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The Recession Is Soon To Be Over...except:

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well I thought this was important.

lets get lending going again....

US is expecting a GDP rise next quarter....down to.....GOVERNMENT SPENDING....ie, cash for clunkers apparently will add 3% to the GDP totals.

course, NEXT year, when the stimulii have run out its all going to rats again. double dip anyone?

PS...We compete with the US, so our costs are going to have to fall as well, AND the £ is going up.....UK are getting LESS competitive as the days pass..

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This blog post from suddendebt is perhaps relevant here.

Delving deeper into the GDP numbers just released it becomes quite easy to discern a pattern and possibly make a prediction about the direction of corporate profits.

The following figures are in current dollars, at seasonally adjusted annual rates.

During the first two quarters of 2009..

Personal consumption expenditures (that's about 70% of GDP): -$21 billion.

Non-residential fixed investment (that's structures, equipment, software, etc.):-$481 billion.

=> Businesses slashed their investment far faster than consumers reduced their spending. Corporate profits (finance excluded) benefited from cost-cutting, not growth in sales.

Furthermore, in the same period..

Private inventories were slashed by a cumulative: -$283 billion.

=> Businesses sold a lot out of inventory already in stock, as opposed to making new items. That's another short-term boost to the bottom line.

Both of the above positive effects cannot, and will not, last long. Therefore, the crucial question is what happens with consumer spending. My thinking is not to expect a turnaround any time soon; indeed, I think things are going to get significantly worse in the next several quarters. Jobs are being lost in the hundreds of thousands each month and hours worked for those still employed are at the lowest level (33 hours/week) since at least 1964.

Bottom line: corporations can "save" earnings for a few months by slashing spending but in the end the consumer's behavior will determine the top line (sales). And that's where it all plays out..

Further on GDP

Is the same thing happening in the UK?

Peter.

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This blog post from suddendebt is perhaps relevant here.

Further on GDP

Is the same thing happening in the UK?

Peter.

must be I would assume....why else would the government have been pushing for stimulus so hard 6 months ago.....GDP is made up by a large part with government spending.

If people are earning less, and I beleive wages are static in the UK, then the tax take can only come out of what people DONT now spend, so OK, government spending is up, but private spending will be down, and this can only effect factory output to the negative.

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well I thought this was important.

It is!

I don't understand at all where we are heading with this. How many more schemes can be created in order to hold up GDP and for how long will this last? Rather than figuring this out I am getting more and more confused. How can it be possible for governments in the UK and US to manufacture a recovery for any sustainable length of time? I don't know what is going on anymore because they keep inventing new fangled ways of sweeping the rubbish under the carpet and I have no idea what the next invention will be. For instance, what is going to happen to all the toxic stuff we are now responsible for which is sitting in the APS? At what point does someone (who?) admit that what is on the balance sheet (now of UK plc) is not actually the value anyone is willing to pay for it? I guess this is the same as people being unwilling to admit their houses are worth less than they 'expect' to get paid for them?

I know my rant has gone slightly off-topic so back to topic: if we are all earning less or unemployed and tax revenue is down as a consequence, spending is down as a consequence, how can a recovery happen other than by inventing new things in order to hide us from the real state we are in?

Edited by MinceBalls

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The need to end the recession to end the gloom.

Problem is the debt remains and has got bigger thanks to govt spending. Even if they can claim a recovery it will be a short lived one and we'll have another dip.

At which point Roubini will claim to have predicted it with a double dip recession.

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These kind of market rallies were common enough during the Great Depression. I think the markets have a psychological need to see growth and therefore have an upward-bias.

So there's a kind of two stage process going on where firstly the market has a bias towards those statistics that give greater cause for optimism, and then secondly future trends are exaggeratedly predicted from this narrow group of statistics.

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These kind of market rallies were common enough during the Great Depression. I think the markets have a psychological need to see growth and therefore have an upward-bias.

So there's a kind of two stage process going on where firstly the market has a bias towards those statistics that give greater cause for optimism, and then secondly future trends are exaggeratedly predicted from this narrow group of statistics.

It's the same with a gambler who has just lost a bucketload and becomes totally reckless in order to claw it all back as fast as he can.

This is currently happening on a monumental scale.

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It's the same with a gambler who has just lost a bucketload and becomes totally reckless in order to claw it all back as fast as he can.

This is currently happening on a monumental scale.

I like that analogy.

But it also means there is a chance it will work. Although the odds are against.

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and that drop in incomes doesn't include all the unemployed who have seen much bigger drops in their incomes (to zero!)

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Probably worth adding in a couple of bits from Denninger:

Income down 1.3%, tax returns down 22%

Oh, and don't look at tax receipts either: they're down huge, with individual income tax receipts down some 22%! The last time we saw numbers like this was The Depression; you can claim that personal income is down "only" 2% if you'd like, but the last time I checked you only paid tax on income actually received, and while the tax system is progressive there is no way you can square a 2% "reported" income decline with a 22% decline in income tax receipts. Someone's lying and I'm quite confident that people aren't paying taxes on money they didn't earn!

And, where's all the money for the stock market growth coming from:

Fed Pump

So where has all this buying pressure come from, if not from people shifting assets into the market?

Zerohedge nailed it, I believe:

Why the Federal Reserve of course, which directly and indirectly subsidized U.S. banks (and foreign ones through liquidity swaps) for roughly that amount. Apparently these banks promptly went on a buying spree to raise the all important equity market, so that the U.S. consumer who net equity was almost negative on March 31, could have some semblance of confidence back and would go ahead and max out his credit card. Alas, as one can see in the money multiplier and velocity of money metrics, U.S. consumers couldn't care less about leveraging themselves any more.

Also see:

This Depression is Just Beginning

Too bad Pulitzers aren't handed out for blog-entries. This year's award would go to Zero Hedge for its "The 'Money on the Sidelines' Fallacy" post. This short entry shows why the economy will continue its downward slide and why the US consumer will not get off the mat and resume spending as he has in the past. The fact is the Net Wealth of US Households has "declined from a peak of $22 trillion to just under $12 trillion in early March."

Ouch!

The problem is compounded by the fact that Total US Household debt, as of first quarter 2009, amounts to roughly $13 trillion, and has stayed within that range for the last 3 and a half years.

Zero Hedge:

"From the end of 2007 through Q1 of 2009, household equity has declined by 94%. Is it surprising that today's GDP number would have been a complete debacle if the consumer had been left alone to prop the U.S. economy, on whom 70% of the economy is reliant? Obama pulled a Hail Mary with the stimulus: without it there would be no debate America is in a depression right now." (http://www.zerohedge.com/article/money-sidelines-fallacy)

Peter.

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This blog post from suddendebt is perhaps relevant here.

Further on GDP

Is the same thing happening in the UK?

Peter.

I think that makes it clear that corporate profits won't be sustained into the next quarter. This should signal the end of the current rally (if it hasn't come to an end already by then).

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I think that makes it clear that corporate profits won't be sustained into the next quarter. This should signal the end of the current rally (if it hasn't come to an end already by then).

course, the DOW is up .24% as we speak.

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course, the DOW is up .24% as we speak.

On very low volumes. Wait until after the holidays. ;)

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Guest Parry aka GOD
On very low volumes. Wait until after the holidays. ;)

What's with this insect thing?

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[uS CONSUMER BANKRUPTCIES] Consumer bankruptcy filings were 126,434 in July or highest monthly total since the 2005 bankruptcy law re-write, said American Bankruptcy Institute (ABI). The results are based on data from the Natl Bankruptcy Research Center). The July filing total marks 34.3% increase nationwide from a year ago, and an 8.7% gain vs June's total of 116,365 filings. Also, Chap-13 filings amounted to 28.3% of all consumer cases in July, slightly above the June rate. The ABI expects this filings to rise with higher unemployment rate and consumer's weak wage growth, lower home values and heavier debt-to-income levels.

Yep recession's nearly over.

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Yep recession's nearly over.

Not sure if you are being tongue in cheek or not here?

Which do people think is most prevalent, for current stock market bubble, bearing in mind I'm not an economics expert (would that make me qualified anyway!)

1) Banks are blowing QE money on stock market
2) Stock market is pricing in recovery at some future point, say a year away
3) Something else

My gut reaction is mostly for 1)

Edited by voidal

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Guest Parry aka GOD
Not sure if you are being tongue in cheek or not here?

Which do people think is most prevalent, for current stock market bubble, bearing in mind I'm not an economics expert (would that make me qualified anyway!)

1) Banks are blowing QE money on stock market
2) Stock market is pricing in recovery at some future point, say a year away
3) Something else

My gut reaction is mostly for 1)

Just pray the QE money isn't aimed at the commodities market.

Edited by Parry aka GOD

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