Financial Seminars by Dr. Raymond Jewell

Money Talks

NEW YORK (Fortune) — Few individuals derive quite so much pleasure from digging through data as Charles Biderman. He’s the always-opinionated, hyper-watchful numbers hound behind TrimTabs Investment Research, the firm that FORTUNE partnered with to build our Recovery Index.

And though he’s a Harvard Business School grad, Biderman’s insights about how the market moves are more than purely academic. In order to pay back his school loans, he spent the 1970s and 1980s building a career in real estate development until, in 1988, his bank went broke and his loans were called.

Biderman was forced into personal bankruptcy and emerged with key insight: price is a function of liquidity, it has nothing to do with value.

That notion led him to form TrimTabs, which sells proprietary research about the markets, money flows and the economy to investors (currently one-fourth of the biggest hedge funds in the United States are clients, and Goldman Sachs purchased a minority stake in the company last year).

Candid and colorful in conversation, Biderman’s exhaustive research has produced some alarmingly simple findings.

For instance: “When companies are net buyers of stock, the market goes up, when they’re net sellers the market goes down,” he says. Indeed, one of his favorite metrics to watch is the number of stock buybacks by corporations, which he says start climbing at the trough of every downturn (something, as we note in our Recovery Index, that hasn’t happened yet.)

Biderman talked to FORTUNE’s Lee Clifford about what the Recovery Index is showing now, the one move Obama needs to make, and when he thinks the stock market will finally hit bottom.

Fortune: Give us your take on the health of the overall economy right now.

Biderman: Things are getting worse. The job market continues to contract. Incomes keep declining, even after adjusting for the latest round of tax credits. We don’t see any slowdown in the rate of declines in incomes or job losses. There’s no end in sight.

I’ve been looking at the numbers, comparing the three-week Easter season this year versus last year. Incomes are down 10%. We haven’t seen anything like that for decades.

Fortune: How do you view the policy responses from Washington so far?

Biderman: The only thing that’s helping anybody right now is the $400 per person [$800 per couple] tax cut. That’s helping somewhat. But I’m a little cynical. My feeling is that the divine purpose of the political system is to raise money for politicians so they can get reelected.

The banks that are in trouble have paid Congress a lot of money over the years. You and I don’t pay anything to the congressman. What we would recommend is that instead of focusing on getting the banks to lend, you’ve got to focus on giving wage earners more money.

Fortune: You don’t believe any of the recent stock market rallies have been for real. Explain.

Biderman: Well, what you’ve had recently is $2 billion a week in tax refunds that started to go out during the first in week February and will continue through the third week in May. I suspect that’s part of the reason for the stock market rally, but that’s only temporary.

In March there was a little revival in refinancing, but again, I think the number of people who are in a position to take advantage of refinancings right now is pretty small. The glimmers of hope were temporary and now we see that things are declining again.

Fortune: Talk about what you’re seeing in terms of the housing market.

Biderman: If we look at homes, while the number of foreclosures seems to be dropping somewhat, the notices of default are at record levels and so we expect the foreclosures to spike up again too. If you look at what’s really going on, right after the ‘peak’ in foreclosures in September, there was a moratorium on foreclosures, but that ended in March. Once those pick up again, it’s going to be a new down leg in the real estate market.

Fortune: If there’s one policy you could implement now to help fix the economy, what would it be?

Biderman: If we cut withholding rates by 15%, and we did it for three years, it would be $300 billion a year in lower taxes, which is less than it costs to bail out some of these institutions. But we’re not doing that, so instead you’re creating a situation where more and more consumers are going to be defaulting on their debts. Forget new lending, the real problem for banks is going to be collecting on all these loans, and the problems are going to be way beyond sub prime.

Fortune: In your view, what would be the single best sign that we’ve hit bottom?

Biderman: That foreclosures dry up. That’ll be a sign that household wealth has stabilized. Things aren’t going to hit bottom until the real estate market bottoms, and we work through all the problem homes, and people can afford the homes they’re in. Then we can grow from there.

Fortune: And when do you think that might be?

Biderman: At least another year. We probably won’t see a bottom till sometime in 2010. We’re still in retreat.

Fortune: You’ve long taken issue with the way the government collects some economic data. What bothers you most?

Biderman: Just look at how they track income and jobs. When everybody gets paid, the amount of money withheld goes to the government. From that you could tell who had jobs and how much they’re making. But instead of tracking this in aggregate and reporting it in real time, the Bureau of Economic Analysis uses historic data that’s 5 to 7 months old and based on state unemployment data to come up with estimate of current income and job gains or losses. Then of course they always go back and revise the number. But they never have a press release about the revisions. What’s equally annoying is that nobody’s taking the time to say, ‘this is crazy!’

The economy is crazy indeed, as seen from the article listed above on CNN Money.  It goes without saying that people are dazed and confused in the current trends of the economy.  It is clear that conditions are worsening, even though the major news sources are telling the opposite.

What can you do as an average American citizen to learn the real truth about money, investing, financial institutions, and is there a way to recover lost wealth, and income in this time of economic uncertainty?

Money Talks Offers Education and Solutions

Money Talks, the program set into motion by Dr. Raymond Jewell, is answering the tough questions concerning the economy.  He is in touch with the current economic trends and knows that average people are hurting today.  His goal is to bring Money Talks to one milllion people over the next three year period.

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Money Talks

Money Talks-The Economy

You often hear that we are now living through the worst recession since the early 1980s, and the comparison is not wrong. But it’s ultimately unsatisfying, because it is a little too vague to be useful.

Is the economy only a little worse than it was in the last couple recessions, as some have said, and still a long way from the dark days of 1982? Or are we instead on our way toward something that may even approach the severity of the Great Depression?

Without more specifics, it is hard to judge the staggering stimulus numbers being thrown around Washington. It is hard to know how tough a task the Obama administration is facing — and whether it’s running the risk of being too timid or too aggressive.

I thought it would make sense to get some clearer historical perspective, and the economists at the Bureau of Labor Statistics were nice enough to help me do so. In the last week, they helped me put together a broad measure of the job market — one including both official unemployment and more subtle kinds — stretching back to 1970. Since the job market covers the entire economy and affects families in tangible ways, it seems to be the single best yardstick.

And it shows, for starters, that the economy is not yet as bad as it was in the early 1980s. It’s not even that close to being as bad. The ranks of unemployed and underemployed, controlling for the size of the population, were much larger in 1982 than today.

But economies are a little like battleships. They turn slowly, and you can often tell where they are going before they get there. At The New York Times, we’re discouraged from using the word “unprecedented.” (”Use the term rarely and only after verifying the history,” the stylebook says.)

So suffice it to say that the serious recent declines in retail sales, business spending and employment make it highly unusual that the economy will improve anytime soon. The job market will almost certainly continue to worsen for most of 2009. Even if the much-needed stimulus bill passes, the economy is likely to end the year in roughly as bad a shape as its 1982 nadir. Which is saying something.

The recession of the early 1980s doesn’t have a catchy name, and almost half of Americans are too young to have any real memory of it. But it was terrible — qualitatively different from the mild recessions of 1990-91 and 2001.

The first big blow to the economy was the 1979 revolution in Iran, which sent oil prices skyrocketing. The bigger blow was a series of sharp interest-rate increases by the Federal Reserve, meant to snap inflation. Home sales plummeted. At their worst, they were 30 percent lower than they are even now (again, adjusted for population size). The industrial Midwest was hardest hit, and the term “Rust Belt” became ubiquitous. Many families fled south and west, helping to create the modern Sun Belt.

Nationwide, the unemployment rate rose above 10 percent in 1982, compared with 7.2 percent last month. But that rate has a couple of basic flaws, as I’ve discussed in previous columns. It counts people who have been forced to work part time, even though they want to work full time, as fully employed. It also considers people who have given up looking for work — so-called discouraged workers — to be no different from retirees or stay-at-home parents. They simply aren’t counted.

Years ago, the Labor Department responded to criticism about these issues by creating several broader measures of joblessness. Unfortunately, they don’t exist prior to 1994. But the department was doing similar work in earlier years, which allows the economists who work there to make estimates about how to compare the various survey categories over time. I took these estimates — and they are estimates, not official statistics — and created a measure of unemployment that goes back to 1970.

Including discouraged workers, the measure shows that the unemployment rate was 7.6 percent last month. Another 5.2 percent of the labor force was involuntarily working part time. These two groups bring the combined rate to 12.8 percent.

Even this is an understatement, because the Labor Department’s definition of discouraged workers is a little narrow. To be counted, somebody must have looked for a job in the last year. And there appear to be several hundred thousand people — mostly men — who stopped looking for work more than a year ago but would gladly take a good-paying job if one came along. They would lift the rate above 13 percent.

As bad as the number is, it is still not that close to its 1982 peak of 16.3 percent (or anywhere near its Depression levels, which were probably above 30 percent). The early ’80s really were that bad.

So why are public opinion polls showing Americans to be even gloomier about the economy today than they were back then? I think there are two main reasons.

First, the economic expansion that just ended wasn’t as good as the 1970s expansions. The ’70s get a bad rap, and deservedly so in many ways. But median family income still rose 2 percent during the decade, after adjusting for inflation. Over the past decade, it has fallen.

Second, people seem to understand that the worst is yet to come — that the economy has not yet worked off its excesses.

A good reminder came in a recent report on the Manhattan real estate market by Goldman Sachs. It looked at apartment prices relative to rents, incomes and mortgage rates and concluded that prices were 19 to 44 percent higher than historical norms. Jan Hatzius, Goldman’s chief economist, was careful to say that prices won’t necessarily drop by that much. But we should know by now that old-fashioned economic fundamentals deserve some respect.

In much of the rest of the country, home prices also still have some amount to fall. Banks still have more losses to acknowledge. Companies have more jobs to cut. Some time this year, one in six workers may find themselves unemployed or underemployed, just as was the case in 1982.

The biggest risk is that these problems will feed on themselves and make the situation even worse than now seems likely. That has been the pattern for the past year and a half. If it continues — and it will without a big stimulus package — the economy really could end up in worse shape than it’s been in more than 60 years.

Money Talks-The Solution

According to the article posted above from The NY Times, the economy appears to be struggling, to say the least.  What does this mean for the average person on the street?  Is it a pre cursor to more doom and gloom?  Is there really no hope for the future?  Does it mean that you just bury your head in the sand, and give up?

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