at par, they "just write if off" in the sense that they never end up pulling the 'temporary' monies they created by fiat to buy the debt back out of the financial system, which inevitably causes debasement of the dollar, which acts as a tax on the prudent,the folks who still actually have some savings, on top of the insult of earning near-zero interest on those savings for years due to the Fed`s "quantitative easing". Very nice - great way to encourage the kind of capital formation vital to any sustainable economy, guys.

[ewmayer]

Robert Reich`s latest:

America’s Biggest Jobs Program -- The U.S. Military

America’s biggest — and only major — jobs program is the U.S. military.

Over 1,400,000 Americans are now on active duty; another 833,000 are in the reserves, many full time. Another 1,600,000 Americans work in companies that supply the military with everything from weapons to utensils. (I’m not even including all the foreign contractors employing non-US citizens.)

If we didn’t have this giant military jobs program, the U.S. unemployment rate would be over 11.5 percent today instead of 9.5 percent.

And without our military jobs program personal incomes would be dropping faster. The Commerce Department reported Monday the only major metro areas where both net earnings and personal incomes rose last year were San Antonio, Texas, Virginia Beach, Virginia, and Washington, D.C. — because all three have high concentrations of military and federal jobs.

This isn’t an argument for more military spending. Just the opposite. Having a giant undercover military jobs program is an insane way to keep Americans employed. It creates jobs we don’t need but we keep anyway because there’s no honest alternative. We don’t have an overt jobs program based on what’s really needed.

For example, when Defense Secretary Robert Gates announced Monday his plan to cut spending on military contractors by more than a quarter over three years, congressional leaders balked. Military contractors are major sources of jobs back in members’ states and districts. California’s Howard P. “Buck” McKeon, the top Republican on the House Armed Services Committee, demanded that the move “not weaken the nation’s defense.” That’s congress-speak for “over my dead body.”

Gates simultaneously announced closing the Joint Force Command in Norfolk, Virginia, that employs 6,324 people and relies on 3,300 private contractors. This prompted Virginia Democratic Senator Jim Webb, a member of the Senate Armed Services Committee, to warn that the closure “would be a step backward.” Translated: “No chance in hell.”

Gates can’t even end useless weapons programs. That’s because they’re covert jobs programs that employ thousands.
...
The Pentagon’s budget — and its giant undercover jobs program — keeps expanding. The President has asked Congress to hike total defense spending next year 2.2 percent, to $708 billion. That’s 6.1 percent higher than peak defense spending during the Bush administration.

This sum doesn’t even include Homeland Security, Veterans Affairs, nuclear weapons management, and intelligence. Add these, and next year’s national security budget totals about $950 billion.

That’s a major chunk of the entire federal budget. But most deficit hawks don’t dare cut it. National security is sacrosanct.

Yet what’s really sacrosanct is the giant jobs program that’s justified by national security. National security is a cover for job security.

This is nuts...

My Comment: And the markets just had their first Hindenburg-omen event since June 2008 today. This being in the wake of the Federal Reserve`s failure to reassure the Ponzi players via their announcement of what fell so far of deserving the name "QE2" that it was really more "QE(1+epsilon)", one ZH reader quipped to the effect that today`s omen should be called "Fed Zeppelin". Have a nice weekend, everybody.

[ewmayer]

Interesting piece in the Minneapolis Star-Tribune about the growing legion of attorneys specializing in fighting against overaggressive debt collectors ... these 2 groups really deserve each other:

Debtors in court -- suing collectors. Using legal tactics pioneered by a Minneapolis attorney, debtors are striking back.

Minneapolis attorney Pete Barry points expectantly at the video screen, drawing the attention of the 16 attorneys in the hotel conference room who've come to learn his trade secrets.

On the screen, a debt collector with spiky hair is squirming, his eyes darting back and forth as Barry barrages him with questions.

"You see!" Barry yells triumphantly. "He's lying. Collectors often lie. If it's between me and him in front of a jury, I'll win every day."

Hounded by collection firms that buy unpaid debts and relentlessly pursue debtors through court judgments, many of Barry's clients have turned to him for relief from what they contend is nothing short of harassment.

Yet the legal movement Barry helped create -- by training hundreds of lawyers at grueling, 30-hour boot camps that cost $2,500 per head -- has begun to look more and more like the collections industry he despises.

Federal lawsuits by debtors against collectors have soared sevenfold over the past decade, in a mirror image of the huge jump in collections judgments that Barry and others accuse debt collectors of churning out mill-style without regard to accuracy.

My Comment: What most struck me about the article, though, the was following snip:

Some debtors, armed with scripts and recorders given to them by attorneys, have goaded collectors into making abusive comments that violate the federal Fair Debt Collection Practices Act, or FDCPA. At least 80 people have sued creditors more than 10 times under the law. On message boards and blogs, debtors brag of gaming a system that is otherwise stacked in favor of lenders.

Troy Scheffler of Coon Rapids has sued debt collectors nine times in federal court, more than any other Minnesotan. While his debts continue to grow and his credit is ruined, the lawsuits stopped most of the phone calls and "put food on the table," he says without apology.

The industry considers many of the lawsuits frivolous.

"We have a growing culture of evasion in this country," said Steve Rosso, a St. Paul collections attorney. "More and more people are saying, 'Look, why are you bothering me about this petty little debt when those guys on Wall Street are getting off scot free.'"

My Comment: This nicely captures my beef with the federal government not going after the Wall Street crooks who helped bring us the ongoing recession/depression and financial crisis: Beyond encouraging moral hazard by bailing out many of said crooks` firms, by so blatantly refusing to enforce the laws of the land despite clear and overwhelming evidence of high crimes having been committed, the Feds are encouraging a large-scale culture of lawlessness and "do unto others" ... ranging from underwater-on-their-mortgage strategic defaulters (many of whom most certainly were not hapless victims of evil predatory lenders as the stereotypical tear-jerking local news pieces portray) and rent-free squatters, to serial debt defaulters as described in the above article, some of whom are quite likely collecting unemployment checks at the same time. Nobody is held accountable for their actions, and the rot starts at the top and oozes its way through the entire fabric of society.

[Aside: For the amateur etymologists out there, the expression "scot-free" comes from the old English (by way of Norse) scotfreo, "free from royal tax"...the word 'scot' refers not to those wild folk from the far northern reaches of Olde England but rather to "A local tax, paid originally to the lord or ruler and later to a sheriff.

Which begs the question: Is getting off scot-free the same as welshing on one's obligations?]

[Fusion_power]

I have a strong sense of instability in the econo-market recently. It is a feeling of hanging on a precipice about to fall with fingers slipping and a scream gurgling up in your throat. The "hindenburg" indicator mentioned above appears to be a good indicator of instability. We will see shortly if my pessimism is warranted. September is historically a month that brings an inordinate amount of major events in the market. Sometime between the 15th and 30th would fit.

Perhaps now would be a good time to take out a carefully considered short position.

DarJones

[ewmayer]

Originally Posted by Fusion_power

I have a strong sense of instability in the econo-market recently. It is a feeling of hanging on a precipice about to fall with fingers slipping and a scream gurgling up in your throat. The "hindenburg" indicator mentioned above appears to be a good indicator of instability. We will see shortly if my pessimism is warranted. September is historically a month that brings an inordinate amount of major events in the market. Sometime between the 15th and 30th would fit.

Well, the HO - the name is unfortunate because it makes it sound much more tinfoil-hat-voodoo-market-predictive than it is - is far from a bulletproof crash predictor, but some seem to be constructed in a way that is a good gauge of overall imbalances and disconnect-from-fundamentals in the markets. We all know that diconnects from reality can go on for years, but the HO seems a good predictor specififcally of when disconnects begin to register and manifest themselves by way of increased volatility and what I call "market schizophrenia". If the global macro picture confirms the trend, watch out. Mish was just commenting this morning about Japan appearing to slide back into recession at the same time the Yen is rallying.

Perhaps now would be a good time to take out a carefully considered short position.

I've been shorting into every multi-day meltup rally the past 5-6 months ... main thing is to realize that the markets could stay in this rangebound bipolar-sawtooth mode for quite a while still. This is where the macro picture comes into play: The reason I don't attempt to play near-term-oversold conditions by switching to the long side is that the dire macro picture tells me that the next really big move in the global equity market s is with overwhelming likelihood going to be down ... pretty much every time real volume has returned to the markets this year it's been all to the downside. We don't know when the dam will finally give way, but I'd much rather be short or in cash when it does. So I don't hesitate to take a decent profit on the short side when it is there - typical "cycle time" the past 6 months has been 3-4 weeks. Unless you're playing long-dated puts you absolutely do not want to be short for more than a week or 2 at a time, because that is a recipe for losing your shirt due to the inherent structural market bias toward the long side of the trade - so the risk of "surfing the chop" this way is of course that you'll be in cash when the big move happens ... it's a well-known fact that big bear-market downmoves often happen from short-term-oversold conditions ("oversold" here is based on near-term technicals) ... but as the saying goes, better to be out of a trade you wish you were in, than the other way around.

And speaking of disconnects between short-term market behavior and macro fundamentals, Bloomberg today has a nice opinion piece on Europe:

Debt Virus Spreads After Make-Believe Recovery: Matthew Lynn

The euro area is growing again. The banking system has survived its stress tests. The Greeks have implemented their first austerity measures with some success.

The fevered predictions of the early summer that the euro was doomed, and that Europe’s sovereign-debt crisis would rip through countries such as Spain and Portugal like a virus, have been forgotten. The crisis appears to be over.

Don’t believe it. Under the surface, the cracks in the euro are getting worse. The imbalances in the euro area are growing all the time. The resistance to the bailout package will rise as the terms turn out to be immoral and absurd. And the big-deficit nations are locked in a downward economic spiral.

The euro has bought itself some time, at a huge cost. And yet little has been done to fix the causes of the crisis...

[ewmayer]

You know we're headed for a double-dip when:

* your parents start referring to 2009 as "the good old days."
* your CFO starts making finger-quotes when he refers to "corporate earnings."
* what you thought was your cable bill, turns out to be your 401k statement.
* instead of giving away toasters your bank starts selling them.
* your mortgage shows up on eBay.
* your accountant starts making finger-quotes when he refers to your "net worth."
* you buy $50 of GM stock, and are named to the board.
* the family dog asks for a severance package.
* your spouse starts making finger-quotes when referring to "our vacation."
* your recently graduated son moves back into your house...with his roommate.
* you start making finger-quotes when referring to your five-year old's "allowance."
* your parents move to Greece.

[ewmayer]

Barry Ritholtz takes Treasury secretary Tim Geithner to task over a recent self-laudatory NYT op-ed in which TG pointed to a recent study by FedHead Alan Blinder and Moody`s chief economist Mark Zandi which concluded that "The combined actions since the fall of 2007 of the Federal Reserve, the White House and Congress helped save 8.5 million jobs and increased gross domestic product by 6.5 percent relative to what would have happened had we done nothing.".[Barry`s Emphasis]. Barry argues that the comparison-to-doing-nothing is absurd, and that the correct countervailing what-if standard should instead be "what if we had instead forced failed financial institutions into insolvency and forced-sale or prepackaged bankruptcy?". I've done some minor reformatting of BR`s post to improve (I hope) readability:

2008 Bailout Counter-Factual

We don’t have alternative universe laboratories to run control bailout experiments, but we can imagine the alternative outcomes if different actions were taken.

So let’s do just that. Imagine a nation in the midst of an economic crisis, circa September-December 2008. Only this time, there are key differences:

1) A President who understood Capitalism requires insolvent firms to suffer failure (as opposed to a lame duck running out the clock);

2) A Treasury Secretary who was not a former Goldman Sachs CEO with a misguided sympathy for Wall Street firms at risk of failure (as opposed to overseeing the greatest wealth transfer in human history);

3) A Federal Reserve Chairman who understood the limits of the Federal Reserve (versus a massive expansion of its power and balance sheet).

In my counter factual, the bailouts did not occur. Instead of the Japanese model, the US government went the Swedish route of banking crises: They stepped in with temporary nationalizations, prepackaged bankruptcies, and financial reorganizations; banks write down all of their bad debt, they sell off the paper. Int he end, the goal is to spin out clean, well financed, toxic-asset-free banks into the public markets.

Thus, Bear Stearns is not bailed out by the Fed. Instead, the FOMC chair tells JP Morgan’s CEO “You have 9 trillion dollars in exposure to Bear derivatives. Instead of guaranteeing you $29 billion for a risk free takeover, we will start preparing a liquidation plan for Bear. And given your exposure to them, we best plan one for JPM too. (and if you don’t like that, you can kiss our ass).”

Tough talk, but the outcome would have been much better: JPM would likely have bought Bear anyway, if for no other reason than to prevent someone else from buying them, and forcing JPM into bankruptcy, to pick up their assets for pennies on the dollar. That would have set a much better tone for future bailout expectations, versus the massive moral hazard the Fed created with the Bear bailout.

Lehman? Prepackaged bankruptcy, less disruptive.

AIG ? There never was an implicit government guarantee that all counter-parties dealing with AIG-Financial Products — a giant leveraged structured finance hedge fund hiding under the skirt of the regulated insurer — would be made whole. But the Bush/Paulson/Bernanke bailout created one. Instead, AIG-FP should have been carved out for dissolution/wind down, while the insurer could have continued to exist on its own. AIG would have had the liability for the government’s costs, but the counter parties? They would have gotten zero. If you go to Vegas and shoot craps in the alley way behind the casino, don’t expect the gaming commission to collect your winnings. But that is what we did with AIG.

Fannie & Freddie: Two more crappy banks that should have been wound down. These were publicly traded companies that were guaranteed lower interest rates — not an infinite backing from taxpayers. They should have been wound down like all any insolvent bank. Today, they serve as the mechanism for backdoor bailouts of the rest of the wounded banking sector.

The same approach should have occurred with the rest of the crowd of irresponsible banks, investment houses, monoline insurers, etc. One by one, we should have put each insolvent bank into receivership, cleaned up the balance sheer, sold off the bad debts for 15-50 cents on the dollar, fired the management, wiped out the shareholders, and spun out the proceeds, with the bondholders taking the haircut, and the taxpayers on the hook for precisely zero dollars. Citi, Bank of America, Wamu, Wachovia, Countrywide, Lehman, Merrill, Morgan, etc. all of them should have been handled this way.

The net result of this would have been more turmoil, lower stock prices, and a sharper, but much shorter economic contraction. It would have been painful and disruptive — like emergency surgery is — but its better than an exploded appendix.

And today, we would have a much healthier economy.

My Comment: I would add "the largest department of justice and FBI task force in history - intended to be entirely self-funded from fines and undeserved-bonus-clawbacks judged to constitute fraudulent transfers - charged with aggressive pursuit and prosecution of malfeasants at every level of the bad-mortgage-issuance, rating and securitization food chain ... from individuals who lied about their income and financial situation to obtain loans, to predatory mortgage lenders and those who falsified data on mortgage applications, to appraisers-for-hire who accepted money to give inflated appraisals, to ratings agencies who blessed the resulting toxic securitized-debt bundles with top ratings, to the securitizers and sellers of same, to government officials who abdicated their regulatory duties despite clear evidence of 'massive fraud' [in the FBI's own words, circa 2004]" ... but I guess we`ll have to just settle for something slightly less, namely "stern admonishment and an orgy of misguided, bloated, loophole-riddled, much-too-late-to-help-even-had-it-been-well-designed federal legislation." I feel ever so much better.

[ewmayer]

Just a bad trend' - 500,000 jobless claims. A government report Thursday brought bad news for workers and the economy: The number of unemployed Americans seeking a financial lifeline has reached its highest level in nine months.

Last week, the number of first-time filers for unemployment insurance rose for the third time in a row, to 500,000, according to a Labor Department report released Thursday.

There were 488,000 claims filed the previous week.

"This 500,000 level is very difficult, on both a psychological and semi-technical level," said Tim Quinlan, an economist at Wells Fargo.

Initial claims had been hovering in the mid- to upper-400,000s since November.

"You can sometimes dismiss a big number and say , 'Oh, it's just one week,'" Quinlan added. "But with the four-week moving average continuing higher, you can see this is just a bad trend."

The 4-week moving average of initial claims -- a number that tries to smooth out week-to-week volatility -- was 482,500, up 8,000 from the previous week.

Can the economy recover without jobs? During the last downturn around 2001, Quinlan notes, companies' finances were in bad shape -- but consumers were weathering it well.

My Comment: If by "weathering it well" you mean "continuing to try to borrow and spend their way to prosperity, preferably using their Wells Fargo Platinum Plus^TM Visa card and Home Equity Line of Credit" - well then yes, I agree.

Of course very near the link to the above article on the CNN/Money homepage we see the obligatory "bullish spin from Wall Street sell-siders" piece, which attempts to "put all this bad-sounding news in perspective":

Stop worrying about a double dip

(Money Magazine) -- The great debate on Wall Street is whether the recovery that spurred stock prices to nearly double between March 2009 and April 2010 is about to be snuffed out. The evidence for a "double dip" recession: Europe's economy is teetering; federal stimulus that propped up the credit and housing markets is nearly exhausted; retail sales and manufacturing are declining again.

Plus, if the old saw is true that the stock market is a predictor of the economy six to nine months down the road, then look out. Stock prices have tumbled around 10% since late April and investor pessimism, by one measure, has fallen to lows not seen since 1987.

"You can't deny that there are some added risks of a double dip," says Jeremy DeGroot, chief investment officer for advisory firm Litman Gregory.

But before you start making major moves in your portfolio in anticipation of another slump, some perspective is in order.

My Comment: Actually, to anyone with a brain which they actually use for thinking an occasional non-planted-by-the-financial-media thought now and again, the idea that the stock market is any way whatsoever "predictive" of anything other than its chief participants` currently-most-favored collective delusions was rendered utterly laughable several asset-bubble-cycles ago. The only "perspective" really in play here is that there`s a whole gargantuan economically-parasitical industry populated by money-skimming tools like "Jeremy DeGroot, chief investment officer for advisory firm Litman Gregory", who only get paid to keep their clients 100% invested in the markets 100% of the time. Just consider the dire consequences had retail sheepinvestors looked at the unsustainable trend in housing prices and risky lending back in 2006-2007 and decide to start "making major moves in their portfolio in anticipation of another slump" ... why, that would have left said investors with much more money than they have today and deprived folks like Mr. DeGroot of their 'bezzle', which as we all know - because that`s what the bezzlers keep telling us, the media and the government - is the lifeblood of any Ponzi economy.

But the article is so chock-full of the standard sell-side bromides intended to keep everyone all-in all the time, I really fell compelled to comment in detail:

For starters, actual double dips are rare. There have been three since 1913, the last in 1981.

What's common, on the other hand, is for recoveries to hit a major rough patch after the economy bounces off its lows. Nine of the 10 recoveries since 1949 hit a speed bump within about 10 months of the rebound, marked by dramatic drops in factory activity, consumer confidence, and stock prices. Sound familiar?

My Comment: By "rare", do you mean "rare" as in "private-debt-explosions of the 300%-of-GDP-or-more are historically rare"? Right ... so instead of focusing on the recessions in the past century most like the current one (in the sense of being due to collapse of an overleverage-driven speculative megabubble, so-called "balance sheet recessions"), let`s instead look at the more-benign ones and describe them using a litany of homespun "y'all listen up now, y'all" terms like "rough patch" and "speed bump". Less reassuring car-and-driverish aphorisms like "Driving off another cliff" are strengstens verboten.

"These soft spots tend to last for several quarters," says Jeffrey Kleintop, chief market strategist for research firm LPL Financial, as government stimulus efforts fade and private-sector growth slowly takes over as the economy's driver.

My Comment: Or you can have reassuring-sounding "soft spots" (would those be accompanied by "economic headwinds", perchance?) which can last for decades. as is happening in Japan. But just because Japan`s post-real-estate-bubble malaise seems to parallel ours so closely, doesn`t mean you should factor into your thinking. [Makes Jedi-mind-control hand-motion] "These aren`t the depressions and secular bear markets you`re looking for..."

In a way, though, it's moot whether the market is right in forecasting another recession. The economic expansion is clearly slowing. Economists have begun ratcheting down their expectations for gross domestic product growth from around 3.5% for 2010 to 3.1% -- and 2.7% in 2011.

My Comment: Not that economists have ever proven themselves to be a permanently-overoptimistic lot ...And we shall ignore the fact that the "GDP growth" seen in 2010 - anemic as it has been - only crept into positive territory thanks to a 10%+ boost resulting from government deficit spending. After all, as Uberkeynesian Paul Krugman assures us, the U.S. can keep borrowing at that kind of clip pretty much forever ... because normal debtor-nation rules don`t apply to us, "we're special".

Earlier this year, economists and money managers expected the economy to pick up steam, leading quickly to higher interest rates and inflation, which threaten bonds. That's why Money has advised cutting your Treasury bond stake.

In light of the recent slowdown, that call turned out to be premature. With the economy in a soft patch, inflation fears have been put on the back burner, says Jeremy Grantham, chief investment strategist for the asset manager GMO.

Grantham, who was one of the few people in the late '90s to predict that stocks would tread water over the following 10 years, thinks slow growth and deflation fears will translate into another tough stretch for the broad market.

However, this long-term bear has surprisingly high hopes for high-quality U.S. stocks, which have been overlooked for years and are considered cheap. He thinks the bluest of blue chips could return more than 7% a year for the next seven years. That means stocks such as Johnson & Johnson (JNJ) and mutual funds like Jensen (JENSX) could do quite well.

My Comment: By "premature" you might as well say "we were flat out wrong", since inflation will not be a real concern until the needed deleveraging has run its course or the Fed embarks on a money-printing spree which makes even the past 2 years` multi-trillion-dollar Fed-travaganza look like chump change.

Hey, why not add some bluest-of-the-blue-chip financial stocks to the mix? Like, say, Lehman Brothers (LEH) or AIG (AIG)? Those firms should be quite recession proof, no?

Another strategy: Seek out firms that don't depend on a fast-growing economy, says Money's stock strategist Pat Dorsey.

My Comment: Another strategy: Seek out firms that don't depend on "earnings", "customer base", "revenue" or "income"...a.k.a. the "dotcom stock-picking model".

While a second recession is unlikely, "the odds that the S&P 500 will slip into a new bear market are growing," says Sam Stovall, S&P's chief investment strategist.

My Comment: ...Which would thus be "predictive" of what, exactly?

But whether or not stocks cross the 20% down threshold that marks a new bear doesn't really matter. What's more important is how stocks do afterward. And a growing number of market strategists note that investor sentiment cratered especially quickly in the spring and early summer; historically that's been a good sign for stock performance six months to a year later.

My Comment: Exactly...It's not about how much money you lose this year, it`s about how much you`ll make next year...but only if you stay all-in. Why worry about losing %50 of your portfolio`s value this year when you should taking the long view ... then you can easily book a gain of 50%, 60%, even 70% next year. So don`t worry about trying to time the markets...if you lose 50% this year and gain 70% the next, you`ll still be much better off than some fraidy-cat who stayed in cash, because -50%+70% = 20%, doesn`t it? Now, which 50-100x P/E stocks can we buy for you on margin today?

[ewmayer]

ZeroHedge reader John McCloy shares a fascinating stimulus-project vignette from his neck of the woods on Long Island:

Just to give you all an idea of how useless their efforts of trying to get cash into the system is at this point I want to highlight a recent sight from earlier this month and how it relates to those still employed and how millions in cash are likely being spent across this nation simply to maintain a level of normalcy without creating anything productive economically that would equate to growth.

Early in the morning I was at a Long Island Rail Road train station in middle class land and saw what I counted as 20 plus rail workers every day for two weeks. And here was the setup.

On each side of the tracks their was one individual with a large concrete saw pushing and cutting along the top of the platform in a straight line the entire length of the platform. One individual was standing opposite him helping stabilize. Behind these men were 2 additional men spraying water on the cuts to minimize the dust. Then there was a group of 3-4 foreman/supervisors/shop stewards chatting it up standing in a never moving circle telling jokes, talking about the Yanks, the President etc.

Then there was 1 man dressed in full reflecting gear, hard hat, bullhorn, walkie, goggles who's sole job was to stare down the rails at the direction of incoming train traffic and "alert" the workers (Who were always on the platform) that the train was coming even though the train from 2 miles out begins blowing his warning horn considerably louder than the bullhorn along with the crossing signal barriers which have loud bells as well.

On the complete oppositte side of the track on the other eastbound platform was the exact same set up of workers cutting concrete and an additional warning worker staring down the eastbound rails ready to blow his horn . These men spent two weeks here, repaired some of the shrubbery. So what is it these men were doing?

They were installing brand new yellow shiny rubber slip traction pads along the entire platform. This is for those stepping on and off the train. Even more incredible is that the pads previously on the platform were in excellent shape. They were a little dirty yes but there was minimal to no wear on the pads.I imagine They are doing this up and down every LIRR line. The costs for this must be astronomical.

So tell me how money being expended for these kinds of projects to appease unions and maintain some sort of normalcy in the labor markets is productive to the economy.

My Comment: John, those shiny rubber [anti]slip traction thingies are in fact *vital* to keeping "the recovery" from backsliding into the dreaded double-dip recession. Money well spent, I say.