Another*s

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Today while I was reading Mike Shedlock's eco blog, a term, the eyes of the hurricanes, caught my eyes. Mike use this term to describe the current situation of U.S. economy. It's pretty interesting and dismal.

First of all, got to explain the three stage patterns of hurricane damage.
1 Winds from the front side weaken but do not destroy structures;
2 The eye of the hurricane brings a foreboding sense of unnatural calm;
3 Wind comes slamming from the opposite direction as the eye passes over, shearing structures from the opposite direction.

Apparently, after the subprime mortgage crisis from the last year, we are sort of in a relative calm situation. Some optimistic people even said the economy is undergoing a revival. If what Mike said is true, then there're more storms coming on their way, and even worse they are much stronger. Often times it is not the leading front of the hurricane that does the most damage, it is the backside.

Here are the things (backside of the hurricane) are going to happen but have not happened yet:

Bank Failures
Bigger U.S. bank failures may be coming - FDIC

Monoline (Bond insurance) Fallout
Citi, Merrill, UBS Face Monoline Losses, Whitney Says

$500 Billion Option ARM Crisis Coming Up
Option Arms - The Next Real Estate Crisis

An Imploding Commercial Estate

Rising Junk Bond Default

Rising Credit Card Defaults

Here is another interesting article from Washington Post (about the backside of a hurricane): New Crisis Threatens Banks

"According to fresh data, we are not finished with the mortgage problem, but you are starting to see increased delinquencies in other forms of consumer debt. We are in the eye of the hurricane. We had the first wave of the credit crisis, and it was quite damaging. But there's another wave coming, and it's likely to be as destructive. "

"The institutions most at risk in this new phase of the credit crisis are regional and local banks, many of which stayed away from subprime mortgages. These firms are key drivers of economic activity in communities across the country. Without them, consumers would lose a source of personal loans. Small businesses would struggle to stay afloat. Construction companies often can't finance local projects without these banks."

"This is not a simple storm. This is a complex series of storms. The only storm that has landed full force is subprime. The Pay Options ARMs hurricane is about to hit, or is just hitting now."

"The eye of the commercial real estate storm is still miles out at sea."

As the data such as PPI, Industry Data, Housing Starts and so on release lately, the economic picture is worsening across the board. And not just in the US but in the UK and Europe as well. 

Meanwhile, as you see, everyone is cutting the jobs lately. Corporations are slashing jobs, especially the investment banks. States are in on the act too. Look at this dismal job report:

There are hundreds more you can find. 

Rising unemployment will compound every problem. Keep that in mind. Unemployment is a lagging indicator. That fact has been used to suggest the worst is behind.

The idea the worst is over is nonsense. The worst cannot be behind until after the hurricanes have landed. Batten down the hatches, the worst is yet to come. Subprime is among the smallest of the storms that will hit. Even still, subprime has dramatically weakened the infrastructure. The economic knockout blow will come from the backside of one of the impending storms.

In normal economic times, with more household savings and less debt, consumers would be better prepared to weather the storm. That is what happened in 2002-2003. Now, most consumers have virtually no savings to weather the storm. Worse yet, unemployment is likely to rise for at least two more years. In addition, the dollar is likely to sink further which will put still more pressure on those with jobs.

Mike said we are in the eyes of the hurricane but not just one. There are many hurricanes, many eyes. Most have not even reached shore yet. Very few people are prepared for the series of storms about to hit. And for those barely hanging on, each storm will be worse than the one before it.

The storm is about to hit. The question is are we ready.