January 2, 2010
Here is a link to 'Real Estate in Cape Coral, Fla., Is Far From a Recovery', by Peter S. Goodman on NYTimes.Com. Boy, does this bring back memories of the bust we in Casper experienced in the early 80s. I quote below.
By the fall of 2009, foreclosures had fallen to about 1,400 a month, prompting hopes that the worst was over. But real estate agents and mortgage brokers wary of optimism are focusing on a new term that has entered the housing lexicon: ghost inventory. Banks appear to be sitting on thousands of homes caught in limbo, neither foreclosing nor receiving any payments.
'We're not in a recession,' says Bobby Mahan, an amiable broker here, describing conditions in the area. 'We're in a depression.'
Two years ago, Mr. Mahan's office, Selling Paradise, displayed a sign that seemed unusual at the time. It invited customers to come in for a free list of available foreclosed properties. Now, nearly every surviving real estate agent seeks business with such signs."
Here is a link to 'Investment Outlook - December 2009', by Bill Gross on PIMCO.Com. Bill makes a great point to ponder here. In the following quote, the bolding is my own.
Let me repeat that: "The Treasury as well, has a significant average life extension of its own debt to foist on investors before the Fed can raise short-term Fed Funds." So there you have it, folks. Bernanke is not going to raise rates as long as Treasury still has to get a lot of bonds sold. This could take a while.
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Red and White D and I have had some long discussions about long-term trends that we see evolving. Some are disturbing, most are worthy of consideration.
1.Financial Companies have been making their primary profits by feeding upon their customers, thus devouring the gooses that layed the golden eggs.
This has been happening in many segments from banks that charge $25 per bad check; to health insurance companies that have been raising rates even when costs have NOT been going up, raising their fees to the point where many who need their products can no longer afford them; to really big outfits like Goldman that sold investment vehicles to their clients (like retirement funds) and then went to the markets and bet against those very vehicles.
You've got health insurance. You've got a claim. Are you 100 percent sure your insurance company will pay the claim...really? And if it won't...what exactly is your recourse? Compared to that company, how many attorneys can you hire, and at what cost? Like you, I have read that most Health Insurance Companies spend up to 40 percent of their incomes denying claims. Are you really 100 percent sure? You are paying dearly for that insurance. Don't you think you should be able to be more confident for something that is costing you so much?
Red and White D explained to me that the inflation we saw during the Carter Administration (worst President in my lifetime...even worse than LBJ or W) fundamentally changed the way that insurance companies viewed their business. Before, they made their money by carefully gauging risk. But the ability to take the reserves to markets and make a conservative 16 percent on them changed the way the executives looked at profit. Now they were no longer gaugers of risk but gamers in the market place. This idea spread throughout all the financial industries. Whole industries abandoned the way they used to make money in order to get into the markets and game them (GM had GMAC, GE had GE Capital).
2.Costs for overall medical care (including insurance) have trippled over a period of time when the average worker's wages only rose 20 percent in terms of real purchasing power. In fact, this cost has also trippled as a percentage of the GDP over the same period.
This has to stop. One prominent politician recently got into trouble when she mentioned 'death panels'. Well the real news is that we - all of us - are already subject to them.
A) They are called insurance companies.
B) They are called various names in various hospitals...but they already decide the level of care that indigents get.
C) Various government bodies already make judgements about what diagnotic screenings are 'appropriate' for what age/gender group (often to the detriment of women).
3. The Feds have been scrutinizing your local bank, inspecting it every three years, every dollar accounted for. But the financial firms that really threaten the whole system when they fail, or threaten to fail, seemingly get a free pass. And whatever they want from Congress...they get.
Lehman Brothers, Bear Stearns, AIG - remember them!
So, I guess the idea is that if you headquarter in New York, or give millions or hundreds of millions in campaign contributions, you get a lot of free passes. But if you are an honest smaller hometown bank, not so much.
4. Laws, created in sections, are written as much as ten years in advance by people with their own axes to grind. Then Congress throws the pieces together in one big lumpy mush. The results (predictable) are often contradictory and nonsensical.
It is mighty difficult to write a law that is a thousand pages long and not violate the constitution a dozen times. The new health care law is a thousand pages long.
5. The Constitution is nearly a dead article. The President can declare war without ever consulting Congress. Congress ignores its duties to advise and give consent. It rubber-stamps whatever the President wants.
And it isn't just wars either, though wars are far and away the most expensive example of Congress abdicating its responsibility.
6. The press is weaker now than it has ever been. It covers only what the current administration wants covered. Ah, the glories of the press being owned by mega-corporations.
Yes Virginia, the same company that makes jet engines for fighters and bombers also owns NBC and CNBC. If a lot more civilians were killed in Iraq during the war than was reported, particularly in the bombing campaign, do you think there is ever going to be any follow-up reporting?
There is a virtual black out of news coverage from two of the continents on this planet: Africa, South America, and little news from Asia and Australia. Investigative Financial Reporting is non-existant.
7. When was it ever a good idea to fight two wars at the same time? Can we ever afford to do that?
Wars cost money, folks. Why is it so difficult for my fellow conservatives to take a rational look at the dollars-and-cents costs of the things and vote against two at a time based on...here it comes...rationality? Many people who are opposed to the health bill now being considered, on the grounds of cost alone, still want to wage wars. Huh? Which is more expensive?
And, on a human basis: what do six tours to war zones in eight years do to an American fighting man? How can we expect to get functional humans back out of a process that does that?
8. When will the generations younger than me (I am 59) take a cold hard look at Social Security and declare they can't afford it?
I never expected to be able to retire and pull out much from Social Security. Even when I first understood the system, at about age 12, I knew it could not stand over time. Even then, the numbers did not add up. Only those with no math skills (that includes Congress, most teachers, most newpaper reporters, and folks who still believe in sugar plum fairies) could believe that younger generations will be able to support the Boomers (I am one) for what could well be 30 years of unproductive retirement.
9. We will keep outsourcing jobs until no one left here has a decent one.
If every American company lays off workers and ships those jobs overseas, relying on every other company to not do the same, general wages will stagnate and fall in terms of buying power. That is exactly what we have witnessed in the last decade. There is an even nastier side effect. When you do this, and then need to rely on consumers to start spending again to jumpstart the economy, you will find they just can't do that on $10 an hour. That is one reason we are in a Depression, folks, not a Recession. We have exported jobs and imported a Depression.
10. Buy and hold is dead.
Mutual Funds are no answer...and they are predicated on buy and hold. All you will get is stagnant results at best with buy and hold. You could get worse.
The implication is that not only big financial firms are and will be gaming the system. Everyone with a retirement account will have to be doing the same.
11. 401k's are a disgrace and probably the biggest rip-off of all times.
If Congress was forced to use typical 401k's, the laws surrounding them would change in something less than 3 days. There are 6,000 funds out there. The typical 401k plan gives a choice of between 6 and 12. And who chooses which 6 to 12 funds? Why the guy at J.P. Morgan or at Principal (who is a good buddy of your company's president) does. Hmmmm. You should be able to smell the kick backs and corruption from any spot on Main Street U.S.A. Investigative Financial Reporting anyone? Naw, forget about it. No one would publish the thing even if it got written, with the possible exception of Rolling Stone.
12. The political parties are not serving the interests of their natural constituencies.
Democrats are not protecting the jobs of the union members, are not educating the public about the economic hazards of 'job flight'...and vote against the working man every chance they get.
Republicans vote against the small businessman and for really big corporations every chance they get. The mega-corporation-owned press has been all agog about the conservative take over of the GOP of late. That is a red herring to cover the real story: the GOP is in the pockets of the mega-corporations. Was it the conservatives that organized the August town-hall resistance to the health bill...or was it Mega-Health Insurance Corporation? Follow the money (as Deep Throat once advised) and you will quickly find who has a dog in the fight.
13. No one is looking out for Joe Average.
If Mega-Bank makes shameless home loans - many of them predatory - is anyone there to say no, don't do that? If Mega-Bank then bundles those loans and issues AAA rated bonds against them is there anyone there to say no? If that whole process is detrimental to Joe Average who took out the loans and also to Joe Average who bought the bonds, is there anyone there who can see how detrimental to the whole U.S. economy that process is? Will anyone make a fuss?...the Free Press... Congress? Investigative Financial Reporting anyone? Naw, forget about it. No one would publish the thing even if it got written, with the possible exception of Rolling Stone.
14. Greenspan and Bernanke have singlehandedly killed savings accounts and changed the fundamental banker/customer relationship.
Keeping interest rates extremely low for long periods makes banks dependent on the FED for money to loan, and independent of the small saver. Banks don't want your savings...go away! They will get their money from the FED thank you very much. That unhinges banks' relationships with their local customers. They no longer have to listen to them.
Keeping interest rates low for a long time also has another effect. Doing that tells the world that dollars are no longer worth anything. If they had value you'd have to charge higher rates to loan them out, and you'd be willing to pay higher rates to get your hands on some. It is a powerful psychological effect that the FED completely ignores.
January 1, 2010
Here is a link to 'The Number of Deadbeat Banks Is on the Rise', on Minyanville.Com. I quote below.
Here is a link to 'Six Factors That Will Affect US Treasuries in 2010', by Mike Mish Shedlock on Minyanville.Com. I quote below.
Speculators, including hedge-fund managers, increased bets that 10-year note futures would decline more than fivefold in the week ending Dec. 15, according to US Commodity Futures Trading Commission data. Speculative short positions, or bets prices will fall, outnumbered long positions by 52,781 contracts on the Chicago Board of Trade. It was the biggest increase since October 2008."
Here is a link to 'The Lost Decade for investors ', by David Parkinson on TheGlobeAndMail.Com. I quote below.
The result? An increasingly rapid succession of boom-and-bust markets, where an overexuberant herd mentality pushes asset prices to unsustainable limits until something bursts the bubble and we fall to Earth with a sickening thud.
And with more people participating in the markets than ever before, the impact becomes more pronounced each time the mass of expectations shifts from confidence to doubt, and back again."
Rich Kolon sends this link to 'It Doesn't Take a Genius to Figure Out How This Will End', by Reggie Middleton ZeroHedge.Com.
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Here is a note from the Orange Section:
Just for reference for the non-economic folks in your audience, the Cobb-Douglas Production Function is a part Macro-Economic Theory. It is used to determine a nation's GDP as a total of various aspects of the economy.
It looks like this: Y=C+G+I+(X-M)
Where Y=GDP, C=Consumption Spending or Private Spending, G=Government Expenditure, I=Interest Income, and (X-M)= Difference in Exports and Imports.
Keynesian Economics is the best friend Big Government has ever had. By encouraging the increase of G in an effort to increase Aggregate Demand (Total Demand in an economy) Keynesians has provided Big Daddy Government with a trifecta: It provides a means to appeal to the have-nots, it appears to be helping the economy, and it encourages Big Government to spend a ton of money. The Keynesian ideal of increasing G in the Cobb-Douglas model is like a narcotic for the 21st century version of the American Politician.
They don't like to talk about the fact that in effect, increasing demand increases prices. This is the big scam. You increase demand and eventually prices will go up to achieve equilibrium. Thus the 'equitable' and 'fair' nature of increasing Aggregate Demand is a short term ruse. Sure you get your tax cut, but now your widget is now more expensive due to increased scarcity. For the Obama/Bernanke team this is like pouring gasoline on the fire. First they commit Seinorage and keep it at bay by basically playing politics with big finance and then they enact perhaps the biggest joke of last 50 years, the Stimulus Package. The Monetization discussed in your article on Bernanke is the Seinorage. It is the Inflation Tax, pure and simple. The only reason the Dollar hasn't seen a major hit in value is because they have thus far been able to convince the market that they are going to some how take the monetization out once things improve. Keep an eye on this, if confidence in this explanation fails, inflation will hit and hit hard. (And people wonder why Gold is over $1100 an ounce?)
However, the American Public is not stupid. Despite all the spin from both Wall Street and Washington DC the American Consumer has figured it out. Low Debt = Financial Stability. I think it is not a stretch to argue that our slack demand is being caused by this massive debt burden.
Check out this Graph: http://www.econbrowser.com/archives/2009/12/teaching3.gifConsider
See how consumption far outstrips household Net Worth and even in the period of decline consumption decreased at a far slower rate than net worth? The difference is debt. Lots of Debt. For consumers who like most everyone else who isn't a central bank, such a debt burden means tightening the purse strings until the debt burden is lowered.
This is my calling for Supply Side Economics. Cut Taxes, reduce G, and increase C. Consumers and Businesses are not going to leave their Torpor until there some sense of improvement and on a macro level consumer and business balance sheets improve via the ongoing deleveraging process. The best thing government could do is make it easier to achieve this end. Reducing our Corporate Tax Rate down from 35% (2nd highest in the world), balancing the Federal Budget (to reduce inflation pressure), and cutting taxes is my recipe for recovery. Everyone knows the US is a consumer driven economy. Apparently it is some vast stretch of reasoning to conclude that increasing C would make things better.
This also speaks directly to why I don't like this rally. Asset prices are deflating (homes) while consumers and businesses continue to shore up their balance sheets. This a good thing, but a consequence is that it results in reduced spending on Consumption. The current rally has occurred in spite of this and for me that makes it uncomfortable to own equities."
December 26, 2009
Rich Kolon sends this link to: http://www.endfinancial fraud.org/enronized-america.php
Here is a link to 'Banks Bundled Bad Debt, Bet Against It and Won, by Gretchen Morgenson and Louise Story of NYTimes.Com. I quote it below.
... One focus of the inquiry is whether the firms creating the securities purposely helped to select especially risky mortgage-linked assets that would be most likely to crater, setting their clients up to lose billions of dollars if the housing market imploded.
Some securities packaged by Goldman and Tricadia ended up being so vulnerable that they soured within months of being created.
Goldman and other Wall Street firms maintain there is nothing improper about synthetic C.D.O.'s, saying that they typically employ many trading techniques to hedge investments and protect against losses. They add that many prudent investors often do the same. Goldman used these securities initially to offset any potential losses stemming from its positive bets on mortgage securities.
But Goldman and other firms eventually used the C.D.O.’s to place unusually large negative bets that were not mainly for hedging purposes, and investors and industry experts say that put the firms at odds with their own clients' interests."
Here is a link to 'Recession? Teenagers Get It, and Are Cutting Back', by Stephanie Rosenbloom of NYTimes.Com. I quote it below.
...No major retailing chain has felt the effects of that concern as much as Abercrombie & Fitch, the pricey, preppy clothing purveyor that has turned in 19 consecutive months of same-store sales declines. Last month, its sales sank 17 percent.
...The students want low prices, but at the same time, they seem to be discovering the relationship between price and quality. 'If a shirt costs $10 but then rips every month or so, that's a lot of T-shirts,' Ms. Kaplan said. 'It adds up. Whereas if you buy a shirt that costs like $30 but it doesn't rip, you can have it for as long as you want to wear it.'
The teenage unemployment rate is at a record high, more than 26 percent, according to the Bureau of Labor Statistics, compared to an overall unemployment rate of 10 percent. One reason is that retailers hired fewer seasonal employees, which analysts at Standard & Poor’s Equity Research said had hurt chains that sell to teenagers."
December 23, 2009
Here is a link to ''The Age of Deleveraging', by John Mauldin of Minyanville.com. I quote from it below.
...Credit card companies have reduced available credit by $1.6 trillion dollars -- and for good reason. My friend and London partner Niels Jensen sent me the following charts from UrbanDigs.com. Credit card delinquencies are hovering near all-time highs. Bank charge-offs for credit cards are going to rise as the unemployment numbers get worse.
...'So now the flow of funds accounts tell us that the total value of residential real estate is $16.53 trillion. The share owned by households with a mortgage is probably $10 trillion to $11 trillion. Total mortgage household debt now stands at $10.3 trillion. In effect, for all households with a mortgage taken in the aggregate, their loan-to-value ratio is now close to 100% and perhaps close to half of them have a zero to negative equity.'
...The coming debacle in commercial real estate loans is well-documented. Total loan delinquencies at banks are rising precipitously every month, just as total loans to commercial and industrial customers are falling at an unprecedented rate, over 17% in less than two years!
While Obama is urging banks to lend, bank regulators are telling banks to raise capital and shore up their balance sheets. One way they do that is to lend less to consumers and businesses and invest in US government bonds.
Given the high rate of delinquencies and charge-offs of all sorts of debt, it’s unlikely that we're going to see growth in loans in 2010. Further, the surveys I read suggest that consumers are working hard to reduce their debt. The New Frugal is part of the New Normal."
Here is a note from the Orange Section:
1) Existing Debt Burden
2) Economic Uncertainty
I think the combination of lifetime politicians drunk on spending tax payer money combined with a whole slew of Keynesian Economists is an unhealthy cocktail for recovery. The Economist undervalue debt in their models and the politicians are trying to score voting point by increasing uncertainty.
I don't think this issue has run it's course yet either. I don't like this rally at all."
Yes, oh Orange Section, I do not like this rally either. It could still go higher as Duncan suggests. But markets are completely unhinged from the awful things going on in the economy. Something has to give, and I don't think it will be the economy rising.
I caught Donald Trump on Larry King the other night. He says that banks simply are not lending, not even to those with stellar credit ratings. That contradicts what the Orange Section is telling us. But you know, I think that both of them may be right, and that does not bode well for the economy.
[tongue in cheek] It's a good thing the President broght the heads of the big financial houses into the oval office the other day and scolded them. That will surely teach them a lesson.....NOT!
Ben Smith sends this link to 'Greedspan: Stick A Sock In Itg', on Market-Ticker.Denninger.Net. I quote from this article below.
Of course this is all a bunch of arm-waving BS - you can't 'negate' such a thing, you can only shift where the damage falls. And fall it will - in this case, right on the value of the currency.
The real question Greenspan should have raised (but didn't) is where the line is on capital flight - exactly how far we have to go before the dollar loses all credibility in the international markets. Continuing to try to monetize our way out won't work, and Bernanke appears to understand this in that the latest FOMC statement rather forcefully says 'yes we really are shutting it all down come February.'
We'll see about that.
My concern isn't so much whether the 'extraordinary programs' go away. It is whether Bernanke will put a stop the Treasury issuance - a stop that must come sooner or later.
He must realize, as do I and anyone else who cares to look, that the game has been lost. The gambit taken in 2007 was that The Fed and Treasury could temporarily 'stand in' for consumers and restart credit expansion."
Red and White D sends this link to 'BOJ Says Won’t Tolerate Deflation, Keeps Rate at 0.1', by Mayumi Otsuma of Bloomberg.Com. Red and white D also adds:
"You can lead a credit junkie to money, but you can't make him borrow.
Wonder if we aren't in the same boat."
He also sends this link to http://www.nytimes.com/2009/12/14/opinion/14krugman.html?_r=1'.
Then he adds:
"I was recently accused by an old friend of "going over to the dark side" by which he meant I had become a pessimist. He on the other hand, a successful business owner and market gamer, was a confirmed optimist puzzled by my lack of faith in our system of finance.
Human history is filled with examples of clever folks with resources at their disposal bilking the gullible and greedy out of their wealth or more often simply destroying wealth entirely. Con men on a global scale in the 16th century.
This piece from Paul Krugman says perfectly why I am on the dark side. The plutocrats have gained control and will stop at nothing to keep control. They are fighting tooth and toenail to keep congress from passing new regulations.
The few limits placed on finance's dodgy behaviors during and after the global calamity of the 1930s were stripped away as memories faded. The result was another calamity, the scope and consequences of which we probably haven't realized yet. They have devised a system wherein they reap all the benefits of risky behavior while the public purse suffers all the losses.
Alan Greenspan, that scion of banking and finance, admitted publicly that he was wrong about the ability of financial markets to police themselves.
Who cares?
The dogs of finance and banking are running wild in the streets and it would seem nothing but total disaster will bring them to heel. The question is not what but when."
December 16, 2009
Rich Kolon sends along this link to a very gloomy article:
One thing I do agree with this writer is the negative impact of the destruction of faith. Undermine the dollar, no one believes in it. Undermine the financial system, no one believes in it. Destruction of faith can not be measured, but it is critical to building the conditions for a Depression. I too think we are headed into one. It won't be the same kind of affair that the 1930s were. It will be different. But it will last at least a decade.
Red and White D sends this link to:
http://online.wsj.com/article/SB126080843481590571.html?mod=WSJ_hpp_MIDDLTopStories
Here is a link to 'Fat Cat Bankers, the Pimps of Wall Street', by Kevin Depew of Minyanville.Com. I quote it extensively below.
...Deutsche Bank Securities says it expects 21 million American households to find themselves owing more on their mortgages than their homes are worth by the end of next year. If one in five million default -- thus, our four million figure, above -- the losses could exceed $400 billion. That assumes just a 20% default rate. What if they all defaulted at once? "Stiffing the bank is bad for peoples' credit," the Wall Street Journal intones ominously, like a high school health teacher warning ninth-grade students to avoid unprotected sex. Ha ha ha. Yes, except for two things: 1. There isn't any sex available anymore, and 2. No one wants to have it anyway. Fear and Apathy is a dangerous combination.
...Some say the "government" did this, some link it directly to the Fed. Both are correct, but I just lump all that together into "we" because, like it or not, we're the ones who are ultimately behind the creation of all this money. Those who paint "government" and "The Fed" as complicit players in some kind of conspiratorial cabal are simply in denial about their own complicity in the scheme. For every pimp there's both a hooker and a john."
And here is a link to 'Deliberating the Fed's Exit Strategy', by Mike Mish Shedlock of Minyanville.Com. I quote it extensively below.
The Fed, by its very existence, has completely distorted the market via self-reinforcing observer/participant feedback loops. Thus, it is fatally flawed logic to suggest the Fed is simply following the market, therefore the market is to blame for the Fed's actions. There would not be a Fed in a free market, and by implication there would not be observer/participant feedback loops either.
Corollary Number One:
The Fed has no idea where interest rates should be. Only a free market does. The Fed will be disingenuous about what it knows (nothing of use) and doesn't know (much more than it wants to admit), particularly in times of economic stress.
Corollary Number Two:
The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.
Corollary Number Three:
Don't expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.
Corollary Number Four:
The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it's easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking."
And here is a link to 'The Fed's Unemployment Projections From Mars', also by Mike Mish Shedlock of Minyanville.Com. I quote below.
2000-2009 Perspective
* At the height of the Internet bubble with a nonsensical Y2K scare on top of that, the economy managed to gain 264,000 jobs a month.
* At the height of the housing bubble in 2005, the economy added 212,000 jobs a month.
* At the height of the commercial real estate bubble with massive store expansion, the economy added somewhere between 96,000 and 178,000 jobs per month depending on where you mark the peak."
