While inflation remains the hot topic, the signs of deflation are everywhere. No one can ignore the steep drop in home prices, but how about the future "downsizing" of America.
Manufacturers scaling back product portions
Here are some examples of product size reductions.
• Breyer's ice cream: 1.75 quarts to 1.5 quarts
• Shedd's Country Crock butter substitute: 3 pounds to 2 pounds 13 ounces
• Dial for Men soap: 4.5 ounces to 4 ounces
• Scott 1000 toilet tissue: Sheet size increased in thickness but reduced from 4 inches to 3.7 inches, making the roll shorter
• Hellmann's Real Mayonnaise: 32 ounces to 30 ounces
• General Mills told investors about its new "Right Size, Right Price" program in which prices of cereals like Cheerios, Wheaties and Total went up while portion size went down 1.5 ounces.
• Wrigley recently announced that in next year it will gradually replace current gum with reformulated Doublemint, Juicy Fruit and other flavors in packages that will contain 15 instead of 17 sticks.
• Coca-cola, Pepsico , Shamrock Farms and Fry's Food Stores' parent the Kroger Co. have plans to start packaging soda in 16-ounce bottles and milk in three-quarter gallon jugs. Prices for these products will be lower than 20-ounce sodas and full gallons of milk.
Other manufacturers have shrunk products with no price reduction -- or publicity. Examples include dog chow, bathroom tissue, mayonnaise and ice cream.
"Some of the downsizing is sneaky," Dworsky said. "Manufacturers always tout it when they give you a bonus. But when they downsize they rarely mention it."
I long for the days of "supersize me" and ginormous boxes and bottles of food. Other than the fact that prices will remain the same, the "downsizing" of America is probably a good thing. We waste and consume far too much as it is.
Just another sign of the ongoing and future decrease in the standard of living of the US of A.
Thursday, May 29, 2008
Guaranteed 20% return on investment
Here comes a great investment opportunity, but it will only be available for limited time.
Dow Jacks Prices, Blames Washington
Dow Chemical says the government is forcing it to raise prices and push the cost of energy onto its customers. (Dow) announced it would raise product prices across the board by up to 20.0% to offset the rising costs of energy, raw materials and transportation.
This won't take affect until June 1st, so there is still time to load up and hoard as many Dow products as you can...and trust me, you use Dow products. I never thought the average citizen would see a guaranteed 20% investment opportunity, but here it is. Don't tell me I didn't warn you when everything else starts going through the roof as well. Stock your basement to the ceiling and laugh at all your friends when they see their hard earned cash worth 80 cents to your $1.
The clock is ticking.
Dow Jacks Prices, Blames Washington
Dow Chemical says the government is forcing it to raise prices and push the cost of energy onto its customers. (Dow) announced it would raise product prices across the board by up to 20.0% to offset the rising costs of energy, raw materials and transportation.
This won't take affect until June 1st, so there is still time to load up and hoard as many Dow products as you can...and trust me, you use Dow products. I never thought the average citizen would see a guaranteed 20% investment opportunity, but here it is. Don't tell me I didn't warn you when everything else starts going through the roof as well. Stock your basement to the ceiling and laugh at all your friends when they see their hard earned cash worth 80 cents to your $1.
The clock is ticking.
Wednesday, May 28, 2008
The Fading of the Mirage Economy
Steven Pearlstein of the Washington Post discusses the fading economy. His point being one that I have stressed for the past year. The US is about to face a long and painful decline in the standard of living that everyone has grown accustomed to. The signs leading up to this have been there for a long time, but the realization of the changes that will need to be made are just starting to gain popular attention.
The Fading of the Mirage Economy
The Fading of the Mirage Economy
The Road Warrior
From the classic...
But most of all, I remember The Road Warrior. The man we called "Max". To understand who he was, you have to go back to another time. When the world was powered by the black fuel. And the desert sprouted great cities of pipe and steel. Gone now, swept away. For reasons long forgotten, two mighty warrior tribes went to war and touched off a blaze which engulfed them all. Without fuel, they were nothing. They built a house of straw. The thundering machines sputtered and stopped. Their leaders talked and talked and talked. But nothing could stem the avalanche. Their world crumbled. The cities exploded. A whirlwind of looting, a firestorm of fear. Men began to feed on men. On the roads it was a white line nightmare. Only those mobile enough to scavenge, brutal enough to pillage would survive. The gangs took over the highways, ready to wage war for a tank of juice. And in this maelstrom of decay, ordinary men were battered and smashed. Men like Max.
And now...
Drilling for Gas -- In Tanks
While gas station drive-offs and siphoning are far more common methods of stealing gas, reports of tank and line puncturing are starting to trickle into police departments and repair shops across the country.
There are those who refer to the economy and economic policies these days as "Mad Max Economics". The effects of these policies are now being seen clearly across the country.
But most of all, I remember The Road Warrior. The man we called "Max". To understand who he was, you have to go back to another time. When the world was powered by the black fuel. And the desert sprouted great cities of pipe and steel. Gone now, swept away. For reasons long forgotten, two mighty warrior tribes went to war and touched off a blaze which engulfed them all. Without fuel, they were nothing. They built a house of straw. The thundering machines sputtered and stopped. Their leaders talked and talked and talked. But nothing could stem the avalanche. Their world crumbled. The cities exploded. A whirlwind of looting, a firestorm of fear. Men began to feed on men. On the roads it was a white line nightmare. Only those mobile enough to scavenge, brutal enough to pillage would survive. The gangs took over the highways, ready to wage war for a tank of juice. And in this maelstrom of decay, ordinary men were battered and smashed. Men like Max.
And now...
Drilling for Gas -- In Tanks
While gas station drive-offs and siphoning are far more common methods of stealing gas, reports of tank and line puncturing are starting to trickle into police departments and repair shops across the country.
There are those who refer to the economy and economic policies these days as "Mad Max Economics". The effects of these policies are now being seen clearly across the country.
Friday, May 23, 2008
Wiping with dollars
Looks like pretty soon it may make sense to start wiping my ass with US dollars.
Kimberly-Clark plans to raise prices - again
...prices will be 6% to 8% higher on Kleenex facial tissue, Cottonelle and Scott bathroom tissue, Viva paper towels, Huggies diapers and Pull-Ups training pants.
Maybe the federal government can help out on this end as well...
Court rules U.S. paper money discriminates against blind people
If the US mint could just redesign the money so that it is blind friendly AND double-ply and fluffy, we could make everyone happy. Maybe there is a bright side to all this I've failed to see.
Kimberly-Clark plans to raise prices - again
...prices will be 6% to 8% higher on Kleenex facial tissue, Cottonelle and Scott bathroom tissue, Viva paper towels, Huggies diapers and Pull-Ups training pants.
Maybe the federal government can help out on this end as well...
Court rules U.S. paper money discriminates against blind people
If the US mint could just redesign the money so that it is blind friendly AND double-ply and fluffy, we could make everyone happy. Maybe there is a bright side to all this I've failed to see.
Ground and pound
No, I'm not talking about the mixed martial arts style. I'm referring to our nation's airlines in the context of $120+ oil. Shit...even at $100+ oil, the airlines CANNOT stay solvent. It's a mathematical impossibility. Airlines will need to GROUND planes and POUND out new agreements with labor unions or they WILL go bankrupt.
Risk of airlines' default climbs
Think the federal government can bail out these guys too? Think again. There is NO fin'g money in the federal government to bail anyone out. Here's the list of things that require "bailing out" as they are woefully unfunded or are facing insolvency (bankruptcy). Some sooner than others.
Banks and Investment Firms
Local banks
Airlines
Auto manufacturers
Scoial Security
Medicare
Medicaid
Local and State Pensions
Local and State Governments
Federal Pensions
We're talking trillions and trillions of dollars of unfunded obligations and future bailouts. This country cannot support the actual list of obligations and it certainly can't support any future obligations in the form of private company bailouts. There are serious problems in this country and there isn't even a remote whiff of a chance that any current or future politician will deal with these issues effectively...unless "we the little people" wake the fuck up.
Risk of airlines' default climbs
Think the federal government can bail out these guys too? Think again. There is NO fin'g money in the federal government to bail anyone out. Here's the list of things that require "bailing out" as they are woefully unfunded or are facing insolvency (bankruptcy). Some sooner than others.
Banks and Investment Firms
Local banks
Airlines
Auto manufacturers
Scoial Security
Medicare
Medicaid
Local and State Pensions
Local and State Governments
Federal Pensions
We're talking trillions and trillions of dollars of unfunded obligations and future bailouts. This country cannot support the actual list of obligations and it certainly can't support any future obligations in the form of private company bailouts. There are serious problems in this country and there isn't even a remote whiff of a chance that any current or future politician will deal with these issues effectively...unless "we the little people" wake the fuck up.
Thursday, May 22, 2008
Decline of US...moral hazard links
I've ranted about the decline in the standard of living in the US for years to come. There are a number of reasons why I believe this. One major reason I haven't touched on recently is the increasing problem of the deteriorating infrastructure of the US. There is a long laundry list of infrastructure issues that are WAY overdue on the honey-do list for the US.
* Roads and Bridges
* Dams and Levees
* Water and Sewage
* Electrical Grid
* Mass Transportation
There are a number of reasons why the list above are in serious disrepair and are catastrophes waiting to happen. One reason that never gets mentioned is moral hazard. How does this play out you say? Take for example an article in today's CNN.com: Report: Money fears might have led to bridge collapse
For example, instead of a $40,000 ground-penetrating radar survey of the bridge deck in 2006, engineers dragged a chain across the span to listen for unsound concrete. The radar test, an internal e-mail notes, "was not completed due to lack of funding."
Lack of funding, budget deficits, more pressing priorities...these are the excuses given to continually push off inspections, reviews, upgrades and modernization of infrastructure. The consequences, as was seen with the bridge in Minnesota and the levess during Katrina. But, if the federal government will step in when there is a catastrophe (taxpayers that is) and there is a plausible defense as to why the lapse occurred, why should states pay to fix these problems? This is a moral hazard and it exists anytime there is the possibility of tax payer bailouts. You see this in the finance industry now. What is it going to take for these infrastructure issues to be dealt with in a fiscally resposnible and proactive fashion? If history repeats itself, it will take bloodshed and tax payer bailouts before any real action occurs. Pretty soon, with massive failures in critical structures, we'll have that bloodshed.
* Roads and Bridges
* Dams and Levees
* Water and Sewage
* Electrical Grid
* Mass Transportation
There are a number of reasons why the list above are in serious disrepair and are catastrophes waiting to happen. One reason that never gets mentioned is moral hazard. How does this play out you say? Take for example an article in today's CNN.com: Report: Money fears might have led to bridge collapse
For example, instead of a $40,000 ground-penetrating radar survey of the bridge deck in 2006, engineers dragged a chain across the span to listen for unsound concrete. The radar test, an internal e-mail notes, "was not completed due to lack of funding."
Lack of funding, budget deficits, more pressing priorities...these are the excuses given to continually push off inspections, reviews, upgrades and modernization of infrastructure. The consequences, as was seen with the bridge in Minnesota and the levess during Katrina. But, if the federal government will step in when there is a catastrophe (taxpayers that is) and there is a plausible defense as to why the lapse occurred, why should states pay to fix these problems? This is a moral hazard and it exists anytime there is the possibility of tax payer bailouts. You see this in the finance industry now. What is it going to take for these infrastructure issues to be dealt with in a fiscally resposnible and proactive fashion? If history repeats itself, it will take bloodshed and tax payer bailouts before any real action occurs. Pretty soon, with massive failures in critical structures, we'll have that bloodshed.
Too little...too late
It's been a LONG time since I threw any support towards GW Bush, but I have to admit, his vetos and threats to veto the rediculous crap being sent his way from congress, is spot on. Too bad these are just gestures versus actual accomplishments, but he's finally begun to get his senses on the economic policies. The scary thing is, if a democrat is elected, both the Senate and the House are occupied by brainless, spinelss, bags of flesh and there won't be any impediment to their tom-foolery. McCain is probably no better. I'd rather congress chase it's tail while investigating football, baseball and the next Curling conspiracy. Atleast it keeps them occupied so they don't scheme up and pass the next rediculous economic fiasco. Pelosi has to rank up there with the most incompetant politician to ever waste space on this planet. And I'm being nice. If you don't believe me, just dig up the list of "accomplishments" she boasted about achieving when gaining control of the House. You'd be hard pressed to find one that she hasn't completely and utterly failed and actually caused more damage on. The political landscape in Washington is in dire need of a CTRL-ALT-DEL...and start over.
Alt-A Delinquencies Rising
Whocudda thunk that?
From Reuters: Subprime, Alt-A mortgage delinquencies rising: S&P
Delinquencies for Alt-A mortgages rated between 2005 and 2007 are climbing, with total delinquencies rising as high as 17 percent in some cases, more than 6 percentage points higher than previous estimates, the ratings agency said in a report.
This ain't a subprime crisis and it isn't contained. The Alt-A shoe is dropping quickly with Option ARMS about to follow. It's gonna look like Imelda Marcos's closet is raining down on us by the time all the shoes drop. It's not the credit quality that is determining defaults, it is the LTVs (loan to values). With over 10,000,000 homes close to or at underwater within the year, this is going to explode.
From Reuters: Subprime, Alt-A mortgage delinquencies rising: S&P
Delinquencies for Alt-A mortgages rated between 2005 and 2007 are climbing, with total delinquencies rising as high as 17 percent in some cases, more than 6 percentage points higher than previous estimates, the ratings agency said in a report.
This ain't a subprime crisis and it isn't contained. The Alt-A shoe is dropping quickly with Option ARMS about to follow. It's gonna look like Imelda Marcos's closet is raining down on us by the time all the shoes drop. It's not the credit quality that is determining defaults, it is the LTVs (loan to values). With over 10,000,000 homes close to or at underwater within the year, this is going to explode.
Space is getting tight on the doom & gloom train
In the past year I've been called "Chicken Little", "Worry Wart", "Doom & Gloomer" and a number of other derogatory names regarding my views on the future of this country. As most of you know, I could give a rat's ass what anyone calls me. I've stuck by my guns, done the research and I'll continue to lay it out as I see it. But, you better get on the train soon, because the big boys are starting to jump on board.
Buffet warns of long, painful downturn
Bank of England: Protracted slowdown looming
Fed lowers growth forecast
Housing is about half-way done with it's fall. Oil is approaching $150 a barrel. Consumer's are tapped out and are cutting back on purchases. Salaries are stagnant. Commercial real-estate has just started to tank. Credit card and car payment defaults are just beginning to escalate. Worker hours are being slashed at recessionary rates (unemployment will follow). States and local governments are running deficits and they will only get worse...much, much worse. Corporate defaults are still near historic lows but rising (this will spike in the next year to normal recessionary level). The Federal government is running historic deficits and has passed the point of default on future obligations. The fed and congress are intent on destroying the US dollar. We have no legitimate leadership and no hope for it in the next election. I don't see how anyone can predict that we will see a recovery anywhere in the near future. This is gonna be a long and painful correction. There's still time to get on the train, but hurry up and make sure you get your "house" in order before you do. This one is gonna wipe out what little savings the majority of people may have built up.
Buffet warns of long, painful downturn
Bank of England: Protracted slowdown looming
Fed lowers growth forecast
Housing is about half-way done with it's fall. Oil is approaching $150 a barrel. Consumer's are tapped out and are cutting back on purchases. Salaries are stagnant. Commercial real-estate has just started to tank. Credit card and car payment defaults are just beginning to escalate. Worker hours are being slashed at recessionary rates (unemployment will follow). States and local governments are running deficits and they will only get worse...much, much worse. Corporate defaults are still near historic lows but rising (this will spike in the next year to normal recessionary level). The Federal government is running historic deficits and has passed the point of default on future obligations. The fed and congress are intent on destroying the US dollar. We have no legitimate leadership and no hope for it in the next election. I don't see how anyone can predict that we will see a recovery anywhere in the near future. This is gonna be a long and painful correction. There's still time to get on the train, but hurry up and make sure you get your "house" in order before you do. This one is gonna wipe out what little savings the majority of people may have built up.
Wednesday, May 21, 2008
Bat senses are tingling
Watch your equity positions over this long weekend. Make sure you don't have your proverbial johnson's hanging out in the wind. I sense a storm of discontent brewing and long weekends allow for mischief overseas to wreak havoc.
UPDATE: In hindsight, this was a rather quiet weekend on the financial front. It did get a bit turbulent right after this post with some back to back declines, but all quieted down leading into the weekend (other than $4+ gas at almost all the stations I passed).
LAST UPDATE:
Looks like I was a week or so early on this prediction. Some back to back triple digit losses on the DOW and a wave of new bad news is now setting in. The storm was brewing, it just hung off the coast for a bit.
UPDATE: In hindsight, this was a rather quiet weekend on the financial front. It did get a bit turbulent right after this post with some back to back declines, but all quieted down leading into the weekend (other than $4+ gas at almost all the stations I passed).
LAST UPDATE:
Looks like I was a week or so early on this prediction. Some back to back triple digit losses on the DOW and a wave of new bad news is now setting in. The storm was brewing, it just hung off the coast for a bit.
Report: California Congresswoman walked away from $578K mortgage
What's good for the goose is good for the gander.
http://latimesblogs.latimes.com/laland/2008/05/report-californ.html
http://latimesblogs.latimes.com/laland/2008/05/report-californ.html
Alarm bells ringing?
I'm starting to hear the faint sound of arms stretching and yawning as the american public starts to wake up to the reality of what is occurring. How the market and any of the bubbleheads could think that in the midst of a credit crisis, that $120+ barrels of oil wouldn't have drastic knock-on effects is beyond me. You don't have to look any further than the news coming from American Airlines to realize what is on the horizon for this country. All of the things that we have come to take for granted as far as freedom to travel and splurge are quickly evaporating. Get ready for cattle-lines at the airports and pay-go services at the airlines. You want to check a bag, that'll be $15. Family of 4...hope you have 1 big f'ing bag or that's another $60 on top of the 50% increase in fare that is coming your way. Can't afford to fly...sorry, driving's not an option either. It's good we have excellent mass transit options...ooooppps...I thought we were in Europe for a second.
Quality of life in the USA just took a giant step down in the past 6 months. The next step is right off the cliff. Anyone hanging on to thoughts of a second half recovery are grasping at thin air. We'll be lucky to avoid an outright collapse of the markets in the next 6 months. If we make it past that, get ready for a solid decade of used goods. I talked about this in earlier rants. We should just cut-off the imports and recycle all of the excess goods that already exist within our borders. I'm starting to think, this is already starting to happen.
Quality of life in the USA just took a giant step down in the past 6 months. The next step is right off the cliff. Anyone hanging on to thoughts of a second half recovery are grasping at thin air. We'll be lucky to avoid an outright collapse of the markets in the next 6 months. If we make it past that, get ready for a solid decade of used goods. I talked about this in earlier rants. We should just cut-off the imports and recycle all of the excess goods that already exist within our borders. I'm starting to think, this is already starting to happen.
Bandaid the symptoms, ignore the disease
The government is so good at identifying symptoms, but it is pathetic when it comes to addressing the disease. Case in point are the following:
Ohio (Effectively) Halts Payday Lending
The new Ohio law would limit borrowers to four short-term loans a year and cap annual interest rates at 28 percent. The bill also would limit loan amounts to $500 per loan, or 25 percent of a consumer's base monthly pay, whichever is less.
Defense Department to Defend Soldiers from Debt
The Pentagon is writing a rule to keep the minds of U.S. troops on their missions by shielding them from debt, but the prospect of the Defense Department as a regulator frightens the financial industry....
On the surface these may seem like noble causes, but has anyone stopped to think about why these steps are necessary. The stress on these "consumers" is the symptom and the "loan sharks" are just a byproduct of that symptom. The disease is decades of poor fiscal management, misplaced regulations and subsidies and inflationary policies. Is it any wonder that people are borrowing short-term to cover expenses? Incomes have not increased in over a decade, yet expenses have doubled, tripled and quadrupled in some cases. You don't solve the problem of stagnant wages and increased prices by trying to clean the blood from the wound off the floor. Nobody will address the real issues, but they will certainly wag the dog with any number of "noble" attempts to help "we the people". The fucking hypocrisy of our "leaders" is beyond me.
Ohio (Effectively) Halts Payday Lending
The new Ohio law would limit borrowers to four short-term loans a year and cap annual interest rates at 28 percent. The bill also would limit loan amounts to $500 per loan, or 25 percent of a consumer's base monthly pay, whichever is less.
Defense Department to Defend Soldiers from Debt
The Pentagon is writing a rule to keep the minds of U.S. troops on their missions by shielding them from debt, but the prospect of the Defense Department as a regulator frightens the financial industry....
On the surface these may seem like noble causes, but has anyone stopped to think about why these steps are necessary. The stress on these "consumers" is the symptom and the "loan sharks" are just a byproduct of that symptom. The disease is decades of poor fiscal management, misplaced regulations and subsidies and inflationary policies. Is it any wonder that people are borrowing short-term to cover expenses? Incomes have not increased in over a decade, yet expenses have doubled, tripled and quadrupled in some cases. You don't solve the problem of stagnant wages and increased prices by trying to clean the blood from the wound off the floor. Nobody will address the real issues, but they will certainly wag the dog with any number of "noble" attempts to help "we the people". The fucking hypocrisy of our "leaders" is beyond me.
Tuesday, May 20, 2008
Middle-class homelessness.
I shit you not, this is an actual quote from an article on CNN.com.
There are 12 parking lots across Santa Barbara that have been set up to accommodate the growing middle-class homelessness. These lots are believed to be part of the first program of its kind in the United States, according to organizers.
http://www.cnn.com/2008/LIVING/wayoflife/05/19/homeless.mom/index.html
This clearly was meant to be serious journalism, but the irony of this kind of wording and the fact that the FHA (established to support affordable housing) now supports loans up to $750k is just to ludicrous. What exactly qualifies one as a middle-class person nowadays? If you can't afford to live in an actual edifice, I think it might be time to adjust our terminology for standard of living.
I may have to take back my prediction that 30-40% of this country will be living in poverty within 5-10 years. If that woman doesn't fit the criteria for living in poverty, then it's a whole new ball game.
There are 12 parking lots across Santa Barbara that have been set up to accommodate the growing middle-class homelessness. These lots are believed to be part of the first program of its kind in the United States, according to organizers.
http://www.cnn.com/2008/LIVING/wayoflife/05/19/homeless.mom/index.html
This clearly was meant to be serious journalism, but the irony of this kind of wording and the fact that the FHA (established to support affordable housing) now supports loans up to $750k is just to ludicrous. What exactly qualifies one as a middle-class person nowadays? If you can't afford to live in an actual edifice, I think it might be time to adjust our terminology for standard of living.
I may have to take back my prediction that 30-40% of this country will be living in poverty within 5-10 years. If that woman doesn't fit the criteria for living in poverty, then it's a whole new ball game.
House passes bill to sue OPEC over oil prices
http://www.reuters.com/article/topNews/idUSWAT00953020080520?feedType=RSS&feedName=topNews&rpc=22&sp=true
The House of Representatives approved legislation on Tuesday allowing the Justice Department to sue OPEC members for limiting oil supplies and working to set crude prices, but the White House has threatened to veto the measure.
What complete and utter fuckwads these wastes of flesh are. If they should be suing anyone it should be themselves. They don't have to look any further than a bloated $300 billion farm bill and useless $160 billion stimulus bill. That's close to half a trillion of federal debt that is fueling the decline in the dollar and forced inflationary policies. In addition, we've got plenty of oil in our country just sitting untapped. The fucking balls on these assholes to pass this legislation while our oil sits untapped and we relentlessly march on with wasteful deficit spending.
It's this kind of shit that makes me want bitch slap our politicians.
The House of Representatives approved legislation on Tuesday allowing the Justice Department to sue OPEC members for limiting oil supplies and working to set crude prices, but the White House has threatened to veto the measure.
What complete and utter fuckwads these wastes of flesh are. If they should be suing anyone it should be themselves. They don't have to look any further than a bloated $300 billion farm bill and useless $160 billion stimulus bill. That's close to half a trillion of federal debt that is fueling the decline in the dollar and forced inflationary policies. In addition, we've got plenty of oil in our country just sitting untapped. The fucking balls on these assholes to pass this legislation while our oil sits untapped and we relentlessly march on with wasteful deficit spending.
It's this kind of shit that makes me want bitch slap our politicians.
Time to lighten it up a bit
A man is getting into the shower just as his wife is finishing up her shower, when the doorbell rings. The wife quickly wraps herself in a towel and runs downstairs. When she opens the door, there stands Bob, the next-door neighbour. Before she says a word, Bob says, 'I'll give you $800 to drop that towel, ' After thinking for a moment, the woman drops her towel and stands naked in front of Bob After a few seconds, Bob hands her $800 and leaves her. The woman wraps back up in the towel and goes back upstairs. When she gets to the bathroom, her husband asks, 'Who was that?' 'It was Bob the next door neighbor,' she replies. 'Great,' the husband says, 'did he say anything about the $800 he owes me?'
Meredith Whitney: She's hot and she's smart
Ok...hot for a financial analyst, but I still like her.
One person who doesn’t believe the worst of the credit crunch has passed is Oppenheimer analyst Meredith Whitney. The crisis will extend well into next year, Whitney wrote in a note Tuesday in which she predicts banks will take an additional $170 billion of writedowns by the end of next year. Whitney, who correctly predicted Citi’s (C) dividend cut last fall at a time when other analysts were generally more sanguine about the state of the industry, cut her 2008 profit outlook for Citi, JPMorgan Chase (JPM), Bank of America (BAC) and Wachovia (WB), citing the collapse of the securitization business and a sharp pullback in consumer spending. “The real harrowing days of the credit crisis are still in front of us,” she writes, “and will prove more widespread in effect than anything yet seen.”
One person who doesn’t believe the worst of the credit crunch has passed is Oppenheimer analyst Meredith Whitney. The crisis will extend well into next year, Whitney wrote in a note Tuesday in which she predicts banks will take an additional $170 billion of writedowns by the end of next year. Whitney, who correctly predicted Citi’s (C) dividend cut last fall at a time when other analysts were generally more sanguine about the state of the industry, cut her 2008 profit outlook for Citi, JPMorgan Chase (JPM), Bank of America (BAC) and Wachovia (WB), citing the collapse of the securitization business and a sharp pullback in consumer spending. “The real harrowing days of the credit crisis are still in front of us,” she writes, “and will prove more widespread in effect than anything yet seen.”
Two best days of a boat owner?
The day you buy it and the day it is repo'd.
Looks like the boating industry is in for a world of hurt. Who could have predicted that?
Economic Tide Is Rising for Repo Man
http://www.nytimes.com/2008/05/20/business/20repo.html?_r=3&adxnnl=1&oref=slogin&ref=business&adxnnlx=1211292169-JgioGHF8cOzneVr8tcyH2w
Looks like the boating industry is in for a world of hurt. Who could have predicted that?
Economic Tide Is Rising for Repo Man
http://www.nytimes.com/2008/05/20/business/20repo.html?_r=3&adxnnl=1&oref=slogin&ref=business&adxnnlx=1211292169-JgioGHF8cOzneVr8tcyH2w
What’s next for the economy? Look at California
Interesting article in Financial Week. Touches on some of my previous comments regarding Cali.
http://www.financialweek.com/apps/pbcs.dll/article?AID=/20080519/REG/533900601/1036
http://www.financialweek.com/apps/pbcs.dll/article?AID=/20080519/REG/533900601/1036
Monday, May 19, 2008
Something's gotta give
This bear market rally is truly amazing. Case in point is today's dow surge. It's amazing to me that in face of all the ACTUAL evidence out there, people still can hang on to a bull mentality. The propaganda and spin machine that is the media and federal government are in full force. If anyone just takes the time to look under the hood of all the so called "bullish" news, they would see it for what it is. Complete and utter non-sensical spin on top of skewed numbers.
While unemployment numbers may not look bad on the headline numbers, underneath the employment picture is absolutely terrible. Employers are slashing worker's hours at rates that have never been seen. While this may not translate into an "unemployed" number, the number of hours reduced forcing part-time employment was the equivalent of 400,000 lost jobs last month. OUCH!!! So headline employment looks ok, while employers just reduce hours for existing employees. Where's the good news in that? You now have millions of people working less hours than they were before. The "good news" is this causes no surge in unemployment and workers can't claim unemployment. The bad news is, that worker can't afford their mortgage, car and credit card payments and have zero chance at getting a better job.
Why is it so difficult for people to understand why the consumer confidence numbers are the worst in 30 years. EVERYBODY in this country is feeling what is happening, yet the media and government refuse to acknowledge the truth. Scary indeed. The hope is that this can all blow over before it gets worse. The reality is, it is getting worse and it won't ease up for years. There'll be no hiding from the fall-out of this credit bubble collapsing.
While unemployment numbers may not look bad on the headline numbers, underneath the employment picture is absolutely terrible. Employers are slashing worker's hours at rates that have never been seen. While this may not translate into an "unemployed" number, the number of hours reduced forcing part-time employment was the equivalent of 400,000 lost jobs last month. OUCH!!! So headline employment looks ok, while employers just reduce hours for existing employees. Where's the good news in that? You now have millions of people working less hours than they were before. The "good news" is this causes no surge in unemployment and workers can't claim unemployment. The bad news is, that worker can't afford their mortgage, car and credit card payments and have zero chance at getting a better job.
Why is it so difficult for people to understand why the consumer confidence numbers are the worst in 30 years. EVERYBODY in this country is feeling what is happening, yet the media and government refuse to acknowledge the truth. Scary indeed. The hope is that this can all blow over before it gets worse. The reality is, it is getting worse and it won't ease up for years. There'll be no hiding from the fall-out of this credit bubble collapsing.
Subprime nation
The United States of America is a subprime nation. That's quite a statement, but if you looked at the balance sheet of this country with the same scrutiny you would a corporation you were looking to invest in, you'd run for the hills. The US is basically the mafia of the world when it comes to legitimate financial operations. While it looks like we are running legitimate businesses in reality we force countries to pay "protection" in the form of the reserve currency and foreign funded military might. How much longer this can last is a scary and more pressing issue. The USA Today has an article that looks at the US debt in totality. This isn't a new concept to those who have studied this issue, but it should be alarming to all citizens.
Bill for taxpayers swells by trillions
http://www.usatoday.com/news/washington/2008-05-18-Redink_N.htm?csp=34
Here are some excerpts:
* The federal government's long-term financial obligations grew by $2.5 trillion last year
* When obligations of state and local governments are added, the total rises to $61.7 trillion, or $531,472 per household. That is more than four times what Americans owe in personal debt such as mortgages.
* The $2.5 trillion in federal liabilities dwarfs the $162 billion the government officially announced as last year's deficit, down from $248 billion a year earlier.
$531,472 of debt for every household!!! That's absolutely ludicrous. Considering the average household income is in the $50-$70k range, that is almost a 10x debt to income ratio. With incomes declining and the debt spiraling out of control this "subprime" ratio is only getting worse. This is an unsustainable model and there is no fiscally "viable" solution. There just plain isn't. There are potential solutions, but this political climate that has been created and fostered by big business will never let it be implemented. The Ron Paul's of this country, although the only potential saviors, are also too easily marginalized. We're either going to need to try and inflate our way out of this (Argentina, Zimbabye, etc...), war our way out of this or we will take it on the chin in a devastating process leading to the destruction of the quality of life in the US. 1 and 3 are already in process, but 1 is most likely not a long term possibility. Too many foreign countries exert too much control in this process to allow that to happen without a collapse in the currency.
Why is it so easy for people to look at the balance sheet of a company and recognize their fate, yet they fail to see the light on this country's economic situation? Why do people think this country can avoid the fate of every other debtor dynasty before it? Obama isn't change and neither are any of the other candidates. They are the same old dried and crusty politicians that will pander for the populist vote at the risk of the former greatness of this country. Change will not be led by a true Republican or Democrate. Change will need to come from outside the party ranks. Change will be close to impossible until people open their eyes. We've reached a critical point in this country where the economy will drive all policy. Entitlement programs are a myth and lost cause. There is no SS, Medicare and Medicaid in 10-20 years. They cannot exist in the form they are now or we will be mired in debt payments larger than our GDP. The miracle of compounding interest is working against this country in rapid fashion. That is the reality and that is our future. Take that to the voter's box with you in November. It does matter and it is fucking serious.
Bill for taxpayers swells by trillions
http://www.usatoday.com/news/washington/2008-05-18-Redink_N.htm?csp=34
Here are some excerpts:
* The federal government's long-term financial obligations grew by $2.5 trillion last year
* When obligations of state and local governments are added, the total rises to $61.7 trillion, or $531,472 per household. That is more than four times what Americans owe in personal debt such as mortgages.
* The $2.5 trillion in federal liabilities dwarfs the $162 billion the government officially announced as last year's deficit, down from $248 billion a year earlier.
$531,472 of debt for every household!!! That's absolutely ludicrous. Considering the average household income is in the $50-$70k range, that is almost a 10x debt to income ratio. With incomes declining and the debt spiraling out of control this "subprime" ratio is only getting worse. This is an unsustainable model and there is no fiscally "viable" solution. There just plain isn't. There are potential solutions, but this political climate that has been created and fostered by big business will never let it be implemented. The Ron Paul's of this country, although the only potential saviors, are also too easily marginalized. We're either going to need to try and inflate our way out of this (Argentina, Zimbabye, etc...), war our way out of this or we will take it on the chin in a devastating process leading to the destruction of the quality of life in the US. 1 and 3 are already in process, but 1 is most likely not a long term possibility. Too many foreign countries exert too much control in this process to allow that to happen without a collapse in the currency.
Why is it so easy for people to look at the balance sheet of a company and recognize their fate, yet they fail to see the light on this country's economic situation? Why do people think this country can avoid the fate of every other debtor dynasty before it? Obama isn't change and neither are any of the other candidates. They are the same old dried and crusty politicians that will pander for the populist vote at the risk of the former greatness of this country. Change will not be led by a true Republican or Democrate. Change will need to come from outside the party ranks. Change will be close to impossible until people open their eyes. We've reached a critical point in this country where the economy will drive all policy. Entitlement programs are a myth and lost cause. There is no SS, Medicare and Medicaid in 10-20 years. They cannot exist in the form they are now or we will be mired in debt payments larger than our GDP. The miracle of compounding interest is working against this country in rapid fashion. That is the reality and that is our future. Take that to the voter's box with you in November. It does matter and it is fucking serious.
Sunday, May 18, 2008
ML debunking myths
This is really good stuff from Merill Lynch
http://www.realclearmarkets.com/The%2520Market%2520Economist%252005%252009%252008.pdf
http://www.realclearmarkets.com/The%2520Market%2520Economist%252005%252009%252008.pdf
Friday, May 16, 2008
California...a natural disaster might be needed
California is quickly spiraling into an abyss of debt. Housing has fallen off the cliff and tax revenues are disappearing faster than HGH in The Arnold's house. This is the 8th largest economy in the world and it is teetering on the brink of a disaster. There is no easy answer for them as they are one of the biggest "welfare" states in the world. Just about the only thing that could help is a major earthquake or other natural disaster that would funnel "rebuilding" $'s there way.
Arnolds latest and greatest plan is to sell Muni Bonds backed by lottery revenue to offset the budget deficit. BRILLIANT! Borrow now pay later, that's the way to balance a budget. And even better, let's back the bonds by a disappearing revenue stream that can't possibly support the payments. CA is in for some massive cuts and tax increases or it may pass the buck for a year or two. Either way, that state will be a economic disaster area for the forseeable future. Anyone who thinks that CA can't drag down the rest of the country with it is a pot-smoking, dart-frog licking lunatic. And I should know one.
Arnolds latest and greatest plan is to sell Muni Bonds backed by lottery revenue to offset the budget deficit. BRILLIANT! Borrow now pay later, that's the way to balance a budget. And even better, let's back the bonds by a disappearing revenue stream that can't possibly support the payments. CA is in for some massive cuts and tax increases or it may pass the buck for a year or two. Either way, that state will be a economic disaster area for the forseeable future. Anyone who thinks that CA can't drag down the rest of the country with it is a pot-smoking, dart-frog licking lunatic. And I should know one.
Bernanke...hanging himself
October 27, 2005
Bernanke: There's No Housing Bubble to Go Bust
U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president's Council of Economic Advisers, in testimony to Congress's Joint Economic Committee. But these increases, he said, "largely reflect strong economic fundamentals," such as strong growth in jobs, incomes and the number of new households.
Bernanke's thoughts on the credit and financial crises:
August 7, 2007
Federal Reserve: FOMC Statement
Economic growth was moderate during the first half of the year. Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy.
Just 10 days later:
August 17, 2007
Federal Reserve: FOMC Statement
Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward. In these circumstances, although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably.
Bernanke: There's No Housing Bubble to Go Bust
U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president's Council of Economic Advisers, in testimony to Congress's Joint Economic Committee. But these increases, he said, "largely reflect strong economic fundamentals," such as strong growth in jobs, incomes and the number of new households.
Bernanke's thoughts on the credit and financial crises:
August 7, 2007
Federal Reserve: FOMC Statement
Economic growth was moderate during the first half of the year. Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy.
Just 10 days later:
August 17, 2007
Federal Reserve: FOMC Statement
Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward. In these circumstances, although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably.
Thursday, May 15, 2008
Level 3 Assets - What's in your wallet?
Aye carumba. If you're not familiar with what Level 3 assets are, then please take some time to look it up in detail. Basically, companies must report the assets they hold and mark them to fair value as best they can. They do this by allocating the assets into 3 class levels. Level 1 are assets that are trading with some frequency and therefore can be price easily. Level 2 assets have less of a liquid market, therefore are marked using a modified formula. Level 3 assets have no liquidity and therefore companies can park assets in level 3 at basically full value as they have complete control over what the value is.
So what's the big deal with this. Well, basically Level 3 assets have become the giant rug under which all of the "toxic waste" these companies are holding has been accumulating. If you look at Freddie Mac, they've increased Level 3 assets in just 1 qtr from $32 billion to $157 billion. That's obscene. The same trick is being done by most of the financial institutions as well. If you combine that with the $300-400 billion or so of junk that the fed is swapping for gold, then you have a SERIOUS amount of assets that are not even close to being marked to market on these companies books. You can rest assured that most of those assets are worth between 20 cents to 70 cents (max) on the dollar. That's a major haircut that these companies haven't taken yet. Even with these shananigans, ALL of these companies are still having to raise capital at rediculous interest rates and shareholder dilutions just to stay viable.
Yet, the bubbleheads are out there saying the credit crunch is over and we're in the 7th inning stretch. What a joke. We haven't even begun to see the worst in Alt-A, Option ARMS, credit card securities, commercial real estate, car loans, corporate debt and unemployment. All are heading the wrong direction and quickly. All of these securities rely on one thing (consumers) and consumers have no ability to support the payments anymore, let alone acquire new debt. There's only one direction this can all go down and pretty soon these companies won't be able to raise additional capital. That's why you are starting to see the firesales of assets left and right. Citibank (selling $400 billion assets), GE (selling applicances at $8 billion), etc... Where do you think all these assets are going...correct, overseas. The US is on sale ladies and gentlemen and it won't end until most of our precious assets have been acquired OR we get someone in government who will instill some sanity in the economic environment. Wonder which will happen first.
So what's the big deal with this. Well, basically Level 3 assets have become the giant rug under which all of the "toxic waste" these companies are holding has been accumulating. If you look at Freddie Mac, they've increased Level 3 assets in just 1 qtr from $32 billion to $157 billion. That's obscene. The same trick is being done by most of the financial institutions as well. If you combine that with the $300-400 billion or so of junk that the fed is swapping for gold, then you have a SERIOUS amount of assets that are not even close to being marked to market on these companies books. You can rest assured that most of those assets are worth between 20 cents to 70 cents (max) on the dollar. That's a major haircut that these companies haven't taken yet. Even with these shananigans, ALL of these companies are still having to raise capital at rediculous interest rates and shareholder dilutions just to stay viable.
Yet, the bubbleheads are out there saying the credit crunch is over and we're in the 7th inning stretch. What a joke. We haven't even begun to see the worst in Alt-A, Option ARMS, credit card securities, commercial real estate, car loans, corporate debt and unemployment. All are heading the wrong direction and quickly. All of these securities rely on one thing (consumers) and consumers have no ability to support the payments anymore, let alone acquire new debt. There's only one direction this can all go down and pretty soon these companies won't be able to raise additional capital. That's why you are starting to see the firesales of assets left and right. Citibank (selling $400 billion assets), GE (selling applicances at $8 billion), etc... Where do you think all these assets are going...correct, overseas. The US is on sale ladies and gentlemen and it won't end until most of our precious assets have been acquired OR we get someone in government who will instill some sanity in the economic environment. Wonder which will happen first.
Wednesday, May 14, 2008
How evil are the IMF and World Bank?
World Bank `Destroyed Basic Grains' in Honduras
http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=aGxiawAqP0.w
Interesting article detailing how the World Bank and IMF essentially forced countries to open there agricultural export policies. Why did they do this? The overwhelming evidence suggests that they did this to force those countries into requiring loans to support their growth. Self sufficiency does no good to the bottom line of an entity like the World Bank or IMF. F'ing shyster organizations if ever there was one.
Main media catching on
Economic 'misery' more widespread
http://money.cnn.com/2008/05/13/news/economy/misery/index.htm?postversion=2008051404
Some experts argue that true inflation and unemployment -- the components of the economy's 'Misery Index' -- are higher than the government's official figures.
Finally an article in main media addressing the sham that is government statistical reporting. Hopefully people start waking up to the economic suicide the dems and repubs are both so intent on committing. Two sides of the same slug doesn't leave you much value after the coin is flipped.
http://money.cnn.com/2008/05/13/news/economy/misery/index.htm?postversion=2008051404
Some experts argue that true inflation and unemployment -- the components of the economy's 'Misery Index' -- are higher than the government's official figures.
Finally an article in main media addressing the sham that is government statistical reporting. Hopefully people start waking up to the economic suicide the dems and repubs are both so intent on committing. Two sides of the same slug doesn't leave you much value after the coin is flipped.
Money pump
Look carefully at the graph above. It shows the transfer of wealth from nation to nation caused by $120 barrel oil. This is by far the largest "money pump" ever seen in the history of the modern world. The implications of this are massive. The Middle East alone is raking in almost $1 Trillion a year. Think about that. At this rate, in less than 10 years they could acquire almost all the major assets in the world through backchanneled private funds. Scary fing shit. If something isn't done to modify this pump, then SA, Russia, China and Japan could single handily create an economic nuclear winter in the US with the drop of the hat.Tuesday, May 13, 2008
Scary farming tales
Farmers unable to cash in on soaring food prices
http://www.latimes.com/business/la-fi-farm13-2008may13,0,38893.story
This has serious ramifications for the world's food supplies. As input costs increase, so does the risk to farmer's and their reliance upon available credit to fund expansion. Nasty mix.
http://www.latimes.com/business/la-fi-farm13-2008may13,0,38893.story
This has serious ramifications for the world's food supplies. As input costs increase, so does the risk to farmer's and their reliance upon available credit to fund expansion. Nasty mix.
Wheels coming off the consumer
There are some disturbing trends that are showing how badly the wheels are coming off the consumer. Obviously, credit is getting tougher to come by which is affecting refinancing and HELOCS. This is cutting down on the discretionary spending ability of consumers. More concerning are the major trends upward in the number of 401k loans, credit card usage for necessities and increasing defaults on mortgages/cars/boats. Consumers are tapping areas of cash they shouldn't be to support spending habits they shouldn't have. This is going to end very badly for the consumer. Look for the bankruptcy laws to be repealed soon as personal bankruptcies skyrocket over the next 2-3 years. There will be some records smashed in my opinion.
Food Stamp Nation
Check out the trend in food stamps compared to the last major recession. I'd contend that the food stamp trend is probably one of the only reliable indicators of consumer stress left in the government. It's hard to fudge that number. You can certainly fudge (unemployment, inflation, GDP, etc...)
This does not bode well.
Satyajit Das: This guy is good
Das works thought an example of how deleveraging feeds on itself and discusses how it will progress:
The first phase of de-leveraging is focused on financial markets. Banks have suffered losses in excess of US$200 billion (with more possible). Approximately US$1 trillion of assets have returned onto bank balance sheets.... An additional unknown amount of assets will return onto bank balance sheets as hedge funds gradually de-leverage.
Banks require funding and capital to cover losses and returning assets (christened IAG (involuntary asset growth). High inter-bank rates and the deceleration in bank lending reflect, in part, banks husbanding their cash resources to accommodate the involuntary increase in assets.
They have been raising money both via “helpful” central banks and in the market. Major financial institutions have issued substantial volumes of term debt at very high credit spreads....
Banks will also need substantial new capital to cover losses and the regulatory capital required against returning assets as follows:
Losses: US$ 200 to 400 billion
Additional Capital: US$ 100 to 300 billion (calculated as 10% (the Basel minimum is 8% but few banks operate at that level) of returning assets)
For bank’s operating under Basel 2, probabilities of default in credit models will increase resulting in regulatory capital increases....The capital required is around 15-25% of total global bank capital....
It is not clear how this capital requirement will be meet. Initially new capital was supplied by sovereign wealth funds (“SWFs”) and Chinese banks. Given that most investors have (sometimes) significant losses on their investment, this source of capital is less likely to be available in the near term. Banks have resorted to “hybrid” capital issues such as perpetual preference shares. The major attraction for investors has been the high income. Investors, especially retail investors, may not understand the equity risk in these structures. Rating agencies have expressed concern about the increasing level of hybrid securities in the capital structure of many banks.
Other sources of capital include asset sales. The current state of asset markets makes this problematic. Asset sales will put further pressure on available liquidity and prices.
One bright spot is investment in emerging market banks; for example, investments in Chinese State banks....Many banks see disposition of these shareholdings as an attractive source of capital....
The new capital noted above will merely restore bank balance sheets. Growth in lending and assets will require additional capital. The banking system’s ability to supply credit is significantly impaired and will remain so for the foreseeable future. Credit is clearly being rationed in the global financial system. If the banks are not able to re-capitalise, then the contraction in credit supply will be sharper.
In recent years, off-balance sheet vehicles – ABS CP conduits, SIVs, CDOs and hedge funds (collectively known as the “shadow banking” system) – provided additional leverage. These vehicles relied extensively on bank funding or support. The withdrawal of this support means that these vehicles are also de-leveraging rapidly.
ABS CP conduits, SIVs and CDOs are being gradually dismantled and the assets returning onto bank balance sheets. Hedge funds have been forced to reduce leverage by between a third and a half times. Prime brokers and banks have significantly tightened credit, increasing the level of collateral needed even against high quality assets. Each 1 times leverage reduction in hedge fund leverage represents in excess of US$2 trillion of assets. This accelerates the de-leveraging process.
The next phase of de-leveraging will focus on the real economy....
High quality corporations with maturing debt face face higher borrowing costs. For companies with less than stellar business outlook and credit quality, refinancing may prove difficult. Some US$150 billion + of leveraged loans comes due in 2008. A similar amount also must be refinanced in 2009.
Non-investment grade bond issuance over the last few years was concentrated in the weaker credit categories and is vulnerable to deterioration in economic conditions. Standard & Poor’s rating agency estimates that Two-thirds of non-financial debt issuing companies are junk-rated currently, compared with 50 per cent 10-years ago and 40 per cent 20 years ago. In recent years, around half of all high yield bonds issues were rated B- or below. These borrowers will face refinancing challenges.
Personal balance sheets will also de-leverage. Consumers in the USA and to a lesser degree in the UK, Ireland, Australia and New Zealand have used borrowings (against inflated real estate values) to offset a reduction in real incomes. Falling real estate prices and the reduced availability of “easy” credit will force de-leveraging.
Inflation is also a factor in the de-leveraging in personal balance sheets. Higher prices for the necessities of life reduce cash flow available to support debt....
An economic slowdown will exacerbate the de-leveraging.....In the US economy, the household, housing and financial sectors constitute over half of all economic activity. A (perhaps protracted) slowdown may be difficult to avoid. US demand is a significant driver of global activity. Recent reductions in global growth forecasts reflect these concerns....
There has been a systemic “financialisation” of corporate balance sheets. Changes in financial markets will have a significant impact on many companies that now rely on “financial engineering” rather than “real engineering”. The problems of GE may not be isolated.
For personal borrowers reduced personal income and unemployment will sharply accelerate the de-leveraging. Uncertainty about the future and market volatility will also accelerate the de-leveraging as companies and consumers reduce debt and aggressively save.
De-leveraging in the real economy may result in increasing defaults. Firms and individuals with unsustainable borrowings will fail. This will result in further losses to financial institutions setting off negative feedback loops as both asset prices and the level of aggregate leverage adjusts.
Central banks and governments actions have been directed at maintaining liquidity and (increasingly) directly supporting the financial sector. In the US and Spain, direct fiscal stimulus is already being administered.
These actions are designed to prevent a catastrophic collapse in the financial sector. They are also designed to help maintain a normal supply of credit to creditworthy business and individuals. These actions are designed to help the real economy from slowing down to a degree that the de-leveraging accelerates further. At best, these actions will smooth the inevitable de-leveraging and adjustment to financial asset prices.
Monday, May 12, 2008
Hussmand weekly updates
Hussmand Funds puts out a weekly update that is well worth reading.
http://www.hussmanfunds.com/weeklyMarketComment.html
http://www.hussmanfunds.com/weeklyMarketComment.html
Leverage is a bitch!
This is an amazing story of how leverage destroys (unless of course you have the Federal Reserve to bail you out). This story could be the same for just about every leveraged home builder as well as all the banks in the country. It's definitely the story of Bear Stearns and would have been more had the Fed not bailed out the banks.
California man losing nine homes in mortgage mess
California man losing nine homes in mortgage mess
A REAL sign of inflation...
China is experiencing REAL inflation, not the Sucrose laden artifical type we here in the US think we are experiencing.
The government is targeting inflation of 4.8% this year, the same as in 2007.The average wage in Chinese urban areas climbed 18.3% in the first quarter from a year earlier to 6524 yuan ($US935).
Notice the increase in wages. China is flooded with cash right now causing their money supply to grow exponentially. There is a real pickle brewing in the dislocation of money flows, inflation, interest rates and supply issues. This will cause political unrest between the major powers in the next year.
The government is targeting inflation of 4.8% this year, the same as in 2007.The average wage in Chinese urban areas climbed 18.3% in the first quarter from a year earlier to 6524 yuan ($US935).
Notice the increase in wages. China is flooded with cash right now causing their money supply to grow exponentially. There is a real pickle brewing in the dislocation of money flows, inflation, interest rates and supply issues. This will cause political unrest between the major powers in the next year.
State pensions...tick...tock...tick
People are starting to realize the crisis that states and local governments are in and face...
http://www.washingtonpost.com/wp-dyn/content/article/2008/05/10/AR2008051002883.html
This is a good article regarding state pensions. There really is no way to escape the sheer cowardice by politicians to address these issues when there was a chance. All of these unfunded obligations from the local level up through the federal level are enough to take down the US. The financial crisis at the banking level will just accelerate this mess.
http://www.washingtonpost.com/wp-dyn/content/article/2008/05/10/AR2008051002883.html
This is a good article regarding state pensions. There really is no way to escape the sheer cowardice by politicians to address these issues when there was a chance. All of these unfunded obligations from the local level up through the federal level are enough to take down the US. The financial crisis at the banking level will just accelerate this mess.
Friday, May 9, 2008
Schiff with an excellent moral hazard point
This is an excellent point by Schiff when discussing the bailout of mortgages.
In fact, one reason some homeowners have such large mortgages is that they consolidated their credit card debts into their mortgages each time they refinanced. Why should renters be forced to pay off their credit card debts while homeowners have theirs forgiven?
His logic starts with the upcoming implosion of the credit card debt market. This is one of the next shoes to drop and if you bailout mortgages, why not credit cards? If the forgiven part of a mortgage was consolidted unsecured debt, what's the difference. Touche to Peter for that astute comment.
In fact, one reason some homeowners have such large mortgages is that they consolidated their credit card debts into their mortgages each time they refinanced. Why should renters be forced to pay off their credit card debts while homeowners have theirs forgiven?
His logic starts with the upcoming implosion of the credit card debt market. This is one of the next shoes to drop and if you bailout mortgages, why not credit cards? If the forgiven part of a mortgage was consolidted unsecured debt, what's the difference. Touche to Peter for that astute comment.
Let the Fire Sales Begin
Citigroup Plans to Shed About $400 Billion of Assets
http://www.bloomberg.com/apps/news?pid=20601087&sid=anmA4fVjpd00&refer=home
A billion here and a billion there...pretty soon it all adds up....yowsers.
The first of many banking firesales. You'll see the "re-privatization" of assets facilitated at the expense of shareholder dilutions and tax-payer risk. You can thank the federal reserve for its attempts to prop up insolvent banks while they jettison their ponzi-scheme gorillas acquired over the last 10 years. It's a race to see who can dump assets fast enough to keep the ships afloat. Then they'll just abandon ship onto the private luxury yachts that buy all this garbage at pennies on the dollar...Rinse and Repeat.
http://www.bloomberg.com/apps/news?pid=20601087&sid=anmA4fVjpd00&refer=home
A billion here and a billion there...pretty soon it all adds up....yowsers.
The first of many banking firesales. You'll see the "re-privatization" of assets facilitated at the expense of shareholder dilutions and tax-payer risk. You can thank the federal reserve for its attempts to prop up insolvent banks while they jettison their ponzi-scheme gorillas acquired over the last 10 years. It's a race to see who can dump assets fast enough to keep the ships afloat. Then they'll just abandon ship onto the private luxury yachts that buy all this garbage at pennies on the dollar...Rinse and Repeat.
How loooowww can we goooo!
From the Economist...
By most measures, prices are still above the levels implied by the fundamentals. Using a model that ties house prices to disposable incomes and long-term interest rates, analysts at Goldman Sachs reckon that the correction in national house prices is only halfway through. They expect an 18-20% correction overall, or another 11-13% decline from now. But their models suggest that six states—Arizona, Florida, Virginia, Maryland, California and New Jersey, could see further price declines of 25% or more.
Yikes...hate to live in one of those states...dohhhhhhh!
By most measures, prices are still above the levels implied by the fundamentals. Using a model that ties house prices to disposable incomes and long-term interest rates, analysts at Goldman Sachs reckon that the correction in national house prices is only halfway through. They expect an 18-20% correction overall, or another 11-13% decline from now. But their models suggest that six states—Arizona, Florida, Virginia, Maryland, California and New Jersey, could see further price declines of 25% or more.
Yikes...hate to live in one of those states...dohhhhhhh!
Thursday, May 8, 2008
Tennesee cutting over 2000 jobs
From The Chattanoogan.com:
Gov. Phil Bredesen said Wednesday that state tax collections have been "deteriorating dramatically" in recent months...... he said April tax collections showed the largest drop since records began to be kept in 1961.He said the first quarter was the third worst on record, and the second quarter "is certainly shaping up to be worse than that."
State's are feeling the squeeze even faster than I had anticipated. Below is a rehash of predictions on state and local govs. The trickle down from this will just add to further trouble in the economy. The downward spiral is picking up steam.
Carl's Financial Predictions:
Government:
1) Local and state governments will see record deficits for the next 2-3 years minimum as they will way overestimate their revenue receipts in their budgets (housing will have a huge impact on revenue).
2) Local and state governments will be forced to make huge cuts in valuable areas (education, social programs).
3) Local and state governments will be forced to make layoffs or furlows.
Gov. Phil Bredesen said Wednesday that state tax collections have been "deteriorating dramatically" in recent months...... he said April tax collections showed the largest drop since records began to be kept in 1961.He said the first quarter was the third worst on record, and the second quarter "is certainly shaping up to be worse than that."
State's are feeling the squeeze even faster than I had anticipated. Below is a rehash of predictions on state and local govs. The trickle down from this will just add to further trouble in the economy. The downward spiral is picking up steam.
Carl's Financial Predictions:
Government:
1) Local and state governments will see record deficits for the next 2-3 years minimum as they will way overestimate their revenue receipts in their budgets (housing will have a huge impact on revenue).
2) Local and state governments will be forced to make huge cuts in valuable areas (education, social programs).
3) Local and state governments will be forced to make layoffs or furlows.
Wednesday, May 7, 2008
Prius...Is it really green friendly?
Here's a decent commentary regarding the "green-ness" of a Prius vs. Hummer. Interesting stuff. I haven't verified this, but it makes sense.
Prius Outdoes Hummer in Environmental Damage - By Chris Demorro
The Toyota Prius has become the flagship car for those in our society so environmentally conscious that they are willing to spend a premium to show the world how much they care. Unfortunately for them, their ultimate ‘green car’ is the source of some of the worst pollution in North America; it takes more combined energy per Prius to produce than a Hummer.Before we delve into the seedy underworld of hybrids, you must first understand how a hybrid works. For this, we will use the most popular hybrid on the market, the Toyota Prius.The Prius is powered by not one, but two engines: a standard 76 horsepower, 1.5-liter gas engine found in most cars today and a battery- powered engine that deals out 67 horsepower and a whooping 295ft/lbs of torque, below 2000 revolutions per minute. Essentially, the Toyota Synergy Drive system, as it is so called, propels the car from a dead stop to up to 30mph. This is where the largest percent of gas is consumed. As any physics major can tell you, it takes more energy to get an object moving than to keep it moving. The battery is recharged through the braking system, as well as when the gasoline engine takes over anywhere north of 30mph. It seems like a great energy efficient and environmentally sound car, right?
You would be right if you went by the old government EPA estimates, which netted the Prius an incredible 60 miles per gallon in the city and 51 miles per gallon on the highway. Unfortunately for Toyota, the government realized how unrealistic their EPA tests were, which consisted of highway speeds limited to 55mph and acceleration of only 3.3 mph per second. The new tests which affect all 2008 models give a much more realistic rating with highway speeds of 80mph and acceleration of 8mph per second. This has dropped the Prius’s EPA down by 25 percent to an average of 45mpg. This now puts the Toyota within spitting distance of cars like the Chevy Aveo, which costs less then half what the Prius costs.
However, if that was the only issue with the Prius, I wouldn’t be writing this article. It gets much worse.
Building a Toyota Prius causes more environmental damage than a Hummer that is on the road for three times longer than a Prius. As already noted, the Prius is partly driven by a battery which contains nickel. The nickel is mined and smelted at a plant in Sudbury, Ontario. This plant has caused so much environmental damage to the surrounding environment that NASA has used the ‘dead zone’ around the plant to test moon rovers. The area around the plant is devoid of any life for miles.
The plant is the source of all the nickel found in a Prius’ battery and Toyota purchases 1,000 tons annually. Dubbed the Superstack, the plague-factory has spread sulfur dioxide across northern Ontario, becoming every environmentalist’s nightmare.
“The acid rain around Sudbury was so bad it destroyed all the plants and the soil slid down off the hillside,” said Canadian Greenpeace energy-coordinator David Martin during an interview with Mail, a British-based newspaper.
All of this would be bad enough in and of itself; however, the journey to make a hybrid doesn’t end there. The nickel produced by this disastrous plant is shipped via massive container ship to the largest nickel refinery in Europe. From there, the nickel hops over to China to produce ‘nickel foam.’ From there, it goes to Japan. Finally, the completed batteries are shipped to the United States, finalizing the around-the-world trip required to produce a single Prius battery. Are these not sounding less and less like environmentally sound cars and more like a farce?
Wait, I haven’t even got to the best part yet.
When you pool together all the combined energy it takes to drive and build a Toyota Prius, the flagship car of energy fanatics, it takes almost 50 percent more energy than a Hummer - the Prius’s arch nemesis.
Through a study by CNW Marketing called “Dust to Dust,” the total combined energy is taken from all the electrical, fuel, transportation, materials (metal, plastic, etc) and hundreds of other factors over the expected lifetime of a vehicle. The Prius costs an average of $3.25 per mile driven over a lifetime of 100,000 miles - the expected lifespan of the Hybrid.
The Hummer, on the other hand, costs a more fiscal $1.95 per mile to put on the road over an expected lifetime of 300,000 miles. That means the Hummer will last three times longer than a Prius and use less combined energy doing it.
So, if you are really an environmentalist - ditch the Prius. Instead, buy one of the most economical cars available - a Toyota Scion xB. The Scion only costs a paltry $0.48 per mile to put on the road. If you are still obsessed over gas mileage - buy a Chevy Aveo and fix that lead foot.
One last fun fact for you: it takes five years to offset the premium price of a Prius. Meaning, you have to wait 60 months to save any money over a non-hybrid car because of lower gas expenses.
Prius Outdoes Hummer in Environmental Damage - By Chris Demorro
The Toyota Prius has become the flagship car for those in our society so environmentally conscious that they are willing to spend a premium to show the world how much they care. Unfortunately for them, their ultimate ‘green car’ is the source of some of the worst pollution in North America; it takes more combined energy per Prius to produce than a Hummer.Before we delve into the seedy underworld of hybrids, you must first understand how a hybrid works. For this, we will use the most popular hybrid on the market, the Toyota Prius.The Prius is powered by not one, but two engines: a standard 76 horsepower, 1.5-liter gas engine found in most cars today and a battery- powered engine that deals out 67 horsepower and a whooping 295ft/lbs of torque, below 2000 revolutions per minute. Essentially, the Toyota Synergy Drive system, as it is so called, propels the car from a dead stop to up to 30mph. This is where the largest percent of gas is consumed. As any physics major can tell you, it takes more energy to get an object moving than to keep it moving. The battery is recharged through the braking system, as well as when the gasoline engine takes over anywhere north of 30mph. It seems like a great energy efficient and environmentally sound car, right?
You would be right if you went by the old government EPA estimates, which netted the Prius an incredible 60 miles per gallon in the city and 51 miles per gallon on the highway. Unfortunately for Toyota, the government realized how unrealistic their EPA tests were, which consisted of highway speeds limited to 55mph and acceleration of only 3.3 mph per second. The new tests which affect all 2008 models give a much more realistic rating with highway speeds of 80mph and acceleration of 8mph per second. This has dropped the Prius’s EPA down by 25 percent to an average of 45mpg. This now puts the Toyota within spitting distance of cars like the Chevy Aveo, which costs less then half what the Prius costs.
However, if that was the only issue with the Prius, I wouldn’t be writing this article. It gets much worse.
Building a Toyota Prius causes more environmental damage than a Hummer that is on the road for three times longer than a Prius. As already noted, the Prius is partly driven by a battery which contains nickel. The nickel is mined and smelted at a plant in Sudbury, Ontario. This plant has caused so much environmental damage to the surrounding environment that NASA has used the ‘dead zone’ around the plant to test moon rovers. The area around the plant is devoid of any life for miles.
The plant is the source of all the nickel found in a Prius’ battery and Toyota purchases 1,000 tons annually. Dubbed the Superstack, the plague-factory has spread sulfur dioxide across northern Ontario, becoming every environmentalist’s nightmare.
“The acid rain around Sudbury was so bad it destroyed all the plants and the soil slid down off the hillside,” said Canadian Greenpeace energy-coordinator David Martin during an interview with Mail, a British-based newspaper.
All of this would be bad enough in and of itself; however, the journey to make a hybrid doesn’t end there. The nickel produced by this disastrous plant is shipped via massive container ship to the largest nickel refinery in Europe. From there, the nickel hops over to China to produce ‘nickel foam.’ From there, it goes to Japan. Finally, the completed batteries are shipped to the United States, finalizing the around-the-world trip required to produce a single Prius battery. Are these not sounding less and less like environmentally sound cars and more like a farce?
Wait, I haven’t even got to the best part yet.
When you pool together all the combined energy it takes to drive and build a Toyota Prius, the flagship car of energy fanatics, it takes almost 50 percent more energy than a Hummer - the Prius’s arch nemesis.
Through a study by CNW Marketing called “Dust to Dust,” the total combined energy is taken from all the electrical, fuel, transportation, materials (metal, plastic, etc) and hundreds of other factors over the expected lifetime of a vehicle. The Prius costs an average of $3.25 per mile driven over a lifetime of 100,000 miles - the expected lifespan of the Hybrid.
The Hummer, on the other hand, costs a more fiscal $1.95 per mile to put on the road over an expected lifetime of 300,000 miles. That means the Hummer will last three times longer than a Prius and use less combined energy doing it.
So, if you are really an environmentalist - ditch the Prius. Instead, buy one of the most economical cars available - a Toyota Scion xB. The Scion only costs a paltry $0.48 per mile to put on the road. If you are still obsessed over gas mileage - buy a Chevy Aveo and fix that lead foot.
One last fun fact for you: it takes five years to offset the premium price of a Prius. Meaning, you have to wait 60 months to save any money over a non-hybrid car because of lower gas expenses.
Surprised by the surprising number of surprises!
If I had a dime for every economist that was surprised by overwhelmingly un-surprising statistics, I'd be a millionaire-lunatic.
Surprise jump in consumer borrowing
How many headlines have had "surprise" in them lately? The statistics are as predictable as the headlines.
Surprise jump in consumer borrowing
How many headlines have had "surprise" in them lately? The statistics are as predictable as the headlines.
Mr. Mortgage - Silly Name, Good Info
Mr. Mortgage has a silly name, but some excellent information. You can check out his blog below.
http://mrmortgage.ml-implode.com/
For some really interesting stuff, go to YouTube and type in "Mr. Mortgage". His videos are very good stuff.
http://mrmortgage.ml-implode.com/
For some really interesting stuff, go to YouTube and type in "Mr. Mortgage". His videos are very good stuff.
Another economist making me scratch my head...
I generally don't have a beef with Mark Zandi, but these statements show a clear lack of understanding...
``Productivity is solid and labor costs are slowing and this will take the pressure off inflation and the Federal Reserve,'' said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania. ``Unit labor costs have essentially come to a grinding halt and that should support corporate profits and allow businesses to hold the line on prices.''.....
First off....most of these economists are all over the board on the definition of inflation and how it behaves. The only time productivity increases help to ease pressure on inflation is when real wages have been escalating therefore increases in income creates upwards pressure on prices. This is clearly not the case with this downturn as real wages have been declining even as prices surge on commodities. Even though labor costs are shrinking (through layoffs - and temporary productivity gains) the input costs for producing goods is surging. The pressure on those prices will not go away as fuel and other inputs skyrocket. In addition, that will put downward pressure on demand as well as downward pressure on pricing. These are deflationary effects smacking square up against rising input costs. This is a double whammy for companies and retailers and you can be sure that profits will shrink accordingly. This "bullish run" in the market is in the face of all logic. The pressure should not at all come off the fed in regards to rates, as their rate cuts have almost entirely fueled the fall of the dollar and spike in commodities. We're paying for past loose monetary policy with the worst of both worlds now. Additional loose policies will only continue to dislocate this mess.
``Productivity is solid and labor costs are slowing and this will take the pressure off inflation and the Federal Reserve,'' said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania. ``Unit labor costs have essentially come to a grinding halt and that should support corporate profits and allow businesses to hold the line on prices.''.....
First off....most of these economists are all over the board on the definition of inflation and how it behaves. The only time productivity increases help to ease pressure on inflation is when real wages have been escalating therefore increases in income creates upwards pressure on prices. This is clearly not the case with this downturn as real wages have been declining even as prices surge on commodities. Even though labor costs are shrinking (through layoffs - and temporary productivity gains) the input costs for producing goods is surging. The pressure on those prices will not go away as fuel and other inputs skyrocket. In addition, that will put downward pressure on demand as well as downward pressure on pricing. These are deflationary effects smacking square up against rising input costs. This is a double whammy for companies and retailers and you can be sure that profits will shrink accordingly. This "bullish run" in the market is in the face of all logic. The pressure should not at all come off the fed in regards to rates, as their rate cuts have almost entirely fueled the fall of the dollar and spike in commodities. We're paying for past loose monetary policy with the worst of both worlds now. Additional loose policies will only continue to dislocate this mess.
Hidden gem in CNN article on Fannie Mae
Wow...sometimes writer's have hidden gems they fail to recognize themselves. CEO of Fannie Mae Mudd is excited about the "feast" of opportunities in the housing crisis. The writer states ...
Like other financial institutions, Fannie is benefiting from the Fed's rate-cutting spree, which has created a bigger spread between the rates at which the company borrows and lends.
This is quite a statement and should make people shit their pants. Mudd is "excited" because of the exact same reasons that got us into this mess in the first place. Negative real rates benefit financial institutions because it allows them to loan money long and borrow short at a premium. This is a levered model that is destined to blow-up when interest rates start to creep up. As the margins tighten and underlying loans see default pressure, the whole model snaps. This is the EXACT reason why Fannie and Freddie will blow up in a collosal mess. Why anyone would see this as an exciting opportunity with the economic headwinds we're seeing now is beyond me. Sound business models aren't built on the basis of artificial rate spreads, they are built on proper risk analysis that looks at the borrowers ability to earn money and pay-off their loan using an adaquate "price to income" NOT "payment to income" model. Why this isn't obvious is beyond me.
Like other financial institutions, Fannie is benefiting from the Fed's rate-cutting spree, which has created a bigger spread between the rates at which the company borrows and lends.
This is quite a statement and should make people shit their pants. Mudd is "excited" because of the exact same reasons that got us into this mess in the first place. Negative real rates benefit financial institutions because it allows them to loan money long and borrow short at a premium. This is a levered model that is destined to blow-up when interest rates start to creep up. As the margins tighten and underlying loans see default pressure, the whole model snaps. This is the EXACT reason why Fannie and Freddie will blow up in a collosal mess. Why anyone would see this as an exciting opportunity with the economic headwinds we're seeing now is beyond me. Sound business models aren't built on the basis of artificial rate spreads, they are built on proper risk analysis that looks at the borrowers ability to earn money and pay-off their loan using an adaquate "price to income" NOT "payment to income" model. Why this isn't obvious is beyond me.
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