by Addison Wiggin & Ian Mathias

• The 5’s rebuttal to a common conception: Is the recession technically over?
• Do as we say, not as we do, says U.S. Treasury… the quiet battle over remaining TARP funds
• Dan Amoss on what’s been driving markets up… and how they could fall just as quickly
• Byron King offers another frontlines report from the G-20
• Plus, why don’t the poor use coupons? Your thoughts below

  We’ve said it before, more than once: Jobs and housing will be the real indicators for how the depression pans out. Housing led us into this mess, it is one of the worst performing asset classes in America, it’s most people’s biggest investment, and bad mortgages (and their subsequent securitizations) have rendered our financial system impotent -- at best. And jobs, well… people gotta work. When they don’t, all kinds of craziness ensues.

  So with that in mind, let’s check in on one “ultimate indicator” of the depression’s end.

5 Min. loyalists might remember that we first checked out this chart in late May, when Robert Gordon -- one of the NBER economists responsible for calling the end of recessions -- suggested that the peak in initial claims had marked the approximate end of this historic downturn. As you can see, that same thesis has worked pretty well in the past, so why not?

  Yesterday, the Labor Department said 530,000 Americans filed for jobless benefits last week. That may be a slight improvement from the week before, but we note that since peaking this spring, jobless claims haven’t plummeted back to a historic norm, as in recessions past. Instead, they’re hanging around, just 15% below the peak, almost 30% higher than this time last year and way above typical post-recession levels… actually higher than the peaks of yesteryear.

We realize that just by uttering these words we’re likely going to be wrong: But could it be different this time around? If the bread line is no longer at its worst, but still wrapped around the block, is it really fair for the Fed to say the recession is “technically” over?

  And housing isn’t looking too pretty this week either. Yesterday saw a “surprise” fall in existing home sales. This morning, the Commerce Department says the median price of new homes in August fell 9.5%. That’s the biggest month-to-month decline in recorded history. The median price is now $195,000, down almost 12% from last year. Sales rose a statistically insignificant 0.7%.

The shred of good news from today’s report: New home inventory is down 36% over the last year, to a 7.3-month supply -- the lowest level since January 2007. Still, on average, a newly completed home sits on the market for a record 12.9 months before it’s sold.

  Add this to the “recovery fraud” file: U.S. Treasury officials are quietly scheming ways to keep the balance of TARP funds after the program ends. Tim Geithner and company have only officially spent $372 billion in TARP bucks, roughly half the $700 billion budget Congress allotted late last year. In theory, what isn’t spent by the end of the year -- the planned end of TARP -- goes back to Congress

But today, The Wall Street Journal reports that “Treasury officials are discussing whether there is any way to preserve that money without extending TARP.” And why on Earth would they want to do that? “Officials want the ability to respond in case financial conditions deteriorate.”

Heh… but the recession is technically over, right? “We’re beginning to see growth in the United States and around the world,” Secretary Geithner said at a G-20 press conference yesterday. So Tim, why do you need that extra $328 billion?

Addison Wiggin has the answer… right here.

  "It's almost Armageddon if the Japanese and Chinese don't buy our debt,” said legendary investor and father of the hedge fund Julian Robertson yesterday. "I don't know where we could get the money. I think we've let ourselves get in a terrible situation and I think we ought to try and get out of it.

“If the Chinese and Japanese stop buying our bonds, we could easily see [inflation] go to 15-20%. It's not a question of the economy. It's a question of who will lend us the money if they don't. Imagine us getting ourselves in a situation where we're totally dependent on those two countries. It's crazy.”

  Today’s a big day for Ron Paul and the “audit the Fed” movement. The House Financial Services Committee will hold hearings today surrounding Dr. Paul’s HR 1207 -- the Federal Reserve Transparency Act (to this editor’s knowledge, the only bill Agora Financial has ever wholeheartedly supported). It’ll essentially be a showdown between Fed General Council Scott Alvarez and Mises Institute’s Thomas Woods.

While it’ll be interesting to see the fruits of this hearing, we’re happy to say it’s mostly a formality… having two-thirds of House Reps’ co-sponsorship, HR 1207’s passage in the lower ranks of Congress looks like it’s in the bag.

Also -- surely not by coincidence -- Ron Paul’s latest book, End the Fed, hit the shelves this week.

  Doubt is starting to permeate the stock markets. Kicked-started by Fed announcements Wednesday and yesterday morning, the S&P is down 2.3% over the last two days, and opened down 0.3% today -- partly thanks to this:

  Orders for durable goods fell 2.4% in August, way worse than the Street anticipated and the biggest decline since January. And we hasten to add that nasty decline includes half of the “cash for clunkers” program -- regardless of your opinion, not exactly an organic source of durable goods sales. Auto orders were only able to increase 0.4%… says a lot about the near-term viability of the U.S. auto industry.

  “We are in one of the most overbought markets in history,” opines Dan Amoss. “The bulls are coming up with ever more ridiculous reasons why this rally will continue in uninterrupted fashion. Most of these reasons relate to the ‘greater fool’ theory -- rather than fundamental analysis and a professional, sober assessment of the economy’s health. Corporate profit margins will remain weak for years, so the stock market is much more expensive than you’d expect, given its discount from the 2007 peak.

“The casino that is AIG stock is a case in point -- it’s up 250% since August. Desperate money managers are trading a stock that is bankrupt several times over, in the hopes that a bigger moron will buy it from him at a premium.

“Many who are buying or day trading these stocks at today’s valuations are speculating, not investing. They are, by definition, weak hands that will hit the sell button at the first sign of a turn in the market. The question then becomes who will be there to buy? How much lower will those bids be?

“Valuations are stretched by any measure, and this is not 2003, when the market rallied strongly ahead of much tangible evidence that profits had recovered.”

If (when) the sell-off comes, will you be prepared? Might want to check out Dan’s latest short -- “a manufacturer indebted to the hilt -- with no pricing power over its main products -- as core consumers cut back. Its competitors have the better margins, so there’s nowhere to go but down.” Gain access to this pick here.
 

  “The airspace has been filled with unusual helicopter activity this week,” says Byron King, concluding today’s 5 with another front lines G-20 report. “It's the pilots and air-traffic controllers running ‘familiarization’ flights, to get everyone used to flying in the tightly restricted airspace. And to be sure, the FAA is closing airspace all around the G-20 sites. It's a taste of what I'd call the ‘total-security state.’

“This is not to neglect the tightly restricted ground space as well in the total-security state. I mean, there's security out the wazoo. Many streets are lined with concrete Jersey Barriers. There are traffic-control points being set up all over the place. There are hundreds of remote TV cameras mounted on buildings and tall poles. Big Brother is watching. If you don't have a reason to be near a G-20 site, you won't even get close.

“Don't try sailing on any of Pittsburgh's three rivers, either. Long stretches of the Allegheny, Monongahela and Ohio rivers are closed to traffic. This in one of America's busiest inland port cities.

”In addition to about 1,000 of Pittsburgh's Finest, there are hundreds of additional police coming in from nearby jurisdictions. There are 1,200 extra state troopers. And the city and environs are hosting about 2,200 members of the Pennsylvania National Guard. Plus, of course, there are multitudes of Secret Service, FBI, U.S. Coast Guard, Transportation Security, U.S. Customs, ‘other domestic security forces’ and international security from the visiting nations. Beaucoups des gendarmes…

“With all the security and road closures, the local county executive advised everyone to ‘be creative.’ Yeah, right. Once people around Pittsburgh got a feel for what it would be like downtown during the G-20, common sense prevailed. Really, what would you do?

“I was downtown yesterday and saw that many businesses have removed everything from the display windows. Some businesses (especially banks) have placed plywood over the glass. A few businesses covered their windows (or plywood) with Pittsburgh Steelers posters. Really, who's going to toss a brick at a photo of Franco Harris or Troy Polamalu?”

  “Why aren't the lower-income households using coupons?” a reader asks in response to one of our bits yesterday. “Because coupons are almost exclusively for the higher-priced name-brand items! Smarter shoppers know that even with a coupon, these brands will still sell for 50-100% more than the store brands, off-brands, second-tier brands…
 
“Coupon costs and advertising costs make a huge difference in prices. Good old Pepsodent runs about 87-94 cents for the large economy size (6-plus oz.), vs. nearly $4 now for Colgate or Crest. With a dollar-off coupon doubled by the store, you still pay about double the Pepsodent price (ditto for a bunch of other brands that stopped advertising and couponing).
 
“BTW, the really poor cannot afford to buy the Sunday paper where most of the coupons are, and cannot afford the library's charges for printing things out from their 'puters.

“Cheers from a super-cheapskate!”

The 5: Heh, cheers.

  “I suspect [coupon] use for the most part,” writes another, “reflects newspaper subscription statistics and the population of those most likely to purchase high-end brand-name products which are most often promoted. Lower incomes are more likely to by the store-brand, generic and bulk products, most of which are suitable for consumption, cleaning and sanitary needs, but do not sponsor television programs. With a $5 coupon and $36 from my $70K+ income, I can spend $36 for 20 pounds of Iams gourmet dog food suitable for feeding any highly bred pooch for a couple of weeks. Or for $20, I could leave Costco with a 40-pound bag of Big Red to feed to my junkyard dog, along with the table scraps, for a month. Look who saved $5 with a coupon!

“As masters of copywriting come-ons, you know that often the difference is the words in the advertisements and packaging, rather than the nutritional value of the contents, and that many never outgrow the ‘need’ to buy a Happy Meal to get the ‘free toy.’”

  “I used to pump gas about 20 odd years ago,” our last reader writes. “One thing I noticed then was that drivers of nicer cars tended to use more coupons than the guy who'd say, ‘Gimme 2 bucks.’

“I'm a high-income earner, and I always look for coupons online when going to attractions, tend to buy stuff at Costco that has a manufacturer’s rebate, and collect as many travel points between business and personal use as possible. I figure $1 saved is like $1.92 earned (in Canada, at least).”

The 5: It’s funny thinking about any reasonable amount of gas going for $2 these days… that might be just enough to make it to the next gas station. Thank you, Federal Reserve.

Enjoy your weekend,

Ian Mathias
The 5 Min. Forecast