The U.S. Recovery Is Producing Surprises (BAC, IYR, XLF, GM, EWG, EWC, C, DIA)
Sy Harding: In 2008 it was a sure thing the bursting of the real estate bubble (NYSEARCA:IYR), the collapse of the sub-prime mortgage market, the freeze-up of the banking system (NYSEARCA:XLF), the ravages of the ‘Great Recession’, collapse of the auto industry, bailout of mortgage- insurance giant AIG, bankruptcy of General Motors and Chrysler, etc., would wind up with the economy in the next Great Depression.
It was then a sure thing that the massive stimulus and bailout efforts would not work, and the costs would bankrupt the country and drop it into third-world economy status.
There was no chance the banks or the U.S. auto industry would ever pay back the bailout loans. The assets the Federal Reserve was also putting on its books to help the banks clean up their balance sheets, by exchanging Treasury Bonds for some of the toxic assets on the books of banks, was just further money down the drain.
The way the banks seemed to be using the bailout loans to expand, buying out competitors, expanding into Asia, rather than using it to make loans, was going to make the ‘too big to fail’ problem even worse for the future.
Even since the recovery began, it has been derided as just an illusion, as could be seen by the housing industry still being mired in depression-like conditions, and no progress being made in the terribly high unemployment situation.
Sometimes it seems we’re so focused on the negatives that we haven’t noticed the unexpected positive surprises in the recovery
For instance, how many realize that most of the government loans made to the banks and auto industry have already been paid back, with interest.
Or that the U.S. auto industry has bounced back dramatically. Global auto sales recovered sharply in 2011 and the U.S. led the way, with sales up 9.2%, topping even the 6% auto sales growth in China.
Yesterday it was reported that General Motors (NYSE:GM) has bounced back from its bankruptcy three years ago to a degree that it has regained its crown as the top-selling car-maker in the world.
Meanwhile, the Federal Reserve is making surprising profits on many of the assets it put on its books in the bailout process, $79.3 billion in 2010, which it turned over to the Treasury. And it recently estimated it made another $76.9 billion on those assets, and the Treasury bonds it bought in its two rounds of quantitative easing, and will be turning that profit over to the Treasury Department for 2011.
Regarding the employment picture, we sometimes forget it was a global ‘Great Recession’ and the rest of the world has also been struggling to recover since the recession ended in 2009.
In that struggle the economic recovery in the U.S., as anemic as it has been, has apparently been leading the way.
The Financial Times reported on Wednesday that manufacturing employment has grown faster in the U.S. than in any other leading developed economy since the start of the recovery, and has added more net manufacturing jobs since the start of 2010 than the rest of the Group of Seven developed countries put together. Only two other major economies, Germany (NYSEARCA:EWG) and Canada (NYSEARCA:EWC), have increased factory employment at all.
That’s not to say that the employment situation in the U.S. is great, still 2 million jobs below pre-recession levels. But it is apparently heading in the right direction and recovering better than most of the rest of the world.
The fears that the financial industry was going to wind up even more in the realm of being too big to fail in the future, are also potentially turning out to be unfounded.
Banks closed operations and laid off 230,000 employees in 2011, and estimate another 220,000 lay-offs in 2012. Almost every week brings news of a major bank selling off or closing a division. Just a few days ago it was that CitiGroup is selling its consumer operations in Belgium. A few months ago Bank of America sold its stake in the China Construction Bank. Both giant banks (NYSEARCA:XLF) have been cutting back drastically, and recently Bank of America (NYSE:BAC) told regulators it may even downsize further by retreating from some parts of the U.S., possibly selling branches and operations in a reversal of its aggressive expansion of the previous 15 years.
Putting it all together, the U.S. recovery from the recession not only continues, but has been producing some unexpected results and surprises that were certainly not foreseen three years ago, not the least of which has been a substantial bull market that has the Dow (NYSEARCA:DIA) 95% higher than three years ago.
Sy Harding is editor of the Street Smart Report, and the free market blog, www.streetsmartpost.com. The Street Smart Report Online includes research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s. It provides two model portfolios as guides. One is based on our Seasonal Timing Strategy, one on our Market-Timing Strategy.