Wednesday, December 2, 2009


Greetings good citizen,

The stupidity index gained a few points this morning before it dropped into negative territory, where it pretty much stayed…all by its lonesome, until after the close. The Dow closed down 18.9 points, the S&P was up a fraction and (thank heavens for technology) the Nasdaq closed up a few points.

But, like yesterday, it was not the market’s performance that disturbed me, it was er, ‘non-headline news that I found troubling.

Tonight’s abbreviated first offering is from none other than Henry CK Liu:

The folly of deregulation
By Henry C K Liu

On October 7, 2009, the United States House of Representatives Committee on Financial Services at long last held a public hearing on "Reform of the Over-the-Counter (OTC) Derivative Market: Limiting Risk and Ensuring Fairness".

OTC derivatives are contracts executed outside the regulated exchange environment whose values depend on (or derive from) the values of underlying assets, reference rates or indexes. Market participants use these instruments to perform a wide variety of useful risk management functions. The Bank of International Settlement (BIS) reports that the notional value of all outstanding OTC derivative contracts ending June 2009 was US$49.2 trillion worldwide against a 2009 world gross domestic product (GDP) of $65.6 trillion.

Stop right there! 2007 world GDP was 53 trillion dollars, Um we all know the global economy ‘shrunk’ over the past two years so how the fuck did it grow to 65 trillion dollars!

The only ‘logical’ explanation here is inflation (which has been reported to be ‘negative’) $12 freaking TRILLION DOLLARS worth to be precise!

How the fuck does global GDP increase $12 trillion dollars when the planet’s largest consumer population has slashed trillions in net income from our economy? WTF is this, magic? We have 18 million unemployed in the US and our GDP went up 3.5%…for no discernable reason!

So, there’s no inflation and ‘somehow’ world GDP went up while payrolls around the world are shrinking? There’s something very wrong with this picture good citizen.

Someone’s going to get stuffed but good and you can bet it won’t be those who so ‘richly’ deserve it.

Moving along we arrive at tonight’s second offering for yet another look at an ‘extreme outcome’… [Hat tip: Some Assembly Required]

The Consequences of Underemployment
by: Tom Lindmark December 01, 2009

The next time you hear a politician talk about the number of jobs saved or created by the stimulus package or listen to a commentator on CNBC talking about the improving labor market, hark back to this story. It’s from the WSJ and it’s the unfortunate reality that isn’t and maybe can’t be addressed.

The story talks about a few Americans that have seen their world turned upside down by the recession. Here is one family’s experience:

After being laid off by the New Jersey battery plant in 2006, Mr. Crane took a job stocking shelves at Costco (COST) in the fall of 2006. His pay was $10.76 an hour — the same money he earned when he was hired by Delco in 1983, just out of high school. “It’s sad,” says Mr. Crane, who had been earning about $28 per hour at Delco, before overtime.

In late 2007, he took a job at Lowe’s (LOW) while working at a series of fast-food jobs on the side, as well as a stint at Pathmark supermarket. He still works at Lowe’s, earning $15.96 an hour selling lawnmowers, outdoor furniture and Christmas ornaments. At night, he pumps gas at a Quick Check for $13.70 an hour.

Typically, he works between 61 and 63 hours per week. It wouldn’t be so bad, he says, if the hours were consecutive. But with the gap between jobs, he can only sleep a few hours a night now — sometimes just an hour. Last week, he managed to clock 87 hours and barely saw his son.

Mr. Crane was a heavy equipment operator at a Delco plant earning more than $100,000 a year when he was laid off. [Um, this is pretty extreme considering the true ‘average wage’ for a working male here in the US is right around $30,000 a year…half of all men make more and half make less…which is more ‘typical’ than Mr. Crane’s $100k working a ‘blue-collar’ job. Just to give you an idea of how ‘extreme’ we’re talking here, Mr. Crane’s $100k put him in the top 20% of earners…also known as ‘paycheck peasants’; which is what he has truly become.]

This is the sort of thing that I suspect you like I see every day. People who have seen their standards of living slashed and now work just to survive with little hope of better days ahead. [Uh, You KNOW Mr. Crane has a better chance of meeting God than he has of getting his cushy union job back, that bad boy is gone for good!]

There is an emerging consensus that somehow, someway the government needs to expand the amount of money it collects in order to deal with a deficit that some consider out of control. Honest pundits readily concede that the only way that can be accomplished is to tax more and to tax broadly. That may be a truism from an abstract policy perspective but the reality is that the stones from which those would extract more money are indeed truly quite dry. [You know and I know that taxation is not how the government raises more money, our pal Hill Billy (Clinton) pumped up the economy to the point that he balanced the Federal Budget, not ‘for real’ but he was able to stop digging the hole deeper, an accomplishment in itself. We’ve never faced the problem we’re facing now, where we owe and import so much that it isn’t possible to get ahead of it like they used to.]

Workers like Mr. Crane have no capacity to absorb more calls on their earning capacity whether through higher taxes of any form or sort, increased health insurance premiums or taxes either overt or covert on energy usage. They exist on a razor's edge with no margin for error or any change in the amount of money they now willingly pay. [Yes, good citizen, this is a rare piece that raises issues my readers are already familiar with…]

Americans, no matter how dire the situation may have appeared in the past, have always forged ahead on the assumption that their lot would improve through their own efforts. I’m not certain that hopeful outlook prevails any longer and to the extent that it has diminished the door is being opened to radical social change. People with little faith in the future, particularly those who feel that something has been taken from them, are most prone to favor radical social reordering. How that plays out in a country as individualistic as the U.S. is a question open to a lot of speculation.

The situation with underemployment did not arise solely from the recession. It is the product of a conscious decision of a large portion of corporate America to outsource jobs to less expensive locals. On its face, it made business sense at least from a short-term perspective. Long-term, it may turn out to be a decision of colossal negative implications for those who profited including the political class that traded its obligation to protect the populace for campaign cash. [Pauperizing your own society is NEVER a good idea, even on a short-term basis. Strangely, those who have done us in think they can ‘escape’ by leaving the country…reality says there’s nowhere to run, nowhere to hide.]

Consider Mr. Crane’s current ambitions as you ponder the implications of underemployment. Men and women with this view of the future tend to listen attentively to promises for a better tomorrow no matter how radical the road plan for getting there might be.

Mr. Crane no longer sees his new life as temporary. He no longer dreams of going and fixing equipment at the factory and operating big machines.

“My new goal is to become a manager at Lowe’s,” he says. “That will pay $17 an hour. I’m hoping this happens in the next couple of years, by the time my son is in high school.”

At least Mr. Crane has woken up to the fact that he can’t keep putting in 80-hour weeks without his health suffering. Worse, job performance suffers as well.

Our Mr. Crane was either an extremely frugal individual and he banked a goodly percentage of his former pay or he has suffered some serious setbacks in his family’s lifestyle. Most of us wouldn’t survive a fifty-plus percent pay cut without having to sell off assets at stiff losses.

To ‘re-cap’ we have the criminal conspiracy that operates above the law manipulating the numbers so vigorously they have produced inexplicable outcomes. Then we have a ‘not so average’ citizen kicked severely in the gonads by cutbacks in the automotive industry…which brings us to our final offering and the ‘fuck job’ perpetrated upon the ‘buy and hold’ long term investor… [Hat tip: Jesse’s crossroads cafĂ©]

America's Lost Decade in Equities

For the first time since the 1930's this decade represents negative returns for the SP500. Remarkably this chart represents nominal total returns. [Follow link to view chart]

Adjusted for the weaker dollar and inflation, the 'buy and hold' philosophy, especially for those nearing their retirements, has been a disaster. But it has been great times for speculators and insiders and the productive economy.

Part of the problem is with the 401k concept as a supplement if not replacement for pensions and savings, as well as portfolios for educational purposes. Their implementation offers too few choices for the average person. Do you wish to buy corporate stocks or corporate bonds? Or money market funds where the value is not guaranteed? Short term Treasuries, if you are fortunate.

The piling into corporate bonds in the US today may be in part driven by this lack of genuine choice, the seeking for 'conservative choices' and is setting up the many for staggering losses in the event that stagflation does indeed occur. Bond funds are no safe havens.

Two tax reforms, or at least stimulus, that the US might consider is increasing the annual allowance of $3,000 which the taxpayer may claim from prior capital losses against current income. The amount has been the same for many years, and an increase would help the average person clean their books up a bit. A second program might be stimulus, in allowing the average person to take for example $10,000 out of their IRA or 401k tax free for one time.

The Reformer [Guess who?] will not do anything that does not benefit Wall Street, but if the US wishes to obtain some serious reforms in its financial system there is a rich ground to sow the seeds of renewal, given the neglect and abuse of the last twenty years.

The banks must be restrained, and the financial system reformed, and balance restored to the economy before there can be any sustained recovery.

Any of you old enough to remember can still hear Saint Ronnie promising us that we we’re all going to be millionaires if we’d just feed our 401k’s as much as we could spare! Understand, the goal wasn’t to make YOU rich, it was a way to pump a steady stream of cash into Wall Street…and the fucks used your retirement money to send your job overseas…talk about ‘double fucked!’.

I’m not crying because I never fell for that bullshit…I don’t have a 401k so I didn’t get screwed. Flipping that rock over, I know people that have lost millions!

Um, Jesse’s heart is in the right place but a vast majority of small companies have never offered 401k’s. I believe the estimated participation rate is still below 40% and that isn’t enough to ‘stimulate’ the economy as most people who have them have tapped them already. There simply isn’t $10,000 to take out or the accounts are ‘dormant’ because neither the company nor the worker can afford to contribute to them anymore.

This naturally brings us full circle with the issue of what does our corporate sector owe us regarding our future economic security. Are we idiots to slave our lives away, making the ungrateful rich while they have no obligation to us?

As we often encounter, the way things should be are not the way things are…and we have to wonder why? How do employers continue to shirk their responsibilities? Is THAT what all of those ‘campaign contributions are all about?


Thanks for letting me inside your head,


No comments:

Post a Comment