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Friday, January 16, 2009

It Wuz Always 'Bout Tha Numbahs

With apologies to Herbert Kornfeld for the robbed title.

I'm really busy, but the bottom line is that we are beginning to see some positive signs. Call it the first third of the recovery process. That's for the US, but there are some relative positives indicating a bottom elsewhere in parts of Asia on certain industries.

So the forward edge trajectory has shifted into a leveling pattern, aside from the bad debt issue. That is a big issue indeed.

But for the US, FUT, survey, real incomes all forecast spending uptick in second quarter. This was a trickle-up recession and it will be a trickle-up recovery. Slooooow.

There is still a huge shake-out in industry coming, especially in parts of Asia. And there's still a lot of bad debt to be dealt with over the next few years. And then there is the looming Eurobank bomb, which is going to start really causing problems in 09.

The bad part is that if the US launches a "green" energy program, we blow it all out. Then incomes reverse again, and lala, US depression. The bad debt is just the bad debt. There's nothing you can do to fix it. You just have to go down with it or work it out.

A lot of more traditional US adjustable mortgages are adjusting lower, so add that to real income recovery, and you've got consumer recovery. First pulse shows up this spring, and then it slowly builds (under current conditions) through another year, at which point you have a net stimulus of approximately 250 billion. Many people will be paying a few hundred less a month on their mortgages. And those foreclosures are not all bad either; many individuals will be renting for far less. Freddie Mac is negotiating with individuals to stay in their foreclosed homes and pay market rent. Not a bad idea at all.

True, the higher unemployment is a drag, and that drag will build. Nonetheless, this is where demographics starts helping. There will be more income stability due to retirement funding (public, SS & the like) over the next sixteen months than we have seen in the last few recessions.

US credit is still pretty easy by anything but recent norms, and the recent moves by the Fed to buy consumer debt securitizations have further helped. So now it is a matter of time, which will mitigate matters, and stupidity, which may cause the US to stage yet another remake of the Titanic.

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