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Friday, March 13, 2009

Consumer Confidence Driven by Fact or Ficton?

There seems to be an attitude among many of our government officials that has permeated our economy for quite some time. The attitude is one of promoting extreme optimism. In other words, let's keep telling the people that things are getting better. The attitude being that if we tell you that things are getting better long enough you will begin to believe they are and if you believe they are then they must be.

Some, inccluding our Treasury Secretary - Timothy Geithner - are saying that a recovery will begin in the last quarter of this year. This I heard him say on the Charlie Rose program the other night.

Yesterday, Citigroup announced that it was profitable and the stock market soared. Well of course they were profitable - we just gave them a lot of money - which they used part of to buy a foreign company. Nevertheless, the fact that they said they were profitable does not mean they truly are. Am I saying that they might be issueing false reports? Well, yes I am. Why do I believe this = because it has been apparant to me over the past several years that everyone seems to use accounting systems that produce the required results - not necessarily the true results. Even the Federal Reserve changes their accounting system to meet their needs.

In the old days of common sense and more ethical business practices, accounting had an established set of rules. If I remember correctly - from my accounting courses - there were debits and there were credits, assets and liabilityes. Money came in, money went out, assets were created and money was still owed. Every dollar had to be accounted for.

Now there are items that are off the books - not reported. I just don't understnad off the books. Either you have it or owe it or you don't. You can't have it but say you don't have it - which off the books really does. It just seems like cooking the books has become a great corporate pastime.

Now back to buiilding consumer confidence. It is my belief - based on my observations, readings and understanding - that we have quite some time to go before we befgin to see the bottom and a recovery. I say this primarily because housing is still in a decline with inventories increasing due to an increased number of foreclosures.

I believe housing is a key to the start of a recovery. CNNMoney just today reported Rise in foreclosures 'a shock'. Follow this link to read the whole report.

NEW YORK ( -- The foreclosure picture suddenly darkened again in February.

"More than 74,000 homes were lost to bank repossessions during the month, up from 67,000 in January, according to a regular monthly report from RealtyTrac,...
"More then 74,000" homes were lost the article begins. This does not include the numbers of new foreclosure actions - it represents only those that were actually finalized.

"We were very surprised," said RealtyTrac spokesman Rick Sharga. "The moratorium were led by big players like Fannie and Freddie and all the major banks. It was supposed to cover the whole waterfront. The fact that foreclosures still went up was a shock."
"We were very surprised," said RealtyTrac spokesman Rick Sharga. "The moratorium were led by big players like Fannie and Freddie and all the major banks. It was supposed to cover the whole waterfront. The fact that foreclosures still went up was a shock."
"Very surprised"? Rick, you were surprised because you believed the feel good - meant to build consumer confidenxe - propaganda from Fannie, Freddie and all teh major banks. What is shocking to me is that you - Realty Trac - with a finger on the true pulse actually bought into the propaganda. Here again, what they told everyone was basically we are fixing the problem and things will get better as a result. Moratoriums were circumvented and all the hype of loan modifications are just that - hype.

CNNMoney goes on to say,

A particularly troubling aspect of the report was that, for many borrowers, once they go into default, they never get out despite moratorium efforts. That's borne out by comparing bank repossessions - homes actually lost by borrowers - with total foreclosure filings: Nationally, repossessions increased 11% for the month, almost double the 6% rise for filings. (emphasis mine not in article).

It would only be shocking if you truly believed that anyone was really doing something to help homeowners. Ther is much talk but little action on the part of the lenders/banks/servicing companies and their foreclosure mill attorneys. Even the GSEs are not helping to the capacity that is needed to truly help.
As foreclosures soared, so did South Carolina's unemployment. By January, that had reached 10.4%, the second highest rate, after Michigan, in the nation. It rose 1.6 percentage points higher than December, the biggest increase in any state, and it jumped 4.7 percentage points over the past 12 months, also more than anywhere else.
What a brilliant observation made here - increased unemployment had a direct relationship to increased foreclosures. So if there is this direct correlation between the two then it is obvious that we must actually lower the unemployment rate whcih also seems to be increasing nationally. If unemployment is increasing aiding increasd foreclosures then how in the world can we begin to see a turn around by years end. Is there some magic formula that someone has that can turn this faucet off in the next 6 months? I believe this latest stimulus bill - which officials have already said will not be enough - will take at least 6 months to just begin. And if we already know it will not be enought as a second stimulus has been announced as needed - that means to me that we are not lyet headed for a recovery.

The article says that certain of the hardest hit markets are experiencing foreclosure rates of on in 60, one in 147, one in 188 homes certain markets going into foreclosure. One particular market has an increase of 88% over a year ago - and 2008 was the worst ever for foreclosures - and up 23% from January of this year.

But main stream media which main street people rely on really don't report this information. Actually you may not hear on CNN cable television - for those that have cable and we know millions of Americans still have over the air television -will not air the same report they publish on line at

Many more people are apt to see our Treasury Secretary on the major news broadcasts - NBC, CBS and ABC then would read other news sources on the internet or even watch PBS Public Television - which airs the Lehrer Report in addition to the Charle Rose show. Both boradcasts of which go into more depth in their reporting often giving several views not just 1 or 2 minute sound bites.

Fact or fiction? I say follow the facts. The facts - reality - will get us through this crisis not false optimism. We need to know what reality is in order to plan accordingly to survive this out of control storm.

There are optimists, pessimists and realists. I have become a realist. The Dow went up because of a one time report from what was just the day before a financiallly troubled - almost broke if not broke - company. A one quarter profit does not erase the losses for the previous quarters nor for their entire balance sheet. A false report driving people to make moves that they will regret and will cost them. Realistically they are still not solvent. Solvency is the issue not a one quarter rather small profit. Once the Dow realizes this - and it will - stocks will plunge again.

Fact or Fiction? What is our actual unemploysment rate? Since we onlyl report those that ate actively receiving benefits - how many are there still unemployoed no longer receiving benefits and how many are unemployed that don't qualify for unemployment benefits such as commissioned and many self employed people.

Fact or Fiction? What is the actual number of hungry children in this country? A report recently indicated 1 out of 50. I have not verified yet but if only close to true it is staggering.

Fact or Ficton? How many people on Food Stamps. Again, I have seen the number 38.1 million. Again, not verified. But even if close to accurate - is that 31.8 total people - all persons in a household or is that the number of applicants receiving this benefit for their households?

Fact or Fiction? Loan Modifications

Fact or Fiction? Which drives consumer confidence? I believe it to be fiction. Don't get me wrong - I very much want to see a recovery in the near term but I will not get lulled into a false sense of security saying "if I can just hang in there for a few more short months, everything will be alright". Prepare for the worst and you will survive long term and be more then pleasantly surprised and pleased if, in fact, the short term was correct. I also don't believe that we can begin to see a bottom and the start of a recovery in our overall economy until we stabalize the housing market and bring back the real estate industry.

But of course, this is only my opinion, I could be (hopefully) wrong.

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