No Recession? No Inflation? Don’t Make Me Laugh!

The anticipated bear market bounce in Financials has led to the usual fools’ chorus that the worst is behind us, the economy is on the mend, and a recession is avoided. If their song sounds familiar, it is because you heard the same tune with the home builders, and the same melody with the monoduoline insurers.

For those with their head in the sand, here is a broad and varied look at where the economy is contracting. Note that this isn’t a cherry picked list of negatives — it is the crème de la crème of corporate America, ranging from consumer to finance to industrial to transports, and includes such stellar names as Apple, Toyota, American Express, UPS, Catepillar, Costco and JPMorgan. (There’s not a slouch in the bunch!)

How’s the economy doing? You tell me:

• Not just GM and Ford, but mighty Toyota warns of lower 2008 vehicle sales (MarketWatch)

Toyota (TM) lowered its forecast sales for the year due to an
unexpectedly (?) steep decline in demand for new vehicles in the U.S.
market. Toyota reported a drop in U.S. sales of 21.4% in June (Passenger cars -9.4%, trucks -38.8%).  Shares of Toyota are down 25% over the past 12 months.

Slowing auto sales were blamed on the big 3’s heavy lineup of SUVs and trucks. Now that the world’s best automaker has declared a slowdown in the US, the cheerleaders are running out of excuses.

JPMorgan CEO Jamie Dimon: (JPM) “Our expectation is for the economic environment to continue to be weak – and to likely get weaker – and for the capital markets to remain under stress…We remain conscious that since substantial risks still remain on our balance sheet, these factors will likely affect our business for the remainder of the year or longer.” (Bloomberg)

• What about Apple (AAPL) — they continue to do well? They have been — but even the iPod/iPhone maker is expecting a
consumer slowdown: Thinner profit margins, more discounting, diminished
profitability through the rest of 2008 and into the following year. (BusinessWeek)

American Express (AXP): The credit card company said that even its most
creditworthy, long-standing customers felt the effects of the economic
slowdown that’s currently sweeping the U.S. "With bad debt occurring even in the superprime card segment, AmEx’s
earnings clearly show that the credit crisis is going upscale, which
does not bode well for the U.S. economy."

American Express is known for catering to wealthier customers, so
some investors expected the company to withstand the economic slowdown
relatively well. Amex noted that its richer clients were often given
cards with bigger credit lines. Now that some of these customers are
missing payments, the losses are bigger. (MarketWatch)

State Budgets are under pressure, as deficits increase, and tax
revenues falter. The stumbling U.S. economy is forcing states to slash
spending and cut jobs in order to close a projected $40 billion
shortfall in the current fiscal year.  (WSJ)

• We have Oil Prices falling — the knee jerk response was optimism — but that misses the big picture. Its not difficult to explain, its merely cooling global demand courtesy of a US induced global slowdown.

UPS:  Earnings fell 18.3% per share — and that was after UPS issued a profit warning (June 23) — its second in two quarters. The company reduced its full-year outlook, and Chief Financial Officer Kurt Kuehn:  "Slow U.S. economic activity and fuel-price increases hit us and our customers during the quarter" (Reuters)   (How anyone possibly thought this was a good report is simply beyond me).

Costco Warns on Profit As Inflation Clouds Outlook: COST was supposed to be one of the firms that was going to thrive on a recession. It warned that its fiscal Q4 and full year profits will be well below analysts’ estimates. They blamed inflation, particularly energy costs. "Factors negatively affecting our fourth quarter earnings outlook arise largely from inflation, particularly as to energy costs," Costco Chief Financial Officer Richard Galanti said in a statement.  (WSJ)

Caterpillar:  Despite good overseas earnings, Caterpillar
(CAT) CEO Jim Owens cited "softening” in Japan and Western Europe. The
U.S. may find it hard "to avoid a recession." CAT sees further
employment declines, no sign of housing recovery, and expects
non-residential building to soften further. North America will be its
weakest region. (Bloomberg)

Beige Book: Describes the economy
as having ‘slowed.’ In all districts, consumer spending was
sluggish or is slowing. Manufacturing declines were seen in many districts.
Residential real estate declined or were still weak. Due to economic weakness,
bank loan growth was ‘restrained.’ (Federal Reserve)

Mortgage Applications Reflect Housing Trouble: No surprise here: Mortgage apps dropped 6.2% with similar declines in both the refinancing and purchase activity components. The depressed state of the housing market, very tight credit conditions in the mortgage market, mortgage rates rising an average of 35 bps all weighed. The one bright spot: Refi activity since August of 2007 has been occurring among sub-prime borrowers (in conjunction with the FHA to restructure loans) (AP)

Pawn shops are booming: It doesn’t get much better than this for pawnshop operators, who are thriving in this environment. Tight credit and record food and gas prices have made it tough for a lot of consumers to make ends meet. Cash strapped consumers with no access to credit are exchanging personal possessions as collateral for loans. Business is booming.   (IBD)

Unemployment has finally bypassed the "magic" 400k number (not there’s anything special about that line). At 406k, it matches a three-year high, suggesting that we are nowhere near any sort of stabilization for labor markets (Marketwatch)

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  1. bruce commented on Jul 24

    Well, minimum wage increased this week..and the unemployment numbers for the first time over 406k..I would think that burger joints, and other minimum wage payers will do what we always think they might…release marginal people since the wage is higher in the very tough economic times…

    I hope people who were long this bounce are having a sober look at today’s figures..

    Bruce in Tennessee

  2. D.H. commented on Jul 24

    This rally is a total gift to anyone who knows how to make money as a trader. I would love to see a continued huge short squeeze coupled with completely irrational bottom picking. Once that combo fades and we are back staring at the ugly anorexic economy, we will end up with another lovely downtrend that makes trading a delight.

  3. Ecklebob commented on Jul 24

    Barry, Great summary of the FACTS. Yet, the fools will be buying, buying, buying as they have been assured the markets are at “the bottom” AGAIN!!! By the way, Kudlow should try to get more oxygen to his brain. Perhaps his tie is to tight. I would hate to believe he is just plain stupid. Goldilocks my a**.

  4. Winston Munn commented on Jul 24

    Here amongst the great unwashed, whatever that stuff is that is trickling down on our heads does not smell like success – and besides, since when is success brown?

  5. Fred in Jersey commented on Jul 24

    The PPP’s are out in full force – again – led by Kudlow. I did find it interesting that UPS said the 2nd half would be better than the first, this is probably why their report was viewed as good news.

  6. Donkei commented on Jul 24

    Dammit Barry, quit making sense.

  7. Chief Tomahawk commented on Jul 24

    Excellent summation BR. Now you’ll just have to find the courage to go back on Larry’s show so he can hit you over the head with his unbounded enthusiasm…

  8. Mike in NOLa commented on Jul 24

    Barry is just a nattering nabob of negativism.

    BTW Barry, any rough idea of how much further you estimate this rally can go?

  9. N! commented on Jul 24

    No! Please stop feeding crap.

    I can’t handle reality. Please let me stay in my fantasy/delusional world.

  10. jessup commented on Jul 24

    “We want you on that wall … we NEED you on that wall”

  11. Jeff commented on Jul 24

    Can someone please tell me I’m insane in thinking this financials rally cannot be sustainable, even with the coming bailouts from the Feds? It boggles my mind that many analysts out there think that it’s “let the good times roll” again in the financials after everything that has happened. Even if the “worst is behind us” (how many times has that been said?), exactly how do they plan to replace the enormous gravy train that was the cheap credit/lending/securitization business that has basically ground to a halt? Am I insane here?

  12. Zo commented on Jul 24

    these are the same people that couldn’t see this whole crisis happening. so i would say they are just as clueless in these forecasts as they were in their past ones.

    just something to keep in mind.

  13. Steve Barry commented on Jul 24

    So Barry is in Marc Faber’s camp…”colossal bust with inflation.”

    This is an amazing time to live in…massive credit bubble needs to unwind, causing asset deflation. Yet central banks printing money and worldwide consumption rising, causing commodity inflation. All at unprecedented paces. “May you live in interesting times” – a famous Chinese curse.

  14. Mr. Obvious commented on Jul 24

    Barry, you need to read more of Bowyer’s stuff…he says that there is no recession, and if a recession does occur, its Obama’s fault.

    “I don’t think that the current Dow bear market was caused by last August’s credit crunch. Nor do I believe it’s being caused by a recession that is allegedly starting right now (having failed to appear in the first or second quarter). Stocks are forward looking; when they drop now, it means investors are worried about things that are coming later – 6 to 9 months later. In other words, they’re worried about Obama.”

    Who am i going to believe…you and your “facts,” or Mr. Bowyer and his astute analysis of the market….

  15. Steve Barry commented on Jul 24

    The housing bailout will have unintended consequences…if actually used by the banks (and I don’t think they are forced to do so), by letting borrowers off the hook for higher rates, banks are ensuring they will never get all the cashflows they projected when they made the loans…thus all the derivatives off those loans will not be worth what they thought(we already knew that anyway). But now there will be no way to avoid taking the marks…unless accounting obfuscation bill is passed.

  16. heather commented on Jul 24

    Barry you’re totally cherry picking; didn’t you notice that “The Dark Knight” had record attendance? Thus proving that consumers are not strapped for cash. (Note: sarcasm intended).

    Keep fighting the good fight!

    BR: Funny thing is, escapist films have always done well during economic contractions . . .

  17. bruce commented on Jul 24

    Jeff, you may be insane, but not about the economy…you may be like Barry, and dress up like a giant watermelon every Christmas eve, but we still think his ideas about the economy and investing are pretty good.

    I think the economy is a big, lumbering giant, and now that it is losing steam, momentum will carry it along this path for awhile..

    Bruce in Tennessee

  18. Jeff commented on Jul 24

    Jerry Bowyer is merely a circus clown, following the lead of Goldilocks ringleader Larry…….

    I almost feel bad for people who actually take him seriously. Not quite, but almost.

  19. Jeff commented on Jul 24

    FYI – I’ve gotten into quite a few email battles with Bowyer in the past and they’re quite similar to the tripe that he spews on TV. Mostly filled with arrogant personal attacks and very light on actual “facts” (e.g. the Obama theory really takes the cake, but I expect nothing less/more out of a guy who wrote “The Bush Boom”).

  20. Jon H commented on Jul 24

    Barry wrote: “they continue to do well? They have been — but even the iPod/iPhone maker is expecting a consumer slowdown: Thinner profit margins, more discounting, diminished profitability through the rest of 2008 and into the following year.”

    Then again, Apple always and predictably gives conservative guidance, for which Wall Street hammers the stock and the financial press gets the vapors. Then in three months they find that Apple has knocked one out of the park. But they don’t care because the conservative guidance is such a buzzkill.

  21. Steve in Flyover Country commented on Jul 24

    But wait! wait! Ball park attendance has been great. Doesn’t that mean everything’s still ok?

  22. Movie Guy commented on Jul 24

    Barry is one of the few calling it the way it is.

    Good post.

  23. DaveinHackensack commented on Jul 24


    Given your sentiments in this post, what is your estimate for U.S. GDP in Q2? Are you predicting that the data will show negative growth? Consensus estimates are for growth at an annual rate of about 2.2%, if memory serves.

  24. Andy Tabbo commented on Jul 24

    You need to talk to Erin Burnett. She does a great job of always presenting the silver lining. I love the CEO’s she brings on the air. It always seems to be the CEOs who have something OK to say.

    And which line is the true America? The line outside of IndyMac or the Apple iphone line? What a stupid analysis. It’s Both! See Americans spending on crap they don’t need. See Banks going bust by financing insolvent Americans who bought too many things they don’t need.

    – AT

  25. Vermont Trader commented on Jul 24

    Everyone should pull up a YTD chart of Natural Gas.. UNG..

    Energy markets crashing…

    despite what you might think this is not good and would be expected at this point in a RECESSION.

  26. Ibod Catooga commented on Jul 24

    None of this matters, since Jesus is coming back in the fourth quarter!

    Recession? No! Rapture!

  27. Stuart commented on Jul 24

    Great re-cap Barry. On the daily show the other night there was a term used, “unobstructed news”. There is a deliberate intended version of the news that will not be obstructed by any detail or fact that contradicts it. It will be told irrespective of the gap to reality. This seems to accurately describe the BLS and other institutions/organizations with rooted vested interests. Sort of sounds like Iraq.

  28. Steve Barry commented on Jul 24

    Overlooked stat of the day: Home inventory up to 11 months, existing home sales at a 10 year low.

    “This is consistent with a stable sales pace,” said Lawrence Yun, the Realtors chief economist.

  29. Chuck Close commented on Jul 24

    Barry: As everyone US knows, when State and local governments “cut” jobs, they’re really just eliminating *** surplus-funds slots *** they had programmed for the next fiscal year. Any jurisdiction, any agency, has a comfortable cushion of 10% org chart boxes which they can “cut” at their whim.

    A local agency union here crowed in the news how they “saved” employees assigned to construction industry permitting from layoffs due to the US housing crash, by assigning them to “other positions” (the empty org boxes!!), even though in many cases they had no training or experience.

    When State and local personnel cuts become real cuts, when they’re not incrementally raising your gasoline taxes, water and sewer charges or property taxes (ours are still going up here!), that is, when the operating budget sharply contracts, then you can say the US economy is in trouble.

    They don’t call State and local government employment “makin’ bacon” for nothing….

  30. Tarzan commented on Jul 24

    For a purely non-scientific barometer of how the economy’s doing, I’ve found that my Pawnshop Inventory Index (PII) has done an outstanding job over the last 25-30 years. Want to make it work for you? Just drop into your local pawnshop and look for these telltale signs:

    Are the shelves bulging with goods? Check.

    Are the goods generally of good quality or better? Check.

    Does the proprietor inform you that he’s “got plenty more stuff in the back?” Check.

    Is there a good range of choices in each product category (e.g. game consoles, power tools, camcorders, TVs, laptop computers, etc.)? Check.

    Does at least one person come in to pawn something or make a payment on an already-pawned item while you’re looking over the stock? Check.

    Are the goods in the store priced to move? Check.

    If all these signs line up, then the economy is hurting. And you can probably find a good deal on something you want. Me, I picked up that Toshiba cordless drill I wanted for $80, when Home Depot wanted $200 for it.

  31. VJ commented on Jul 24


    Well, minimum wage increased this week..and the unemployment numbers for the first time over 406k..I would think that burger joints, and other minimum wage payers will do what we always think they might…release marginal people since the wage is higher in the very tough economic times…

    It’s never happened.

    We have never lost jobs by increasing the Federal Minimum Wage, other than when we were already in an economic downturn. So it’s the economic downturn that causes the loss of jobs, not the increase in the Federal Minimum Wage. The vast overwhelming majority of times we increased the Federal Minimum Wage, jobs have increased, as workers at that level spend 90+% of their increased wages into the national economy, thereby increasing the size of the economic pie.

  32. bruce commented on Jul 24


    Well, but this time, meat, electricity, tomatoes, lettuce, etc., everything that also goes into overhead besides labor is increasing at a very rapid rate…that is why I said “will do what we always think they might” general I agree with you that the minimum wage earner plows his money back…but the costs of doing business aka known as other overhead has been brutal so far this year…it will be interesting to see what unemployment does over the next six months…

  33. The Financial Philosopher commented on Jul 24

    “…bear market bounce in Financials has led to the usual fools’ chorus that the worst is behind us…”

    I certainly believe it is foolish to “call a bottom” at this point but how foolish is it to say the worst is behind us?

    Is this foolish assumption any more foolish than assuming the worst is ahead of us?

    For perspective, the broader market, as measured by the S&P 500, has fallen in price by approximately 22% from the October 2007 high to the recent July 2008 low.

    Does anyone anticipate a broad market decline greater than 44%? If so, you assume that the worst is still ahead and that this bear will be worse than the 2000-2002 bear.

    Things are not likely as good as “they” think but they may not be as bad as “we” think…

    Just keep perspective on your perception…

    “Men are disturbed not by things, but by the view which they take of them.” ~ Epictetus

  34. DL commented on Jul 24

    VJ @ 11:21:12 AM

    I’ve got an idea. Why not increase the minimum wage to $30/hour, and require employers to provide free health insurance on top of that. We could thus legislate our way to prosperity.

  35. Jason commented on Jul 24

    DL@11:56:30 AM
    Argumentum ad absurdum?

    Now, moving the minimum wage up enough that people could make a living would be an idea. I don’t want them to move it that high, just enough so that choices aren’t “rent or food”.

    Same with health insurance.

  36. Eric Brosio commented on Jul 24

    Nice straw man. Nobody with any credibility is arguing that we don’t have a recession or that inflation is not a big issue. And all the negatives you post are well known. Hence, huge sectors of the market have already been utterly decimated. I suspect that your firm is thinking of “dipping a toe” soon somewhere. Your thinking along those lines would be more appreciated.

  37. ThresherK commented on Jul 24

    On the strictly granular level, can CAT have seriously been caught out by this?

    Sure, they have had a good run selling the “machine tools” to the post-industrial revolutions (all those extra stores, office parks and houses, the Walgreens and Starbucks every 3 miles), but did they think it would last forever with no corresponding increase in median income (on the private side) or propulsion to spend the money to maintain our infrastructure (on the public side)?

    Tarzan, might I interest you in a “pawnshop ad index”: How many minutes can you watch TV in your city without seeing a pawnshop ad? Compare to 2 years ago, 5 years ago, etc.

  38. tom B commented on Jul 24

    Phil “UBS” Gramm is telling McSame that we are all a bunch of whiners.

  39. John commented on Jul 24

    The US infrastructure is in a bad way. Then there’s the change to alternative energy sources from wind farms to nuclear power stations. And not forgetting the huge expansion of rail transport that is going to be a key component of mass transit. CAT knows what they are doing. They are one of the most consistently well managed companies in the US. I know from personal experience.

  40. Bruce commented on Jul 24

    Ford, as I understand the company today as being interested in making a profit, predicted that a recovery will not occur in the US until 2010….not a bull, not a bear, not the government, not a vested interest…this is 18 months away…..

  41. Andy Tabbo commented on Jul 24

    So, let me get this straight….

    In the last few weeks, oil and natgas have been absolutely smoked.

    The SEC made it tougher to short financial stocks, which triggered some great short covering.

    The U.S. is going to throw 300 bones at the “housing crisis.”

    Paulson wants to carry around a financial bazooka to ward off the evil doers who might want to take shots at poor ol’ Fanny and Freddie.

    The Fed has been putting out like a cheap whore when the Fleet’s in town…opening its balance sheet to anyone with some crappy mortgage paper….

    And….for all that….the S&P 500 is up 5% from its recent lows…..

    You can almost feel the despair creeping back in…it may not happen for several more weeks….but folks….we’ve got a Whopper of a leg down coming.

    – AT

  42. Fredex commented on Jul 24

    Apple sells a million iphones over a weekend in a recession?

  43. Jim D commented on Jul 24

    And thus Fredex proves that there really *are* people who think we’re not in recession.

    Yeah, Fredex, there are lots of people who still have jobs, and for whom $200 isn’t that much money.

    That you don’t know that recession hits at the margins just shows that you’re not old enough to remember the last recession. Even the Depression wasn’t that bad – if you kept your job. If you didn’t, you were hosed.

  44. Jojo commented on Jul 24

    Photo of Costco store #422 in South San Francisco, CA checkout area on Tuesday 7/22 @ 5:02PM. Pretty empty!

    By the time I checked out with a few things at about 6:00PM, it was a bit more populated at the checkout lines but nothing major. It took me maybe 3-4 minutes to get to the checkout.

  45. VJ commented on Jul 25


    Well, but this time, meat, electricity, tomatoes, lettuce, etc., everything that also goes into overhead besides labor is increasing at a very rapid rate…that is why I said ‘will do what we always think they might’ general I agree with you that the minimum wage earner plows his money back…but the costs of doing business aka known as other overhead has been brutal so far this year…

    Which was MY point, that it has always been the past national economic downturns, or stagflation as we currently have now, and not any increases in the Federal Minimum Wage, that resulted in job losses.

  46. Tarzan commented on Jul 25

    ThresherK, I think you’re absolutely right. I hadn’t thought about it, but now that I do, I’m pretty sure there are more pawnshop ads on local TV and radio than there were five years ago.

    Oh, and I misspoke above. It wasn’t a Toshiba cordless drill, but this sweet little Makita number here:

    Picked it up for $80 at my nearby hock shop, and the thing looks barely used. Think I might go back next week and see what people are pawning right before the end of the month. ;)

  47. Hotep traders commented on Jul 26

    ya wanna know the status of “recession”?

    check out the aggregates of the depositories..and look closely at the reserves held(reported since 1959). Dec ’07, first time in history a negative(-3.07bil), now stands at -130bil. The reserves held to debt are close to a magnitude 5x needed to met the required reserve level…that’ll make the hair on the back of your neck rise…

    folks are in for quite a ride

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