What a Modern Depression Looks Like

About one month ago, I mused that there would be no double-dip recession, since we really never ended the first one – a viewpoint that placed me squarely in the minority at the time, and generated more than a few reader emails. Not so much anymore. Now, we’ve got former Labor Secretary Robert Reich saying the exact same thing this past weekend. “It’s nonsense to think of the economy heading downward again into a double dip when most Americans never emerged from the first dip,” he wrote in a column at Business Insider. “We’re still in one long Big Dipper.” Sound familiar? It should. So too should the refrain in this weekend’s New York Times, in which Jeff Somer asks “Double Dip? A Tipping Point May Be Near.” And just this morning, Gluskin-Sheff economist David Rosenberg – one of my personal favs among the econo-crowd – came out firing with the exact same message. In his latest missive, he concurs that there never really was much of a real recovery:
“Is a reflexive rebound, a brief response to tremendous stimulus, really the end of the prior down-cycle? Or is it part of a continuum — all of this from the mild start to the recession in early 2008, to the temporary stabilization of the Bush tax rebates in early 2008, to the steep decline in late 2008, to the detonation of early 2009 and then the mild recovery phase of the second of last year to the first quarter of 2010, to the sudden slowing in the second quarter and what appears to be stagnation this quarter and likely contraction next quarter not all part of the same cycle?”
The answer is of course the latter, dear reader. Rosenberg also notes the hallmark of this modern depression: a bond market vastly outperforming equities. In fact, the long Treasury has generated a 17% return so far this year, while the S&P 500 is down 2%. 5-year Treasury inflation-protected securities (TIPS) saw yields fall into negative territory last week, something Rosenberg characterizes as “a clear sign that the bond market is pricing in a recession.” So clear, in fact, that he uses language I’ve rarely seen from an economist:
“The last time the yield on the 5-year TIPS was this low was back on March 10, 2008 when, amazingly, everyone was debating whether the economy was in a hard landing or a soft patch, and whether the near-20% selloff in the equity market at the time was a bear market or merely a correction. Well, history doesn’t lie and we all know that in the ensuing year — the year after the TIPS yield touched zero — the equity market was down 40%. Suffice it to say that few saw that coming, and by and large, the folks that didn’t see it coming are the same ones telling investors to hang onto their overweight equity positions today. Someone should really call the police.”
And while we don’t have bread lines to photograph in this modern depression, thanks to food stamps, leave it to the housing industry to yet generate reminders of the 1930s for us. Last week, the Wall Street Journal offered front-and-center coverage of more than 30,000 people that lined up in an Atlanta suburb simply to have a shot at a mere 455 available housing vouchers that could cover only part of their rent. The pictures of this event are truly stunning. The problem? As it always is with any recession or depression, it’s jobs. Weekly claims have remained well north of 400k despite the economic “recovery,” and despite all of the legislative focus on reforming the financial markets and health care, we have utterly failed to focus on the one thing that is most important in a depression: creating jobs. Speaking of jobs, even matching the consensus for this week’s unemployment claims would mean that the 4-week claims total would be the highest so far this year. And that’s just what’s passing for existing expectations these days. Remind me how this is supposed to be economic recovery, again? At some point, we’re going to have to face the fact that unemployment remains high despite a historic level of economic stimulus. We’re going to have to face the fact that the underlying trend in economic growth has not been strong, even in a so-called “recovery.” And we’re going to have to face the fact that there are literally millions of zombie borrowers still out there. While at an industry conference last week, a default executive from Bank of America noted in a speech that the bank now has more than 1.4 million borrowers that are 60+ days down on their mortgage, and also acknowledged that the bank has not been pushing many of these borrowers through to foreclosure. She suggested to the audience that it would take 6 to 8 quarters to resolve the property overhang in their own servicing portfolio -- perhaps longer, depending on government initiatives. And BofA is far from alone. Lender Processing Services’ Applied Analytics division noted a week ago that more than 2.6 million mortgage loans are 90+ days delinquent and not yet in foreclosure (read that sentence again). The average days delinquent for this group of borrowers? A whopping 300. This isn’t recovery. Not even close. This, dearest reader, is what a modern day depression looks like. Paul Jackson is the publisher of HousingWire.com and HousingWire Magazine. Follow him on Twitter: @pjackson

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