Saturday, 16 May 2009

"The Worst Is Yet to Come": If You're Not Petrified, You're Not Paying Attention

The green shoots story took a bit of hit this week between data on April retail sales, weekly jobless claims and foreclosures. But the whole concept of the economy finding its footing was "preposterous" to begin with, says Howard Davidowitz, chairman of Davidowitz & Associates. "We're in a complete mess and the consumer is smart enough to know it," says Davidowitz, whose firm does consulting for the retail industry. "If the consumer isn't petrified, he or she is a damn fool."

Davidowitz, who is nothing if not opinionated (and colorful), paints a very grim picture: "The worst is yet to come with consumers and banks," he says. "This country is going into a 10-year decline. Living standards will never be the same."

This outlook is based on the following main points:

*With the unemployment rate rising into double digits - and that's not counting the millions of "underemployed" Americans - consumers are hitting the breaks, which is having a huge impact, given consumer spending accounts for about 70% of economic activity.

*Rising unemployment and the $8 trillion negative wealth effect of housing mean more Americans will default on not just mortgages but student loans and auto loans and credit card debt.

*More consumer loan defaults will hit banks, which are also threatened by what Davidowitz calls a "depression" in commercial real estate, noting the recent bankruptcy of General Growth Properties and distressed sales by Developers Diversified and other REITs.

As for all the hullabaloo about the stress tests, he says they were a sham and part of a "con game to get private money to finance these institutions because [Treasury] can't get more money from Congress. It's the ‘greater fool' theory."

"We're now in Barack Obama's world where money goes into the most inefficient parts of the economy and we're bailing everyone out," says Daviowitz, who opposes bailouts for financials and automakers alike. "The bailout money is in the sewer and gone."

This pessimistic outlook makes more sense than the optimistic ones.

[Posted at the SpookyWeather blog, May 16th, 2009.]


steven andresen said...


Do you think the Obama people bail out the financials because they are involved in a plot to steal wealth, which is one explanation for why they do not go along with people like Davidowiz, Schiff, or Paul, or are they supporting the financials, and would the other corporate sponsors, for 'ideological' reasons. Do they think it's good policy, or are they just crooks?

I am wondering why Obama has gone back on his word so much. I suspect that the whole discussion about what to do has to be kept quiet because one of the reasons that governments do what they have been doing is that it;s what you would do if you were a crook. Well, they cannot admit that.

I think he cannot admit the possibility that one of the reasons they have done what they do is because it's what they do to steal.

SpookyPunkos said...


I think you are pretty close to the mark when it comes to the crook aspect. Whether or not you consider the bailout scheme criminal, one thing is obvious, these people are all banking/corporate insiders.

It is said that the bailout of the banks are designed to prop up the economy and encourage lending. However, you can clearly see that the huge banking losses are being shifted to the taxpayer and very little is being done that will help ordinary people keep their houses/jobs. House prices are falling, jobs are going fast and the big financial corporations are being propped up at the long term expense of everyone else.

I think people like Schiff are right about allowing bankruptcies to occur considering the huge debt cloud engulfing the US. The present government borrowing could help maintain the population and the viable banks whilst those that helped create the problems can go bust.

It's like the 30's in terms of a financial crisis wrecking the real economy, except this time around there is no real manufacturing base to help with the recovery.

I think there is merrit in allowing a crash to occur to clean out the system. The problem now, and after any crash is in job creation. How to employ so many ?Right now everything is for the bankers and nothing is being done to fix the fundamental problems.

It smells crooked to me as we still see high corporate salaries in failed businesses and bonuses, err... "retention awards" for everyone else involved !