# 030 May 20, 2009
By: Allen Wells
Aside from the stock markets inexplicable rise, has anyone seen any other signs of the pending recovery? I keep reading about how the recession has bottomed and things are “looking up”. The problem is that the facts don’t uphold the previous statement.
For example, Lowe’s home improvement stores are the darling of the stock market this week, with an 8.1% jump in the value of their shares. Why the increase? Lowe’s announced a modest rise in first quarter gross margins mostly based upon sales of small ticket items such as paint and other do it yourself products and outdoor gardening items. In reality, sales of items over $500 are weak, and Lowe’s forecasts a sales drop of 4% to 8% in the second quarter over last year.
Lowe’s modest sales increase has been hearkened as the bellwether of the beginning of the recovery in the housing market. My question is, how can a home improvement chain that had a modest increase in small ticket item sales be a sign that the housing market is coming back? Excuse me, but how is paint and flowers sales an indicator of an increase in new home sales?
The conventional wisdom is that the housing market will lead the country out of this recession. I agree, but I do not agree it will be happening anytime soon. The Case-Schiller Index of 20 U.S. cities shows the residential real estate market is down 31% since its peak in 2006. The last time housing declined over 30% was 1930 – 33 (in a 3 year period). Understand, housing is not the stock market. It will take far longer for the housing market to make up the losses suffered over the last three years. Many people are “underwater” with their mortgages. It’s like Hurricane Katrina (without the high winds and Kanye West) hit the entire housing market and flooded the homes! Home values are down anywhere from 11% (as a low in Dallas) to 50% in Phoenix. Notice, I said values, not prices. Price is what you are trying to sell your home for… value is how much you can sell your home for.
Regardless of how the Bureau of Labor Statistics manipulates employment data, real unemployment and underemployment is rising. Foreclosures are increasing monthly, health care costs are rising daily. All these do not bode well for a quick housing market recovery or an end to the recession. As housing goes, so goes many industries – furniture, electronics, appliances, trucking, truck sales, equipment sales and on and on.
The bottom line is this – Lowe’s profits are down. Lowe’s sales are down. This is not a sign that the market is recovering. This is a sign that people are staying put – they do not have the money to buy new homes. Drop new home interest rates to 1% - you still need 20% cash equity and an 800 credit score. Americans are out of work, out of money and out of optimism.
President Obama was elected with a mandate for change… here’s the change: UAW ownership of GM, Fedzilla ownership (by proxy) of the major banks, a giveaway of Chrysler to the UAW and a foreign company… but it’s ok, we’re going to make it back with “green” technology. I do not blame the current administration for the woes with the automakers. I do not blame the current administration for the problems with the banks and insurance companies. I do, however take issue with the same old concept of raise taxes on the “rich”, cut services to the have’s (you know the ones still paying taxes), give more and better to the “have nots” and turn everything else over to the unions.
Folks, the only recovery right now is with the rising stock market and that probably will not last very long. Very few companies are making money – including financial companies. How long can stock prices continue to exuberantly increase with quarterly results continuing to show losses and cutbacks? Smells somewhat like the tech boom of the late ‘90’s to me. Won’t they ever learn?
The problem is that people have forgotten that it takes time to make money and we must save for a rainy day. The bubble economies of the last 15 years (tech boom, dot.com, housing, etc.) have influenced a generation to believe millions can be made overnight. That certainly does happen, but as a general rule money is made over years, not months.
I think most Americans, at least the average American, not the high flying financiers and market players, are beginning to understand this. Saks, Bloomingdales and Nordstrom’s sales are down, Wal-Mart sales are up. Starbucks sales are down, McDonalds sales are up. Why buy $3 coffee when you can get it for $1.50?
The recent Fed “stress tests” of banks showed us nothing – who doesn’t believe the reports weren’t rigged? Now we are told, don’t worry about the big banks, it’s the smaller local and regional banks that face big losses, due to the commercial real estate loans. These loans could generate up to $600 Billion in losses within the next year. How convenient – hmmm… do you think when this happens, the USG will step in with more money - not for the smaller local and regional banks, but for the major banking institutions (you know, the ones too big to fail). Then these banks will come in and rescue the smaller banks, buying them and placing them under their control.
How convenient; we will have the major (too big to fail) banks, controlled by the USG with the TARP funds and stock ownership, now controlling the local and regional banks. I’m no conspiracy theorist (so to speak) but what a convenient way to nationalize and consolidate the entire U.S. banking sector, slowly, a bite at the time with not a peep out of the U.S citizens. Kind of like boiling a live frog!
The USG and 16 states are suing the pharmaceutical giant Wyeth for fraud for giving discounts to hospitals that it did not offer to Medicaid – gotta love government insurance. You see, Medicaid is a government controlled monopoly, and when you make the laws and control the distribution system anyone that does not play by your rules is immediately a criminal. Wyeth is a criminal organization because they did not offer the USG the same deal they offered others… so much for a free market. I cannot wait for our national health care plan.
Oil prices are up, gasoline is projected to stabilize at about $2.50 per gallon (more or less) this year. Housing starts for April were estimated at 525,000 (annualized) but came in at 458,000 (annualized). This was a 12.8% decrease. Where’s the headlines? This does not sound like we’ve hit bottom. Just so you can compare, January 2006 housing starts were an annualized 2.27 million… All this adds up to – THE RECESSION (DEPRESSION?) ISN”T OVER!
Like I said – we need to get our heads out of the sand and realize, the recession is still here, in our face and it is not going away anytime soon. As I wrote the other day, we must take a stand against Fedzilla and its unmitigated grab for power. Given the current Federal spending and increase in deficit, we are headed for trouble far worse than the recession we are now facing.
We cannot let this economic downturn be a catalyst for more Federal control and spending. The individual States need to band together and make a stand against Fedzilla now, before all rights are lost and the concept of statehood becomes only a geographical term denoting the area of the country you live in.
With warmth and regards (as always),
Allen
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