2009 Economic Forecasts...what will happen, when?

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Does this fresh bit of news from Yahoo/AP News play into Billy T's bleak forecast in any way?


08/03/2009

"WASHINGTON – The recession is starving the government of tax revenue, just as the president and Congress are piling a major expansion of health care and other programs on the nation's plate and struggling to find money to pay the tab.

The numbers could hardly be more stark: Tax receipts are on pace to drop 18 percent this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion.

Other figures in an Associated Press analysis underscore the recession's impact: Individual income tax receipts are down 22 percent from a year ago. Corporate income taxes are down 57 percent. Social Security tax receipts could drop for only the second time since 1940, and Medicare taxes are on pace to drop for only the third time ever.

The last time the government's revenues were this bleak, the year was 1932 in the midst of the Depression"

 

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More evidence that things are getting worse:

"... Household income in the U.S. is weakening as the influence of the government’s stimulus plan fades, prompting economists, Federal Reserve officials and a Nobel laureate to warn that consumer spending may stumble.

“Consumers have started to change their behavior and they are going to save* more,” said Richard Berner, co-head of global economics at Morgan Stanley in New York and a former researcher at the Fed. “You have pressure on wages, you have employment still declining.”

Wages and salaries, which drive recoveries in spending, fell 4.7 percent in the 12 months through June, the biggest drop since records began in 1960 ..."

FROM: http://www.bloomberg.com/apps/news?pid=20601087&sid=aRU6ZUwzT9iA

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*note that is from a smaller total salary base now. No way cusomers will be 72% of the economy for a long time. Big government deficits are a permanent feature of the new US economy, until it collapses in a run on the dollar.

Be sure to put GWB and Republican "trickle down" economists on your X-mass card list and thank them. (The booming Chinese economy will at least for all the modern factories that "Trickle Down" built.) Warren Buffett surely will. - I noticed that his 10% ownership of BYD motors has appreciated (on paper -the stock) several billion dollars already. The ultra rich and the starving poor in a few years will long remember the era when GWB was POTUS and Republicans controlled Congress.

 

I'll forecast more than 100 US banks will close in 2009.
(I have never been so much on thread's topic, I think.)

Today 2009 is 217 days old (I think) and 72 US banks have gone belly up already.
See: http://www.bloomberg.com/apps/news?pid=20601087&sid=a3r00w0QCe64

That is a new dead bank every 3.01 days. If this rate keeps up and there are 365 days in 2009, we will have 121 banks closed by end of 2009 so I am not going too far out on a limb with my prediction.

The more interesting question is can the FDIC make thru 2009, if Congress is in recess and not bailing the FDIC out when needed?

Sure hope someone, other than me, is thinking about your bank account and the FDIC.

 

Prediction: "Green shoots" to freeze as winter comes.
Here is why:

(1) “…The collapse in commercial real estate… Property values have fallen 35 percent since October 2007, according to Moody’s Investors Service. That’s making it tough for owners to refinance almost $165 billion {that needs to "rolled" in 2009} of mortgages for skyscrapers, shopping malls and hotels this year, pressuring companies such as Maguire Properties Inc., the largest office landlord in downtown Los Angeles, to put buildings up for sale. …If nonresidential real estate remains in the doldrums, the Fed may be forced to leave emergency-lending programs in place and keep its benchmark interest rate close to zero for longer … Commercial property is “certainly going to be a significant drag” on growth, said Dean Maki, a former Fed researcher who is now chief U.S. economist in New York at Barclays Capital … “The bigger risk from it would be if it causes unexpected losses to financial firms that lead to another financial crisis. ...”

Nonresidential construction may decline as much as 9 percent this year and another 5 percent in 2010, predicts Kenneth Simonson, chief economist at Associated General Contractors of America

FROM: http://www.bloomberg.com/apps/news?pid=20601087&sid=aTOaAnSiL7YM
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(2) "… Consumer bankruptcies show no sign of abating after rising more than a third this year and may hit 1.4 million by Dec. 31 as jobs are lost and loans are harder to get, according to the trade group American Bankruptcy Institute. More than 126,000 consumers filed for bankruptcy in the U.S. last month, 34 percent more than in July 2008, the ABI said in its latest report on Aug. 4. The increase came after a 36.5 percent rise in personal bankruptcies nationwide in the first six months, to 675,351, according to the ABI research group,…
Steeply rising {bankruptcy} filings by consumers are hurting commercial banks.* JPMorgan Chase & Co., … Chief Executive Officer Jamie Dimon said he doesn’t expect the credit card business to make a profit this year or in 2010, and the company increased its loss projections for prime and subprime mortgages. … JPMorgan’s credit cards lost $672 million, compared with income of $250 million in the second quarter last year. Home- equity charge-offs climbed to $1.3 billion, or 4.61 percent. Prime mortgage defaults rose to $481 million, or 3.07 percent, from $104 million, or 1.08 percent a year earlier. …”

FROM: http://www.bloomberg.com/apps/news?pid=20601087&sid=acQvgRoLQmXQ

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*See post 126 "100 banks to fail" prediction also.

 

To continue on thread; Prediction: storm coming - you can see this black cloud, can you not:

"... Foreclosure filings were up 32 percent from the same month last year, RealtyTrac Inc. said Thursday. More than 360,000 households, or one in every 355 homes, received a foreclosure-related notice, such as a notice of default or trustee's sale. That's the highest monthly level since the foreclosure-listing firm began publishing the data more than four years ago.

Banks repossessed more than 87,000 homes in July, up from about 79,000 homes a month earlier. ..."

FROM: http://news.yahoo.com/s/ap/20090813/ap_on_bi_ge/us_foreclosure_rates

Today's unexpectedly high unemployment claims report is just a small tornado associated with the approaching storm, unless of course you are one making first time claim.

 

My post 126 prediction (More than 100 US banks will fail in 2009.) was solidly based when made, but now seems almost a certainty:

"... More than 150 publicly traded U.S. lenders {mainly banks} own nonperforming loans that equal 5 percent or more of their holdings, a level that former regulators say can wipe out a bank’s equity and threaten its survival. The number of banks exceeding the threshold more than doubled in the year through June, according to data compiled by Bloomberg, as real estate and credit-card defaults surged.* Almost 300 reported 3 percent or more of their loans were nonperforming, a term for commercial and consumer debt that has stopped collecting interest or will no longer be paid in full. ..."

FROM: http://www.bloomberg.com/apps/news?pid=20601087&sid=aTTT9jivRIWE ...An article with title : "Toxic Loans Topping 5% May Push 150 Banks to Point of No Return"

If in trouble past the point of "no return," the only thing unknown, is the exact timing of the crash.

Foreclosures of homes are also at all time record rate now but defaulting commercial property loans are closing in on them for the title of "most destructive."

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*Note that 150 banks now in grave danger does NOT include the 72 that have already gone "BELLY UP" in 2009.

Will the FDIC be there when you need it? I warned you long ago to put your money into a sound currency, like the Brazilian Real.

CORRECTION (by edit):
Make that 73 already failed and >149 banks in serious trouble. The biggest bank failure of 2009 is just now announced (5 minutes ago at Bloomberg): article title is: "BB&T Said to Be Taking Colonial in Year’s Biggest Bank Failure"

At few details: "BB&T Corp., the North Carolina lender that bought back a $3.1 billion stake from the U.S. government, is taking over offices and deposits of Colonial BancGroup Inc., according to a person familiar with the matter. Colonial, Alabama’s second-largest bank, is being closed by regulators today, the person said, becoming the largest U.S. bank failure of 2009 after an expansion into Florida saddled the lender with more than $1.7 billion in soured real-estate loans. ..."

 

With over 4000 banks in America...150 in trouble is nothing.

Unless these are megabanks???

 

The one going under today is the second largest in Alabama, but it is a interconnected financial world now. Where do you think the regional banks send the mortgage they write? Who would have thunk a few sub-prime mortgages not being paid would sink the global economy.

 

China is still buying some short term US treasury paper but is trying to stop as I predicted by buying real assets instead:
“… China … will boost spending on oil and mining acquisitions by at least half this year…

State-owned Yanzhou Coal Mining Co. yesterday agreed to buy Australia’s Felix Resources Ltd. for about A$3.5 billion ($2.9 billion), a day after Sinochem Corp., China’s biggest chemicals trader, offered to buy Emerald Energy Plc for 532 million pounds ($881 million) to gain oil fields in Syria and Colombia. China National Petroleum Corp.’s plan to buy Repsol YPF SA’s Argentine unit may push [/b]Chinese purchases of overseas commodity assets to $43 billion this year[/b], a 48 percent increase on 2008, according to data compiled by Bloomberg. …

“China will see larger and bolder deals,” said Brian Gu, the Hong Kong-based head of mergers and acquisitions for greater China at JPMorgan Chase & Co., the third-ranked adviser by transaction value this year. … Chinese energy companies have spent at least $13 billion on overseas assets since December …

The state-owned parents of PetroChina Co., China Petroleum & Chemical Corp. and Cnooc Ltd. are studying investments in companies in Africa, Latin America, the Middle East and Central Asia, according to JPMorgan’s Gu and Mike Arruda, a lawyer at Jones Day in Hong Kong who advises on mergers and acquisitions in the oil and gas industry … China National Petroleum, the parent of PetroChina and the nation’s biggest oil company, is considering offering $13 billion to $14.5 billion for a controlling stake in Repsol’s unit, three people familiar with the matter said last month.

China Petrochemical Corp., the country’s second-biggest oil company, in June agreed to buy Geneva-based Addax Petroleum Corp. for C$8.3 billion ($7.6 billion) in China’s biggest overseas takeover to date. Purchasing Addax, which has oil reserves in Iraq’s Kurdish territory, shows Chinese oil companies are “going for bigger transactions,” said Arruda, who is advising on what he described as “significant” acquisitions. “These deals seem to reflect an appetite we have not seen before.” China bought record volumes of oil and iron ore in July, according to customs figures released Aug. 11.

The world’s fastest-growing major economy consumes more than a third of the world’s aluminum output, a quarter of its copper production, almost a tenth of its oil and accounts for more than half of trading in iron ore. Last year, China bought $211 billion worth of iron ore, refined copper, crude oil and alumina, according to government data. China’s oil consumption doubled in the last decade, rising to 8 million barrels a day … meeting about 45 percent of its needs. China’s increasing reliance on imported crude means the scale of acquisition deals has to increase, said Paul Ting, president of New Jersey-based Paul Ting Energy Vision LLC, a consulting company specializing in Chinese oil and gas markets. The country’s crude needs may rise to more than 11 million barrels a day in five years with China’s ageing oilfields unable to produce the extra capacity needed, Ting said. China National Petroleum said on May 13 it wants overseas crude production to match domestic output by 2020. Chairman Jiang Jiemin said CNPC produces less than 8 percent of its oil overseas and foreign acquisitions and ventures must be increased. “We want overseas production to contribute half,” he said at the time. …”

FROM: http://www.bloomberg.com/apps/news?pid=20601109&sid=aTZisOrCq1BY

 

China rules.Get out of the way the rest of you.China's automotive industry is thriving too.Now one thing,given the number of new cars being put to the road in Beijing,how long till mass traffic jams start happening? Maybe some fancy math could put some perspective on it.


BEIJING, Aug 16, 2009 (AFP) – More than 1,200 new cars hit the roads of China's capital Beijing every day on average in the first seven months of the year, state media reported Sunday.

The Beijing Traffic Management Bureau reported the registration of 261,000 new vehicles -- 97 percent of which were private cars -- from the beginning of January until the end of July, the official Xinhua news agency said.

The figure, a nine percent increase from the same period last year, came to an average of 1,231 new cars a day.

Beijing's air has for many years been among the most polluted in the world, with the fast-rising number of cars on the road one of the major contributors.

However the government has implemented several policies to try and curb pollution, including traffic control measures, moving factories out of the city, and requiring cars and buses to use cleaner fuels.

According to the report, Beijing had 5.5 million drivers by August 6, out of a total population of 17 million people.

 

Depression is coming closer - as I predicted a few years ago:

"... {unemployed} Applications rose to 576,000 in the week ended Aug. 15 from a revised 561,000 the week before, the Labor Department said today in Washington. The number of people collecting unemployment benefits the week earlier was little changed at 6.24 million. ..."

FROM:http://www.bloomberg.com/apps/news?pid=20601087&sid=aMhGnVzXaSfM

It is important to note that only the unemployed actively seeking a job are counted in the government’s unemployed statistics. As the average duration of not being able to find any job is at a historic high, so many unemployed have ceased to even seek any job. When they are added to the "under employed" (part timers working a few days each week, “temp help” etc.) the true unemployment rate is 16.4% according the studies quoted by Jim Jubak. (Go to The moneyshow.com to see his video on this. It is called the "shadow supply.")

Jubak speaks of and as the old time radio show: "The shadow" (Complete with the laugh at start and end of his very serious comments.)

He calls the not counted unemployed the "shadow unemployed." He also notes that there is a huge volume of "shadow for-sale homes" not included in the official list of house on the "for sale" market.

I.e. when your house will only sell for 70% OR LESS what you paid for it or 80% of the unpaid mortgage, and you do not need to sell, only want to, you do not even put it on the market. Jubak estimates the "shadow supply" ( homes of owners wanting to sell, but not counted as not listed on market due to the low price they would need to attract any buyers), are more numerous than those that are counted. The number of foreclosures is increasing monthly* and forcing prices ever lower and the "shadow supply" will keep home prices at these ever lower levels for years as if the price were to rise, some of "shaddow supply" would become listed for sale.

Almost any VALID measure of the economy is still going downhill, and more rapidly than the official data indicates.
Thus the coming depression will arrive BEFORE my original forecast period terminates (That was Halloween of 2014.)

Please remember that based on GWB's policies and Republican Trickle Down economic theory, which did to build the modern factories in China, that I predicted the depression was unavoidable more than a year BEFORE George W's term as POTUS was over. I.e. don't blame Obama when it comes - "unavoidable" means Obama cannot stop it. His trying, will just destroy the dollar too.

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* And soon to get even worse: "Americans fell behind on their mortgage payments at a record pace in the second quarter as job losses and falling real estate prices thwarted government efforts to stabilize the housing market. The share of loans with one or more payments overdue rose to a seasonally adjusted 9.24 percent of all mortgages, an all- time high. ... The median U.S. home price fell 16 percent in the second quarter from a year earlier, the steepest drop on record,..."

FROM: http://www.bloomberg.com/apps/news?pid=20601087&sid=aV1OhnG3_bhI

 

The latest to die is the fourth largest financial failure in the US during the current crisis:

“… Federal regulators seized Guaranty Bank and simultaneously brokered the sale of its branches as well as most of the deposits and assets to BBVA Compass, the Spanish bank’s American subsidiary. The government, however, agreed to absorb most of the losses on $9.7 billion, or more than 80 percent, of the Guaranty assets included in the deal.
The failure is the fourth-largest since the financial crisis began, and the Federal Deposit Insurance Corporation projects that it will cost its deposit insurance fund about $3 billion.
Regulators also arranged for the sales of three smaller banks in Alabama and Georgia on Friday, bringing the total number of bank failures so far this year to 81. That compares with only 25 bank failures in ALL of 2008. …”

FROM: http://www.nytimes.com/2009/08/22/business/22bank.html?_r=1&ref=business

FDIC is already lacking funds. It is in process of increasing the charges it makes on the still surviving banks.(That will not help them survive, but is only a straw on the camel's back). At some point I think it will need to turn to Congress (tax payers). I only predicted 100 would fail in 2009, but if you go to Bloomberg now you can listen / watch to a expert* predict more than 300 may in this cycle of recession. OR read her comments here: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a5_XmLUK1JRc

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*Meridith Whitney. She predicted the current financial crisis and was an invited participant at the Jackson Hole FED meeting. (In the video you can see the famous mountains in the background - I.e. it was taped at Jackson Hole, Wyo.)

Rate of bank failure still accelerating - Now less than 3 days between bank failures.
2009's failure rate is now a failure every 2.95 days. It was more than 3 calendar days between failures only 21 days ago when I started to note the failure rate in post 126 (Friday of this big failure, needing a foreign buyer, was day 238 of 2009.) Only 25 failed in 365 days of 2008. That’s vs. 14.6 days between failures in 2008.

 

Prediction: China will buy more real assets and less US Treasury paper (none with 10 years or longer maturity):

Now {26Aug09} Government has approved new 41 billion dollar buy:

" Australia approved the Chevron Corp.-led A$50 billion ($42 billion) Gorgon liquefied natural gas venture, the country’s biggest resource project that will supply the fuel to China, India and Japan. ... PetroChina Co. will pay Irving, Texas-based Exxon $41 billion over two decades for gas from Gorgon, the Australia said Aug. 18. ..."

From: http://www.bloomberg.com/apps/news?pid=20601087&sid=acoHapqfIGcw

That is on top of the 13 billion in energy buys already made in 2009.

 

Billy,
Stocks are up,news says the economy is improving,news says home sales are up and unemployment is down.What is all this positive news all of a sudden? Surly we could not be improving so quickly.What say you? Thanks.

 

I think unemployment is still increasing, but at the last counting more had ceased to even look for a job or were returning to school, etc. (so are no longer counted). On your other points:

“… Home sales are responding to policy efforts such as an $8,000 tax credit for first-time buyers, the Fed keeping its benchmark interest rate near zero and central bank purchases of mortgage-backed securities to free up funding for housing ….” From: http://www.bloomberg.com/apps/news?pid=20601087&sid=aOvs2d2HUfGQ

Cash for clunkers also help current sales data. - a "blip" on a STILL DOWNWARD curve:
“ … It’s hard to see consumer spending driving the economy forward given the losses of wealth that have occurred,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “The consumer isn’t going to play a leading role in this recovery,” he said, in part because “employment is going to keep falling.” …

Sales at U.S. retailers in July unexpectedly fell 0.1 percent, the first drop in three months, government figures showed on Aug. 13. Purchases excluding automobiles dropped 0.6 percent, also more than anticipated, as Americans cut back on everything from groceries to sporting goods and furniture.

Lowe’s Cos., the second-largest U.S. home-improvement retailer, said last week that sales in the three months ended July 31 fell 4.6 percent to $13.8 billion, below analysts’ estimates.

“Consumers are still under tremendous pressure, given the continued decline in housing prices and that we’re still losing jobs,” Robert Niblock, chairman and chief executive officer of the Mooresville, North Carolina-based company, said in an Aug. 17 telephone interview. …”

FROM: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aNWcnzCn6IUo

Billy T comments:
Bernanke is applying the things he learned as student of the great depression, but this is now expected to make debt of $29,000 for every man, woman and child. (more than $100,000 per typical family). It will be paid by printing presses and destroy the dollar. None the less the dance can be fun, until time to pay the piper.

Note also that the "recovery" after 1929 crash in about 1931 was much larger as percent than US has now, but then the bottom fell out until WWII.

We seem to be repeating history.