Saturday, August 13, 2011

Dems winning, no really

Obama's strategy of flushing the Republicans out into the light is starting to pay dividends with the generic ballot favoring Congressional Democrats by a growing margin. People are starting to see that when the Republicans talk about shrinking government that they mean shrink the government that serves them, while Republicans continue to benefit.

More on the polls

Friday, August 12, 2011

Administering the Coup de Grace

Consumer spending is up by the most in four months, sales of customer goods in general are up and there is exceptional strength in new car sales. This increase in the new car market is happening not so much because the economy is getting better but because there is a shortage of used cars and prices are up sharply. A few years ago there was a huge glut of used cars generated by lease returns since people don’t keep leased cars until they wear out. 

Leasing was one of those “genius” ideas of the financial services industry that made them a lot of money as people “rented” rather than owed. When the crash came this glut was strangling car sales with used cars falling in price and new car sales in the tank. Cash for Clunkers was intended to take a bite out the surplus of used cars but even with that, used cars were falling in price until this January but are now soaring. 

You see by “forcing” people who can afford it to buy new cars instead of depending on getting a deal on returned lease car, you stimulate the economy. People will complain that the poor must pay more for cars, but this is temporary as new cars beget trade-ins, and there are more jobs too. Obama is right about one thing, you don’t dig your way out of a hole this deep overnight. 

The consumer confidence survey is at a three decade low but this is a survey and not real numbers. Wages have actually started to tick up with new jobs being created and this is boosting consumer spending. There is pent up demand if we could avoid still more damage to the economy. Gasoline is expected to drop 50 cents a gallon or more over the next two weeks which could help the “back to school“ shopping season considered critical to the retail sector.

The problem with this is that the terrorists come back from vacation in September and will set about destroying America again. Grover Norquist of the “never tax the rich pledge” that all Republicans must sign, has three economy killing salvos ready to fire into the guts of the nation. The deal to extend the FAA budget expires in September putting 150,000 airport construction workers out of a job again. The gas tax will expire in six weeks, which if not renewed will put hundreds of thousands in highway construction out of work, and cripple state and local government as well. 

The fiscal year ends September 30th and if the tea bag terrorists can shut down government while they hold the budget hostage, then that is almost a million workers to add to the unemployed numbers plus contractors, suppliers and on and on. This is potentially millions that could be out of work by mid-October, just in time for the Christmas season. 

If Grover Norquist and the Tea Baggers find that the economy is not completely dead but still thrashing around, then the coup de grace would be to force the expiration of the Unemployment Extension at the end of the year. The millions that they have put out of work will have nothing to live on and the economy will expire. 

Since the Billionaires control the media they will make this all seem like something that Obama did and not the deliberate steps they took to destroy America. Of course if Obama keeps these things from happening he will have saved the Republic, at least for the moment. He still hasn't embraced any plan to actually rid us of the terrorists.

Thursday, August 11, 2011

That cute ATM on the corner

Initial jobless claims fell to an eight week low indicating that jobs are still being created and this was taken by the markets to indicate that the world isn’t ending. At least it must have tickled the fancy of a computer algorithm somewhere, 70 percent of trading is now done by super computers looking for pennies to make in a mille-second. This is why you see the wild swings up and down as there are hundreds of programs running and nobody knows what sets them off but this is why you see the huge trading volumes.

Rumors are that the big zombie banks will be kept going by the Federal Reserve and that Bank of America is going to get rid of its bad mortgage problem. BoA stock rebounded as well as the other big banks which led the 500 point Dow run up. Somewhere a mainframe keeps buying bank stocks because it’s dating the ATM on the corner and wants to impress her. If computers were smart they’d get out of stocks then put their money into spare parts and portable generators.

Gold futures fell dramatically after CME Group Inc, more commonly known as Comex, the world’s largest futures market, raised margin requirements to buy gold contracts by 22%. If you want to buy a 100-ounce contract to gamble with then you’ll need to ante up a minimum of  $7,425 in cash, up from $6,075. You also need enough assets to cover the difference of $180,000/100 oz. The dealers will accept a variety of collateral, T-Bills are considered good collateral as they are rated AAA, oh, wait…. Still they’re better than securitized sub-prime debt.

A stampede by investors into Treasurys yesterday (Wednesday) helped the U.S. government borrow at record low rates for the second day straight paying only 2.14% on 10-year notes on sales of $24 billion. This followed Tuesday’s Treasury auction of $32 billion in three-year notes at a record low of 0.50 percent Tuesday.

Things didn’t go as well at today’s refunding auction (turning over existing debt) of $16 billion in 30 year bonds. While the yield of 3.750% is the second lowest in the bond’s history there wasn‘t much demand. The big-bank primary dealers who underwrite the offering for Treasuries were forced to buy 68 per cent of the bonds offered which is the most in nearly three years. Institutional bidders such as pension funds, insurers and foreign governments took a pass as the price isn’t projected to show a significant return over projected inflation.

The pundits are cackling that bond interest is too low and that nobody should buy long term debt. They need to put money into something so the auctions of 90 day T-bills go briskly at almost zero interest. The taxpayer comes out like a bandit this way and it would be a perfect time to do some big infrastructure stimulus projects since they could be done for “free”. The return from increased tax revenue over the long term would pay the principle and avoid that “miracle” of compound interest that so fascinated George W. Bush. GWB found anything shiny to be fascinating and that silver spoon he had in his mouth at birth was very, very shiny as it was all in Treasurys.

Mittens Romney had a rough day in Iowa as he doesn’t do well with spontaneous questions and had intended to skip Iowa entirely, Rick Perry has changed this calculation. The State Fair crowd didn’t take well to his insistence that benefits must be cut as taxes can’t be raised on “people”. In response to what Mitt thought was a clever rhetorical question of “Who are you going to tax?”.  Hecklers suggested taxing corporations and Mitt responded that “corporations are people too”. This begat more heckling and they pointed out that the corporate profits go into “your (Romney’s) pockets” and no applause from his supporters.

Wednesday, August 10, 2011

The Bubbly is going flat

The Dow took back yesterday’s run up and another 100 points besides, closing down 520. This mini-crash was driven mostly by rumors that the big banks are in trouble, especially Bank of America which is the biggest of the big and it has the smallest reserves for its size. BoA is also on the hook for 62 billion in bad mortgages it sold to investors and only has 22 billion set aside to pay for this.

Banks have been making a lot of money running up the stock markets and from speculating in commodities, two streams of cash that seem to have run dry for the moment. These operations could be largely curtailed by the Dodd-Frank law depending on whether Republicans are successful in completely gutting the regulations currently being written or not.

Market bubbles have become a way of life over the past 30 years and as the American middle class, the host for these parasites, becomes smaller and weaker the cycles of “boom” and bust become ever shorter. The “boom” of course only works for the three tenths of a percent at the very top. The other 99.7% of Americans function only to put money in and not take it out.

Not that it’s impossible to make money, but most people buy high and sell low, the evidence is that gold topped 1800/oz today. The people buying think they are shrewd, the people selling are.  Of course the number of people who can even put money into investments gets smaller everyday while the parasites want still more, so they feed harder. That is to say the schemes become ever more outrageous.

How did any investor think that securitized sub-prime debt was a good investment? Oh, that’s right the ratings agencies said they’d examined the loans and they were AAA. Now we’re told that we have to accept the collapse of Western Civilization because countries that have no real economic problems are going to be unable to make good on their bonds and are being downgraded.

The reason they won’t be able to pay? Interest rates are going through the roof and why’s this? Because they’ve been downgraded by these same ratings agencies that gave us the last crisis.

Ten years ago we were told by the Masters of the Universe that the future of the United States was financial services and not those “dirty” industrial jobs. The world needed our “expertise” in finance and we had something that no one else had, the USD with a AAA credit rating to back it up.

Indeed it wasn’t long before 30% of corporate profits were coming from financial services. Wall Street firms were papering the planet from one end to the other and it was all champagne and caviar. That is if you didn’t look back in the kitchen, the food inspectors had been fired.

After the big crash it wasn’t fixed, the Federal Reserve just printed up 14 trillion USD and spread them around. The whole world complains but still pretends it’s not really a food poisoning, but it’s getting harder to ignore the bodies. People on the inside say 80% of financial services should be made illegal, these things used to be illegal. There will be no “recovery” until this is done, just bubbles of ever shorter duration until the champagne goes flat.

Tuesday, August 9, 2011

Visiting Shut-ins

The world markets went on a wild rollercoaster ride in the past 24 hours with some markets in Asia down more than 10% before “rebounding” to only 4 to 6% down. That’s just for the day, overall they are down 20%, mostly on inflation jitters in China. As the day progressed the European markets had a similar but less extreme theme park experience but finished up a couple of percent. US markets opened in positive territory with the Dow starting out up 200 points but fell through the floor losing 400 points on the Federal Reserve’s announcement that they will not be doing a QE3 anytime soon. Further reading of the Fed’s arcane language apparently soothed investors with the Dow closing up more than 420 points to the good, all in the last half hour.

It’s not time to breath a sign of relief about that retirement nest egg, as the Fed didn‘t say anything positive beyond predicting the economy will grow, but very slowly, because it‘s worse than we thought it was. Which is like saying the sharks aren’t circling as fast but there are more of them. The Fed board only agreed by 7-3 vote to keep interest rates down for the next two years and then only if the economy remains bad. This means “if” the economy starts to pickup they will raise interest rates and tank it all over again which we already knew but the markets seemed like it.

The three dissenting votes are a big deal, normally all Fed decisions are announced as being unanimous. The dissenters are certain that there will be runaway inflation which rules out any stimulus from the Fed. Economists are pushing for another 2 trillion in QE3 which they estimate would be the same as the government spending between 500 and 800 billion. This would in theory get the total stimulus up close to what it should have been originally.

Fiscal policy is a terrible way to try to fix an economy but it’s the only tool out of reach of the Republicans but it seems that they hold enough sway on the Fed board to keep even that from happening. Without further money printing by the Fed there is no chance of significant inflation and we are likely to fall into a deflationary spiral instead, as one does when in a major Depression. The market is betting that continued loans from the Fed at zero interest will overcome all that.

Gold continued to climb hitting $1780/oz driven by high demand in Europe where 950,000 ounces were traded on exchanges Monday (that’s on paper) and the dealers claim that the sales of physical gold bars and coins are at record highs. We are still well short of the record price of $850/oz set in 1980 when adjusted for inflation to around $2500/oz. Before you start thinking this is a good time to buy, keep in mind that gold fell to roughly an eighth or less of that high (depending on how you factor inflation into it) before the big run up in the last few years. The only way gold is a good buy is if you are certain that the USD will become worthless but with the bond vigilantes from Wall Street taking down the Euro that is becoming increasingly unlikely. You have to use something for trade, deer hides or sea shells, something, so the USD wins by default, at least for now, but going back to barter isn‘t that farfetched.

In the first test of the US credit since the downgrade, the Treasury auction had winning bids pay only 0.5% interest on $32 billion in 3 year notes. Brokers bid to buy three times the amount that was offered and this is unusually high demand.

That’s not to say we are out of the woods or anything like that. We could drift along in this state for years like the sick old lady in the upstairs flat spending her days in a wheel chair. Some days are better than others, until some tea bagger comes to visit and pushes her down the stairs. (google Richard Whitmark as Tommy Udo, he won an Oscar) In short we are at the mercy of any sociopath who comes along and there is no shortage of them on the right.    

I’m getting comments from people that seem to be saying that since “safe” investments like T-bills pay next to nothing that they need to go into something with more risk. If anybody listened when I said get out of the stock market and into “safe” bond funds then they have made money as bonds have gone up and stocks have tanked. With commodities falling, just being in “cash” will likely “make” money. But no, I don’t offer any advice for market timing except to buy low and nothing is low right now, except our prospects.

Monday, August 8, 2011

Free Market and Die

US markets lost 1.5 trillion USD in the previous two weeks and pretty much doubled that today. There are rumors that today’s plunge was fueled entirely by one big hedge fund that needed to make margin calls. The biggest losses were in US bank stocks with Bank of American losing 20% of its value. This may indicate that there are fears about the European banking crisis spreading here. This would be in spite of the European Central Bank’s plan to buy as many bonds from Spain and Italy as needed with several billion dollars spent today.

Commodities plunged in price today as well which the talking heads blamed on the fear of a weak economy after the US having been downgraded. This isn’t true of course, in reality the commodity markets have been seriously inflated by speculators and hedge funds that now need to meet margin calls. Exxon Mobil’s CEO testified before Congress that 40% of the price of gasoline is caused by this Wall Street speculation. It’s funny that the tea baggers aren’t worried about that sort of taxation without representation, of course their slogan is “free market or die” or really “free market and die”.

A steep drop in gasoline prices would be a huge stimulus for the economy. In fact the economy isn’t that bad, if the Republicans can be held at bay, we will recover eventually. The recovery will be slow and very painful for the unemployed however. Absent any government polices being turned back to pre-Reagan standards that is, so when I say “recovery” I mean out of the ditch and into a muddy rut, not into some libertarian dreamt of paradise with streets of gold. This sort of recovery will at best lead to the US being indistinguishable from Mexico, this being far better than Somalia.

The major point made in the S&P downgrade that isn’t reported is their decision was in fact based primary on the Republican’s unwillingness to ever raise revenue and that Congress has confirmed that with this new law. It doesn’t a take mathematical genius to figure out that you can’t cut enough from the budget to ever balance the budget. Even if you eliminated Social Security, Medicare and Medicaid payments entirely and taxpayers continued to pay the FICA tax anyway, it still wouldn’t be close to enough. This doesn’t factor in that revenue would also fall sharply as the economy collapsed around us.

In fact we wouldn’t be looking into the abyss right now at all, except for the austerity measures already forced through by Republicans. A million government jobs have been eliminated already (mostly in red states) which would put the unemployment rate below 8% by itself. This is without all the other jobs lost in the general economy that these jobs in turn supported.

As for all the doom and gloom forecast to befall us from the downgrade, it’s fallen on deaf ears down at the bond traders. The price of Treasuries continues to climb to new highs and thus driving interest rates down. The Government can borrow money for 90 days for almost free and the ten year bills that are used to determine consumer interest rates have set another new low.

Gold did shoot up spectacularly today, going well over 1700/oz but that’s more from people not being willing to sell than from any huge demand. People are mostly going into USD and bonds. Now might be a good time to sell gold, once the price starts heading for the floor, you won’t be able to get rid of it. If you bought it cheap of course, you have nothing to lose and it does give a certain peace of mind, like canned goods.

Sunday, August 7, 2011

Market collapse?

The Israeli stock market fell 7% in Sunday trading (they're closed on Friday and Saturday), but it's too early to tell if their reaction was to the US debt downgrade or the impending collapse of Italy. Asian markets will start Monday trading late Sunday US time and then we'll start to see how bad it really is.

[update] The European Central Bank has announced that they will buy government bonds as necessary, and this should placate market fears. Asian markets are down on the open but not any sort of panic, so far....