Friday, July 31, 2009


Greetings good citizen,

I’m a bit under the weather tonight and lack the necessary ‘focus’ to generate a post worthy of your attention…but as luck would have it, I stumbled upon one that is in keeping with what might best be described as this week’s ‘theme’.

Without further adieu, we proceed to tonight’s offering

[Purloined from: Financial Armageddon]

Don't Be Fooled

I was originally going to write about something else, but after a loyal Financial Armageddon visitor alerted me to the following Financial Times commentary, "Insight: Learn to Love the Recovery," by Tim Bond, head of asset allocation at Barclays Capital, I changed my mind. Frankly, I couldn't believe this piece of propagandistic excretia was written by a senior financial industry executive who makes decisions about where to invest. Because some FT readers might be fooled into thinking Mr. Bond had something useful to say, I felt duty-bound to respond to his "insights" with a few brief comments of my own (interspersed with his italicized text):

Never has a bull market climbed a steeper wall of worry. In spite of a proliferation of positive economic indicators, the consensus remains gloomy. Bullish economists are than hens’ teeth.

The average forecast for third-quarter US gross domestic product growth is a weak 0.8 per cent, which would be by far the slowest first quarter of any recovery on record. Since 1945, the average annualised real US growth rate in the first two quarters of recovery is 7 per cent. History provides abundant evidence that the deeper the recession, the stronger the bounce. Even the recovery from the Great Depression conformed to this rule, real US GDP grew 10.8 per cent in 1934 and 8.9 per cent in 1935.

There are so many inconsistencies and logical fallacies in the above paragraph that it's hard to know where to begin. Among other things, Mr. Bond assumes that the consensus is correct in seeing a third-quarter uptick in GDP. That may or may not be the case, but given how wrong economists have been about every aspect of this downturn so far, I'd lean towards the latter. Even if they are right, what evidence does he have that a third-quarter rebound will be the turning point, rather than the equivalent of an economic dead-cat bounce? Moreover, his assumption that the postwar time frame is the relevant reference period when it comes to forecasting the kind of recovery we might eventually expect to see is laughably ignorant given the extraordinary upheavals of the past two years. Paradoxically, he also makes reference to the upturn that followed the Great Depression, conveniently ignoring the fact that the earlier downturn dragged on for more than twice as long as the current one has before things turned around.

Yet today’s consensus assumes this time things will be different. The persistence of such pessimism is striking given a strong Asian recovery is visible, with output, employment and demand all following V-shaped trajectories, and regional industrial production rapidly bouncing back above the previous peak. Yet this recovery is dismissed by western analysts, who appear unable or unwilling to believe the region is capable of endogenous growth. That 2009 will be the second year in a row in which the increase in Chinese domestic demand exceeds that of the US is a point roundly ignored.

Actually, anybody who's been paying attention knows that most mainstream forecasters still seem to believe that what we are going through right now is "more of the same" -- that is, the same kind of (admittedly severe) cyclical downturn we've seen in the decades since World War II, rather than a bursting-credit-bubble-induced secular unraveling. The fact that Mr. Bond fails to grasp that the alleged V-shaped rebound in China and its sphere of influence is anything other than a steroidally-inflamed mirage spawned by a government-ordered blast of reckless spending and an XXX-rated orgy of forced bank lending makes you wonder why he still has a job (oops, I forgot: competence is not a prerequisite when it comes to those who are paid to make "forecasts" for a living).

The fate of the Chinese economy is supposedly in thrall to the US consumer, in spite of clear and persistent evidence to the contrary. The US economy, which provides a home to 17 per cent of China’s exports, is still seen as the arbiter of growth in Asia. This obstinate adherence to an outdated assessment of economic dependence is not the only gaping intellectual flaw.

I suppose in one respect he's right: China is no longer as in thrall as it was to the US consumer; rather, the country now seems to be dependent on the whims of 1) panicky authorities, worried about the domestic social consequences of a global collapse in growth and trade; 2) corrupt and overextended lenders, who have apparently mistranslated the words "bad loan" and "malinvestment" into "any borrower will do"; and, 3) speculators, who've decided that all they need to do to get through these troubled times is to buy a lot of stocks, commodities, real estate, etc. -- using tons of borrowed money -- and they will invariably make a killing.

The 9.5 per cent US unemployment rate is also viewed as an obstacle to recovery. This objection ignores the many contrary examples of high unemployment rates and subsequent recoveries, not least in the US. Thus in 1982, US unemployment hit 10.8 per cent, yet GDP soared at an average annual pace of 7.7 per cent over the next six quarters.

Mr. Bond uses a baseless assumption -- the current unemployment rate is at or near its peak -- and a bogus comparison -- today's unemployment rate means conditions are similar to what they were back in 1982 -- to make a ridiculous argument. I wonder: Does this reflect the sort of analytical talent you need to manage other people's money?

Similarly, few commentators consider the possibility that the large post-Lehman rise in US unemployment was a mistake on the part of panicky managements. Yet this is precisely what trends in labour productivity growth, not to mention common sense, tell us occurred. In the first half of 2008, labour productivity growth averaged 3.3 per cent, while the unemployment rate rose to 5.6 per cent. At that point, there was no evidence US companies were overstaffed. Thereafter, output collapsed, yet business productivity growth remained positive, registering an average yearly pace of over 2 per cent, as companies shed labour at a faster pace than they reduced output. Businesses, like markets, panicked after Lehman went under. Employment and output were both reduced far more than it turned out to be necessary, as businesses temporarily and understandably assumed a worst case scenario.

Again, Mr. Bond makes a number of dubious assumptions and ridiculous assertions. Was it really "a mistake" that "panicky" managements slashed payrolls, or was it an entirely rational response to epic declines in global cross-border trade, orders, and revenues, a sudden seizing up of many traditional financing mechanisms, and a dramatic about-face in the spending habits of overleveraged consumers, among others? While Tim Bond and his fellow economic revisionists might have a different spin on things, my recollection is that much of corporate America -- not to mention Wall Street and Washington -- remained upbeat on the outlook for the economy up until the very moment the bottom fell out, sucked in by the reassurances of mainstream prognosticators who failed to see the meltdown coming until it was too late?

Just as global output is performing a V-shaped recovery, there is a big risk US employment will do the same, with monthly payrolls showing surprising growth by the end of 2009.

If Mr. Bond engaged in even a modicum of research that went beyond crunching massaged and mangled economic statistics and hobnobing with clueless policymakers and delusionists in the financial industry -- say, by reading a small town newspaper or talking to people on the streets about what is really going on, he would quickly realize just how out-of-touch and ignorant he sounds -- then again, maybe not -- when he makes statements like those in the paragraph above.

If unemployment is one half of the bearish consensus, de-leveraging is seen as the other main obstacle to recovery. Yet increases in private leverage never play a significant role in recoveries. Indeed, since 1950, US private sector borrowing ex-mortgages has declined an average 0.1 per cent of GDP in the first year of recovery, with non-financial business borrowing declining 0.6 per cent of GDP.

The fact that Mr. Bond is effectively discounting the role that leverage played in creating the mess we are in, and takes no real account of the fact that the financial industry is almost completely dependent on government largesse while many lending and market mechanisms are in disarray or have broken down, suggests to me that he is experiencing a degree of denial -- or, perhaps, incoherence -- that is breath-taking. The fact that total debt as a percentage of GDP is at record extremes and the overleveraged consumer, who represents about two-thirds of the U.S. economy, has neither the will nor the wherewithal to spend more or increase his borrowing appears not to mean much to Mr. Bond, who keeps insisting, bizarrely, that the postwar period is the correct frame of reference. Who in their right mind would argue that the events of the past two years bear even a passing resemblance to what has occurred over the past six decades?

A regression of the household savings rate on the wealth-to-income ratio tells us the former has made the appropriate adjustment to declines in the latter. In fact, the rally in the stock market, the low level of interest rates and the stabilisation in house prices all tend to limit the risk of a further sizeable increase in the savings rate. So over the rest of this year, the standard cyclical timing of a US economic turning point tells us pessimistic expectations are likely to collide with the economic reality of a strong recovery. The net result is almost inevitable, in the shape of an inexorable continuation of the equity rally.

In many respects, Mr. Bond's final paragraph is the pièce de résistance, a fitting climax to a stuporous journey through economic la-la land. In fact, some might say the collage of bogus relativistic comparisons, irrelevant details, distorted "facts," circular reasoning, and logical inconsistencies is like a WTF?-Wet Dream stoked with lashings of LSD. Is he really saying that a few months worth of a few seasonally-adjusted data points represents "stabilization in house prices"? Is he suggesting that current debt levels and the long-term trend of historical savings rates relative to disposable income are not all that important in assessing whether an "appropriate adjustment" has been made in the savings rate? Why does the "standard cyclic timing of a US economic turning point" matter when the events of the past two years have been neither standard nor cyclical? And since when is a "rally in the stock market" a driver for "an inexorable continuation of the equity rally"?

Great job, Mr. Bond. Can't wait to hear what you have to say next.

Thank you for your patience, hopefully I’ll recover enough to post my own work by tomorrow.


Thursday, July 30, 2009


Greetings good citizen,

I’m getting sick of repeating myself good citizen but they ‘did it again’ today (although I think the ‘day traders’ have wised up and started selling into the end of the day buying frenzy.) The ‘tape’ once again shows a near vertical ‘spike’ right at the very end of the trading day.

There is no known advantage to holding (decidedly crappy) positions overnight, the only thing we know for sure is the markets closed higher than they otherwise would have for the third straight session.

This naturally begs the question as to whether or not the financial numbers are being ‘politicized’ because CG is right, if the economy doesn’t improve, the Democrats are toast come the next election.

Not that this means the Republicans will enjoy a ‘walk away’ victory. The public may have a short attention span but they won’t forget who actually caused this train wreck.

Which begs a different question, if the economic results are being ‘massaged’ how is this any different from what Bush did?

The people don’t want ‘fairy tales’. They want results they can see with their own eyes and prosperity they can actually take part in! This making rich people richer shit is for the birds! Yet every move to curb the free spending on Wall Street has been blocked with almost stunning ease by these same criminals.

This isn’t how elections are won…not that there is strong evidence that proves such contests are legitimate in the first place…but one again I digress.

At issue good citizen is whether or not the economy is turning around or ‘stabilizing’ as they put it in tonight’s offering .

Fed Sees Signs That the Economy Is Stabilizing

Published: July 29, 2009

The recession is losing force in most parts of the United States, the Federal Reserve said Wednesday in a snapshot of economic activity from across the country.

But the picture remains grim in other sections, with retail sales down in the Midwest, loan demand falling in New York, commercial real estate weakening and manufacturing activity stumbling in many regions.

The assessments were part of the Fed’s beige book, a regular assessment of economic conditions from 12 Fed districts nationwide. Since the spring, the various Fed districts have reported that things were still bad, but not hurtling downward at an accelerating pace.

Despite stabilizing conditions over all, few businesses or industries are girding for a rebound. Manufacturers anticipate a modest and uneven recovery. Some retailers are bracing for a long, slow recovery; the job market remains dismal and is likely to stay that way for some time.

“The weakness of labor markets has virtually eliminated upward wage pressure, and wages and compensation are steady or falling in most districts,” the Fed said.

While the broad arc of the economy tracked a similar course, this time there were a few more glints of hope. In four districts, health care companies were hiring. Information technology jobs were opening up in the Richmond and Minneapolis districts. And there were signs that New York’s labor market was stabilizing. [Huh?]

Also on Wednesday, the government reported that new orders to factories for durable goods fell sharply in June as demand for commercial aircraft and motor vehicles declined from a month earlier.

The 2.5 percent drop in manufacturers’ orders was the largest decline in five months, but economists said the picture was brighter than it might seem. Excluding volatile orders for transportation equipment, manufacturers’ orders rose 1.1 percent for the month, a larger increase than analysts had forecast. [Excuse me? Overall orders were down 2.5% yet somehow ‘non-transportation’ orders were up 1.1%??? Sorry but that doesn’t make sense! Unless these are the same ‘economists’ that are constantly having their ‘expectations’ beat. We already know ‘down’ is ‘up’ to them…]

Economists said the numbers reflected more stability in the manufacturing sector after months of declines that came as factories shut down, cut their inventories and scaled back production as they confronted the worst economy in decades. Now, manufacturing seems to be finding its footing, economists said. [As a thirty year manufacturing professional I’m here to tell you unequivocally that manufacturing is the first sector to be hit by a downturn and the last sector to recover. That said, our manufacturing sector is now so tiny that it never ‘recovered’ from the 1991 economic downturn. Most manufactured products in this country today are ‘imported’.]

“It tells me we’re on the cusp of a very slow and gradual recovery,” said Tim Quinlan, an economic analyst for Wells Fargo. “Businesses have been in absolute lockdown all year. Everybody has been scaling back and saving money. Orders seem to be in a bottoming process.” [Naturally, nobody knows for sure how long that ‘bottoming process’ will take, seeing how most folks don’t have any money, you can be sure that this process is going to take a considerable amount of time.]

Still, new orders for all durable goods — products that last several years — were down 26.7 percent in June from a year earlier, the Commerce Department reported, and shipments of goods fell 19.5 percent.

In June, there were more new orders for metals, machinery, electrical equipment and appliances. Orders for military aircraft rose by 30 percent in June from a month earlier, the Commerce Department reported. [Okay, do these people look like idiots now or do they just think we are? What they reported makes no sense but that doesn’t mean they are ‘lying’…what it means is orders for June are ‘up’ compared to May but still down (considerably), year over year.]

But declines in automotive orders, coupled with a double-digit decline in orders for commercial aircraft, weighed on the sector, demonstrating the volatility of the government’s figures on durable goods orders.

New orders for motor vehicles and parts fell 1 percent in June, reflecting turmoil caused by the bankruptcies of General Motors and Chrysler in addition to sagging demand for domestic automobiles. Orders for civilian aircraft plunged 38.5 percent, one month after they shot up 60 percent.

So what do you think good citizen? Is our economy ‘on the mend’ or would the report be more understandable if it were written by people whose primary language was English?

How this report ever got past an editor (never mind into the NY times) absolutely baffles me.

Like back in March, this appears to be yet another regurgitation of the popular ‘less bad’ meme pundits have been using to build consumer confidence in a pretty much ‘totaled’ economy.

If this report ‘boosts your confidence’ in either the US or the global economy then it doesn’t take much to make you happy.

Thanks for letting me inside your head,


Wednesday, July 29, 2009

Maintaining a 'sense of entitlement'.

Greetings good citizen,

Once again we need not scrutinize the graphs of the market indexes to note yet another near vertical climb occur right at the end of the trading day. It makes you wonder what these boneheads are thinking, that most people will only ‘hear’ the numbers and not look up the charts?

Those big spikes at the end of the day aren’t ‘normal’ although this time only the Nasdaq made it into ‘positive’ territory. Yet today, like yesterday, there was an ‘identical’ spike across all three indexes.

In fact, these last minute rallies are all characterized by near identical spikes across all indexes on the end of the day’s tape…which makes it appear that much more suspicious.

Not that this has much to do with anything; it is merely a ‘curiosity’.

That said, tonight’s offering touches upon an even more disturbing phenomenon, that known as the ‘imprecision of speech’.

From the ‘top down’ there are only three ‘classes’, the rich, the middle class and the poor. From the bottom up another class squeezes its way into the mix.

In the opposite direction we have the ‘poor, the working class, the middle class and the rich.

Tonight’s offering introduces a term seldom used by the average pundit nor is it particularly well-defined.

Understand good citizen that most of us use the fact that our mail finds us regularly as ‘proof’ that we’re ‘middle class’. Where do you suppose the line is drawn between the ‘merely wealthy’ and those with ‘ultra high net worth’?

I mean there are zeroes good citizen and there are zeroes with ‘lineage’, as it is often the ‘age’ of your fortune that is far more impressive than its actual size.

But enough of this nonsense, let us proceed to tonight’s offering with its curious choice of title…

Teaching the Entitled Young the Financial Facts of Life

Published: July 24, 2009

This is the summer of reviling the rich. The financiers at Goldman Sachs got a populist drubbing after the bank reported record quarterly earnings and analysts began predicting average bonuses of $700,000 an employee at the firm this year. Now, Congress is debating whether high earners should be hit with a surtax to pay for health care reform. In states like New York and California, that could mean that top earners are paying more than 50 percent of their income in taxes. [Cry me a river, they used to pay 90%]

But the rich and the not-so-rich do have something in common this summer: worrying about their children’s financial future. This may come as a shock to those middle-class Americans who imagine wealthy parents sunning themselves by their infinity pools, confident that their children, having been given every opportunity, are on their way to productive lives. [Surely, he is using the term ‘productive’ in its loosest possible sense!]

In truth, the image is fairly rare at this point. What is more common among the wealthy is their fear that the lives their children have known, and the futures they expected, may be gone.

“The notion that you’re entitled to goodies has to be dispelled,” said Fredda Herz Brown, a partner at Relative Solutions, a consultant who works with family businesses. “They really do think life is going to continue as it has. But most of them are not getting jobs, no matter what their parents do.”

While the wealthy are in a better position to help their children financially, having money doesn’t guarantee that their child will be responsible and productive.

So that leads to the question: How can parents help children with a healthy sense of entitlement adjust to the new economic reality?

EMOTIONAL REASSURANCE The first thought that pops into many parents’ heads when they worry about their children is bailing them out. But the best thing many parents can do, particularly those with children who are not asking for money,[Apparently ‘alien children’] is to set the right example.

While children may be idle this summer, many parents are out of work, too, and casting about for ways to pay the bills. If they mope around, their children are going to pick that up. If, on the other hand, they discussed what has happened over the last year, their children will be better equipped to make their own financial decisions. [Wait a minute Slim…aren’t these people the possessors of ‘ultra high net worth’? What kind of BLOCKHEAD works for a living and even entertains the idea they possess ‘ultra high net worth’? Let’s get this straight, if you work for somebody else, there’s no way in hell you have anything even remotely resembling ‘ultra high net worth’.]

“The patriarch can say, ‘This is the risk I took, this is how I felt, these are the lessons here,’ ” said Evan Roth, founding partner of BBR Partners, an adviser to ultra-high-net-worth clients. “It’s, ‘Look at how I’m handling this; I’m teaching you a valuable a lesson here.’ ”

That lesson is often the need to work hard. Ms. Herz Brown tells the story of a financial services client who traveled a lot on business. When his role at work was reduced, he started spending less time on jets and more time at home with his teenagers.

“He had a sense that too much came to them,” she said. “It came from a basic belief that what he had created for his kids was this sense that everything comes to you.” [What a ‘shock’ eh? Kids ‘know what they live’, if they have to look up the definition of the word ‘no’ then who’s to blame?]

So he made them look for summer jobs. And when they couldn’t find any, he made them take odd jobs to earn money. He also gave them a budget for school clothes and other incidentals and made it clear that if they budgeted poorly, they were not getting more money.

The point was that he recognized he was enabling his children’s sense of entitlement, she said. While his children will probably never want for money, he realized his actions had been just as indulgent as a parent who gives in to his child’s every request for fast food. [There’s that ‘disconnect’ again…his kids ‘will probably’ never want for money coupled with the notion that ‘dad’ worked for someone else! At the very minimum here our ‘hypothetical overachiever’ is an officer/principal in a big time concern. We’re talking not the Fortune 500 but one of the top five people in a Fortune 100 company.]

FINANCIAL PLANNING There are, of course, many reasons to give money to your children. A popular one during the bull market was estate planning — the more you could pass on while you were alive, the less subject to estate tax later.

One of the most popular structures during the bull market was a grantor retained annuity trust. This arcane-sounding trust was predicated on assets going up. The idea was that parents could put an asset they thought would appreciate into the trust for a set period of time, usually two to 10 years. At the end of that period, their child would get the appreciated value tax-free, less a small interest payment paid to their parents.

Now that most asset values have gone down, these trusts look as if they have failed. But there is a chance to salvage them. The grantor can swap out the original asset for one of equal value without penalty and start another trust with the original asset, if he believes it unfairly lost value.

Rich Kohan, partner at PricewaterhouseCoopers Private Company Services practice, said people who set up the trusts should take advantage of the opportunity. “If the asset has dropped in value, it’s likely not to leave anything for the benefit of children,” he said.

Then there are trusts set up for reasons other than tax savings. Joan Crain, senior director of wealth management strategies at Bank of New York Mellon, said she had seen an increase in clients setting up trusts for their adult children.

“Their children are in their late 30s to 50s, and they’re not good stewards with money,” she said. “Parents want to protect them from creditors but also ex-spouses, even if the children are happily married or not married.”

Money in trust is doled out to the beneficiaries and kept from creditors, but it is not shielded from estate taxes. That people are employing this strategy, though, should be a stark lesson to parents: teach money management skills to your children when they are young.

PRACTICAL SUPPORT In tough times, parents may need to set aside their estate plan and bail out their child.

One way parents or grandparents can help without seeming intrusive is to cover all medical and education costs for their children and grandchildren. If they pay the hospital or school directly, they will not incur gift tax.

Separately, if a husband and wife pool their annual gift exclusions, they can give up to $52,000 a year to a child and his spouse to help make up for a lost job.

“Parents worry it’s humiliating,” Mr. Roth said. “But paying their mortgage is not a direct handout. It’s the same thing, but if you don’t see it, it doesn’t affect them as much.”

On the positive side, this may be the right time to finance a child’s entrepreneurial idea.

“The consensus is the fortunes of tomorrow are going to be made today in this downturn,” said Mary Duke, head of private wealth solutions for the Americas at HSBC Private Bank. [And it will all go to Goldman Sachs, so the rest can just forget about it!]

The key is not to give your child a handout. Ms. Duke suggests setting up a board of advisers to look over the plan and provide assistance with framing and carrying out the idea. This takes the child’s request out of the realm of asking Mom and Dad for money and into the arena of an actual business plan.

“It’s important kids understand budgeting,” she said. “Everyone is more focused on living within their reduced means.”

If a parent can instill that discipline in a child, the rest may just fall into place.

One can only wonder if this piece was ‘dumbed down’ for general consumption or if the rich really are morons?

I have stated repeatedly that wealth is totally unrelated to intelligence. Rich by no stretch of the imagination even implies ‘smart’.

Conversely, it appears you can’t go wrong being a financial advisor to the ‘ultra high net worth’ crowd.

As we ‘clarified’ at the beginning of this piece, there is indeed a ‘Brahmin’ class over these lesser ‘ultra high net worth’ types that doesn’t work at all and lives (quite nicely) off of their dividend checks.

Amongst these Brahmin the definition of ‘hard work’ is cuddling up to granny to insure you and yours aren’t the ones cut out of the will to preserve the family ‘nest egg’ for future generations.

While Bill Gates’ kids (and their kids) will probably ‘never want for money’, not every ‘storefront’ is Microsoft.

Worse, this entire article addresses a rather rarified stratum of society, only the top five officers at Fortune 100 companies and maybe not all of them. We could be down to the Fortune 50 at this stage of the game.

This is not to infer that there’s not an equal number of people in the public sector with ‘access’ to this kind of compensation.

But we’re still only talking a relative handful out of a global population numbering in the billions.

Um, I think it’s worth pointing out that the stock market is what keeps this sort of shit humming through the generations.

This sort of redefines the term ‘do the work once and get paid forever’…

Thanks for letting me inside your head,


Tuesday, July 28, 2009

Painting the tape...

Greetings good citizen,

It is now after midnight here on the East Coast where Wall Street’s trading day ended almost nine hours ago.

Um, the markets traded ‘sideways’ right up until the last ten minutes of the day then spiked near vertical just before the closing bell. Oddly, the spike didn’t amount to much, the Dow tacked on 15 points, the S&P added 3 and the Nasdaq a shade over a single point.

The PPT, (plunge protection team {now verified to be none other than Goldman Sachs}), takes it’s job of maintaining ‘positive’ market sentiment very seriously.

One need only look at the very end of the tape to know somebody ‘painted’ it so it would finish in positive territory.

You can add to that the other ‘positive’ news story on everyone’s lips; that ‘housing sales’ were 11% higher than they were…wait for it…last month!

Understand that most people were unaware this increase isn’t a ‘year over year’ measure, worse, most folks have no idea whatsoever of the timeframe involved! For all we know the increase could have been week over week!

Imagine that ‘headline’…they sold 11% more houses this week than they did last week! Hell, if you’re gonna torture the data looking for good news to report they could start comparing data on a daily basis. If they sold two today and three tomorrow there’d be a 33% increase, day over day!

The 11% uptick looks much less impressive when taken in the context that summer is the ‘busy season’ for people buying new houses. It’s preferable to move to a new school district when school isn’t in session.

So the 11% ‘spike’ in home sales now looks like whoop-de-ding-dong-dang! This isn’t a housing market recovery as much as it is the time people ‘normally’ buy houses.

But I’m being a ‘killjoy’ again…

How many of you painted a big smile on your lips when you heard that statistic and your mind jumped to the conclusion that you now had another sign that the recession was almost over!

I got bad news for you, this recession is just getting started and you’re going to be fed signs that it is ‘almost over’ for a real long time…if you don’t want to look like an idiot, keep your mouth shut.

We’re almost into the second year of this disaster and pretty soon it will be year over year figures that are showing ‘improvement’…the problem is the improvement will be miniscule.

Most people don’t have any money and that’s not changing anytime soon.

Thus forewarned, we proceed to tonight’s offering (which, PS, by the way, has been revised from the version that appears below!)

Wall Street Spends Afternoon Treading Water

Published: July 27, 2009

A rally that carried major stock indexes 10 percent higher over the last two weeks leveled off on Monday, as Wall Street struggled despite some encouraging news from the housing market.

Weaker earnings reports from the health insurance, telecommunications and retail sectors eroded a brief spike in stock markets that followed a government report showing an unexpectedly large increase in new-home sales. Shares then spent the day in negative territory until mid-afternoon, when the Dow and the Standard & Poor’s 500-stock index gained some momentum.

At 2:40 p.m., the Dow Jones industrial average and the broader S.&P. were a couple of points higher, while the Nasdaq was a couple of points lower.

Shares of Aetna fell after the health-insurance company reported a 28 percent decline in profit and reduced its outlook. Verizon Communications reported a 7 percent drop in profit, yet its results met Wall Street expectations. Verizon said, however, that it planned to cut another 8,000 jobs.

Shares of major home builders rose slightly after the Commerce Department reported that sales of new homes rose 11 percent in June to a seasonally adjusted rate of 384,000, a sharper increase than the 3 percent rise economists had been expecting. Sale prices fell for another month, to a nationwide median of $206,200, the government reported. [Oddly, the price drop was not part of the ‘headline’, so once again we have ‘good news’ tempered by ‘bad news’.]

In Europe, the major markets closed slightly higher, following another day of strong performances on Asian markets. In afternoon trading, the DJ Euro Stoxx-50 index, a barometer of euro-zone blue chips, rose 0.72 percent, giving the index a gain for the year of 6.28 percent. The CAC-40 in Paris rose 0.18 percent, and the DAX in Frankfurt was up 0.42 percent. [You may note that neither of these ‘increases’ resulted in ‘gains for the year’ of any amount.]

The FTSE-100 index in London ended 0.21 percent higher, as Ryanair weighed on European airline shares. The Irish carrier beat the market’s second-quarter profit expectations, but it warned that demand was falling, and it cut its full-year guidance. Its shares fell 9.2 percent in London. British Airways fell 2.9 percent, while Air France-KLM fell 1.9 percent in Paris.

Shares in most major markets have rallied on the last two weeks, primarily fueled by a renewed sense of optimism that the economy has bottomed out and on better-than-expected earnings in the United States.

Earlier in Tokyo, the Nikkei rose 1.5 percent to close at 10,088, its highest level in six weeks. It was also the ninth consecutive session of gains for the Nikkei, which is up 12 percent in July and 40 percent since March. The compiler of the Nikkei index reported that it was the best run for the Nikkei in more than 20 years. In February 1988, it recorded 13 consecutive sessions of advances. [Understand good citizen that the Japanese economy is in the toilet, just like ours is, so the Nikkei’s advance, like the Dow’s is pretty much meaningless, it’s simply ‘eyewash’.]

Financial analysts typically do not put much stock in round-numbered index levels, and there was clearly some skepticism about the “breakthrough” performances on Monday, especially that of the Nikkei. Several analysts said the index could be overheating.

“Japan is a very, very strange market, and there are a host of reasons to remain very negative on Japan,” said Stephen Davies, chief executive of Javelin Wealth management in Singapore. [See what I mean?]

Mr. Davies cited three worrisome factors — the negative impact of a relatively strong yen on Japanese exporters, depressed domestic consumption and what he called “political paralysis.”

“Japan remains,” he said, “a relatively moribund market and a relatively moribund economy.”

In Hong Kong, the Hang Seng index finished the day up 1.4 percent, closing at 20,251.62, buoyed in part by China Mobile, which jumped 2.9 percent on speculation that it could soon be allowed to sell shares in mainland China.

Three apparel makers posted significant gains on expectations of renewed strength in the Chinese economy. Bossini rose 11 percent and Giordano, both based in Hong Kong, rose 10.1 percent. Li Ning, the Beijing-based maker of athletic shoes and sports clothing, rose 5.7 percent.

The Shanghai Composite also finished up 1.9 percent to reach a 13-month high. The index is up 87 percent this year, the second-best market performance in the world, according to a Bloomberg News analysis of 89 indexes. Only Peru has done better.

The first public offering on the Shanghai exchange since last August created a sensation, with shares of Sichuan Expressway nearly tripling on Monday. Shares in the toll-road operator closed at 10.90 renminbi, or $1.60, a jump of 203 percent. The initial offering price had been 3.60 renminbi. At one point in the afternoon the share price had zoomed to 15.25 renminbi, which triggered a trading halt, one of two suspensions during the day.

Elsewhere in Asia, the Singapore index was up 1.8 percent, the Kospi in Seoul was 1.4 percent higher — reaching an 11-month high — and the ASX-200 in Sydney registered a 1.2 percent gain to close at its highest level since Nov. 4.

“The markets are still very volatile, and a couple bad numbers could certainly create a pause for reflection,” said Mr. Davies. “But I don’t think we’re in the position of re-testing the March lows.”

Financial stocks led the way Monday in Tokyo, notably Daiwa Securities, up 4.5 percent, and Nomura Holdings, Japan’s largest brokerage, which was 3.1 percent higher. Nidec, a maker of motors for disk drives, rose 3.5 percent.

Hitachi climbed 3.4 percent after the Nikkei business daily reported that the company firm would spend $3.2 billion to acquire five key affiliates in a broad-ranging corporate reorganization. Shares of Hitachi and the five subsidiaries were temporarily suspended from trading in the morning.

Macao casino stocks showed strong gains on the Hang Seng, notably Galaxy Entertainment, which was up 3.5 percent, and SJM Holdings, which rose 2.8 percent.

Stanley Ho, the SJM founder, is a strong backer of Fernando Chui, who was elected Sunday as the new chief executive of the Chinese territory. His pro-Beijing leanings are expected to bolster the gaming industry in Macao.

Crude oil prices were down slightly, 10 cents a barrel to $67.95 a barrel. [We’re still ‘swimming’ in oil yet prices continue to rise…]

Bond prices fell, with the yield on the benchmark 10-year Treasury, which moves in the opposite direction of the price, gaining three-hundredths of a point to 3.69 percent.

Does anyone else find the global expedition at the end of this piece ‘curious?’ What smacks you right between the eyes is the obviously ‘cherry picked’ data intended to lend credence to the impression that the global economy is on the mend…which couldn’t be further from the truth!

A few nitwits with cash in their pockets does not a global economy make.

Worse, a fool and their money are soon parted…you’re job: not to be that fool!

I’m more than a little, er, disturbed to see how many people regurgitated the highly misleading housing statistic as I went about my duties tonight. That alone tells me this thing is far from over…it won’t be over until nobody repeats the meaningless drivel spouted by the MSM without being sarcastic.

We’re talking some serious levels of ‘gullibility’ that are still in play good citizen.

Be chary of giving advice, the wise don’t need it and fools won’t heed it…that said, it is better to keep you mouth shut and have people ‘think’ you are a fool than it is to open your yap and ‘prove it’.

Thanks for letting me inside your head,


Monday, July 27, 2009

Beat it!

Greetings good citizen,

Much of the ‘optimism’ behind rising stock values is being driven not by increased sales but by merely ‘beating expectations’. Roughly half of all market participants reporting so far have ‘beat expectations’, while overall sales are down roughly 30%.

Worse, many companies are ‘beating expectations’ by slashing costs, a perpetual exercise in ‘right-sizing’ that will damage the company’s profitability once demand returns…not that anyone honestly expects that to happen anytime soon.

Naturally, there is a limit to how much a company can slash and remain viable. If the vendors you’ve wrung price concessions out of don’t start seeing orders, sizable ones, pretty damn soon, they’re likely to re-price before accepting a smaller order. Smart vendors will include retroactive price increases if the order quantity drops once the order is placed.

Sadly, most vendors are ‘captives’ of large producers and those large producers know it. The vendor may have dozens of other customers but most of their ‘capacity’ is devoted to the ‘major customer’…which is to point out that the vendor (usually) cannot survive on the volume of work sent in by their ‘minor’ customers.

Most vendors ‘try’ to diversify their customer base but few succeed. Resources are too scarce and commit dates too unyielding.

Here lies purchasing agent hell but I digress…

Onward to tonight’s offering

Earnings solid but profits are soft

Positive earnings have helped stock markets rally this year despite the recession.

Published: July 26, 2009

If the key to happiness is low expectations, then stock investors must be over the moon. More than a third of the companies in the Standard & Poor’s 500-stock index have reported second-quarter earnings. While overall profits were down by about a third from a year earlier, more than three-quarters of the companies beat analysts’ expectations, according to Thomson Reuters. That is on track to be the highest ratio ever. [This begs the question of if we are dealing with nitwit analysts or nitwit investors…or both!]

Investors should not get ahead of themselves, however. Optimism that companies are handling tough times better than many had predicted has helped lift the S.& P. 500 index by more than 20 percent since late March. Yet the foundations of a sustainable recovery look shaky. Nonfinancial companies have managed to increase earnings mostly by sharply cutting costs. Manufacturing and trade inventories have been falling all year, according to the Commerce Department.

The relatively quick and easy fixes of the last quarter will be harder to replicate as time goes on. If companies cut too deeply, eventually nobody will be there to answer the phone. Inventories sink to the minimum levels required to do business.

What companies will need is revenue growth, which is closely tied to economic growth. This is where the news is worrisome. At the S.& P. 500 companies that have reported so far, revenue shrank 2 percent, on average, from the second quarter last year.

A rise in spending by American consumers and businesses that might increase revenue does not look imminent. Companies are planning further cutbacks in both employees and capital expenditures, according to a recent National Association for Business Economics survey. That probably means lower sales of everything from clothes to power plants. Also, consumers and businesses are squirreling away cash, so even when spending does turn up, the rebound will be slow.

Combined with more optimistic forecasts from analysts, all this suggests that expectations will be much tougher to beat the next earnings season. Unless businesses and consumers open their pocketbooks soon, the stock market rally could easily falter.

Backed-Up I.P.O.’s

When will European initial public offerings bounce back? The market for new stock issues has been virtually shut for over a year. Companies raised just 465 million euros ($661 million) in the first half of 2009 — a pittance compared to the billions in recent years. Yet bankers are back on the marketing trail, pitching furiously. Investors, they say, are warming up to risk. Add to the mix a backlog of companies waiting to go public, and the stars are aligning for a return of I.P.O.’s after the summer break. [Bizarrely, brokers are no longer constrained to make sure a given company/business plan is viable before offering them for sale to the investing public. ‘Buyer beware’ is the new watchword of the street as the now publicly traded investment houses have lost their concern for protecting their clients.]

European companies are taking their cues from the United States, Brazil and Asia, where the market has already thawed. Brazilian companies, for example, raised $6 billion in the first half of the year. In Europe, asset managers have so far concentrated on handing money over to already-listed companies in secondary offerings.

On the supply side, there is a backlog of companies waiting to go public. Private equity companies are looking to exit investments in companies via I.P.O.’s. The pipeline is slowly filling up. Yoox, an international online fashion retailer, wants to list at the end of this year or next. In theory, no industries are off limits, say bankers, as long as companies have powerful brands or are market leaders — and provided they can demonstrate that their earnings have bottomed. In practice, regulated and less cyclical sectors, like renewable energy, might have an easier time.

The biggest problem seems to be valuation. Investors will be cautious at first, and will scrutinize new issues carefully. For highly indebted companies owned by private equity firms, this may be a problem. Low valuations could make it difficult for existing owners to turn a profit.

That said, the market seems likely to reopen in the fall. If history is any guide, as soon as a window opens, companies will try to dash through it. Given that it typically takes three to six months to ready a company for an I.P.O., the real flood may not arrive until early next year. At that point, the risk could be a glut of I.P.O.’s. But that is not a worry for today.

Once again we encounter a ‘typical’ MSM piece that starts off with ‘doom and gloom’ and transitions to ‘happy talk’. A lot of economies have their hopes pinned to ‘alternative energy’ but there aren’t enough buyers of these products to keep even the best capitalized manufacturer in a steady income stream.

Let us turn our attention for a moment to the bone-dry I.P.O. markets. While there could potentially be an economy saving innovation waiting to go public, it’s not likely in our highly inter-connected world.

One of the most fleeting things in the world these days is a ‘secret’ and this is especially true of business secrets.

That’s not to say that something won’t be held out to the public as ‘the next big thing’ but somehow I don’t think a next generation I-Phone or another computer operating system is going to ‘save the global economy’.

So consider the ‘closing argument’ here as an ‘advertisement’ for a pending flood of I.P.O.’s that will surface around the first of the year and serve as additional ‘eyewash’ for a still foundering global economy…

Thanks for letting me inside your head,


Sunday, July 26, 2009

Who's outwitting who?

Greetings good citizen,

For as long as there has been machinery, the dreamers amongst us have envisioned utopia, a place where machines do the work, leaving you free to do, um, more important things…

Yeah, that’s the ticket! Naturally, these dreamers think ‘everybody’ will have access to their own personal robot army that attends to their every need…paying for the robots is a minor matter and maintaining them isn’t even a consideration, the robots will fix themselves (or at the very least, each other.)

Soooooo, what do you suppose you’d do for a living in a totally automated world? Design robots?

While we are far from the day when robots think for themselves, it is not unreasonable to pin part of today’s crisis on ‘automated processes’ that have eliminated the need for millions of ‘man hours’.

Yeah good citizen, your boss is only half joking when he quips he could get a ‘monkey’ (or a robot) to do what you do…and robots are once and done. They never need a break, don’t draw a paycheck and only complain when something is ‘really wrong’ (like the parts aren’t coming out right.)

Pretty soon the only jobs will be servicing robots or ‘servicing’ their rich owners…

This is a multi-faceted issue that we won’t delve into fully right now, but those paving the way for an ‘automated future’ have already turned their attention to ‘the killing machine’.

On to tonight’s offering

Scientists Worry Machines May Outsmart Man

Published: July 25, 2009

A robot that can open doors and find electrical outlets to recharge itself. Computer viruses that no one can stop. Predator drones, which, though still controlled remotely by humans, come close to a machine that can kill autonomously.

Impressed and alarmed by advances in artificial intelligence, a group of computer scientists is debating whether there should be limits on research that might lead to loss of human control over computer-based systems that carry a growing share of society’s workload, from waging war to chatting with customers on the phone.

Their concern is that further advances could create profound social disruptions and even have dangerous consequences. [Don’t blink good citizen, we’re already there!]

As examples, the scientists pointed to a number of technologies as diverse as experimental medical systems that interact with patients to simulate empathy, and computer worms and viruses that defy extermination and could thus be said to have reached a “cockroach” stage of machine intelligence.

While the computer scientists agreed that we are a long way from Hal, the computer that took over the spaceship in “2001: A Space Odyssey,” they said there was legitimate concern that technological progress would transform the work force by destroying a widening range of jobs, as well as force humans to learn to live with machines that increasingly copy human behaviors.

The researchers — leading computer scientists, artificial intelligence researchers and roboticists who met at the Asilomar Conference Grounds on Monterey Bay in California — generally discounted the possibility of highly centralized superintelligences and the idea that intelligence might spring spontaneously from the Internet. But they agreed that robots that can kill autonomously are either already here or will be soon. [the US military along with other nations are actively seeking this sort of ‘tool’ (a robot capable of recognizing ‘enemies’.) Mobile weapons platforms have existed for a long time but weapons platforms kill anything that crosses their path, friendly or otherwise…]

They focused particular attention on the specter that criminals could exploit artificial intelligence systems as soon as they were developed. What could a criminal do with a speech synthesis system that could masquerade as a human being? What happens if artificial intelligence technology is used to mine personal information from smart phones?

The researchers also discussed possible threats to human jobs, like self-driving cars, software-based personal assistants and service robots in the home. Just last month, a service robot developed by Willow Garage in Silicon Valley proved it could navigate the real world.

A report from the conference, which took place in private on Feb. 25, is to be issued later this year. Some attendees discussed the meeting for the first time with other scientists this month and in interviews.

The conference was organized by the Association for the Advancement of Artificial Intelligence, and in choosing Asilomar for the discussions, the group purposefully evoked a landmark event in the history of science. In 1975, the world’s leading biologists also met at Asilomar to discuss the new ability to reshape life by swapping genetic material among organisms. Concerned about possible biohazards and ethical questions, scientists had halted certain experiments. The conference led to guidelines for recombinant DNA research, enabling experimentation to continue.

The meeting on the future of artificial intelligence was organized by Eric Horvitz, a Microsoft researcher who is now president of the association.

Dr. Horvitz said he believed computer scientists must respond to the notions of superintelligent machines and artificial intelligence systems run amok.

The idea of an “intelligence explosion” in which smart machines would design even more intelligent machines was proposed by the mathematician I. J. Good in 1965. Later, in lectures and science fiction novels, the computer scientist Vernor Vinge popularized the notion of a moment when humans will create smarter-than-human machines, causing such rapid change that the “human era will be ended.” He called this shift the Singularity.

This vision, embraced in movies and literature, is seen as plausible and unnerving by some scientists like William Joy, co-founder of Sun Microsystems. Other technologists, notably Raymond Kurzweil, have extolled the coming of ultrasmart machines, saying they will offer huge advances in life extension and wealth creation.

“Something new has taken place in the past five to eight years,” Dr. Horvitz said. “Technologists are replacing religion, and their ideas are resonating in some ways with the same idea of the Rapture.” [If you’re not frightened, you should be.]

The Kurzweil version of technological utopia has captured imaginations in Silicon Valley. This summer an organization called the Singularity University began offering courses to prepare a “cadre” to shape the advances and help society cope with the ramifications. [Understand that the single largest ‘ramification’ will be being made ‘redundant’.]

“My sense was that sooner or later we would have to make some sort of statement or assessment, given the rising voice of the technorati and people very concerned about the rise of intelligent machines,” Dr. Horvitz said.

The A.A.A.I. report will try to assess the possibility of “the loss of human control of computer-based intelligences.” It will also grapple, Dr. Horvitz said, with socioeconomic, legal and ethical issues, as well as probable changes in human-computer relationships. How would it be, for example, to relate to a machine that is as intelligent as your spouse? [Let’s take that thought one step further and make the machine your boss, how would you ‘deal’ with that turn of events?]

Dr. Horvitz said the panel was looking for ways to guide research so that technology improved society rather than moved it toward a technological catastrophe. Some research might, for instance, be conducted in a high-security laboratory.

The meeting on artificial intelligence could be pivotal to the future of the field. Paul Berg, who was the organizer of the 1975 Asilomar meeting and received a Nobel Prize for chemistry in 1980, said it was important for scientific communities to engage the public before alarm and opposition becomes unshakable.

“If you wait too long and the sides become entrenched like with G.M.O.,” he said, referring to genetically modified foods, “then it is very difficult. It’s too complex, and people talk right past each other.”

Tom Mitchell, a professor of artificial intelligence and machine learning at Carnegie Mellon University, said the February meeting had changed his thinking. “I went in very optimistic about the future of A.I. and thinking that Bill Joy and Ray Kurzweil were far off in their predictions,” he said. But, he added, “The meeting made me want to be more outspoken about these issues and in particular be outspoken about the vast amounts of data collected about our personal lives.”

Despite his concerns, Dr. Horvitz said he was hopeful that artificial intelligence research would benefit humans, and perhaps even compensate for human failings. He recently demonstrated a voice-based system that he designed to ask patients about their symptoms and to respond with empathy. When a mother said her child was having diarrhea, the face on the screen said, “Oh no, sorry to hear that.”

A physician told him afterward that it was wonderful that the system responded to human emotion. “That’s a great idea,” Dr. Horvitz said he was told. “I have no time for that.”

There’s a lot of ‘yin and yang’ here good citizen, perhaps it is best to remain mindful that the developers of these technologies are primarily interested in profiting from them.

It is the ‘human condition’. Profits first, safety afterwards.

Um, some less scrupulous, er, organizations have been rather aggressive in their pursuit of profits. You know Monsanto is, er, deeply disappointed by the rejection of their innovations in food technology.

Ironically, it’s not too big a step to go from food that is more ‘productive’ to food that is actually addictive…but I digress, we were on the subject of robots and in particular, killer robots.

Machines don’t have to become a lot ‘smarter’ than they are now to destroy the global economy. Their ability to produce faster than we can consume has already upset economic ‘flows’.

Let us return briefly to our ‘dreamers’ that imagine a brighter future through robotics…the loose wheel in this idea is not everyone will be able to afford to purchase, much less deploy, an army of robots to do their bidding.

Worse, imagine Napoleon or Hitler with such an army of ‘automatons’ at their command.

I mean, why develop killing machines if you don’t intend to use them?

They want these machines (that won’t refuse commands nor turn squeamish when it comes to firing on say, unarmed civilians…) they aren’t pursuing this technology solely because they can. Soldiers that will follow any order without question are every despot’s dream…and robots are the answer to that dream.

Every technological development is pursued on the basis that it will make life better for us all…this time around it looks like we have a development on our hands that is intended to benefit the chosen few.

Not that we possess the means to stop those determined to command such forces for themselves.

In a world that has repeatedly placed profits over people, this is an extremely disturbing development.

Thanks for letting me inside your head,


Saturday, July 25, 2009

Jobless claims overwhelm the safety net...

Greetings good citizen,

I’m having a little trouble getting started with tonight’s offering. Tonight’s story mirrors yesterday’s offering as not being a ‘new’ news story but an old one that has been ‘recycled’ because the problem is getting worse, not better.

It’s tales like this one that make you wonder how all the morons babbling about ‘green shoots’ remain employed. If you haven’t guessed, it is my outrage over the incompetence on display in this article that made it difficult to pick a starting point.

Are we a society or are we a corporation that is run for the benefit of the owners? That is the question the people of this nation need to be prepared to answer.

Allegedly, a corporation is ‘part’ of a society but somehow our leaders have turned this proposition around, corporations no longer ‘serve’ society, now society serves corporations!

Jobless Checks for Millions Delayed as States Struggle

Published: July 23, 2009

WASHINGTON — Years of state and federal neglect have hobbled the nation’s unemployment system just as a brutal recession has doubled the number of jobless Americans seeking aid.

With millions of jobs lost and major industries on the ropes, America’s array of government aid — including unemployment insurance, food stamps and cash welfare — is being tested as never before. This series examines how the safety net is holding up under the worst economic crisis in decades.

In a program that values timeliness above all else, decisions involving more than a million applicants have been slowed, and hundreds of thousands of needy people have waited months for checks.

And with benefit funds at dangerous lows even before the recession began, states are taking on billions in debt, increasing the pressure to raise taxes or cut aid, just as either would inflict maximum pain.

Sixteen states, with exhausted funds, are now paying benefits with borrowed cash, and their number could double by the year’s end.

Call centers and Web sites have been overwhelmed, leaving frustrated workers sometimes fighting for days to file an application.

While the strained program still makes more than 80 percent of initial payments within three weeks — slightly below the standard set under federal law — cases that require individual review are especially prone to delay. Thirty-eight states are failing to make those decisions within the federal deadline.

For workers who survive a paycheck at a time, even a week’s delay can mean a missed rent payment or foregone meals.

Gegner here, take a trip back with me in the time machine for a look at what went on ‘before’ this mess blew up in our collective faces. Understand that ‘our’ refers strictly to the working schmucks of this nation because the Wo Fat corporation has been reaping the benefits while paying enormous bonuses to the ‘responsible parties’.

Since the early 80’s (when our jobs truly started heading off-shore wholesale) Corporate USA has made quarter after quarter of ‘record profits’.

You’d think record profits would be ‘balanced’ by higher wages but no, half the time you were being told by management they couldn’t give YOU a raise because it would hurt ‘competitiveness’.

After a while, they abandoned this pretense and started telling you to be happy you still had a job…which brings us to today. Now you don’t have a job (along with your pension plan being ‘under funded’) and the states don’t have enough cash to pay you your unemployment check…because they cut how much they charged employers to make themselves more ‘business friendly’!

Understand that incentives for employees disappeared, instead of giving the worker an incentive to produce, the boss got the incentive instead. You work harder for less because if you didn’t, the boss fired you!

No carrot, all stick…produce or else!

No wonder profits were off the charts while they were chopping every third guy’s head off!

So here are our corporate masters, making coin hand over fist, all the time crying about how the high tax rate was killing their competitiveness.

Now the jig is up and surprise, surprise, they weren’t paying enough!

We don’t have to go to the graveyard to dig up some politicians to hang; the fuckers responsible for this fiasco are still walking around.

Just thought I’d share that thought with you…

Kenneth Kottwitz, a laid-off cabinet maker in Phoenix, waited three months for his benefits to arrive. He exhausted his savings, lost his apartment and moved to a homeless shelter.

Luis Coronel, a janitor at a San Francisco hotel, got $6,000 in back benefits after winning an appeal. But in the six months he spent waiting, there were times when he and his pregnant wife could not afford to eat.

“I was terrified my wife and daughter would have to live on the street,” Mr. Coronel said. [Now substitute your own name and see how these shoes fit…]

Labor Secretary Hilda Solis said: “Obviously, some of our states were in a pickle. The system wasn’t prepared to deal with the enormity of the calls coming in.”

The program’s problems, though well known, were brushed aside when unemployment was low.

“The unemployment insurance system before the recession was as vulnerable as New Orleans was before Katrina,” said Representative Jim McDermott, Democrat of Washington, who is chairman of a House panel with authority over the program.

Now the number of unemployed Americans has doubled since 2007 to 15 million and the program is more than tripling in size. About 9.5 million people are collecting benefits, up from about 2.5 million two years ago. Spending is expected to reach nearly $100 billion this year, about triple what it was two years ago.

Given how suddenly the workload has increased, some analysts say the delays might have been even worse.

“Payments are later than they should be, and later than they used to be, but states have been overwhelmed,” said Rich Hobbie, director of the National Association of State Workforce Agencies, which represents the program’s administrators. “Considering the significant problems in the program, unemployment is responding well.”

The recovery act passed in February provided states an additional $500 million for administration. It also suspended interest payments through 2011 for states paying benefits with federal loans. [Ahem! Once again the public is being billed for a benefit employers are supposed to shoulder! I’ve read the whole article and no where will you find so much as a proposal that employers make the ‘taxpayers whole’.]

Unemployment insurance began as a New Deal effort with dual goals: to sustain idled workers and stimulate weak economies. States finance benefits by taxing employers, typically building surpluses in good times to cover payments in bad. [Naturally, politicians seeking to make their states more ‘business friendly’ scuttled that arrangement.]

In 2007, the average state paid about $290 a week and aided 37 percent of the unemployed.

As downturns over the last 20 years proved infrequent and mild, states cut taxes, and the federal government, which pays administrative costs, reduced its support by about 25 percent. The states’ performance sagged. [‘Sagged’! Sixteen states downright collapsed! Dragging society closer to the day when the streets run red…]

In a recent report to the Department of Labor, Ohio said its computer problems “kept the system performance at a snail’s pace.” Louisiana said its call center was staffed with “temporary workers, with little knowledge” of unemployment insurance.

North Carolina said a wave of retirements had left it “unable to maintain pace or volume of work.” Virginia wrote “performance continued to be very stagnant” and called the odds of improvement “bleak.”

By 2007, 11 states were paying benefits so slowly they violated multiple federal rules, up from just two at the start of the decade.

While most eligibility reviews can be done by computer, about a quarter require a caseworker — to ensure, say, the applicant was laid off, rather than quit.

In the last year, states processed just 61 percent of these cases within three weeks — well below the federal requirement of 80 percent. More than a half-million cases, 6 percent, took more than eight weeks, and 350,000 took more than 10 weeks.

Of the 12.8 million eligibility reviews that have occurred during the recession, 4.6 million took more than three weeks. That is 2.1 million more than federal rules allow. [Not that there appears to be any penalty for failure to comply…]

Appeals take even longer, with 28 states violating timeliness rules, many of them severely.

Perhaps no state is as troubled as California, which has not met timeliness standards for nine years. As in most other states, its 30-year-old computer runs on Cobol, a language so obsolete the state must summon retirees to make changes.

Yet a major overhaul in California has been delayed for five years, with $66 million in federal funds still waiting to be spent. In part, the shelved project was meant to upgrade the call centers, which were “completely swamped” last winter, a legislative analyst wrote, with “desperate unemployed Californians dialing and redialing for hours.”

Deborah Bronow, who runs the state’s unemployment insurance program, said, “The systems were antiquated to begin with,” and “we were unprepared.”

In April, Gov. Arnold Schwarzenegger declared a state of emergency, saying the failure to efficiently process checks posed “extreme peril to the safety of persons and property.” [Understand, this is the same guy that was sitting on $66 million in federal funds and did nothing to upgrade the system.}

California has not met federal standards for adequate reserves since 1990. Still, it cut taxes and raised benefits in the last decade. It is now paying benefits with federal loans, with its debt projected to reach nearly $18 billion next year.

Among those hurt by delays was Mr. Coronel, the San Francisco janitor who lost his hotel job in January. With the phone lines jammed, it took him two days to file an application and a month to learn it had been denied.

Then the waiting really began, as Mr. Coronel filed an appeal and heard nothing for three months. Luckless as he applied for new jobs, he borrowed to pay the rent, then moved in with his mother, and joined his pregnant wife in skipping meals.

“The worst day was when my daughter was born,” he said. “I had no clothes for her, and no car seat.”

While federal rules require states to decide 60 percent of appeals cases within a month, in recent years, California has met that deadline for just 5 percent. A report by the state auditor last year found the appeals board rife with nepotism and mismanagement.

Mr. Coronel won the appeal, but is soothing a marriage strained by a six-month wait. “It’s extremely stressful when you don’t know how you’re going to support your family,” he said.

Nationally, the program is the worst financial shape since the early 1980s, when back-to-back recessions left more than half the states borrowing from the federal government. Tax increases and benefit restraints gradually rebuilt the funds, then states changed course and pushed taxes well below historical levels.

From 1960 to 1990, the tax rate averaged about 1.1 percent of overall payroll. Over the last decade, it fell to 0.65 percent. That represents a tax cut of 40 percent.

Measured against a decade’s payroll, that saved employers $165 billion. But by 2007, when the recession began, the average state had just six months of recession-level benefits in reserve, half the recommended sum.

“The attitude became, ‘We don’t need a firehouse — we can buy hoses when the fire starts,’ ” said Wayne Vroman of the Urban Institute, a Washington research group.

Some Republican analysts defend the tax cuts, saying they helped both employers and workers, by spurring the economy and creating jobs.

“Lower tax rates make it easier to attract business,” said Doug Holmes, president of UWC, a group that advocates on behalf of employers. “We don’t want to spend a whole lot of time beating ourselves up because we didn’t raise taxes enough. Nobody anticipated a recession this size.” [Whocoodanoode?]

A big reason the reserves fell, Mr. Holmes said, is that the jobless now spend more time on the rolls — 15 weeks in recent years, up from 13 weeks several decades ago. Each extra week costs the program about $3 billion a year. The solution, he said, is stronger job placement provisions. [Yeah, like anyone is hiring!]

But others see an irresponsible past that now promises future pain.

“Workers who had nothing to do with the funds becoming insolvent are going to be asked to pay for that with benefit cuts,” said Andrew Stettner, an analyst at the National Employment Law Project, a workers’ rights group. “That’s the worst thing states can do — it takes money straight out of the economy.”

Among those who say timely benefits are essential is Mr. Kottwitz, the Arizona cabinet maker, who lost his job just before Christmas. He filed a claim and promptly received a debit card, with no money on it. It took him weeks to reach a program clerk, who told him to keep waiting.

“They said, ‘We’re behind — be patient,’ ” he said.

With little savings, no family nearby, and a ninth-grade education, Mr. Kottwitz, 42, had limited options. He got $100 a month in food stamps, collected cans and applied for jobs. When his landlord put him out, he moved to a shelter so overcrowded he spent his first few nights on the ground.

“I felt like I was the scum of the earth,” Mr. Kottwitz said.

In March, the shelter referred him to Ellen Katz, a lawyer at the William E. Morris Institute for Justice, an advocacy group, who secured his benefits. By the time the money arrived, Mr. Kottwitz had lost nearly 40 pounds. His first stop was an all-you-can-eat buffet.

Now back in an apartment, he said he was sharing his story in the hope that someone might read it and offer him a job.

“You think that someone would have seen this coming and been more prepared,” he said.

How many of you think Mr. Kottwitz has a valid point? I certainly agree with him! The part that is most remarkable is how few thought the ‘great moderation’ was ever going to end…even after the ‘sub-prime’ disaster.

Naturally, once you’ve bet ‘one way’ it becomes difficult to admit the people you were hailing as geniuses only yesterday indeed turned out to be morons.

It wasn’t ‘different’ this time, it’s the same as it ever was.

This is what pisses me off so much about the freaking fruitcakes and their ‘invisible’ green shoots! Or yesterday when the markets added 180 points, pretty much for nothing!

They weren’t so brave today, where they?

Which leaves us with another question good citizen, are you frightened?

You damn well better be because the nut jobs running this coconut stand are freaking out of their minds!

Worse, this isn’t a situation that will straighten itself out. There’s no way in hell these idiots will ‘accidentally’ turn this ship around. I also don’t have any faith that ‘spirit in the sky’ will save any of us at the ‘last minute’.

This isn’t TV, this is the real deal. If we don’t grab the wheel soon the survivors will be left to pick up the pieces.

Once again we see the ‘incompetence’ card being played to cover for the greed of the selfish few, and it sickens me.

It’s time for the adults amongst us to take the stick away from the kid and show ‘em what it’s used for.

Thanks for letting me inside your head,


Friday, July 24, 2009

Innovation or rip-off?

Greetings good citizen,

How about that dip dang Dow? After seven months in the basement it is finally reached ‘positive’ territory again…

The markets tacked on 181 points today because they damn well could! Who says there has to be a reason for the markets to rise? If they’re going to go up, let ‘em go up! To hell with all of those ‘gloom and doom’ types that keep making a big deal out of nothing.

The economy is ‘strong and vibrant’ I tell ye and the stock markets are proof! Almost half of the companies reporting so far have reported profits…who the hell cares if their sales figures suck? (or that the other half of companies reporting have had big losses…)

Okay old fella, put down the revolver, hand over the crack pipe and nobody gets hurt…

The economy, as you well know, is the pits good citizen. The recent gains in the market are far more disturbing than confidence inspiring and it’s even more disturbing to listen to the chattering baboons trying to make a convincing case for what isn’t rational…

I know the public’s ‘attention span’ isn’t very focused but it was only a couple of weeks ago that news hit about trading software capable of ‘manipulating’ the markets…

Given what we know about the state of the ‘real’ economy worldwide, is it any wonder that the following story resurfaced again today?

Traders Profit With Computers Set at High Speed

Published: July 23, 2009

It is the hot new thing on Wall Street, a way for a handful of traders to master the stock market, peek at investors’ orders and, critics say, even subtly manipulate share prices.

It is called high-frequency trading — and it is suddenly one of the most talked-about and mysterious forces in the markets.

Powerful computers, some housed right next to the machines that drive marketplaces like the New York Stock Exchange, enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else’s expense.

These systems are so fast they can outsmart or outrun other investors, humans and computers alike. And after growing in the shadows for years, they are generating lots of talk.

Nearly everyone on Wall Street is wondering how hedge funds and large banks like Goldman Sachs are making so much money so soon after the financial system nearly collapsed. High-frequency trading is one answer.

And when a former Goldman Sachs programmer was accused this month of stealing secret computer codes — software that a federal prosecutor said could “manipulate markets in unfair ways” — it only added to the mystery. Goldman acknowledges that it profits from high-frequency trading, but disputes that it has an unfair advantage.

Yet high-frequency specialists clearly have an edge over typical traders, let alone ordinary investors. The Securities and Exchange Commission says it is examining certain aspects of the strategy.

“This is where all the money is getting made,” said William H. Donaldson, former chairman and chief executive of the New York Stock Exchange and today an adviser to a big hedge fund. “If an individual investor doesn’t have the means to keep up, they’re at a huge disadvantage.”

For most of Wall Street’s history, stock trading was fairly straightforward: buyers and sellers gathered on exchange floors and dickered until they struck a deal. Then, in 1998, the Securities and Exchange Commission authorized electronic exchanges to compete with marketplaces like the New York Stock Exchange. The intent was to open markets to anyone with a desktop computer and a fresh idea.

But as new marketplaces have emerged, PCs have been unable to compete with Wall Street’s computers. Powerful algorithms — “algos,” in industry parlance — execute millions of orders a second and scan dozens of public and private marketplaces simultaneously. They can spot trends before other investors can blink, changing orders and strategies within milliseconds.

High-frequency traders often confound other investors by issuing and then canceling orders almost simultaneously. Loopholes in market rules give high-speed investors an early glance at how others are trading. And their computers can essentially bully slower investors into giving up profitsand then disappear before anyone even knows they were there.

High-frequency traders also benefit from competition among the various exchanges, which pay small fees that are often collected by the biggest and most active traders — typically a quarter of a cent per share to whoever arrives first. Those small payments, spread over millions of shares, help high-speed investors profit simply by trading enormous numbers of shares, even if they buy or sell at a modest loss.

“It’s become a technological arms race, and what separates winners and losers is how fast they can move,” said Joseph M. Mecane of NYSE Euronext, which operates the New York Stock Exchange. “Markets need liquidity, and high-frequency traders provide opportunities for other investors to buy and sell.” [Often ‘scalping’ them in the process.]

The rise of high-frequency trading helps explain why activity on the nation’s stock exchanges has exploded. Average daily volume has soared by 164 percent since 2005, according to data from NYSE. Although precise figures are elusive, stock exchanges say that a handful of high-frequency traders now account for a more than half of all trades. To understand this high-speed world, consider what happened when slow-moving traders went up against high-frequency robots earlier this month, and ended up handing spoils to lightning-fast computers.

It was July 15, and Intel, the computer chip giant, had reporting robust earnings the night before. Some investors, smelling opportunity, set out to buy shares in the semiconductor company Broadcom. (Their activities were described by an investor at a major Wall Street firm who spoke on the condition of anonymity to protect his job.) The slower traders faced a quandary: If they sought to buy a large number of shares at once, they would tip their hand and risk driving up Broadcom’s price. So, as is often the case on Wall Street, they divided their orders into dozens of small batches, hoping to cover their tracks. One second after the market opened, shares of Broadcom started changing hands at $26.20.

The slower traders began issuing buy orders. But rather than being shown to all potential sellers at the same time, some of those orders were most likely routed to a collection of high-frequency traders for just 30 milliseconds — 0.03 seconds — in what are known as flash orders. While markets are supposed to ensure transparency by showing orders to everyone simultaneously, a loophole in regulations allows marketplaces like Nasdaq to show traders some orders ahead of everyone else in exchange for a fee.

In less than half a second, high-frequency traders gained a valuable insight: the hunger for Broadcom was growing. Their computers began buying up Broadcom shares and then reselling them to the slower investors at higher prices. The overall price of Broadcom began to rise.

Soon, thousands of orders began flooding the markets as high-frequency software went into high gear. Automatic programs began issuing and canceling tiny orders within milliseconds to determine how much the slower traders were willing to pay. The high-frequency computers quickly determined that some investors’ upper limit was $26.40. The price shot to $26.39, and high-frequency programs began offering to sell hundreds of thousands of shares.

The result is that the slower-moving investors paid $1.4 million for about 56,000 shares, or $7,800 more than if they had been able to move as quickly as the high-frequency traders.

Multiply such trades across thousands of stocks a day, and the profits are substantial. High-frequency traders generated about $21 billion in profits last year, the Tabb Group, a research firm, estimates.

“You want to encourage innovation, and you want to reward companies that have invested in technology and ideas that make the markets more efficient,” said Andrew M. Brooks, head of United States equity trading at T. Rowe Price, a mutual fund and investment company that often competes with and uses high-frequency techniques. “But we’re moving toward a two-tiered marketplace of the high-frequency arbitrage guys, and everyone else. People want to know they have a legitimate shot at getting a fair deal. Otherwise, the markets lose their integrity.

Ironically, the given example defies the standard market ‘logic’ of ‘buy the rumor, sell the news’. Worse, these ‘unsophisticated’ traders fell into an obvious ‘trap’. They saw the ‘decepticons’ buying Broadcom’s stock after Intel went public with its earnings and foolishly tried to buy in anyway.

What did they get for their trouble? Screwed…

Simply put good citizen, how long do you suppose it will be before all of the, er, uncompetitive traders stop trading altogether?

Perhaps more interestingly, how does this phenomenon effect stock prices and market levels once ‘uncompetitive traders’ flee the markets?

It’s sure looking like you could make stock prices be whatever you wanted them to be, regardless of the stock’s earnings or even its indebtedness.

Did I mention that the ‘hyper-wealthy’ own huge amounts of stock?

Which is the same as asking how many of you think this whole stock thing a huge rip off of the working public? If it weren’t for 401k’s, nobody would put a red cent into the markets…and anyone still contributing to a 401k is an idiot.

After Wall Street is through ‘plundering’ all of the pension funds, where do they go? They get dumped on us, the taxpayer.

The pace at which Wall Street has been enriching itself at the public’s expense has been accelerating. Once Wall Street sucks the last of the marrow from the bones, the debt gets put on the taxpayers back.

So how about that stock market? Don’t you think its time we shut it down?

Thanks for letting me inside your head,


Thursday, July 23, 2009

Flipper (and friends)

Greetings good citizen,

It all had to start somewhere and that somewhere is now nearly 40 years in the past, when the Masters of the Universe suddenly realized their markets were saturated. But that’s a different (albeit related) story.

When viewed as individual pieces the main segments of this long downward spiral appear to be unrelated and so it is with our friend ‘flipper’.

Tonight’s offering , taken at face value, looks like a simple conspiracy to commit fraud. What was done here isn’t ‘new’; it is merely a ‘repeat’ of what happened during the ‘condo craze’ back in the mid-eighties, which ended with millions ‘trapped’ in condos they had foolishly paid far too much for.

It seemed like such a good idea at the time and hell, ‘everybody’ was doing it, only not so much. Condos are a ‘landlord’s dream’ (and still are, as long as there isn’t a shortage of ‘stupid people’.) You retain ownership of the land and still collect a monthly ‘rent’ called the condo fee. Once the building aged to the point where it needed major repairs, it was time to bail. You’d sell off the rental units that made you the defacto head of the condo association and left the suckers to fend for themselves…but I digress, there is a different part of the condo story that has parallels to the current crisis.

When condos first ‘caught on’ they were relatively cheap. You could pick up the average ‘conversion unit’ for twenty to thirty thousand at a time when your average house was priced in the eighty to hundred thousand dollar price range.

The average shmoe has a hard time scraping up the 20% down payment needed for the average house but almost anyone could scrape up the down payment for a condo.

This is where our pal ‘flipper’ comes in. He already has two or three condos and he’s willing to make you a ‘sweet deal’ that requires no down payment. He sells you one of his units and folds the down payment (and a little more, for his ‘trouble’) into the sale price.

Understand, Reagan was president, the country was in a deep recession and unemployment is as bad as it is today while interest rates were sky high! Well, the next thing you know, the twenty thousand-dollar condo unit is a thing of the past. But you can still get the same ‘sweet deal’ if you go to a ‘condo party’, where some units change hands a dozen times in the course of a single evening, each one getting the same ‘sweet deal’ from the ‘previous owner’.

Sadly, if you turned out to be the ‘greater fool’ you were stuck with a property you owed far more on than you could sell it for.

By the time all was said and done there were thousands of vacant condos and pages of foreclosure notices. Hundreds of banks went out of business and our pal ‘flipper’…he took the money he made flipping condos and bought a nice million-dollar house.

Herald Tribune: Flipping Fraud Ignored
by CalculatedRisk on 7/22/2009 10:24:00 AM

From the Herald Tribune series on mortgage fraud in Florida: Flipping fraud ignored by police and prosecutors

In November 2005, when the real estate market in Florida had just begun to slow, the state’s top law enforcement agency issued a warning that mortgage fraud was about to wreak financial havoc.

In sober language, a 36-page Florida Department of Law Enforcement report explained that banks would collapse and losses would be counted in “hundreds of billions of dollars.”
The report, which was not released to the public but was sent to prosecutors and law enforcement officials across the state, laid out a series of responses to help prevent or lessen the disaster.

But instead of heeding the warning, most law enforcement officials ... did nothing.

Even the most basic recommendation in the FDLE assessment — posting a notice at the county courthouse warning that mortgage fraud is a criminal offense — was ignored in Sarasota County.

Today ... the scope of fraud has overwhelmed state and federal law enforcement agencies to the point that only the most egregious cases are likely to be prosecuted.

In addition to the FBI’s 2,500 cases, state agencies, including the Attorney General and FDLE, have pursued a few hundred more dating back to 2000.

But the amount of fraud dwarfs the number of cases being pursued, the Herald-Tribune found. The Herald-Tribune analyzed nearly 19 million property transactions looking for one type of housing fraud — illegal property flipping. The newspaper found more than 50,000 transactions in which prices increased so much, so quickly, that fraud experts interviewed by the newspaper deemed them highly suspicious.

If you follow the link there are three stories there that outline specific cases where ‘flipper’ (and his confederates) er, ‘defrauded’ banks out of millions of dollars.

But there’s a missing piece to this puzzle, just as there was a missing piece to the condo explosion…why did the banks fail to question these obviously outrageous sale prices?

If we look at the condo craze, prices went from twenty thousand to one hundred and fifty thousand in a matter of months…and nobody thought something was ‘fishy’? Heck, towards the end, ‘new’ condos were selling for more than new single family homes!

It might be nice not to have to do yard work but the downside to this is you have to get ‘permission’ to use the common areas if you’re having guests over. If you have a large clan, you stand a very good chance of being told no!

Sadly, many ‘unsophisticated’ buyers found this out the hard way AFTER they had committed to purchase. These days, condo associations are very up front about what is and is not permitted.

I slid off track there (as there are many ‘horror stories’ related to the early days of the now fabled ‘condo’.) let’s return to the issue of why banks didn’t see what are, in hindsight, some pretty glaring ‘red flags’.

The first issue to hit us in the eye is that banks exist to lend money…albeit, ‘responsibly’. A good credit score and the ability to pay are only two of the three legs of the lending stool.

Banks ‘know’ what properties in pretty much every location ‘should be’ selling for. So when a deal comes in for significantly more than what it should be, whose responsibility is it to verify the ‘legitimacy’ of the deal?

The bank is obliged to protect their depositor’s funds…but apparently mortgage companies are a different animal. The condo craze pretty much burned down the S&L industry but ‘mortgage companies’ didn’t exist until after Glass-Steagal was repealed.

Is it just coincidence that the housing bubble took off pretty much within weeks of the repeal of legislation that prohibited ‘dark pools’ (a.k.a. mortgage companies?)

The banks are being blamed for the housing disaster but the evidence points to the mortgage companies, that dried up and blew away virtually hours after the bottom fell out from under the housing market.

Leaving the Investment banks holding an empty bag…which was promptly dumped onto the taxpayer.

One last piece of the puzzle, the ‘mortgage companies’ were funded by ‘investors’, the primary customers of the Investment banks…

If you recall, the bust was pretty much a situation of too much money chasing too little ‘return’…
When the Internets ‘failed to launch’, there was still too much money seeking high returns.

I probably should have mentioned up front that tonight’s offering is ‘food for thought’ but if you follow the money it begins to look quite sinister, no?

Thanks for letting me inside your head,


Tuesday, July 21, 2009

Traded Away

Greetings good citizen,

The trading day is far from over, that said the markets have, using their own parlance, ‘failed to retain earlier gains’. From the looks of the charts they haven’t fallen far, the Dow was down 5 points around noon and the down line looks pretty equal to the ‘up’ line, why so much drama over ten points? Who knows…

There is a multitude of issues clamoring for our attention today but I’d like to focus your attention on just two of them.

You may recall from last night’s post the, er, ‘upbeat’ tone used to describe what would normally be considered a turn for the worse.

When the dollar tanks and commodities rise it usually indicates a ‘run for the exits’, otherwise know as a ‘flight to safety’.

The anonymous writer of last night’s post (neither AP nor Reuters ‘attributes’ their sources) didn’t make this rather obvious connection for readers…but it is also absent from the rest of the MSM/blogosphere.

Well, it didn’t go completely ‘unnoticed’ as we an see at the bottom of this piece

Which begs the question as to whether or not the ‘smart money’ was indeed ‘headed for the exits’ yesterday?

There have been a lot of pixels spilled by the MSM in an attempt to convince the public that circumstances are far better than what they witness for themselves every day. The ‘recovery is all around you, you just can’t see it from where you are standing…’

Naturally, not everyone is on board this bandwagon and so we arrive at tonight’s offering

[Hat tip: Loose cannon]

Tonight’s commentator is not new to these pages…and I still have a hard time believing he’s a Republican!

Traded away for a make-believe economy, the real US economy is dead

By Paul Craig Roberts
Online Journal Contributing Writer

Jul 17, 2009, 00:16

There is no economy left to recover. The US manufacturing economy was lost to offshoring and free trade ideology. It was replaced by a mythical “New Economy.”

The “New Economy” was based on services. Its artificial life was fed by the Federal Reserve’s artificially low interest rates, which produced a real estate bubble, and by “free market” financial deregulation, which unleashed financial gangsters to new heights of debt leverage and fraudulent financial products. [Simply put, they created tons of money from existing ‘wealth’, effectively destroying both.]

The real economy was traded away for a make-believe economy. When the make-believe economy collapsed, Americans’ wealth in their real estate, pensions, and savings collapsed dramatically while their jobs disappeared.

The debt economy caused Americans to leverage their assets. They refinanced their homes and spent the equity. They maxed out numerous credit cards. They worked as many jobs as they could find. Debt expansion and multiple family incomes kept the economy going.

And now, suddenly, Americans can’t borrow in order to spend. They are over their heads in debt. Jobs are disappearing. America’s consumer economy, approximately 70 percent of GDP, is dead. Those Americans who still have jobs are saving against the prospect of job loss. Millions are homeless. Some have moved in with family and friends; others are living in tent cities.

Meanwhile the US government’s budget deficit has jumped from $455 billion in 2008 to $2,000 billion this year, with another $2,000 billion on the books for 2010. And President Obama has intensified America’s expensive war of aggression in Afghanistan and initiated a new war in Pakistan. [Understand that Iraq is far from ‘over’.]

There is no way for these deficits to be financed except by printing money or by further collapse in stock markets that would drive people out of equity into bonds.

The US government’s budget is 50 percent in the red. That means half of every dollar the federal government spends must be borrowed or printed. Because of the worldwide debacle caused by Wall Street’s financial gangsterism, the world needs its own money and [doesn’t have]hasn’t $2 trillion annually to lend to Washington. [which means the funds will be ‘printed’ by us instead of them.]

As dollars are printed, the growing supply adds to the pressure on the dollar’s role as reserve currency. Already America’s largest creditor, China, is admonishing Washington to protect China’s investment in US debt and is lobbying for a new reserve currency to replace the dollar before it collapses. According to various reports, China is spending down its holdings of US dollars by acquiring gold and stocks of raw materials and energy.

The price of one-ounce gold coins is $1,000 despite efforts of the US government to hold down the gold price. How high will this price jump when the rest of the world decides that the bankruptcy of “the world’s only superpower” is at hand?

And what will happen to America’s ability to import not only oil, but also the manufactured goods on which it is import-dependent?

When the oversupplied US dollar loses the reserve currency role, the US will no longer be able to pay for its massive imports of real goods and services with pieces of paper. Overnight, shortages will appear and Americans will be poorer. [Followed twenty minutes later by widespread rioting…]

Nothing in Presidents Bush and Obama’s economic policy addresses the real issues. Instead, Goldman Sachs was bailed out, more than once. As Eliot Spitzer said, the banks made a “bloody fortune” with US aid.

It was not the millions of now homeless homeowners who were bailed out. It was not the scant remains of American manufacturing -- General Motors and Chrysler -- that were bailed out. It was the Wall Street banks.

According to, Goldman Sachs’ current record earnings from their free or low cost capital supplied by broke American taxpayers has led the firm to decide to boost compensation and benefits by 33 percent. On an annual basis, this comes to compensation of $773,000 per employee.

This should tell even the most dimwitted patriot who “their” government represents.

The worst of the economic crisis has not yet hit. I don’t mean the rest of the real estate crisis that is waiting in the wings. Home prices will fall further when the foreclosed properties currently held off the market are dumped. Store and office closings are adversely impacting the ability of owners of shopping malls and office buildings to make their mortgage payments. Commercial real estate loans were also securitized and turned into derivatives.

The real crisis awaits us. It is the crisis of high unemployment, of stagnant and declining real wages confronted with rising prices from the printing of money to pay the government’s bills and from the dollar’s loss of exchange value. Suddenly, Wal-Mart prices will look like Nieman Marcus prices.

Retirees dependent on state pension systems, which cannot print money, might not be paid, or might be paid with IOUs. They will not even have depreciating money with which to try to pay their bills. Desperate tax authorities will squeeze the remaining life out of the middle class.

Nothing in Obama’s economic policy is directed at saving the US dollar as reserve currency or the livelihoods of the American people. Obama’s policy, like Bush’s before him, is keyed to the enrichment of Goldman Sachs and the armament industries.

Matt Taibbi describes Goldman Sachs as “a great vampire squid wrapped around the face of humanity, relentless jamming its blood funnel into anything that smells like money.” Look at the Goldman Sachs representatives in the Clinton, Bush and Obama administrations. This bankster firm controls the economic policy of the United States.

Little wonder that Goldman Sachs has record earnings while the rest of us grow poorer by the day.

Paul Craig Roberts [email him] was Assistant Secretary of the Treasury during President Reagan’s first term. He was Associate Editor of the Wall Street Journal. He has held numerous academic appointments, including the William E. Simon Chair, Center for Strategic and International Studies, Georgetown University, and Senior Research Fellow, Hoover Institution, Stanford University. He was awarded the Legion of Honor by French President Francois Mitterrand. He is the author of Supply-Side Revolution : An Insider’s Account of Policymaking in Washington; Alienation and the Soviet Economy and Meltdown: Inside the Soviet Economy, and is the co-author with Lawrence M. Stratton of The Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are Trampling the Constitution in the Name of Justice. Click here for Peter Brimelow’s Forbes Magazine interview with Roberts about the recent epidemic of prosecutorial misconduct.

Okay, he’s a Republican, even I’m not that gloomy.

That aside, it’s difficult to argue with the facts as they are laid out here. The US economy is indeed hollow, to the point where we no longer have an ‘engine’ to pull us out of the quagmire created for us by the ‘banksters’.

And if ‘financialization’ somehow makes a comeback, we’re really scroomed! (Worse, they’re already ‘re-securitizing’ toxic assets and the moronic ratings agencies are blessing them with AAA ratings, again!)

I’m sure you’re wondering who, given the current state of the financial markets, is STUPID enough to buy this crap? Sadly the answer is the same people who bought up this dreck the last time, ‘institutional investors’, will buy it.

Which means this toxic garbage is headed straight for your pension fund!

This begs the question of whether it would be more effective to make rating this crap AAA or buying it with ‘other people’s money’ a hanging offense?

Just to be safe, we probably need to do both.

I’d also beg to differ from Mr. Roberts on another point…nobody ‘has’ the funds needed to paper over this fiasco so suggesting we ‘borrow’ this money is yet more ‘misdirection’.

Not to accuse Mr. Roberts of making such a suggestion, this ludicrous idea can also be laid at the feet of the banking community.

Pretending to borrow non-existent money is just another way of collecting interest on what might best be described as counterfeit financial instruments. Neither the money nor the debt it represents is ‘real’. This is just an attempt by the banksters to make the massive amounts of funny money ‘real’.

Did I mention the government (or what passes for it these days) is being operated by criminals?

Combined, these two news items paint a fairly grim picture of the future, a future that is not nearly as bright as the image being projected by today’s corporate owned (and currently tanking) MSM.

Which begs another interesting question…when the corporate-owned media collapses due to lack of funds, will the government take it over?

Oh, and will the government advertise their products for free?

Thanks for letting me inside your head,