Tuesday, June 23, 2009

The Slide

Greetings good citizen,

Apparently ‘Fear’ drove ‘Greed’ out of the markets again today as the Dow slid 171 points by roughly 2:00 PM EST.

Sadly, there has been no sign of ‘Sanity’ for the past three months and it’s presumed she’s ‘missing in action.’

‘Speculation’ has it that today’s release by the IMF of a rather gloomy economic outlook is responsible for the sudden ‘reversal’ of the market rally that is going into its third month.

Worse, what was initially seen as ‘green shoots’ has turned out to be ‘Poison Ivy and Hemlock’.

Nobody is doing anything about the deteriorating job market although, ironically, the US stimulus plan may be responsible for boosting China’s GDP from a projected positive one percent to a positive seven percent for the year.

In an eerie repeat of the housing crisis, where pundits repeatedly assured us the problem was ‘contained’ to the sub-prime market. I have recently seen several posts claiming we have ‘avoided’ the ‘Death Spiral’ where reductions in the labor force leads to a reduction in overall spending which leads to production cuts, which lead to further reductions in the labor force.

In my recent post ‘The New Normal’ we see precisely this variety of ‘creative destruction’ taking place. The six million jobs (and their related paychecks) are never coming back.

The reason to be concerned good citizen is because the people losing their jobs weren’t ‘greeters’ at Wally-Mart, the people that lost their jobs were stock brokers, mortgage executives, Real Estate brokers and banking executives, most of whom made a ‘pretty penny’ during the recent ‘good times’.

These highly compensated jobs fled not only our own job market but from job markets around the globe…never to return in our lifetimes, thanks largely to the global race to the bottom!

There are more questions than answers in tonight’s offering and I’ll be asking a few of them after this (comparatively) brief piece.

Wall St. Starts Week with a Slide

Published: June 22, 2009

Was all of that optimism about an economic recovery a bit too hasty?

Resurgent fears about the struggling economy jolted Wall Street and Europe on Monday, dragging stocks broadly lower after their first losing week in a month. The Dow Jones industrial average slumped to its lowest levels since late May, and the Standard & Poor’s 500-stock index slipped back into negative territory for the year. [Of course good citizen there has been quite a few reports of um, ‘absurd’ trades taking place while the markets were being ‘pumped up’ on what amounts to very low ‘volume’. Which is to say there are now a lot of stocks whose valuation has no relationship with their earnings or their market share. It seems their prices were ‘driven up’ (solely) in order to drive up the markets.]

A new report by the World Bank underscored broader concerns that the global economy was not ready to snap back from the worst downturn since World War II. The bank predicted that the global economy would shrink 2.9 percent [This is double its original prediction] this year before rebounding in 2010 [What happened to the ‘broad consensus’ that recovery would occur in the second half of THIS year?], and said that the world was “entering an era of slower growth” that demanded tighter oversight of the financial system. [Damn, aren’t we lucky the Treasury just put the banks in charge of regulating themselves by naming the bank owned Fed their new ‘regulator’?]

“The market’s gone too far, too fast,” said Karl O. Mills, president of the investment adviser firm Jurika, Mills & Keifer. “It’s writing checks that the recovery can’t cash.” [How long will it be before we’re in the same position for pretty much the same reason?]

After 3:30 p.m., the Dow Jones industrial average was down 156 points, or 1.9 percent, while the S.& P. 500 fell 2.5 percent. The technology-geared Nasdaq was off 2.8 percent.

At the close of European trading, the DJ Euro Stoxx 50 index, a barometer of euro zone blue chips, was down 3.1 percent, while the FTSE 100 index in London was down 2.6 percent. The CAC 40 in Paris and the DAX in Frankfurt both fell 3 percent.

“Basically it’s a reality check,” Gerhard Schwarz, an equity strategist at Unicredit in Munich, said. Optimistic investors have bid stocks up by more than 30 percent from their nadir, he said, but “there’s been a lack of confirmation that it is justified. We’re waiting for hard economic data to show the economy has turned around.” [Otherwise the ‘recovery’ has all been a figment of the pundit’s imagination…or their greed in getting investors to buy via scaring them into believing the markets had ‘bottomed’.]

Investors sold financial stocks, apparently drawing little difference between big banks and small ones, banks that had returned government bailout funds and those that were still holding onto taxpayer money. Shares of Bank of America fell 6 percent while JPMorgan Chase and Morgan Stanley were down more than 2 percent. In Frankfurt, Commerzbank fell 6.7 percent and Deutsche Bank fell 6.3 percent.

Shares of Apple were down nearly 2 percent, to $136.99, after reports over the weekend that its chief executive, Steven P. Jobs, who has been on a medical leave since January for treatment of what he called a hormone imbalance, underwent a liver transplant two months ago.

Apple shares fell despite the company announcing that it had sold more than a million units of its latest iPhone model in the first three days.

The prices of commodities like crude oil, copper and gold slumped as investors faced the prospect that emerging markets and developed economies were not about to ramp up industrial production or witness a spike in levels of consumer demand and consumption. [Um, several scathing comments come to mind but I regularly belabor the point that investors aren’t too bright, the above two paragraphs merely serve as further proof.]

Crude oil futures fell $2.82, to $66.73 a barrel, their lowest levels in three weeks, even as discord and protests in Iran raised questions about the stability of one of the Middle East’s largest oil producers. Gasoline prices in the United States held steady at a nationwide average of $2.69 a gallon, according to AAA, the automobile club.

The declines in commodities pulled down energy producers like BP in London, Total in Paris and Marathon Oil and Chevron in New York. The declines also weakened companies that produce basic materials like chemicals and steel.

The day’s declines offered more evidence that a new bull market was not in the offing.

Stocks shot higher this spring after dipping to their worst levels in more than a decade, but many Wall Street analysts say investors who have dived back into the markets are ignoring fundamental problems in the economy. The S.&P. 500 is down 5 percent since earlier this month, and many analysts say the stock markets could get stuck in a broad trading range as investors look ahead toward a sluggish recovery.

Unemployment is rising and is suddenlyexpected to reach 10 percent or more, even after the broader economy begins to recover. Hundreds of big and small banks across the country are still on government lifelines. And while credit markets are returning to normal after last year’s financial crisis, analysts say higher interest rates on Treasury notes and mortgages threaten to disrupt the government’s attempts to right the economy.

Investors are paying close attention to the bond market this week as the Treasury Department prepares to auction a record $104 billion in government notes. Yields on the benchmark 10-year Treasury note fell to 3.69 percent on Monday afternoon, indicating higher demand for save-haven government debt. [Which still leaves the question of whether or not the debt of THIS government is even remotely ‘safe’?]

Okay folks, the Dow dropped another 40 point in the last 15 minutes of trading to close down and even 200 for the day…Understand that exchanges across the planet (except Asia) um, suffered large losses today.

Before today’s ‘plunge’ I was reading a piece that asked the identical question to the one raised in this article, What happens after the third quarter and nothing even resembling a ‘recovery’ fails to materialize?

Which is to suggest that maybe the boys in charge of the ‘smoke and mirrors’ decided to pull the plug before they created a full-fledged panic.

Hell, the economy still sucks but the boys at Goldman sucks Sachs have already announced that they expect to pay record bonuses this year!

How do you suppose they managed that?

Well, with the banks now firmly in charge of the justice system, we may never know.

As I stated earlier, this ‘turn of events’ raises more questions than it answers.

Of particular concern to all of us is how a ‘recovery’ will occur at all when the global economy is suffering from ‘over capacity’?

Which is a bit of a misnomer because the crisis is not due to a lack of consumers, it is due to inability of the consumer to purchase what is produced.

It is important to understand ‘why’ the consumer isn’t able to buy the goods. The consumer is both ‘over charged’ AND ‘underpaid’.

Understand good citizen that our current ‘bumper crop’ of billionaires got their heap from ‘somewhere’.

To understand how this works we need to go to the very beginning of the ‘production cycle’, the ‘raw materials’ themselves.

How much do raw materials ‘cost’ good citizen? They don’t cost the ‘owner’ a single cent because Mother Nature doesn’t have a cash register!

How much does ‘labor’ cost good citizen?

Same freaking answer but this time it’s due to the price of labor being contained in the price of the object produced, it’s actually a ‘profit center’ for the employer regardless of what step in the production process it is added!

Whatever you get paid, your employer makes that plus from your efforts!

How much do you suppose production equipment costs?

Yup, once again the answer is it’s free! The ‘cost’ of equipment is ‘amortized’ over the amount of goods that equipment produces.

Good to be the ‘employer’ isn’t it?

With so many ‘free’ things accruing to the owners of various endeavors, why is this pyramid collapsing?

The population continues to grow but opportunity/market share continues shrink.

When it’s all said and done good citizen the real problem here is that the name of the game is the same as it ever was…survival.

Our system of commerce, for decades if not centuries, has proven incapable of providing the means of survival for all that need those means. Despite the fact we have more than enough capacity to provide every living human with a ‘relatively’ abundant life.

For the third time in as many decades, the global economy will ‘shrink’ while the global workforce expands.

Perhaps, not too surprisingly, the ‘owners’ of commerce have decided to deal with the crisis by reducing their customer base rather than foregoing their very rich profits.

Which, logically, questions the wisdom of continuing to allow a few to ‘own’ what we all need to live.

It’s not a ‘meaningless’ question because in it is contained the key to the survival of our species.

Thanks for letting me inside your head,


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