re·cov·er·y – noun – return to an original state

Major stock indexes have rallied around 50% from their March lows and it seems that the rate of decline of the American economy is slowing or even turning positive. Needless to say, the mainstream media and the politicians along with the central bankers are all over this, claiming that the recession is over or about to end and that we are in a recovery. But is this a real recovery or just a cover-up? Why don’t just look at the numbers, shall we?

1) Household net worth is down $12.2 trillion from the peak in 2007, currently standing at $53.1 trillion (chart here). According to the Federal Reserve report issued on Thursday, net worth was up $2 trillion in the three months leading to June 30th. Up? UP? What about the falling dollar? Households might be “richer” in terms of dollars but that will be flushed away by inflation, especially as foreign currencies make imports more expensive. No recovery here.

2) Unemployment. The rate of new jobless claims has been falling and this was something most people expected. Companies have eliminated the most obvious inefficiencies and are now having to make tougher calls on who to keep. U-3 is at 9.7% and U-6, the broader unemployment rate is at 16.8% (data here). If you’re confused about U-3 and U-6, you should read this. The depression has thrust America way back into the year 2000! And even the people that have a job are taking home less pay as wages and working hours alike have been dropping and continue their decline. People haven’t gotten back their jobs, no recovery here.

3) Mortgages.Over a million people have lost their homes any many more are on the brink of foreclosure. A recovery would imply that these people have gotten their houses back or purchased new homes. If you figure in the massive Alt-A mortgages that are about to be reset in the coming quarters then the picture turns really, really bleak. Recovery? No way.

4) Health insurance. Nearly FIVE million people have lost health care insurance since September 2008. Recovery? Are you kidding me?

5) Household income. According to the US Census Bureau, real median household income fell 3.6% between 2007 and 2008 from $52,163 to $50,303. Recent data suggests that real median household income is not about to recover, especially with all the jobless claims. No recovery.

6) Poverty. A new comprehensive economic survey shows that the recession has plunged 2.6 million more Americans into poverty. Come again? The nation’s poverty rate rose to 13.2 percent in 2008, up from 12.5 percent in 2007. In all, 39.8 million Americans were living in poverty in 2008, defined as an income of $22,025 for a family of four. The last time there were that many poor people was 1960, although the nation’s population was smaller then. Wow! It’s no surprise that the politicians are lying and Ben Bernanke’s prognosis is wrong, but geez…this is really scary. Think about the implications this has for America’s future. Poverty is something that cannot be reversed overnight like the financial markets can. Recovery? NO! This is a cover-up!

7) Food stamp program. From Sudden Debt: The number of people on food stamps reached a record 35.1 million in June 2009, up 21% from last year and +33% from the end of 2006. That’s almost 12% of the entire population of the United States, the highest percentage since the food stamp program began in 1969.

The bottom line is that for people who have jobs, this a recession. For people who are unemployed, this is a depression. A recovery in the stock markets is not the same as a real economic recovery. However, this does not mean that we are going to see another crash in the financial markets. With all the government stimulus and the Fed monetization, the GDP numbers will very likely end up on the positive side by the end of this year. According to the Economic Cycle Research Institute, we are headed for another growth period for the overall economy. This means rising stock prices, but especially rising commodity prices as business starts to pick up. It is fair to say that GDP doesn’t measure the well-being of the people but when it comes to economic activity, I find it to be most helpful. With all the new credit in the system (right now, credit is up compared to 2008, which is a very powerful sign of economic activity) a shift in economic activity to the upside is almost guaranteed. The recent FOMC meeting added strength to what you just read as the Fed promised to keep on monetizing government and GSE (govt. sponsored entity; Fannie Mae, Freddie Mac) debt. Rumours have it that Congress is also working on a second stimulus. So in the end, the economy is still in the toilet in terms of the well-being of the people, but for investors it’s a very good time. Use this to your advantage, but whatever you do, don’t short the markets. It will kill you.

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