The 'Real' Stress test

Greetings good citizen,

Seeing that yesterday was my birthday I gave myself the night off. Given recent events, my biggest ‘birthday present’ this year is being here at all…and I’m not out of those woods yet.

But enough about me, our friend, Mr. Market, in anticipation of the arrival of September, has commenced to ‘retreat’ as Fear has (once again) beaten baseless Optimism to a bloody pulp.

It never ceases to frustrate those of us in the ‘doom and gloom’ crowd that we will never be considered a part of the ‘reality-based community’ (while the Pervasive Pollyanna’s of Prosperity are readily accepted, even while consistently being proven wrong.)

What’s this have to do with the price of tea in China? Well, tonight’s offering returns us to a subject we haven’t visited in quite a while, the topic of cascading systemic collapse.

Money & Company
Tracking the market and economic trends
that shape your finances.

James Kelleher at Reuters points up a risk to economic recovery that hasn't been much discussed: the potential drag on the manufacturing sector from the financial toll the recession has taken on smaller companies in the supply chain.

From Kelleher:

Call them zombie suppliers. Analysts say the speed with which major manufacturers cut output in this recession put unprecedented strain on thousands of small manufacturers that supply the industry with critical parts.

That has left the supply chain with an unknown number of suppliers who are dead but do not know it -- companies so undercapitalized and overleveraged they will never raise the money they need to get their idle plants running again.

"Their lenders are going to say, 'Sorry, we're not going to increase our exposure with you because we don't know if you're going to make it or not,' " says Bill Diehl, the chief executive of BBK, an advisory firm that does supply chain risk analysis.

And that, of course, would be a horror show for the publicly traded manufacturers that rely on these suppliers. It could leave them scrambling to secure components once the recovery starts -- and missing some of the rebound's benefits. [There’s a more frightening reality here and that is ‘sole-sourcing’, which is much more common than you’d think/have been lead to believe.]

This will be a big test of bankers' assertion that they're ready and willing to lend money again. Will they balk at extending new financing to many smaller manufacturers even if the companies can show rising orders? This may become a very big issue in greater Los Angeles, given the region's huge base of small and mid-sized manufacturers. [Worse, many of these suppliers are leaning heavily on their ‘sole source’ contracts, which the bankers are ignorant of.]

Japan had the opposite problem in its "lost decade" of the late 1990s and early 2000s: Its banks were under political pressure to keep alive zombie companies that no longer were viable.

As James Surowiecki at the New Yorker wrote in May, the popular recollection is that Japan's economy was held back by zombie banks that were propped up by the government but refused to lend. The reality, Surowiecki noted, was that many Japanese banks engaged in "evergreening" -- they kept pouring money into companies that already had loans with them, even if the companies' prospects were grim. [Were Japanese banks being stupid or are we witnessing the outcome of ‘sole source’ contracts? Where it isn’t worthwhile for the listed ‘alternative source’ to invest in the necessary equipment to produce ‘good’ parts.]

“The practice effectively meant that, instead of making good new loans, [the banks] were constantly throwing good money after bad. As a result, they were never able to earn their way back to health," Surowiecki wrote. [This argument ignores the case of the ‘preferred vendor’ over the ‘alternate vendor’, who isn’t given enough business to make the capital expenditure ‘profitable’.]

The challenge skittish U.S. bankers will face is in identifying which smaller manufacturers have a reasonable chance of bouncing back from the astounding collapse of industrial output that began last fall. The banks will face those decisions as companies ask for more credit to begin ramping up production -- which should happen soon in many industries that need to rebuild depleted inventories.

Kelleher quotes Craig Giffi, head of U.S. consumer and industrial products practice at accounting firm Deloitte:

"Until those companies have to produce something -- and to secure raw materials, to make a part, to hire more workers -- no one will know how weak their balance sheets and credit positions really are."

Once again good citizen there is ‘theory’ and then there’s reality. In ‘theory’, everything has multiple sources but in reality, this is seldom true. Certain components require such rigorous standards that those standards can only be met with highly specialized (and therefore expensive) equipment.

Naturally, it isn’t ‘cost effective’ to purchase such highly specialized equipment if the work for such a piece of capital is difficult to come by. If one were to make such an investment, one would want to be assured that you would receive enough work to at least amortize the investment…this is where ‘sole source’ contracts come in. This is still a gamble but at least, worst comes to worst, you should recoup most of the up front cost, even if you have to return the equipment to the vendor.

Like the parable ‘for want of a nail’, we have a rather similar situation on our hands here. You can’t make a ‘whole’ product without ‘all’ of the parts. The question we face here good citizen is which parts of the puzzle can we afford to do without and still avoid a cascading systemic meltdown?

The bankers don’t know the answer to this question, chances are excellent even purchasing agents can’t provide a satisfactory answer. They have more than one source for everything BUT they have never received ‘usable’ parts from the alternative vendor because they don’t have the right equipment (and sometimes, talent.)

Not frightening enough? Let’s add this tidbit about how only a few financials have ‘dominated’ trading at the NYSE for the past month…

If you think I’m tough on the financial media check out Yves Smith’s take on today’s rather glib report on how taxpayers have ‘profited’ from bailing out the banking system…

Twas a ‘hell of a day’, news-wise good citizen, the bears are just coming right out of the woodwork, again.

What the hell happened to that ‘global economic recovery’ they were all so sure of?

Thanks for letting me inside your head,

Gegner

Market Psychology

Greetings good citizen,

As ‘green shoots’ fade and the ‘momentum’ built up by one of the most bizarre stock market rallies in history fades into the distance, people will indeed ask ‘what happened?’

Aren’t we on the verge of a global economic recovery? Didn’t Ben Bernanke ‘save’ us from a second Great Depression?

We are inching ever closer to the ‘moment of truth’, where all of the excitement of the market rally will be put to the test and people will start to wonder where all of this ‘prosperity’ is hiding.

And trust me, good citizen, it’s hiding pretty darn well. It’s hiding in the numbered, off-shore accounts of tax havens around the world.

I want to state up front that it is not my intention to kick anyone in the shins here. It is my purpose to offer an alternate point of view to tonight’s offering

Economic View
An Echo Chamber of Boom and Bust

By ROBERT J. SHILLER
Published: August 29, 2009

THE global signs of a recovery in economic confidence seem puzzling.

It is a large and diverse world, after all, so why should confidence have rebounded so quickly in so many places? Government stimulus and bailout packages have generally not been big enough to have such a profound effect. [Good questions all, BUT we’re actually talking a pretty small number of big players here. The confidence expressed by a few isn’t as broadly shared as Mr. Schiller would have you believe.]

What happened? Economic analysts often turn to indicators like employment, housing starts or retail sales as causes of a recovery, when in fact they are merely symptoms. For a fuller explanation, look beyond the traditional economic links and think of the world economy as driven by social epidemics, contagion of ideas and huge feedback loops that gradually change world views. These social epidemics can travel as swiftly as swine flu: both spread from person to person and can reach every corner of the world in short order. [Naturally, having the MSM in your pocket goes a long way towards that end.]

As George Akerlof and I argue in our book, “Animal Spirits,” the business cycle is tied to feedback loops involving speculative price movements and other economic activity — and to the talk that these movements incite. A downward movement in stock prices, for example, generates chatter and media response, and reminds people of longstanding pessimistic stories and theories. These stories, newly prominent in their minds, incline them toward gloomy intuitive assessments. As a result, the downward spiral can continue: declining prices cause the stories to spread, causing still more price declines and further reinforcement of the stories.

At some point, of course, the process must end, as when the market falls so low that it becomes enticing, or when new stories emerge. Similarly, an upward movement in stock prices generates its own upward feedback. [Left to our imaginations is whether or not these ‘stories’ are true…]

At first, the feedback explanation may sound too simple, and may suggest that the stock market and its turning points are easy to predict. But because day-to-day noise shrouds these changes, and because the stories change in their retelling and as new evidence emerges, the process is actually very complex.

And even when feedback mechanisms are straightforward, they can produce very strange outcomes, not predictable very far into the future, as the modern mathematics of chaos theory can attest.

Still, when there is a change in the economy, it is worth seeking some sense of what actually happened. We should be able to look back at the recent swings and get some idea, after the fact, of what caused us to change our stories and mind-set.

On the downward path between the stock market peak of Oct. 9, 2007 (when the Dow reached 14,164.53), and its bottom (more than 50 percent lower) on March 9 this year, there was a proliferation of negative stories. [Sadly, most of those stories were true, it’s the ones that have come since that carry rather large question marks…]

In news media accounts and in conversations worldwide, one theme was that something was fundamentally wrong with our economic system, and that it desperately needed to be fixed. The news media seemed full of stories of deceptive accounting and of crony boards of directors — not just because they were news, but also because they answered a public demand for culprits behind the price declines.

These stories led to popular anger, which led business people to become more cautious in their decisions, like those involving hiring and capital expenditures.

Talk of a “crisis of capitalism” was everywhere. In countries around the world, bad guys were found by the news media to personify this narrative. In the United States, the Bernie Madoff story, which broke in December, was a human-interest story that would have been a hit at any time, but it took on supernormal significance as a symbol of an increasingly negative economic perspective. It may be hard to remember now, but these views led to fears that the market might entirely collapse.

I have been collecting survey data since 1989 on public opinion about the stock market; since 2001, the surveys have been conducted under the auspices of the Yale School of Management. We compute a “Crash Confidence Index,” which measures people’s confidence that there will not be a stock market crash like that of Oct. 28, 1929, or Oct. 19, 1987. The index reached its all-time high in 2006, as the market was still soaring. It reached its low at the beginning of this year.

Recently, the Crash Confidence Index has been on an upswing again. Stories about market crashes are less frequent and are being crowded out by a wide variety of other, more normal narratives. The markets have repeatedly been shrugging off bad news because people have a different mind-set. [Understand, once again, we’re only talking a handful of people here.]

The popularity of the term “green shoots” shows the kind of social epidemic underlying our changing thinking. The phrase was propelled in Britain by Shriti Vadera, the business minister, in January, and mutated into a more contagious form after Ben Bernanke, the Federal Reserve chairman, used it on “60 Minutes” on March 15.

The news media didn’t need to change the term for different cultures around the world. With nothing more than a quick translation — brotes verdes, pousses vertes, grüne Sprösslinge, etc. — it is now recognized as a symbol of a revival coming soon. [Sadly, they left out the crucial parts like ‘when and where’…]

All of this suggests that a social epidemic is supporting renewed confidence. This confidence can keep growing by contagion, as a kind of self-fulfilling prophecy, and we may see the markets and the economy recover further.

But in an economy that is still unstable, the stories could also morph into different forms, the price feedback could turn downward and the dynamic could turn ugly again — just as it has in the past.

Understand that Mr. Schiller isn’t ‘predicting’ anything here, he’s merely pointing to ‘market psychology’ and the role it plays among investors.

Which is what prompted me to single this piece out. No amount of ‘psychology’ is capable of creating prosperity where there is none.

Which is not to say there aren’t those who wouldn’t try to convince you otherwise…

Conversely, what YOU, the average citizen, believes about the state of the economy has a direct bearing upon the continued ‘stability’ of society.

Consider, if you will, the continued bleeding of jobs our economy is experiencing and wonder where all of those ‘green shoots’ are?

Thanks for letting me inside your head,

Gegner

Fizzle...

Greetings good citizen,

No ‘break-outs’ or ‘runaway’s’ in today’s markets either, in fact the whole week seems to have been spent waiting for September. Wait until the kids go back to school, then break their parent’s kneecaps!

Yes good citizen, the ‘bear market rally’ is over and as we reported at the beginning of summer, the markets are going to ‘retest’ their springtime lows. It’s been stated repeatedly across all sectors of the marketplace, there isn’t any genuine evidence of a recovery anywhere, none, nothing, zip.

It’s somewhat remarkable that they can ‘jawbone’ the markets up some three thousand point without the faintest shred of evidence, not even the most whimsical bit of proof.

So let me ask you good citizen, how confident are you that this is the only place you can put your retirement savings? You’d be better off with a mason jar buried in the backyard if it weren’t for inflation, which, despite claims to the contrary, hasn’t slowed down even a little.

Yet another remarkable situation I’ve recently encountered is the stiff upsurge in, er, ‘top calling’ (sort of the same thing as ‘bottom calling’ only from the other end of the spectrum.) Mind you this is on the heels of the declaration of a ‘global’ economic recovery (again, with no real evidence) just this past Tuesday.

I mean gee, that was one ‘short-lived’ global rally if you ask me.

So we are left to ponder the nearly 4 month long market rally, where nothing got materially ‘better’ only to watch the markets sink once again. Will the Feds have to ‘bail them out’? It shouldn’t be necessary but technically, it wasn’t ‘necessary’ the first time either.

Nope, what’s really disturbing about this whole ‘recovery’ is the persistently rising unemployment figures like those shown in tonight’s offering

[Hat tip: Jesse’s crossroads café ]

26 August 2009 Fed Official: Real US Unemployment Rate is 16%


Dennis Lockhart may be expressing his own views, but the figure of 16% he quotes is nothing more than the Bureau of Labor Statistics "U-6" measure of unemployment.

U-6 Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.

[T]Here is a chart showing the 'official' U3 measure of unemployment and the U6 alternate measure. The chart also includes the unofficial unemployment rate projection done by John Williams of Shadowstats.com.

It appears that Dennis wanted to take this occasion to say that things were SO bad that there is little use in applying any sort of stimulus to the public, although there is plenty of stimulus required for the banks.

Breitbart
Real US unemployment rate at 16 pct: Fed official
Aug 26 02:25 PM US/Eastern

The real US unemployment rate is 16 percent if persons who have dropped out of the labor pool and those working less than they would like are counted, a Federal Reserve official said Wednesday.

"If one considers the people who would like a job but have stopped looking -- so-called discouraged workers -- and those who are working fewer hours than they want, the unemployment rate would move from the official 9.4 percent to 16 percent, said Atlanta Fed chief Dennis Lockhart.

He underscored that he was expressing his own views, which did "do not necessarily reflect those of my colleagues on the Federal Open Market Committee," the policy-setting body of the central bank.

Lockhart pointed out in a speech to a chamber of commerce in Chattanooga, Tennessee that those two categories of people are not taken into account in the Labor Department's monthly report on the unemployment rate. The official July jobless rate was 9.4 percent.

Lockhart, who heads the Atlanta, Georgia, division of the Fed, is the first central bank official to acknowledge the depth of unemployment amid the worst US recession since the Great Depression.

Lockhart said the US economy was improving but "still fragile," and the beginning stages of a sluggish recovery were underway.

"My forecast for a slow recovery implies a protracted period of high unemployment," he said, adding that it would be difficult to stimulate jobs through additional public spending. (How about Bank bailouts and bonsues? Plenty of room to add more, right? - Jesse)

"Further fiscal stimulus has been mentioned, but the full effects of the first stimulus package are not yet clear, and the concern over adding to the federal deficit and the resulting national debt is warranted," he said.

President Barack Obama's administration has resisted calls for more public spending, arguing that the 787-billion-dollar stimulus passed in February needs time to work its way through the economy.

Lockhart noted that construction and manufacturing had been particularly hard hit in the recession that began in December 2007 and predicted some jobs were gone for good.

Prior to the recession, he said, construction and manufacturing combined accounted for slightly more than 15 percent of employment. But during the recession, their job losses made up more than 40 percent of all US job losses.

"In my view, it is unlikely that we will see a return of jobs lost in certain sectors, such as manufacturing," he said. (Yep that's it. Manufacturing is dead, forever. Never to return. - Jesse)

"In a similar vein, the recession has been so deep in construction that a reallocation of workers is likely to happen -- even if not permanent."

Payroll employment has fallen by 6.7 million since the recession began.

Perhaps more disturbing is the fact that job creation under the eight years of the Bush administration only totaled 5 million jobs…so the 6.7 million jobs lost represents a lost decade. Ten years of zero job growth.

Think about that the next time the ‘party of ideas’ urges you to give them your vote.

You may have noticed my posts have been brief since my return from being hospitalized, I’m awaiting another medical procedure and I’m not quite right…but since when did that matter?

Hopefully, once they do what they’ve got to do to me, I’ll be more ‘cogent’ than I have been recently.

Thanks for letting me inside your head,

Gegner

Aimlessness

Greetings good citizen,

For the third straight session the markets ‘wandered’ as they seemed torn between fishing and cutting bait. Actually, something happened mid-morning that arrested what looks like a pretty stiff downward slide and it took the rest of the day for the markets to return to positive territory, so things aren’t as placid as they seem to be.

Perhaps we’ll get a hint about what lies ahead in tonight’s offering

Shares Wander Through Day but Close Higher


By GERRY SHIH
Published: August 27, 2009

As it did for most of the week, Wall Street spent Thursday searching for direction. [Oddly, it picked a ‘direction’ as soon as the markets opened and it took ‘em a while to turn it around.]

The main indexes spent Thursday morning in the red but climbed into positive territory after an afternoon rebound in oil prices and the energy sector. [There’s more on this topic later in the article, but this statement is disturbing all by itself…]

Encouraging pieces of economic data on employment and gross domestic product failed to impress investors, as they seemed content to book profits on another day of listless trading. [Wait another dog gone minute Slim, GDP remained stable (which is being hailed as a win because they say expectations were the number would go down…and the ‘good news’ in employment is that more people have exhausted their claims, which isn’t good news at all.]

“It’s the summertime, with a little bit of economic data and low volume profit-taking,” said Anthony Dwyer, an equity market strategist at FTN Equity Capital Markets. “It could be as simple as that. We use these employment numbers as an excuse rather than reason.”

The Labor Department said that initial unemployment claims last week fell by 10,000 from the prior week, to 570,000. It was the first decline in three weeks, but fell short of economists’ expectations by 5,000. The four-week moving average was 566,250, a decrease of 4,750 from the previous week’s 571,000.

The government also left its second-quarter estimate of the gross domestic product unchanged; some analysts had feared that revisions might show a worse contraction than the 1 percent annualized decline initially reported.

The Dow Jones industrial average rose 37.11 points, or 0.39 percent, to 9,580.63. The Standard & Poor’s 500-stock index gained 2.86 points, or 0.28 percent, to 1,030.98. The Nasdaq composite index climbed 3.3 points, or 0.16 percent, to 2,027.73.

Equity analysts kept an eye on the price of oil, which, like stocks, recovered from an early stumble, to settle at $72.49 a barrel, up $1.06, on the New York Mercantile Exchange.

At one point on Thursday morning, crude prices fell below $70 a barrel on a report showing high inventory levels in the United States and concerns of low refiner demand.

“If you look in the historical realm, we’re way ahead of ourselves inventory-wise,” said Tom Bentz, senior energy analyst at BNP Paribas. “The market is choosing to focus on fundamentals again for a short period.” [Still the ‘mystery’ remains, we are ‘swimming’ in oil yet the price continues to rise, how the hell does that work? Probably works the same way as banks losing billions of dollars while handing out billions more in bonus checks…]

Shares of Chevron and Exxon Mobil, two Dow components, closed relatively flat after falling by more than 1.7 percent during intraday trading.

Shares of Boeing, which announced that it would test fly its long-delayed 787 Dreamliner by the end of year, rose more than 8 percent, or $4, to $51.82.

Shares of the insurance giant American International Group continued to climb on Thursday, jumping 27 percent, or $10.15, to $47.84. The stock has risen more than 400 percent since July 9. [Isn’t it amazing what a government guarantee can do for your share price?]

The latest jump came on speculation that A.I.G. could benefit from a better relationship with its former chief executive, Maurice R. Greenberg.

Robert H. Benmosche, who was named chief executive earlier this month, told Reuters that he has been in regular contact with Mr. Greenberg, who led A.I.G. for almost 40 years. “I want to get the benefit of his criticisms or his support,” Mr. Benmosche said, according to Reuters.

What’s this look like to you good citizen? Has Mr. Greenberg succeeded in planting a sock puppet at the head of his former empire? It doesn’t matter because the government guarantee isn’t worth spit.

For that matter, there’s no saying for sure what anything is worth since the chiselers started down the path of ‘funny money’.

It’s all ‘make believe’ now.

How’s that old Soviet saying go, “we pretend to work and they pretend to pay us…”

Well, sadly, that’s where we’re at right now only most folks haven’t caught on yet. The money doesn’t look any different than the ‘good stuff’ so nobody knows the difference yet the evidence is all around us.

Hundreds of trillions of dollars are being tossed around like they were nothin’…which is a lot closer to the truth than most suspect.

The money’s all ‘funny’ now, they could ‘delete’ half of it and still have too much, but no, prices continue to rise.

When criminals take over the government, you get the kind of government that benefits criminals and no one else.

I know this last bit skips way ‘off topic’ in a sense…the mind recoils at being exposed to so much naked truth in such a short space but there it is.

If the world’s GDP = 53 trillion dollars, where the hell does a quadrillion dollars worth of CDS come from?

The answer is pretty simple, it’s all make believe…but we’re talking life and death here in the land of ‘let’s pretend’.

Thanks for letting me inside your head,

Gegner

What are they playing at?

Greetings good citizen,

Not only did the nation mourn the loss of the senior senator from Massachusetts, but the stock markets, which looked close to closing negative, rallied once more in the last five minutes of trading.

I’m sure you’ve all heard enough about the funeral arrangements so there’s no need to dwell upon them further here. On the other hand, if you blinked you likely missed the post that is tonight’s offering

Yes, good citizen, after rising continually throughout the ‘deflationary’ period of low interest rates and ‘negative’ inflation, we are now being advised that food prices are, once again, ‘on the rise’.

I’m pretty close to this issue as I ‘do’ the shopping…um, is this article trying to tell me that food prices stopped going up and are now resuming their climb or are they saying they will move up at an even brisker pace than they have been rising?

Food Prices Likely to Start Ticking Up

By WILLIAM NEUMAN
Published: August 25, 2009

Prices for beef, milk, eggs and some other grocery items have been dropping for several months, providing relief for consumers who suffered through the steep increases of a year ago. But prices are likely to start edging upward again as the economy recovers, according to a new federal report and economic analysts. [Excuse me? When did the price increases stop? If they stopped, I have yet to see it reflected in the weekly shopping bill.]

“The impact from lower energy prices on grocery store prices has largely been played out, and so we’re now looking at grocery store prices to rise modestly through the end of the year,” said Mark Vitner, a managing director and senior economist at Wells Fargo. [Again, the original word on this topic is grocers were unable to ‘recoup’ their ‘losses’ when energy costs spiked and they would keep increasing prices because of this…now we’re being told that ‘reduced energy prices’ have finally ‘played out’ and prices are about to go up again? WTF! Prices haven’t stopped rising.]

The government report, by the Economic Research Service of the Department of Agriculture, said that grocery prices decreased 0.5 percent in July, compared with June. Compared with July 2008, when overall food costs were surging, grocery prices in July were down 0.9 percent. [Um, notice they don’t tell you what planet this is taking place on, as ‘tenths of a percent’ are once again being treated as a ‘big deal’.]

In several food categories, prices dropped sharply. Beef fell 2.3 percent in July, compared with June, the eighth decrease in the last nine months, according to the report. [Have you priced beef recently? They are indeed knocking down the price BECAUSE NOBODY WAS BUYING IT!] Egg prices were down 2.7 percent from June to July and were 21.3 percent below their level in July a year ago. Milk prices declined 0.4 percent in the month, the 10th decline in the last 11 months, and were 18.4 percent below July 2008. [Somewhat strange to see them using heavily subsidized milk prices as a comparison since the price has no relationship to reality.]

The national average price for a gallon of fresh whole milk in July was $2.99, compared with $3.96 in the same month a year earlier, a 25 percent drop, according to federal data.

Prices for fresh fruit and vegetables were also down markedly compared with their levels a year ago. [Um, you don’t suppose ‘seasonality’ AND the drastic reduction in energy prices have anything to do with it, do you?]

In contrast, some food prices rose compared with last year, including breakfast cereals, sugar and carbonated drinks. [So much for our nod to ‘reality’, a lot more than breakfast cereal and soft drinks have gone up in price.]

Over all, the Agriculture Department forecast that prices for what it calls “food at home,” a category that includes purchases at grocery stores, convenience stores and farmers’ markets, will rise 2 to 3 percent this year. Last year, the department said, prices for food at home rose 6.4 percent, the highest jump in nearly two decades.

“We do expect some price increases with the recovering economy,” said Ephraim Leibtag, a senior economist at the Agriculture Department. “Our numbers here imply there has to be some additional inflation in the next six months to get out of the negatives we’re in right now.” [Wait a minute, Slim! Do you see the ‘smokescreen’ being blown up your backside? The so-called ‘recovery’ (which so far only bloodhounds have caught scent of) is going to be accompanied by rising food prices? What kind of twaddle is this? As I have pointed out repeatedly in the past, it is extremely dangerous to lie about what the consumer can see and touch themselves. If you haven’t been paying attention, let me inform you that despite the lousy spring, they’re projecting a bumper harvest this year! But then again, we’re literally swimming in oil and the price continues to rise…]

Bill Lapp, president of Advanced Economic Solutions, a consulting firm that specializes in analysis of food commodity costs, said that even with only a modest gain this year, food inflation was expected to outpace the overall rise in the Consumer Price Index, which he said could be close to zero for the year. [What do you suppose this will do for the still nascent economic recovery? Worse, it appears we are being prepped to let speculators make another killing while they pick our pockets yet again!]

Mr. Lapp said that one reason food prices would continue to rise was that commodities like corn continued to trade above historical averages, even though they had come down from the unusually high levels they reached last year. [Um, add to that that most ethanol producers have gone bankrupt in the meantime…]

And some of the food categories that have recorded price declines, like beef, pork, poultry and dairy products, will begin to go back up as farmers cull herds and flocks, causing supplies of those products to decline.

“I think that the food inflation wake-up call won’t begin, in large measure, until late this year and in 2010,” Mr. Lapp said. He said, however, that there were already signs of rising prices for chicken and milk. [So, this is the tip of the iceberg…millions have lost their homes and millions more have lost their jobs, how do you suppose this is going to turn out?]

Faith Weiner, senior director of public affairs for Stop & Shop, the supermarket chain, said that shoppers had been snapping up large packages of meat or poultry when they were on sale.

“We think folks are stocking up,” Ms. Weiner said. “You might have a special on chicken breasts, a Big Buy packet at a reduced price. People are buying more than they normally would and freezing them because it’s a good value.”

What part of this picture don’t these assholes get? Cut jobs and slash the wages of those who keep their jobs, then let prices climb out of control…what does that sound like to you?

It sounds like a recipe for disaster to me.

How much do they think people will tolerate? Sadly, we’ve already proven that we will tolerate quite a bit, even the unfair and the unreasonable.

And once you’ve ‘given it back’ you have to fight for it all over again.

How bad do you suppose it will get good citizen? We all have different thresholds and can even astound ourselves with the levels of depravity we will tolerate.

Why?

Because in our current ‘anything goes’ situation, nobody is making a stand, it’s all good…until it isn’t.

There’s been a lot of discussion out there about ‘moral compasses’ and it has revealed we don’t, as a society, have one.

Be afraid, good citizen, be very afraid.

Thanks for letting me inside your head,

Gegner

Fantasia...

Greetings good citizen,

Let me begin by apologizing for my absence over the past ten days. My bad, I didn’t think to grab my computer and throw it in the back of the truck before I drove myself to the hospital…but I (stupidly) didn’t think they’d keep me either.

Which segues into the subject of tonight’s offering Where we once again visit the seemingly insolvable riddle of who thinks who is ‘stupid’.

Gain in Consumer Confidence Sends Stocks Higher


By THE ASSOCIATED PRESS
Published: August 25, 2009

Filed at 4:12 p.m. ET

NEW YORK (AP) -- The stock market managed to carve out modest gains amid news of a rebound in consumer confidence and more healing in the housing industry. [Honestly good citizen, housing ‘sales’ are up but if these pricks were in any way honest, they’d balance that curiosity against the fact that foreclosures are still adding ‘inventory’ faster than it’s being absorbed. Net-net, things are getting worse, not better!]

Financials, retailers and homebuilders were the day's biggest winners. A sharp drop in energy stocks kept a lid on the market's advance.

While investors were pleased by positive reports on consumers and housing, trading was choppy, as it has been in recent sessions. [Hmmn…’choppy’ trading? Could this be due to the limited number of ‘suckers’ out there? With P/E’s at over 70, there isn’t a good reason to be buying stocks, period.]

According to preliminary calculations, the Dow Jones industrials are up 30 at 9,539, after earlier rising as much as 111 points. The Standard & Poor's 500 index is up 2 at 1,028, while the Nasdaq composite index is up 6 at 2,024.

Two stocks rose for every one that fell on the New York Stock Exchange, where volume came to 1.12 billion shares.[It is wise to remain mindful that these days it is not people but computers trading stocks…]

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

NEW YORK (AP) -- Investors put stocks back on an upward path Tuesday, encouraged by news of a rebound in consumer confidence and more healing in the housing industry.

Major stock indexes rose moderately in afternoon trading, including the Dow Jones industrials, which added about 40 points. Financials, retailers and homebuilders led the market's gains, while energy and utility stocks fell as oil prices cooled following a recent surge. [Given that foreclosures and defaults are still ‘off the charts’ does anyone want to speculate just who is buying stocks in ‘Financials’ (especially considering P/E ratios?) Do you think it might be ‘the big trading desks’ that STILL have an umbilical tied directly into YOUR pocket?]

Investors got better-than-expected readings Tuesday on two of the most problematic parts of the economy: consumers and housing. The day's news reinvigorated the market after stocks hit a lull on Monday, closing little changed after four days of gains that took the major indexes to new highs for the year.

''The upward trend has still not broken in the market,'' said Brian Daley, sales trader at Conifer Securities.

The Conference Board's Consumer Confidence index rose to 54.1 this month from an upwardly revised 47.4 in July and far above the 47.5 reading analysts expected. The reading is still a long way from showing that consumers are actually feeling optimistic about the economy amid ongoing worries about job losses. But it suggests Americans' pessimism about the economy is abating.

Meanwhile, the Standard & Poor's/Case-Shiller U.S. National Home Price Index rose 1.4 percent in the second quarter from the January-March period, the first quarterly increase in three years. Home prices, while still down almost 15 percent from last year, are at levels last seen in early 2003. [Hmmn…is this where the newly increased ‘consumer confidence’ numbers came from? By the way, since consumer confidence is a measure of ‘emotion’, how large do you suppose the ‘margin of error’ is?]

The improvements in consumer confidence and housing are related. If consumers are feeling better about the economy, they will be willing to spend a little more on houses, not to mention cars, appliances and other goods and materials. Investors' concerns about flagging consumer confidence have triggered bouts of stock selling in recent weeks. [Yes good citizen, but once again let me point out that there’s a huge difference between ‘willing’ and ‘able’.]

Stocks also got a boost from President Barack Obama's reappointment of Ben Bernanke as Federal Reserve chairman. Bernanke's reappointment, though expected, came sooner than anticipated and removed any uncertainty about a potential replacement. [As has been asked repeatedly in various quarters, replaced by ‘whom’?]

The Dow rose 42.78, or 0.5 percent, to 9,552.06. The Standard & Poor's 500 index rose 3.29, or 0.3 percent, to 1,028.86, while the Nasdaq composite index rose 5.18, or 0.3 percent, to 2,024.16.

About two stocks rose for every one that fell on the New York Stock Exchange, where volume came to 852.3 million shares, compared with 912.3 million at the same time on Monday.

In other trading, the Russell 2000 index of smaller companies rose 4.34, or 0.8 percent, to 584.58.

A sharp drop in oil kept a lid on the market's gains. Oil prices tumbled $2.32 to settle at $72.02 a barrel on the New York Mercantile Exchange, bringing energy-related stocks down with them. Halliburton Co. fell 88 cents, or 3.5 percent, to $24.40. Chesapeake Energy Corp. lost 52 cents, or 2.2 percent, to $23.42. [A somewhat counterintuitive development, wouldn’t you say? If energy falls, giving the consumer more ‘breathing room’, you’d expect the market to rally, not drop, so we have yet more evidence that the interests of investors are not ‘aligned’ with the interests of society at large.]

The moderate advance on Tuesday follow a trend seen in the market throughout the summer, where any dip in stocks or pause in trading is met with more buying as investors fear missing out on an extended rally. [Ahem, here fishy, fishy, fishy…here fish! WTF!]

Despite improving economic data, the market is still generally cautious. After a 52 percent climb in the S&P 500 since early March, investors are questioning how much further stocks have to go, especially in the absence of data showing actual growth in the economy. [Every once in a while a fragment of truth escapes into the public consciousness.]

''The fear I have is that it's still a trader's market,'' said Steven Stahler, president of The Stahler Group. ''You've got a lot of activity ... but not real legs.''

Shares of major homebuilders surged after the home price data. Hovnanian Enterprises Inc. jumped more than 5 percent, adding 24 cents to $4.53, while Lennar Corp. rose 41 cents, or 2.8 percent, to $14.98. [Again, only steeply discounted (and subsidized) foreclosed homes are selling like hot cakes, the ‘builders’ are still on their collective duffs.]

Financial stocks rebounded after sagging on Monday in response to a downbeat analyst's report. Bank of America Corp. rose 36 cents, or 2.1 percent, to $17.71. PNC Financial Services Group Inc. rose 99 cents, or 2.4 percent, to $42.10.

Retailers also rose. Shares of Big Lots Inc. soared more than 6 percent, adding $1.52 to $25.55 after its second-quarter results beat analysts' expectations and the discount retailer raised its full-year earnings forecast. Best Buy Co. jumped $1.16, or 3.2 percent, to $36.97. [Ties in nicely with those rising consumer confidence numbers, doesn’t it?]

Bond prices came off earlier lows and moved slightly higher after an auction of $42 billion in two-year notes was met with adequate demand. The Treasury Department is issuing a total of $197 billion in debt this week, and investors have been worried that .with so much supply flooding the market, demand would slump and force the government to raise the interest it pays to lure buyers.

The yield on the benchmark 10-year Treasury note dipped to 3.45 percent from 3.48 percent late Monday. The yield on the two-year note was unchanged at 1.03 percent.

The dollar mostly fell against other major currencies, while gold prices rose.

The gains in the U.S. came amid mixed trading in overseas markets. Japan's Nikkei stock average fell 0.8 percent. Britain's FTSE 100 rose 0.4 percent, Germany's DAX index rose 0.7 percent, and France's CAC-40 gained 0.8 percent.

Not surprisingly, every ‘indicator’ glibly cited here has a much darker underbelly than what they are telling you.

I was, well, not quite shocked but more like astounded when I heard this morning that a ‘global economic rally’ was underway. Such audacity!

Who the fuck do they think they’re shitting? This disaster started with the ‘tapped out’ consumer and that situation hasn’t changed, so what ‘rally’ (besides the massive ‘stimulus’ programs initiated by governments around the world) are they talking about?

We all know they are ‘borrowing’ against our future to keep the current economy from collapsing but how long can they keep that ruse up before it becomes obvious that there is no way we’re ever going to pay that money back?

Long before this whole mess started we were already ‘on the hook’ for more than we could pay back with a 100% income tax, held in place for a hundred years!

I don’t know about the rest of you but I don’t know anyone that can go a hundred days, never mind years, without eating.

It is a perilous game indeed to place personal fortune ahead of the fate of civilization, but that’s just what they’re doing.

Only a fool thinks they can escape the resulting backlash…

But sadly, great wealth does not insure great wisdom.
Thanks for letting me inside your head,

Gegner

A 'thought experiment'

Greetings good citizen,

Every once in a while I feel the need to 're-visit' certain topics that haven’t been discussed in a while and this particular subject has been out of sight for quite some time.

Back when this nonsense first started, there was a lot of ‘speculation’ that there’d be a ‘run’ on the dollar.

Simply put, the dollar would sink so low, so fast that you’d wake up one fine morning and find out you weren’t being paid nearly enough.

In no uncertain terms you would be compelled to confront your employer and demand a raise or you’d cease working for them, effective immediately.

What do you suppose your employer would tell you? Would you be shocked if he laughed in your face? (This is not his likely first reaction as he’s in the same leaky canoe you’ve suddenly found yourself in.) He pays himself far better than he pays you but that doesn’t mean he has enough to pay all of his employees some multiple of their current wages (say double for the sake of argument.)

In order for him to pay you (and his other essential staff) double, he has to double the price of his product (and then some or he’ll leave himself ‘short’.)

There’s no doubt there’s going to be a lay-off later that day and you’re ‘righteous’ action has probably resulted in placing yourself at the head of the list he’s been drawing up.

The bigger the operation, the more heads that will ‘fly’.

So you apologize profusely, clock in and wait for the bad news. Break time rolls around and the only thing anyone is talking about is why prices went ‘haywire’ overnight.

Nobody knows why the coffee shop downtown is suddenly charging $10 for a small regular and the gas station down the street is asking for $15 a gallon for regular. Without a stiff pay increase you can’t afford these prices.

You know you went to sleep in your own bed last night but you have somehow woken up in Zimbabwe.

Lunch time rolls around and the boss calls a meeting, the sooner he gets this over with, the better. What’s he been up to while you’ve been working all morning? He’s been on the phone to his customers, advising them of the upcoming price hikes.

He started off saying that he’d honor the old price for ‘work in progress’ but too many customers cancelled their orders when they heard the new price and found out their orders weren’t ‘in progress’.

So he had to take the tough stance of telling the rest of his customers that the new prices were ‘retroactive’…and he lost even more business.

You’d think he’d be locked in his office, muttering how ‘screwed’ he was but no, he kept his head. He knows his customers are in the same boat he’s in, they’re going to have to double their prices too.

After he gets off the phone with his customers it occurs to him that he’d better call his suppliers to make sure ‘double’ was going to cover it.

Most suppliers are pretty confident that double is ‘safe’ but some are tripling their prices, just in case this sudden ‘upset’ isn’t over.

Guess who decides to make a national announcement at high noon? You get word that the lunch meeting is postponed until after the president says his piece.

Since the building has one of those PA systems that nobody can decipher, the Boss says you should all go out to your cars to listen to the president’s speech yourself as it’s being broadcast on all channels.

So everybody (who brought one) grabs their lunch and heads out to the parking lot…it’s colder than a well digger’s ass so you hope the Pres makes it quick as you don’t want to run your engine too long with gas at $15 a gallon.

What do you suppose the President has to say? It turns out the Israeli’s bombed Iran’s nuclear facilities overnight. The entire Middle East is at war AND all of our ‘trading partners’ dumped the dollar at pretty much the same time.

Not only are we at war BUT the dollar is also officially worthless. Our trading partners all want to be paid in Yuan…or oil, even our European trading partners as they have all had the ‘boom’ lowered on them as well. Their money is ‘no good’ too.

And there isn’t a fucking thing we can do about it…short of going to war with China…and Russia.

What do you suppose are the next words out of the President’s mouth?

“We launch in ten minutes…”

Naturally, he advises everyone to seek out the nearest fallout shelter, knowing full well that none have been re-provisioned for over thirty years.

Suddenly, that big raise you were looking for that morning seems ‘inconsequential’. If you survive this, you will spend the rest of your natural days in ‘nuclear hell’, starting with a year long ‘nuclear winter’. How you’re going to survive that with no food is another question by itself, but there you go!

Let’s suppose for a fraction of a second that the President and the chiefs of staff DON’T lose their minds and sacrifice hundreds of millions of lives over a stupid thing like worthless money.

This is both doubtful and a ‘long shot’ but it could happen. (Understand that the wealthy have well stocked fall out shelters right at their fingertips.)

You also need to understand what’s at stake here, the Israeli government would be sent to The Hague to answer for ‘war crimes’, as the US would ‘voluntarily’ surrender its veto at the UN.

Then Israel would be ‘banished’ from the Middle East…and relocated to say, Michigan.

Starting to look pretty unlikely already, isn’t it?

Anyway, the Chinese move the UN from New York to Taiwan, along with annexing the island back into the Chinese Republic.

Because they can…

Naturally, the Yuan is named the world’s new ‘reserve currency’ (with the Ruble, the Rupee and the Real being offer ‘equal’ status with the Yuan) and the USD is ‘re-instated’ at 25 to 1. So merely ‘doubling’ your pay isn’t going to cut it, although ‘double’ is all your employer offers, if he even deigns to continue employing you at all.

BUT, we have lived to fight another day!

The interesting question everybody is wondering about is ‘how’ we got ourselves into this mess? And the answer is suddenly apparent. We were ‘sold out’ by the ‘more for me’ capitalists among us.

Um, I’m pretty sure few of you think he above scenario will ever play out in your lifetime…but there’s nothing stopping the Chinese from pulling the plug ‘tomorrow’, all they need is a half-assed, legitimate excuse.

We owe them a shit load of money…for stuff we could have just as easily made ourselves.

Think about that good citizen and wonder how long it will be before you wake up after a not so good night’s rest only to find yourself in Zimbabwe.

Thanks for letting me inside your head,

Gegner

P.S. I'm not purposefully painting the Chinese as the 'bad guys' here, this is simply where the chips currently lie. They didn't ask for this but they certainly have had it 'handed' to them.

Doomsday, revisited.

Greetings good citizen,

Well, if yesterday was Yea, you know what today is. First the Fed sounds the ‘all clear’ and today, lo and behold, we find retail sales in the dumper! Isn’t this the ‘polar opposite’ of yesterday’s analysis of increased imports? (Which drove the markets up 120 points)

Anyway, here’s a link to today’s fiasco. The consumer is back all right, back where we last saw them, broken and bleeding under the wheels of the bus! What do you suppose accounts for the ‘uptick’ in imports? We’re four months away from what major holiday? Ho,ho,ho!

It’s time once gain to shift mental gears as we arrive at tonight’s offering for a ‘top down’ view of the still unfolding disaster.

[Hat tip: The Automatic Earth]

Doomsday -- pros and cons

Arnaud de Borchgrave

Two major entrepreneurial tycoons, in the multibillion-dollar league, with worldwide interests, speaking not for attribution, agree that the worst is yet to come. America and the rest of the world has to reinvent itself for the 21st century, but this won't happen before another big credit-rattling shock. Millions of jobs are not coming back, they said.

They were speaking about the current global financial and economic crisis. Another humongous credit crunch is on the way, they believe, and the current optimism is simply a pause before another major downward slide. Unemployment, they forecast, will climb from the low to the high teens. A pledge to limit tax increases to those making more than $250,000 a year is a pipe dream. Someone has to pay the health piper. Major social dislocations are on their horizon for 2010.

One of the interlocutors has shunned all manner of stocks in favor of discounted corporate bonds that yield 7 1/2 percent, and gold. The other has already moved all his financial holdings into a cocktail of Asian currencies based at a new entity he created in Singapore.

"We are roughly where Britain was in 1968," said one. That year Prime Minister Harold Wilson decided to abandon all of Great Britain's obligations east of Suez. That included the entire Persian Gulf, from Oman to Kuwait, the Strait of Hormuz, British special agents in all the emirates and sheikhdoms, local constabularies with British officers, the fabled Trucial Oman Scouts (TOS) -- all for the bargain basement cost of $40 million a year.

As the British and other colonial empires faded into history, America's global empire grew topsy-turvy and since the collapse of the Soviet empire in 1989, its power grew unchallenged. The two tycoons, who did not wish to be quoted, agreed with a rapidly growing segment of the U.S. population that says America can no longer afford the astronomic costs of empire.

With more than 2.5 million U.S. military personnel serving across the planet and 737 military bases spread across each continent, and 3,800 installations in the United States, a reassessment of roles and missions is long overdue. The estimated $1 trillion in overdue infrastructure repairs and modernization strikes many as an overdue priority.

The 2010 defense budget is a shade shy of $700 billion, more than two-thirds of a trillion dollars, which now tops the rest of the world -- including major players Britain, France, Germany, Japan, Russia, China, India -- put together. Add all the defense expenditures neatly tucked into the budgets for Energy, State, Treasury, Veterans Affairs, and 16 intelligence agencies, and the numbers top $1 trillion.

With only 5 percent of the world's population, it is still remarkable that the United States can maintain global military superiority on less than 5 percent of gross domestic product. But from the world's biggest creditor, the United States has become the world's largest debtor, coupled with a rapid decline of a manufacturing sector once hailed as the arsenal of democracy and an annual per capita trade deficit of $2,000 per citizen.

U.S. share of global output continues to decline from year to year. Like General Motors Corp. and Ford, the United States has yielded share of the global market from one-third at the turn of the new century to one-quarter today. Was the rise of the rest the decline of the West?

Have U.S. commitments and responsibilities outstripped resources? The two anonymous billionaire voices were among the many now saying so in public opinion polls. They feel a paradigm shift is inevitable. We are yet to wean ourselves from the old paradigm: the $3 billion we borrow each and every day -- principally from China -- to maintain the world's highest standard of living, based on conspicuous consumption, by a few at a time of growing world shortages. And when we are finally weaned, it will become glaringly obvious that these few we were living way beyond their our means and that major belt-tightening is long overdue.

In his projections through 2025, Thomas Fingar, the former chief analyst for the 100,000-strong U.S. intelligence network, which includes 16 agencies with a budget of $50 billion, predicted the international system would be transformed over the next 15 years as dramatically as it was after World War II. As China rises to global prominence, the United States would be declining. "In terms of size, speed and directional flow," wrote Mr. Fingar, "the transfer of global wealth and economic power now under way -- from West to East -- is without precedent in modern history." [which is to say that ‘globalization’ equals ‘treason’.]

Following Mr. Fingar's analysis, former deputy Treasury Secretary Robert Altman wrote in Foreign Affairs, the official organ of the Council on Foreign Relations, that the current financial crisis is "a major geopolitical setback for the U.S. and Europe" that could only accelerate trends that are moving the global center of gravity to China. And this is something that a staggering $1 trillion for defense (in a budget with a projected $2 trillion federal deficit) would be powerless to reverse.

The pessimistic outlook should, of course, be tempered by the fact that IBM spins off more technology patents in a typical year than all of China. Three-quarters of the world's top universities are in America. So any loss of influence is at this stage attributable to reckless profligacy at every level of American society, beginning with the federal government and the mind-numbing bonuses that Wall Street's "Masters of the Universe," as Tom Wolfe called them in his 1987 best-seller "Bonfire of the Vanities," have lavished on themselves Roman Empire-style. [While we ‘peons’ merely struggle to survive…]

Both global entrepreneurs mentioned at the beginning of this column believe Israel will resolve its existential crisis by bombing Iran's key nuclear facilities later this year. One thought Gulf Arabs would be secretly delighted and that Iran's much vaunted asymmetrical retaliatory capabilities would fizzle as the theocracy imploded. The other could see mayhem up and down the Gulf, the Strait of Hormuz closed, and oil at $300 per barrel.

As I commented in the beginning, here we have the ‘top down’ view of the current crisis. Isn’t it amazing that each ‘strata’ of society considers itself the penultimate ‘every-man’?

Yes, good citizen, the rich blame the peasants for driving up the price of real estate to irrational levels so we could keep drawing upon the ‘magical manna’ of ‘home equity’.

No, no, free money had nothing to do with it! Nor did the fact that most of us hadn’t received a raise that outpaced inflation in over two decades have any bearing on the matter either.

It’s all one big ‘misunderstanding’, isn’t it? If we’d all managed to behave ‘rationally’, none of this would have happened.

So it appears that our ‘tycoons’ have decided to ‘follow the sun’ (and ‘the empire’) as it drifts Eastward…the rest of us are ‘scroomed’.

Correct me if I’m wrong but wasn’t the original revolution intended to free us from these ‘foreign entanglements’? I think we need to ‘try again’.

Thanks for letting me inside your head,

Gegner

The Markets 'shrugged'...

Greetings good citizen,

This is beginning to read like the ‘flip-flop’ show, where every day ‘dueling pundits’ battle it out over the state of the economy.

Let’s see, if yesterday was ‘nay’ then today must be Yea! as yesterday’s ‘profit taking’ morphs into today’s ‘bargains’ with the Dow tacking on 120 points!

Did you read last night’s offering closely? If you did then you know the current ‘rally’ is a total hoax because what we’re seeing isn’t a ‘rally’ at all, it’s a sell off! Only $13 million dollars worth of shares have been bought while over a billion dollars worth have been sold.

The question that pops into one’s mind is if this is a sell-off then why aren’t the markets going down? The answer is really quite simple, the Dow, the S&P and the Nasdaq are all ‘indexes’ which only display ‘general’ movements in the markets not specific ones.

There are only thirty companies listed in the Dow and a full third of them are ‘financials’, some of which are still trading below the so-called ‘minimum’ for listing on the Dow. (Dow ‘minimum’ is $10 a share.) So if you want to drive the ‘Dow’ up, all it takes is nudging a few of these ‘cheap’ stocks in a positive direction.

The same goes for the other two. In fact, that was one of the items pointed out in post a few nights ago, how ‘bizarre’ it was that stocks with rather poor market positions were suddenly ‘surging’ for no apparent reason…

But now you know the ‘reason’, they’re pulling off a rally that’s actually covering for a sell off ‘on the cheap’!

Let proceed to today’s dose of ‘Happy Talk’.

Fed Reports, Wall Street Shrugs and Moves On

By JACK HEALY
Published: August 12, 2009

overly Optimistic investors took advantage of a two-day decline on Wall Street to jump back into the market on Wednesday, pushing stock indexes sharply higher as the Federal Reserve offered a more optimistic read on the economy.

As expected, the central bank’s Open Market Committee chose not to raise target interest rates from their record-low levels of effectively nearly zero percent, and its four-paragraph statement offered no jaw-dropping surprises about the economy or Fed policies. But it did say that the economy was “leveling out” and that it would end a program to buy $300 billion in longer-term government bonds at the end of October. [you know ‘why’ they’re ending that program, don’t you good citizen? In order to ‘buy’ bond they must first ‘sell’ bonds and that hasn’t been going real well lately…]

The Fed’s statement said little that investors on Wall Street did not already know. It said that financial markets were continuing to improve, that the economy was likely to remain weak “for a time,” and that tight credit, job losses and reduced wealth were all restraining consumer spending. [Normally, such an assessment from the Fed would send investors screaming the exits…but no, that hasn’t happened since the Investment banks seized their direct pipeline to the printing presses.]

“I don’t really see anything here to blow our socks off,” said Dennis Cajigas, senior market strategist at Lind-Waldock. [Every article they quote some Mickey Mouse, obscure investment house that we, the public, knows nothing about…]

Despite rising oil and gold prices and weakness in the dollar, the Fed said it expects inflation “will remain subdued for some time.”[Of course, this is the same fed that declared that the sub-prime mortgage mess was ‘contained’…] Some analysts are expecting inflation to surge as the government racks up huge new deficits (a record $180.7 billion in July) to finance the stimulus and other projects.

Investors welcomed the Fed’s assessment.

At 3 p.m., the Dow Jones industrial average was up 172 points or 1.85 percent while the broader Standard & Poor’s 500-stock index was 1.78 percent higher. The Nasdaq rose 2.2 percent, lifted by gains by rivals Apple and Microsoft. [This brings us back to the issue of how many share does it take to ‘move the market’? Do you suppose just a few would do it? Naturally, it’s probably more so a function of ‘who’ does it rather than how many shares trade hands…]

The Fed’s decision to wind down its purchases of government securities, which had aimed to keep interest rates low, caused a stir in bond markets, where Treasury prices fell. The yield on the benchmark 10-year note, which rises when demand falls, rose to 3.72 percent from 3.67 percent late Tuesday.

“Judging by the immediate market sell-off, there were more than a few participants who were hoping for a greater commitment toward Treasury purchases,” Joshua Shapiro, chief United States economist at MFR, said in a research note. [More solid analysis from yet another ‘world renowned’ investment house…]

Although markets wavered earlier this week on some analyst downgrades and more subdued economic figures and profit reports, traders were betting that Wall Street was still headed higher. The major stock indexes have gained more than 10 percent over the last month on signs the long recession may be ending, and that companies are poised to grow again. [With P/E’s in excess of 140, how do you suppose these companies are ‘growing’…oh, right, you’re not suppose to know about the P/E ratio or what it’s for.]

A smaller-than-expected increase in the United States trade deficit bolstered hopes that trade was rebounding after several months of contraction. The Commerce Department reported that the trade deficit edged up 4 percent in June to $27 billion, from May’s $26 billion as imports rose for the first time in 11 months. [Explain to me again why we’re supposed to be cheering for our Chinese suppliers?]

Exports increased 2 percent in June from the month earlier, showing increasing demand for semiconductors, civilian aircraft and telecommunications equipment. On Wednesday, shares of Boeing were up, as were shares of the computer-chip maker Intel.

But led by declines in China, most stock markets around Asia fell as investors pulled back in the wake of mixed economic data the previous day. Many analysts have long said that a technical correction was overdue, given that Chinese stocks have outpaced most of the rest of the world with an 80 percent jump since the start of the year.

“We have reached valuations that we normally reach about 3 or 4 years into a recovery — but we’re only 6 months into a recovery now. The markets are pricing way ahead, but Father Christmas just doesn’t come so quickly,” Markus Rösgen, head of regional strategy at Citigroup in Hong Kong, said.

In Europe, the FTSE 100 in London rose 0.97 percent or 45.42 points, the DAX in Frankfurt rose 1.22 percent or 64.28 points, while the CAC-40 in Paris gained 1.48 percent or 51.48 points.

I know, I’m messing with the schedule here good citizen but I felt it would be appropriate to provide an immediate ‘reality check’ to counter the above bit of ‘froth’.

Experts never learn
By (world renowned AND reviled as a ‘perma-bear’) Peter Schiff

There is an inexplicable, but somehow widely held, belief that stock market movements are predictive of economic conditions. As such, the present rally in US stock prices has caused many people to conclude that the recession is nearing an end.

The widespread optimism is not confined to Wall Street, as even President Barack Obama has pointed to the bubbly markets to vindicate his economic policies. However, reality is clearly at odds with these optimistic assumptions.

In the first place, stock markets have been taken by surprise throughout history. In the present cycle, neither the market nor its cheerleaders saw this recession coming, so why should anyone believe that these ‘fonts of wisdom’ have suddenly become clairvoyant? [Especially in light of the investment banks new found access to the ‘Federal cash box’]

According to government statistics, the recession began in December 2007. Two months earlier, in October, the Dow Jones Industrial Average and S&P 500 both hit all-time record highs. Exactly what foresight did this run-up provide? Obviously, markets were completely blind-sided by the biggest recession since the Great Depression. In fact, the main reason why the markets sold off so violently in 2008, after the severity of the recession became impossible to ignore, was that they had so completely misread the economy in the preceding years. [While the point is well taken, I believe this to be a rather ‘charitable’ assessment of the situation.]

Furthermore, throughout most of 2008, even as the economy was contracting, academic economists and stock market strategists were still confident that a recession would be avoided. If they could not even forecast a recession that had already started, how can they possibly predict when it will end? In contrast, on a Fox News appearance on December 31, 2007, I endured the gibes of optimistic co-panelists when I clearly proclaimed that a recession was underway.

Rising US stock prices, particularly following a 50% decline, mean nothing regarding the health of the US economy or the prospects for a recovery. In fact, relative to the meteoric rise of foreign stock markets over the past six months, US stocks are standing still. If anything, it is the strength in overseas markets that is dragging US stocks along for the ride.

In late 2008 and early 2009, the "experts" proclaimed that a strengthening US dollar and the relative out-performance of US stocks during the worldwide market sell-off meant that the US would lead the global recovery. At the time, they argued that since we were the first economy to go into recession, we would be the first to come out. They claimed that as bad as things were domestically, they were even worse internationally, and that the bold and "stimulative" actions of our policymakers would lead to a far better outcome here than the much more "timid" responses pursued by other leading industrial economies.

At the time, I dismissed these claims as nonsensical. The data are once again proving my case. The brief period of relative out-performance by US stocks in late 2008 has come to an end, and, after rising for most of last year, the dollar has resumed its long-term descent. If the US economy really were improving, the dollar would be strengthening - not weakening. [You can’t argue with that assessment…]

The economic data would also show greater improvement at home than abroad. Instead, foreign stocks have resumed the meteoric rise that has characterized their past decade. The rebound in global stocks reflects the global economic train decoupling from the American caboose, which the "experts" said was impossible.

Though the worst of the global financial crisis may have passed, the real impact of the much more fundamental US economic crisis has yet to be fully felt. For America, genuine recovery will not begin until current government policies are mitigated. Most urgently, we need a Federal Reserve chairman willing to administer the tough love that our economy so badly needs. The fact that Ben Bernanke remains so popular both on Wall Street and Capitol Hill is indicative of just how badly he has handled his job.

Contrast Bernanke's popularity to the contempt that many had for Fed chairman Paul Volcker in the early days of Ronald Reagan's first term. There were numerous bills and congressional resolutions demanding his impeachment, and even conservative congressman Jack Kemp called for Volcker to resign.

Had it not been for the unconditional support of a very popular president, efforts to oust Volcker likely would have succeeded. Though he was widely vilified initially, he eventually won near unanimous praise for his courageous economic stewardship, which eventually broke the back of inflation, restored confidence in the dollar and set the stage for a vibrant recovery. Conversely, Bernanke's reputation will be shattered as history reveals the full extent of his incompetence and cowardice. [I’d beg to differ here because the probability is excellent that Mr. Bernanke will be the last Fed chairman.]

As Congress and the president consider the best policies to right our economic ship, it is my hope that they will pursue a strategy first developed by Seinfeld character George Costanza. After wisely recognizing that every instinct he had had up unto that point had ended in failure, George decided that to be successful, he had to do the exact opposite of whatever his instincts told him. I suggest our policymakers give this approach a try.

Peter Schiff is president of Euro Pacific Capital and author of The Little Book of Bull Moves in Bear Markets. Euro Pacific Capital…

While I, like many, do not completely agree with Mr. Schiff’s assessment of the current situation (He is, after all, a capitalist) his insights are far closer to reality than all the ‘Happy Talk’ that is presented for public consumption by the corporate owned MSM.

As the world you actually encounter every day with your own two eyes continues to deviate from the ‘Happy Place’ the MSM offers for your consumption, the seeds of revolution are sown…

Thanks for letting me inside your head,

Gegner

Beware the Bear!

Greetings good citizen,

Contrary to the line of bullshit the general public is being fed (of which last night’s offering is a sterling example,) we have what’s really going on in the background while corporate shills paint their fantasies of a ‘quick and durable’ turnaround for public consumption.

But first, a foreword from the ‘source’ [Hat tip: Some Assembly Required]

Don’t Say You Weren’t Warned: Back in the day, PE ratios of 20 or so were high, 10 and below low, and 14 about right. The S&P 500 is currently above 140. No wonder CEOs and their friends are selling every share they can: the score: Buyers $13 million, Sellers $1 billion. And it's damned near the last inning.

[Then on to our ‘featured’ article…]

Ten reasons to beware the Bear
Charles Smith

Aug 9th 2009 at 3:00PM

I'm wary of both extreme euphoria and gloom because they reflect emotion more than reality. For instance, a mere three weeks ago, the financial media was chock-full of stories warning that the stock market was about to suffer a dramatic decline due to an ominous "head and shoulders" pattern in the S&P 500's chart. Instead of declining, the markets rocketed up for three straight weeks, with the S&P 500 topping out last Friday at 1,010. (For the record, I went long on July 9th and explained my reasoning on my blog, Of Two Minds.com.) So much for widespread gloom being an accurate predictor of stock market action. Rather, such extremes of sentiment are remarkably accurate contrarian indicators.

When gloom and fear are absolutely pervasive, conditions are ripe for a reversal-that is, a stock market rally. Gloom also reigned supreme in the first week of March when the stock market reversed its panic-stricken drop that began in late 2008.

Now we find the exact opposite emotion-euphoria-is pervasive. Standard-issue financial pundits (SIFP) are falling over each other in their eagerness to declare a new Bull market, the end of the Great Recession, financial stocks are dirt-cheap, etc. All this confident euphoria is driving the contrarian meter off the scale, creating an ideal setup for an "unexpected" return of the Bear-not just a modest retrace or correction most expect but a sharp, unrelenting decline.

There are a number of technical indicators that suggest the 1,010 level on the S&P 500 is not merely a way-station on a great glorious Bull market, but the top of a five-month up trend. You've probably read about these indicators already, but it may prove prescient to ponder the entire list:

1. The rally is getting long in tooth. Technicians have long noted that rallies and declines tend to last 60, 90, 120, 150 or 180 days. The end of last week marked day 150 of the rally from March 6, and while it is possible it may run another 30 days, it is already one of the longest rallies on record.

2. The market tends to top in late July or early August, especially in the first year of a presidential cycle. Nothing is written in stone, but this is worth noting.

3. Bullish sentiment is at contrarian/reversal highs. Most measures of sentiment are in nose-bleed territory, and at least one spiked sharply after July 23.

4. Volume has been declining during this rally. The cliché is that "volume is the weapon of the Bull," and this truism has been supported by history. Low-volume rallies are suspect, and this one is not just low but declining in volume.

5. Valuations are extremely high. The price-earnings ratio (PE) of the S&P 500 is somewhere north of 140, quite a bit higher than the average of 14 and Bear Market lows around 7.

6. Insiders are selling like crazy. The ratio of insider buying to selling transactions is 5 to 145, and the buys--$13.4 million--are pathetic compared to the Sells: $1,042 million. Hmm, what do they know that the rest of us don't?

7. The S&P 500 and the Dow just hit key technical resistance. Many traders look to Fibonacci projections for guides to future action and the S&P 500 and Dow just reached the 38.2% retrace of the entire move from their Oct. 2007 highs to their March 09 lows.

8. The dollar and stocks have been on a seesaw. Regardless of "why", the U.S. dollar and the stock market have been on a seesaw all year: when one touches bottom, the other is topping out. The dollar hit bottom last week, so... the picture darkens for equities.

9. Highly speculative companies are soaring. When stocks of visibly risky companies start shooting to the moon, that's often an indicator the rally has reached a bubbly level of speculative excess, which is typically followed by a hard fall.

10. Stocks have been rising on excess liquidity, not investing. The Federal Reserve has been pouring billions of dollars of liquidity into the financial system at near-zero rates of interest, thus tempting money managers to put money to work in the stock market. The U.S. stock market has increased about $2.7 trillion in value, yet only $400 billion has been shifted out of money market funds into stock funds. This "hot money" doesn't sound like a solid foundation for the rally.

Nobody knows the future, but it may pay to be cautious for the next few months-historically, the worst months for stocks, surpassing even October.

Charles Hugh Smith writes the Of Two Minds blog and is the author of numerous books, most recently "Survival+: Structuring Prosperity for Yourself and the Nation."

I’m not one to put much faith in ‘patterns’ or ‘cyclical’ movements of the markets…that said I believe the writer here has made a strong case that our current situation is ‘riddled’ with ‘irregularities’.

Perhaps the most frightening of these is the never before seen combination of ‘investment banks’ being in the position to tap federal funds as if they were commercial, deposit accepting institutions.

Even more disturbing than the prospects of the equities markets suddenly plunging towards oblivion is the prospect of them continuing to (irrationally) rise into the stratosphere.

As we have seen, nothing is more damaging to the ‘real’ economy than having the ‘fake’ one on Wall Street lose its usefulness. P/E’s over 140? There’s something radically wrong with that picture.

So, how bad is the mess of the banking sector being in charge of government policy?

If you’re really curious you can follow this link to Jesse’s crossroads café for a closer look at another ‘too big to fail’ US banker that finds itself the subject of a government investigation.

Is it just me or do these investigations seem to always result in an ‘undisclosed’ settlement of some kind where the public remains as much in the dark after the fact as it was beforehand?

Think about it good citizen…how many times have you heard of some major corporation ‘settling’ a lawsuit with this or that regulatory body and the most you can learn (sometimes) is who the ‘counter party’ was. It happens all too often if you ask me. ‘Justice’ dispensed from behind closed doors isn’t justice at all.

If your eyes aren’t falling out of your head yet, I highly recommend a visit to The Automatic Earth While the whole post is worthwhile, Ilargi is in ‘top form’ in his introduction.

Thanks for letting me inside your head,

Gegner

Political maneuvering

Greetings good citizen,

A pretty ‘classic’ day in the markets today, complete with the now common place ‘tape painting’ in the last hour of trading as well as the pundits calling the (would have been larger) ‘dip’ in today’s markets as ‘profit taking’ in the wake of last week’s ‘run up’.

Perhaps more disturbing is the latest round of ‘bottom calling’ that predicts the ‘end’ of what they fondly call the ‘Great Recession’ sometime during the 3rd quarter.

I feel compelled to remind you that the punditry has been ‘predicting’ the end of the crisis for nearly two years now. It’s always just one more quarter away.

The ‘Great Recession’ will, without a doubt, ‘end’ someday…left to our imaginations is whether or not it will ‘end’ with our civilization still intact.

But naturally, no pundit is predicting that particular outcome. What they’re ‘speculating’ about is whether or not the markets will achieve what is known as a ‘technical recovery’.

Can the stock markets ‘recover’ while the banking system/credit markets are still being held together with bubble gum and bailing wire? I guess we’ll see.

So we have tonight’s offering which is yet another pronouncement that the crisis is all but over already…yet it (once again) may not ‘seem’ like a recovery for most of us.

U.S. Recession to End in the 3rd Quarter

By REUTERS
Published: August 11, 2009

Filed at 12:43 a.m. ET

WASHINGTON (Reuters) - The worst U.S. recession since the Great Depression will probably end in the third quarter, but uncertainty exists over the speed and duration of the economic recovery, according to the most recent survey of private economists. [None of whom saw this thing coming…]

The Blue Chip Economic Indicators survey of private economists released on Monday showed about 90 percent of the respondents surveyed believe the economic downturn will be declared to have ended this quarter. [Hard to say how ‘hopeful’ one should be considering this is merely a ‘what do you think’ sort of survey…]

This upbeat assessment followed recent government data showing gross domestic product (GDP) contracted at a shallow 1.0 percent rate in the second quarter after sinking 6.4 percent in the January-March quarter. [Oddly, there was an editorial in today’s NY Times that gave the ‘kiss of death’ to the GDP model…]

Recent data, including housing and key labor market indicators, have suggested a bottoming in the recession and the economy close to turning the corner. The economy slipped into recession in December 2007. [Understand that the recent housing ‘improvement’ was month over month figures and the recent drop in the unemployment figures have been attributed to ‘seasonal adjustment’ factors that are way off base…but that doesn’t prevent them from abusing your ignorance.]

The Blue Chip survey's findings are broadly in line with a Reuters poll published last month, which predicted growth in the third quarter, though a brisk pace of expansion was not expected until late 2010.

"Debate now centers on the speed, strength and durability of the recovery," the survey said.

It showed nearly two-thirds of respondents believed the economy was set for a U-shaped recovery, marked by below-trend growth in gross domestic product before stronger growth took hold in the second half of 2010. [Um, I suppose nobody wanted to ‘speculate’ on what constitutes ‘stronger’…]

About 17 percent of the respondents anticipated a V-shaped rebound, where growth pulled back to its trend rate on a sustained basis, while the same percentage fretted that a W-shaped recovery could follow, the survey showed.

"In their view, GDP growth will pop higher for a quarter or two only to falter again before a lasting recovery takes hold," the survey said.

HIGHER GDP GROWTH

Growth in the second half was expected to garner support from a reduction in the pace of business inventory liquidation, marginal improvements in consumer spending and residential investment. The survey predicted that non-residential investment, however, would remain a drag on GDP. [Where do these ‘rocket scientists’ think the consumer is going to get the money for this ‘uptick’ in spending/’investment’? Under current market conditions there is absolutely zero ‘incentive’ to give workers raises…much less ‘restore’ wages/benefits that have been snatched away from them.]

Despite the improved economic picture, unemployment was expected to remain a problem, with the jobless rate predicted to peak at just over 10 percent late this year or early 2010, the survey showed. It was seen falling only slowly thereafter. [So, this ‘increase’ in consumer spending is actually a prediction of a broad increase in counterfeiting?]

Government data on Friday showed the unemployment rate nudged down to 9.4 percent in July from 9.5 percent in June, but mostly because many people dropped out of the labor force.

"About 70 percent of the panelists believe the jobless rate will not dip below 7.0 percent on a sustained basis until the second half of 2012 or later," the survey said.

However, job losses could fade late this year or early 2010 and payrolls start to expand as companies rebuild inventories, which should lengthen the workweek, according to the survey. [Are these people idiots or what, where is the ‘demand’ supposed to come from?]

The weak labor market, together with excess capacity in many business sectors were seen dampening inflation pressures.

"Consumer price inflation, excluding food and energy costs, will increase by slightly less in 2010 than in 2009," the survey said.

Uh-huh, and if you buy a word of that I’ve got a mighty fine bridge you may be interested in…

How many ‘contradictions’ did you spot in the above article?

Let’s start with the jobs market. The Autoworkers jobs aren’t coming back, neither are all of those traders and brokers jobs, not since the securitization markets collapsed. How about those mortgage brokers or real estate agents? Who the fuck can cough up 30% down on overpriced real estate these days?

How large is the pool of buyers for real estate these days now that banks aren’t lending to anyone? Worse, we all know the housing market is nowhere near ‘bottom’, not by a long shot!

So, what do you suppose these decidedly anonymous ‘bozos’ are smoking and why won’t they share?

Understand good citizen that there is a high likelihood that the ‘recession’ will indeed be declared over in the third quarter. But that declaration will have no basis in ‘reality’…the decision will be wholly political.

We’ve already witnessed how the stock market can be made to climb even while the economy is bleeding jobs and producing nothing.

If you can’t distinguish between reality and fiction then you are doomed to suffer unspeakable poverty while being told you are prosperous.

Thanks for letting me inside your head,

Gegner

Criminal Behavior

Greetings good citizen,

Eight weeks from today, those of us that live in what is considered the ‘northern’ part of the nation will see the return of cold weather in earnest. While the summer isn’t over, New England has yet to string three 90-degree days together, qualifying as a genuine ‘heat wave’.

To add insult to injury, I have a tree on my property that has yet to fail to turn colors for my birthday, which is at the end of August…yes, good citizen, a mere three weeks away.

The flip side of this is the flannel sheets stayed on our bed until mid-June this year, but we had a wretched, wet Spring.

Why this sudden concern about the weather? It’s bad enough living somewhere that you spend six months out of the year bundled up like an Eskimo, fortunately, most of us have homes that allow us to escape the relentless cold.

Sadly, the operative words here are ‘most of us’. Massachusetts, like many northern states, imposes a moratorium on evictions/foreclosures between November and April.

But if you can’t afford heating fuel, having a roof over your head is small comfort.

What am I drawing your attention to here? The 1.5 million people that will exhaust their unemployment benefits by the first of the year, which coincides with the ‘dead’ of winter.

While we do have a ‘permanent’ homeless population, most do not ‘stick around’ these frigid areas once cold weather shows up in earnest.

Leaving us to wonder where these people go?

And that, good citizen, is the topic of tonight’s offering

Is It Now a Crime to Be Poor?

By BARBARA EHRENREICH
Published: August 8, 2009

IT’S too bad so many people are falling into poverty at a time when it’s almost illegal to be poor. You won’t be arrested for shopping in a Dollar Store, but if you are truly, deeply, in-the-streets poor, you’re well advised not to engage in any of the biological necessities of life — like sitting, sleeping, lying down or loitering. City officials boast that there is nothing discriminatory about the ordinances that afflict the destitute, most of which go back to the dawn of gentrification in the ’80s and ’90s. “If you’re lying on a sidewalk, whether you’re homeless or a millionaire, you’re in violation of the ordinance,” a city attorney in St. Petersburg, Fla., said in June, echoing Anatole France’s immortal observation that “the law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges.”

In defiance of all reason and compassion, the criminalization of poverty has actually been intensifying as the recession generates ever more poverty. So concludes a new study from the National Law Center on Homelessness and Poverty, which found that the number of ordinances against the publicly poor has been rising since 2006, along with ticketing and arrests for more “neutral” infractions like jaywalking, littering or carrying an open container of alcohol.

The report lists America’s 10 “meanest” cities — the largest of which are Honolulu, Los Angeles and San Francisco — but new contestants are springing up every day. The City Council in Grand Junction, Colo., has been considering a ban on begging, and at the end of June, Tempe, Ariz., carried out a four-day crackdown on the indigent. How do you know when someone is indigent? As a Las Vegas statute puts it, “An indigent person is a person whom a reasonable ordinary person would believe to be entitled to apply for or receive” public assistance.

That could be me before the blow-drying and eyeliner, and it’s definitely Al Szekely at any time of day. A grizzled 62-year-old, he inhabits a wheelchair and is often found on G Street in Washington — the city that is ultimately responsible for the bullet he took in the spine in Fu Bai, Vietnam, in 1972. He had been enjoying the luxury of an indoor bed until last December, when the police swept through the shelter in the middle of the night looking for men with outstanding warrants.

It turned out that Mr. Szekely, who is an ordained minister and does not drink, do drugs or curse in front of ladies, did indeed have a warrant — for not appearing in court to face a charge of “criminal trespassing” (for sleeping on a sidewalk in a Washington suburb). So he was dragged out of the shelter and put in jail. “Can you imagine?” asked Eric Sheptock, the homeless advocate (himself a shelter resident) who introduced me to Mr. Szekely. “They arrested a homeless man in a shelter for being homeless.”


The viciousness of the official animus toward the indigent can be breathtaking. A few years ago, a group called Food Not Bombs started handing out free vegan food to hungry people in public parks around the nation. A number of cities, led by Las Vegas, passed ordinances forbidding the sharing of food with the indigent in public places, and several members of the group were arrested. A federal judge just overturned the anti-sharing law in Orlando, Fla., but the city is appealing. And now Middletown, Conn., is cracking down on food sharing.

If poverty tends to criminalize people, it is also true that criminalization inexorably impoverishes them. Scott Lovell, another homeless man I interviewed in Washington, earned his record by committing a significant crime — by participating in the armed robbery of a steakhouse when he was 15. Although Mr. Lovell dresses and speaks more like a summer tourist from Ohio than a felon, his criminal record has made it extremely difficult for him to find a job.

For Al Szekely, the arrest for trespassing meant a further descent down the circles of hell. While in jail, he lost his slot in the shelter and now sleeps outside the Verizon Center sports arena, where the big problem, in addition to the security guards, is mosquitoes. His stick-thin arms are covered with pink crusty sores, which he treats with a regimen of frantic scratching.

For the not-yet-homeless, there are two main paths to criminalization — one involving debt, and the other skin color. Anyone of any color or pre-recession financial status can fall into debt, and although we pride ourselves on the abolition of debtors’ prison, in at least one state, Texas, people who can’t afford to pay their traffic fines may be made to “sit out their tickets” in jail.

Often the path to legal trouble begins when one of your creditors has a court issue a summons for you, which you fail to honor for one reason or another. (Maybe your address has changed or you never received it.) Now you’re in contempt of court. Or suppose you miss a payment and, before you realize it, your car insurance lapses; then you’re stopped for something like a broken headlight. Depending on the state, you may have your car impounded or face a steep fine — again, exposing you to a possible summons. “There’s just no end to it once the cycle starts,” said Robert Solomon of Yale Law School. “It just keeps accelerating.”

By far the most reliable way to be criminalized by poverty is to have the wrong-color skin. Indignation runs high when a celebrity professor encounters racial profiling, but for decades whole communities have been effectively “profiled” for the suspicious combination of being both dark-skinned and poor, thanks to the “broken windows” or “zero tolerance” theory of policing popularized by Rudy Giuliani, when he was mayor of New York City, and his police chief William Bratton.

Flick a cigarette in a heavily patrolled community of color and you’re littering; wear the wrong color T-shirt and you’re displaying gang allegiance. Just strolling around in a dodgy neighborhood can mark you as a potential suspect, according to “Let’s Get Free: A Hip-Hop Theory of Justice,” an eye-opening new book by Paul Butler, a former federal prosecutor in Washington. If you seem at all evasive, which I suppose is like looking “overly anxious” in an airport, Mr. Butler writes, the police “can force you to stop just to investigate why you don’t want to talk to them.” And don’t get grumpy about it or you could be “resisting arrest.”

There’s no minimum age for being sucked into what the Children’s Defense Fund calls “the cradle-to-prison pipeline.” In New York City, a teenager caught in public housing without an ID — say, while visiting a friend or relative — can be charged with criminal trespassing and wind up in juvenile detention, Mishi Faruqee, the director of youth justice programs for the Children’s Defense Fund of New York, told me. In just the past few months, a growing number of cities have taken to ticketing and sometimes handcuffing teenagers found on the streets during school hours.

In Los Angeles, the fine for truancy is $250; in Dallas, it can be as much as $500 — crushing amounts for people living near the poverty level. According to the Los Angeles Bus Riders Union, an advocacy group, 12,000 students were ticketed for truancy in 2008.

Why does the Bus Riders Union care? Because it estimates that 80 percent of the “truants,” especially those who are black or Latino, are merely late for school, thanks to the way that over-filled buses whiz by them without stopping. I met people in Los Angeles who told me they keep their children home if there’s the slightest chance of their being late. It’s an ingenious anti-truancy policy that discourages parents from sending their youngsters to school.

The pattern is to curtail financing for services that might help the poor while ramping up law enforcement: starve school and public transportation budgets, then make truancy illegal. Shut down public housing, then make it a crime to be homeless. Be sure to harass street vendors when there are few other opportunities for employment. The experience of the poor, and especially poor minorities, comes to resemble that of a rat in a cage scrambling to avoid erratically administered electric shocks.

And if you should make the mistake of trying to escape via a brief marijuana-induced high, it’s “gotcha” all over again, because that of course is illegal too. One result is our staggering level of incarceration, the highest in the world. Today the same number of Americans — 2.3 million — reside in prison as in public housing.

Meanwhile, the public housing that remains has become ever more prison-like, with residents subjected to drug testing and random police sweeps. The safety net, or what’s left of it, has been transformed into a dragnet.

Some of the community organizers I’ve talked to around the country think they know why “zero tolerance” policing has ratcheted up since the recession began. Leonardo Vilchis of the Union de Vecinos, a community organization in Los Angeles, suspects that “poor people have become a source of revenue” for recession-starved cities, and that the police can always find a violation leading to a fine. If so, this is a singularly demented fund-raising strategy. At a Congressional hearing in June, the president of the National Association of Criminal Defense Lawyers testified about the pervasive “overcriminalization of crimes that are not a risk to public safety,” like sleeping in a cardboard box or jumping turnstiles, which leads to expensively clogged courts and prisons.

A Pew Center study released in March found states spending a record $51.7 billion on corrections, an amount that the center judged, with an excess of moderation, to be “too much.”

But will it be enough — the collision of rising prison populations that we can’t afford and the criminalization of poverty — to force us to break the mad cycle of poverty and punishment? With the number of people in poverty increasing (some estimates suggest it’s up to 45 million to 50 million, from 37 million in 2007) several states are beginning to ease up on the criminalization of poverty — for example, by sending drug offenders to treatment rather than jail, shortening probation and reducing the number of people locked up for technical violations like missed court appointments. But others are tightening the screws: not only increasing the number of “crimes” but also charging prisoners for their room and board — assuring that they’ll be released with potentially criminalizing levels of debt.

Maybe we can’t afford the measures that would begin to alleviate America’s growing poverty — affordable housing, good schools, reliable public transportation and so forth. I would argue otherwise, but for now I’d be content with a consensus that, if we can’t afford to truly help the poor, neither can we afford to go on tormenting them.

Barbara Ehrenreich is the author, most recently, of “This Land Is Their Land: Reports From a Divided Nation.”

To her tremendous credit, not only does Ms. Ehrenreich ‘talk the talk” but she has also ‘walked the walk’.

That said, it is important not to lose sight of the forest for all of those trees. What is the co-relation between poverty and criminality? Are all ‘poor people’ criminals? Or, more succinctly, are they criminals waiting to happen?

More disturbingly, there are now a huge number of folks walking that ‘jagged line’, who are but a single paycheck away from destitution, criminality or both.

Worse, if this report is correct and poverty has jumped from 10% of the population to almost thirty percent then social collapse is almost a certainty.

Don’t misinterpret that last statement, we aren’t talking about 70% of the population being ‘reasonably prosperous’ while thirty percent can barely keep their heads above water. The actual values are much closer to eighty percent that are barely getting by while only the remaining twenty percent has either the resources or connections that will ‘save’ them from destitution/criminality.

One need only look at the ‘income distribution’ to see that this is true.

This is the house that ‘capitalism’ built, look upon its works and weep.

Thanks for letting me inside your head,

Gegner