- 10% GDP in Q1 2009?

Thus worries Joe LaVorgna...

He says there's a 'psychological free-fall", and that things are collapsing. I rather tend to agree.

But the problem is not just psychological (sorry Joe) - it's very, very real. And very sad. And it begins and ends with the 'consumer'. As we've noted before, folks have no savings, no equity - having been hammered in the twin crashes of stocks and real estate - cannot get credit (even if they wanted it, which they most assuredly do not), and are facing an epic employment crisis. To mention a few little nagging realities. Did I mention income and wage stagnation? The collapse of class mobility? The failure of k-12 education?

Indeed, It is worse than you think it is

Mostly cuz folks in the chattering class have not a clue about that engine of the economy - consumers. They believe that consumers can be lured, like puppies, to consume again. Wrong, and endlessly so.

"Consumers" are no longer such, and never again will be (at least in my most hopeful dreams).... Can us not be quaint and call them (us) what, Citizens? Parents? Patriots?

A great day! Not

Not, no matter what the lunatics Kneale, Kudlow, etc might spin, markets did not handle the bad news well:

WSJ

The Dow Jones Industrial Average dropped 120 points to end the week at a fresh bear-market closing low beneath 7100. Citigroup shares plunged by 40% and GE fell 6.5% after the conglomerate said that it would cut its dividend. The blue-chip measure had its worst February on record. The S&P 500 dropped through its bear-market lows as financial and health-care stocks declined.

Here's the thing -

The worst news is, as per usu, ahead of us, not behind us. That's because consumers are, as they say, capitulating. All the endless focus on Wall St and DC entirely misses the basic point: the 70% of the economy driven by consumer spending is shrinking fast, and will not grow again for years (like 10+). Consumers have massive debt, huge equity losses, zero savings, and no credit, and are thus in no mood to spend, stimulus notwithstanding

Back to equities - Ya think corporate profits/margins can hold. or recover? Think again

Much more detailed analysis over the weekend, so stay tuned....

"Impressive market!!"

Thus say Dylan and Maria at 3pm EST "Better than expected!!" Wooo hoooo! I'm almost feeling all those good vibes from the floor

This is better than, ummmmmm, Armegeddon?

Would be nice to see em fess up (but never gonna happen) - the 'market' is not in another crash only cuz it looks as though the festering sore that is Citi is finally being lanced. This passes for good news of course - in fact, really really freaking great news that the not-so-long-ago largest financial services firm in the world is now dead. Good news if you're apocalyptic.... Jeeeeezzzz, what kind of world do we live in?

But back to the the moment - what happiness does the weekend bring? Things are beginning to feel rather Septemberish/Octoberish 08.... Deja vu all over again

Why do the letters "B" "O" "A" swirl about my cranium? I think it's not cuz I'm gearing up for that Saturday NYTimes puzzle

PS - bet on a close 150 points below the open, as folks with common sense and brain stems (eg FEAR) weigh in

The Quail Hollow Championship

Eg, Wachovia Championship. They're still paying for it, but prefer to hope that folks won't notice the name change. Wells Fargo to pull Wachovia name from PGA event

Behold, from the press release:

"In the current environment, we also believe that promoting this event with our brand could send mixed signals about our priorities to many of our stakeholders." said David Carroll, head of wealth management at Wells Fargo

Call me confused.

Of course, as I mentioned a few posts ago, golf sponsorships are sooooo 2008. But let's at least look at this from a corporate POV

There was never an issue with the thing being named "The Wells Fargo Championship". It's Wachovia, and is pretty much the single best branding Wachovia ever did in its attempts to attract HNW folks. And the thing is widely known as being the best-run of any golf tournament outside the majors. But Wells, soon to ditch the Wachovia brand (one can only presume), is semi-desperate to appeal to common folks, after its disastrous scolding of all of us for being annoyed at their frantically-and-hastily-cancelled Vegas boondoggle for mortgage peeps (Big bailouts for 'higher-ups' anger left-out middle class). So we are now confronted by Wells ditching Wachovia while snippily defending 'recognition' boondoggles for themselves in full-page national ads taken out by the CEO in a fit of pique...

Why not just let the thing be Wachovia for now, keep quiet, keep Wells out of the conversation, and then emerge after with a clean slate qua Wells? But no. Now they've endlessly muddied the waters, and completely unnecessarily.

These dudes are so freaked and stressed over sponsorships and boondoggles that I can only fear for them as the real stress test approaches....

Courage Wells Fargo, courage. I like you better than this.

Headline fun!

It's always useful to scan the FT's morning business briefings for a bracing dose of almost poetic reality. Here are a few gems from this morning's global missive:

Fannie to draw further $15bn
GM future in doubt after $31bn loss
RBS taps UK Treasury for £25.5bn
Bank failures put pressure on FDIC
Dell profits drop as business takes battering
JPMorgan slashes quarterly dividend by 87%
Colorado's oldest newspaper shuts down

And, as always, the euphemisms and colorful adjectives and phrases are priceless. A small sampling:

beleaguered bank
net worth below zero
dire financial condition
unexpectedly heavy cash drain
stoking fears
under severe pressure
crumbling business models
highly stressed environment

Mustard seeds and bottoms my ass, lol

Holy GDP!

From the WSJ:

Gross domestic product decreased at a seasonally adjusted 6.2% annual rate October through December, the Commerce Department reported in a new, revised estimate of fourth-quarter GDP. In its original estimate, issued a month ago, the government had reported fourth-quarter 2008 GDP fell 3.8%.

The sharply lower revision reflected adjustments downward of inventory investment, exports and consumer spending.

The 6.2% decline meant the worst quarterly showing for GDP since a 6.4% decrease in first-quarter 1982 GDP.

So, "investment, exports and consumer spending" are all tanking. That's pretty much everything, yes? What's left of the economy? Oh, ummm, wait a minute, lemme think, hang on.......Aha! YES!! The Feds!! Those guys in DC! Seemingly goes without saying now that I've thought of it ha ha.....Anyone who argues against a massive Government stimulus will find it very much harder (eg impossible) today than yesterday in making that case. And Milton Friedman is still dead.

Also, I'll bet that if you look at real GDP vs nominal, today's figure is the worst since 1958. Remember that there's no inflation today, but there was 10% in '82....

I like Chris Rupkey even though he's an economist

Here he's quoted on Bloomberg, regarding the collapse in consumer confidence this month:

“Just when you think confidence can’t go any lower, the bottom falls out of it, and you can be sure the rest of the economy is not far behind,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, which had the lowest forecast. “If consumers’ spending matches their flagging spirits, this recession is going longer and deeper.”

By the lowest forecast, Bloomberg means that Rupkey came closest to forecasting this week's collapse in confidence. Behold this little gem in the same article:

The Conference Board’s confidence index dropped more than anticipated to 25, the lowest level since data began in 1967....The drop in confidence exceeded even the lowest estimate of the 72 economists surveyed by Bloomberg News. The median forecast called for the index to drop to 35, and projections ranged from 26.7 to 42.

(Note to self: trust not the forecasts of economists not named Roubini or Chris)

And it's not just golf....

Find me a company that has $20MM per year to buy the Mets' (huh?) naming rights. Oh yeah, ummmmm, that would be Citi

Can any one of you think of a happy story for corporate sports as we have known it?? I for sure cannot:

1. Cliff-diving advertising revenue, as folks get real
2. Sponsors going bankrupt as far as the eye can see
3. Doped up athletes everywhere are endlessly pissing off normal folks
4. Thus borderline hatred towards all involved
5. Massively unaffordable seats
6. TIVO
7. Better stuff to do than obsess about that 3rd string QB on Alabama

Golf down the tubes!!

Good riddance!

That noted populist Kudlow (enemy #72) has just ranted about the greenskeepers losing their jobs as filthy banks are shamed into giving up their multi-million $$$$ sponsorships of useless tourneys sucking up scarce water in endlessly parched deserts

I think Mauren Dowd got under his festering skin:

Dowd: Partying Bankers

Talk about being teed off.
The economy is croaking and bankers are still partying at a golf tournament here on our dime.
It’s a good argument for nationalization, or better yet, internationalization. Outsource the jobs of these perfidious, oblivious bank executives to Bangalore; Bollywood bashes have to cost less than Hollywood ones.
The entertainment Web site TMZ broke the story Tuesday that Northern Trust of Chicago, which got $1.5 billion in bailout money and then laid off 450 workers, flew hundreds of clients and employees to Los Angeles last week and treated them to four days of posh hotel rooms, salmon and filet mignon dinners, music concerts, a PGA golf tournament at the Riviera Country Club with Mercedes shuttle rides and Tiffany swag bags.

I'm not the biggest Dowd fan, but this one is priceless. do read on....

WTE

As in "Worse than Expected" (and a nod to this blog's title)

An acronym for our times. Stay tuned for almost daily "WTE" reports as 2009 unfolds, and as the reality of the mess arrives to the endless 'surprise' of our putative biz leaders

Today's WTE:

Gartner Finds Global Chip Revenue Worse Than Expected

A new report by Gartner finds that the global semiconductor industry is being hit harder by the slowdown in the global economy than first expected. The problems stem from less consumer buying as well as businesses cutting back on their IT hardware purchases.
HELSINKI (Reuters) - Global semiconductor revenue, hit by the economic downturn, is expected to fall 24 percent to $194.5 billion in 2009, according to research firm Gartner, in a marked worsening from its December outlook.
In mid-December Gartner forecast a 16 percent fall in the 2009 chip market.
Gartner forecast the market could fall at least 17 percent in the first quarter, but said the drop could be much deeper.


Geeeezzzzz

Could be much deeper? Thank god for the likes of Gartner. Where would we be without those who charge $$$$$$ for hedging on the future after blowing the past?

Hint: If a firm gets it wrong all the time, do not expect them to get it right in the future

Invisible Cities... (Kudlow?)

As in Calvino

If you haven't read it (you poor sad soul), do so ASAP:
http://www.amazon.com/Invisible-Cities-Italo-Calvino/dp/0156453800

Much to learn from it about our present malaise - among many things that 'cities' (eg human creations) are mostly, and most importantly, that which we believe (or wish) them to be. The traveller from the desert sees a ship in the distance, whereas the traveller from the sea sees a caravan. But they both see the same city...

Calvino, and his Marco Polo, fully recognize this, but yet are also fully aware of the even more basic human condition - there is an underlying truth in the world that preconceptions cannot belie. Call it a priori knowledge, but tempered by experience and judgement

Thus, we arrive at the sorry spectacle of Larry Kudlow. This particular Marco Polo arrives at every single new city he finds only to announce that "THAT WHICH I HAVE BEHELD BEFORE, AND THAT WHICH FITS ALL I LEARNED IN GRAD SCHOOL, IS FULLY AND ABUNDANTLY PRESENT IN THIS NEW CITY" This despite the fact that stairs in that new city go sideways, or that wells are tapped from the sky, or that time runs backwards

The man is utterly incapable of seeing a new reality, and thus incapable of understanding it. Thus his 'mustard seeds' insanity, his 'this is a great time to buy!' raves , and that Hermes and pinstripes costume

But, and a small nod to the guy, he knows this, in his inner Calvino. Thus his increasingly unhinged rants, which make me sad and angry and sorry for him all at the same time

When Kudlow comes to his senses, perhaps our long national nightmare will be nearing an end.

Just don't count on it any time soon

Would you pay $800 to watch the Royals play?

Well, the Yankees think you will, and regular folks are not amused: We're getting Yanked over tickets at new Stadium, cry Bombers fans

We'll be tracking the most clueless companies - eg those who are blindless and ignorant and arrogant in light of the meltdown. Much muchness to be had here

Put the Yankees as #2 on the list, for now

But for sure #1 will be hard to unseat: Harry Winston, who ran an ad on the Times' website on inauguration day saying "yes you can" http://www.restlus.com/2009/01/yes-you-can.html as in 'Yes you can blow $250,000 on a common stone for your call girl at our obnoxious and thief-riddled rock emporium':

Paris--A group of armed robbers made off with millions of dollars worth of jewelry during a brazen late-afternoon robbery at a Harry Winston store in Paris, according to various news sources.Reports state that three to four suspects entered the store, located on the fashionable Avenue Montaigne near Paris' iconic Champs-Elysees and right around the corner from a police station, drew their guns and ordered staff to empty jewels from secret hiding places and the safe.They overturned display cases, grabbing an estimated $102 million in rings, necklaces and luxury watches, emptying the shop of nearly all of its stock.Police said at least two of the thieves were men dressed as women, they spoke a foreign language and knew the employees' names.This same Harry Winston store was robbed little more than a year ago, with the thieves that time making off with $25 million in jewelry, taking pieces worth between $2,500-$4 million.

I live for news items such as this

"Private Assets" continued

More from Dr Setser:

It increasingly looks like the US is inching toward severely diluting the common equity of a set of banks where sovereign funds have substantial stakes, if not wiping out the existing equity entirely. That potentially — as Larry Summers warned in a former life — is a foreign policy issue. Summers pondered this topic at last years Davos session on sovereign funds:

[Suppose] the SWF of country A makes an investment in a major bank in country B. The bank gets in big trouble. Is there any control in the world that can assert, that with billions of dollars on the line, their head of state and foreign minister are not going to get involved in the negotiations?


Me, Keating, here now: So, as we lead the world towards economic collapse, we're actively going out of our way bite the hands that feed us...

Tell me why this makes any sense whatsoever

What does make sense is to nationalize all US banks with assets over $5Billion ASAP, sort out the mess and the lies, fire most of 'management' at most large banks, and then perform the necessary triage (eg let Citi and BoA die).

No one is too big to fail.

Except the US. But if we do not deal with reality sooner rather than later, look out below

What they mean by "private assets"

Foreign Governments!!

No joking

See this, courtesy of Setser. From a Tuesday Wall Street Journal story on Citigroup’s efforts to raise common equity:

Citigroup officials hope to persuade private investors that have bought preferred shares — such as the Government of Singapore Investment Corp., Abu Dhabi Investment Authority and Kuwait Investment Authority — to follow the government’s lead in converting some of those stakes into common stock, according to people familiar with the matter.


Too freaking funny. All that hand-wringing about “nationalization”, and here we are begging the rest of the world to own the US financial system while we dither over semantics. Nationalization is taking place as we speak. Just not this nation.

Actually, not funny. Sad? Scary? Pathetic?

Equities?? CNBC? Good News?

Yo

Any of you delusional enough to be, ummmmm, optimistic, and thus buying stocks, should use the reverse CNBC jujitsu: eg, sell like hell when they tell you to buy

The most egregious dopes to avoid:

Michelle CC - mean and stunningly ugly, in all definitions of both words. I'd add stupid
Kudlow, as per always completely clueless
That wishy-washy pale guy nonentity in the noontime hour
Luskin (a walking talking bad joke, and badly dressed to boot)

I'll be nicer in the AM

Peace

Let's lay the basic foundation for the mess we're in

Why is this meltdown so epic? Why is this not merely another recession, from which we will emerge perhaps scarred but generally OK?

Well, because, to put it quite simply, America has been on a 35-year Boomer-led bender, based on overconsumption, too much credit, and too little savings. Each one of those trends was itself disturbing and unsustainable, but throw them all together at once and you have the ingredients for a crisis. The only real question for years now had been "when will these behaviors end". Guess what? They ended last year. We're in a new age in which folks will borrow less, spend less and save more - out of both keen desire and sheer necessity. This process will be long-term and nationwide, and will affect almost every household in the nation, save for those who live in "Upper Richistan" (thanks to Robert Frank)

A few little factoids to chew on:

• We can no longer borrow from our homes to fuel consumption, because those homes have collapsed in value, and because banks no longer wish to lend. In 2006, we were borrowing at an annual pace of almost $1Trillion, or ~10% of household income. Today, mortgage equity withdrawal (MEW) is zero. Nada. Nil. That's $1Trillion off the table, never again to return.
• We are heading toward a return to a national savings rate in the historic range of 8-10%. Consumers, their balance sheets in shreds, simply have no choice. This is a good thing in the long run, but in the near and mid-term means a painful national adjustment needs to be made, as we transition from a nation of spenders to one of savers. And remember, for every 1% gain in savings rates, you're looking at ~$100Billion in reduced spending. A 10% savings rate would take a Trillion dollars off the table
• So, between the MEW cliff-dive and the rise in savings, you're looking at a hole in the consumer economy that could easily approach $2Trillion

This would seem to strongly argue for a rather dramatic re-configuration of this nation's economy, from consumer spending being the greatest driver of growth (70% of GDP) to one in which corporate and government spending both must rise to fill the fast-emerging and (imo) long term decline in consumer spending. This reconfiguration poses massive challenges to the Obama administration, of which they are fully aware, but the policy responses to are anything but clear

Another thing that augers for a national economic re-wiring: The wealthy, however you define them, have represented a disproportionate slice of overall consumer spending. Some studies show that the wealthiest 10% of households account for 50-60% of overall consumer spending. And guess what? The wealthy are getting hammered in this Great Recession. The more skin you've had in the game - whether real estate, equities, bonds, commodities, collectibles, currencies - the more you've lost. There has been nowhere to hide in this meltdown, save for treasuries and FDIC-insured deposit accounts. In 2008 millionaires lost, on average, 30% of their net worth, and one fifth lost 50% (Millionaires Lose 30% of Their Fortunes ) Sure, cue the tiny violins (thanks Hans!), but this engine of consumer spending has seriously stalled, and shows no signs of revving up until the rich have repaired their accounts, and that could take many, many years (look out S&P 600!). In the interim, expect the wealthy to devote more of their income to savings, just like folks lower down on the income ladder

This all leaves us in a rather tricky and messy situation - how to adjust the world's largest economy on the fly from overconsumption to something more balanced? And how to do it in conjunction with the rest of the globe? Frankly, no one knows how to do this - to get Americans to spend less, China to spend more, and everyone to borrow less. We are thus living through the largest macroeconomic experiment in modern history.

And oh, I haven't even mentioned that pesky little ($3Trillion+) banking crisis, or the ongoing risk of deflation, and then the risk of hyperinflation, and then the risk of a collapse of the dollar. And, gulp, the rest of the world would appear to be going down the tubes faster than we are. See Eastern Europe for starters. Then slide over to Asia, and observe the epic collapse of exports from Japan, Taiwan, Sand outh Korea. Even China has seen dramatic contraction of both imports and exports. Back in Europe, the UK is teetering with all of our problems, only worse (London is "Reykjavik on the Thames", Spain and Italy are in crisis, and Sweden faces its own banking crisis (again). Not a pretty picture. Even Russia (energy price collapse, ruble collapse), India (scandals, weakening currency) and Brazil (caught the global flu) are now sinking with the rest of us....

So, in the next few posts I will try to add further dimension to these scary realities, and will begin to describe some of the most scary dragons that lurk.

In the meantime dear readers, buy stuff you can afford with money that you have. And pray that the very excellent Obama team can thread about five needles simultaneously.

Welcome!

Hello all, and welcome.

I'm Christopher Keating, but you can call me Chris (or worse if you choose)

This is a new blog, still under construction as they say, but stay tuned. Over the coming weeks I, and a select group of guest bloggers, will fearlessly wade into the national and international disaster that is our global economic system, with an eye to debunking all of the nonsense you see on CNBC, and with an eye towards understanding what all this mess means to regular folks like you (and me), and to understanding whether indeed we all should be buying guns and gold (hint: not yet)

Anyhooooo think of this blog as a daily reality check on things economic, but also from time to time on musings completely unrelated - like why "Invisible Cities" is arguably the greatest work of fiction in the 20thC.

Oh. You might ask 'who is this Keating guy?'. Excellent question, and one I ask myself all the time. Let's for the moment just say that I'm an ex-ad exec, ex-consumer trends consultant, ex-ski bum, ex-financial services insider, ex-farmer (in no particular order) and current interested observer of all things I find worth observing, and that happens to be quite a lot, as I hope to demonstrate as this here puppy evolves.

And yes, one of the themes of this blog, and indeed the title, is that it's worse than you think it is. Truth. And I'm a happy guy by nature.

Stay tuned, and I promise that this will be educational (at least for me) and even occasionally fun and funny.