Archive for December, 2008

Today’s Wall Street Journal cites the anticipation of looming “mortgage cram-downs”, as a result of the failure of government’s steps to cease the increase in foreclosures.

The article notes that there are 7.5 million homes underwater currently and that foreclosures are expected to exceed 8.1 million over the next four years!!!! It also notes that Congress was hoping to help 400,000 homeowners through its latest program, “Hope for Homeowners”, but only 357 have applied for the program to date.

Sounds like one of the pillars we discussed yesterday on this blog is still not being secured!!! Unless action is taken, we will see the Red Plague sweep the homeowners and consumers downriver, like the banks and Wall Street firms were washed away this past year.

Unfortunately, the free market and refinancing will not solve the liquidity crunch paralyzing the homeowner/consumer pillar and the small business pillar.

Some insight and real hope are desperately needed. And fast!

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Check out this “Layoff Tracker”. Unfortunately, in only includes the largest companies, and excludes the source of most of the unemployment and underemployment.

Now that the government has bailed out Wall Street, the Banks, the insurance companies, the auto makers, and countless others, the real question is “Is it enough?” What needs to be done to get our economy back on track? Are we on the verge of being “back on track”?

The latest Forbes magazine refers to the “Depression on the Fourth Quarter” and is cautiously optimistic about improvements possibly already underway. They refer to their Chirps Index and are hopeful.

See http://www.forbes.com/forbes/2009/0112/037.html

The index referred to above is a great index. Its optimism is refreshing and encouraging. We all hope that things get better from here.

After all the government assistance and economic support, there are two pillars of our economy which are still faltering. One pillar is comprised of the over-leveraged homeowners and consumers who have no option to refi their mortgages at today’s attractive rates due to excessive declines in the values of their homes or in their credit scores.

The other pillar that has seen no support from political or economic leadership is the small business owners. Millions of small businesses were decimated in the Mini Depression of the 4th Q, due to revenue fall offs of 10-90% and the drawing down or elimination of available credit by those “saved” by Uncle Sam. Many of these millions of small businesses, employing between 1 and 10 employees are on the verge of closing their doors, filing personal and corporate bankruptcy and becoming wards of the economic state. As the US economy and its economic growth over the past 20 years has been powered by our small businesses, their mass genocide due to the economic environment will be costly and painful.

There is an estimated $2 trillion of potential defaults and write-offs that could result from further deterioration of the remaining two pillars.

Hopefully, new leadership in DC will force the hand of the beneficiaries of the government’s handouts and cheap money to assist (1) the homeowners and consumers and (2)the small businesses of America.

If these two pillars falter then the “Chirps” the new index is hearing are just echoes of chirps from the past.

On December 15, 2008, Peter Zeihan wrote “Falling Fortunes, Rising Hopes and the Price of Oil”. See it at:

Stratfor is the world’s leading online publisher of geopolitical intelligence. Thus, it is an amazing source of real news and analysis.

Mr. Zeihan’s article begins: Oil prices have now dipped — albeit only briefly — below US$40 a barrel, a precipitous plunge from their highs of more than US$147 a barrel in July. Just as high oil prices reworked the international economic order, low oil prices are now doing the same. Such a sudden onset of low prices impacts the international system just as severely as recent record highs.” Please see it at the link for the full article.

My thoughts:
I would emphasize the tremendous risk economically, politically, and globally that severe volatility (both on the upside and downside, of valuations for energy, currency, food, labor and more) can and will present to the US and all global economies and cultures.

Though economically, the US will benefit from significantly lower energy costs and many, many other commodities which have inflated over recent years due to the the rising energy costs and the great speculation/investing in “hard assets”, the risks to our way of life and our economic vitality are potentially greater.

The article describes the potential impact on governments and regimes, and the possible instability that will likely ensue, given human nature. Interestingly, I have been pounding the table with my equity investor clients on the reasons to purchase stocks in defense oriented companies, due to these very reasons. This article, plus the recently announced government spending plan, fully supports the strength of the sector and the essential need for continued development, irregardless of our incoming government’s timetable for Iraq.

Interestingly, our financial leaders are extremely concerned about the potential for spiraling deflation. They have defined deflation as the deferral of purchases in anticipation of lower prices. From my vantage point, the deflation that we are currently experiencing is more of the reversal and undoing of inflation of past years. Additionally, in the economic studies I have read recently, the decline in current consumer spending has not been due to “waiting for lower prices” but due to the lack of money to buy goods and services within neighborhoods and communities throughout our country and in many places in our interconnected world. The volatility economically and emotionally of having significant access to money (through savings or credit) to having little or no discretionary spending capability should be an area of focus for our national and global leadership.

In this holy season, as well as this season of new beginnings, we all must be optimistic about tomorrow and at the same time pray for political, economic and social stability locally, nationally, and globally .

All the best for the New Year!

The following was written by a friend. I thought it unfortunately appropriate for this holiday…………

Christmas eve… All the presents are wrapped and hidden from the kids. All, meaning one for each kid. For me, I hope I do not get anything. Not that I do not want anything, but because I know the money would be better spent on food or gas or books for the kids over the next week or two.

This is the first Christmas without money, without credit, without cash…. It feels horrible. I know we are not alone. That helps a bit, but still…. It is Christmas, a time for gifts and joy.

Holiday sales are a great opportunity to buy some gifts, but only if I had spare money. The money I have I need for food and necessities, not toys and games and things to throw away. As I look through our local paper this morning, I see many advertisements for 50% to 75% off. So what…. Even if it were 90% off, I would not buy do to the reasons noted above. Yeh, they can give it to me for free, but I am not a charity case, just someone impacted by the economic collapse of 2008 and the credit crunch.

I am sure tomorrow will be filled with joy and Love. The kids will really appreciate the few gifts they receive. Maybe even more than in past years, as they now understand how tight the money is.

We do have much to be thankful for, and that is really what we will focus on… Fortunately, good health, smart and good kids, a regular paycheck (though it is way too small), and health insurance…. plus much more, I am sure.

It has been a very different holiday season, and tomorrow will be a very different Christmas. It is all part of life. Struggles, success, failure, agony, money, no money, abundance and famine, etc… I am hopeful for the future, not necessarily tomorrow, but maybe the proverbial “day after tomorrow”. We can only be hopeful, and also thankful…..

God bless.

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2007 and the first half of 2008 were marked by hyper inflation, on a global scale.  Is this all but forgotten?  There were fears the world would run out of oil and gas and market prices reflected those fears.  All the corn in the world was being consumed by the soda makers and the ethanol refineries, leaving no corn left for food.  Because of the corn prices skyrocketing, the price per pound of beef, pork and fish bounded higher.  The global effects caused rice prices in Asia to move higher by 150% and the prices of bread in South Africa rose to beyond the reach of the typical laborers.

About the same time, the fear that there was not enough copper, steel, cement and investment bankers forced pricing on a global scale higher and higher.  The US dollar was devaluing because the US did not produce anything that was to be needed by a commodity hungary world, but for our corn and ethanol, and investment bankers.

How the world has changed in less than 6 months!!!!!!!!!!!!! Pricing on all commodities, except gold, has crumbled.  Oil is trading at less than 30% of it’s July pricing.  Prices of copper, steal, wood, cardboard, and other commodities have stumbled.  Mergers are being called off.  Capital expansion plans cut.  Factories closed and layoffs announced, daily.

The global movement of capital, the life blood of economic vitality, has ceased.  All  that follows the flow of capital has ceased as well.  Demand for goods, not only in the US but around the globe, is off by 20+%, forcing prices down further.

All that capital is looking for homes and has found it in the US Treasuries, for the time being.  Thus, the yields on Treasuries has crashed to unheard of lows.

We went from the cycle of fear regarding inflation to the publicized fear of deflation.  The Fed is afraid.  The media is afraid.  The world has become afraid, and PE Obama and his team are afraid.

The fear is that consumers will defer purchases, as they await further reductions in pricing.  This has been documented today as “already occurring” per the Wall Street Journal.  The percentage of ordinary folks who state they are done holiday shopping is down from last year.  People claim they have been waiting for more sales and lower pricing.

I can tell you what people have been waiting for.  It is the same reason US (and foreign) car sales have plummeted since September.  It is the same reason people are eating out less.  It is the same reason that the wealthy are drinking only one expensive bottle of wine at dinner, rather than three!

People do not want to spend money.  They are deferring spending out of fear, not waiting for lower prices.  People are waiting for money before they spend (a) what they do not have, (b) what they have lost in the markets, or (c) what they have lost to theft, fraud or incompetence of the Treasury, Wall Street, Madoff, Peterson, the Greenwich Hedge Funds, or Dubai real estate.

People are not waiting for lower prices!!! They are waiting for money!!! They are waiting for credit! They are waiting for some positive economic news! News that indicates the worst is behind us.  News that the markets will get better.  News that the ranks of the unemployed will go down, that compensation will go up, that layoff are a thing of the past.

We are seeing in pockets of real estate markets, no matter how low the price goes, inventory is not clearing.  Condos that in Naples, Florida, for example, once sold at $350,000, went to market at $250,000, were reduced to $150,000 and the owner would gladly sell it at $100,000 to relocate to see her grandchildren.  That’s not happening though.  No takers.  There are six other units in the same building with similar stories, and other stories like it from Miami, to NY, to LA and Michigan and everywhere in between.

People do not want to spend.  Many people can not spend.  Many must wait to spend.  It is not a question of pricing, they are not looking to get more for less, they are looking to buy something only when absolutely needed, and when they have the excess $ to purchase.  Otherwise they will go without………………

The Road Will Be Long, With Many (a) Winding Turn(s)………..

The Red Plague spreads further.  The virus embeds and morphs…………………

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If the world is literally flooded with dollars, why is it near impossible to refinance a home or refinance and restructure outstanding consumer credit?

Merrill Lynch is offering a Libor based adjustable rate mortgage for up to $2,000,000 for the current rate of 2.375% with NO POINTS!!!! How many are applying? Very few.

Why? Loan to Value requirements have dropped by on average 20% while appraised home values have tumbled as well. Additionally, if the home is located in a state where the values are declining, then the penalty box of “declining market” is applied and the LTV limits are reduced further.

Credit card companies continue to reduce available credit. Analysts expect that the US will see credit line reductions of $2 trillion dollars in 2009. They also expect credit card rates to continue to sky rocket rather than decline in parallel with the Libor, prime and the Fed funds rate.

Hence, headlines may be deceptive.

With the further expected declines in employment levels and compensation, as well as further tightening of credit and increases in cost of consumer credit, there likely is significantly more pain to come for the consumer-class and homeowner-class ignored to this point buy the bailout plans and liquidity programs of the wealthy rulers in DC and their Wall Street financiers.

Happy Holidays!!!

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With the skyrocketing unemployment, there are many out there espousing the need for the government to provide tax credit to employers, encouraging employment….

Unemployment is only part of the issue. Underemployment is the full issue. As part and parcel to the Red Plague of losses, credit freezes, staffing cuts and cost reductions, compensation levels at all levels of the employment chain are falling for 70% of the populace. Over time is being cut, bonuses eliminated and spending allowances and benefits slashed.

Many of those who have not lost jobs, do not fear unemployment. They instead fear significant reductions in their incomes.

Thus, supporting staffing levels and compensation levels, as well as spending levels, are all needed in the grand scheme of supporting consumerism and halting the spread of the Red Plague.

New release this morning that the real unemployment, including actual unemployed, those off unemployment due to duration of being out of work and those taking part time jobs because full time is not available, has reached a post depression high of 12.5%!!!!!

Who told you this first in my earlier blogs???????????

Interestingly, my read of these new numbers leaves out another 5% or more. Thus I am now estimating that the current unemployment numbers (based on compensation being earned) is closer to 17.5%. This includes those folks employed, but facing significant cuts in compensation due to commissioned sales, compensation based on productivity and volume, etc.

Share your news and thoughts………………….

With credit lines continuing to be cut, banks not negotiating outstanding loans, and new loans only being extended to those who do not need the money, there is but ONE QUESTION: WHERE IS THE MONEY?

How can $340 billion have not have any impact? How can Paulson and Congress let the greed of the banks and institutions destroy whatever remaining confidence Americans had in the government?

As Dr. Michael Savage has said, the US has just witnessed the greatest legal theft of $340 billion in the history of the world. The only beneficiaries have been the creditors, shareholders and CEOs of those institutions receiving the $. Please show me examples of the Americans and Main Street who have benefited!!!!!!!!!!!!

Paulson, Bernacke, Bush and our favorites Pelosi, Reid, and VP Cheney are all to be blamed. The should be held accountable for the fraud they have perpetuated on the American Taxpayers. We have been duped.

Those without jobs, those who have lost and will lose their jobs and credit, will pay. Pelosi, Reid, Cheney, Bush, Bernacke and Paulson can continue to dance all day until the sun sets and beyond, while we all suffer from the Red Plague they have contributed in spreading!!!!!!!!!!!!!!!

Tell me your thoughts…………

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Yesterday’s Wall Street Journal reported that the number of miles driven in America had fallen by 8.9 billion miles or 3.5% in October 2008 versus October 2007.  The Department of Transportation reported that this was the largest decline for the month of October since 1971.  They noted that this decline came despite the fact that gas prices have declined from above $4 per gallon to less than $2 over the past 4 months.

The Federal Tramsportation Secretary, Ms. Mary Peters, was quoted as follows:  “The fact that the trend persists even as gas prices are dropping confrims that American’s traveling habits are fundamentally changing.”

What??????????? Since when do a few months when the world is in a state of economic and social chaos make a “trend”?  What about other factors besides “Americans’ Passion to Drive”?

Does Ms. Peters know and understand that unemployment levels across the country are tremendously elevated?  Has she read or heard anywhere that many hundreds of thousands and more are threateden with job loss?  Has she been informed by her brilliant staff that the volume of new car purchased have crashed?  That the equivalent of more than 2 million cars are being retired off of the American roads?

Has she heard the pundits and “talking morons” saying “The American People have voted.  And, they have voted they do not want GM, Ford and Chrysler vehicles?”

Has she thought about the connection between consumer credit and vehicle usage, whether for personal enjoyment purposes, business travel, or shopping?  With available credit lines being reduced cumulatively by hundreds of billions of dollars and interest rates on cards rising to up to 35% per year, might these things have an impact on driving patterns?

Would one (with any clue) conclude that with all these changes going on in the economic and cultural climate, that the use of one’s car and the miles driven may be impacted?  Would one consider these changes permanent (which in my mind is defined as “set forever”)?

I think not.  But then again, I am not in DC and nor am I a “leader”.

Maybe President-Elect Obama will select his DC Leaders based on intellect, ability, reading comprehension, and their understanding of the area they are to oversee?  Would that be asking too much?  Might that have a positive influence on the future of America?

May God help us!

Unemployment Claims Higher than Expected by 50,000.  The details behind the numbers…..

The figures that get published are the “weekly initial jobless claims”.  This figure represents the number of new people who have filed for unemployment benefits in the last week.

Now that you know what the number represents, would you believe that the figure this past week was 573,000!!!!!  Last week’s number was 515,000.  So simple math shows that 1.1 million people have become unemployed in the last 2 weeks alone!!!!

The number of people continuing to get unemployment benefits, excluding the 573,000 new people, was 4.4 million people.  Keep in mind that people become ineligible to collect benefits after being jobless for a period of time.  Thus there are many more jobless out there, it is just that they can not get benefits……..

There are also countless millions who have jobs and are not unemployed, but whose incomes are down 10-80% from last year due to how their compensation is calculated and whether they are commission or volume based, or paid based on profits, etc.

With the ranks of the unemployed growing by 1 million people every two weeks, it will not take long for many, many to be out of work.

Will this lead us to depression?  I think not, but we do face a tremendously painful recession that is still in the early stages.

Your thoughts????  Leave a comment.

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The equity markets have recovered more than 20% from their recent lows. Some companies are up as much as 50% or more. The markets generally are six months ahead of the true news, so should we be optimistic? Is the light at the end of the tunnel? Should we be excited about the prospects of $500 billion of government projects and an additional $2 trillion of liquidity?

As noted by Davis Berman on his blog: “As the Wall Street Journal’s MarketBeat noted on Tuesday, the auction on three-month Treasury bills on Monday yielded a mere 0.005 per cent – the lowest yield since 1941. But here’s the really wacky part: Traders noted that the yield on three-month bills dipped into negative territory on Tuesday afternoon, as in below 0 per cent.”  http://www.theglobeandmail.com/servlet/story/RTGAM.20081209.WBmarkets20081209143427/WBStory/WBmarkets

So great optimism on the equity side of the equation and absolute fear on the side of bond investors……

A friend mentioned today that he heared murmers that gas may go as low as $1 per gallon.  When was the last time we saw that??? What does that mean about our economy???? What will our labor be worth??  What will the price of milk and eggs be?    How bad will the overall global economy have to be to allow gas prices to fall so low???????????  I am afraid to speculate? What do you think???

Will the market retest lows?  Is there sufficient cause for optimism to have the markets hold steady and rise through Inaugeration Day?

Will unemployment continue to rise?  Will housing prices continue to fall?

Will Washington really save Detroit?

Did Washington really agree to absorb approximately $300 billion in losses at Citigroup?

Is this sane or insane?

Help me!!!!! I am confused.  Leave your comments…..

There are some out there who have said, “The American people have spoken, and they have said they do not like GM, Chrysler and Ford autos.”

It is absolutely more accurate to say, “The American people have spoken, and during the past three months demand for new cars has dropped, like a rock.”

The current run rate of new car purchases calculates to the annual removal from the road of approximately 2 million cars per year.  This is the first time that there has been a net decline in autos on the road in the history of the auto!

America has run out of credit.  America has run out of cash.  America is unemployed.

The 2 million car number is very close to the 1.9 million of newly unemployed workers since the start of the year.

Mystery?

If 1.9 million less people are going to work each day, how many less cars are needed?

Please share your thoughts and comments…..

The biggest banks that have received the biggest free giveaway of American taxpayers’ wealth, are now stealing the life blood of every household and the economy and our government is either blessing the theft or ignoring it.  The Red Plague of losses, illiquidity and falling values and prices continues.

Traditionally, interest rates on credit cards were competitive and set based on one’s credit ability, payment history, and market rates.  Today, credit card companies are bumping their rates up to 30+% because they want to.  This is in the face of the 10 year Treasury bond below 3% and the billions in free dollars they have received to stimulate the economy from our dear Uncle Sam.

At these rates, the amounts due will double over less than 3 years. These rates are userious, abusive and immoral.  But, Mz. Nancy and Mr. B Frank ignore the issue.  This is an issue that can not be ignored.

If outragious mortgages are reset, foreclosures abayed, and homeprices attempted to be stabilized to protect the American citizens’ balance sheets and financial solvency, the system will collapse around the explodign levels of consumer debt.

The average American with outstanding balances will get eaten in userious rates and ensuing fees.  Bankruptcy and further financial chaos of the American financial system, banks, Wall Street and Main Street can not be too much further behind.

God help America from the Death Wish of America’s Financial System and Greed (and the Blindness and Ignorance of the regulators tasked with protecting us)!!!!

The biggest banks that have received the biggest free giveaway of American taxpayers’ wealth, are now stealing the life blood of every household and the economy and our government is either blessing the theft or ignoring it.  The Red Plague of losses, illiquidity and falling values and prices continues.

Traditionally, interest rates on credit cards were competitive and set based on one’s credit ability, payment history, and market rates.  Today, credit card companies are bumping their rates up to 30+% because they want to.  This is in the face of the 10 year Treasury bond below 3% and the billions in free dollars they have received to stimulate the economy from our dear Uncle Sam.

At these rates, the amounts due will double over less than 3 years. These rates are userious, abusive and immoral.  But, Mz. Nancy and Mr. B Frank ignore the issue.  This is an issue that can not be ignored.

If outragious mortgages are reset, foreclosures abayed, and homeprices attempted to be stabilized to protect the American citizens’ balance sheets and financial solvency, the system will collapse around the explodign levels of consumer debt.

The average American with outstanding balances will get eaten in userious rates and ensuing fees.  Bankruptcy and further financial chaos of the American financial system, banks, Wall Street and Main Street can not be too much further behind.

God help America from the Death Wish of America’s Financial System and Greed (and the Blindness and Ignorance of the regulators tasked with protecting us)!!!!

The news is that half a million Americans lost their jobs in November and more than 1.9 million jobs have been lost since the start of chaotic 2008!!!!  The worst news though is that many, many of those who are still employed are on commission, or paid based on business volumes or other variable payments.  Their incomes generally are down significantly, extremely down!

Thus, the wammy is significantly worse than the statistics show.  Not only is unemployment skyrocketing with no end in sight, but average household income levels are dropping even faster and further!

The incoming Obama administration is talking about new infrastructure projects to create 2.5 million new jobs over the next 24 months.  Lead economists say that we need more like 5 million more jobs.  I say we need 5 million new jobs, but not necessarily in building, bridge and airport construction.  I am sure there are many construction and engineering workers out of work, but equally as many bankers, realtors, mortgage people, and other sales and service and skilled manufacturing people.  I am not clear on how new bridge projects, bigger and better airports and improved school buildings will help these folks.

If the thought is that all will benefit from the “trickle down effect”, we have much to pray for!

What are your thoughts??

Remember hearing that our brains have 100 billion neurons when we are born, and that with every glass of wine or cigarette we kill 10,000?  Didn’t 100 billion sound like an amazing amount?  I always wondered how I could have 100 billion connections inside my little brain……

I just participated in a discussion with a leading neurologist who cited the 100 billion number.  The first thought that came to my mind when I heard him say it, was “huh, 100 billion is not so much.”  I then thought, if 100 billion is not so many, what would be an amazing number?  700 billion, 800 billion, 1 trillion??????????

When our dear Uncle Sam can throw around 35 billion $, or 350 billion $, or 700 billion $, or another 800 billion $, is it really not such an amazing number?

How our perspectives have changed!!!! When 100 billion is no longer an impressively large number, and our US deficit for 2009 may well be $2 trillion!!!

The markets today gave up all their gains of last week!  Though the Black Friday numbers were much better than expected, the economic numbers regarding economic activity and future activity were horrendous.

The official group that announces recessions, announced today that the recession started December 2007.  Brilliant!!! It took them 12 months to figure it out???  Just look at any economic indicator and it is abundantly clear!

But, now that we are officially in a recession, it will either good worse or get better.  Its like alcoholism.  To be treated, first you must acknowledge the problem.  But, of course, it is not that simple.

Typically the Fed will lower rates and the lower cost of funds will encourage lending and capital investment.  The lower rates would also boost home prices through more affordable mortgages and refinancings.  This time, banks are not lending, companies cutting back on investing, and people generally unable to refinance due to the significantly reduced values of homes!  What’s Mr. Bernacke to do?

He will continue to reduce rates and flood the channels with money.

There is an old saying “Don’t fight the Fed.”  That is definitely going to be the case.  The question is how soon?

The reduced rates will ultimately make stocks more attractive.  The government bailouts, forced refinancing, numerous programs, etc.  will make things look better.  People will start feeling a bit better.  But, not until some more pain is incurred and fear speads like the Red Plague……

So, it can go lower.  It can go much lower.  It likely will retest lows over the next few weeks and then rally through inaugeration.  From there, it is the new administration’s problem, and ours………………

Leave it to Donald trump to come up with a unique reason why HE does not need to stand behind a $40 million personal guarantee made to Deutsche Bank regarding HIS hotel in Chicago.  He has claimed that the “force majeure” clause has become effective due to the economic chaos and world financial crisis.

Normally force majeure refers to catastrophic events, natural disasters, war and acts of G-d.

Fortunately the courts have rejected his absurd claim.  Unfortunately they did not penalize him for adding to the economic and financia chaos!