Baseball great Yogi Berra had a saying "It's déjà vu all
over again", and every year around this time, I am reminded of those words.
As we have once again, happened upon that magical time of year I call, recovery
summer déjà vu. It's the time of year when Wall Street and Washington
apologists trot out their dog and pony narrative, in an attempt to spin the
actual data, proving we have finally embarked on the summer that will launch
sustainable economic growth.
And this year is no exception, as those same people appear to be downright
giddy by the prospect that we finally have something to feel optimistic about.
For instance, they are euphoric about the most recent jobs report, some suggesting
that there is absolutely nothing to find fault with. Of course, they fail to
mention anemic wage growth, the lower quality and part-time jobs created; or
the discouraged workers who have left the work force.
Yes, they will admit that they were stunned when GDP contracted in the first
quarter, but that was a mere weather-related incident. It was the blizzard
of Q1 2014 that left GDP buried under 2.9% inches of negative growth. In truth,
a more accurate reason for the economic slump was the move in the 10 year note
from 2.48% on October 23rd, to 3.03% on December 31st of 2013. And the move
over 3% was the peak of the cyclical advance from the low of 1.63% on May 2nd.
The doubling of interest rates, although still to a historically low level,
was enough to send this debt-laden asset-bubble driven economy into the freezer.
But why allow facts get in the way of a good weather story. So once again we
hear cheers for another summer recovery.
The truth is, since 2010 every second half recovery has disappointed and this
one will be no exception. The first quarter of 2014 gave us 2.9% negative growth.
I am in agreement with most economists that the 2nd quarter will come in somewhere
around 3%, resulting in an economic flat line for the first half of 2014. This
puts enormous pressure on the second half of year to bring us out of stagnation
that has led to the most anemic recovery since WW II. Let's review; after GDP
shrank in both 2008 & 2009, growth returned in 2010 by 2.5%, in 2011 it
fell back to 1.8%, it then went up slightly in 2012 to 2.8%, but then down
again in 2013 to 1.9%. The inability to obtain growth above 3% in each year
since the economy collapsed during 2008-2009 underscores this tremendous economic
failure to bounce back after the Great Recession.
So why do they think this year will be different? After all, if you subscribe
to the Keynesian fairytale of money printing and deficit spending, it was easy
to see why they were excited back in the summer of 2010. The economic spigots
were over flowing with a treasure trove of demand stimulus and monetary elixirs.
In the summer of 2010 sanguinity was in the air...Time magazine's 2009 man
of the year Ben Bernanke was poised to save the day, ready to do whatever it
took to get this economy growing again. Today, despite lack luster growth,
the Fed is retreating. Essentially conceding -- at least for now--printing
money didn't solve the problem; QE is set to wind down in just 90 days.
But for a Keynesian it gets worse. Instead of an Obama phone, we have the
roll-out of the job-killing Obama-care plan this year and next. In addition,
profligate tax-payer subsidized loans that funded the likes of Solyndra, have
been supplanted by a capital goods strike. "Shovel ready" has been replaced
with anemic real income growth and record debt levels.
Putting the Keynesian fantasy aside, the truth is there isn't much ahead that
will stimulate real growth. The middle class, which was already saturated in
debt, has not been the beneficiaries of the Federal Reserve's money printing.
Instead, those dollars have been funneled into the creation of new asset bubbles
and have led to an increase in food and energy prices -- like it always has
in the past. Stagnant wages are being stretched further to pay for the necessities
of living. We still don't have the regulation and tax reform that catapulted
the Regan revolution. Companies that have cash flow would rather make stock
purchases to increase their Earnings per Share than invest in property, people,
plant and equipment. And, unless the economy is headed back into a severe recession,
the economic boost from a lower cost of money will be absent.
The truth is there is not much at all on the economic horizon to warrant optimism.
Yes, the cheerleaders are hoping if they yell loud enough, a recovery-summer
will finally manifest. Unfortunately, until free-market forces are finally
allowed to deleverage the system, it will be a disappointing second half recovery--all
over again.
