The Great Lie of 2009

Just as the authorities were touting the “end of the financial crisis,” all heck has broken loose again.

We have a new surge in unemployment: Even without counting those who are excluded from the official numbers, 14.7 million are now jobless, the most since records dating back to 1948. Worse, for the first time since the Great Depression, every single job created after the prior recession has been wiped out.

We have industrial production falling at the same pace as it did in the early 1930s …. and global trade falling at twice the pace of the early 1930s.

We have California — the nation’s most populous state, with the largest GDP and the greatest impact on the entire U.S. economy — collapsing.

We have consumers slashing their spending, small businesses laying off their workers, cities and states forced to gut their budgets.

We see the most radical government countermeasures in a 100 years, the biggest federal deficits in 200 years, plus the swiftest swings — from greed to fear and fear to greed — ever.

Yet, for the past four months, virtually every policymaker in Washington and every pundit on Wall Street has been telling you …

The Great Lie of 2009:
“A Recovery Is Around The Corner”

On March 15, Fed Chairman Ben Bernanke told CBS News’ 60 Minutes that he detected “green shoots” in the economy. And every day since, economic soothsayers have been surveying the landscape, sifting through crops of weeds, trying to find those green shoots.

But from the very outset, we have warned that this is not a garden-variety recession. It’s merely the first phase of a far longer, deeper depression.

And now, just within the past few days, the myth of “green shoots” has been shattered, the reality of the still-sinking economy revealed.

By late April, famous Wall Street gurus were lining up to declare “the end of the bear market,” and every day since, brokers have been cajoling you to buy the very same stocks they want to sell.

But from the very beginning, we’ve advised that this rally was merely the calm before the next storm, a major selling opportunity.

And now, with the Dow already down 500 points from its June high, it looks like the smarter investors in the world are finally beginning to act on that advice.

In early June, labor officials trumpeted a turnaround in the nation’s job market, proudly announcing that “only” 345,000 jobs were eliminated in May.

We insisted these numbers were extremely deceptive. Even if you accepted them at face value, we said, “less bad news” and “slower disasters” are not exactly signs of a turnaround.

And now, with the new government data released Thursday, their thesis is already being thrown into grave doubt.

One week ago, California officials publicly declared that they would never default on their obligations, directly refuting the forecast of default we made in this column on June 22: According to the BusinessJournal, Tom Dresslar, a spokesman for state Treasurer Bill Lockyer told the press “Mr. Weiss’ analysis and recommendation, to put it kindly, is misinformed.”

Just two days later, California defaulted on its short-term debt obligations to countless vendors and taxpayers, unilaterally issuing millions of dollars in i.o.u.’s that no one wanted and few financial institutions accepted.

No investor — whether a sophisticated money manager entrusted with billions of the public’s money or an average American seeking a respectable retirement — can afford to believe the Great Lie of 2009.

Instead, investors wishing to protect their capital would be well advised to use any temporary rallies in the economy or the financial markets as selling opportunities to raise cash.