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Financial Skeptic Bulletin, November 2011

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Amazing recovery. S&P 500 hit 1250. Many 401K suckers now think that they can get their money back if they wait until it hit 1400 or 1500. What they don't understand is that they are in big and hungry crowd...

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S&P 500 hit 1250. Many 401K suckers now think that they can get their money back if they wait until it hit 1400. What they don't understand is that they are in big and hungry crowd...

[Nov 30, 2011] 14th Consecutive Week Of Stock Outflows Retail Refuses To Go Back Into Stocks No Matter What Market Does

ZeroHedge

So much for engineered stock market "rallies" and global "bailouts" - per the latest ICI update, we can now confirm that no matter how or what the market does, retail investors have firmly decided that the ridiculous market volatility is simply too much for most, and have withdrawn another $3.7 billion from domestic equity funds, and have now taken out money for 14 straight weeks ($44 billion) since the US debt downgrade (but, but, the S&P barely lower), or 31 weeks ($130 billion) if one ignores the statistically irrelevant blip of a $715mm inflow on August 17.

Perhaps instead of trying to fabricate a makeshift price for the SPX which nobody believes any more, the Fed should focus on moderating the insane volatility which is the primary reason preventing any normal investors from putting cash into stocks.

And yes, $6.2 billion went into bonds, despite the record low yields. Said otherwise, retail investors have withdrawn $214 billion from domestic equity mutual funds since the beginning of 2010. Put a fork in stocks: America's infatuation with the stock market is officially over.

CvlDobd

Careful with comments like that. Death of equities thoughts are what where great raging bull markets start from.

I'm not bullish either but TPTB will stop at nothing to fuck us all.

agent default

Given the present state of the economy and the debt monetization about to begin in earnest, I would say that we are headed for a stagflationary period that will make the 70s look like a day in Disneyland.

Equities will go sideways at best in this environment, and commodities will rally due to the money printing.

No wonder people are fleeing the stock market. I expect them to start piling into commodities and PMs soon though.

CvlDobd

Fundamentally I agree.

I can't say with any great degree of confidence what will appreciate in value. It SHOULD be commodities but outside of base metals they sucked today. The PMs should have been on fire but were kind of ho hum.

I'm just sayin they are trying to form an illusion with stocks.

i root for that...

I am with you on this. Retail investors usually are losers and their money flow is generally used as constrain indicator. Smart money is always ahead of retail. So this report is not helping the bearish case.

From fundamental standpoint though, there is still no cure for the crisis. But endless printing could certainly send risk assets up for weeks or months. gotta be careful shorting right now - don't get in front of the moving train.

mark mchugh

1979 actually WAS the death of equities. 1980 is when the 401(k) laws went into effect. That was the biggest, bestest bailout Wall Street will ever receive.

I think we've depleted the World's greater fool supply.

redpill

But but but CNBC sez black fridayz was gud!!11

Reminds me of the asinine made-up Yahoo Finance headlines, always proclaiming that "Investors were taking profits" when stocks are down or "Stocks rallied as investors were optimistic" as if individual Americans are running to their computers and buying and selling the same fucking index funds over and over every day and it isn't a giant room of brainless HFT algo computers controlled by institutional assholes who just want to front-run and fuck over everyone else.

digitlman

Or when CNN Money says "Investors take a breather" when the market is down. As if there are actual people trading, not amries of fucking machines.

Rynak

The TBTFs and the CBs..... the "market" is a *local* videogame running on the intranet of the marketmakers. Login or register to post comments

adr

pffft, retail investors removed $214 billion from a market that saw the US government inject what $14 trilion into the market.

Reatil investors don't matter. The global elite game has made it so they will never matter again. Corporations can't depend on actual workers to provide capital, that's the job of the central bank. You print, me and my directors make money.

As long as we make far more money than the resulting cost of inflation we don't care. $80 a galon gasoline doesn't mean a thing to a billionare. The only thing that can stop them is a Weimar moment where a cup of coffee goes to $100 million and having a couple billion dollars no longer means you're rich.

Of course by then they will have been tipped off to the coming hyperinflation and tranferred their wealth to a different currency allowing them to retain their uber tycoon status.

Sophist Economicus

Has anybody looked at the causation effect of the first wave of baby-boomers hitting 'investment draw-down' time? I agree that some of the withdrawls may be due to the disenchantment theme, but, something tells me that this 'phenomenon' is going to be a cyclical theme for US investors given the demographic window.

Dr. Engali

That's the same thing that impacted Japan. As the boomers entered the draw down phase they wanted to get away from the volatility as well as pull money off their savings. All of that is a factor with outflows. They can prop it up all they want but eventually the market will find its true value much lower than it is now. Login or register to post comments Wed, 11/30/2011 - 16:23 | 1932444 Dr. Gonzo No way Zerohedge! This is my gambling den playground. I don't use this thing to "invest" money and I certainly have stopped holding any company long term a way long time ago. I only trade in or out quickly. Sometimes I hold for less than 5 minutes. I never make trades on fundementals any more. I only trade on what I think the PPT's next move will be. If I think they need the market up I go long. If I think the insiders have been told it's going to be tanked to get another round of QE I go short. That's all you go gotta know to play here. If you are an insider you can win everyday. If you are not you just do your best to guess at what the next rumor will be and spin that roulette wheel. Just try not to get head faked by the insiders cause they love to ruin you. Try to get in the head of the insider and imagine what their masters are needing from the market. It's called American Kapitalism and it's pathetic but it's all we got left now til the whole thing goes to ZERO.

miker

The big boys are running scared. Notice all the "positive" news out on the booming US economy. Allan Sinai talking up the Fed's line. Beige book numbers fudged to look positive. Even making a big deal on China's piddly move. The positive press push is so obvious to a skeptic but they will keep tryiing to dissuade America that we're in the shitter.

The market was pumped at the open and then supported by corportate and big bank buying at the direction of the Fed. The only justifiable reason for a rally would be inflation expectation (as in QE) but that' a bit of a contract with the devil as higher inflation will very likely kill corporate profits.

These extreme moves only amplify to me the seriousness of our situation here and around the world. Make sure you have some cash on hand, some PM's at home but more importantly, a good stock of non-perishable food. If things got out of hand for awhile, at least you wouldn't have to put up with rationing lines at the grocery store.

Things will get better, but it's likely they'll get a whole lot worse first.

Downtoolong

When you know it’s rigged, and you know you can’t win in the long run, and even when you win in the short run the prize is a worthless piece of junk, eventually the thrill and excitement of the game wears off. I haven’t played a carnival ring toss for 20 years for the same reasons.

[Nov 29, 2011] 5% Returns Will Be 'Upper Echelon' for Years Gross - Yahoo! Finance

Most investors for the next several years will be lucky to get a 5 percent return in their portfolios thanks to the growth-constricting debt problems in the U.S. and Europe, Pimco's Bill Gross said.

"Investors should recognize that Euroland's problems are global and secular in nature, reflecting worldwide delevering and growth dynamics that began in 2008," he wrote. "It will be years before Euroland, the United States, Japan and developed nations in total can constructively escape from their straightjacket of high debt and low growth."

Until then, he said, investors should get used to low rates, slow growth and weak returns from their portfolios.

[Nov 29, 2011] PIMCO's Gross Europe to lag, bet on emerging mkts

Reuters

He said that "debt-driven growth is a flawed business model" and the older, developed countries are now paying the price for issuing too much sovereign debt.

"Financial markets and society no longer have an appetite for it," said Gross, who also shares the title of co-chief investment officer at Pacific Investment Management Co with Mohamed El-Erian.

He predicted that global growth will likely remain stunted, with interest rates artificially low and investors continually disenchanted with returns that fail to match expectations

Gross also said investors scouring the developed world for places to put their money may want to focus on the "cleanest dirty shirts," or countries such as the United States, Canada, the United Kingdom and Australia.

[Nov 28, 2011] Is It Really Possible to Decouple GDP Growth from Energy Growth?

November 21, 2011

In recent years, we have heard statements indicating that it is possible to decouple GDP growth from energy growth. I have been looking at the relationship between world GDP and world energy use and am becoming increasingly skeptical that such a decoupling is really possible.


 
Figure 1. Growth in world energy consumption (based on BP data) and growth in world real GDP

Prior to 2000, world real GDP (based on USDA Economic Research Institute data) was indeed growing faster than energy use, as measured by BP Statistical Data. Between 1980 and 2000, world real GDP growth averaged a little under 3% per year, and world energy growth averaged a little under 2% per year, so GDP growth increased about 1% more per year than energy use. Since 2000, energy use has grown approximately as fast as world real GDP–increases for both have averaged about 2.5% per year growth. This is not what we have been told to expect.

Why should this “efficiency gain” go away after 2000? Many economists are concerned about energy intensity of GDP and like to publicize the fact that for their country, GDP is rising faster than energy consumption. These indications can be deceiving, however. It is easy to reduce the energy intensity of GDP for an individual country by moving the more energy-intensive manufacturing to a country with higher energy intensity of GDP.

What happens when this shell game is over? In total, is the growth in world GDP any less energy intense? The answer since 2000 seems to be “No”.

It seems to me that at least part of the issue is declining energy return on energy invested (EROI)–we are using an increasing share of energy consumption just to extract and process the energy we use–for example, in “fracking” and in deep water drilling. This higher energy cost is acting to offset efficiency gains. But there are other issues as well, which I will discuss in this post.

If GDP growth and energy use are closely tied, it will be even more difficult to meet CO2 emission goals than most have expected. Without huge efficiency savings, a reduction in emissions (say, 80% by 2050) is likely to require a similar percentage reduction in world GDP. Because of the huge disparity in real GDP between the developed nations and the developing nations, the majority of this GDP reduction would likely need to come from developed nations. It is difficult to see this happening without economic collapse.

[Nov 25, 2011] Black Friday Antidote: George Carlin on Advertising and Consumerism

naked capitalism

Americans roll from a holiday that has come to be about overeating to a day where merchants hope to seduce customers into an orgy of overspending.

In an interesting bout of synchronicity, Michael Thomas just sent me a link to this George Carlin video. It may help steel the will of Black Friday conscientious objectors. I’m also looking forward to Carlin’s characteristic crudeness offending the Proper Discourse police (this clip is tame compared to The Aristocrats).

[Nov 23, 2011] The Economy Is In Jeopardy by Econophile

Nov 23, 2011 | ZeroHedge

Summary

 Here is a summary the above data:

  1. Industrial production (manufacturing and services) is continuing a flat to declining trend that has been going on since Q2 2010. Manufacturing has shown recent growth but it mirrors the negative to flat trend. Capital goods orders have improved, reflecting technological upgrades (which is also mirrored in software sales).
  2. Prices are starting to decline both at the producer and consumer level. Oil prices are likely to decline as worldwide economic activity slows. But, as we know, political shocks from producers can alter this forecast dramatically.
  3. Retail sales, adjusted for price inflation continue to be flat to declining.
  4. Credit conditions are still tight at the consumer level, and business credit still suffers from lack of demand.
  5. Exports have been a primary driver of the economy and have rebounded substantially post-Crash as a result of a devalued dollar.
  6. European economic problems have caused a significant influx of money into the U.S. and that has been parked in Treasuries.

Here is a summary of other data I feel is important and which I have recently discussed:

  1. Unemployment is high. At 9% there are 13.9 million unemployed, while the broader measure of unemployed (U-6) is 25 million. While unemployment has been dropping at a snail's pace, jobs are not being created at a sufficient rate to substantially reduce unemployment. New jobless claims have been hovering around the 400,000 per week for the entire year.
  2. Real disposable income is falling.
  3. Personal savings have fallen from a post-Crash high of 5.8% in June, 2010, to 3.6% as of Sept., 2011 because consumers are using savings to fund consumption.
  4. GDP is static rather than growing and the latest Q3 boost will likely not continue. It is likely that the Q3 report will be revised downward.
  5. Auto sales are related to pent-up demand and are not likely to be sustained.
  6. The top 5% of earners account for 37% of all consumer spending and it they who are supporting consumer spending. I call this a "bifurcated economy." There is no broad based consumer spending rally.
  7. Household debt ($13.9 trillion) is still historically very high and has not been substantially reduced.
  8. U.S. sovereign debt is 100% of GDP ($15 trillion and growing).
  9. All government spending (federal, state, and local) comprises 45.6% of GDP.
  10. The euro crisis will have a substantial impact on the rest of the world, including the U.S. That is difficult to predict, but we'll know very soon. According to recent data, the world is heading into recession in almost all economies.
  11. The federal government is currently running a $1.3 trillion annual deficit.
  12. Unfunded liabilities for Social Security, Medicare, and prescription drug (Part D) are $116.4 trillion and growing. This does not include the pending problem with student loans (Sallie Mae) or obligations to GSEs.
  13. The MF Global problem is indicative of a declining economy. It is likely that in a growing economy they would have been able to ride out their crisis. In a declining economy, company weaknesses tend to be revealed, as with Lehman. That creates market uncertainty.
  14. Oil price have risen from $40 bbl post Crash to $110 bbl in April, 2011, and presently are at $97 bbl. Such oil price increases are associated with and often presage recessions.
  15. Bank balance sheets are still weak because they do not book asset values at market, they seems to not properly book troubled loans, and they are encumbered by a substantial amount of malinvested assets that have not been liquidated.
  16. 47 million Americans (15%) are on Food Stamps. 48.5% of the population lived in a household that received some type of government benefit in the first quarter of 2010.
  17. Americans' are pessimistic about their future and the future of America according to almost all recent polls.
  18. An angry and disaffected population in America is potentially politically dangerous.

What is important when looking at the data is to spot trends rather than specific numbers. I have what I believe is a healthy skepticism about the reports from the multitude of federal agencies that I follow on a regular basis. They are often revised and probably understate the negatives. That is especially so with price inflation. Many of reports are in nominal numbers rather than adjusted for official price inflation. If they are adjusted for inflation (chained) their baseline is a recent year. Many analysts put great emphasis on specific numbers, but quantifiable data is ephemeral and probably "gamed". Look at the trend.

[Nov 22, 2011]  How Do Bond Funds Stack Up With Morningstar's New Analyst Rating

Yahoo! Finance

PIMCO Total Return Instl(PTTRX)
Analyst Rating: Gold
This fund's long record of category-beating returns and 5-star Morningstar Ratings didn't make it a shoo-in for Gold. Instead, this Analyst Rating is based on a careful evaluation of each of the five pillars of Process, Performance, People, Parent, and Price, scrutinized by our ratings committee. Of course, the fund scores extremely well on most of the five pillars. It boasts a well-proven process that has evolved over the years by necessity of the fund's own growth. So, too, have the talents of its manager Bill Gross, who has had to make those extremely difficult transitions as the portfolio has ballooned. And Gross is backed by a phalanx of managers and analysts with some of the sharpest skills and resumes in the business.

The fund doesn't come up completely roses on every count, though. Although PIMCO has a lot to offer investors, some share classes are pricey, even after a recent effort to reduce fees. And while this fund previously demonstrated that it can thrive despite a massive asset base (the positioning responsible for its 2011 struggles further suggests that size has yet to impede the fund's flexibility) the firm’s unwillingness to close this or any other large funds does warrant continued vigilance. On balance, though, the remains one of the best core bond funds available.

[Nov 21, 2011]  Global economic outlook grim, China tells U.S. trade talks By Chris Buckley

Yahoo! Finance

CHENGDU, China (Reuters) - Chinese Vice-Premier Wang Qishan warned on Monday the global economy is in a grim state and the visiting U.S. commerce secretary said China would spend $1.7 trillion on strategic sectors as Beijing seeks to bolster waning growth.

Wang said an "unbalanced recovery" may be the best option to deal with what he had described on Saturday as a certain chronic global recession, suggesting Beijing would bolster its own economy before it worries about global imbalances at the heart of trade tensions with Washington.

"An unbalanced recovery would be better than a balanced recession," he said at the annual U.S.-China Joint Commission on Commerce and Trade, or JCCT, in the southwest Chinese city of Chengdu.

The comments, echoed by Vice Finance Minister Zhu Guangyao, stopped short of suggesting China would try to boost exports as it had done during the 2008-2009 global financial crisis when it pegged the yuan to the dollar.

Instead, U.S. Commerce Secretary John Bryson told reporters that China had confirmed to U.S. officials that it planned to spend $1.7 trillion on strategic sectors in the next five years.

Beijing has previously said these sectors include alternative energy, biotechnology and advanced equipment manufacturing, underlining its aim to shift the growth engine of the world's No.2 economy to cleaner and high-tech sectors.

The investment amount of 10 trillion yuan ($1.7 trillion) is more than two times bigger than the eye-popping 4 trillion yuan stimulus package launched during the global financial crisis, plans first reported by Reuters a year ago.

"Global economic conditions remain grim, and ensuring economic recovery is the overriding priority," said Wang, the top official steering China's financial and trade policy, at the start of the second day of talks with the Americans.

His comments suggested that Beijing should attend to bolstering China's own growth before it worried about global imbalances. In other words, a strong Chinese economy that brings a continued trade deficit with the United States would be better for the world economy than a slowdown in China itself.

"As major world economies, China and the United States would make a positive contribution to the world through their own steady development," Wang told dozens of trade, investment, energy and agricultural officials from each government seated in a conference hall.

ALARM OVER ECONOMIC RISKS

Policymakers globally have voiced alarm over economic risks, which mainly stem from the euro zone debt crisis.

On Monday, Singapore and Thailand said their economies would shrink in the fourth quarter and Japan posted a bigger than expected fall in October exports. Some central banks, including those in Brazil and Indonesia, have cut interest rates.

On Saturday, Wang gave the most dire assessment on the world economy from a senior Chinese policymaker to date.

"The one thing that we can be certain of, among all the uncertainties, is that the global economic recession caused by the international financial crisis will be chronic," he was quoted as saying by the official Xinhua news agency.

The remarks weighed on Chinese and Hong Kong stocks, while world markets were also weak as investors fretted over the euro zone debt crisis.

China's growth slowed to 9.1 percent in the third quarter from 9.5 percent in the second-quarter and 9.7 percent in the first quarter, but the rate remains in Beijing's comfort zone.

After tightening monetary policy to fight the threat of inflation, the central bank has since loosened its grip on bank credit in a bid to support cash-starved small firms and pledged to fine-tune policy if needed as economic growth slowed down.

"It's clear now that Beijing is ready for policy fine-tuning (to support growth) at a time when the overall domestic and foreign economic situation is not optimistic," said Hua Zhongwei, an economist with Huachuang Securities in Beijing.

ON TRADE, FRICTION AND PROGRESS

U.S. officials said the discussions yielded progress on the question of forced technology transfers to Chinese companies, long a sore point for U.S. businesses.

In particular, China committed not to require foreign automakers to hand their new energy vehicle technology over to Chinese partners, or to establish Chinese brands as a condition for market access, said U.S. Trade Representative Ron Kirk.

"China also confirmed that foreign-invested companies will be eligible on an equal basis for any subsidies or incentive programs for electric vehicles," said Kirk.

Although the JCCT talks do not address exchange rate policies, U.S. officials at the talks warned Wang and his colleagues that they could not ignore rising American impatience with China's trade policies and investment barriers.

U.S. gripes about China's trade-boosting policies spilled into President Barack Obama's meeting with Chinese Premier Wen Jiabao on Saturday in Bali, when Obama raised China's exchange rate policies, which many in Washington say keep the yuan cheap against the dollar in order to help Chinese exports.

However, Zhong Wei, an influential economist at Beijing Normal University, said the benefits to the United States of yuan appreciation "are nearly zero."

"Cheap Chinese goods have been a subsidy for the poor in the U.S., and now the U.S. government wants to eliminate such subsidy while it's having difficulty creating jobs," he said.

At the heart of the trade friction between the two countries is a U.S. trade deficit with China that swelled in 2010 to a record $273.1 billion from about $226.9 billion in 2009.

Bryson told the talks the United States welcomed more expanded trade and investment, on balanced terms.

"But a reality also is that many in the U.S., including the business community and the Congress, are moving toward a more negative view of our trading relationship, and they question whether the JCCT is able to make meaningful progress," said Bryson.

(Additional reporting by Kevin Yao, Zhou Xin and Langi Chiang in BEIJING; Editing by Don Durfee and Neil Fullick)

[Oct 25, 2011]   The Global Economic Outlook "Stalls" by Satyajit Das

October 11, 2011 | PrudentBear

Powered flight requires air to flow smoothly over the wing at a certain speed. Erratic or slow air flow can cause a plane to stall. Most modern aircraft are fitted with a "stick shaker" - a mechanical device that rapidly and noisily vibrates the control yoke or "stick" of an aircraft to warn the pilot of an imminent stall.

The global economy too needs air flow—smooth, steady and strong growth. Unfortunately, the global economy's stick shaker is vibrating violently.

The Global Financial Crisis Was Never Really Over

The proximate cause of recent volatility is the continuation of Europe's debt problems. The deeper cause is the realization that future growth will be low and the lack of policy options.

In 2008, panicked governments and central banks injected massive amounts of money into the economy, in the form of government spending, tax concessions, ultra low interest rates and "non-conventional" monetary strategies—code for printing money. The actions did stave off the Great Depression 2.0 temporarily, converting it into a deep recession—the U.S. economy shrank by 8.9% in 2008.

As individuals and companies reduced debt as banks cut off the supply of credit, governments increased their borrowing propping up demand to keep the game going for a little longer. The actions bought time. But policy makers did not use the time to prepare the global economy for an orderly reduction of debt. There was little attempt to address structural problems, such as persistent trade imbalances between China and the U.S. or within Europe or the role of the U.S. dollar as the global reserve currency.

Governments gambled on a return to growth, solving all the problems. That bet has failed.

Patient Zero

Greece was always going to be Patient Zero in the global sovereign crisis, highlighting deep-seated problems in public finances of developed nations. While the deep economic contraction was a factor, government financial problems were structural. Much of the build-up in government debt had taken place before the crisis as a result of spending financed by increased borrowing.

Like individuals and companies, governments did not always use borrowed money for productive purposes, fuelling consumption and making poor investments. Realizing that many European governments had too much debt that couldn't be repaid, investors pushed up the cost of borrowing and then cut off access to funding.

Instead of treating the situation as a solvency problem and reducing the debt to sustainable levels, stronger countries within the European Union banded together to lend the distressed countries the money they needed. Within a period of about 12 months, Greece, Ireland and Portugal needed bailouts totalling just under euro 400 billion. Many European banks, exposed to these borrowers, also lost access to commercial funding becoming reliant on European Central Bank (ECB) loans. The need to guarantee the weaker countries inevitably increased the liabilities of the stronger countries, weakening them.

Greece, Ireland and Portugal will need debt restructuring. Spain and Italy are now firmly in the sights of markets. The bailout strategy cannot continue without affecting the creditworthiness of France and Germany. In the absence of continuing bailout, the European banking system, including the ECB itself, is vulnerable and will need capital from governments – economic catch 22!

Going Viral

The sovereign debt problem is global. The U.S., Japan and others also owe more than they can repay.

The recent rating downgrade of the U.S. should not distract from the real issue – the quantum of U.S. government debt and the ongoing ability to finance America. U.S. government debt currently totals over $14 trillion.

America has been able to run large budget and balance of payments deficits because it had no problems in finding investors in U.S. Treasury securities because of the special status of the U.S. dollar are a global reserve currency. In recent years, the Federal Reserve itself also purchased around 70% of issues, under its quantitative easing programs. As foreign investors, especially China, become increasingly skeptical about the ability of the U.S. to get its economy in order, the ability of America to finance itself is not assured.

Japan's government debt-to-Gross Domestic Product (GDP) ratio is over 200%. Tax revenues are less than half its outgoings, the remainder must be borrowed. The world's largest saving pool has allowed Japan to manage till now. An aging population and a related slowing in its saving pool will make it increasingly difficult for Japan to finance itself in the future.

China's headline debt to GDP ratio of 17% (around $1 trillion) is misleading. If local governments, its state-controlled banks, state-owned enterprise, and other government-supported debt are included, then debt levels increase to 60% ($3.5 trillion), compared to America's 93% of GDP. Some commentators argue that China's real level of debt is far higher in reality, well above 100%.

At best, governments will cut spending or raise taxes to stabilize government debt as public-sector solvency becomes the priority. Reduction in government spending will slow growth, making the task of regaining control of government finances more difficult. This may require deeper cuts in governments spending and ever higher taxes, miring the developed world in low growth for a protracted period.

At worst, some governments overwhelmed by their debts will default, causing a major disruption in financial markets, perhaps setting off a deep global recession.

Unreal economies

Government actions affected the financial economy far more than the real economy. Low interest rates boosted financial asset prices, while underlying economic activity remained weak.

Having shrunk by over 12% in 2008 and 2009, American output has yet to reattain its 2007 peak. On a per-person basis, inflation-adjusted basis, output stands at virtually the same level as in the second quarter of 2005 – in effect America has stood still for six years. The same is true of many countries.
Given consumption is 60-70% of individual developed economies, unemployment, under employment and lack on income growth will reduce growth.

In the four years since the recession began, the U.S. civilian working-age population has grown by about 3% but the economy has 5% fewer jobs — 6.8 million jobs. The real unemployment rate – people without work, people involuntarily working part time, people not looking for work because there is none to be found – is around 15-20% in the US. Long-term unemployment has left millions of people out of work with poor prospects of finding jobs.

Americans in work are generally working less and, adjusted for inflation, personal income is down, not counting payments from the government like unemployment benefits. American household income has declined since the recession began in December 2007, falling to $49,445 in 2010, a total 6.4% decline.

According to latest figures, the number of American families living in poverty rose 2.6 million to 46.2 million, the largest increase since Census began keeping records 52 years ago. Income falls were particularly large for the less well off.

In 2010, the bottom fifth of households that make $20,000 or less saw their incomes decline 3.8% after inflation. Poor people, minorities were hit hardest. According to the National Women's Law Center, the poverty rate for women climbed to 14.5% in 2010 from 13.9% in 2009, the highest level in 17 years. The extreme poverty rate for women jumped to an all-time high of 6.3% in 2010 from 5.9% in 2009. The poverty levels have reached the highest levels in over 15 years.

The same is true in Europe where the average official unemployment is above 10%. In many countries like Greece, Ireland, Portugal and Spain, unemployment is around 20%, youth unemployment is around 40-50%, as the economies have shrunk by 10-20%. Understandably, consumer spending is weak.

Key sectors, which employ workers, such as housing are frozen. In the U.S., housing starts are running around 400,000 to 600,000 units annually well below the level of the 1960s, down a staggering 70%+ from the peak and 50%+ from more normal levels.

With home prices down 35% from the peak and predicted to fall further, the Americans do not have a wealth buffer in housing equity to fall back on. Low interest rates and indifferent returns from investments mean the ability of retirees to consume is also low. The same is true of many developed economies.

Emerging Problems

After a sharp decline in economic activity in 2008, emerging nations – China, India, Brazil and Russia – recovered through massive domestic investment, aggressive expansion of domestic credit and, in some cases, strong commodity prices. They benefited from the stimulus packages of developed nations, which helped fuel exports. Money fleeing the developed world looking for higher returns and elusive growth provided cheap and easy capital. That cycle is coming to an end.

China provides an example of the problems. Over-investment in infrastructure produced short term growth but many of the projects are not economically viable and will drag down future growth. Many are funded by debt that is already creating bad debts within the banking system, requiring diversion of funds to bail out troubled institutions.

Tepid growth in the U.S. and Europe, its two largest trading partners, will slow Chinese exports. China's foreign exchange reserves, invested in U.S. and European government bonds and denominated in dollars and euros, are increasingly worthless, as they cannot be sold and, if held, will be paid back in sharply devalued currency with lower purchasing power.

Printing money as the U.S. has done, devalues the dollar and creates additional pressure on China. Strong capital flows overwhelm smaller markets creating destabilizing asset price bubbles.

Commodities traded in dollars increase in price, creating inflation. Domestic inflation forces higher interest rates, slowing down the economy. The high proportion of spending on food and energy in emerging countries means a higher proportion of income is needed for essentials, reducing disposable income and creates wage pressures. These factors all choke off growth.

While improving American competitiveness and reducing its outstanding debt, a policy of devaluation of the U.S. dollar may trigger trade and currency wars. There are already accusations of protectionism, currency manipulation and unfair competition. Many emerging markets have already implemented capital controls. These will be strengthened and supplemented by other measures such as trade sanctions. Even the Swiss National Bank recently announced moves to stop the flow of money into Swiss Francs seeking a safe haven, crimping growth and Switzerland's exporter's ability to compete.

Currency intervention may trigger tit-for-tat retaliation, reminiscent of the trade wars of the 1930s and will retard global growth.

Exit Via the Japanese Door

Current concerns, most readily observable in wild gyrations of equity prices, are driven by the identified concerns but also the lack of credible policy options.

The most likely outcome is a protracted period of low, slow growth, analogous to Japan's Ushinawareta Jūnen – the lost decade or two. The best case is a slow decline in living standards and wealth as the excesses of the past are paid for. The risk of instability is very high; a more violent correction and a breakdown in markets like 2008 or worse are possible. Frequent bouts of panic and volatility as the global economy deleverages – reduces debt – are likely. Problems created gradually over more than the last three decades can only be corrected slowly and painfully.

The eerie sound of the stick shaker can sometime be heard on cockpit voice recordings of doomed flights just before they crash. The global economy's control stick is shaking violently. It remains to be seen whether the economic pilots can regain control and land the flight safely or whether it ends in a crash.

[Oct 25, 2011] We Are No Longer In A Long-Term Bull Market, But A Longer-Term Bear Market 

Minyanville.com

On October 4,  the markets were heading into new low ground as the call for a bear market pervaded the air. At 3:15 p.m., the market reversed and had a monstrous move into the close. This was a washout day, wherein the last of the sellers gave up. This action inspired me to write the following paragraph that day:

Getting past that, I am considering today something akin to a near-term washout as the lows were undercut and then got back above. This serves to get rid of many late sellers. I gather questions will again be asked on whether this is the low. I will simply say it is a low…but don’t blink. This is going to remain a ridiculously over-the-top proposition to play as another ugly day turned into a very good day in less than 45 minutes. Bets on tomorrow?

My subsequent reports reported better action, but one must remember, a ton of resistance was ahead. Fast-forward to today, and to be blunt, I am absolutely amazed at how much territory the market has covered in such a short period of time. This action reminds me of 1998 during that crisis. At the time, the market made a vicious double bottom with a high volume washout day in October. The market never looked back. So far, this market has not looked back, but do keep in mind that we are not in the long-term bull any more. We are in a longer-term bear.

I must admit, I thought markets could go higher, but I never thought we would get this. It just goes to show you how vicious the moves are now based on high frequency traders as well as the news-driven environment.

I didn't write last week but if I did, I would have said that markets were stretched, extended and overbought to the upside, and that the market needed to rest. Well, the market got a whopping few days of rest before major indices moved above another level. This leads me to one important point right now: Markets are now getting into the meat of massive resistance. Frankly, for me, I would like to see the market sit for a bit -- and not just for a few days. Sitting lets stocks, sectors, and the market form better patterns from which to move up. V-shaped moves are just too hard to commit to.

A few notes:


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[Oct 24, 2011] High Yield Hedge Capitulation, Risk-Appetite Back, Or Just More Illqiuidity

The idea of LQD-HYG arbitrage can be implemented without shorts in Roth potfolio.
ZeroHedge

We often discuss how credit markets have provided useful insights (and potential pre-emptive indications) with regard to risk appetite and whether ES should rip and today's incredible rally in HYG (the high yield credit bond ETF) is one to be aware (beware) of. The rumble of liquidity-driven hedging being unwound was very loud indeed and as spreads reach significant levels on a medium-term basis and HYG recovers its major drop in price, we wonder if the market is now less prepared to handle any downside shock. HY (and IG) bonds have been rising in terms of advance-decline (sell-side to buy-side) and are above long-run average,

HY relative-value to equities has compressed at the index-comparison level, but HY cash bond liquidity remains light at best and indices have done little except catch up to intrinsics as technicals (flows) leave demand for primary and secondary HY less than stellar despite what you see in HYG or JNK. It may be fun to chase momentum (especially when they offer a decent carry) but we suspect, given below-the-index-level analysis, that risk appetite is just not there and as usual the removal of hedges causing the most pain to the most traders.

Evidence from today's HYG movement relative to HY credit says this was not a concerted risk-on move, but much more likely a mass hedge unwind in what was the HY market's cheapest and most liquid hedge (in anything other than huge size).

When a manager of a large portfolio of high-yielding, carry-generating, upward-curve sliding flotsam and jetsam (HY bonds) fears his entire month's carry is about to up in smoke in the next 15mins, he will reach for a bag of his favorite hedging instrument. The favoritism will be biased to how-well-it-worked-last-time, how-cheap-it-is, and how-liquid-it-is with the latter becoming a higher priority as the sell-off accelerates.

We noted the large slides around mid June 2011, early August 2011, and early October 2011 all of which had similar major underperformances of their peers (beta-adjusted), similar magnitudes but the last two major downdrafts saw a seemingly paradoxical rise in shares outstanding. The orange rectangle shows a rather significant drop in price and yet Shares Outstanding continue to rise. Fund flows have been volatile but more positive than negative which obviously drove some demand for creation units but the absolute inversion of the shares outstanding/redemption relative to the share price movement makes little sense...unless funds were able to approach the ETF managers and have them force-buy in the illiquid cash HY market (or direct from the approacher themselves) as manufactured Creation Units. note: Another example of why ETFs are more complex than most want to know.

HY bonds have indeed been bought, though its tough to find a client, friend, colleague who has been aggressive buyers at the single-name level. HY Advance-Decline just shifted above its medium-term average perhaps suggesting cyclically that buy-side buying is peaking. Risk appetite definitley remains low (which sounds odd on a day such as this) but concessions in HY new issues are still incredibly high - SONOCO 10Y recently same at over $5 cheap to market fair-value in order to encourage buyers/lenders...so why do we see mad scramble buy-buy-buy days in HYG like today when risk appetite is low...the answer is hedge/short-covering (among other things agreed).

That is how HYG managed to outperform SPY by an immense 350bps today (apples-to-apples beta/vol adjusted) see chart below.

The performance of the black line is adjusted based on HYG and its empirical performance characteristics with several credit related assets and in sync with SPY. Typically they will be tick-for-tick - today is massively unusual.

It appears quite clear that the huge HYG-trickle-down-hedges that were put on over the last few weeks/months were rapidly unwound today. How do those hedges play out? (in brief)...

Step 1a, professionals use HYG (as the most liquid at the time) to hedge their long HY bond positions (note that with rates so low and spreads so wide that IR duration hedging is a hugely secondary consideration). They will short-sell the ETF (at a borrow AND carry cost). This will cause a dislocation between the value of the ETF and its NAV and then that will trickle down to the underlying components making up the NAV

[Oct 24, 2011] The Eurobanks’ Latest Scheme to Escape the Pain of Recapitalization Pull More Financial Firms into the TBTF Complex

October 24, 2011 | naked capitalism

Paul Tioxon

One of the solutions to problems for capitalism, is to move the problem around, as not to affect the capitalist. So, the gimmickry and then the lying about the gimmick, is part of the process of denying that there are major structural problems with capitalism. Today, we call it propaganda or public relations. Marx called it false consciousness. What is truly amazing, is that capitalism manages so far to work around its self imposed structural problems and come up with solutions that extend its money making and profit taking for a long enough period, a secular business cycle or two, that we all go back to our day to day lives and and live off the fat of the land and not worry about things too much.

Will it be different this time? Will the cascading crisis from America to Europe and now from Greece to the entire Eurozone and from the Zone to America and then? S America, East Asia? How bad can it get? Even if the world’s politicians come to their senses and start to tax all of the mountains of cash piling up in the form of corporate profits, private capital will just make even greater returns. Even if taxes reach confiscatory levels of 90%, the profit making machine of capitalism will outrun the governments, by absorbing the money spent on the masses in the form of government contracts only they are large enough to handle. There is no way to stop the gimmickry from being instituted short of force. One solution is a gradual reconstruction of a new social order within the one that is functioning now. Capitalism grew up side by side, within feudal kingdoms and bishoprics. There is no reason why a more stable economics can’t grow up side by side with capitalism

mmckinl:

It’s a Ponzi Scheme based on natural resources, especially oil, that is now collapsing. The banksters are suppressing oil demand through austerity to mitigate the effects of peak oil. This will buy them time to unload even more of their bad debt onto tax payers.

When the smoke clears it will be tax payers on the bottom of the pile crushed by a mountain of sovereign debt that will be made good by privatizing the common weal and slashing social programs. The looting is in a final frenzy now that peak oil is here.

Phichibe:

 Yves,

This is an incredibly important post. Thanks for highlighting the development.

The entire CDS market needs to be shut down, liquidity be damned. It didn’t exist before 1990 and we lived just fine w/o it. These hedge funds are unregulated insurance companies. Who knows if they have adequate loss reserves provisioned? If this practice is to continue, and I think it shouldn’t, then CDSs must be brought under the umbrella of national and international insurance regulation and their issuers treated by the same rules as life insurance companies, for example.

I can’t believe we are seeing the “yeah it’s toxic waste, but if it melts down we’ve got it insured, so effectively it’s AAA” game being trotted out to rescue Europe. That’s like getting in trouble with a loan shark and deciding to deal heroin to get the money to pay them off. Come to think of it, we’ve seen that move before: John DeLorean. And think how well that worked out for him.

Rehabber:

The other side of the coin it seems is that this move allows bank to avoid mandatory clearing rules for CDS, thereby saving margin that they would otherwise have to post to a CCP.

Valissa:

Euro crisis solution methodology http://www.independent.ie/multimedia/archive/00963/cartoon_i_963487t.jpg

Meanwhile, at the ECB http://www.cartoonstock.com/newscartoons/cartoonview.asp?catref=bron1904

There’s always the old magic hat trick http://www.forexillo.com/wp-content/uploads/2011/08/Cartoon-Trichet-790759-8th-aug-ecb-intervenes.jpg

Valissa:

Diagrams of neofeudalism, in increasing order of complexity

The basics http://1.bp.blogspot.com/_ZyG_6AwOlh4/S0dfdcQuFeI/AAAAAAAAARY/AFFMButx3V0/s320/Feudal+heirarchy.jpg.png

Extending the metaphor a bit further http://i2.crtcdn1.net/images/asset/906/622/50/f29587_260x195.jpg

A more complex model (my favorite!) http://theintelhub.com/wp-content/uploads/2011/05/neofeudalism.png

Hugh:

There are no fixes only cons.

kievite:

There are no fixes, only cons

That’s true, but the tragedy is that people’s pensions belong to this “con”, or “fictitious capital” (paper claims on wealth in the form of stocks, bonds, interest and rents).

The latter is now in excess of the total available surplus value, plus available loot from third world countries.

[Oct 23, 2011] Fed Watch: On That Double-Dip

Tim Duy:

On That Double-Dip, by Tim Duy: Dean Baker admonishes those concerned about a double-dip:

...The economy looks to be growing in a range of 2-3 percent. This is roughly fast enough to keep even with the growth of the labor force. That implies that we are making zero progress in putting people back to work.

Unfortunately, because many economists misread the economy and raised the specter of a double-dip, this slow growth is likely to be seen as good. It isn't and the double-dippers have done the country a serious disservice by creating a set of incredibly low expectations against which economic performance is now being measured.

As I have previously stated, the economy was clearly not in recession in the third quarter, and therefore near-term data would certainly not be consistent with a recession. Indeed, this has been the case. If you expected the bottom to fall out of the economy in the fall, you have been disappointed.

Moreover, the primary reason to believe in a reasonably high probability of recession had little to do with the US data to begin with. To be sure, the overall low rates of growth in this "recovery" does imply that downward negative shocks will push us more easily into recession, and this suggests we may face an increase in recession scares in the years ahead. That said, the first half slowdown is really only a supporting character in the recession story. The lead character was and remains the European situation.

And despite the seemingly endless optimism on Wall Street that Europe will come to an agreement that forestalls a deeper crisis, the reality appears to be very different. My interpretation is the press reports suggest complete and total disarray among European government, as 17 economies all with different objective functions struggle to define the meaning of "Union." This is not stuff for the feint of heart. The differing objective functions and the subsequent need to make all parties happy by itself suggests that at best only a partial solution is at hand, and we are way beyond partial solutions. Moreover, beyond governmental agreement comes the issues of force feeding capital to the banks and the willingness of Greece's bondholders to accept a significantly higher haircut without creating a credit event. I kind of hate to be a pessimist, but good luck putting all that in place by next Wednesday.

Meanwhile, as Edward Harrison points out, while Wall Street may be buying what the EU is selling, European financiers see the writing on the wall. Italian yields are nearing 6%, effectively unwinding the efforts of the ECB to contain the crisis with their earlier bond-buying campaign. Moreover, yield spreads throughout Europe are blowing out. Calculated Risk was always found of saying "we are all subprime now." Well, increasingly it looks like all of the Eurozone is the periphery.

Finally, over at The Street Light, Kash reports Greece is most likely on their last austerity package:

Greece will continue to miss the deficit targets set by the troika. The ECB can continue to demand that Greece raise taxes and cut spending by even more, but further austerity-punishment will not help. At some point very soon Germany is going to have to make a simple decision: does it, for its own self-interest, come up with the money needed to fix this crisis, irrespective of what's happening in Greece; or does it say no, and elevate the crisis by an order of magnitude. I wish I had confidence in the answer.

Does this get better before it gets worse? History says no. Back to Edward Harrison:

It seems to me that we risk a true Armageddon scenario here from dithering.

A major credit event in Europe looks inevitable. Would a European meltdown endanger the US recovery? We are looking at two channels, trade and financial. I tend to discount the trade channel. As a general rule, I think the propagation of such shocks is too weak to alter the fundamental cyclical forces underlying the US economy. The potential for financial shocks, however, keeps me up at night - this is the key to the US recession story. There is a nontrivial chance that credit event in Europe triggers a credit event in the US. This following quote from Bloomberg only increases my unease:

“We have looked very carefully at bank exposures both to foreign sovereigns and to foreign banks,” Bernanke said. “The exposures of U.S. banks to the most troubled sovereigns --Portugal, Ireland and Greece -- is quite minimal. So the direct exposures there are not large.”

That sounds just a little too much like there is no housing bubble and the subprime crisis is "contained." When it comes to how financial events resonate throughout the US economy, it seems best to bet against Federal Reserve Chairman Ben Bernanke.

Because of the uncertainties surrounding the European crisis and whether or not it induces a regime change in the US economy, forecasters lack conviction about the recession calls, with most circling around 50-50. At the same time, however, I don't see that the competing forecast could in anyway be called optimistic. Optimistic relative to recession, but the baseline forecast remains that of an economy still struggling along in the 2-3% range - a range no one thinks is acceptable given the current high levels of unemployment.

Finally, the forecasts of a double-dip did not do a disservice by changing expectations, as Baker suggests. In fact, I think clearly the opposite occurred. The concerns about the double-dip prodded the Federal Reserve to step up their stimulus efforts, with possibly more on the way. Ultimately, the Federal Reserve was pushed to go where it should have been in the first place.

P.S. I think that we are sufficiently past the last recession that the next recession stands on its own. The term "double-dip" is not really accurate.

[Oct 19, 2011] slow-and-steady-can-win-investment-race-2011-10-14

MarketWatch

One of the bedrock investment principles we’ve been taught all our lives is wrong.

It turns out that you don’t need to incur high risk in order to keep pace with the market.

In fact, you can do just fine by investing the bulk of your equity-oriented portfolio in cash—and sleep like a baby during volatile periods like we’ve seen in recent months.

Consider the investment advisers the Hulbert Financial Digest has been tracking since 1980. One of them is ahead of the Dow Jones Industrial Average over this period even though he has spent the last 25 years mostly in cash.

Click to Play How one bear uses cash to stay ahead of the market Newsletter editor Charles Allmon has been bearish and mostly in cash since the 1980s, and proves that you don't have to take huge risks to realize gains from the stock market. The adviser in question is Charles Allmon, whose advisory service is called Growth Stock Outlook. His story is remarkable, and I wouldn’t myself have believed his performance had my Hulbert Financial Digest (HFD) not independently audited his returns over the decades.

It was in 1986 that Allmon concluded that the stock market had become dangerously overvalued, and that’s when he decided to move the bulk of his portfolio to cash.

That’s the way his portfolio has remained ever since, with only one or two exceptions. Currently the portfolio is 76% in cash, and owns just 4 stocks: Altria Group /quotes/zigman/294903/quotes/nls/mo MO -0.20% , Bristol-Myers Squibb /quotes/zigman/220498/quotes/nls/bmy BMY +0.11% , Newmont Mining /quotes/zigman/235723/quotes/nls/nem NEM -4.24% , and Philip Morris International /quotes/zigman/499558/quotes/nls/pm PM +0.49% . He has held each of these four stocks for an average of more than 7 years.

Had we known in 1986 that Allmon would stubbornly persist in this high-cash position for the next 26 years, and that those years would contain one of the most powerful bull markets in U.S. history, we would have confidently predicted that we would never in the future utter Allmon’s name and “beating the market” in the same sentence.

Allmon has proved us wrong.

Consider: The Dow was below 900 when the HFD began tracking Allmon’s model portfolio in mid-1980. As of the end of this past September, more than 31 years later, the Dow stood at just under the 11,000 level, equivalent to a cumulative gain of 1,157%—or 8.4% on an annualized basis. Allmon’s model portfolio over the same period, in contrast, gained 1,226%—8.6% on an annualized basis.

To be sure, this is not entirely an apples-to-apples comparison, since I didn’t include dividends in the Dow’s calculations. Still, given Allmon’s uber-conservative strategy, it’s remarkable that he’s even ahead of the price-only Dow.

What accounts for Allmon’s performance?

Superior stock selection was one reason. The average stock he has recommended over the years proceeded to outperform the stock market during the time it was held in his model portfolio.

Another big factor: The stock market’s relentless tendency to regress towards its long-term mean. Allmon was well behind a buy-and-hold at the height of the market in early 2000, right before the Internet bubble burst. The same was true at the bull market high in October 2007. But in both cases the market dropped back to below Allmon’s performance.

And the same thing happened again in recent months as the market plunged.

A related factor is the power of compounding. His returns in any given year have never been at the top of the rankings. But he hasn’t lost money, either. As a result, his strategy continues to propel his portfolio’s worth ever higher, while the market gyrates wildly above and below.

The investment lesson to draw is, I think, quite profound: You don’t need to incur lots of risk in order to perform quite decently. Of course, you may nevertheless choose to be more aggressive in your portfolio, but you can’t rationalize that on the grounds that it is necessary to keep pace with the market.

Peter K.:

I think Baker sort of has a point. Some people are relieved we didn't go into a double dip and kind of define expectations down and settle for less. Others don't as Duy argues, but I think Baker is addressing the media at large. Baker is also right about trying to be right and accurate about the data no matter the politics and policy implications of the moment.

Having said that, I think the Fed should be worried about Europe and act strongly in the coming meetings so that the U.S. economy is less vulnerable to a shock. Since the near miss in 2008-2009 Bernanke seems to be content to merely avoid a deflationary spiral, given all the attention the Fed has drawn to itself with its unorthodox policies.

Evans and Rosengren and like-minded memebers of the FOMC can make the additional argument that the economy needs to grow more quickly so as to be less vulnerable to shocks like mishandling of a Greece exit of the Euro.

I just saw the movie "Margin Call" - great flick. It's about a fictional firm like Lehman Brothers and dramatized what happened during the Wile E. Coyote moment in Sept. 2008. I believe after staring into the Abyss the authorities won't allow Greece to be another Lehman. They did AIG a day after they saw the panic Lehman caused. But who knows?

[Oct 19, 2011] Goldman Loss Offers a Bad Omen for Wall Street 

It might be just accounting trick...
NYTimes.com

Lauteur Calme, Paris October 18th, 2011 9:24 pm

As a distant observer, it seems that the deliberate and catastrophic mispricing of risks in mortgage backed securities sold by Wall St. throughout the world, is one of the most egregious, crafty, successful and fraudulent schemes ever played on investors!

As incompetent U.S. politicians (i.e., Paulson, Bush, Cheney, Levin, Shelby, Dodd, Bernake, Geithner, Clinton, Ruben, Greenspan) did nothing to prevent it, their Wall St. cronies & lobbyists laughed their way to the bank by betting against the same structured products in which they sold throughout the world.

Perhaps, the central question is how could politicians and bankers rape and pillage the financial system of a country for so long through deception and fraud without being accountable? (i.e., think 401k, real estate, giving millions of tax payer $ to countries(Israel, Egypt, Pakistan, Jordan, Kenya, Mexico, South Africa, Nigeria), bailing out N.Y.C. in the 70's, Paulson using tax payer $ for what in essence was a coup d'etat of the U.S. Treasury, etc...)

Wow, isn't capitalism great in the U.S.?

As a Chinese economist recently stated, where ever there is wealth in the world, Wall St. will find a way to steal it while politicians do nothing to prevent it...

The stench of the financial crisis created by Wall St. and allowed by U.S. politicians permeates from Shangai to Dubai...!

Steven Feinstein, Massachusetts October 18th, 2011 9:25 pm

Maybe they should invest in more domestic manufacturing and help the country actually start making things of value, employing people and solving some actual problems instead of engaging in legalized gambling with our mortgages. How about that? When I read that they are going back to low risk boring business models, I cheer. What's wrong with that? They need to be making a king's ransom every five minutes? I have no sympathy for these megabanks.

Mark Hugh Miller, Los Angeles October 19th, 2011 6:53 am

How many jobs did Goldman Sachs create in the last four quarters? In the last 16? The only jobs GS cares about are its own, and those of its protectors, enablers, and Capitol Hill toadies. Readers here correctly note that these "investment banks" are at bottom funny money games for a private club of gamblers; their social value is highly debatable, and less evident as time passes. They skim commissions, but don't create wealth. "Too big to fail" is a self-serving myth. The USA could survive without these parasitical casinos.

Ike Solem,  CA October 19th, 2011 7:05 am

I'm surprised there's no mention here of the massive $12.9 billion in taxpayer money that Goldman Sachs collected as a result of their counterparty agreement with AIG. The money came out of a $185 billion taxpayer bailout of the insurance giant, money that will never be repaid to the taxpayer. It was one of the biggest giveaways of taxpayer dollars to private corporations in U.S. history, yet goes mostly unremarked today. Goldman Sachs was at the very top of the recipient list:

Goldman Sachs - $12.9B - US Société Générale - $11.9B - France Deutsche Bank - $11.8B - Germany Barclays - $8.5B - UK Merrill Lynch - $6.8B - US Bank of America $5.2B - US UBS - $5B - Switzerland HSBC Bank - $3.5B - UK Citigroup - $2.3B - US (etc.)

Will they go to Tim Geithner, their ex-employer, for another bailout? Or will that have to wait until after the Presidential (s)election?

aphollywood Los Angeles October 19th, 2011 7:12 am

I'm not sure I believe Goldman lost money. It may say so on the books, but I'm more inclined to think it's a stunt, accounting sleight of hand. Creates the possibility for sympathy: poor Goldman, struggling. I don't believe it, nor do I believe it will last. The octopus is just squirting ink into the waters to obscure the truth. Once the public's perception of the truth is obscured again, and focused on other things, the huge profits will roll out again.

So While Every Bank Is Defending PrimeX, Here Is What Fannie Mae Really Thinks

ZeroHedge

forecast:

juwes

I apologize in advance for the length of this, but it's not really available for me to link to.

Bakunin predicted all of this, Wal-Mart, Wall Street, 240 years ago.

Read on:

Let us even suppose, as it is being maintained by the bourgeois economists and with them all the lawyers, all the worshippers and believers in the juridical right, all the priests of the civil and criminal code - let us suppose that this economic relationship between the exploiter and the exploited is altogether legitimate, that it is the inevitable consequence, the product of an eternal, indestructible social law, yet still it will always be true that exploitation precludes brotherhood and equality. It goes without saying that it precludes economic equality. Suppose I am your worker and you are my employer. If I offer my labor at the lowest price, if I consent to have you live off my labor, it is certainly not because of devotion or brotherly love for you. And no bourgeois economist would dare to say that it was, however idyllic and naive their reasoning becomes when they begin to speak about reciprocal affections and mutual relations which should exist between employers and employees. No, I do it because my family and I would starve to death if I did not work for an employer. Thus I am forced to sell you my labor at the lowest possible price, and I am forced to do it by the threat of hunger.

But - the economists tell us - the property owners, the capitalists, the employers, are likewise forced to seek out and purchase the labor of the proletariat. Yes, it is true, they are forced to do it, but not in the same measure. Had there been equality between those who offer their labor and those who purchase it, between the necessity of selling one's labor and the necessity of buying it, the slavery and misery of the proletariat would not exist. But then there would be neither capitalists, nor property owners, nor the proletariat, nor rich, nor poor: there would only be workers. It is precisely because such equality does not exist that we have and are bound to have exploiters.

This equality does not exist because in modern society where wealth is produced by the intervention of capital paying wages to labor, the growth of the population outstrips the growth of production, which results in the supply of labor necessarily surpassing the demand and leading to a relative sinking of the level of wages. Production thus constituted, monopolized, exploited by bourgeois capital, is pushed on the one hand by the mutual competition of the capitalists to concentrate evermore in the hands of an ever diminishing number of powerful capitalists, or in the hands of joint-stock companies which, owing to the merging of their capital, are more powerful than the biggest isolated capitalists. (And the small and medium-sized capitalists, not being able to produce at the same price as the big capitalists, naturally succumb in the deadly struggle.) On the other hand, all enterprises are forced by the same competition to sell their products at the lowest possible price. It [capitalist monopoly] can attain this two-fold result only by forcing out an ever-growing number of small or medium-sized capitalists, speculators, merchants, or industrialists, from the world of exploiters into the world of the exploited proletariat, and at the same time squeezing out ever greater savings from the wages of the same proletariat.

On the other hand, the mass of the proletariat, growing as a result of the general increase of the population - which, as we know, not even poverty can stop effectively - and through the increasing proletarianization of the petty-bourgeoisie, ex-owners, capitalists, merchants, and industrialists - growing, as I have said, at a much more rapid rate than the productive capacities of an economy that is exploited by bourgeois capital - this growing mass of the proletariat is placed in a condition wherein the workers are forced into disastrous competition against one another.

For since they possess no other means of existence but their own manual labor, they are driven, by the fear of seeing themselves replaced by others, to sell it at the lowest price. This tendency of the workers, or rather the necessity to which they are condemned by their own poverty, combined with the tendency of the employers to sell the products of their workers, and consequently buy their labor, at the lowest price, constantly reproduces and consolidates the poverty of the proletariat.

Since he finds himself in a state of poverty, the worker is compelled to sell his labor for almost nothing, and because he sells that product for almost nothing, he sinks into ever greater poverty.

The Data That the Economy is Not So Hot is Getting Harder to Ignore

naked capitalism

bluntobj:

Two Quotes from the above replies that are significant:

1. “Granted, our government has wasted a lot of money. But to say that means government can’t use money to create jobs is akin to saying that because our banks got overleveraged and deep in risky debt that blew up the last few years that they can’t be used for responsible lending.”

2. “We need to phase out the Federal Reserve, and issue money as a utilitarian means of exchange straight from the Treasury. Government paper, Greenbacks, backed by the full faith and credit of the United States — not by Bernanke and Geithner.

Then government spending will do some lasting good.”

1. I would disagree with you. TBTF banks exist for the benefit of their shareholders; mostly the 1% and elites, not “responsible” lending. Without that pre-fail in place, what would be considered “responsible?” Is there anywhere in the history of lending that it did not result in economic devastation, war, and magnification of power for the elites?

2. Paper is Paper. Any currency will last as a medium of exchange as long as it benefits the elite. When it no longer is a benefit, it will be jettisoned in favor of another that serves the elite. The 99% will get shafted, because the currency transitions are merely another vehicle of wealth transfer. Multiple competitive currencies are the individual citizen’s only hope; any monolithic currency system is doomed to capture and harvest by the elite.

Hugh:

What is so amazing is that the con has gone on as long as it has. For most Americans, the recovery never happened, the recession never went away.

We use all these numbers, stock and bond market prices, GDP, jobs numbers as stand ins both for how the economy and ordinary Americans are doing, but they are at best limited indicators and often they are deceptive. Stock markets have become untethered from the Main Street economic activity they are supposed to represent. The unemployment rate at 9% isn’t good but the real un- and under employment situation is twice as bad. It’s not a problem affecting 14 million but one of more than 30 million. You can see how far off the policy response has been when you consider that most policymakers would consider an unemployment rate in the 7%-7 1/2% range as good enough. That is they see this as mostly a 2-3 million jobs deficit, not that they are really doing anything serious to cover it, but even that is only a tenth or less of the real problem.

Then add in that Europe is falling apart, and China is looking at both the effects of the bubbles it’s been blowing domestically and the likelihood of an international downturn for its exports.

Finally, add in the reality of kleptocracy, that looting elites are running the world’s economic and political systems, that they have no interest in fixing any of these problems, that they will push things to a crash and then attempt to use their power and influence to loot the crash. I think that if people, the 99% everywhere, really began to understand the enormity of what is happening, the lies that have been told to them, the crimes that have been committed against them, protests like OWS would not be measured in hundreds or a few thousands but in the millions and tens of millions in our country alone.

NOTaREALmerican:

Luckily for the top 1% – and the top 10% supporting the top 1% – the bottom 90% never figures things out.

They usually turn on each other when things get bad, and the top 10% is a nice buffer for the top 1% too.

Continued



Etc

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Groupthink : Two Party System as Polyarchy : Corruption of Regulators : Bureaucracies : Understanding Micromanagers and Control Freaks : Toxic Managers :   Harvard Mafia : Diplomatic Communication : Surviving a Bad Performance Review : Insufficient Retirement Funds as Immanent Problem of Neoliberal Regime : PseudoScience : Who Rules America : Neoliberalism  : The Iron Law of Oligarchy : Libertarian Philosophy

Quotes

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Vol 25, No.12 (December, 2013) Rational Fools vs. Efficient Crooks The efficient markets hypothesis : Political Skeptic Bulletin, 2013 : Unemployment Bulletin, 2010 :  Vol 23, No.10 (October, 2011) An observation about corporate security departments : Slightly Skeptical Euromaydan Chronicles, June 2014 : Greenspan legacy bulletin, 2008 : Vol 25, No.10 (October, 2013) Cryptolocker Trojan (Win32/Crilock.A) : Vol 25, No.08 (August, 2013) Cloud providers as intelligence collection hubs : Financial Humor Bulletin, 2010 : Inequality Bulletin, 2009 : Financial Humor Bulletin, 2008 : Copyleft Problems Bulletin, 2004 : Financial Humor Bulletin, 2011 : Energy Bulletin, 2010 : Malware Protection Bulletin, 2010 : Vol 26, No.1 (January, 2013) Object-Oriented Cult : Political Skeptic Bulletin, 2011 : Vol 23, No.11 (November, 2011) Softpanorama classification of sysadmin horror stories : Vol 25, No.05 (May, 2013) Corporate bullshit as a communication method  : Vol 25, No.06 (June, 2013) A Note on the Relationship of Brooks Law and Conway Law

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Fifty glorious years (1950-2000): the triumph of the US computer engineering : Donald Knuth : TAoCP and its Influence of Computer Science : Richard Stallman : Linus Torvalds  : Larry Wall  : John K. Ousterhout : CTSS : Multix OS Unix History : Unix shell history : VI editor : History of pipes concept : Solaris : MS DOSProgramming Languages History : PL/1 : Simula 67 : C : History of GCC developmentScripting Languages : Perl history   : OS History : Mail : DNS : SSH : CPU Instruction Sets : SPARC systems 1987-2006 : Norton Commander : Norton Utilities : Norton Ghost : Frontpage history : Malware Defense History : GNU Screen : OSS early history

Classic books:

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The Last but not Least


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