The S&P500 dipped ever so slightly last week. It fell 0.1%. The VIX (or fear) index rose slightly as well. And volume was on the lighter side.
The macro data were mostly weak. New home sales rose, but mainly because the prior month’s sales were revised downward substantially. Still, new home sales in June were the lowest on record. Consumer confidence came in lower than expected. Durable goods orders were much weaker than the experts had forecast. Initial jobless claims just about met expectations, but they were still closer to 500,000 than they were to 400,000 (the traditional threshold for exiting a recession). The second quarter GDP estimate was worse than consensus estimates called for. And Chicago PMI was better than expected.
Technically, the S&P is in an uptrend on the daily charts, but it’s very close to breaking below this uptrend. On the weekly charts, the downtrend is still in effect. Although the S&P is at the upper bound of the downward sloping channel, it has not decisively broken to the upside.
What makes the S&P’s resiliency remarkable is that it hasn’t broken down in the face of a growing body of evidence proving that the so-called economic recover is fading fast.
Also remarkable is that the public, with the help of the media, is catching on to this grim reality.
After Friday’s GDP report, here’s a leading headline in the Wall Street Journal: “Recovery Loses Momentum. Outlook for Remainder of 2010 Darkens…”
Here’s a front page story in the New York Times: “With Recovery Slowing, the Employment Outlook Dims”
But most remarkable, is that the public, and the media, has taken so long to catch on to this ugly turn of events.
Serious scholars such as Paul Krugman (from the left) and Niall Ferguson (from the right), while not agreeing on the precise causes and prescriptions, have been warning readers for almost two years that the economy will not bounce back soon or strongly.
Krugman had predicted that the US economy would enter a deflationary malaise, similar to what has afflicted Japan for the last 20 years. Ferguson has warned that the US economy is increasingly at risk of a catastrophic “sudden stop” if our creditors wake up to the growing risk of funding our fiscal deficits.
So far, Krugman has been right, and we could stumble along for a while, Japanese-style. But unfortunately, if Ferguson’s scenario comes to pass, then there will be no muddling through. Catastrophic economic collapses don’t exactly allow for muddling.
Either way, the US economy will NEVER recover–in the traditional sense of the word–until its cancer (massive leverage and the people, processes, and institutions that created this leverage) is cured.
And as of now, almost two years after the stock market crashed, the cancer has not been cured. It is spreading.