Retardometrics

In a perfect world, we would all have numbers affixed to our foreheads providing an indicator of intelligence and lack thereof. Unfortunately, this is not only impractical, but would likely lead to discriminatory practices. Nevertheless, we have something known as The Consumer Confidence Index (CCI) which provides an aggregate public gullibility metric. Yesterday, The Conference Board reported May's CCI was 35% than that of April, indicating that the many of the 5000 households surveyed believed the government's Green Shoot PR campaign:


For certain, anyone within earshot of a teevee has heard the business media trumpeting the Green Shoot PR campaign. Any new economic indicator that is less negative is being proclaimed as positive and a confirmation that the recovery is at hand. (Considering all of the chicanery the government has condoned in the last six months, the accuracy of the most recent indicators is questionable.) The message is ubiquitous and apparently effective, demonstrating that the American public's appetite for propaganda is insatiable.

After all, didn't the teevee shill the following:

1. The Y2K non-apocalypse.
2. Electric deregulation
3. WMDs to justify the Iraq War.
4. 401k retirement plans in place of financial literacy.
5. The perpetual increase of housing prices and real estate speculation.
6. Consumption at the expense of saving.
7. Media consolidation
8. Diseases manufactured by the pharmaceutical industry, i.e. Restless Legs Syndrome.
9. A service economy based on truly unnecessary industries, instead of tangible good production.
10. Trade and immigration policies that led to a depressed standard of living in many parts of the country.

I would have thought that after seeing 40% of their retirement assets disappear, 30% of their home's value erode, 10% unemployment, an unprecedented $12T deficit, and the specter of massive tax increases, the public might start to question the MSM and whose interests it really serves. Apparently, the transient comfort provided by predatory optimism is preferable to reality. Thus, allow me to accomodate with the following inspirational excerpt from Time magazine titled, "Good Times Are Coming!," circa 2005:

Do we really consume too much and save too little? Fed data show that while debt has been rising, so has net worth, and debt as a percentage of net worth does not look overstretched. I am not unmindful of the risks. But I do think most of the analysis wildly oversimplified, particularly when the problem is identified as "imbalances," as though the economic system's natural state had been perturbed and until returned to balance it was out of whack.

My point is simple: this is just one of the things people are worrying about while the broad economic picture could hardly be better. General Electric just reported strong earnings and is confident of double-digit growth. IBM did the same. Citigroup chief financial officer Sallie Krawchek said recently on CNBC that it was "credit nirvana," the best environment they had seen in almost 15 years, and Citigroup raised its dividend another 10%.

Catastrophe Cometh

On May 12th, the New York Times published a story regarding the effects in the recession on the state of Social Security and Medicare. Significant deterioration of the financial health of these entitlement programs has raised questions as to their future viability and the need for reform. The NYT provided the following disturbing graphic which illustrates exactly how dire the situation has become:
As you can clearly see the future of Medicare and Social Security is very bleak. The Treasury's 2009 projections indicate that Medicare only has only 1.5 little rectangles remaining, while SS has experienced a 20% year-over-year little rectangle reduction. Compounding matters, the little rectangles are turning black, which is a classic economic indicator of doom DOOM. The administration has proposed that health care cost cutting measures are the solution for Medicare:

The Treasury secretary, Timothy F. Geithner, said the only way to keep Medicare solvent was to “control runaway growth in both public and private health care expenditures.” And he said Mr. Obama intended to do that as part of his plan to guarantee access to health insurance for all Americans. But if cost controls do not produce the expected savings, Congress is likely to find it difficult to preserve benefits without increasing taxes.

Using Austrian Polygonal Differential Analysis common sense on the following historical health care industry campaign contribution charts from OpenSecrets.org , the probability of future health care cost reductions fall somewhere in the range of notahopeinhell and 0.
In reality, the health care and insurance industries are taking a page from the TARP playbook, where the specter of crisis.is being used to justify corrupt legislation. The health care lobby graciously agreed to reduce cost growth (not level, but rate of change) by 1.5%, yielding a projected savings of $2T over the next ten years. In exchange for this triviality, the insurance industry will receive a massive subsidy in the form of artificial demand creation; legally mandated health insurance for all US citizens in 2013.

This was the masterstroke of Senate Finance Committee's chairman, Max Baucus. Chairman Baucus spent long hours at the Roundtable to Discuss Reforming America’s Health Care Delivery System "hammering out" out the particulars with representatives from Blue Cross, Aetna, and the Business Roundtable. And when I say "hammering out," what I mean is selling legislation and the public interest for campaign contributions:
Lifetime contributions to Sen. Max Baucus via Opencecrets.org.

Thank You For Being A Friend

Yesterday, someone (who thinks this blog should be funnier??) sent me a link to The Bing Blog, which is the creation of, the aptly named, Stanley Bing. In Bing's most recent post, Things That Will Survive, he declares that the current recovery is genuine and prognosticates about what the new growth will look like. Since Stanley Bing isn't actually a real person and doesn't seem to have much economic training, he's more apt to be correct than your standard, celebrity econotard. I won't regurgitate his post, but it gave me an idea: Wouldn't it be clever to post a series of predictions, so that in a year I can look back and see that, I too, can't differentiate my ass from third base.

Prediction I: This rally is an extended sucker's rally. This isn't much of a stretch considering that 70% of the GDP is consumer based and somewhere between 10-15% of these consumers are now jobless. However, I am reminded of a time when I was all in on fairly out of the money puts. At the time, the government and the MSM were lying about the state of the economy, despite obvious evidence to the contrary. The experts called the bottom and proclaimed that up was the only direction remaining. I spent weeks mentally willing the destruction of the stock market, to no avail. For a month, I questioned whether I'd arrived at a very wrong and expensive conclusion about the economy's direction. That month was March of 2008:

Thus, Spring of 2009 seems hauntingly familiar, except I hold no derivative positions. Sure enough, it charts similarly, as well. Increasing pricing on decreasing volume seems to be the portent of doom. (3/08-7/08, Thanksgiving 08-Feb 09). I am attempting to become a reformed speculator, but synthetically shorting crap like WYN @ 10 is so very, very tempting (-WYN HB, +WYN HV (protection), +WYN TB). We'll see if discipline prevails.

Prediction II: 401(k)/IRA redemptions and loans will be restricted. Over 5M Americans are unemployed and that's likely a conservative estimate. Moreover, many of the unemployed/underemployed have been so for months now. As the personal savings rate actually went negative during the bubble and the collective home equity piggy bank has been smashed, defined contribution funds are increasingly likely to be drained. Moreover, people are beginning to wise up to the fact that the 401(k) may well have been the greatest scam ever perpetuated by Wall Street, next to Donald Trump's hair. Thus, there has been a steady outflow of cash from equity mutual funds over the last year. If you compare the market capitalization of the NYSE to defined contribution plan/IRA equity assets, you'll discover the Evil Whose Name Can Never Be Spoken: Much of Wall Street is Main Street. While this topic could easily fill another 10 posts, if not an entire blog, let it suffice to say that DC plan redemptions en masse would cripple the stock market. Notice how Obama's campaign promise to ease penalties on 401(k) hardship redemptions has never been revisited. As the stock market goes, so does Wall Street, so this will not be allowed to happen

Prediction III: Municipalities will default in record numbers and won't get bailouts resembling what Wall Street received. Recently, I've been looking at the budgets of various local governments across the country. During the credit bubble, many ran deficits, not unlike their citizens. Unfortunately, municipalities generate revenue primarily through real estate tax, sales tax, and, less often, income tax, which are all falling at a significant rate. I expect that they'll attempt to issue more bonds, but at some point credit rating deterioration will induce unservicable rates. I don't expect significant federal assistance either, due to Wall Street's complete ownership of Congress and the Treasury. Instead, bankrupt cities will have privatization rammed down their throats, because little is more profitable than a monopoly on products with inelastic demand, like water and policing.

Prediction IV: Free markets will become even more farcical with consolidation. I don't think there is a company in existence that is interested in truly free trade. In practice, the phrase "free trade" has come to stand for using competition to decrease input costs, while attempting to reduce competitive forces affecting output prices. A developing nation's poverty will continue to be viewed as its greatest resource, to the detriment of American workers who insist on an "extravagant" standard of living. Wage and benefit claw backs will increase, while price fixing becomes even more blatant, as competing companies consolidate. In the last decade, we've seen little along the lines of anti-trust legislation or enforcement and I expect this to worsen. Within 5 years, I can envision the same style of collusion, demonstrated by the petroleum industry under Bush, to be adopted by producers of goods with low elasticity, like food, medicine, and energy.

Prediction V: This blog will not get any funnier. Truly humorous blogs are a rarity, while commonality is a staple here. Thus, never doubt my grave sincerity when I make proclamations like; the only asset class that is guaranteed to continually appreciate is Golden Girls memorabilia, which constitutes the basis for its use as a global currency standard. Really, I think I may have been mistaken for someone else.

So there you have it. In a year, I, hopefully, can look back at this post and say, "What a moron. I need to trade my computer in for an Etch-A-Sketch." In the mean time, I'll be working on my Canadian residency visa and hoarding Bea Arthur posters by the gross.

Fidelity Investment's Idea of Transparency

Apparently, it's acceptable to lie to potential investors so long as you tell them that you're lying.


Remember the good old days, when the word guaranteed meant that an outcome was certain.

Getting Back To What Got Us Here

On Thursday, the Senate defeated amendment (Amdt. 1014) to the Helping Families Save Their Homes Act of 2009 (S.896). The amendment proposed by Sen. Dick Durbin, IL, provided a mechanism for troubled homeowners to avoid foreclosure. Specifically, before a homeowner entered bankruptcy, they would first have to meet with the lender and give the lender the opportunity to offer a loan modification, such that the homeowner's debt/income ratio would be reduced to 31% or less. If the homeowner refused, the bankruptcy court would not be allowed to modify the loan. If the lender refused to offer a workout, the bankruptcy court would have the power to make the aforementioned modifications to the loan terms. In other words, the banks would be forced to offer legitimate workout plans that reduce principal, as opposed to the current, farcical loan modifications that we've seen consistently fail.

The amendment was defeated 45/51 with 3 abstentions, primarily due to intense lobbying by the American Banker's Association, the US Chamber of Commerce, and the Financial Services Roundtable. Per Bloomberg, Sen. Durbin responded:

"These bankers who brought us into this crisis are literally shunning and stiff-arming the people who are facing foreclosure,” said Senator Richard Durbin of Illinois, sponsor of the legislation and the chamber’s second-ranking Democrat.........Democrats led by Durbin had sought a compromise on the measure with JPMorgan Chase & Co., Wells Fargo & Co., Bank of America Corp., the American Bankers Association and Financial Services Roundtable. The lenders that scuttled the negotiations are “surviving today because of taxpayers’ dollars,” Durbin said. The three banks he named received $95 billion in U.S. aid.

The financial industry rationalized its position by claiming that Durbin's measure would destabilize the housing market. This logic makes little sense, because it's hard to envision anything more destabilizing to the housing market than a wave of foreclosures. The real goal of the banking industry is to make bankruptcy as unappealing as possible to troubled debtors, as demonstrated by the uber-sleazy Bankruptcy Reform of 2005.
Diana Olick of CNBC made a telling statement:

One insider very close to the process on the Hill tells me, "If you asked me four months ago, I would have said cram down was a lock."

Four months ago, bailouts were a fairly novel stench and the public was starting to realize that the financial industry controlled much of the government. Obama and Congress performed an impressive charade by publicly lambasting bank CEOs and the SEC, but Mario Cuomo is the only official to actually attempt to strike blood. Banksters even delayed making the campaign contributions, which are the fuel of our present democratic circumvention. As I've said before, this economic crisis was bought and paid for with campaign contributions. They were the root cause and have created a situation where a non-voting entity, like the ABA, has more political power than the electorate. Four months later, the contributions have brazenly resumed in earnest, no doubt the result of demographic studies that show that the American public has returned to its uneasy slumber. By allowing the continuation of corporate governance, it is clear that the Profit Gods will be appeased at our collective expense. This constitutes an unsustainable situation that I sincerely believe will end badly.