FinancialReckoningDay.blogspot.com

Bashing Goldman Sachs Is Simply a Game for Fools

2011-09-21T16:49:00.000-07:00

Bashing Goldman Sachs Is Simply a Game for Fools
By Michael Lewis - Jul 27, 2009
Bloomberg Opinion
www.bloomberg.com

America stands at a crossroads, and Goldman Sachs now owns both of them. In choosing which road to take, ordinary Americans must not be distracted by unproductive resentment toward the toll-takers. To that end we at Goldman Sachs would like to dispel several false and insidious rumors.

Rumor No. 1: Goldman Sachs controls the U.S. government.

Every time we hear the phrase the United States of Goldman Sachs we shake our heads in wonder. Every ninth-grader knows that the U.S. government consists of three branches. Goldman owns just one of these outright; the second we simply rent, and the third we have no interest in at all. (Note there isn't a single former Goldman employee on the Supreme Court.)

READ THE ENTIRE ARTICLE HERE

Goldman Sachs... the Good, the Bad, and the Ugly

2011-09-21T16:45:00.000-07:00

The "Vampire Squid" at 142 years
By Joel Stonington 9/21/2011

Goldman Sachs (GS), the most profitable investment bank in Wall Street history, went through a bit of a rough patch during the economic downturn. The firm posted its first quarterly loss since going public and handed over the largest fine ever collected by the Securities & Exchange Commission. From a purely economic angle, it appears that Goldman is now back on track, with $8.35 billion in profit last year. In the court of public opinion, however, Goldman Sachs is still on trial.

The company was called the greedy cause of the downturn for selling bad debt and then betting against it. Rolling Stone framed Goldman as a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. That's not to mention a 650-page Senate report that hangs over the firm.

READ THE ENTIRE ARTICLE HERE

The Ever Increasing Parallels Between AIG And Greece 2/10/2010

2011-09-21T16:42:00.000-07:00

The Ever Increasing Parallels Between AIG And Greece... And The CDS Puppetmaster Behind It All
Submitted by Tyler Durden on 02/08/2010

My comment...
Goldman Sachs & AIG (2008) and now Goldman Sachs & Greek currency swaps (2002-2005), which were used to hide the true extent of Greek government debt. What will be revealed next? Did Goldman Sachs create similar currency swaps for Italy and Spain? For more, Google: goldman sachs greece currency swap

Is the US Monetary System on the Verge of Collapse?

2011-09-14T13:11:00.000-07:00

Is the US Monetary System on the Verge of Collapse?
By David Galland of Casey Research
John Mauldin's Investors Insight, Sept 13, 2011

READ THE ENTIRE ARTICLE HERE

My comment...
Reading this "Outside the Box" piece on John Mauldin's website gave me a new appreciation for how close the US monetary system, and by extension the global financial system, is to a complete collapse. This is scary.

An Impeccable Disaster... by Paul Krugman 9/11/2011

2011-09-14T13:08:00.000-07:00

An Impeccable Disaster
By PAUL KRUGMAN
Published: September 11, 2011

On Thursday Jean-Claude Trichet, the president of the European Central Bank or E.C.B. — Europe’s equivalent to Ben Bernanke — lost his sang-froid. In response to a question about whether the E.C.B. is becoming a “bad bank” thanks to its purchases of troubled nations’ debt, Mr. Trichet, his voice rising, insisted that his institution has performed “impeccably, impeccably!” as a guardian of price stability.

Indeed it has. And that’s why the euro is now at risk of collapse.

READ THE ENTIRE ARTICLE HERE

My comment...
Paul Krugman sees the equivalent of bank runs in Spain and Italy as investors, fearing sovereign debt defaults, demand higher interest rates to hold Spanish & Italian government bonds. "We're not talking about a crisis that will unfold over a year or two; this thing could come apart in a matter of days. And if it does, the whole world will suffer."

Big Bank Chart... by Barry Ritholtz 9/12/2011

2011-09-14T10:11:00.000-07:00

Big Bank Chart
By Barry Ritholtz - September 12th, 2011

My comment...

Do you remember Washington Mutual, Wachovia, Merrill Lynch, Countrywide, Bear Stearns? They have all been absorbed by four too-big-to-fail banks: Citigroup, JPMorganChase, Bank of America and Wells Fargo. Don't forget those names because we will be bailing them out again.

Fed Policy - No Theory, No Evidence, No Transmission Mechanism

2011-09-14T09:51:00.000-07:00

Fed Policy - No Theory, No Evidence, No Transmission Mechanism
John P. Hussman, Ph.D.
September 12, 2011
All rights reserved and actively enforced.

Undoubtedly, one of the main factors prompting a benign response to what is now virtually certain recession and virtually certain Greek default is the hope that the Fed will launch some new monetary intervention. While Wall Street appears to view the present weakness as a replay of 2010, it is strikingly clear that the evidence tells a different story, with a broad ensemble of data implying near-certainty of oncoming recession (see An Imminent Downturn ).

READ THE ENTIRE ARTICLE HERE

My comment...
With $1.6 Trillion of excess bank reserves, and 10-year Treasuries yielding 1.9%, the Federal Reserve is simply an Emperor with no Clothes. We may still get QE3... but it will have zero effect, other than briefly stimulating the stock market. Whoopee!

S&P 500 Index and Dollar Cost Averaging 9-12-2011

2011-09-12T08:57:00.000-07:00

Whatever investments your portfolio comprises, dollar cost averaging (DCA) is a useful strategy for minimizing asset purchases when the market is overvalued. DCA allows you to invest equal dollar amounts at regular intervals (monthly, quarterly) regardless of the current market conditions. In this way you buy more shares, bonds, etc. when the market is oversold (cheaper), and fewer shares when the market is overbought (more expensive).

DCA does not guarantee that you will make money however. If you are buying into a secular (long-term) bear market, or even into a trading-range market, you may lose money, or make no money. As an example, let's look at the S&P 500 Index over the past fifteen years, from September, 1996 to September, 2011.

The following chart shows the monthly adjusted close prices for the S&P 500 Index (Yahoo! Finance symbol ^GSPC) between September, 1996 (687.33) and September, 2011 (1154.23). The average index price over this 15-year period is 1160, and the standard deviation is 200. The average price plus/minus one standard deviation (960 to 1360) is shown as the blue shaded rectangle. This means that 67% of the monthly prices fall within this range. NOTE: The large size of the standard deviation reflects the high volatility of the index during this fifteen-year period.

There are 180 months in this fifteen year period. Let's say your investment plan is to invest $1000 each month in the S&P 500 Index, and you have faithfully followed that plan over the past fifteen years. You would have bought $1000 worth of index shares each month... fewer shares when the index was expensive, and more shares when the index was cheaper. Let's see how you would have done:

Index Starting Value: $687.33
Index Ending Value: $1,154.23
Total Shares Purchased: 160.40
Total Dollars Invested: $180,000
Current Market Value: $185,142
Total Profit: $5,142
Total Percent Profit: 2.86%
Annual Percent Profit: 0.19%

So, over the past fifteen years, your investment would have returned less than 0.2% annually. But, looking on the bright side, you have participated in a forced savings program, and you now have a retirement account with $185,000 in it.

What are the lessons going forward?

(1) The S&P 500 Index has been highly volatile over the past fifteen years. We've experienced three asset bubbles and two crashes, and we may well be in the early stages of the third crash.

(2) The S&P 500 Index is currently priced at its long-term average. This means that buying the index now virtually guarantees sub-par long term returns.

(3) A better strategy than DCA might be to watch the index and only purchase shares when the index is currently BELOW its fifteen-year average value of 1160. Clearly this means taking a more active approach to your portfolio purchases, monitoring the index each month before making your purchase decision.

Government Sues Biggest U.S. Banks Over Mortgage-Backed Investments 9/02/2011

2011-09-05T07:41:00.000-07:00

Government Sues Biggest U.S. Banks Over Mortgage-Backed Investments
September 02, 2011

In a sweeping move that opens a new front on the housing crisis, the U.S. government on Friday sued 17 financial firms, including the largest U.S. banks, for selling Fannie Mae and Freddie Mac billions of dollars worth of mortgage-backed securities that turned toxic when the housing market collapsed.

Among the 17 targeted by the lawsuits were Bank of America Corp., Citigroup Inc., JP Morgan Chase & Co., Goldman Sachs.

READ THE ENTIRE ARTICLE HERE

My comment...
So... in Oct. 2008 Congress passed a $700 Billion law to bail out these too-big-to-fail banks. And now we're going to sue them because they sold toxic securities to Fannie Mae & Freddie Mac. We should have simply let them go bankrupt three years ago and then taken them apart... brick by brick.

HFT and Leveraged ETFs... Newest Financial Weapons

2011-09-01T11:40:00.000-07:00

The Newest Financial Weapons of Mass Destruction
By Doug Kass 08/31/11 - 01:00 PM EDT

The toxic combination of price momentum-based high-frequency trading (HFT) strategies and the proliferation of leveraged ETFs has served to launch the newest forms of financial weapons of mass destruction, and they're alienating legions of investors.

Since the beginning of 2007, domestic equity mutual funds have had net outflows of more than $400 billion (in the same period, $835 billion of fixed-income funds have been purchased! That spread between stock outflows and bond inflows -- $1.235 trillion (in 4.5 years) -- is unprecedented in the annals of financial history.

READ THE ENTIRE ARTICLE HERE

Has the Fed Started QE3? 9-01-2011

2011-09-01T10:04:00.000-07:00

Has the Fed Started QE3? 9-01-2011
By Bud Conrad, Casey Research

The Fed surprised the market by extending its policy of 0 to 0.25% Fed funds rate to mid-2013. The way the Fed manages to drive rates lower is to buy Treasuries with newly created money – driving the price up and the rates down. The big question is whether the policy will have a sizeable effect on markets. The chart below shows the historical jump in the Fed’s combined policy tools that were used to lower rates and bail out financial institutions through a variety of programs. These include the big purchase of mortgage-backed securities (MBS) called QE1 and the large purchase of Treasuries called QE2.

READ THE ENTIRE ARTICLE HERE

Is Credit Crunch 2.0 Imminent? by Satyajit Das

2011-08-28T14:53:00.000-07:00

From Green to Red – Is Credit Crunch 2.0 Imminent?
By Satyajit Das - August 28th, 2011, 8:00AM

READ THE ENTIRE ARTICLE HERE

Satyajit Das is author of Traders, Guns and Money: Knowns and unknowns in the dazzling world of derivatives (August 2006) and Extreme Money: The Masters of the Universe and the Cult of Risk (August 2011)

Fact 1 – The European debt crisis has taken a turn for the worse.
There is a serious risk that even the half-baked bailout plan announced on 21 July 2011 cannot be implemented.

Fact 2 – Problems with banks have re-emerged.
Banks globally, especially European banks, are seen as increasingly vulnerable to European debt problems. The total exposure of the global banking system to Greece, Ireland, Portugal, Spain and Italy is over $2 trillion. French and Germany banks have very large exposures.

Fact 3 – Money markets are seizing up
Banks and financial institutions are finding it increasingly difficult to raise funds. Costs have risen sharply.

Fact 4 – The broader economic environment is deteriorating.
The global economic recovery is stalling. The risk of a recession or minimal growth is significant.

Is the market forecasting war? By Todd Harrison, 8/24/11

2011-08-24T15:49:00.000-07:00

Is the market forecasting war?
Commentary: Fitting together the puzzled pieces in an unsure world
By Todd Harrison, Aug. 24, 2011

NEW YORK (MarketWatch) — The future is now; we must now decipher what it will be.

The stock market is a forward-looking discounting mechanism and throughout our slow-motion summer crash, Minyanville has diligently discussed what the market is trying to tell us. See: Where do we go from here?

When I awoke yesterday, after checking the overseas price action and scrolling through the headline news — but before my plain vanilla yoga — I checked my inbox to find a handful of folks proclaiming, “There it is!”

Stratfor, the well-respected global intelligence service, reported that an Israeli-Arab conflict is approaching.

CLICK THE TITLE LINK TO READ THE WHOLE ARTICLE

Japan: A bug in search of a windshield (John Mauldin)

2011-08-23T21:46:00.000-07:00

Japanese downgrade may weigh on US stocks
Moody's rating service is downgrading Japan's debt.
Moody's doesn't like Japan's huge deficits and slow growth since the March earthquake.
By Charley Blaine on Tue, Aug 23, 2011

My comment....
John Mauldin has for several years described Japan's economy as a bug in search of a windshield, the result of a rapidly aging population together with an economy that has been economically depressed since its real estate bubble burst and its equities market crashed in 1990.

Boomer Retirement: Headwinds for U.S. Housing Market?

2011-08-23T20:01:00.000-07:00

This graph from CalculatedRiskBlog (www.calculatedriskblog.com) shows existing home sales (left axis) and new home sales (right axis) through July, 2011.

After the housing bubble burst in 2005, new home sales fell much faster than existing home sales, giving rise to what CalculatedRiskBlog calls the distressing gap because of the flood of distressed sales, which has bouyed existing home sales, while depressing new home sales. Why? Because builders cannot build new homes as cheaply as foreclosed properties can be purchased.

The following post, titled Boomer Retirement: Headwinds for U.S. Housing Market? is also worth reading. With a little effort you can overlay the above chart with the ones in the following post. There is every indication that existing home sales will continue to fall, possibly fifty percent from this point. Why? Because as Baby Boomers are selling equities to fund their retirement, they will also be selling their homes in order to free home equity to find their retirement. They will be downsizing, moving into retirement homes, and living with their children. This will likely depress the U.S. housing market for at least the next decade. It's not a good time to be a real estate developer, builder, or agent.

Boomer Retirement: Headwinds for U.S. Equity Markets?

2011-08-23T07:43:00.000-07:00

Boomer Retirement: Headwinds for U.S. Equity Markets?
By Zheng Liu and Mark M. Spiegel
FRBSF Economic Letter: Federal Reserve Bank of San Francisco
www.frbsf.org; August 22, 2011

Historical data indicate a strong relationship between the age distribution of the U.S. population and stock market performance. A key demographic trend is the aging of the baby boom generation. As they reach retirement age, they are likely to shift from buying stocks to selling their equity holdings.

My comment...
As Baby Boomers retire and cash in their 401k and IRA accounts, there will be downward pressure on stock prices; it is simply the law of supply and demand. Buying stocks or equity mutual funds now virtually guarantees sub-par returns over the next decade or longer. This demographic trend is shown in the above charts as the M/O ratio, where M is the middle-age-cohort (age 40-49) and O is the old-age-cohort (age 60-69). As the 77-million strong Baby Boom generation (born from 1946 to 1964) ages, the M/O ratio which peaked around 2002 will continue to fall, and as equities selling pressure increases and buying pressure decreases, the P/E ratio will fall in sync with the falling M/O ratio.

The Recession of 2011? by John Mauldin Aug. 19, 2011

2011-08-21T15:37:00.000-07:00

The Recession of 2011?
By John Mauldin, August 19, 2011
www.investorsinsight.com

John Mauldin's Thoughts From The Frontline is a highly acclaimed blog that's primarily focused on private money management, financial services, and investments.

My comment...
The oncoming recession will make the last one look like a picnic. The focus now is on cutting government spending rather than more government stimulus, so a third Federal Reserve Quantitative Easing (QE3) is highly unlikely, and would be ineffective, anyway. Expect the stock market to lose 40% or more of its value. In a deflationary environment, cash is king.

Rob Arnott on bogus U.S. GDP numbers... 5/15/2011

2011-08-21T07:11:00.000-07:00

U.S. GDP numbers are totally bogus because they fail to take into account how much of the economic expansion is government stimulus driven by federal deficit spending. Remove that deficit spending and the U.S. economy is essentially bottom-bouncing along the same GDP levels as back in 1998. Our economy is showing no signs of sustainable recovery.

Here are some quotes from the article. And, you can read the entire article HERE:

But what if the [GDP] number turns out be fake? That's the provocative question posed by renowned U.S. money manager Rob Arnott, who makes a convincing argument that what passes for growth in the U.S. and a bunch of other deficit-ridden economies is less than it seems.

... the chairman of California-based Research Affiliates is absolutely certain that next week's revised U.S. GDP number will be as bogus as a three-dollar bill. That's because it will not take into account how much of the American expansion stems from the government's deficit-spending binge.

Gross domestic product is used to measure a country's economic growth and standard of living. It measures neither, Mr. Arnott says flatly. GDP measures spending. It does not measure prosperity. Unfortunately, the finance community and global centres of power are wedded to a measure that bears little relation to reality.

The problem, he argues, is that the GDP figure fed to the public does not distinguish between consumption that is covered by current income and that which is financed by deficit spending. He likens it to a family with too many credit cards. The more credit they use, the higher the family GDP climbs. But that expansion is unsustainable. Once they are forced to slice up their cards, their GDP must plunge.

People would have a truer gauge of the economy's performance if the government provided what he calls structural GDP, which does not include debt-financed consumption. Currently, per capita GDP in the U.S. is not far off an all-time high. But excluding deficit spending, the real number is 10 per cent below the peak reached in 2007. Indeed, it has fallen back to levels not seen since 1998.

If structural GDP fails to grow as a consequence of our deficits, then deficit-spending has failed in its sole and singular purpose, he says. What we find is that this recession is horrific.

He would also isolate private-sector GDP by subtracting government spending (excluding transfers). Lo and behold, this measure is also back at its 1998 level. What his calculations show is an economy bottom bouncing and showing no signs of recovery. All we're doing is borrowing more and spending more. That's the only GDP growth we've got.

Ultimately, the addiction to debt-financed consumption has got to come down.

What should an investor make of all this?

As deficit-spending is reined in, either voluntarily or because the capital markets choke on new debt, that could have an effect on capital markets as quantitative easing winds down, Mr. Arnott says. It's hard to identify uncertainties that could drive markets massively higher, but relatively easy to identify those that could drive them massively lower.

Which means now is a wonderful time to have a very defensive investment posture.

Starbucks CEO to DC: You've been cut off

2011-08-17T22:11:00.000-07:00

Starbucks CEO to DC: You've been cut off
By Charles Riley CNNMoney August 16, 2011
money.cnn.com

Starbucks CEO Howard Schultz is fed up with Washington. And he is doing something about it -- taking a stand against political contributions until lawmakers come up with a compromise deal on the debt ceiling.

READ THE ENTIRE ARTICLE HERE

My comment...
Well, I wouldn't exactly call this a grassroots movement - corporate CEOs not being in my definition of grassroots but it is certainly a step in the right direction. Good for you Howard Schultz !! Now, if we can get a few more Seattle-area-based CEOs (Amazon, Costco, Microsoft) to join Mr. Schultz, that would be great !!

Market in Death Cross Mode

2011-08-16T13:43:00.000-07:00

Market in Death Cross Mode: Stay on the Sidelines Says Louise Yamada
finance.yahoo.com

Fast markets are emotional markets. In case you had any doubt on that, I would refer you to the comment section of Breakout stories from last Wednesday when bears ruled the roost, and the comments from yesterday when the dominant theme was the impossibility of "timing the market" (by, say, opining that stocks had hit a near-term bottom at 1,100).

READ THE ENTIRE ARTICLE HERE

My comment...
This is good stuff, especially if you're in the stock market and thinking about getting out, or vice versa. I really like her quote: There are only two losses that you take. Loss of capital and loss of opportunity. I'd rather be out of the market wishing we were in, than in the market wishing we were out.

George Friedman on a Crisis of Political Economy

2011-08-15T14:42:00.000-07:00

George Friedman on a Crisis of Political Economy
www.stratfor.com
April 12, 2011

STRATFOR CEO George Friedman says the current economic problems in the United States, Europe and elsewhere are the result of systemic failure in two major communities: the financial and political elite.

My comment...
First the financial system and its elite lost credibility, then the political system gridlocked and the political elite lost credibility. Now, in all major countries of the world - U.S., China, E.U. - we have a general systemic problem born of the gross incompetence (and possibly corruption) of the financial and political elites.

How the Fed Got Itself Boxed In - by Barry Ritholtz

2011-08-11T22:07:00.000-07:00

How the Fed Got Itself Boxed In - The Big Picture
By Barry Ritholtz - August 10th, 2011, 7:20AM
www.ritholtz.com

The Federal Reserve (unlike most other central banks) has a dual mandate: Maintain full employment and keep inflation at bay. History informs us that these two factors are often opposed to each other: Growth begets price rises, and excessive price elevation retards growth. Hence, for the Fed to do its job well, they have a neat balancing trick to perform. We can trace the origin of the current Fed situation to a drift away from those two mandates. This occurred sometime in the 1990s, when then Federal Open Market Committee (FOMC) chair Alan Greenspan somehow began focusing on markets, asset pricing and a nonsensical catchall investor confidence.

My comment...
Barry Ritholtz, who wrote the excellent book Bailout Nation, gives us a short, clear, succinct explanation of what happened after Alan Greenspan's Federal Reserve decided that supporting risky asset prices to instill investor confidence became part of the Fed's mandate in the mid-1990s.

Global Economic Downturn: A Crisis of Political Economy

2011-08-11T22:02:00.000-07:00

Global Economic Downturn: A Crisis of Political Economy
By GEORGE FRIEDMAN, STRATFOR, August 9, 2011
www.stratfor.com

The current crisis must be understood as a global event with one overriding theme: the relationship between the political order and economic life.

My comment...
George Friedman at STRATFOR has written an easy-to-understand explanation of how our current crisis developed and where it might be going...

A Second Recession... Worse Than the First ?

2011-08-11T21:59:00.000-07:00

A Second Recession in the U.S. Could Be Much Worse Than the First
By CATHERINE RAMPELL, NY TIMES
Published: August 7, 2011
www.nytimes.com

Policy makers exhausted their resources in the last recession and, in a weaker economy, would have few options the next time.

If the economy falls back into recession, as many economists are now warning, the bloodletting could be a lot more painful than the last time around.

Given the tumult of the Great Recession, this may be hard to believe. But the economy is much weaker than it was at the outset of the last recession in December 2007, with most major measures of economic health — including jobs, incomes, output and industrial production — worse today than they were back then. And growth has been so weak that almost no ground has been recouped, even though a recovery technically started in June 2009.

It would be disastrous if we entered into a recession at this stage, given that we haven’t yet made up for the last recession, said Conrad DeQuadros, senior economist at RDQ Economics.

Recession Warning, Dr. John Hussman 8/08/3022

2011-08-11T21:56:00.000-07:00

Recession Warning, and the Proper Policy Response
Weekly Market Comment by Dr. John Hussman
Hussman Funds - August 8, 2011
www.hussmanfunds.com

My comment...
Dr. John Hussman's letter pulls no punches... through joblessness, unresolved housing strains & sovereign debt crises, policy makers have repeatedly opted for fiscal band-aids and monetary distortions instead of addressing the core problems: carelessly feeding asset bubbles and refusing to restructure bad debt.

High Frequency Trading (HFT) and Market Volatility

2011-08-11T21:48:00.000-07:00

High Frequency Trading May Magnify Market Woes

By MICHAEL ONO, ABC News
Aug. 11, 2011

This week's market flux is not identical to the flash crash of 2010 but experts believe that computer-driven high frequency trading is partially responsible for accelerating stock gyrations.

It has been a rollercoaster week for stocks. The Dow Jones industrial average fell by 600 points on Monday in reaction to U.S. debt downgrade by Standard & Poor's, then jumped 429 points on news from the Federal Reserve on Tuesday, but dove back down 520 points on Wednesday in reaction to bank stock worries in France.

READ THE ENTIRE ARTICLE HERE

My comment...
High Frequency Trading (HFT) now comprises nearly three quarters of all stock market trades. The process uses high-speed computers located just off the trading floors, running programmed trading algorithms, taking advantage of tiny stock mis-pricings. Round-trip trades (buy + sell) often take less than a second. Market swings are amplified enormously. Daily market fluctuations of 4% or more are due, in large part to HFT. It has turned investing for the long term into short-term gambling. The stock market has become a casino.

Stocks Tumble... But They're Still Expensive 8/04/11

2011-08-07T07:35:00.000-07:00

Stocks Tumble...

... on rising fears of global slowdown; U.S. unemployment claims fall marginally, but labor market pessimism remains. Spain and Italy take focus in the European debt crisis. Global markets slide, while gold surges.
By TheStreet Staff on Thu, Aug 4, 2011 7:30 AM

My comment...
Finally, the stock market is beginning to reflect what we already knew... the various US/EU/JP government bailouts and stimulus programs have been the only things keeping the global economy afloat. Thankfully, the U.S. Congress recently educated us on the dangers of debt ;>))

... But They're Still Expensive

August 4, 2011, 3:21 pm
Stocks Are Still Expensive
By DAVID LEONHARDT

My comment...
That's right... over the past 50 years (since 1961) the S&P500 10-year P/E ratio has averaged 19.5. After today’s market drop, the ratio is 20.7. Stocks need to fall another 6% (down to 1130) just to get back to the 50-year average. But today's economy is weaker than "average". I expect the market has much further to fall.

Brother, Can You Spare A Trillion? Government Gone Wild!

2011-08-07T07:31:00.000-07:00

Brother, Can You Spare A Trillion?: Government Gone Wild!
YouTube Video

My comment...
$413 Billion in annual interest payments on our $14.3 Trillion federal debt is only 2.9% APY. What will the APY be when we feel the full effect of S&P's downgrading of the U.S. credit rating? We have two choices: run federal budget surpluses and reduce the federal debt, or run deficits and eventually default on our debt. It's that simple.

Goldman Sachs Stockpiling Aluminum Metal 7/30/2011

2011-08-04T08:49:00.000-07:00

Goldman Sachs Stockpiling Aluminum Metal
7/30/2011

My comment...
Well, frankly, I think it's a brilliant move. Aluminum, besides being a strategic material, is a great way to store electricity, because the manufacture of aluminum is so electricity-intensive.

I predict we will see a lot more of this behavior in the future. Large investment banks with hoards of cash are looking for productive ways to invest it. Clearly the U.S. manufacturing sector is not seeing a lot of near-term investment, and money is essentially free, so why not stockpile a strategic material that is likely to increase in value? Makes sense to me !

A New Global View of the U.S. 8/02/2011

2011-08-04T08:33:00.000-07:00

A New Global View of the U.S.
By Addison Wiggin
08/02/11 Baltimore, Maryland

The country is living in debt, Russian Prime Minister Vladimir Putin said yesterday when asked about the Grand Bargain the U.S. Congress is voting on today. It is not living within its means, shifting the weight of responsibility on other countries and in a way acting as a parasite.

READ THE ENTIRE ARTICLE HERE

My comment...
For some time I have characterized the U.S. federal-deficit-financed economy as a cancer on its global host. And as we know, if we cannot kill a cancer outright, we try to isolate it, cut it off from its source of nourishment, shrink it and then cut it out.

This is what many other nations are trying to do, for their own economic survival. They are looking for other reserve currencies, investing their U.S. dollar reserves in strategic commodities (oil, coal, natural gas, gold, silver, platinum, tungsten, copper, tin, nickel, aluminum, etc.), productive capital investments, and generally trying to limit the damage that a rapidly depreciating dollar will do to their economies. So, whether we call the U.S. a parasite, as Putin has done, or a cancer, or something else, the intent is basically the same.

10 signs the double-dip recession has begun - 7/31/11

2011-08-04T07:58:00.000-07:00

10 signs the double-dip recession has begun
Many Americans believe that the 2008-2009 downturn never ended

By Douglas A. McIntyre
7/31/2011 1:53:54 PM ET

Friday's news on GDP shows the double dip has arrived — an expansion of only 1.3 percent and consumer spending up 0.1 percent in the second quarter. Astonishingly low by any account. The debt ceiling trouble and lack of a longer term resolution to the deficit will make it worse.

READ THE ENTIRE ARTICLE HERE

Balanced Budget = Recession

2011-08-04T07:33:00.000-07:00

After three years of massive deficit spending, we have a $14.5 Trillion economy with an annual GDP growth rate of 1.8%, about $270 Billion. In other words, we have annual deficit spending (which, by the way is part of GDP) of $1.5 Trillion, that gets us $270 Billion of growth. That's only about 18 cents of GDP growth for each new dollar of federal debt. Back in the 1960s we got 90 cents of GDP growth for each new dollar of debt. Zero hour is defined as the point at which a new dollar of federal debt gets us ZERO GDP GROWTH. Zero hour is expected to arrive within five years, by the way.

But a recession is defined as two consecutive fiscal quarters with NO GDP growth. The question is simply this: how much do we slash federal deficit spending... how close do we get to a balanced budget... before we have ZERO GDP growth and are back in a recession?

Personally, I predict that a federal deficit of LESS THAN $500 Billion to $700 Billion is enough to stall out the US economy. There's a good definition of an economic crack cocaine addiction. We need at least $500 Billion of deficit spending every year to avoid being in a recession. Wonderful, just wonderful !!

Entitlement Bandits - Medicare/Medicaid Waste & Fraud

2011-08-02T06:00:00.000-07:00

Entitlement Bandits - Medicare/Medicaid Waste & Fraud
By Michael F. Cannon
Adapted from the July 4, 2011, issue of National Review.

The budget blueprint crafted by Paul Ryan, passed by the House of Representatives, and voted down by the Senate would essentially give Medicare enrollees a voucher to purchase private coverage, and would change the federal government's contribution to each state's Medicaid program from an unlimited matching grant to a fixed block grant. These reforms deserve to come back from defeat, because the only alternatives for saving Medicare or Medicaid would either dramatically raise tax rates or have the government ration care to the elderly and disabled. What may be less widely appreciated, however, is that the Ryan proposal is our only hope of reducing the crushing levels of fraud in Medicare and Medicaid.

READ THE ENTIRE ARTICLE AT JOHN MAULDIN'S INVESTORS INSIGHT

OR

READ THE ENTIRE ARTICLE AT NATIONAL REVIEW ONLINE

Are We Headed For A Second Recession? 7/26/2011

2011-07-30T08:06:00.000-07:00

Are We Headed For A Second Recession?
By Caroline Corbett & Lance Roberts of Streettalk Live
July 26, 2011

My comment...

To paraphrase David Rosemberg (Gluskin Sheff economist): With more than $5 Trillion injected through Federal stimuli, we only increased GDP by a little over $900 Billion in the last two years. That is expensive growth; it is not sustainable without further stimuli.

Doing the math, $5 Trillion of new debt gave us $900 Billion in GDP growth, or about 18 cents of GDP growth per $1 of new debt. We are rapidly approaching zero hour when $1 of new debt produces NO increase in GDP... the true definition of spinning our wheels and going nowhere.

USA National Credit Card - Valid Thru 08/02/11

2011-07-29T23:20:00.000-07:00

07/26/11 Vancouver, B.C. –
The front page of the business section of Canada's The Globe and Mail newspaper, showing:

United State of America
NATIONAL CREDIT CARD
UNCLE SAM... VALID THRU 08/02/11... MEMBER SINCE 1776

U.S. may have way to cover bills after deadline

2011-07-29T23:17:00.000-07:00

U.S. may have way to cover bills after deadline, for week
Inflow of tax payments, Treasury maneuvering might buy some breathing room
By BINYAMIN APPELBAUM
The New York Times
updated 7/26/2011 9:26:03 PM ET

My comment...
Of course, the government takes in $2 Trillion in tax revenues every year. It's just that the budget is $3.5 Trillion. So, pay the interest on the debt, and military salaries. Then pay just 50% of the rest... Social Security, Medicare, Medicaid, federal salaries, military retirement, DOD contracts, etc.

Liars, Damn Liars, and Government Bureaucrats

2011-07-18T10:32:00.000-07:00

Government statistics are regularly manipulated. The 9.2% unemployment rate is totally bogus... I believe the real rate is somewhere between 16% and 22%. The Federal Reserve stopped reporting the M3 money aggregate in March, 2006. The official CPI uses core rather than headline CPI because the former excludes food and energy, both of which are rising. Why use core CPI? Because the official CPI drives Social Security COLA calculations, Treasury TIPS interest rates, and a host of other stuff. So it is in the government's interest to minimize the official inflation rate. On the other hand it's in the government's interest to maximize the actual (hidden) inflation rate, because it destroys the value of our fiat currency and reduces the real value of the government's debt.

There are countless examples of this manipulation, like releasing oil from the Strategic Petroleum Reserve to drive down oil (and gasoline) prices. But one of my favorites is this little known one. In the summer of 2006, just before Pres. Bush tapped Goldman Sachs CEO Henry Paulson to be Treasury Secretary, the Goldman Sachs Commodity Index (GSCI) was revised to lower the percentage of the gasoline component from 8% to 2.5%. Why? Well, a number of commodity index mutual funds and ETFs are driven by the GSCI, so reducing the GSCI's gasoline component from 8% to 2.5% forced these funds and ETFs to dump some of their gasoline futures, in order to get their funds and ETFs back in line with the GSCI. This had the effect of a dramatic short-term drop in retail gasoline prices, which was just what Pres. Bush wanted before the November, 2006 midterm Congressional elections. Without Paulson as Goldman Sachs CEO they could not have accomplished this. It was also a loyalty test for Mr. Paulson, whom I really believe should be behind bars!

U.S. consumer retail sales are flat

2011-07-16T13:24:00.000-07:00

Retail Sales: The "Real" Consumer Remains in a Recession
By Doug Short
June 14, 2011

This piece on dshort.com is worth reading. When adjusted for population growth & inflation, U.S. consumer retail sales have not grown in the past eleven (11) years. We're back where we were in January, 1999.

GDP Minus the Federal Deficit

2011-07-16T13:11:00.000-07:00

U.S. Economic Growth: GDP Minus the Federal Deficit
April 28, 2011 Guest Commentary by Randy Degner

A $3.5 Trillion federal budget and $2 Trillion in tax revenue leaves a $1.5 Trillion annual federal deficit. But, since federal deficit spending counts as part of GDP, it looks like our $15 Trillion economy is actually growing. Without deficit spending our GDP would be something on the order of $13.5 Trillion ($15T - $1.5T = $13.5T).

Economists predict an annual GDP growth rate of around 2% ($300 Billion) so, if the budget deal that Congress and President Obama work out includes anything less than a $1.2 Trillion deficit ($1.5T - $0.300T = $1.2T) we will have a no-growth economy... which will throw us right back into a real recession.

Let me phrase it another way, that might make it clearer... if we don't have at least a trillion dollars a year of federal deficit spending (over what the government takes in in taxes) we're in a severe recession. I would say this is a government, and an entire country, in deep denial. Wouldn't you?

John Mauldin explains this problem very clearly in his latest weekly letter published today, July 16th, 2011. It's called Back to the Basics and you can find it on his website. Here is the link:

Back to the Basics

This Time Is Different: Eight Centuries of Financial Folly

2011-07-16T13:07:00.000-07:00

This Time Is Different: Eight Centuries of Financial Folly
Carmen M. Reinhart & Kenneth Rogoff

Throughout history, rich and poor countries alike have been lending, borrowing, crashing - and recovering their way through an extraordinary range of financial crises. Each time, the experts have claimed this time is different - that the old rules of valuation no longer apply...

My comment...
We have a very high degree of integration of the global economy, with only a few reserve currencies... dollar, euro, yen. Imagine you've planted 2000 miles of a single strain of hybridized corn... from the Carolinas to Colorado... and then you discover it's vulnerable to Southern corn leaf blight.

A Wile E. Coyote Market, Dr. John Hussman - July 11, 2011

2011-07-16T13:05:00.000-07:00

A Wile E. Coyote Market
Hussman Funds - Weekly Market Comment
July 11, 2011
www.hussmanfunds.com

My comment...
In Dr. John Hussman's weekly letter, one of his references, Lakshman Achuthan of the ECRI, describes the oncoming global economic slowdown as likely to be "pronounced, persistent, and pervasive - not a one or two month affair". I would say it is a slow motion global economic train wreck.

What Happened to the Jobs? John Mauldin 9 JUL 2011

2011-07-16T13:01:00.000-07:00

What Happened to the Jobs?
John Mauldin
9 JUL 2011

My comment...
John Mauldin's latest newsletter... in case you don't have a free subscription. My takeaway: Banking crises lead to credit crises within 2-3 years; we are getting close. Bernanke and other central bankers understand this problem far better than they let on; they are simply doing damage control.

Sell in May and go away... and the S&P 500 Index

2011-05-15T08:57:00.000-07:00

One of the items of conventional wisdom in the stock market is that there is seasonality, and that this information can be used to time the market. Thus, the adage to sell in May and go away. To test the validity of this, I took the weekly adjusted close data for the S&P 500 Index (Yahoo! Finance symbol ^GSPC) between Jan 1, 2000 and this Friday (May 13, 2011).

First I downloaded the spreadsheet data from Yahoo! Finance.

Then I normalized each year's 52 weeks of data to the adjusted close price at the end of the first week of January, 2011 (1271.50).

Then I averaged the eleven (11) data points for each weekly close. This gives me 52 data points, one for each week of the year. Each data point is the average of 11 normalized data points, one for the same calendar week in each of the eleven years.

Then I graphed the 52 data points.

Finally I fitted a higher-order polynomial trend line.

So, what does this chart tell us? First, we are dealing with a bear market, so there is a great deal of volatility over the course of a year. Second, there is very little long-term growth, which we know. The January average starts at 1271.5 and ends at 1284. That's an annual growth rate of under 1%. Third, there's clearly a peak in the April-May timeframe followed by a bottom in September-October, after which the trend in Q4 is upward.

Selling in May and buying in October would seem to make a certain amount of sense, although the pattern is not at all clear. One strategy might be to use a dollar-cost-averaging (DCA) approach to buy as the market is falling in July through October, and again in January and February, and then hold on for the rest of the year, selling late in April if you are more of a trader than a long-term investor.

Does Unreal GDP Drive Our Policy Choices?

2011-05-14T08:47:00.000-07:00

Does Unreal GDP Drive Our Policy Choices?
posted by John Mauldin, Investors Insight
5/09/2011

My comment...
Gross Domestic Product (GDP) bears little relation to reality, because it confuses private sector prosperity with government debt-fueled spending. Private sector GDP is 11% below the 2007 peak, and is roughly at 1998 levels. In terms of private sector prosperity we have gone NOWHERE in thirteen years.

Zillow on Negative Equity: 28.4% of SF mortgages underwater 5/09/2-11

2011-05-14T08:45:00.000-07:00

Zillow on Negative Equity: 28.4% of all single-family homes with mortgages are underwater
by CalculatedRisk on 5/09/2011

My comment...
Percent of residential mortgages underwater (more owed on the mortgage than the house is worth): Las Vegas ~ 70%, Phoenix 68%, Riverside, CA 51%, Sacramento 51%, Denver 41%, Portland 36%, Seattle 34%, S.F. 26%, L.A. 21%

Does Unreal GDP Drive Our Policy Choices? by John Mauldin

2011-05-10T13:56:00.000-07:00

Does Unreal GDP Drive Our Policy Choices?
by John Mauldin 5/09/2011

My comment...
Gross Domestic Product (GDP) bears little relation to reality, because it confuses private sector prosperity with government debt-fueled spending. Private sector GDP is 11% below the 2007 peak, and is roughly at 1998 levels. In terms of private sector prosperity we have gone NOWHERE in thirteen years.

Hoodwinked: An Economic Hit Man Reveals ... by John Perkins

2011-05-10T13:53:00.000-07:00

Hoodwinked: An Economic Hit Man Reveals
Why the World Financial Markets Imploded-
-and What We Need to Do to Remake Them
by John Perkins (Author)

My comment...
This is an incredible page-turner. Perkins describes how over the past 30 years the US corporatocracy (multinational US banks and corporations, federal govt. and military) aligned their goals and through a crushing debt load forced the third world to open their markets and provide us with cheap strategic materials and cheap labor. Frightening.

Muddle Through, or Crisis? by John Mauldin 5/7/2011

2011-05-10T13:50:00.000-07:00

Muddle Through, or Crisis?
by John Mauldin 5/7/2011

My comment...
John Mauldin is preparing us for a highly-possible future. It's worth everyone's time to take the 15 minutes and read this post. You would be even better served by signing up for his free weekly newsletter, and joining the 1.5 million of us (that's not a typo) who are his "best friends".

Restoring Fiscal Sanity in the United States: A Way Forward

2011-05-10T13:48:00.000-07:00

Restoring Fiscal Sanity in the United States: A Way Forward
By: Hon. David M. Walker, Founder and CEO of the Comeback America Initiative
and Former Comptroller General of the United States (1998-2008)

My comment...
This piece, by the Hon. David M. Walker, Founder and CEO of the Comeback America Initiative and Former Comptroller General of the United States (1998-2008), should be required reading for every adult American.

What is the NAHB-Wells Fargo Housing Market Index (HMI)?

2011-05-09T09:47:00.000-07:00

The Housing Market Index (HMI) is based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. The survey asks respondents to rate market conditions for: (1) new home sales at the present time, (2) new home sales in the next 6 months, and (3) the traffic of prospective buyers through new homes.

The HMI is a weighted average of separate diffusion indexes for these three key single-family series. The first two series are rated on a scale of Good, Fair and Poor and the last is rated on a scale of High/Very High, Average, and Low/Very Low. A diffusion index is calculated for each series by applying the formula “(Good-Poor+100)/2” to the present and future sales series and “(High/Very High – Low/Very Low + 100)/2” to the traffic series. Each resulting index is then seasonally adjusted and weighted to produce the HMI.

Based on this calculation, the HMI can range between 0 and 100.

NAHB-WF HMI home page

On this page, find these two entries which take you to downloadable spreadsheets with data going back to 1985:

Table 2. NAHB/Wells Fargo National HMI - History
This file contains seasonally adjusted national HMI history from Jan.1985 to present.

Table 3. NAHB/Wells Fargo National HMI Components - History
This file contains seasonally adjusted HMI Components: Single Family Detached Present, Single Family Detached Next 6 months and Traffic data from Jan. 1985 to Present.

Restoring Fiscal Sanity in the United States: A Way Forward

2011-05-03T21:56:00.000-07:00

Restoring Fiscal Sanity in the United States: A Way Forward
By: Hon. David M. Walker, Founder and CEO of the Comeback America Initiative
Former Comptroller General of the United States (1998-2008)
May 2, 2011

Two hundred and twenty two years ago, the American Republic was founded. The United States had defeated the world’s most powerful military force to win independence, and over a several year period, went about creating a federal government based on certain key principles, including limited government, individual liberty, and fiscal responsibility. That government was established by what is arguably the world's greatest political document - the United States Constitution.

Our nation's founders understood the difference between opportunity and entitlement. They believed in certain key values including the prudence of thrift, savings and limited debt. They took seriously their stewardship obligation to the country and future generations of Americans.

The truth is, we have strayed from these key, time-tested principles and values in recent decades. We must return to them if we want to keep America great and help to ensure that our future is better than our past.

READ THE FULL ARTICLE HERE

My comment...
This piece, by the Hon. David M. Walker, Founder and CEO of the Comeback America Initiative and Former Comptroller General of the United States (1998-2008), should be required reading for every adult American.

IMF Bombshell: Age of America Nears End - 4/26/2011

2011-05-02T21:58:00.000-07:00

IMF Bombshell: Age of America Nears End
by Brett Arends
Tuesday, April 26, 2011

The International Monetary Fund has just dropped a bombshell, and nobody noticed. For the first time, the international organization has set a date for the moment when the "Age of America" will end and the U.S. economy will be overtaken by that of China. And it's a lot closer than you may think.

According to the latest IMF official forecasts, China's economy will surpass that of America in real terms in 2016 — just five years from now. Put that in your calendar.

READ THE FULL ARTICLE HERE

My comment...
Based on purchasing power parity (PPP) - comparing economic output of real goods & services. the Chinese economy will surpass the U.S. within five years. We have traded living-wage jobs for corporate profits, gutted our manufacturing base, created a small class of very rich, and destroyed our middle class.

More than a Lost Decade - CalculatedRisk 4/20/2011

2011-04-24T13:51:00.000-07:00

More than a Lost Decade
by CalculatedRisk on 4/20/2011

I've been more upbeat lately, but even as the economy recovers - and I think the recovery will continue - we need to remember a few facts.

READ THE FULL ARTICLE HERE

My comment...
Reality check: Flat median household income for 12 yrs (1997-2009); 25 million unemployed or underemployed out of a 155 million workforce (16%); greatest inequality of income & wealth since the 1920s. The result: 42% of 62-year-olds apply for Social Security.

Thoughts on Residential Investment Recovery 4/19/2011

2011-04-23T19:57:00.000-07:00

Thoughts on Residential Investment Recovery
by CalculatedRisk on 4/19/2011

A few thoughts looking out a few years ...

Residential investment (RI) is the best leading indicator for the economy. This isn't perfect - nothing is - but RI is usually a strong leading indicator for the business cycle. The slump in RI helped me call the 2007 recession correctly, and the lack of a recovery in residential investment is a key reason the recovery has been sluggish and choppy so far. Note: Residential investment, according to the Bureau of Economic Analysis (BEA), includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

READ THE FULL ARTICLE HERE

My comment...
I agree that residential real estate investment (RI) is the best leading indicator for the economy. The fact that the RI market crashed over five (5) years ago and has not yet recovered makes me more pessimistic about the U.S. economy than any time since the 1970-71 recession.

Housing: Feeling the Hate 4/19/2011

2011-04-23T15:09:00.000-07:00

Housing: Feeling the Hate
by CalculatedRisk on 4/19/2011

I've seen previous housing busts in California, and although they were less severe than the current bust, there always seemed to be a stage when people hated housing. So I've been looking for the "hate", and maybe we found some ...

READ THE FULL ARTICLE HERE

My comment...
In 2003, 83% of those surveyed said owning a home was a safe investment. In Dec., 2010 that figure was 64%. Even John Mauldin (investment advisor and best-selling author) leases his Dallas, TX home, rather than owning. Factor in offshored living-wage jobs, retiring baby-boomers, downsizing empty-nesters and it's not a pretty picture.

Here's another piece on the same subject: More wealthy people choosing to rent -- Demand is growing for high-end rentals, as tenants hedge their bets and stay out of an uncertain real-estate market. READ THE FULL ARTICLE HERE

The 30-Cent Tax Premium - by Arthur B. Laffer, 4/18/2011

2011-04-23T09:59:00.000-07:00

The 30-Cent Tax Premium
Tax compliance employs more workers than Wal-Mart, UPS, McDonald's, IBM and Citigroup combined.
By ARTHUR B. LAFFER - OPINION - APRIL 18, 2011

There is a lot more to taxes than simply paying the bill. Taxpayers must spend significantly more than $1 in order to provide $1 of income-tax revenue to the federal government.

To start with, individuals and businesses must pay the government the $1 in revenue plus the costs of their own time spent filing and complying with the tax code; plus the tax collection costs of the IRS; plus the tax compliance outlays that individuals and businesses pay to help them file their taxes.

In a study published last week by the Laffer Center, my colleagues Wayne Winegarden, John Childs and I estimate that these costs alone are a staggering $431 billion annually. This is a cost markup of 30 cents on every dollar paid in taxes. And this is not even a complete accounting of the costs of tax complexity.

Like taxes themselves, tax-compliance costs change people's behavior. Taxpayers, whether individuals or businesses, respond to taxes and tax-compliance costs by changing the composition of their income, the location of their income, the timing of their income, and the volume of their income. So long as the cost of changing one's income is lower than the taxes saved, the taxpayer will engage in these types of tax-avoidance activities.

A complete accounting of compliance costs would also include the efficiency losses created when individuals and businesses invest in tax-avoidance activities that lower their tax liability at the expense of creating more jobs and economic growth. These lost opportunities are impossible to measure but could be the largest cost of all.

David Keating of the National Taxpayers Union provides a useful perspective on how big the tax compliance industry is. According to his research, as of 2009 the income-tax industry employed "more workers than are employed at the five biggest employers among Fortune 500 companies—more than all the workers at Wal-Mart Stores, United Parcel Service, McDonald's, International Business Machines, and Citigroup combined." Without diminishing in any way the professionalism of tax attorneys, accountants and financial planners, all of these efforts produce nothing other than, well, tax compliance.

Citizens should be able to comply with the tax code without having to spend absurd amounts of money to do so. The fact that there is such a large compliance markup in our tax system indicates that the tax system has gone awry. All of these hours could have been used for something a lot more productive than just making sure our taxes are filed and paid correctly.

An obvious alternative use is work, either as an employee or an entrepreneur. We will never know how many more businesses could have been started if we did not spend billions of hours on tax compliance. But we do know approximately how much our economy would benefit if we could use our "tax-compliance time" more productively.

If we think of the tax-compliance markup as simply another tax, we can also think of a reduction in compliance costs as a tax cut.

A tax reform to a simple flat-rate tax with no deductions would significantly reduce the current complexity inherent in our progressive tax system, which is full of loopholes, exemptions and special interest carve-outs. Based on the estimates from our new study, if a static, revenue-neutral flat-tax reform were to reduce the tax complexity in half, the long-term growth in our economy would increase by around one-half of 1% per year.

Small increases in our annual economic growth rate make a big difference over time. The unemployment rate would decline and the pay for those jobs would increase faster as well.

To see what this means in practice, consider a family that made $40,000 in the year 2000. If their income grew by 3.2% per year, the average long-term GDP growth rate, their income by 2010 would be $53,110. Now imagine that the growth in the family's income was not 3.2% but 3.72% (the impact from halving the costs of our current complex tax system). Under this higher growth scenario, the family's annual income would have been $55,568 in 2010. The slight increase in the economic growth rate raises this family's purchasing power by 4.6%. Not too shabby.

Economic growth is the sine qua non for generating prosperity in the U.S. As economic growth increases, the prosperity of families and individuals in the U.S. increases in step. Higher income growth benefits government revenues too. The dynamic impacts created by the increased economic activity will lead to higher tax revenues for the federal government as well as state and local governments.

But the potential benefits of reducing tax complexity go well beyond their dollar impact. The U.S. income tax system relies on taxpayers to self-report their income—the system only works if most taxpayers view the outcomes as fair and accurately report their income. As such, excessive tax complexity undermines the very foundations of our current tax code.

Simplifying the tax code should be a top priority. Regardless of the reform approach taken, the U.S. economy will be enhanced greatly by significantly reducing the complexity of the current tax code. In a time of global economic competition, we cannot afford the luxury of a Byzantine tax system.

Mr. Laffer is the chairman of Laffer Associates and the co-author of "Return to Prosperity: How America Can Regain Its Economic Superpower Status" (Threshold, 2010).

READ THE ONLINE VERSION

My comment...
The $430 billion or more we spend every year in compliance with the tax code adds nothing to U.S. productivity. It's simply a drag, like carrying around a ball and chain.

S&P goes negative on US outlook for first time

2011-04-23T09:41:00.000-07:00

S&P goes negative on US outlook for first time
Rating agency doubts whether Congress will move toward balancing budget
By John W. Schoen, Senior producer
msnbc.com, 4/19/2011

NEW YORK — For the first time since it began rating the creditworthiness of railroad bonds in 1860, Standard and Poor’s has issued a “negative” outlook on the U.S. government, citing increased concerns about Washington’s ability to manage the federal budget.

The move stopped short of an outright cut in the country's top AAA credit rating. But Monday’s outlook change means teh agency believes there is a one in three chance that such a cut will happen in the next two years, S&P said.

READ THE ENTIRE ARTICLE HERE

My comment...
Finally, a rating agency like S&P has pointed to the U.S. federal government and said "the emperor has no clothes !!"

“We believe,” said S&P, “there is at least a one-in-three likelihood that we could lower our long-term rating on the US within two years.”

DISCOVERING GOLD'S UTILITY BEHIND AMERICA'S TRIPLE A FACADE

The Bubblicious S&P 500 Index, April 22, 2011

2011-04-22T09:30:00.000-07:00

Here is the 15-year chart of weekly close prices for the S&P 500 index, the broadest measure of U.S. stock market activity. I've included a line at the 1337 level, the current S&P 500 value. As you can see, since 1999, the index has been through the 1337 level many, many times, both in rising markets and in falling markets.

Looking back over the past fifteen years of history, you can see that the stock market has experienced two earlier bubbles and two crashes. We are presently in the third bubble, one that is being inflated by the Federal Reserve's easy money policy. How long this bubble can be sustained is anybody's guess, but it could easily go on for another two years and reach a level of 1600... or it could end next week. The only thing we know for certain is that this bubble WILL end, and it will be followed by tears and wailing and gnashing of teeth.

The most valuable lesson to learn from looking at this chart is that over the past fifteen years, the S&P 500 has been very volatile, and buying it at the 1337 level comes with considerable potential downside loss, and very little potential upside gain.

But, as the famous saying goes... the stock market can remain irrational longer than we can remain solvent. So, in the words of Dirty Harry... do you feel lucky, well, do you?

Big U.S. Firms Shift Hiring Abroad, by David Wessel 4/19/2011

2011-04-19T05:39:00.000-07:00

Big U.S. Firms Shift Hiring Abroad
Work Forces Shrink at Home, Sharpening Debate on Economic Impact of Globalization
APRIL 19, 2011
By DAVID WESSEL

U.S. multinational corporations, the big brand-name companies that employ a fifth of all American workers, have been hiring abroad while cutting back at home, sharpening the debate over globalization's effect on the U.S. economy.

A General Electric worker in Belfort, France, examines a component for a gas turbine. These days, GE gets about 60% of its business overseas.

The companies cut their work forces in the U.S. by 2.9 million during the 2000s while increasing employment overseas by 2.4 million, new data from the U.S. Commerce Department show. That's a big switch from the 1990s, when they added jobs everywhere: 4.4 million in the U.S. and 2.7 million abroad.

In all, U.S. multinationals employed 21.1 million people at home in 2009 and 10.3 million elsewhere, including increasing numbers of higher-skilled foreign workers.

The trend highlights the growing importance of other economies, particularly in rapidly growing Asia, to big U.S. businesses such as General Electric Co., Caterpillar Inc., Microsoft Corp. and Wal-Mart Stores Inc.

The data also underscore the vulnerability of the U.S. economy, particularly at a time when unemployment is high and wages aren't rising. Jobs at multinationals tend to pay above-average wages and, for decades, sustained the American middle class.

Where the Jobs Are

Multinational companies are creating jobs overseas and cutting their U.S. staffs. See cumulative changes in the U.S. and abroad since 1999.

Corporate Globalization

See the percentage of workers overseas for selected U.S.-based companies, from Caterpillar to Walmart.

2010 Data: (OS = overseas, WW = worldwide)
Caterpillar: 47,300 US (45%), 57,200 OS (55%), 104,500 WW
Chevron: 30,000 US (48%), 32,000 OS (52%), 62,000 WW
Cisco: 38.350 US (54%), 32.350 OS (46%), 70,700 WW
GE: 133,000 US (46%), 154,000 OS (54%), 287,000 WW
Intel: 45,500 US (55%), 37,000 (45%), 82,500 WW
Merck/Schering: 37,600 US (40%), 56.400 OS (60%), 94,000 WW
Oracle: 39,000 US (37%), 66,000 OS (63%), 105,000 WW
United Tech: 72,870 US (35%), 135,330 OS (65%), 208,200 WW
Walmart: 1.4M US (67%), 700K OS (33%) 2.1M WW

Some on the left view the job trend as reason for the U.S. government to keep companies from easily exporting work overseas and importing products back to the U.S. or to more aggressively match job-creating policies used in some foreign markets. More business-friendly analysts view the same data as the sign that the U.S. may be losing its appeal as a place for big companies to invest and hire.

"It's definitely something to worry about," says economist Matthew Slaughter, who served as an adviser to former president George W. Bush. Mr. Slaughter, now at Dartmouth College's Tuck School of Business, is among those who think the U.S. has lost some allure.

A decade ago, Mr. Slaughter, who consults for several big companies and trade associations, drew attention with his observation that "for every one job that U.S. multinationals created abroad...they created nearly two U.S. jobs in their [U.S.-based] parents." That was true in the 1990s, he says. It is no longer.

The Commerce Department's summary of its latest annual survey shows that in 2009, a recession year in which multinationals' sales and capital spending fell, the companies cut 1.2 million, or 5.3%, of their workers in the U.S. and 100,000, or 1.5%, of those abroad.

The growth of their overseas work forces is a sensitive point for U.S. companies. Many of them don't disclose how many of their workers are abroad. And some who do won't talk about it. "We will decline to comment on future hiring or head-count numbers," says Kimberly Pineda, director of corporate public relations for Oracle Corp.

Those who will talk say the trend, in some instances, reflects the rising productivity of U.S. factories and, in general, a world in which the U.S. represents a smaller piece of a bigger whole. "As a greater percentage of our sales have been outside the U.S., we have seen our work force outside the U.S. grow," says Jim Dugan, spokesman for construction-equipment maker Caterpillar, which has added jobs more rapidly abroad than in the U.S.

A Caterpillar assembly line England. The company has added jobs more rapidly abroad than in the U.S.

The Commerce Department's totals mask significant differences among the big companies. Some are shrinking employment at home and abroad while increasing productivity. Others are hiring everywhere. Still others are cutting jobs at home while adding them abroad.

At some companies, hiring to sell or make products abroad means more research or design jobs in the U.S. At others, overseas hiring simply shifts production away from the U.S. The government plans to release details about various industries and countries in November.

While hiring, firing, acquiring and divesting in recent years, GE has been reducing the overall size of its work force both domestically and internationally. Between 2005 and 2010, the industrial conglomerate cut 1,000 workers overseas and 28,000 in the U.S.

Jeffrey Immelt, GE's chief executive, says these cuts don't reflect a relentless search for the lowest wages, or at least they don't any longer. "We've globalized around markets, not cheap labor. The era of globalization around cheap labor is over," he said in a speech in Washington last month. "Today we go to Brazil, we go to China, we go to India, because that's where the customers are."

In 2000, 30% of GE's business was overseas; today, 60% is. In 2000, 46% of GE employees were overseas; today, 54% are.

Mr. Immelt says GE did or will add 16,000 U.S. jobs in manufacturing or high-tech services in 2010 and 2011, including 150 in Erie, Pa., making locomotives for China, and 400 at a smart-grid technology center in Atlanta.

Caterpillar increasingly relies on foreign markets for its sales. It has been adding workers world-wide—except for global layoffs in 2009, amid the recession—but is hiring much faster abroad. Between 2005 and 2010, its work force grew by 3,400 workers, or 7.8%, in the U.S. and 15,900, or nearly 39%, overseas.

Mr. Dugan, the company spokesman, says Caterpillar still does most of its research and development in Peoria, Ill., where it is based, and that "a little over half" of its planned $3 billion in capital spending this year is earmarked for facilities in the U.S.

Several high-tech companies have been expanding their work forces both domestically and abroad, but doing much more of their hiring outside the U.S.

Oracle, which makes business hardware and software, added twice as many workers overseas over the past five years as in the U.S. At the beginning of the 2000s, it had more workers at home than abroad; at the end of 2010, 63% of its employees were overseas. The company says it still does 80% of its R&D in the U.S.

Similarly, Cisco Systems Inc., which makes networking gear, has been creating jobs much more rapidly abroad. Over the past five years, it has added 10,900 employees in the U.S. and 21,350 outside it. At the beginning of the decade, 26% of its work force was abroad; at the end, 46% was.

Microsoft is an exception. It cut its head count globally last year, but over the past five years, the software giant has added more jobs in the U.S. (15,300) than abroad (13,000). About 60% of Microsoft's employees are in the U.S.

While small, young companies are vital to U.S. economic growth, big multinationals remain a major force. A report by McKinsey Global Institute, the think-tank arm of the big consulting firm, estimates that multinationals account for 23% of the nation's private-sector output and 48% of its exports of goods.

These companies are more exposed to global competition than many smaller ones, but also more capable of taking advantage of globalization by shifting production, and thus can be a harbinger of things to come.

The economists who advised McKinsey on its report dubbed multinationals "canaries in the coal mine." They include Mr. Slaughter and Clinton White House veterans Laura Tyson, of the University of California, Berkeley, and Martin Baily, of the Brookings Institution.

They warn that a combination of the U.S. tax code, the declining state of U.S. infrastructure, the quality of the country's education system and barriers to the immigration of skilled workers may be making the U.S. less attractive to multinationals. "We can excoriate them" and also listen to them, Mr. Slaughter says of the multinationals. "But we can't just excoriate them."

Other observers see the trend as a failure of U.S. policies to counter aggressive foreign governments. "All the incentives in the global economy—an overvalued U.S. dollar, lower corporate taxes abroad, very aggressive investment incentives abroad, government pressure abroad versus none at home—are such as to steadily move the production of tradable goods and the provision of tradable services out of the U.S.," says Clyde Prestowitz, a former trade negotiator turned critic of U.S. trade policy. "That has been having, and will continue to have, a negative impact on U.S. employment and wages."

—Scott L. Greenberg contributed to this article.

LINK TO WSJ ONLINE ARTICLE

The Treasury Auction Shell Game by Peter Schiff

2011-04-14T19:58:00.000-07:00

The Treasury Auction Shell Game
by Peter Schiff
March 25th, 2011

Very few people have either the time or patience to sift through the data released by the Treasury Department in the wake of its bond auctions. But the numbers do provide direct evidence of the country's current financial condition that in many ways mirror a financial shell game that typifies our entire economy.

Despite continued deterioration of America's fiscal health, the Treasury is still attracting adequate numbers of buyers of its debt, even with the ultra low coupon rates. Market watchers take these successful auctions as proof that our current monetary and fiscal stimulus efforts are prudent. But who's doing the buying, and what do they do with the bonds after they have been purchased?

Most people are aware that foreign central banks figure very prominently into the mix. They buy for political reasons and to suppress the value of their currencies relative to the dollar. And while we think their rationale is silly, we don't dispute that they will continue to buy as long as they believe the policy serves their own national interests. When that will change is harder to determine. But another very large chunk of Treasuries go to "primary dealers," the very large financial institutions that are designated middle men for Treasury bonds. In a late February auction, these dealers took down 46% of the entire $29 billion issue of seven year bonds. While this is hardly remarkable, it is shocking what happened next.

According to analysis that appeared in Zero Hedge, nearly 53% of those bonds were then sold to the Federal Reserve on March 8, under the rubric of the Fed's quantitative easing plan. While it's certainly hard to determine the profits that were made on this two week trade, it's virtually impossible to imagine that the private banks lost money. What's more, knowing that the Fed was sure to make a bid, the profits were made essentially risk free. It's good to be on the government's short list.

Given that the Treasury is essentially selling its debt to the Fed, in a process that we would call debt monetization, some may wonder why it doesn't just cut out the middle man and sell directly. But the Treasury is prevented by law from doing this, so the private banks provide a vital fig leaf that disguises the underlying activity and makes it appear as if there is legitimate private demand for Treasury debt. But this is just an illusion, and a clumsy one to boot.

Charles Plosser and the 50% Contraction in the Fed's Balance Sheet

2011-04-11T19:21:00.000-07:00

April 11, 2011
Charles Plosser and the 50% Contraction in the Fed's Balance Sheet
John P. Hussman, Ph.D.
All rights reserved and actively enforced.

My comment...
This is a piece that a financial geek would love, but it is pretty scary: "While it's possible to continue without unpleasant events, the Fed has already placed the course of the economy, inflation, and the financial markets beyond a comfortable scope of control should surprises emerge."

As shutdown looms, agencies brace for impact

2011-04-11T19:01:00.000-07:00

As shutdown looms, agencies brace for impact
IRS could stop issuing refund checks, national parks may close

By Sheryl Gay Stolberg and Robert Pear
April 6, 2011

A government shutdown can mean a host of changes for the country, from a shuttered Smithsonian to an Internal Revenue Service that stops issuing refund checks.

My comment...
We may be witnessing the actual meltdown of the federal government. We are the world's largest debtor nation, our annual deficit is 40% of our budget ($3.5T), the concentration of income & wealth in the top 1% of earners rivals the 1920s, yet there are proposals to cut the top tax rates for individuals and corporations.

Unemployment - from Wikipedia, the free encyclopedia

2011-04-11T18:48:00.000-07:00

Unemployment
- from Wikipedia, the free encyclopedia

If BLS stats use U3 (out of work but actively searched within the past four weeks), currently 8.8%, and ignore U6 (U3 + discouraged, marginally attached and part-time workers), and our policy-makers use BLS stats, are they making bad policy decisions? Same question for the "core" inflation rate that excludes food and energy?

What's my Financial Life Cycle

2011-04-11T17:56:00.000-07:00

Why do we plan our financial future with no more thought than we plan a road trip? We need to understand our starting point (net worth), our destination (retirement "number"), our route (income - expenses = savings + investments) and our risk tolerance. Without a plan... we could end up anywhere.

What's my Financial Life Cycle
www.beginnermoneyinvesting.com

Learn to Invest using a Beginner's Basic financial educational investment information manual on bonds, stocks, options, metals and real estate. Covers all aspects and methods of investing

Luxury cars and value cars...

2011-04-04T15:47:00.000-07:00

Get the Best for Less
The BMW 750i is a driver's dream. But Hyundai's new super-luxury sedan, the Equus, is a value.
By Jessica L. Anderson, Associate Editor
Kiplinger's Personal Finance
April 2011

I was a little surprised that this piece didn't use the comparison between the Hyundai Sonat ($28K) and the Mercedes-Benz E350 Sedan ($56K). The Sonata was on the cover of the April 2010 Consumer Reports as an incredible value, and having driven both cars within the space of a month, I can attest to that Also, having owned a new 2005 Hyundai Tucson LX FWD for the past six years I am impressed with Hyundai value, as, I am sure, are owners of the Hyundai Veracruz who saved $10K or more by not buying a Lexus RX350.

Having said this, it's also clear to me that Hyundai is leaving the "value" image to their corporate cousin, Kia, and are attempting to rebrand themselves as an upscale/luxury brand. I know this because the 2010-2011 equivalent to our 2005 Hyundai Tucson LX ($23.5K MSRP) costs close to $30K.

Clearly, Hyundai has recognized that there are risks to this strategy. Part of the cachet of luxury marques like Lexus, Infiniti or Acura is that they have completely separate dealer networks from their value equivalents (Toyota, Nissan and Honda respectively). Hyundai has acknowledged this by creating a purchase & service program for the Equus which offers home pickup and delivery and relieves the owner from ever having to set foot in a Hyundai dealership. But since the Equus owner knows that the car will be serviced at the same dealership that services the Accent, Elantra and Tucson, that uses the same technicians and the same parts, the gnawing doubt about the "real" Equus exclusivity is never very far away.

I am sure the entire auto industry is watching the Hyundai "case study" unfold, and, regardless of the outcome, it will likely provide valuable lessons for an entire generation of Stanford/Wharton/Harvard business school students. It remains to be seen how many loyal Hyundai owners are willing to pay $30K for a Tucson, or $65K for an Equus.

One last thought... there's an interesting phenomenon in the business world in which a company becomes so fascinated with a new business model or technology or process that they spend all their resources chasing the new business and, in the process, unintentionally liquidate their present, perfectly good business. It is entirely possible that this is what Hyundai is doing. And one outcome is that they never capture the luxury market they are chasing, but, in the process, they so alienate their value-oriented customer base (like me, for instance) that they unwittingly destroy their business.

Flawed housing data might mask depth of woes

2011-03-31T18:43:00.000-07:00

Flawed housing data might mask depth of woes
Critics say Realtors' monthly report overly optimistic
www.msnbc.msn.com
By John W. Schoen, 3-25-2011

Two high-profile reports on home sales this week confirmed that the housing market is still mired in a deep slump with prices still falling and sales activity sluggish at best. In fact, the market may be in much worse shape than even those numbers suggest.

My comment...
The National Association of Realtors (NAR) may have inflated home sales data due to survivorship bias (aka survival bias). Real estate brokerages that grew by absorbing failed brokerages would show increased sales, while failed brokerages would be excluded from the sample. We also see this phenomenon in the mutual fund industry; failed funds are excluded from performance stats.

Survivorship bias - from Wikipedia

Postal Service to cut 7,500 jobs, close offices

2011-03-31T18:40:00.000-07:00

Postal Service to cut 7,500 jobs, close offices
www.msnbc.msn.com
By Emily Stephenson
3/24/2011

WASHINGTON — The U.S. Postal Service said on Thursday it would cut 7,500 jobs and close seven district offices and 2,000 post offices as it handles less mail and faces greater staff costs and competition from FedEx and United Parcel Service.

My comment...
The USPS will close seven district offices and 2,000 post offices, and cut 7,500 jobs in the next year. Ignoring the district offices, that's an average of 3.5 jobs per post office being cut. So... if you live in a small town, you're probably going to be driving further to your post office a year from now.

"The Seven Immutable Laws of Investing" by James Montier

2011-03-31T18:34:00.000-07:00

The Seven Immutable Laws of Investing
by James Montier
3-21-2011

My comment...
If you're thinking about getting into the stock market, you need to read this piece by James Montier. Bottom line... be cautious. You can get these free newsletters from John Mauldin by subscribing on his website. You will be joining 1.5 million (yes, that's not a typo) of us who receive his weekly free newsletters. You could also buy his newest book End Game, atop the NY Times and Amazon best seller lists.

"Inflation and Hyperinflation" by John Mauldin, 3-12-2011

2011-03-31T18:30:00.000-07:00

Inflation and Hyperinflation
by John Mauldin
3-12-2011

My comment...
I remain convinced that hyperinflation is in our future because annual federal deficits are 40% of the federal budget ($3.5T budget - $2.0T revenues = $1.5T deficit), because this is the threshold for runaway inflation aka hyperinflation, and because Congress has no political will to rein in spending and the Fed continues to print money.

Ben Bernanke's Solution to the U.S. Federal Debt Problem

2011-03-06T18:07:00.000-08:00

Given the size of the U.S. economy (GDP ~ $14 Trillion), the size of the official U.S. Federal debt ($13.4 Trillion), and the massive unfunded federal liabilities such as Social Security, Medicare and Medicaid (estimated at $50 Trillion or more) as well as the disastrous impact Washington's borrowing and spending spree is having on the dollar, we may ask this question:

Why has Washington failed to come to the dollar's defense?

The answer is simply that U.S. Federal Reserve Chairman Ben Bernanke, like his predecessor Alan Greenspan, knows exactly what he's doing. On Nov. 21, 2002 — during one of his most famous speeches — Bernanke stated:

By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also REDUCE THE VALUE OF A DOLLAR in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services.

Remarks by FRB Governor Ben S. Bernanke
National Economists Club, Washington, D.C., November 21, 2002
Deflation: Making Sure "It" Doesn't Happen Here

Make no mistake about it: Ben Bernanke is fully aware of what is needed to defend the dollar. The sad fact, though, is that the last thing Bernanke or President Obama want right now is a strong dollar.

WHY have Obama and Bernanke failed to come to the defense of the dollar? Why is Washington continuing to spend, borrow and print knowing that by doing so they are, in effect, declaring war on the U.S. dollar?

Simply this: They have absolutely no choice!

The U.S. government's official debt is at a record high of $13.4 trillion, and is bumping up against the Congressionally-authorized federal debt ceiling. Every year, Washington has to make a staggering $400 Billion in interest payments (at 3.0% APY) just to avoid default on that federal debt. In fact, given a federal budget of $3.6 Trillion, and federal tax receipts of $2.0 Trillion (giving us an annual deficit of $1.6 Trillion), the $400 Billion interest alone on the federal debt now totals 11% of the entire federal budget, and 20% of federal tax receipts.

Equally terrifying, baby boomers are beginning to retire at the rate of nearly four million a year, or nearly eighty million over the next twenty years. They will begin to claim Social Security, Medicare, Medicaid and pension benefits, and at the same time they will be liquidating their assets - homes and individual retirement accounts, to pay for their retirements.

We are now the single most indebted nation in the history of the planet. We owe more to foreign investors, retirees and ordinary citizens than we could ever hope to repay.

Gutting the dollar is the ONLY way Washington can hope to survive this massive debt catastrophe. Destroying the value of our nation's currency is the insidious, cynical trick governments the world over have always used when skyrocketing deficits and debt threatened the collapse of their economies. This strategy has been used many times before — in Brazil, Russia, Argentina, France, Australia, the UK and more. It's even happened before right here in the United States: In 1933 — when President Franklin Roosevelt and Federal Reserve Chief Eugene Black intentionally devalued the dollar in an attempt to re-ignite the economy.

Historically, it's the desperation strategy of last resort:

FIRST, governments spend, borrow and print money wildly over many decades to fund programs aimed at keeping the voters happy...

SECOND, when the debt burden begins to crush their economies, governments then borrow and print even more wildly in a doomed attempt to spend their way out of the debt crisis they created, and...

THIRD, when the government's debts grow too large to repay, or when paying the interest on that debt becomes too burdensome, they intentionally debase their own currencies in an attempt to service and repay their debt with cheaper money.

Right now it is happening again, before our very eyes.

Every time a government employs this strategy, its people suffer. Economic growth continues to suffer. Spending power plunges and the cost of living soars. Bankruptcies skyrocket. Savings are wiped out in the blink of an eye. Sadly, when a nation's economy is in as much trouble as ours, there's not much else the government can do to pull itself out of it. So what Bernanke is doing is inevitable. But the way he's doing it — keeping virtually all Americans in the dark, with no chance to protect themselves from the inevitable financial fallout — is utterly unconscionable.

The Question of the Day:

What can we do to help you protect yourself and profit from Washington's insidious scheme to crush the dollar?

This is NOT a forecast. It is already happening. You can see it in the historic plunge of the U.S. dollar against the euro, the British pound and other currencies. And you can see it on a very personal level every month as your dollars buy less, and your cost of living soars.

The worst part is that this great debasement of the U.S. dollar is still in its early stages.

The evidence you're seeing right now - Washington's record-shattering deficits, the off-the-charts borrowing by the U.S. Treasury, and run-away money-printing at the Federal Reserve — all virtually guarantee that the declines in the dollar's buying power we have seen so far are only a dress rehearsal for the disaster to come.

This intentional destruction of our incomes, savings, investments and retirement accounts is far and away the greatest, most personal financial crisis any of us will ever have to deal with. And the greatest theft on the planet.

NOTE: This post is an excerpt, paraphrase and condensed version of a 2009 internet post by Larry Edelson.

All Together Now: How Wall Street and Washington Keep Bankers Out of Jail

2011-03-04T19:17:00.000-08:00

All Together Now:
How Wall Street and Washington Keep Bankers Out of Jail
By Alain Sherter
February 17, 2011

My comment...
Wall Street banksters have bought our Senators, our Representatives... the entire U.S. Congress. They have bought the Obama administration and the Bush administration before it.

Cost of Fed Actions Starting to Offset Benefits: El-Erian

2011-03-04T19:12:00.000-08:00

Cost of Fed Actions Starting to Offset Benefits:
El-Erian - Yahoo! Finance
Tuesday March 1, 2011

My comment...
Volatile, dangerous upheavals in the Middle East are now happening very rapidly, but the normal flight-to-safety movement of foreign assets into U.S. dollars and dollar-denominated assets has not occurred. Clearly, this is a situation we have to take very seriously. If foreign investors perceive a heightened inflation risk in the U.S. dollar, shouldn't we, as well?

The collapse of a credit expansion boom - Ludwig Von Mises

2011-03-04T19:08:00.000-08:00

‎"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved." - Ludwig Von Mises

Indiana shows what's at stake in Wisconsin union push

2011-03-04T19:04:00.000-08:00

Indiana shows what's at stake in Wisconsin union push
"Central to our turnaround", says governor;
costs too great, say workers

By STEVEN GREENHOUSE
New York Times
updated 2/26/201

My comment...
Indiana's experience gives us a peek at the future of public service employment job security and benefits, at the state and local levels.

A U.S. recovery built on low-paying jobs

2011-02-27T17:01:00.000-08:00

A U.S. recovery that is built on low-paying jobs
The economy is not creating opportunities at the high end
By Joshua Zumbrun and Shobhana Chandra
2/27/2011

My comment...
The economy is not creating living-wage jobs... but we already knew this. And we know the unemployment rate dropping from 10.1% to 9% simply means people have given up the job search. All of you skilled, educated, older and out-of-work repeat after me: Would you like fries with that order?

Investors, not first-time buyers, lift home sales

2011-02-27T16:59:00.000-08:00

Investors, not first-time buyers, lift home sales
Market shows uptick after lousy year, but foreclosed properties help drive trend
By DEREK KRAVITZ
updated 2/23/2011

My comment...
Investor sharks are snapping up foreclosed properties, and likely renting them to families who lost homes to foreclosure, or can't qualify for a mortgage. That's not good for the move-up housing market. And Corelogic claims the National Association of Realtors (NAR) overstated 2010 home sales by 50% (4.9M vs 3.3M). I am SO surprised ;>)

Does Financial History Rhyme? Feb 18, 2011

2011-02-19T09:41:00.000-08:00

Does Financial History Rhyme?
Feb 18, 2011

Recently I was looking at the chart of the S&P 500 Index (Yahoo! Finance symbol: ^GSPC) for the past sixteen years. I was amazed at the similarities between the pattern for 1997-1999 and the one for 2009-2011. You can see for yourself in the attached chart, with the two periods in brick-red. (Click on the chart for a larger view.) I've also included linear trend lines in both patterns, with the same length of forward trend.

Given the momentum in the current stock market bubble, it seems entirely possible that the peak could be well above 1600 before potential buyers refuse to participate. I'm not sure whether history repeats itself, but it appears, at least, to rhyme ;>)

The last sixteen years of S&P 500 Index history includes three bubbles and two crashes. This history would seem to indicate that irrational, emotional investor behavior is driving the stock market, rather than rational, logical behavior. Here is a link to an article on behavioral finance that you might find of interest:

Taking A Chance On Behavioral Finance
by Ben McClure

As long as investors exhibit irrational exuberance (in the words of former Fed chairman Alan Greenspan), we can expect bubbles and crashes to continue to occur. Market speculators are going to need more than one lesson... and they're going to get more than one lesson.

Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.
Charles Mackay

NOTE: As an interesting aside, since April, 1999, the S&P 500 Index has been through the present 1343 level, moving upward or downward, at least twenty-seven (27) times, using weekly adjusted close prices !!! Had you bought and held the index on any one of those 27 occasions, your long-term return would have been essentially zero... nada, zip.

Inside Job - Sony Pictures - Released Oct 8, 2010

2011-02-18T09:19:00.000-08:00

Inside Job
Starring: Matt Damon

Inside Job is the first film to expose the shocking truth behind the economic crisis of 2008. The global financial meltdown, at a cost of over $20 trillion, resulted in millions of people losing their homes and jobs. Through extensive research and interviews with major financial insiders, politicians and journalists, Inside Job traces the rise of a rogue industry and unveils the corrosive relationships which have corrupted politics, regulation and academia. (Sony Classics)

Official Website for "Inside Job"

Internet Movie Database

Metacritic Score 88/100 (Universal acclaim)

Tomatometer Review

Netflix (DVD/Blu-ray available on March 8, 2011)

Rich Valuations and Poor Market Returns - Dr. J.P. Hussman

2011-02-18T09:16:00.000-08:00

Hussman Funds - Weekly Market Comment:
Rich Valuations and Poor Market Returns -
February 14, 2011 by Dr. John P. Hussman
www.hussmanfunds.com

My comment...
Extraordinary! In "Other Notes" Dr. Hussman suggests that economic strains are global in nature, and that the recent wave of self-immolations in Tunisia, Algeria, Egypt, Pakistan, Punjab (India) and elsewhere is a desperate protest against poverty, inequality, injustice, oppression and government corruption.

NAHB Housing Market Index and the S&P 500 Index 2-15-2011

2011-02-15T10:51:00.000-08:00

From 1997 to 2006 the housing wealth effect drove the stock market, until the real estate bubble burst, and the sub-prime mortgage meltdown took the stock market down. The residential real estate market (red line) is still flatlining, but the Fed's easy money policy has inflated a new stock market bubble (blue line). Stocks are overvalued by historical measures. This is not a stock market for long term investors, but rather for short-term momentum traders.

David Rosenberg, of Gluskin Sheff, first reported in 2006 that the National Association of Home Builders (NAHB) Housing Market Index (HMI) led the S&P 500 Index by 12-15 months with an 80+% correlation. The housing meltdown began late in 2005, but the stock market crash did not occur until October, 2007, two years later. Residential home ownership is a major indicator of the health of the consumer economy. It's driven by family formation (marriage and childbirth), and by stable family incomes (jobs). Residential home ownership, family formation and jobs drive purchases of vehicles and large appliances, home maintenance and improvement materials (Lowe's, Home Depot), and provide community support for schools, churches, shopping centers, hospitals, etc. By off-shoring millions of living-wage jobs we have doomed part of our society to rental apartment living. Only when the NAHB HMI gets back to 50 or so (it is currently at 16) can we claim to have a healthy residential housing market.

At this point, the disconnect between the stock market and the consumer economy confirms that the stock market is in bubble territory. The S&P 500 Index is retracing the path it took in late 1998 and early 1999. The maximum divergence occurred in October, 2007 with an S&P 500 Index of 1562 and an HMI of 19, a ratio of roughly 82. At this point, with the S&P 500 at 1332 and the HMI at 16, we are at roughly the same point. It remains to be seen how frothy the current stock market bubble gets, but one thing is for certain... it is not supported by the consumer economy, at least as indicated by the national housing market.

NAHB Builder Confidence unchanged in February

Church Foreclosures Surge, Seen as 'Next Wave' in Crisis
Published January 25, 2011, The Wall Street Journal

Housing crash hitting cities thought to be stable - 2/13/2011

2011-02-14T09:14:00.000-08:00

Housing crash hitting cities thought to be stable
www.msnbc.msn.com
By David Streitfeld
2/13/2011

As Florida and the Southwest have begun to stabilize, the pain from the housing crash has moved to economically diverse cities where the boom was relatively restrained, like Seattle, Atlanta and Minneapolis.

My comment...
The Seattle housing market is still crumbling... can Portland be far behind? What happens if there is a "tipping point" when enough households are unemployed and underwater? They stop making mortgage payments and simply squat in their homes, awaiting foreclosure.

And here's an interesting piece on a related subject:

Are you foolish to pay your bills?
By Liz Weston, MSN Money
February 4, 2011

Borrowers who are in over their heads with debt often struggle with the morality of filing for bankruptcy. But should you feel guilty if there's really no other logical option?

Rich Valuations & Poor Market Returns - Dr. J.P. Hussman 2/14/2011

2011-02-14T09:10:00.000-08:00

Hussman Funds - Weekly Market Comment:
Rich Valuations & Poor Market Returns
Dr. John P. Hussman
February 14, 2011
www.hussmanfunds.com

My comment...
Extraordinary! In "Other Notes" Dr. Hussman suggests that economic strains are global in nature, and that the recent wave of self-immolations in Tunisia, Algeria, Egypt, Pakistan, Punjab (India) and elsewhere is a desperate protest against poverty, inequality, injustice, oppression and government corruption.

The Future of Public Debt - John Mauldin 2/11/2011

2011-02-14T08:52:00.000-08:00

The Future of Public Debt
John Mauldin 2/11/2011
Thoughts From The Frontline
www.investorsinsight.com

"... while the debt supercycle is still growing on the back of increasing government debt, there is an end to that process, and we are fast approaching it. It is a world where not only will expanding government spending have to be brought under control but also it will actually have to be reduced."

Civilian Employment-Population Ratio (EMRATIO) 2/4/2011

2011-02-13T10:03:00.000-08:00

Civilian Employment-Population Ratio (EMRATIO)
The Bureau of Labor Statistics (BLS)
February 4, 2011

My comment...
Stable at 55%-58% until the late '70s; the U.S. shifted from a creditor-exporter country to a debtor-importer country. One-wager-earner families became two-wage-earners. The ratio peaked at nearly 65%. Today we are back to 58%. With a labor force of 155M, 7% equals 11 million jobs. Gone. Not coming back.

Misquoting Keynes - John P. Hussman, Ph.D. 2/7/2011

2011-02-13T09:59:00.000-08:00

Misquoting Keynes
John P. Hussman, Ph.D.
February 7, 2011

Benjamin Graham: "Speculators often prosper through ignorance; it is a cliché that in a roaring bull market knowledge is superfluous and experience is a handicap. But the typical experience of the speculator is one of temporary profit and ultimate loss."

Factories boom, but with few new workers 2/7/2011

2011-02-13T09:54:00.000-08:00

Factories boom, but with few new workers
Productivity gains mean many low-skilled workers are shut out
By John W. Schoen
updated 2/7/2011
www.msnbc.msn.com

The U.S. manufacturing sector is roaring back after the worst recession in generations. So why aren’t factory jobs coming back as quickly?

My comment...
Education is more important than ever. Low-wage, blue-collar manufacturing jobs are being replaced by business investment (machine tools, robots, new plant, etc), driven by low-interest-rate money.

Meltdown: A Free-Market Look at...

2011-02-13T09:51:00.000-08:00

Meltdown: A Free-Market Look at Why the Stock Market Collapsed,
the Economy Tanked, and Government Bailouts Will Make Things Worse
Thomas E. Woods Jr. (Author), Ron Paul (Foreword)

My comment...
This is a fascinating book; an easy read, and a page-turner. I never realized how out-of-fashion the Austrian School of Economics is, and yet, how clear it is, in explaining how the Federal Reserve's easy-money policy creates bubble after bubble.

Pavlov’s Bulls - by Jeremy Grantham

2011-02-13T09:36:00.000-08:00

Pavlov’s Bulls - by Jeremy Grantham
John Mauldin's Outside the Box
www.investorsinsight.com

John Mauldin reads hundreds of articles, reports, books, newsletters, etc., and each week he brings one essay from another analyst that should stimulate your thinking.

Jeremy Grantham says "Be aware that you are living on borrowed time as a bull; on our data, the market is worth about 910 on the S&P 500, substantially less than current levels, and most risky components are even more overpriced."

CBO: U.S. budget deficit to hit $1.5 trillion

2011-02-13T09:33:00.000-08:00

CBO: U.S. budget deficit to hit $1.5 trillion
Projections also show Social Security running permanent annual deficits
msnbc.com news services
updated 1/26/2011

My comment...
Imagine you're a young, childless couple working two low-paid, part-time, no-benefits jobs (think Starbucks barrista) and you make $20K a year... BUT, you're spending $35K a year. Well, that's our situation as a nation, $2.0 Trillion in tax receipts, $3.5 Trillion budget. How long can we do this? Do you think it will end well?

S&P 500 Index: 1995-2011 bubbles compared to 1981-1995

2011-01-29T02:29:00.000-08:00

The chart above gives a linear scale comparison of two recent periods of S&P 500 Index history: the BLUE line shows 1981-1995, and the RED line shows 1995-2011. As you can see, the 1995-2011 period has been marked by three stock market bubbles. The first two were followed by violent market crashes, and a third market crash seems inevitable.

The current S&P 500 Index value of 1276 (Friday, Jan. 28th, 2011) is right on the 16-year linear trend line, and the index is repeating, almost perfectly, the market action of 1998-1999: a retracement from 1200 back to 1000, followed by another leg upward toward 1300.

Notice that the 2007 market top (1562) was higher than the 2000 market top (1527), and the 2009 market bottom (683) was lower than the 2002 market bottom (801). Higher tops and lower bottoms indicate increasing volatility, which means if you try to use a market timing technique to identify the market top and get out before everyone else does, you might be in for a disappointment.

In estimating how much longer this bull market has to run, we can ask ourselves if the U.S. economy is stronger and more resilient than it was in 1998-1999? Is the job market stronger? Are career opportunities better? Is the housing market stronger? Is the U.S. dollar stronger? Or is this simply another stock market bubble like the dot-com bubble, driven by the low-interest-rate, easy-money policy of the Federal Reserve, and destined to end in tears and disappointment as the preceding two bubbles ended?

If you buy into the stock market now, your potential gain might be as much as 700 points, if the index goes to 2000, but your potential loss might also be 700 points, if the index falls to 600. That's not a very good reward for the amount of risk involved. The smart money is saying that given the current over-bought, over-bullish and over-valued market, this is not a good time to be getting into the stock market. But, in the words of Dirty Harry... "Do you feel lucky? Well, do you?"

S&P 500 Index Bubbles (1995-2011)

2011-01-28T16:29:00.000-08:00

Many stockbrokers, financial advisors, television stock market gurus and personal finance magazine editors believe that the current bull market has a lot of room to run before it is through. And they may be right.

The chart above represents the last sixteen (16) years of history (1995-2011) of the S&P 500 Index, one of the most trusted indexes of the U.S. equities market. As you can see, the sixteen years have been marked by three stock market bubbles. The first two were followed by violent market crashes, and a third market crash seems inevitable... but when?

The current S&P 500 Index value of 1276 (as of Friday, Jan. 28, 2011) is right on the 16-year linear trend line, and the index is repeating, almost perfectly, the market action of 1998-1999: a retracement from 1200 back to 1000, followed by another leg upward toward 1300. But what will the future hold?

Notice that the 2007 market top (1562) was higher than the 2000 market top (1527), and the 2009 market bottom (683) was lower than the 2002 market bottom (801). Higher tops and lower bottoms indicate increasing volatility, which means if you try to use a market timing technique to identify the market top and get out before everyone else does, you might be in for a disappointment.

In estimating how much longer this bull market has to run, we can ask ourselves if the U.S. economy is stronger and more resilient than it was in 1998-1999? Is the job market stronger? Are career opportunities better? Is the housing market stronger? Is the U.S. dollar stronger? Or is this simply another stock market bubble like the dot-com bubble, driven by the low-interest-rate, easy-money policy of the Federal Reserve, and destined to end in tears and disappointment as the preceding two bubbles ended?

If you buy into the stock market now, your potential gain might be as much as 700 points, if the index goes to 2000, but your potential loss might also be 700 points, if the index falls to 600. That's not a very good reward for the amount of risk involved. The smart money is saying that given the current over-bought, over-bullish and over-valued market, this is not a good time to be getting into the stock market. But, in the words of Dirty Harry... "Do you feel lucky? Well, do you?"

Public Employee Pension Transparency Act

2011-01-23T14:29:00.000-08:00

Wall Street Journal: REVIEW & OUTLOOK
Public Pension Hygiene Act
The first reform step is exposing the true size of the funding hole.
JANUARY 22, 2011

The Public Employee Pension Transparency Act is a welcome first step... we cannot appreciate how difficult this problem will be to fix until we know how big the problem is.

The Eight States Running Out of Homebuyers

2011-01-23T14:27:00.000-08:00

The Eight States Running Out of Homebuyers
Personal Finance News from Yahoo! Finance

The eight states, in order are: (1) Michigan, (2) Nevada, (3) Arizona, (4) California, (5) Illinois, (6) Georgia, (7) Oregon, (8) Florida.

indexmundi - commodity price indices

2011-01-19T09:55:00.000-08:00

indexmundi - commodity price indices

If you suspect (as most observant Americans do) that the published government inflation statistics are inaccurate, check out www.indexmundi.com. In the left sidebar you can click your favorite commodity and see the 5-year inflation rate: Crude Oil (WTI) (+50%), Food (+76%), Industrial Inputs (+60%), etc.

Irresponsible at Best, Dangerous at Worst

2011-01-19T09:51:00.000-08:00

Irresponsible at Best, Dangerous at Worst
Posted by Paul Vigna on October 05, 2010
Economy, Federal Reserve, Financials

My comment:
As Barry Ritholtz also pointed out in Bailout Nation the Federal Reserve believes it has a mandate to support asset prices (stocks, bonds, real estate), by keeping the Federal funds rate near zero - resulting in a prime rate of 3% - and by flooding the financial system with liquidity (quantitative easing they call it). Historically this has resulted in hyperinflation.

Governors marching in step over budget woes - 1/17/2011

2011-01-19T09:47:00.000-08:00

Governors marching in step over budget woes
A lot of times, you can't tell if it's a Republican or Democrat, a conservative or a liberal
by Monica Davey, N.Y. Times
January 17, 2011

John Kitzhaber, Oregon governor, described the state, which needs to bridge a projected budget deficit of $3.5 billion, as an old house in need of an overhaul. There are too many rooms, and they aren't the right size. There's no insulation, the windows are drafty, the roof needs to be replaced, and the siding is falling off. The cost of keeping the house is more than the family can afford.

My comment:
$3.5 Billion is about $1 Thousand for every man, woman and child living in the state of Oregon.

Limits of Monetary Policy: Richard W. Fisher 1/11/2011

2011-01-15T14:56:00.000-08:00

The Limits of Monetary Policy: "Monetary Policy Responsibility Cannot Substitute for Government Irresponsibility"
by Richard W. Fisher, Governor, Federal Reserve Bank of Dallas
January 12, 2011

Part of the speech:
"I have been outspoken about the limits of monetary policy as a salve for the nation’s fiscal pathology. The Fed has done much, in my words, to provide the bridge financing until the new Congress gets to work restructuring the tax and regulatory incentives American businesses need to confidently expand their payrolls and capital expenditures here at home.

"The Federal Reserve has held rates to nil. We have expanded our balance sheet to unprecedented levels. After much debate ― which included strong concern expressed by one member with a formal vote and others, like me, who did not have voting rights in 2010 ― the FOMC collectively decided in November to temporarily undertake a program to purchase U.S. Treasuries that, when added to previous policy initiatives, roughly means we are purchasing the equivalent of all newly issued Treasury debt through June.

"By this action, we have run the risk of being viewed as an accomplice to Congress' fiscal nonfeasance. To avoid that perception, we must vigilantly protect the integrity of our delicate franchise. There are limits to what we can do on the monetary front to provide the bridge financing to fiscal sanity. Last Friday, speaking in Germany, [European Central Bank President] Jean-Claude Trichet said it best: Monetary policy responsibility cannot substitute for government irresponsibility.

"The entire FOMC knows the history and the ruinous fate that is meted out to countries whose central banks take to regularly monetizing government debt. Barring some unexpected shock to the economy or financial system, I think we have reached our limit. I would be wary of further expanding our balance sheet. But here is the essential fact I want to emphasize today: The Fed could not monetize the debt if the debt were not being created by Congress in the first place."

"Bailout Nation" by Barry Ritholtz

2011-01-11T19:42:00.000-08:00

Bailout Nation, with New Post-Crisis Update:
How Greed and Easy Money Corrupted Wall Street and Shook the World Economy [Paperback]
Barry Ritholtz (Author), Bill Fleckenstein (Foreword), Aaron Task (Contributor)

My comment:
It's so obvious... why didn't I see it? The U.S. changed in the early '90s from an income & wage - driven economy to an asset - driven economy. So the role of the Federal Reserve is to prop up asset prices... stocks, bonds, mutual funds, real estate. How? Keep interest rates low and print money.

Off With Our Heads! by William H. Gross, January, 2011

2011-01-11T18:57:00.000-08:00

Off With Our Heads!
by William H. Gross
January, 2011

American politicians and citizens alike have no clear vision of the costs of a seemingly perpetual trillion-dollar annual deficit.

Policy stimulus is focused on maintaining current consumption as opposed to making the United States more competitive in the global marketplace.

Dollar depreciation will sap the purchasing power of U.S. consumers, as well as the global valuation of dollar denominated assets.

Fresh Crises Loom in Europe and the U.S., 12/30/2010

2011-01-05T10:05:00.000-08:00

Fresh Crises Loom in Europe and the U.S.
By SIMON JOHNSON
December 30, 2010

Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of 13 Bankers.

Most experienced watchers of the euro zone are expecting another serious crisis in early 2011, tied to the rollover funding needs of its weaker governments. With debts coming due from March through May, the crisis seems much more predictable than what happened to Greece or Ireland in 2010.

My comment:
Our leading bankers looted the country, plunged the world into deep recession and cost the U.S. 8 million jobs. Now many of them stand by with sharpened knives and enhanced bonuses – willing to suggest how the salaries and jobs of others can be further cut.