Friday, May 15, 2009

Headline News!

Greetings good citizen,

Apparently tomorrow is another one of those ‘settlement days’ that happen every few weeks, not that you’d find any mention of this in today’s business headlines.

There’s been a lot of chatter about there being a huge ‘short squeeze’ going on but as close as I can tell, this ‘settlement day’ thing applies to commodities futures…why this would push up equities prices is beyond my limited knowledge of market mechanics.

I can ‘guess’ that the short squeeze requires traders to pay for the stocks they borrowed for shorting purposes If these trades are subject to any kind of ‘settlement day’, I’d be baffled as to why.

Yes good citizen, tonight’s offering is a ‘snapshot’ of today’s business headlines as we try to ferret out the reason the markets tacked on gains rather than heading for the basement.

Chrysler Plans to Shut One Quarter of Its U.S. Dealers
Managers at the Lochmore Chrysler Jeep dealer near Detroit review a list of 789 company dealerships set to be terminated. Lochmore was among those slated for liquidation.

Jeff Kowalsky/Bloomberg News
Managers at the Lochmore Chrysler Jeep dealer near Detroit review a list of 789 company dealerships set to be terminated. Lochmore was among those slated for liquidation.

The carmaker, which filed for bankruptcy protection two weeks ago, sent letters to 789 of its 3,200 American dealers revoking their franchises. [Given the bizarre behavior we’ve seen out of Wall Street, it is entirely possible that some investors ‘took heart’ that Cyberus Capital was finally getting its act together. Unfortunately, these announced dealership closings will tack another estimated 37,000 jobs onto already alarming unemployment figures.]

Obama Presses Action on Credit Cards
President Obama pressed Congress to pass new limits on unfair rate increases, late fees and shifting terms. [Um, isn’t this the same congress that defeated a proposal to allow bankruptcy judges to perform ‘cram downs’ on distressed mortgages? Perhaps it is the prospects of seeing this profit limiting legislation go down in flames that cheered investors up?]

Wal-Mart Says Its Market Share Is Rising

The giant discount chain and unofficial barometer of consumer spending posted flat quarterly earnings, an accomplishment in this economy. [The nation’s largest discount retailer reporting ‘flat earnings’…nope, this isn’t good news for anyone, not even consumers.]

Jump in Food Costs Drives Up Prices
Wholesale prices rose slightly in the U.S. in April, the government reported, blunting fears of deflation. [Prices go up and they’re cheering about it? I suppose for investors that are long commodities this is good news…but it’s bad news for everyone else, including investors in other sectors.]

Carlyle Group Settles With N.Y. in Pension Case
The private equity firm agreed to pay $20 million under an agreement with New York’s attorney general. [We can only wonder what fraction of the pension losses suffered $20 million works out to be.]

$30 Million Paid to Madoff Victims
By DIANA B. HENRIQUES 9 minutes ago
The total of approved claims is expected to reach $100 million by Memorial Day, a court-appointed trustee said. [Considering the ‘fraud’ totaled nearly 60 billion, this must be very small comfort to the ‘victims’ indeed.]

Food Companies Try, but Can’t Guarantee Safety
By MICHAEL MOSS 16 minutes ago
Banquet pot pies sickened thousands with salmonella in 2007. The corporate parent, ConAgra Foods, and others have decided to leave the “kill step” to eliminate pathogens up to the consumer’s cooking at home.

Big food manufacturers have increased efforts to eliminate pathogens in food, but the results have been uneven. [Nothing cheerful here for investors unless they are heavy in to health care providers!]

Sony Suffers First Annual Loss in 14 Years
The company forecast an even grimmer year ahead, hurt by a global slump in demand, cut-throat price competition and mounting restructuring costs. [This could be ‘good news’ IF there was a competing US electronics industry, sadly, there isn’t.]
Agreement on Ship Recycling Wins Wide Support
Shipbreakers headed across mud flats to work in 2005 at a yard near Chittagong, Bangladesh. After more than five years of negotiations, 64 countries reached consensus on an agreement to improve safety and reduce pollution. [Um, this isn’t that ‘bright spot’ we’re looking for as the fleet owners have been hit so hard by slumping volume/prices they are scrapping ships at a record pace. It’s cheaper than ‘mothballing’ them.]

Pfizer Will Provide Prescriptions for Free to Jobless
By THE ASSOCIATED PRESS 11 minutes ago
Up to 70 different drugs will be available for up to a year to Americans who lost jobs since Jan. 1 and have been on the Pfizer drug for three months or more. [Nice gesture until you consider what drug Pfizer is ‘famous’ for. Perhaps the intent is to take the jobless’s mind off of the fact they’ve got nothing to do…]

British Telecom Announces 15,000 Jobs Cuts
Britain’s largest phone company cited problems with its Global Services division and said it will cut 15,000 jobs and lower its dividend. [Sorry, can’t put a positive spin on this one either.]

Spain’s Leader Offers New Measures to Boost Economy
Spain’s prime minister took more steps after a report said the economy shrank 2.9 percent in the first quarter, the sharpest rate of contraction in four decades. [Ah ha! I thought we had it there for a moment but Spain’s big ‘product’ is leisure and hospitality. Prospects aren’t good for increased exports to vacation destinations with so many too broke to travel.]

Shares Rise Despite Weak Jobs Report
By JACK HEALY 28 minutes ago
A worse-than-expected report on weekly jobless claims was not enough to dampen the stock market. [Uh-oh! Once again we see stocks rising on ‘less than stellar’ economic news…but we’re used to that by now. Note the ‘worse than expected’ qualifier added in there?]

Obama Proposes a First Overhaul of Finance Rules
The proposal would require credit-default swaps and other types of derivative contracts to be traded on exchanges and backed by capital reserves.

We’ve been hearing a lot lately about how ‘necessary’ these ‘financial weapons of mass destruction’ are to the ‘health’ of the financial system.

Once again, your ‘ignorance’ is being used against you. Under our ‘fractional reserve system’ all ‘new’ money is conjured into existence from ‘thin air’. Theoretically, the bank is supposed to have some fraction of this money on had to ‘back up’ the new loan. Perhaps more disturbing is this ‘fraction’ is nowhere near the amount of the loan.

In case of mass default, the banks would go under.

These derivatives exist to allow banks to ‘recapitalize’ themselves quickly as well as to keep compliant with their reserve requirements.

Once a bank no longer has the loans it wrote on its balance sheet, it is no longer overly concerned if the loan ‘performs’ or not…which is how we got where we are today.

Derivatives exist to ‘speed’ the flow of money into new lending. With a vast majority of consumers already at the limit of the amount of debt they can shoulder, is it really wise to facilitate faster lending?

Naturally, that’s not what they’re trying to do. The plan is to legitimize these toxic assets so ‘hopefully’ they will start trading again.

After all, the sale of derivative contracts ‘were’ 4% of our GDP…until they started ‘blowing up’ left, right and center.

I find it particularly disturbing that the powers that be are seeking to legitimize a practice that should be illegal.

Understand that having more money to lend is what drove prices well beyond what was acceptable. Simply put, the housing crisis never would have happened if the banks had been required to hold mortgages to maturity.

Shift mental gears with me as we look at the issue of how to straighten out this horrible mess.

Let’s start with a few givens.

All economies are local. If you can’t find a job that will crack your nut where you live, your local economy is ‘unviable’.

Simply put, you cannot live in a community that has no use for you.

Now expand that thought to the entire world. While the ‘official’ unemployment rate is 8.9%, nearly half of all working aged US citizens can’t find work at any wage.

Another 40% of those that do work have earnings that place them below poverty level. It’s not necessarily a ‘blessing’ that most families have at least one wage earner who earns more as their combined earnings are still barely enough to get by on.

Again the ‘official’ poverty rate hovers around the 30% mark.

Perhaps most disturbingly, if not for the ‘customer of last resort’ (The Federal Government) unemployment would not be 9% but closer to 90%!

The administration recently submitted a nearly 4 trillion dollar annual budget…where do you suppose that money goes? We know three quarters of a trillion goes to the Pentagon and nearly half of that is spent on ‘black budget’ items. (meaning we have no clue where that money goes, it’s a ‘secret’.)

Then there is the nearly half a trillion in farm subsidies. Food is far from free but considering how much in taxpayer funds are dedicated to our farming sector, it should be!

Understand that ‘somebody’ is using that money to grow food for a profit…and the taxpayer isn’t seeing any of the ‘savings’.

Then we have Medicare and Social Security. People that are currently working contribute weekly/per pay period to both of those funds…but the services are provided by the private sector…at a ‘markup’ of somewhere in the vicinity of 2,600%!

What I want someone to tell me is how we dig ourselves out of this hole the ‘teeny’ private sector has dug for us?

I say it can’t be done, prove me wrong!

Thanks for letting me inside your head,


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