GDP up

Good news today that the GDP is up nearly six percent.

Here's an interesting graph, borrowed from The Atlantic website, that recommends caution. The explanation:

What's happening here? The short version is this: The economy started to rally dramatically last summer, but the recovery has stalled since September.

Real Estate Doom

At this point, there is no light at the end of the tunnel--the real estate deflation tunnel. Read about it here.

More homes are in or are entering foreclose than there are homes for sale. Ballooning supply and no demand.

Ripples

For want of a nail, the shoe was lost;
For want of the shoe, the horse was lost;
For want of the horse, the rider was lost;
For want of the rider, the battle was lost;
For want of the battle, the kingdom was lost,
And all for the want of a horseshoe nail.

Gotta love Mother Goose. Timeless. Here's a modern day version to ponder:

Blabber Mouth Barney and Congressional Cohorts attack some TARP-receiving corporation for having a corporate retreat at a fancy resort.
The Acme Widget Company board fears bad publicity, stockholder backlash, and Congressional subpoenas.
Said board cancels its Gold Legion Sales Award program in Las Vegas.
Vegas hotel vacancy rates skyrocket.
Vegas hotels lay off workers.
Laid off Vegas workers quit making house payments.
Banks foreclose on laid off Vegas workers.
Banks now own lots of Vegas real estate.
Banks have to take TARP funds.
Blabber Mouth Barney gets to tell banks what to do.

The winner? Blabber Mouth Barney gets his mug on TV, gets more votes, and gets more power to tell banks what they can and cannot do, what they can and cannot pay their employees, and--just around the corner, it's coming--who they have to lend to.

The losers? The taxpayers. The taxpayers' grandchildren. Everyone else in the chain.

Scared People Don't Buy

Back from a couple days with one of those "intestinal" things. . . .

Not generally a fan of Donny Deutsch--one of those pretty-boy, New York, Frank Gifford-types--but he sure did hit it on the head today in an appearance on CNBC.

The talking heads were arguing about whether the "stimulus" package will stimulate and bring us out of this mess. Argues Donny, "Scared people don't buy cars. Scared people don't buy houses. People are scared." Those are pretty close to the exact words. I would add that scared people don't even go to the mall, let alone buy anything there. They don't go to Disney or buy lattes at Starbucks. They wait an extra week or two before getting a haircut and, unfotunately, may not be as charitable.

And there's no doubt, folks are scared these days.

I agree with Donny that the government can posture and primp and spend all they want, but until Joe Sixpack has stopped being scared, he's never going to buy a new truck.

So my prediction? This "stimulus" bill will have no effect. (Did Pres. Bush's package last spring bring us out if this?)

Prob. is that this "stimulus" bill is only $790 bil. in a GDP that in 2008 was $14.58 tril. Of course GDP won't be that high this year. Even so, the most of the money in this bill will not be spent this year either.

Think of it this way. $790 bil/$14.58 tril=5.4%. What's happening is Congress is borrowing 5.4% of what we all produced last year in order to give it back to us. So we're all going to get, collectively, a 5.4% "raise".

If you got a 5.4% raise starting tomorrow (and remember, it would really only be a 2-3% raise in '09 bc of the back-loaded nature of the package), what would you do with it--assuming that Donny is right and the you are as scared as the rest of us are these days? Buy a new GM car? Eat out a couple extra nights each month at Ruth's Chris? Or save it, pay down debt, or chuck it into the 529?

There's no way that even those Bozos on Capitol Hill can make up for a consumer frozen by fear. We got burned when the dot.com bubble burst. Then the real estate bubble burst. Then the banking system collapsed.

Spending a bunch of money and calling it "stimulus" may get you re-elected in some parts of the country, but it's not going to get us to buy new cars again. Or RVs made in Elkhart, Indiana.

You know it's a recession when. . . .

. . . you can't make money selling vodka in Poland.

That's one ugly chart.