Friday, August 26, 2011

The New Models Come Out in September

First quarter GDP has been revised downward to just one percent growth from 1.3%, still that’s better than actual shrinkage, but not much. With the Fed printing a trillion dollars during that period we should have seen more growth. The big problem is that the rich, their banks and corporations were able to simply absorb the money into their vaults and keep it out of the economy. More money printing with perhaps a more creative way to distribute it, this is the only solution available to the Fed and will almost certainly be required just to keep the whole mess from collapsing.

Fed Chairman Ben Bernanke gave a major speech today for bankers and made no mention of further Fed action in the next few months, but did take Congress to task for its lack of action. If you understand the real implications of what he said, it’s clear that he laid the blame squarely at the feet of Republicans, but since he uses rather non-committal language, they will spin it that he endorses the Republican position.

Bernanke admitted the obvious, that there has been no recovery and growth will be slow at best. He called for more stimulus, more infrastructure spending, more money for education and higher taxes but he didn’t put it in such blunt language so it will be largely ignored.

Bernanke has some opposition on the Fed Board to any further money printing as three members are sure there will be hyper-inflation. Gold prices were described as “choppy” today with traders hoping for another round of QE and were disappointed. The Fed did announce that next month’s meeting will last two days and this is doubtless because of the President’s big speech after Labor Day, and the return of the obstructionist Congress.

The Federal fiscal year ends September 30th and it provides many new hostage taking opportunities for the tea bag terrorists. The CBO projects that the current year’s deficit will be the smallest in three years at about 1.2 trillion. The Republicans continue to blame Obama for all deficits in the past two hundred years, and refuse to acknowledge that the worst deficit of all time was the final budget year of the Bush Administration. He even out did  Reagan who held the previous record for deficits, except for WWII, but that was the entire country mobilized for war. Reagan was just making his friends rich and so was Bush.

Obama has been steadily cutting spending and government jobs but gets no credit for this and instead Republicans make ridiculous claims of massive government growth and are never corrected by the “lame stream media”. Unfortunately cutting spending and jobs is exactly the wrong thing to do on the cusp of a depression, so I won’t give Obama any credit for it either. His speech in September needs to be full of big ideas, the CBO says we are running two trillion a year behind the GDP we should have. You could read into what Bernanke said today as a setup for Obama to start channeling FDR. We will find out in September which way the country is going, New Deal or Neo-Feudalism.

Thursday, August 25, 2011

Hot stock tip?

Warren Buffet, The Oracle of Omaha, has just made a really shrewd move or he really is nuts. He was recently vilified by the right for suggesting that people who make over a million dollars a year should start paying 35% tax instead of the current 15%. His new “questionable” investment was to put five billion dollars into Bank of America, the biggest of the big zombie banks. This pulls BoA back from the edge of the cliff and then some.

You might say he thought buying a stock that has lost 50% of its value was just an ordinary buying opportunity. But you might say that today's rumor about that big new jobs program Obama is going to introduce in September has something to do with it. The most successful capitalist in the world did President Obama a real solid by taking a principled stance against greedy right wingers. Did Obama return the favor with a hot stock tip? Or is Buffet just really smart?

The “secret” plan to revive the economy, if rumors are to be believed, is to finally refinance all of the outstanding mortgages to the new low interest rate which currently less than 4%. This would immediately start pumping cash into the economy, which when fully implemented would amount to 85 billion a year and would be high grade stimulus. This would continue for a generation until these loans are paid off.

The real kicker is that Congress can’t stop him from doing this and it won’t cost anything. Obama already has the authority to do this from laws passed in 2009. Buffet and BoA could benefit from the rewriting of the loans if they are allowed to do the paper work, and if nothing else it should take care of that trillion in bad mortgages BoA has on the books.

Why didn’t Obama do this before? Well, it’s going to really piss off those greedy millionaires and billionaires that Buffet has been publicly shaming. You need to understand about Freddie and Fannie, the government backed semi-private home loan holding companies, the ones that the right wingers want to “privatize” which really means “steal”. You see these companies have issued trillions of housing bonds that pay pretty good interest and are government backed, even if no longer AAA.

The rich people who hold these Freddie and Fannie bonds are suddenly going have them redeemed and they won’t have any place to put their ill gotten gains that pays anything. Not that these people are going to starve but they might need to invest in something productive for a change. These high interest bonds were simply an instrument for the rich lords to tax the peasants, and the rich didn’t pay any significant tax themselves as dividends, interest and capital gains are taxed at a maximum of 15%.

This kind of income is completely exempt from payroll taxes as well, not just the amount over 106,000. So while the self-employed Mercedes mechanic will pay 47% Federal tax ,including 12% for Fica, on the top slice of his income. The guy who has his chauffeur bring the cars in will sit home by the pool and whine about paying 15% maximum, not counting other tax loopholes.

The response from the right, “But, but, the rich pay more than half of the income tax and to be fair we need to tax the bottom 48% who don’t pay any taxes”. They don’t mention that rich (we are talking thousands of people compared to 150 million who don‘t pay), these rich people have more than half of the income as well. Plus the personal income tax only accounts for 44% of revenue while Fica is 41% and Fica is not paid by the rich. The rich pay about half of the actual income tax rate they paid in 1961.

The rich also benefit greatly from their ownership of massive corporations that provide them with all manner of lavish perks and the ability to wield raw power. No problem getting the 50 yard line seats for the big game with the company name on the stadium, and fly to the game on the corporate jet with the private five star chef. No problem getting George into Yale instead of trying to get him on at the sheltered workshop, and those criminal charges can just go away when the judge owes you his job. Corporations in the US pay the lowest actual tax rate in the developed world and it’s about a quarter of what they paid 50 years ago. It’s good to be rich, sucks for you teabagger.

Wednesday, August 24, 2011

The price of magic beans is down

The stock market was up today after the government reported that orders for  durable goods like autos and aircraft were up 4 percent in July, the best number since March. West Texas Intermediate crude was up slightly as were prices for North Sea oil, this was driven largely by a 2.2 million barrel drop in US oil inventories, or about 2 hours of US consumption. The fact is that commodity markets have more to do with how much money there is in the market, than how much oil there is. Pushing paper pays even better than pumping oil. Jed Clampett’s grandson is an investment banker.

Futures traders are hoping that Hurricane Irene's march toward oil refineries along the Atlantic Coast may push oil and gasoline prices higher later in the week, especially if it looks like supplies will be interrupted. Refineries that are taken off line take a ten to fifteen days to come back to full production. Not that there will be any real shortage and if there were we can borrow from our European allies, they have sense enough to require the oil companies to stockpile large amounts for strategic reserves. We operate on the “free market” system instead and as the oil companies grow and consolidate they have reduced capacity by a large percentage in the US.

 The markets are also trying to guess the thinking of Fed Chairman who is expected to give an indication on Friday on whether or not there will be a QE3. There are rumors that instead of further easing per se, that they may start selling short term debt that is selling with almost zero interest, and buy more long term bonds in an attempt to further drive down the interest on long term debt.

The point of this would be to drive investors into something that would actually stimulate the economy. It won’t really do that of course, a trade policy, energy policy, manufacturing policy and that sort of thing would do that. The Fed is doing the only thing bankers can do, they are pushing piles of money around and hoping that everybody thinks that works. They have kept deflation at bay, which is something good, but not a solution to the real problem.

Gold prices took a big plunge today, down $104/oz as the numbers on the economy didn’t turn out to be as bad as the gold salesmen (I mean conservatives) said they would be. Notice that they were selling gold and not buying while telling you to buy (cause they’re your pal, they left it all for you). Isn’t the Free Market wonderful?

Tuesday, August 23, 2011

Spending more time with the family or the FBI

The top man at Standard & Poor’s, Deven Sharma will quit before the end of the year. The Wall Street Journal says that he will be replaced by Douglas L. Peterson, currently the Chief Operating Officer of Citibank, one of the world’s biggest banks. No reason was given for Mr Sharma leaving but there is an ongoing investigation of S&P’s practice of fraudulently rating worthless sub-prime debt as AAA for banks much like Citibank for example.

Sales of new homes were down for the third straight month in July, this puts a further drag on the economy. At the current rate, 2011 will be the worst year for new-home sales in nearly half a century. This is only since they started keeping track, prices already have dropped by more than during the last Great Depression and are still falling, making the market “weak”.

New homes are less than 20% of the housing market, but they have a much larger impact on the economy. Building each new home creates an average of three jobs and $90,000 in taxes, this is according to the National Association of Home Builders.

Sales of existing homes are also weak and the total is expected to be below last year's 4.91 million sales. In a healthy economy, you should sell roughly 6 million existing homes each year, and a high percentage of this year’s sales are “distressed” which is helping to drive prices down.

A report that came out last week showed that more home sales than expected fell apart at the last minute, often because appraisals come in far below the agreed to price. At least one in six deals were canceled head of closings last month which is four times the rate in May.

The collapsed housing industry is hurting the broader economy, in the past half century following a recession, housing contributed up to 20 percent to economic growth. That has fallen to 4 percent in the current Depression and is falling still. And it took 19 years for prices to fully recover after the Republican Great Depression.

If you are hoping to recover lost home value, you are not going to see it. While prices will start rising eventually, it will be mostly from inflation. The big run up in home prices during Bush was a bubble deliberately created by Greenspan and the Republicans to hide the real state of the economy. Except in really hard hit areas, this is about what prices should be and as wages continue to fall even these prices cannot be supported in real dollars.

In 1937 the Republicans that were newly elected to Congress pushed through a balanced budget and plunged the recovering economy back into the Depression. We are of course repeating history, not because this history is unknown and we are thus doomed, but because the Republicans want to get it right this time. They let the country slip away from them then, and its taken Republicans 70 years to put themselves again in a position to end America as a democracy and as the land of opportunity for anyone but the Rich. They have indeed learned from their mistakes and are the odds on favorites to pull it off.

Talking about yourself in the third person

The New York markets ended up a few points today despite being weighted down by the major banks. Bank of America lost another 6% making for a 50% decline in stock value over the past year. There are continued worries about that trillion in sub-prime loans they hold and fears that attempts to unload divisions to raise cash may take place at fire sale prices leaving nothing but a zombie bank behind. If you look a little too close of course, all the Wall Street banks are really just zombies that have been animated by the printing presses of the Federal Reserve and lack a soul. That‘s not a problem though, bankers don‘t have souls to begin with.

Goldman Sachs stock dropped 5% on word their CEO, Lloyd Blankfein has lawyer-ed up with a high profile DC defense council. A company spokesman described that as “nothing unusual and standard operating procedure”. Well, every successful crime family needs a highly paid mouth-piece, so no, it’s nothing unusual. It’s likely that Blankfein wouldn’t be doing this unless there is a big criminal case coming out of the DOJ and Blankfein and Goldman Sachs’s interests are going in different directions. This is likely to either be bad news for the bank or very bad news for Blankfein.

Oil prices dropped sharply in early trading on news that Tripoli fell without a significant fight. Then the news was plastered with headlines that it could take many years to get Libyan oil production going again. This despite ongoing reports that the oil facilities have been largely in rebel hands from early on, didn’t suffer any damage and have continued in production.

Michelle Bachman has promised that President Bachman will provide 2.00 gasoline. (she’s starting to talk about herself in third person and she’s not in the Senate) No explanation of how, of course, but she blames Obama for the high price since gasoline was only 2.79 when he took office. In fact you could see gasoline at 2.00 if the Dodd-Frank Law is enforced as written. This would prohibit banks and hedge funds from trading in the futures market. The CEO of Exxon Mobil testified to Congress that 40% of the pump price was from this speculative trading on Wall Street.

The problem is that Republicans, especially the tea baggers like Bachman don’t believe in any regulation of the rich at anytime and are doing everything possible to make Dodd-Frank ineffective.  Keep in mind that when you take 40% off to get down to the “real” price then you must consider what they added to the price to get the “inflated” price. The math is that Wall Street is adding fully 2/3 to the price of gasoline. That’s the cost of the “free market”.
Tea baggers and libertarians are always wanting to end the gas tax which is 18.4 cents and will try to do so in September (who needs public roads, the free market can do better). But they have no problem with the “free market” adding 66.6% to the price of gasoline and it would be the same for “free market“ roads.

It’s only because Obama won’t let them “drill baby, drill” don’t you know. Even though there has always been a surplus of gasoline in the US as we export billions of barrels just to get rid of the gasoline. This is because gasoline is a “waste” product of oil refining and not the principle production goal of the petro-chemical industry.

If there really was a “free market”, gasoline would be $2.00 a gallon or less, but you need to believe in angels to actually believe in “free markets”. The oil companies used to burn gasoline to get rid of it and would again if they could, just to keep the price up. But Wall Street does an even better job of gouging on price by managing the news to make you think gasoline is a rare and valuable commodity. They also use their unlimited money to tie up the supply to the point that even oil company executives are impressed and that‘s saying something.

Sunday, August 21, 2011

Tail wagging the dog

Even with all of the S&P sectors showing double digit growth since Obama became President the stock market is determined to take the country down. Major corporations are sitting on 2.5 trillion in cash but as they push wages down they seem shocked to find that demand is falling. Consumers account for 70% of the economy (a link perhaps?) and the government that accounts for 20% of the economy is being cut to the quick by Red State governors and the Tea Bag Terrorists are poised to do the same for the same for the Federal Government (which will also impact the states, especially the red ones).

Wall Street is supposed to reflect the economy, indexes were invented to measure the health of the business sector (at least that's the story they tell) but now they are driving it  into the gorge (click to see video). But don't worry gentle reader, Wall Street is able to make money on the way down even better than on the way up. All those trillions in derivatives that they have been selling start to be activated if things start to fall apart and how could that go bad? (remember the banks and companies that disappeared in 2008?) Those trillions the big corporations have sitting around can be put to work buying up everybody (smaller rivals that don't have huge war chests)  and everything in the public commons for 10 cents on the dollar.