There has been no discernable economic recovery over the past 9 months.  The Government unsustainably manipulated economic activity to create the narrative of a recovery at extraordinary expense.  But economic fundamentals which are driving the downturn have continued to worsen and are overwhelming the fictional turnaround.  Soon policy makers will begin discussing the “double-dip” recession.  These people have no economic understanding. 

Things are about to get much worse.

1.  Housing prices are falling again despite unprecedented efforts by the Government to prop them up.  These declines are:

• Rapidly eroding leveraged household equity
• Negatively impacting consumer spending
• Increasing leverage on real estate as an asset class

2.  Housing prices will collapse in 2010 as:

• New and existing home sales have sunk to record lows as the distortive impact of the $8,000 tax credit was exhausted.  Falling transaction volumes are contributing to price declines
• Record foreclosures force prices lower 
• Mortgage rates will rise now that Federal Reserve subsidies have ended

3.  Record foreclosures this year will be caused by:

• High and rising real unemployment
• The failure of Government foreclosure mitigation efforts
• Relentless ARM resets
• Falling home prices

4.  Consumer Confidence is worsening as economic fundamentals overwhelm the Government’s narrative of a recovery
  
5.  Consumer Credit and Bank Lending are falling at a pace last seen during The Great Depression

• Defaults and foreclosures within the housing market and increasingly the commercial real estate market are destroying the capital base of lending institutions
• Real estate assets are overvalued, overleveraged and declining in prices making it unlikely that banks will increase lending in the near-term
• Recent consumer credit protections have had the unintended but predictable effect of reducing consumer credit

6.  Real unemployment is high and rising

• The reported unemployment rate has stabilized while net job losses have continued and the dejected have given up looking for work
• Stimulus spending expires this year and the jobs it supports will disappear

7.  The most expansive monetary policy in U.S. history has failed to prevent the return of deflation (the mortal enemy of the Federal Reserve and an overleveraged economy)

• CPI and the un-manipulated real consumer price index have been overwhelmed by economic fundamentals which are all deflationary

8.  The stock market will not ignore the above declining fundamentals.  There will be a correction, likely in 2010, correlated with another liquidity and/or credit crisis.