Archive for May, 2009

Consumer Spending the Slide Continues

Wednesday, May 27th, 2009

My dear friends,

You interest in my writings, and your responses give me a great deal of satisfaction.

Thank you for trusting my observations.

I wish I was wrong.

I had to laugh.

Yesterday, the stock market was up 200 + points.

The spark for this rally was supplied by a surprise jump in consumer confidence. “The biggest increase in almost a year” they trumpeted . And then of course they add the idiotic addendum,” consumer spending comprises almost 70% of the U S economy”.

Now lets see, how should we interpret  this amazing jump in confidence, from dire to just plain bad.

Could the fact that we have been bombarded with dire predictions and massive stock losses and a sharply contracting job market no longer count?

Is our attention span too short to stay negative past a certain date?

Perhaps the end of a very long weather challenged Fall, Winter ,Spring season has breathed a shot of optimisn in an otherwise frightening economic and social atmosphere.

“Its warm and sunny out, I don’t feel like worrying today. Perhaps I will buy a new bathing suit, or a pair of flipflops.Perhaps a new dress for my sweetheart.

A new Grill would make it less painful to stay home and skip some of those expensive restaurants.

Of course we feel less depressed its Summer!!!

Now reality check.

People are spending money differently than any time in the past 50 years.

Contrary to past recessions, where the wealthy appeared immune to economic squeeze, the higher priced stores are loosing market share and many are closing.(See Fortunoffs et al)

On the other hand discount stores are  doing well, and the creative ones are growing.

These changes in shopping habits are becoming a permanent long term alteration in consumer spending.

Our interests have turned from extravagant trips and expensive new cars, to stay at home type improvements .

New large screen T V’s, and audio systems. Possibly even a jacuzzi  to massage our clenched muscles.

We are purchasing gardening equipment and seeds to grow our own food,  and alarm systems, guns .and safes to keep our homes secure and more enjoyable.

Americans appear to be acclimating to a more modest life style.

The world of “Charge It” is gone, possibly forever.

Shopping malls and restaurants are no longer a destination for spending orgies.

Eliminating debt by saving is the new investment to create wealth.

I read recently, that during the first quarter of 2009 Americans saved an annualized $450 billion, compared to $ 30 billion in 2008.

This economic fix, is the reality of our economy for years to come. You can’t spend to save, you must save to spend.

If only our government got it.

Memorial Day, a Tribute to our Heroe’s, and the Death of Consumer Credit

Tuesday, May 26th, 2009

Heroes are often ordinary people dealing with extraordinary events.

On Memorial Day, we remember the fallen heroes, who died defending our Great Nation

Their sacrafice is the ultimate cost for the freedom which we, as Americans, enjoy.

For anyone who has ever been in the military,  you know that the Armed Services are comprised, for the most part, of ordinary Americans, just trying to get by.

Of course the military does appear t0 have a surprisingly large number of “gung ho” and A H , types, but conventionally they are the skeleton of the Military machine, your “average Joe, or Josephine, represents the flesh and blood of any military.

So to the flesh and blood heroes who have fallen to protect our Nation,  “THANK YOU!!WE HONOR YOU TODAY AND ALWAYS,DEATH TO PROTECT FREEDOM IS A VERY NOBLE DEATH.”

Now, I’m about to get sneaky with  you.

As long as I have your attention I’m going to teach you something.

I want to make you think.

I believe we have some very big problems, and the people we are paying to fix our problems, have no clue, what to do.

Here is an example of how do gooders don’t do no good, without even trying.

Last week Congress at the behest of the President, passed a credit card reform bill.

Everyone has a credit card annoyance story. We spend too much, they raise interest, or shrink our credit lines for no obvious reason. The mail is slow one month and we get hit with late penalties. etc.

Those darn credit card companies are pigs, they overcharge us all kinds of hidden fees, who isn’t cheering for this bill? They are finally getting what they deserve. 

Here’s the other side of the story. You judge how much you like this new law.

The law essentially imposes limits of how much credit card companies can charge in interest.They put time constraints on current balances, and prohibits or controls other “penalty” fees.

In effect the Congress has eliminated the card companies from adjusting to greater lending risks. If a customer is consistently late, or if a new applicant had a credit history of being a poor risk, the banks can’t increase his costs of borrowing.

In most cases the banks will simply stop lending, and further reduce or eliminate any clients that are not A + credit.

In this way Congress is damaging the general public, which the bill was designed to help.

“If we can’t charge more for bad credit to help defray some of the losses, then we won’t lend the money at all.”

The Problem Economy is Becoming More and More Problematic

Thursday, May 21st, 2009

The seeds of economic misdirection which we are  continuing to plant, are sure to blossom into jungles of new problems around the World.

Shrinking consumer spending and a contraction of  worldwide trade has caused developing hardships throughout the third world countries.

Throughout China, India, and South America, employment, and a steadily rising standard of living, has been been severely reversed by the deepening recession.

With worldwide demand for oil shrinking, there has been a marked reduction in oil and gas exploration, and a steady decline in refining capacity as old plants succumb to an ageing infrastructure.

This reduced availability will become a serious drag on any future economic recovery, as the cost of energy rises in response to supply & demand.

Decades of industrial manufacturing pollution throughout Asia and the developing countries, has resulted in ever shrinking supplies of fresh water and clean food. This is a serious threat to an increasing younger and now unemployed population.

In the United States, the collapse of the credit markets, has rippled through out the eonomy.

While there is money to lend, the requirements for lending have tightened dramatically from the norm of the past 20-30 years. Auto loans and mortgages are increasingly difficult to obtain,, and the cost of credit cards has become almost usurious.

Small business loans , the lifeblood of our economy, have  become problematic, requiring excessive paperwork and extensive accounting  and personal guarantees.

The contracting economy and the shrinking credit is having a snowball effect. People are frightened by the ongoing job loss, and consequently they spend less, borrow less, and become much more practical non frills consumers.

The suburbal lifestyle will become the casualty, as the mobile ,credit fueled economy disappears.

Shopping malls are already echo chambers, and increasingly ,empty store fronts are  a sign of economic pain.

Americans are buying fewer new cars, choosing to maintain their older models for an additional year or two, rather than incur additional payment obligations.

Commercial suburban real estate is the next default disaster approaching, as the suburban lifestyle  disappears.

The very rich and the poor appear to be a polarizing economic trend with the middle class becoming an extinct vestige of American lore.

The stimulus of building new roads and bridges will become unproductive, because we will be too poor to travel.

Not a Pretty Picture.

More later

The Problem Economy is Becoming More Problematic

Wednesday, May 20th, 2009

The financial errors that have compounded over the past 30 years, can’t be fixed by subsidizing them.

When you have a bad investment, you can’t make it good by throwing money at it.

Failing industries, and inefficient businesses within that industry, can’t be magically fixed by giving them money,

Too much debt in our financial system can’t be cured by borrowing vast amounts of money.

Instead of fixing our 30 year bubble economy, we are force feeding obscene amounts of cash , to keep failing firms afloat, and mismanaged, criminally negligent banks in business.

Businesses must adapt to the new and changing economy. The problem we face is that the more money we shove into the system, the slower the  dinosaurs will react to the new reality.Thus keeping “business as usual”, as the expected business model for the banks and the unwitting public.

Why is  TARP and Stimulus funding destined to fail?

Banks and failing institutions are getting massive amounts of public money to keep doing what they have been doing for years. Even thought the credit markets have continud to shring, the vast amounts of money have continued to pour into the Citi Banks and Goldman Sacks of the World.

Since they are not lending the money that they have been given and the additional funds which they are now authorized to borrow from the Treasury at virtually to interest, they are taking the idle cash and using it to purchase hard assets, i e oil futures.

The Wall Street Banks were investment entities long before they were converted to Banks, and their natural trading propensity appears to be taking precedent. 

Further confounding our recovery is the the source of this “bail out” spending.

Much of the money is borrowed, This takes potential investment cash out of the economy that should be available for funding new ventures in the private sector.

Taking savings and venture capital out of the economy and using it to fund stimulus projects that do not create new wealth or permanent jobs, is a long term hindrance to any potential recovery.

Dead end jobs, that build one time structures or roads, will  remain DEAD END JOBS.

We are dooming the economy to remain stagnant for the foreseeable future.

Part 2 later

Sub Prime + ARM = More “Prime Time” Trouble Ahead

Saturday, May 9th, 2009

The obedient press. the clueless pundits and experts, and the highly connected insiders  have begun floating increasingly yet cautiously optimistic verbiage concerning the improving state of our recession.

The first two categories have no clue, the latter have the real knowledge but a very different agenda.

We are hearing that the recession is  bottoming out.

” The free fall is beginning to slow down.”

“Advertising is slowly coming back”

“Two women at a networking gathering got new jobs, at close to their former pay”

“Recovery will begin by the end of 09”

Yes, yes, the broken economy is fixed. It was easy, just like all the other busts that we have fixed in the past 30- 40 years. The formula works. It always has. All we have to do is throw a lot of money at the problem, let the insiders slide out with a minimal amount of damage, and time will heal all

Lay low for a few years, and then bring on the next game. The Fed Will Set US Free.

Oh yes, Our official unemployment is almost 9%, but when you include people forced to work part time or who have given up, the number is closer to 15%, , but numbers have grown so large so quickly that we are all numb. Ten million, twenty million, billions, trillions, numbers have begun loosing their meaning.

Housing prices, which are the major collateral asset behind this economic disaster have fallen 29 months in a row. The average value has dropped by almost 40%. Herein is the problem.

What sub prime loans really are, is another way of saying loans made to people with questionable credit rating, and income insufficient to comfortably cover the monthly payments.They had less than a prime credit rating.

To a certain extent, the social engineering which was the initiator of this type of loan , was a noble experiment, and a darn nice thought. AQ house for everyone, whether you can pay for it or not.

Who knows, the way the real estate market kept going up, these “sub prime borrowers” (S P B ERS) could live the American dream and the World would live “happily ever after”.

REALITY CHECK, Nothing keeps going up forever.When the frenzied speculation pushed real estate prices too high, the buyers stopped bidding up the prices.

The derivative instruments, (see my post from yesterday)  which were combinations of sub prime mortgaged, leveraged 20 or 30 to 1, were exposed as standing on a collateral base of over priced real estate  which was worth less than the mortgages which they carried.

These various derivitives were sort of worthless, being collateralized by aptly named “Toxic Assets”.

World wide, the banks have been exposed with vastly over valued balance sheets, and the recession which began at least 1 year before the “experts” figured out there was one, fell deeper and deeper into the financial abyss.

It took us at least 20  years to create this credit bubble. We are in (according to the Administration) the worst economic disaster since the Great Depression, and they are now telling us that creating new debt to stagger the imagination, we are fixed in just 4 or 5 months? No No No!

There is more.

I want you to be aware, because you are my friends, and I don’t know how to help any of us, except by sounding the alarm.

When the politicians forced the sub prime issue, the bankers and brokers became creative and agressive. The Feds through FANNY & FREDDIE were providing the grease. In order to reach more buyers , and to tap new markets, they began pushing the Adjustable Rate Mortgages(ARM’S)

Very briefly, ARM’s are mortgages at a very low interest rate, enabeling a person to purchase a more expensive property. The monthly mortgage  payments would be $100’s possibly $1000’s  less than a conventional mortgage.

Sounds like a great idea. Buy a bigger house. Have lower monthly payments. The value keeps going up,. The more expensive the house, the bigger the profits. Sell the house at a profit, buy two new houses. Repeat. Live the good life.

The Catch: ADJUSTABLE. Your low interest rate, and low mortgage payment is for a fixed number of years, possibly only one or two, but usually 4, 5, or possibly 6 years. The specifics are secondary. The fact is that when the interest rate adjusts your payments go up. Usually  too much, and almost always at a very bad time.

Now is a bad time, and the end of next year and 2011 are very bad times.

That’s when the bulk of the ARM’s from the housing boom are due to adjust. In the middle of a deep recession. With major unemployment. With shaky public confidence, and a shaken banking industry.

Not Good!

More Later

When Did Wall Street Change from a Prognosticator into a False Prophet?

Friday, May 8th, 2009

Yes dear friends, the various markets have had a rather spectacular run up from their March lows.

They continue to bounce optimistically higher, then slide back as the real insiders sell into the exciting rallies. A sucker rally that is a relatively new phenomenon, in its scope.

In the past, small manipulations always existed. A case in point would be the short selling of certain related stocks in the weeks and months prior to 9/11, by terrorists with “inside information” about the impending attacks.

Many people may not remember, but the Feds tried to trace the shortselling to “follow the money”, in an attempt to catch the “bad guys”.

Of course individual stocks, and even industries have been manipulatued. It is the nature of the beast, and there have been many books and movies portraying these manipulations.

However, this is different. The scale is enormous, and the money being made and lost is now Billions or trillions, instead of millions. The power that accompanies these manipulations is potentially pandemic in scope.

As a 40 year student of economics, and a former Wall Street Trader. I have watched with amazement, as the end of 08, and the first quarter of 09 was filled with dire predictions of doom and gloom,. The most serious economic World crisis in 60 years was being decried as the end of the World. The stock markets Worldwide were crashing, and we were stampeded into blindly supporting $ trillion dollar spending bills, to stave off anarchy, looting, and  the end of civilization.

When the money was allocated and spent on blind unknown stimulus  agendas, the verbiage was stopped. The money was gone, did not create a single new job, or correct any of the real underlying problems in the economy, yet miraculously, the verbiage began to change.

I have never heard such nonsense, being spouted . Innuendo, half truths, and manipulation of statistics, are all quoted as economic facts.

Today we hear that unemployment growth is slowing down. Only 500,000 +, new jobs lost in April, when someone(who is this someone and why is their guess taken as gospel these days) had expected 600,000 + We still have almost a 9% unemployment rate, and the most people unemployed possibly ever.

Every morning I hear the news, with one or another official saying the recession will be  over by end of 09, by mid 2010, ,by next Thanksgiving..etc,

I see a concerted effort to prop up the markets and the American People by the same group that tried to pull them down so all those trillions could be pulled out.

The truth is, the economy is broken, and the World is not healthy.

Yes , those who have lied and conned us, and their minions of blind mindless pundits and parrots are well off, but the People are not better off.

When the next wave of disastrous reality crashes down on us, the insiders will be warm and secure,in their $ billion nests,, while the  rest of us will be broke scared and hungry,willing to blindly follow the new World Order that will change this Country and society for the next hundred years.

A Tongue in Cheek Explanation of Derivative Markets

Thursday, May 7th, 2009

 Hi Dear Friends and Readers ,

I think this is a very clever post that was sent to me by a friend.

I wish I could take credit for writing this, but enjoy the humorous explanation

At last, what we’ve all been waiting for, an understandable explanation of :::::::::  Derivative Markets :::::::::: 
 
Heidi is the proprietor of a bar in Detroit. In order to increase sales, she decides to allow her loyal customers – most of whom are unemployed alcoholics – to drink now but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around about Heidi’s drink now pay later marketing strategy and as a result, increasing numbers of customers flood into Heidi’s bar and soon she has the largest sale volume for any bar in Detroit.

By providing her customers’ freedom from immediate payment demands, Heidi gets no

resistance when she substantially increases her prices for wine and beer, the most consumed beverages. Her sales volume increases massively.

A young and dynamic vice-president at the local bank recognizes these customer debts as valuable future assets and increases Heidi’s borrowing limit. He sees no reason for undue concern since he has the debts of the alcoholics as collateral.

At the bank’s corporate headquarters, expert traders transform these customer loans into DRINKBONDS, ALKIBONDS and BARFBONDS. These securities are then traded on security markets worldwide.

Naive investors don’t really understand that the securities being sold to them as AAA secured bonds, are really the debts of unemployed alcoholics.  Nevertheless, their prices continuously climb, and the securities become the top-selling items for some of the nation’s leading brokerage houses who collect enormous fees on their sales, pay extravagant bonuses to their sales force, and who in turn purchase exotic sports cars and multimillion dollar condominiums.

One day, although the bond prices are still climbing, a risk manager at the bank (subsequently fired due to his negativity), decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi’s bar.

Heidi demands payment from her alcoholic patrons, but being unemployed they cannot pay back their drinking debts. Therefore, Heidi cannot fulfill her loan obligations and claims bankruptcy.

DRINKBOND and ALKIBOND drop in price by 90 %. BARFBOND performs better, stabilizing in price after dropping by 80 %. The decreased bond asset value destroys the banks liquidity and prevents it from issuing new loans.

The suppliers of Heidi’s bar, having granted her generous payment

extensions and having invested in the securities are faced with writing off her debt and losing over 80% on her bonds.

Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 50 workers.

The bank and brokerage houses are saved by the Government following dramatic round-the-clock negotiations by so-called leaders from both political parties.

The funds required for this bailout are obtained by a tax levied on employed middle-class non-drinkers.

 


Is Wall Street signaling the end of the recession? Liar! Liar! Pants on fire.

Wednesday, May 6th, 2009

For the past 7 or 8 weeks, I have ben keeping a close eye on the rising stock market.

I has risen 25 – 30 %, and investors and speculators have begun responding with histerical glee, to the false hype being spewed by the Administration, spearheaded by the pom pom waving cheerleaders at the FED and the Treasury.

Is our economy really fixed? Is the worst of the recession over? Is recovery truly beginning, with economic growth returning by the end of 2009?

HORSEFEATHERS and MONKEY WINGS!!!!

Other than give money for bailout projects that do nothing but maintain the satus quo, what has been done?

For example, New York Sate has recieved $25 billion in stimulus money so far. Has that money created even 1 non governmental job?

I don’t think so.

The money has gone to cover the economic short falls in entitlement programs. Medicare, Medicade, foor stamps, teachers unions, government workers,and to ensure that everything is business as usual for all social services.

Have our taxes been reduced?

Sure, there has been a $9.50 / week reduction in payroll taxes, but we’ve been  hit with so many hidden taxes(.25 / ride on MTA as a case in point.) The New York State Legislature is trumpeting the fare increase on only 1 quarter..per trip this is a hidden tax increase of 12 1/2% for transit riders.

How about the increase in Motor Vehicle fees, and surcharges on taxi rides.

How about the payroll surcharge on businesses to help cover the Transit deficit.

Let me ask you ..how much cutting has the MTA done.

How much reduction in payroll.

How many layoffs have be initiated, to help[ pay for these deficits?

Very little. Let the   public eat cake…or something much less tasty…

So again I ask you, is Bernanke right? Are beginning a recovery phase due to the wonderful actions of our Federal and State Governments?

Housing prices have fallen for 29 months in a row, and are nationally almost 40% off from their highs.

“They” tell us that housing sales last month were UP slightly, for the first time in more that a year. Did “they” bother to tell us that almost 50% of those sales were purchases of foreclosed properties at distressed prices? 

The glut of houses on the market insures that prices will remain low or head lower for the foreseeable future.

According to several economic reports that I have seen, there is a second wave of Adjustable Rate Mortgages(ARM’S) that will begin to adjust in late 2010, and on into much of 2011.

Business Calls

More Later