Wednesday, January 27, 2010

A certain lack of focus...

Greetings good citizen,

We’re roughly halfway through the trading day and markets worldwide are bleeding to death…except the intrepid Nasdaq, which is up 2 points at the moment…whoop-de-ding-dong-dang!

[Update: We’ve had another ‘God Bless America’ close, where the markets turned positive an hour before the close, while the rest of the world sank like a rock.]

Removing our focus from this very moment and looking forward to a time when our ‘economic barometer’ is much simpler to read/make sense of (did you eat today…do you have something to eat tomorrow?) Before there was as stock market, this was precisely how ‘social satisfaction’ was measured.

Full Stop! Throw that bad boy in reverse, partner! We have a considerable ways to go before things become that ‘simple’ again (although we’re edging closer with each passing minute.)

Okay, that’s enough! Take it out of gear and set the parking brake. The President is slated to make his ‘State of the Union Address’ tonight and those ‘intuitive bastards’ in the MSM are already saying it’s going to be all about ‘jobs’…which automatically tells you that there isn’t going to be anything meaningful proposed on the jobs front in tonight’s speech.

It’s hard to compress some concepts into sound bites but it looks like we’re going to have to try.

Why is the US economy (and that of the whole ‘developed world’) falling apart? Because ‘competitiveness’ is being confused with ‘currency manipulation’.

How’s that for a ‘short answer’? Tells the whole story, completely ‘de-fogged’. There’s no bull shit here nor is it an ‘over-simplification’. There is no such thing as a ‘cheaper there’, it doesn’t exist yet millions have lost their job to ‘low wage’ labor pools.

Again the simple explanation is the people who set the prices of commodities are ‘fucking’ with your livelihood for their own benefit, and they should, at the very least, be shot. There is precious little comfort in the thought that ‘wasn’t personal’, they weren’t fucking with you specifically because it all works out to be the same difference in the end.

I bring this up not because the president for the first time ever is going to admit tonight that we have ‘bigger than you can imagine’ problems with the banking system.

No, that isn’t going to happen.

I bring this up because the leaky canoe we call society is about to submerge for the last time, the threads that hold society together are about to snap.

No taxes and you can forget about ‘public services’. The roads don’t get plowed, the water treatment plant stops making the water safe to drink, the cops stop reporting to work and the teachers stay home…hell, the custodians even stop swamping out the classrooms once the municipality you live in goes broke.

Take that another half a step…the electric company shuts down once enough customers stop paying their bill (so they can afford heat…) there are certain ‘minimums’ that need to be met.

If electricity stops flowing, commerce in that service area stops…rare is the enterprise that is wired directly to the grid…and even that might not save a customer if there isn’t enough usage to justify firing up a generator.

Naturally, by the time things get that far gone you’re suffering more supply line problems due to hijackings and equipment/fuel shortages that keeping the lights on no longer matters.

This is full-bore deflation driven by ‘uncertainty’. When the value of money falls into doubt, all commerce stops in its tracks. You can still barter ‘on the fly’, the problem with barter is there’s no changing your mind, once a bargain is struck you’re obliged to see it through…or you’ll be force to kill party you made the original deal with (because they won’t take getting stiffed kindly…)

Um, nobody thinks the value of money will fall into doubt…even though it has happened countless times before…it even happened when the currency was made of precious metals to give you an idea of how bad it can get.

Because it hasn’t happened here (lately) people mistakenly believe it won’t, or worse, can’t.

And no, it’s not going to happen today or even tomorrow…as we push the envelope out o next week, all bets are off! There isn’t a good indicator to tell us how long things will remain glued together.

The scary part is they really can fall apart overnight. You can go to bed with everything being right as rain and wake up to total chaos, the streets literally running in blood. And when that happens, the only thing that will save your ass is keeping your head!

Anyway, this is NOT another one of my mindless rants, I was just overdue to put the bunch of you ‘on notice’. Time is indeed getting short, they can’t keep the whole nation on ‘life support’ indefinitely, we are not Japan.

That said, onward with tonight’s offering

[Purloined from The Automatic Earth]

Nowhere to go and going nowhere

Ilargi: I'm not going to try and find what the CBO this time last year projected the 2009 US budget deficit to be, but I'm willing to bet a lot of bread crumbs that it was a lot less than the $1.4 trillion it turned out to be (three times the 2008 deficit). Today's CBO projection of a $1.35 trillion 2010 deficit inevitably needs to be seen in that pale shade of light.

If you can find any government projection number these days that turns out to be more positive after time, congrats: you're a rare species. With present policies in place, the known total deficit one year from now may well be sharply higher than $1.35 trillion. Even if interest rates don't rise. Which they will.

Obama will announce a "discretionary budget freeze" in the State of the Union, but that's really just for showcase purposes, and not the smartest ones either, by the looks of it. For one thing, 83% of the budget will not be affected at all by the freeze. For another, the 3-year freeze is expected to save $10-15 billion per year initially, and a total of $250 billion over 10 years. If the budget deficit averages $1 trillion for that next decade, the freeze will shave 2.5% off of the overall deficit. And to achieve that, the president will have to fight bitter battles with representatives who rely on that part of the budget to look good in their districts.

I’d say you’d need to save at least 10 times the $250 billion to have any effect (not that that would suffice), but while this can be put up for debate, I would suggest when the President gets to that part of his speech tomorrow night you might as well go get some cold ones. And then take a deep breath and let reality sink in.

Not only has Obama already committed himself to runaway deficits, he now urgently needs to come with a job creation plan that produces real results. And that will cost. A lot. Of money. That’s not there.

To get from today's U3 number of 15.3 million unemployed, a 10% rate, to a 5% rate and 7.65 million jobless by 2015, the US needs to add 1.53 million jobs each year, on top of the 150,000 per month or 1.8 million per year needed just to play even. That means needing 277,500 jobs every month for 60 months. And that's just if you use U3. Take the far more realistic U6 number, and you're looking at a demand of around 400,000 jobs every single month.

Really, do you believe it? Well, whether you do or not, you’ll hear a lot about job creation in the President's speech, and in the weeks and months that follow. Me, I’m wondering what all those people would do in their new jobs. How many burgers does one nation need flipped? And what would they be paid? Enough to pay for health care? To buy a home?

Speaking of homes. Mortgage rates are at a record low, the government buys and guarantees just about any and all loans in the market, gives $8000 premiums to buyers, and settles for a 3.5% downpayment. And in that environment, the November-December monthly drop in the number of existing homes sold was 16.7%, the biggest in over 40 years, in fact since records began. Now you ask yourself: how much more attractive can you make buying a home? And, alternatively, if and when the government withdraws and interest rates go up, what will happen to housing market prices? And if those go down, as they are bound to do, what happens with the taxpayer trillions put into Fannie and Freddie et al?

30% of Americans are hovering around the poverty line, and their numbers are growing rapidly. But poor as they may be, they still stand to lose a lot more money through their federal mortgage "possessions" when that housing market inevitably starts tanking for real. Oh, and Washington needs to bail out state and local governments. So when the poor have become the destitute, the government will start raising taxes. It will have no choice. And how do you think that will influence the pool of prospective home buyers?

I happens to me quite often these days that when I read through the numbers, I see these images of Katrina in my mind's eye, but this time the destruction's nationwide, and there's nowhere to go, even as the country's going nowhere.

And everybody keeps having the wrong conversations. It’s no longer about how to return to prosperity, it’s about how to stave off mayhem, misery, hunger, violence. But that’s not what the president will talk about. And why, then, would his people? It's much more attractive to deny it all a while longer. And be as unprepared as you can be.

Ilargi is right, we are having the ‘wrong conversations’, turning things around is a non-starter, we can’t go back to the way things were or even to the way they ‘should have been’.

More importantly, we can’t keep going the way we’re headed, not without running civilization off of a cliff and sacrificing the lives of millions of innocent people…so the greedy can scoop up what remains from the dust and ash.

Um, further along in this edition of TAE I encountered this this little tidbit of news, just to complete your day…

Signs Of The Apocalypse: The Return Of The Layoff

Layoffs in unrelated industries, even when close together in time, are just that: unrelated. That is until they begin to grow rapidly in number.

Three of America's largest firms announced firings or signaled them during the last week. Wal-Mart cut the deepest, which is frightening because it is the most financially healthy company in the world. In a surprise announcement, the world's largest retailer said it would cut 10% of its Sam's Club division, which means nearly 12,000 workers will get axed. The news cannot be good for the staggering retail sector. Christmas was weak, but Wall St. assumed that Wal-Mart was doing as well as if not better than its smaller competitors.

The Wal-Mart move will give other retail firms "permission" to take fresh looks at their staff levels without the stigma of announcing firings ahead of other large store chains. Xerox also unexpectedly said it would cut 2,500 people. It did so at the same time as it posted good earnings. That means Xerox believes that it can still wring more productivity from the people it will continue to use. The tech sector is still on a bumpy ride while consumers and IT managers try to decide if they can afford to upgrade to new equipment. The beginning of 2010 could cause a fresh round of reviews of how much blood can be squeezed from the employment pool stone. Large firms that made layoffs last year can now look at four quarters of what those layoffs have done to them or for them financially. If cuts worked once, they might work again.

Oracle is close to closing its deal to buy Sun Micro. Sun's remarkable history of large layoffs is an example of what happens to a company when its products lose most of their relevance and R&D efforts cannot bring the firm back into alignment with customers demands. Sun will now become one of the many divisions of Oracle and that almost certainly means that many management and sales people will be gone by the end of the quarter.

The early part of 2009 was marked by an unprecedented number of large cuts as America's most well-known companies. In some weeks over 100,000 American were put out of work by "downsizings" at these firms. That process has slowed a year later, but there is a growing body of evidence that it is not going away.

The most critical difference between last year and this is that 10% of Americans, 17% by some measures, are without jobs. The economy has not started to add new jobs yet. Each person that a Wal-Mart, Xerox, or Oracle lets go now is put into jobless pool with a record low number of openings for each job seeker. That means there is no Dutch Boy at the dike to prevent the ongoing effects that unemployment has on housing, credit, and the government's ability to improve income to the IRS.

The employment mess, a tragedy beyond description, is still going on.

I’ll stop this bad boy ‘short’ tonight, I’ve already chewed on your ears enough for one session,

Thanks for letting me inside your head,


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