Cure for high prices?

The age old adage is...the cure for high prices is high prices. Very true, but I'd add to that a good dose of consumer debt as well. Consumers are changing their ways in rapid fashion. From downsizing cars, downsizing houses, drinking tap water, shopping at discounters, ditching boats, etc...the list is increasing in the changes consumers are making.

Feeling thrifty, the thirsty reach for tap water

Low sales force Ford to idle SUV plant for 9 weeks

Sea Ray plans to furlough 900

And the list goes on and on. Those who still don't think we are in a recession and that it will be a doozy, will soon realize the truth. Consumer led recessions are not pretty. They take awhile to surface and they remain intact until major fundamental changes take place. The stubborness of the "official government statistics" to break down are causing misreads across the board. This will blindside anyone who doesn't do their own research.

Apologies

I've re-read my latest rants and I must apologize for the lack of any real good information recently. I've been swamped and haven't had time to pull together some good pieces, so I've been just venting recently. There really is a tremendous amount going on right now (not good for sure) and this is a fascinating time. Pay very close attention to the EU and the ECB. They are taking an almost polar opposite route that Bernanke and the Fed are and it's not good to have dueling central banks. There was a crisis in Europe in the 90's the last time this scenario played out. You're also seeing a significant amount of discontent within the EU ranks as far as the correct policies. The EU is getting close to a potential crisis of faith with the ECB. You're seeing this within the Fed as well with open dissent from other fed leaders. This almost never happened publicly with Greenspan and Bernanke is on thin ice. Central banks are just guessing at this point and in reality they have no clue as to what is the right course. They've put themselves into this box through their relentless fudging of statistics and misguided policy statements. A nasty web they've weaved indeed.

Brightside of Ethanol

The good news in this entire ethanol disaster is the fact that once again the sheer incompetence and utter stupidity of our politicians has been proven in spades. Maybe, just maybe, we the little people will wake up for once and get this crop of dimwits out of office.

Midwest Floods Push Grain Prices Higher, Weigh on Ethanol

As predicted a year ago, the fickleness and instability of corn crops is having a serious impact on food prices and gas prices. This was an entirely predictable scenario, but all of the back scratching and ass-kissing that went into the ethanol boondoggle blinded any slim chance that a sane politician would recognize the consequences. The fallout from this spectacularly failing policy is going to continue to wreak havoc in the food and energy market for months and possibly years to come. How so many minds can make so few smart decisions is just beyond comprehension.

Speaking of Mad Max...

'Scab' driver burned in his lorry as European protests against high fuel prices turn violent

This is a scary article on some of the unrest in Europe and Asia caused by high fuel prices. If oil stays above $125 or higher, it won't be a year before there is serious backlashes in this country as well. We're on the cusp of some serious hyperinflationary price increases and massive deflation of major assets. This isn't your typcial wage-price increase spiral. This is a much nastier brand of deflation with a rush of built up inflation in mission critical commodities. You're damn right I'm getting scared.

Ground and Pound Update 4

And the hits just keep on coming...

Fuel Costs Push Airlines to Raise Charges on Drinks, Checked Bags

Starting Aug. 1, US Airways will add nonalcoholic beverages to the growing list of amenities not included in a flight's base fare, thanks largely to increasing fuel costs.
Water, soda and juices will set passengers back $2. The cost of alcoholic beverages will increase from $5 to $7.

Air travel as we've come to know it is a thing of the past. Knock on costs are mounting in other industries as well. This country is unsustainable with oil over $110 a barrell. It's going to be a Mad Max USA within 2 years if the government doesn't pull it's head of its ass and solve some real problems.

Ground and Pound Update 3

On June 4th in my Ground and Pound Update I stated the following:

You can expect cheap airfares to favorite spots to become a distant memory in the near future.

Don't look now but (June 12th) in CNN: Discount fliers: Your days are numbered

Continental announces drastic service reductions nationwide. Other carriers could axe discount flights to Orlando, Cancun, Honolulu, experts say.

I'll give the airlines credit, they are working fast and furious to trim expenses as much as possible. The pain to consumers is coming at lightning speed. Expect this to continue and become even more drastic as the malaise in the economy drags on.

That'll leave stains!

From AP:

Freddie Mac and its fellow GSE Fannie Mae are now financing more than 80 percent of all mortgages in the U.S., up from 40 percent a year ago.

I think I just soiled myself with this latest news. 90% of all mortgages are now being backed by federally sponsored programs. Yep, you heard that right...90 fing percent. 80% are Fannie and Freddie and the other 10% are FHA backed. This is an absolute recipe for disaster. How anybody could let this happen in under a year is beyond me. People were rightly concerned when 40% or less were GSA loans, but this is rediculous. They are basically the only game in town. In case you haven't looked, these aren't the most capitalized companies around. This is a disaster waiting to happen and will explode in taxpayers' hands.

New national theme songs?

Get your pencils out, it's time to start writing some new national theme songs.

Baseball, hot dogs, apple pies and Chevrolet is quickly becoming Cricket, Sushi, Sopaipillas and Hyundai

Think I'm kidding...just look at the firesales of American assets that are already underway. Iconic assets like the Chrysler Building, Anheuser-Busch and the like are being sought after and plucked up by "wealthy" foreign countries. Well, wouldn't you? Who the fuck wants a sack of worthless dollars buried in their desert? I'd exchange the pieces of toilet paper for hard assets as well. Look for this to continue until the US puts the breaks on the asset sales and then all hell breaks loose as these countries start to wean themselves from the useless dollar. Ohhh what a sorry predicament.

Politics may block InBev's Anheuser-Busch bid

Stimulus payments result in record May deficit

From the AP:

http://biz.yahoo.com/ap/080611/federal_budget.html?.v=2

Economic stimulus payments push May budget deficit to an all-time high of $165.9 billion

This is why government subsidies, bailouts, free tickets and the such are a rediculous prospect when the government has NO FING money. If you want to know why oil is at $135 a barrell and the US$ is tanking, look no further than the national debt. The ever-growing, all encompassing, monster national debt. That number for May is just ludicrous and that doesnn't even take into consider proper GAAP accounting for liabilities. Based on legitimate estimates, the country is now looking at over $100 TRILLION in national debt if you include legitimate liabilities like social security, medicare, medicaid, pensions, etc..., etc... There is absolutely no foundation for the US to have AAA rating on its debt, as the only legitimate way it can pay for it's debt is by creating more debt. Isn't that the beauty of a fiat currency? It is the ultimate check kiter's dream. An endless bank account that you can continue to draw against forever (or in the case of all other fiat empires before us...the currency and economy collapses). Which do you think is going to happen? I think you can already tell what is happening.

Merrill cuts Lehman rating a week after upgrade

Whooocoooodanode???

http://www.reuters.com/article/hotStocksNews/idUSN1135424920080611

Why the fuck do they pay these worthless bags of flesh that pass for financial analysts? Anyone with half a brain and a heartbeat could analyze these companies and see how much trouble they are in. The curtain has been pulled back on the wizards, but they keep hyping regardless of what everyone sees. Just amazing to me.

People...listen up. The financial firms are fucked. Pure and simple. Don't listen to the hype and please don't try and catch falling knives. These are stocks to stay aways from. Bernanke is clueless, spineless and is in his own little academic world that looks nothing like the real world.

We're getting awfully close to another Bear Sterns type implosion. Lehman and Merrill Lynch are two that look prime. Lehman is really looking like it might go down quickly. The fed has put up a big backstop, but the losses are mounting in rapid fashion. Only half way there as well. Hang on to your nipples, it's gonna get wild.

Knowns vs. Unknowns

What scares me now about the economic predicament we are in is that everything that has happened so far is what I consider a "known". All of this has been very predictable to anyone who took the time to research and analyze the wealth of good information that is available. You just have to peel the layers and ignore the main media and government statistical lies. In fact, the upcoming shoes to drop which will continue the spiral are also knowns. This WILL get much worse before it levels off.

The unknowns are what scare me. Terrorist attacks, Iran, Russia and China power plays, famine driven instabilities, hurricanes, earthquakes. None of these things can be anticipated easily. As bad as things are now and will continue to get, if you add one of the "unknowns" to the equation you could see things explode. It's a scary thought that we are teetering on the brink of an economic collapse and not one external unknown has provided much of an impact...yet.

Sunday morning walk of shame

The markets and investors are finally waking up and it's not pretty what they're in bed with. The final realization that the Fed cannot win this battle is slowly settling in and the prospects for the economy are a no win situation. Inflationary pressures have put the kibash on rate cuts, so the fed will have to back-off on bailing out the banks any further or risk a dollar crisis and commodity explosion. If the Fed raises rates though, the markets will collapse and the dominos will lead to an implosion in the financial industry. You're seeing the effects of the realization in markets worldwide both in equities and bonds. The US is really in a bad situation right now. All hope has been placed in the fed and they know, as well as anybody else who has a sense of what is occuring, that they can't fix this.

The fed's allegiance is to the banks, so I find it hard to believe they will capitulate to the inflationary pressures. Any rate hike would be minimal at best and probably followed by a quick reversal. I anticipate the fed will try and sit on their hands, pump up the alphabet soup crutches and minimize the dollar crisis through strong-arm tactics. This will continue to feed the fall in the dollar and surge in commodities.

We truly are in a rock and a hard place right now. Look for turbulent times in the market as investors whipsaw from one position to another. It will be a rocky road until the ultimate fate is sealed one way or another.

I'll be working on a strategy that hedges on both scenarios. I'll write it up later down the road.

Na na na naaa, na na na naaa, hey hey hey, good-bye

Lehman posts $2.8 billion loss

Arivaderche, sayonara, adios, asta la vista, stick a fork in them. It's over baby. The fat lady is singing and she's sitting in front of an all you can eat buffet. Atleast they'll go out with a bang.

Lehman posted it's first losing quarter (yes QUARTER) ever, but boy was it a doozie. More than $5 per share in losses is quite a turnaround from profitability. This company will be lucky to be in existence within the next 6 months. It's guaranteed they are toast by 2010. The most likely outcome is they prop themselves up like Weekend at Bernies until they can manage a firesale to another sinking ship. Worst case scenario is we see another Bear Sterns attack on their liquidity forcing another "bailout". That would happen within 6 months if it does, maybe sooner.

How a company can buy back their own shares at the end of last week and then turnaround with 5 days and go cap and hand to the public with another offering is beyond me. That is plain and simple balance sheet suicide. Historians will note the similarities betwen this move and what financial institutions did during the Great Depression. It wasn't uncommon for banks to buy back their own shares to prop up share value. This was praised initially until people realized it was harikari by slower means. Not a good sign then and certainly not a good sign now. Companies are pulling out the same playbook as in 1929 and it didn't work then.

Bloomberg goes Gloomberg

This article is almost more pessimistic then I am. It touches on a frequent topic of mine, the decline wealth and standard of living in America.

Wealth Evaporates as Gas Prices Clobber McMansions

Choo...choo!!!

I ranted yesterday about the rediculous runup in the market on a mirage of an employment report. Looks like that light at the end of the tunnel was a high speed train and not a freight.

Anybody else short the false rally late yesterday?

Boy those lepers sure do look good!

Bulltard investors these days are like horny sailors on leave in an island full of leper women. It doesn't take much to get them excited I guess. Case in point is today's interesting run up in the market. Oil jumps $5, a suspect employment report comes out and WalMart and Costco beat expectations. Wow...that's something to get excited about.

First off, anybody who sees light at the end of the tunnel on that employment report is about to get run over by a freight train. In case you haven't read the news lately, just about every single sector in the US has companies announcing layoffs. Has anybody read about any hiring surges? Employment is heading off a cliff regardless of what numbers may or may not come out this month.

Second, who didn't expect WalMart and Costco to kick ass this quarter? I certainly did and it was completely predictable for all the wrong reasons. People are downgrading their purchases to the discount stores in record fashion. If you really want to see what's happening in retail, look at earnings at all the other retailers, especially discretionary spending. It ain't pretty. Keep loading up on WalMart and Costco, but it isn't a good sign for the economy.

Oh well, just another opportunity to load up on shorts.

Gound and pound (update 2)

And the hits just keep on coming...

Continental to cut 3,000 jobs, slash domestic flights

Citing a "crisis" because of record fuel prices, Houston-based Continental Airlines said today it will cut 3,000 jobs and reduce 11 percent of its domestic flight capacity starting later this summer.

It appears the "grounding" is picking up steam. Airlines are going to need to keep moving in this direction and quickly. Airfares are set to skyrocket, flight options are shrinking, a la carte fees will keep appearing and airlines will still teeter on the brink of bankruptcy. Unions will need to concede to modified contracts and "we the people" will need to get used to massive price increases and decreased service in air travel. The party is over.

Please see

Ground and Pound (May 23rd)

Ground and Pound Update (June 4th)

Ground and Pound Update

This didn't take long...

Here comes the Ground:

Reports: United to ground 737s, 747s to save fuel

The Pound is looming in the not so distant future. Inquiring minds may wish to revisit:

Ground and Pound

Spoiled Americans are going to really feel the effects of airline cut backs. Look for domestic flights to be trimmed by 20%-30% within the next 2 years. Many smaller airlines will cease to exist and bigger airlines will continue to consolidate. Regional airports and discount fare flights will all see major contraction. Business travelers will be expected to keep higher fare flights full (that will be a tall task in the face of a recession).

The decline in the standard of living of America is in 2nd gear and picking up steam. You can expect cheap airfares to favorite spots to become a distant memory in the near future. Boy I'm glad we did a good job of updating our rail infrastructure and high speed commuting based on electricity. Ooops, that money went to handouts and subsidies. My bad.

Here comes the commercial real estate shoe

After Mortgages, Construction Crisis May Be Building

Always a lagging market behind residential, commerical real estate and residential construction is lining up to be a serious problem for banks on top of their already mounting problems. This will affect the national banks, but local banks will really be pounded by this. Look for the FDIC to be a busy beaver in 2008 and against the ropes in 2009. Their reserves are paltry when you look at the potential losses mounting at banks tied to the real estate markets.

That right hand hurt Rocky

Round 1 of the financial crisis is over and the fighters have just gotten back off their stools. The most recent punches have been not so subtle and it looks like this is going to be another tough round. Lehman appears to be heading down a similar path to Bear Stearns and I predict a similar fate in the not so distant future. Housing continues to spiral downward and the next round of economic malaise will take the wind out of any false bottom feeders. The effects of $120+ oil and reduced income to states and local governments is just starting to appear in bottom lines at corporations and budgets. Commercial real estate is cracking and corporate debt is showing stress. Round 2 is not going to be a pretty sight. Consumer sentiment is already at stunning lows relative to the economic indicators. When the next round of awful news comes out, the bottom may quickly fall out from underneath the markets. Don't stray far from your basements. The sun is still poking through, but the clouds are all around.

What do GM and married men have in common?

They've both given up on Hummers.

GM is again a little late to the dance, even though it's the right decision. The Hummer was the auto industry's version of the Macarena. Good riddance.

GM to Close Four Truck Plants, Shift Output to Cars

"...may drop its Hummer brand of large sport-utility vehicles. "

GM has consistently made bad choices, ill timed investments and shown a complete lack of vision in the marketplace. They appear to be trying to make some good choices now, but they are way too late to get the penetration they will need. The US auto industry is in a precarious position. They will need to go to the bond market well to survive and when they get the price tag, they won't be happy campers. Neither will the poor schmucks who own their stock. Look for GM's dividend to be non-exisitent within the year.

NYT on state cut-backs

The New York Times this weekend chimed in on states cutting back...a frequent theme of mine. Worth reading.

Think the Economy Is Bad? Wait Till the States Cut Back

States contribute over 10% to the GDP each year, a not so insignificant piece of the puzzle. As stated in this article, states have not yet begun the draconian cuts that they will need to do, but they are coming. I think it will be worse than anyone is predicting.