Jim Cramer finally officially eliminated himself from any serious discussion about any economic issue, forever. I know, to many he eliminated himself a long time ago with his ludicrous housing is bottoming call a year ago, but for some reason he is still being hailed as some type of guru on CNBC. It is easy to do a hit piece on Cramer, I know, but this time he has gone a bit too far.
First, he claims he told people to sell last week before the big selloff on Friday, he did not on his Mad Money program. Second, he ran a piece tonight HERE, claiming he is giving you tomorrows headlines today, at 6 PM, what good is that, about the housing data tomorrow. Guess what he said? It is going to be bad. Really, no one had any idea since the data has been horrible for how long now? Not to mention everyone is expecting the data to be bad so even I am not convinced it will be the catalyst it should be. Regardless, the insanity doesn’t end there, it gets better.
He claims he gets his information from the home builders who sell thousands of homes and have been extremely negative on housing versus economists who own only one home. He goes on to say how overly optimistic economists are and so forth which is not shocking to anyone since they have all overestimated the economic data we have seen recently and, frankly, he had also overestimated the data as well. Basically, he is jumping on the bandwagon which means the data is probably going to be better than we all think to begin with because Cramer is the freaking kiss of death for everything, seriously, he is. But it gets even better!
Cramer goes on to say that the poor housing data doesn’t mean anything because it is such a small part of GDP. He said; “Housing, he added, is not a big percentage of the economy and said executives who have appeared onMad Moneyhave moved “well past” housing as the drivers of their earnings.” WHAT!? OK, housing is not a big part of the economy, sure, I guess that depends on exactly how you define housing. Sales or residential investment account for about 5% of GDP, but I would hardly call that inconsequential. However, it is the services that go into housing that is the driver of GDP growth, like appliances, materials, jobs, etc. which account for about 12-13% of total GDP. That is a combined total of 17 to 18% of GDP that is impacted by the housing market being in the tank, conservatively, according to the NAHB. That is not inconsequential to the economy and that is something that companies cannot just “move past” in their earnings cycle.
The reason housing is such a big deal is because it touches so many parts of the economy and when housing falters so does the broader economy, obviously. To discount weak housing data from the overall economy or to not know how big housing is within the overall economy is incredulous. This matters because this impacts people’s lives, especially when construction workers are one of the largest segment of the workforce unemployed right now, and shows that this person has no business talking about broader economic issues. I respect the fund manager and he has one hell of a track record, but as a macro guy or a guy putting the pieces together to figure out what the economy looks like he is officially, totally, disqualified now. His horrible housing call a year ago combined with not knowing how important or big housing is today proves it.
All the talk about the double dip recession is being blamed on not enough stimulus, but that is not true since there is a lot of money being spent right now because of the stimulus. The final spending of the stimulus funds will end this year, right near the elections ironically enough, but it is clear it did not work. We now have Paul Krugman out railing about a deflationary depression because governments are cutting back stimulus efforts. My question to him is, if stimulus is the answer and we are spending it now why are we seeing disinflationary forces? His excuse does not hold water. It is the massive government intervention that is causing the problems, not a lack of stimulus, but too much stimulus.
I am in disbelief how anyone could not have seen these problems coming, the signs were everywhere. Employment was the best indicator, but look at money velocity, what you can piece together at least, and declining credit combined with higher foreclosures, bankruptcies and weak retail sales it is clear as day that at best we stabilized at less bad and at worst we are heading for really tough times. This is not something I wanted to happen I think you would be hard pressed to find anyone wishing pain and suffering on anyone, but the signs were all there. Not to mention the implications of Europe tightening its belt and trying to force China to revalue its currency, talk about insanity, we took it to the next level.
So, Krugman may be right and we may have a deflationary depression, but I am sure it will last for only a little while. Because Bernanke will not stand for a deflationary depression, which is ironic considering Ben is the Great Depression expert and he is creating another one, and he will print our way out settling for an inflationary depression. The unfortunate part is Mr. Krugman has the reasons wrong for the depression we are in and he doesn’t seem to understand that you cannot cure debt problems with more debt, it just doesn’t work. Our debt is so large that is will now be a complete drag on GDP which means lower growth, the new normal anyone? Again, his reasoning is flawed because we just spent $1T, give or take between all the programs, on stimulus and we are not even done spending and he is calling this a deflationary depression because there is no stimulus? Maybe he likes to confuse the less informed or something, but talk about being wrong, wow.
My point is that you need to remember today, what is going on, the money that is being spent, what politicians are saying and blaming because they will, whichever party, will point to right now saying we should have done more or we should have done less. The fact of the matter is we are doing both, stimulus is declining and we are not adding more to it, and keep in mind that the data we are all looking at is still coming from April or May when much more money was being spent. All that data, even further back then April, is also showing significant decline in economic activity when the stimulus was running full speed ahead. To clarify, just because the spending is slowing now don’t blame the negative data on that since the data was generated prior to the slowdown in stimulus spending. Furthermore, employment never recovered or even showed significant improvement given the price tag.
Will the decline of stimulus spending hurt? Yes, a lot, but it needs to stop somewhere. The problem with the stimulus is that it is cruel because it extends the bad periods much longer than they should have lasted by blocking the markets from finding a true bottom. The more you spend, the more it distorts reality and lures people into a false sense of security, but when it stops the real pain begins because those fooled may have to lay more people off and readjust for a post stimulus world. So not only do the long-term unemployed receive the proverbial shaft, but newly hired employees may also receive the same treatment after they thought they caught a break.
Right now you can see what worked and what did not, but in a few months many might not remember. They may point to the 5.6% GDP print and say remember how good things were then? Well, they weren’t that good to the unemployed or those in bankruptcy or losing their homes, but that is how it will e framed and there will be cries for more stimulus. Those cries must be rejected and the only government stimulus that must continue is unemployment insurance. You cannot dump millions of Americans who are not unwilling to find a job it is that no jobs exist for them.
We tend to have very short memories and forget things quickly because of who knows what, I blame TV. You cannot forget what is happening right now because if you do they might talk you into another round of stimulus or God knows what else. We are in trouble, I know this, but we tried Krugman’s way and it failed, let’s give it the “let’s not give it the college try” and see what happens. Besides all of that, we simply cannot afford more spending especially for mediocre results, I am being generous here. While Krugman is grabbing the headlines for using the “D” word, let’s not forget I started using the term depression months ago based on the employment figures, food stamp numbers and the way foreclosures and bankruptcies were growing because I was paying attention and not traveling to my vacation house in the tropics unlike some BY Times economist.
We are not talking about bailing out Citi or Bank of America, but whole countries now. What is wrong with this story? Greece is a tiny portion of the EU’s GDP and has always been a problem child for Europe, but this is insanity. What happens is Greece gets bailed out will the EU bailout the rest of the PIIGS as well? They would have to because no matter what deal you give Greece those other countries will demand similar treatment.
This is how moral hazard develops into a currency crisis because you cannot be selective on who you bailout and let the rest fail. It is also an extremely complex problem since none of these countries can print their way out of this mess. Typically, a country in these types of problems would simply devalue its currency and be done with it, but the PIIGS cannot do this under EU rules. If they drop out of the EU they are stuck with debt priced in Euros which would utterly destroy the country forcing a true default. There is simply no way out for these countries and we may be seeing the whole EU dissolve right in front of our eyes.
The ramifications for what is going on are enormous to say the least. From my lens it looks and feels like a currency crisis in the making as the entire EU is becoming unstable at best. Germany cannot single handedly hold up the Euro nor can they bailout all of the problem children in the group. The charter of the European Union, as Rosenberg pointed out today this was one of the latest versions of a European Union, the others failed, does not allow for countries to be bailed out. However, an individual country can help out its neighbor if it so desired. This was the rumor today, Germany was going to bailout Greece, but that would have killed the German Bund, which reacted negatively to the news.
The reason why the EU proper cannot bailout of country was established for a reason. Bailing out a country would mean a devaluation of the Euro currency and the EU wanted individual countries to be held responsible for their own troubles. The interesting thing is that Greece totally benefited from the EU versus what it contributed to the rest of the union. However, their benefit was to the detriment of the union itself. Regardless, think about it a country needs a bailout and people think this is not a big deal?
This is probably one of the biggest deals I can think of especially as it is hitting the Euro as hard as it is. I have been expecting a currency crisis for some time now, but always figured it would be the UK followed by either the US or Japan. It does appear that the Euro is first and this is a major problem for everyone, whether you realize it or not. Think about 1997 when Thailand devalued its Baht and what happened there and then magnify that problem by 1000 and you can begin to see the problem this situation can become. I would be very cautious on what you do with your money at this stage of the game, this rally is low quality and based on rumor. I am keeping my shorts.
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