Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20
Facebook (FB) AI Mega-trend Tech Stocks Investing 2020 - 10th Feb 20
The US Constitution IS the Crisis - 10th Feb 20
Stock Market Correction Continues - 10th Feb 20
Useful Tips for Becoming a Better Man - 10th Feb 20
Will CoronaVirus Pandemic Trigger a Stocks Bear Market 2020? Part1 - 9th Feb 20
Could Silver Break-out like it did in 2011? - 9th Feb 20
The End of the Global Economy - 9th Feb 20
Fed to Stimulate in Any Crisis; Don’t Let Short-Term Events Bother You - 9th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

The Economic Recovery Was An Illusion – And That’s A Good Thing!

Economics / Recession 2008 - 2010 Aug 20, 2010 - 10:45 AM GMT

By: Sy_Harding

Economics

In July, I wrote an article titled ‘Is The Recovery An Illusion?’ With the additional evidence that has come in since there really is no doubt about it.


Economic recovery means consumers are convinced the worst is over, are becoming more confident and beginning to spend. It means businesses are selling more products, exporting more product, spending on anticipated growth, and hiring again. It means homes are selling at an encouraging pace, construction is picking up, unemployment is declining. It means investors are returning to the stock market.

We saw some of that last year and thought it was a recovery. But it wasn’t.

We didn’t see consumers spending their own money. For the first time in decades consumers were saving and paying off debt, convinced the worst was not over. They only spent the government’s money, bonuses that were given to them as part of stimulus efforts. First-time home-buyers dominated home purchases, buying with the $8,000 government rebates. Home sales plunged back into the recessionary hole the instant the government rebates stopped. They bought autos with the ‘cash for clunkers’ government money, appliances with the ‘cash for appliances’ program. With those and other programs ended, consumer confidence has plunged again and retail sales have slowed. Autos are back to selling at recessionary levels, only fractionally above last year’s levels, with what sales there are primarily due to 0% financing and rebates.

Large banks recovered and made profits not from a recovering economy, but from hundreds of $billions of government bailout money they then used in their trading departments. Small banks, not receiving such gifts, remain in recessionary trouble, still failing at a recessionary pace. Business confidence remains at recessionary levels, corporations hoarding cash, worried they’ll need the cash in the future. In fact, much of the cash they are hoarding is money raised by further borrowing for a rainy day, with their debt levels rising significantly, including increasing debt by issuing more bonds to satisfy investor demand for ‘safer havens’.

As for the bull market, investors did not begin buying stocks again. In fact, throughout last year’s new bull market investors continued to pull still more money out of stocks and equity mutual funds, putting it in money market funds, bank CD’s, and treasury bonds, in spite of near zero yields on those holdings.

The bull market was on very low trading volume, an indication that it was the result of the hundreds of $billions of cash and loans provided to large financial institutions in stimulus money, which they used for trading for their own accounts in their trading departments. The very low volume indicated it was also due to the activities of other short-term traders, including program-trading firms and flash-traders, in there every day doing their job of making short-term trades for quick profits. It was a time, when in a mini-version of the dotcom period, their sentiment was to the bullish side, and their trading against each other was mostly to the upside, driving prices up on each other, with periodic profit-taking and then trying to race each other to buy the dips. It was created by the massive amounts of liquidity the government flooded into the system. It was not the result of investors, including institutional investors like pension plans and insurance companies, or even hedge funds, pouring money into the market. In fact, hedge-funds, known as big risk-takers, sat on unusual levels of cash. After losing big time in the 2007-2009 bear market, they were under pressure from their investors to take less risk.

Yes, the economic recovery was an illusion.

So let’s not talk of double-dips. Let’s face the reality that the real economy’s first dip is still underway, that the real economy is still scraping along a bottom.

That’s not a bad thing. It’s better than the thought that the economy recovered but is already heading back into another recession. That the real economy is still scraping along a bottom brings hope that at some point soon it will begin a real recovery. That could come quicker than having to survive another dip into recession and another fear-filled wait for that recession to reverse into another recovery.

Maybe with the economy now shaking the artificial recovery out of the economic reports, showing us where the real economy lies, the government should just keep its hands off and let the free market system play out its normal cycle.

Sy Harding is president of Asset Management Research Corp, publishers of the financial website www.StreetSmartReport.com, and the free daily market blog, www.SyHardingblog.com.

© 2010 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules