So much for the 'strong economy'

The first half of April has punched holes in the idea that the economy is becoming healthy, either here or abroad. It also raises the specter of more easy money from the Fed.

By Bill_Fleckenstein Apr 16, 2012 9:28AM

Even though it is not headline news, European debt markets have begun to stink up the joint again.

 

Italy and Spain saw their borrowing costs increase in recent days, and the spread between the yields on Spanish and German government debt increased to the levels we last saw in December -- an indication of rising relative risk.

 

Though U.S. investors are mostly ignoring it, the "pain in Spain" -- and Italy -- continued last week, as their debt was pounded on Tuesday, with Spanish yields closing in on 6%.

 

The evidence for weakness grows stronger

 

Early signs of weakness began showing up in the U.S. economy from corporate America earlier this month. On April 4, SanDisk (SNDK) preannounced, which I find pretty interesting, as that company's products go into all of the red-hot electronic doodads that people can't live without.

 

(Column continues below video.)

 

 

Then on April 5, Polycom (PLCM), which develops headsets and data-conferencing products, preannounced, and its stock declined about 20%. So that makes two recent company-specific data points, which may spell trouble.

 

Also last week, GM (GM) missed its sales expectations, which is not that big of a deal, but its inventories have doubled over the past year or so. Obviously, if it is essentially stuffing the channel, that affects other economic data as those cars are built.

 

Meanwhile, on the retail front, Costco's (COST) same-store sales were a little bit light, even with the warm weather we all know about.

 

QE3 to guest-star on 'The Walking Dead'

 

Obviously, the April 6 employment report was a giant disappointment, though folks tried to rationalize it in various ways, particularly as so many have let the stock market "write the news." By that I mean, as stocks have gone higher, people have changed their opinion about our economic situation, thinking, "Gee, the market must be telling us that the economy is better than we thought."

 

However, Thursday's initial jobless claims report jumped to 380,000, the highest weekly level since January, making such rationalizations that much harder to justify.

 

What all this portends is that the ability for the unseasonably warm weather to improve the underlying economy will cease shortly. Thus, all the economy bulls, who had concluded that another round of quantitative easing from the Federal Reserve -- including the much talked about QE3 -- is D.O.A. now will be back to contemplating just that. It is really hard to see how the U.S. economy can be all that strong, given the sorry state of Europe and the fact that China is slowing.

 

Granted, none of these data points by themselves are earth-shaking developments, but given that everyone is so excited and optimistic, I think the aggregate of these little negative nuggets is potentially important, especially if we see more of them, as I suspect we will.

 

Be careful fading into obliviousness

 

Were it not for the money-printing going on, I would be looking very seriously at getting short, betting stocks will go down. As it is, my enthusiasm is tempered by the fact that it still might be hard to win with that strategy in the current environment even if the market is dealt a large dose of reality in the coming month, as I suspect. I do think the market is quite vulnerable, for a number of reasons, but obviously there is a rather large, oblivious contingent out there.

 

However, given the setup in gold, including the fact that Indian gold dealers called off their strike, I reloaded my metals trading position this week. I expect that Indian demand for gold (and silver) will be quite supportive in the coming weeks. We'll see if that turns out to be right.

 

At the time of publications, Bill Fleckenstein owned gold.

24Comments
Apr 16, 2012 12:05PM
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If one looks at their local car dealers they can see that the lots are full. If you actually go into the dealership you find the place empty and only one or two cars waiting for delivery.

These signs point to the car companies "stuffing the channel". In other words, shipping cars to the dealers as "sales" and the dealers can only stop the practice by having their banks trim their lines of credit. A hard spot for the dealers.

At the gas stations, it is not hard to find the work truck and SUV drivers complaining the it takes $125 to $150 to fill up their vehicles. In many cases because of the type of work they do they can not "down-size" but they can postpone buying a new vehicle.

From a personal perspective my truck I bought in 2002 model year is now $10,000 more for the same exact model in 2012. the only difference is the standard transmission is not available anymore so you have to have an automatic as standard equipment.

As a person on a fixed income I have yet to see that things are getting better. I seem to find that things have gotten worse of late.

Apr 16, 2012 12:07PM
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If we think that the only problem is Spain, Italy and China, we are in for some rough times ahead here in the US of A.
Apr 16, 2012 2:51PM
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You’re right TC Kid, the only place the economy looks better is on the skewed statistics the government keeps.  In the real world where the rest of us live the economy is as bad now as it was three years ago.

 

And that’s the problem, everyone makes decisions based on the government’s statistics, but those statistics do not reflect the reality of the economy on Main Street.

Apr 16, 2012 3:36PM
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THERE HAS NOT BEEN ANY RECOVERY FROM THIS 5 YEAR RECESSION  IT ONLY TURNED INTO THE GREAT DEPRESSION NOW INFLATION IS GOING TO MAKE IT EVEN WORSE FOR THE NEXT 5 YEARS
Apr 16, 2012 3:04PM
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Really it's no wonder the economy isn't better, you have to have jobs to be able to purchase anything which in turn causes production to increase which also means you have a larger tax base for the Fed and state.
Apr 16, 2012 4:06PM
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Austerity, high debt (government and consumer) and printed money do not create an improved economy.
Apr 16, 2012 3:58PM
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Thank's for the CHANGE Obama............Can't wait for the CHANGE in November......
Apr 16, 2012 5:31PM
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What a joke!  The only reason the economy might feel marginally better for me and my family is that we no longer go out to eat, have not gone on vacation, have not purchased a vehicle and I have had to get a 2nd part-time job to supplement my full-time job and that of my husband!  I am not stimulating the economy because I can't!!  Health insurance premium increases have outpaced the cost of living raises my husband gets.  I have not had a raise in 7 years and am making less money than I was 7 years ago all while battling rising costs of food and groceries.  I am the working middle class that it seems NO politician gives a darn about!
Apr 16, 2012 5:09PM
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These clowns on Wallstreet and in the Halls of Congress will say absolutely anything to keep up the hype that "all is well and we are in "recovery mode."  The big problem is they actually believe their own hype.  Nothing has really changed since 2008 except our government propping up this disastrous bloated economy by printing trillions upon trillions of worthless greenbacks to try and pump liquidity into the system to convince people to go out and spend, spend and spend some more and to get the Banks to lend again which I might add, are still in peril. Two thirds of our economy is measured by how much consumers spend.  I,  for one, am not spending and the inflation that the Fed created with all these worthless greenbacks is just beginning to happen big time.  Did anyone ever think we would see $5.00 for a loaf of bread? Preposterous! Just wait...because the Fed hasn't mopped up one dollar of those trillions which is soon to cause hyper inflation. Aren't we already seeing deflation in areas such as falling wages?  Jobs...what good jobs have been created out of this mess?
Apr 16, 2012 5:01PM
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When will msnbc blame the slow economy in the U.S. on our own debt crisis. I am sick and tired of the slow economy being blamed on another country. May have  a little to do with it. The overprinting and devaluation of our dollar is the biggy.
Apr 16, 2012 3:58PM
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As someone made the analogy - our economy is a big Stack of Cards that is going to come crashing down at some time in the very near future.  Nothing is much better (if better at all) from the Financial Crisis of 2008 no matter how the govenment spins it.  Europe has put a band aid on an arterial wound and it's only a matter of time before that house of cards comes tumbling down before our own house of cards does.  I have to admit, I find the quantititative easing and money printing that resulted has created an "anomoly" in the markets that I really didn't think would survive for as long as it has.  But here we are and the markets ar still "relatively" strong.  That may all change very soon though as the inevitable finally catches up.

 

The U.S. is ripe with greed and corruption.  Banks could care less by kicking you to the curb than working to come up with a real solution to the housing problem. A problem that is getting worse not better.  And then look at the idiots we put into government office, but then again the system is just manipulated by thise that really run America, Big Business.  So when do we as hard working American taxpayers say enough is enough and we're tired of being bent over?  Occupy Wall Street and others was a good start but what happened to all of that?  The problem is we lack REAL leaders who have the juevos to stand up for what's right - in the same mold as Dr. Martin Luther King.  Yeah, a lot of us have a dream and the current America is not what we envisioned.

Apr 16, 2012 4:41PM
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Agreed.  Where is this "strong economy?"  I know.  It's in Washington, D.C., in the halls of the White House and Congress, not on the streets and roads of the rest of the nation.
Apr 16, 2012 4:51PM
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Until manufacturing comes back to this country, and the people actually making the goods have an income, to go out and purchase goods made by fellow Americans, in America, this economy is, as stated in the article, a "house of cards."

Right now we are too dependent on goods and services from other nations, where OUR income is going to support THEIR economies.  That trend HAS to be reversed, and we, as the paying population, need to DEMAND our government start paying attention to THIS country's needs, rather than those of other nations.  After all, that's what we are paying them for.  And right now, they are not earning that exorbitant salary.

Apr 16, 2012 3:07PM
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Do you guys talk to each other?

 

George Putnam says we are in housing rebound. Frankly, I'd like some of whatever he is smoking.

 

I agree with you and let's write more about Gold.

 

You know what would be a neat article: An analysis of who's buying Gold, Okay, Okay I know the Chnese and the Indians. How about who is selling Gold? Details, I mean details. Why did it take such a nice big dip? I'm not complaining mind you, I'd just like to know who is manipulating what?

 

I pretty much blame Obozo the Anti-American Muslim for everything bad. LOL! .... and Obozo blames Bush!

Apr 16, 2012 5:19PM
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I am in the flooring business in north Atlanta. I manage two stores in very upscale areas. Business has been declining at double digits for five years now. The only reason we are still in business is cost cutting employees and installers. Insurance...what a joke, just eliminated it for the second time if you cant make payroll and buy materials you sure cant provide health insurance. All employee bonuses have been gone for four years. Every cost going up while margins on jobs are going the other way. QE I,II, III? Every dollar of it goes to artificially prop up the world's largest ponzi scheme. You sure as hell cant say Obama hadn't helped Wall st. Doubled since he has been in office. I guess corporate socialism is okay with all the cry baby republicans. Where business survive or fail not on good business practices but on good relationships with politicians. Europe, hell Greece is already bankrupt promising 50% on the dollar to bond holders and they line up to loan them more. Bullcrap, Spain is next. Uemployment stated 20% hell the real rate must be close to 40 in Spain and Greece. And cutting spending and taxing is going to dig them out. It is going to dig them a grave. But remember everything is fine just fine...my ****!!
Apr 16, 2012 6:09PM
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I lost my job back in July 2011 and have not found a replacement yet. Our household income has been cut by 1/3-1/2. Still waiting on jobs to rebound.
Apr 16, 2012 7:05PM
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The hogs are just sandbagging for QE3. Then the Fed can dump another butt load of money into the hog trough for the hogs to glutton on and fatten up more. Then when that is eaten up they will sand bag and want QE4. When will these puddwackers in power at our fed finally say enough is enough. I say KILL THEM ALL AND EAT THEIR CHILDREN.
Apr 16, 2012 4:01PM
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You know what would be a neat article: An analysis of who's buying Gold, Okay, Okay I know the Chnese and the Indians. How about who is selling Gold? Details, I mean details. Why did it take such a nice big dip? I'm not complaining mind you, I'd just like to know who is manipulating what?

Gold is extremely unpopular among the investing mainstream; probably because most do not hold physical. Even though it is traded under a currency code, XAU, many do not see it as such. Casual gold traders are not always the most patient, and what 'bugs' see as normal fluctuations within trends, day traders see as extreme volatility. Since the big players in AU are governments, 'manipulation,' for lack of a better term, is just part of the game. If and when the day comes that either paper traders demand physical, or control gets away from the big players, then gold will be seen differently.  

Apr 16, 2012 7:55PM
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If we went back to the basics concentrated on manufacturing and technology manufactured "in the good old USA"  - some overseas is okay as long as sold in those domestic markets (not imported). Stopped the handouts for the BIG financial instituations that rape the private citizens anyway. Then maybe we could get back to being America again, until then third world country is what we are going to be.

Apr 16, 2012 7:33PM
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when the Fed stops giving the banks free money at tax payers expense the stock market fun will end!!!
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ABOUT BILL FLECKENSTEIN

Image: Bill Fleckenstein, MSN money

This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.

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