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Green Shoots? Try Weeds.

Chuck Butler (May 13, 2009)

Wednesday, May 13, 2009

The Real Story Behind the Latest “Good News” Here in the U.S.

Also In Today’s Letter…

By Chuck Butler Not wanting to start the day off with bad news… But I just saw a flash on the TV that said, “foreclosures jumped 32% last month”… More Blood in the Streets, eh?

That just happened to be the title of my presentation here in Las Vegas… Blood in the Streets: Bargain time or just a cease-fire? I’ll let you know how it goes.

So it’s another day here in Sin City. This city is packed with people, everywhere we go. It’s simply amazing… There’s been no sign of a recession here. Of course, if you left the casinos and shows, you would see some of the greatest devastation in the local housing market. So, it’s not all seashells and balloons in Vegas…

I guess with the economy so rotten, people are hoping to strike it rich in the casinos. Hmmm, have they not figured out that these enormous buildings are here to make money?

The majority of foreign currencies lost ground most of yesterday, and then overnight too. It wasn’t a major drop, but they did lose the ground they have been winning from the dollar. That’s not something a dollar bear wants to see.

We’re About to See a Miserable Quarter for Retail Sales…

There’s more rot on the economy’s vine, this morning with retail sales, and all that euphoria that was in the markets last week, is dissipating, quickly. So, let’s go to the tape on retail sales…

Sales Are Already Suffering…

Retail sales for April were down again (the BHI was wrong! Yikes!). Sales fell 0.4% in the last month. Add that to the 0.9% fall in March (revised to -1.1% today) and that tells me this is turning out to be an absolutely dreadful quarter for retail sales (even after consumer spending picked up in the first two months of the year.).

Oh, and let’s go back to the GDP print of about two weeks ago. There was hope in the GDP figure that “consumption” may pull the economy out of the recession because consumption was up 2.2%. But with these Retail Sales figures so far in the second quarter, you can kiss that hope good-bye!

This is the kind of stuff I was all worried about the other day. Recessions are like this. You get a pop up in the markets, but it doesn’t last. Then it leads the economy right back into the depths of the recession.

This is why I’m concerned that the majority of foreign currencies have been tracking stocks lately. That doesn’t usually happen. Currencies usually have different pricing mechanisms and low correlations to stocks. But lately, the traditional high-yielding currencies have been closely following stock movements.

It seems the diversification fundamentals have been forgotten in the past six months.

Pop Quiz: Who Has the Worst Track Record for Economic Forecasting?

Here’s a good one for you… Can you tell me who said this?

“Even though we have been having some fairly strong gains in home prices, it is our conclusion that it is UNLIKELY that we are confronting a housing bubble.”

Give up? It was a quote in the 2002 Fannie Mae Annual Report… By our esteemed (NOT!) former Fed Chairman Big Al Greenspan! This guy’s track record for forecasting is absolutely horrible! I’m talking about going all the way back to his days as a consultant before his term at the Fed!

Now, why do I bring this up now? Well yesterday, Big Al Greenspan decided to give us a forecast that allowed stocks to recover for the day. What did he say this time? Greenspan said in an interview that “Housing may have bottomed and be at the verge of a recovery.”

Oh boy, now that’s something to hang your hat on, eh? I shake my head in total disgust. This man was at the root of the whole problem, and people still listen to him?

Okay, enough on that exercise… I could write for days about all the things he has done… But, better yet… Go to Amazon (AMZN) and buy Bill Fleckenstein’s book on the Fed and Greenspan.

These “Green Shoots” Look More Like Weeds To Me…

You’ve probably read that somewhere about “Green Shoots” recently. “Green Shoots” are signs that the economy is improving – specifically the idea that data prints are getting better.

My friend, John Maudlin made a great point about “green shoots” in his newsletter on Friday. John pointed out that he didn’t believe the green shoots were for real, and said they probably were more like dandelions. I totally agree. Both he and I took the Jobs Jamboree data that was considered a “Green Shoot,” and tore it apart to expose it as the fraud it was… No green shoots here!

Here’s another one… Import prices in the U.S. rose by 1.6%. That’s HUGE folks! I saw something that said that in the last 100 prints of this data there have been only 12 larger prints! Yikes!

Here’s the skinny… Recall, that I’ve told you that China’s stimulus has actually been working to improve their economy? I also told you China would be the first country to come out of the economic doldrums. Well, with their stimulus working that means commodity prices will be rising, and if commodity prices rise, that means inflation will rise… No green shoots here!

In fact, the only green shoots I see are coming out of China these days…but that’s a story for another day…

Okay, enough of that. Did you see where the Obama administration has begun serious talks to see how they can change compensation practices across the financial-services industry? That includes companies that did not receive federal bailout money.

See? I told you that you give the government a foot in the door, and they will begin to push their way completely inside. That’s exactly what’s happening with banks. Isn’t that sad? The government wants to dictate how banks pay their employees, even if they didn’t accept TARP money! How do you like riding the train to socialism (and of course you can’t get off?)

Yes, Our Debt Could Steal the U.S.’s Triple-A Rating

There was another item in the news yesterday that could mean very bad things for the U.S. and their ability to attract financing…

The Financial Times ran a story regarding the U.S.’s Triple-A rating…Let’s see what The FT had to say…

“Long before the current financial crisis, nearly two years ago, a little-noticed cloud darkened the horizon for the U.S. government. It was ignored. But now that shadow, in the form of a warning from a top credit rating agency that the nation risked losing its triple A rating if it did not start putting its finances in order, is coming back to haunt us.

That warning from Moody’s focused on the exploding healthcare and Social Security costs that threaten to engulf the federal government in debt over coming decades. The facts show we’re in even worse shape now, and there are signs that confidence in America’s ability to control its finances is eroding.”

Hmmm… That’s scary folks. To add to that, an attendee came up to me yesterday after my first presentation, and said, “Chuck, great talk, but you didn’t mention the debt that the U.S. will have to deal with in the future.”

Yes, he’s right… I don’t do that very often because I don’t want people going outside and throwing up. What I’m talking about here is the debt that the U.S. will be under when all the Baby Boomers are drawing Social Security and Medicare. (That’s a horror story at best.)

Time to go to the Big Finish, I’ve got to go through my presentation once more before I head down to the Show.

That’s it for today… A very long day for yours truly yesterday. Hopefully today will be a bit shorter! An old friend stopped by my morning presentation to say hi yesterday — Thom Calandra, who started CBS MarketWatch. I hadn’t seen Thom in years! He was huge for us years ago, when we were trying to get the word out about our products. I get a lot of people stopping by the booth each day just to see if I’m doing okay. They want to know if I’m feeling well, and to let me know that they are still praying for me. Pretty amazing, I’m so blessed!

Time to go… I hope your Wednesday is Wonderful!
Chuck Butler

P.S. It may be all weeds here, but a few green shoots are popping up in other corners of the world – even in a few emerging markets that owe their coming success to China’s ultimate recovery. In next month’s Currency Capitalist, my colleague, Ashish Advani will introduce one such emerging market to our readers. Members, please look for your issue online in a few weeks. If you’re not a member yet, I urge you to take a peak at what we have to offer here.

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