Saturday, January 31, 2009

A Worm Market in Unintended Consequences

'Buy American' provision in stimulus bill makes no economic sense

"Americans want to see American taxpayer funds supporting a stimulus package that will generate American jobs using high-quality, American-made products," he added.

It doesn't get much more protectionist than that. Now I might be wrong on this, but didn't we move much of our manufacturing to China? Do we no longer wish to buy inexpensive socks?

I say that somewhat tongue-in-cheek. I've already hoarded plenty of socks. I consider them to be savings that no longer earn interest but at least have the potential to keep up with long-term inflation. Some would argue that socks are cheap and plentiful. That makes them a lousy investment. Others would argue that it is better to buy socks when they are cheap and plentiful than it is to buy them when they are expensive and hard to find. I tend to be in that latter group. Go figure.

Here's another thought. When are we going to start pumping out more high-quality, American-made oil? We'll probably want some in reserve once we've shut down global trade with protectionist policies.

You don't have to be a Nobel Prize-winning economist to see how this will play out.

I would argue that your odds of seeing it may actually be higher if you are not Nobel Prize-winning economist (as seen here).

Canada increasingly hopeful of U.S. climbdown from protectionism: Day

Day compared the provisions in the stimulus bill to the U.S. Smoot-Hawley Act of 1930, a tariff law which many economists believe fuelled the Great Depression.

That bill set record-high tariffs on more than 20,000 goods imported to the U.S. Over 1,000 American economists warned against it in a petition, but then-president Herbert Hoover signed the bill.

Countries retaliated swiftly, with Canada slapping tariffs on 16 American products that accounted for about one-third of imports from the U.S., and America's global imports and exports both plunged more than 60 per cent.

You'd think that would turn me deflationary long-term, wouldn't you? It doesn't. It makes me more stagflationary. We are not the world's manufacturer like we were heading into the Great Depression though. In sharp contrast, we now import far more goods than we export.

Our government helped get us into this crisis. We are now counting on our government to get us out of it. Here's a brief history of how well they did during the last crisis. There was a dotcom bubble collapsing. The government stepped in with cheap credit to solve all our problems. This left us with a bigger and more dangerous credit bubble.

The government is aware of the problems with this credit bubble though. They tried throwing even more credit at it in hopes that they could replace this credit bubble with another similar bubble (credit bubble #2). That hasn't worked out very well so far. Our government is always thinking though. They've come up with an additional solution. They wish to shut down global trade.

The more the government does the more unintended consequences appear. We've had a bull market in unintended consequences for the past few years. The government is really stepping up to the plate now though. Therefore, I predict a worm market in unintended consequences heading forward. A bull market just wouldn't do it justice.

From Dune (1984)...

Paul: Stilgar, do we have wormsign?
Stilgar: Usul, we have wormsign the likes of which even God has never seen.

Friday, January 30, 2009

High Dividend Stock and Inflation Hedge?

Long-time readers know I like treasury inflation protected securities as a relative safe haven during the storm (not that I think anything is safe). I stumbled upon this article today and thought it does a pretty good job summing up my thoughts. I'd encourage you to read it. I do have one major disagreement though.

TIP ETF: A High Dividend Stock and Inflation Hedge?

The US Government’s CPI consistently underestimates inflation, so the TIPs are at best a partial protection.

I really can't stand opinions offered up as fact. The government's CPI is "consistently" underestimated? Let's look into that claim for a moment.

Oil prices crashed.
Commodity prices crashed.
Housing prices crashed.

That is Great Depression style deflationary activity. I will debate anyone who would argue differently.

Gasoline averaged $3.070 per gallon in December of 2007.
Gasoline averaged $1.745 per gallon in December of 2008.

What about the price of big screen televisions and furniture?

As flat-screen prices fall, sales of modern consoles rise

According to Tamaryn Pratt of Quixel Research, in 2005 the average price of a 40- to 44-inch flat-screen television was $3,500. In 2008, the average price for the same size was $1,110. Consumers would pay about $1,700 for a 32-inch flat-screen in 2005. Today, the average is around $600.

So what does the government say the CPI has done from December 2007 to December 2008? It has dropped from 211.680 to 211.490. That's essentially unchanged.

I guess once you've come to believe that the government's CPI consistently underestimates inflation (which was easy to do with skyrocketing home and crude oil prices), you pretty much have to stick to the theory.

I never did embrace the theory in the first place though. The CPI is what it is. At times it will underestimate prices as they affect me and at other times it will overestimate prices as they affect me. In my opinion, we're currently in the overestimating part of the curve.

I continue to embrace deflation in the short-term. I'm riding it out in TIPS just the same, because I don't feel that I can even remotely time what may be coming next, and that would be yet another round of inflation/stagflation. It might take a few months or even a few years. I'm confident it will come someday though. Our government has a technology that can print money at essentially no cost and has shown a willingness to credibly threaten us with it. One thing it cannot do is print real prosperity though. It just prints paper. I'm fairly certain of that.

Source Data:
St. Louis Fed: Seasonally Adjusted CPI
EIA: Retail Gasoline Prices

Tiny Bubbles (Musical Tribute)

May 12, 2008
Soros: Financial Crisis Stems from 'Super-Bubble'

Soros says there's a "super-bubble" in the economy that's bigger than just the recent housing crises, and he blames exotic financial instruments for helping cause it.

January 30, 2009
The new financial bubble is here

That's right: If you've been convinced that we'd soon see another bubble and that we hadn't learned much from our previous follies, and you've been waiting just to see which asset class would inflate and then go pop, wait no longer. The next asset bubble is here, and it's called the U.S. Treasury market.


The best things that you can say about this bubble are that because the Treasury market is so huge, it won't inflate to the extreme proportions of the past two bubbles, and that there are already signs that the bubble has reached its maximum degree of inflation.


But even with those optimistic caveats, the Treasury bubble is on a course to inflict plenty of pain on everyone from homeowners with mortgages indexed to 10-year Treasury notes to retirees who fled to government bond funds for safety.

Haven't the homeowners and retirees suffered enough already? I'm a homeowner, a retiree, and I've been nearly fully invested in the Treasury market for years. I'm in inflation protected Treasuries though. Maybe that's not quite the same thing.

We should be pretty darned good at spotting bubbles by now. We've seen a dotcom bubble, a housing bubble, and at least one commodity bubble so far this century. That's just the first eight years. 92 to go!

Assuming we are getting good at spotting bubbles, perhaps we can see which of the following two bond funds went parabolic and is either preparing to crash or is actually already in the process of crashing.

20+ Year Treasury Bond Fund (TLT) vs. Treasury Inflation Protected Securities Bond Fund (TIP)

Worst January on Record

U.S. stocks end worst January on record with more losses

NEW YORK (MarketWatch) -- U.S. stocks finished lower on Friday, with poor economic data and concerns about plans to rescue ailing banks leading the market to its worst January performance on record.

I almost missed the ride. Capitulation has been shown to be a losing strategy. Never try to market time a continuing disaster. I got lucky this time. Whew!

October 17, 2008

I'm Capitulating

I'm taking the cowards way out and locking in my anti-prosperity thoughts while the locking in is good.

I guess that means I'm long-term prosperity neutral right now. I'd certainly never bet against Warren Buffett. I won't be buying stocks though. I'm fine with the real yields that TIPS currently offer. I will also continue to hoard toilet paper. Some habits may never die, lol.

December 31, 2008
I'm Back (Musical Tribute)

I never thought I'd see the day when the NAR admits that a market is beginning to buckle. By using the word "beginning" it implies that the NAR expects even more buckling. Wow. Do they not want their real estate agents to have any work here in Seattle? Who would buy a house if even more buckling is on the way?

I wish to offer a special thanks to Lawrence Yun of the National Association of Realtors. It was his thoughtful "beginning to buckle" observation that shocked some sense back into me.

Based on the date of my return, I'm tempted to offer an evil Mwuhahaha laugh right about now. However, I think I'll use the time more constructively to ponder the exponentially increasing risks to my retirement nest egg instead. Ouch. Sob. Sigh.

Wednesday, January 28, 2009

The Stimulus Package as Seen Through the Eyes of S&T Bancorp

S&T Bancorp, Inc. Q4 2008 Earnings Call Transcript

The size of the stimulus package is roughly a trillion dollars on top of a 1.2 trillion dollar deficit, as it was official through the end of calendar 2008. From a keen economic perspective it’s not the size of the deficit itself that matters. It’s the size of the increase of the deficit that impacts whether or not it spurs economic activity. And in fact there are those that believe that it was FDR’s alphabet soup approach, programs in the Great Depression that got us out of the depression. In fact that was not the case. It was really World War II that got us out of the depression. And spending in order to fund our war effort took the deficit up to 129% of GDP in World War II.

In order for us to get to that level of spending we would need to look at not a one trillion dollar increase in deficit but at ten trillion dollar increase in deficit. From my perspective that is mind blowing. I don’t think we need or want to get to that level and think we will ultimately come out of this thing with substantially more modest spending issues.

This is your mind on trillion dollar stimulus.

This is your mind on ten trillion dollar stimulus.

Any questions?

A Crash Course for Central Bankers

September/October 2000
A Crash Course for Central Bankers

A collapse in U.S. stock prices certainly would cause a lot of white knuckles on Wall Street. But what effect would it have on the broader U.S. economy? If Wall Street crashes, does Main Street follow? Not necessarily. Consider three famous episodes: the U.S. stock market crash of 1929, Japan’s crash of 1990-1991, and the U.S. crash of 1987.

What if Wall Street crashes because Main Street's Housing Market crashes? What if Ben "No Bubble" Bernanke can't see it coming? Then what?

There’s no denying that a collapse in stock prices today would pose serious macroeconomic challenges for the United States. Consumer spending would slow, and the U.S. economy would become less of a magnet for foreign investors. Economic growth, which in any case has recently been at unsustainable levels, would decline somewhat. History proves, however, that a smart central bank can protect the economy and the financial sector from the nastier side effects of a stock market collapse.

Here's a look at Wall Street. Citigroup rallied 18.6% today. That brings the stock price back to a whopping $4.21. That's a bit shy of its $50+ price back in September of 2000.

Here's a look at Main Street. It's a bull market. There's higher highs and higher lows.

Here's a bumper sticker idea.

The Smarter Fed: "Protecting" the Broken Economy and the Shattered Financial Sector since 2000

I Won Again!

I'm not sure what I did to win this time. The email is vague.

You won £900,000

Send information: Name, Age, Country


Mrs. xxxxx xxxxx

What a lucky week I am having! This economic downturn sure is allowing the prosperity to flow!

I have x'd out the contact information. Since they apparently don't know much about me yet, I don't want any of you to get in there ahead of me and steal my winnings. Sorry. I will give you a hint though. The luck of the "Irish" is on my side!

Hey, maybe I can single handedly pay off the US budget deficit each year. Call it a trillion dollars a year. There's 365 days in a year, 24 hours in a day, and 60 minutes in an hour. That means I need to win $1.9 million per minute.

I just need to work smarter. If all it took to randomly win large sums of money was access to my email address, then think of all the money I'll be winning once I spend my days sharing my email address with random websites!


See Also:

Fantastic News!

Tuesday, January 27, 2009

More Great Housing News! (Musical Tribute)

MARKET SNAPSHOT: Stock Investors Find Some Cheer In Spike In Home Sales

"When was the last time we've had good news on the housing market? You really can cut prices to the point where volume will move," said Owen Fitzpatrick, head of U.S. equity group at Deutsche Bank, of the unexpected December increase in sales of existing homes reported Monday.

Falling prices on higher volume is great news! This only applies to homes though. If the stock market was crashing on higher volume then we would find very little reason to cheer. We might even be Greatly Depressed.

The S&P Case-Shiller report translates into an 18% decline in home prices for the 12 months ending in November, or a loss of approximately $3.8 trillion in the market value of U.S. housing stock.

When was the last time we've had news THAT good? I don't know about you, but I'm reminded of the time I lost $2.7 trillion of loose change in my couch. Upon realizing what I did, I immediately borrowed some more money to buy some party hats and noisemakers. I then rented a private corporate jet, flew off to Washington DC, and groveled for $5.2 trillion in bailouts. Good times, good times.

Meanwhile, investors found little reason to jump back into the shares of homebuilders Tuesday. The S&P Homebuilders ETF (XHB) fell, as the likes of Ryland (RYL), Pulte Homes (PHM) and Lennar (LEN) slumped.

Apparently the housing news was just too fantastic to lure the housing investors back in. That will all change once they awaken from their jubilant slumber no doubt.

This brings me to a major concern of mine. It is becoming increasingly difficult to increase the level of sarcastic output lately. Peak sarcasm?

It's like painting a dark wall white. That first coat turns it somewhat white. The next coat makes it look whiter still. At some point, the wall becomes white. No additional coats of white paint will make it look any whiter.

Sarcasm has covered my dark wall (of worry) one piece at a time. It is now as white as the driven snow.

One Piece at a Time

See Also:
Housing Market Crashes on High Volume!!!

Good News and Bad News!

First the good news.

Wall Street on the upswing

Stocks advance for third straight session as investors breathe a sigh of relief that some earnings have been OK and that Geithner has been approved.

Treasury easily sells record $40 billion in two-year notes

The bond market had a welcoming gift for new Treasury Secretary Timothy Geithner today: The government had no trouble selling a record sum of two-year notes.

Here's my theory. Stock and treasury investors expect Geithner to optimize our country's fiscal problems in the exact same way he optimized his own personal tax situation. Don't ask! Don't tell!

Now the bad news.

Oil falls $4 amid economic jitters

Crude plummets on a day when the government reports rise in unemployment across the nation and consumer confidence hits all time low.

NEW YORK ( -- Oil prices fell more than $4 a barrel Tuesday as worries about a recovery in demand took center stage amid heightened concern that the global recession will continue to drag on.

That feeling was exacerbated by two dismal economic reports out of the United States, the world's largest oil consumer.

Economic jitters? We just replaced the Treasury Secretary with someone apparently much more competent. I can still remember the last time we did it. Investors were so impressed with the progress that he nearly became Time's Person of the Year!

Hank Paulson

Paulson was officially sworn in at a ceremony held at the Treasury Department on the morning of July 10, 2006.

The DJIA closed that day at 11,103.55. Today it stands at 8174.73. Great job Hank!

In 2008, Time magazine named Paulson as a runner-up for its Person of the Year 2008.

So here are my predictions, using simple extrapolation.

Look for Geithner to almost be Time's Person of the Year in 2011, but only if the DJIA sheds another 3000 points, housing prices continue to plummet, we're still teetering on the edge of a Great Depression, and if TARP2 (Troubled Asset Relief Program #2) does not actually buy any troubled assets.

Monday, January 26, 2009

Housing Market Crashes on High Volume!!!

Falling prices push existing-home sales up 6.5%

WASHINGTON (MarketWatch) -- Bargain hunters snapped up more foreclosed homes in December, lured by the biggest price decline seen in more than 70 years, the National Association of Realtors reported Monday.

Oops. I had the stock market in my head when I wrote the headline. I momentarily forgot that the housing market and the stock market are not the same thing.

Speculators borrow money to buy housing. Housing may generate rental income. Speculators pay capital gains tax if the price of housing goes up.

Speculators borrow money to buy stocks. Stocks may generate dividend income. Speculators pay capital gains tax if the price of stocks goes up.

The distinction is subtle. I'll grant you that.

As a side note, I was probably just reminded of the Great Depression. Falling stock prices pushed sales volume up as investors began to panic. This we know with certainty. We also know with certainty that the bargain hunters were lured in.

How can we know for sure?

1. There must be a buyer for every seller.
2. There was a plethora of sellers.
3. Therefore, there must have been a plethora of buyers.

Sunday, January 25, 2009

Do You Want to Play a Game?

One of These Things Is Not Like the Other Things!

May 13, 1999
Don't Become a Scientist!

Young Americans have generally woken up to the bad prospects and absence of a reasonable middle class career path in science and are deserting it. If you haven't yet, then join them. Leave graduate school to people from India and China, for whom the prospects at home are even worse. I have known more people whose lives have been ruined by getting a Ph.D. in physics than by drugs.

March 29, 2004
Graduate glut devalues price of a degree

CONTROVERSIAL plans for university expansion threaten to flood the labour market with hundreds of thousands of graduates who will not find jobs that repay their investment in higher education.

August 23, 2007
The most daunting numbers I've seen yet

7,000 students per year casting a covetous eye on a total of 20,000 positions? You're all waiting for me to die, aren't you?

September 24, 2007
Bernanke: Education Is Best Investment

WASHINGTON -- Education is the best investment not only for workers but also for the economy in a time of continuing competitive strain, Federal Reserve Chairman Ben Bernanke said Monday.

December 4, 2008
Millions of Chinese graduates out of work after fivefold rise in university places

The expansion of higher education reflects China's aspirations: the world's factory needs more skilled workers to move up the chain, away from cheap mass production. Yet there are not yet enough higher-end jobs. Four million graduates in recent years have yet to find their first job, according to officials. However, the true figure is probably higher as the current system relies on reporting by universities, who have a vested interest in showing that graduates can find work.

Graduates are now competing with people made redundant. "I've had interviews, but they want people with experience," said Liu Jing, who has been job-hunting for six months. "There are more graduates, so there are more competitors for every post."

January 1, 2009
Chinese graduates ready to work free

After months of fruitless job hunts, Li Yuliang, one of millions of China's fresh graduates, has thrown in the towel. Desperate for a job, any job, he has signed on for the ultimate sweatshop scenario: work without pay.

Still Investing

"Still" is and has been one of my favorite investing terms. I can't even begin to tell you how much I trust/distrust it depending on its usage. There must be some part of the brain that knows to use it when we try to rationalize something away.

For example, if I knew that the weather was expected to be sunny and warm for the next week then I would never say, "The weather is still nice." Some might, but you'd have to think they are being a bit pessimistic. It would be much more appropriate to simply say, "The weather is nice."

Therefore, when I can see someone trying to be optimistic but they are using the word "still" as a disclaimer, I get extremely skeptical.

The Bright Spot in a Gloomy Market

While high by modern American standards, the unemployment rate is still around 7.2% (the Great Depression saw levels closer to 25%); gasoline prices are back down to reasonable levels; and food price increases are finally moderating.

He could have simply said that the unemployment is around 7.2%. That would have been just as true. However, I'm suggesting that in all good conscience he had to use the "still" word. The word was not optional. Deep down he either knows or suspects that unemployment will rise. I think we all do.

Mass-affluent investors are still optimistic about green investing

Despite the economic downturn, investors with more than $100,000 in assets were still optimistic about investing in green ventures, according to a survey released today by Allianz Global Investors.

Still optimistic? I'm already extremely skeptical of the word still used in this way. Tacking on "optimistic" is a recipe for turning me into a basket case, lol. In sharp contrast, I'd be tempted to embrace coal. I suspect we'll be literally begging for energy someday, dirty or otherwise.

Collapse of the Clean Coal Myth

Coal is certainly an important fuel, providing just over half of the nation’s electricity.

Let me get this straight. I must not understand it correctly. Dirty coal will power more than one half of our green electric cars? Seriously? I nominate THAT idea for the Perfect Solution to a Crisis Award. I rank it right up there with creating a housing/credit bubble to replace a dotcom bubble, lol.

Jan. 18, 2008

Bush Says U.S. Needs Plan to Boost Economy

Paulson shrugged off concerns that Thursday's stock market plunge was a warning sign for the economy's long-term outlook. He said that right now there are risks for a downside, but that the underlying economy was still strong.

The underlying economy was still strong, but then the weather changed. Okay, okay, the economy wasn't really strong. It just appeared to be strong. Nobody noticed that we'd actually entered the recession in the previous month. You get the idea though.

Welcome to the financial storm. We're "still" in it!

Can Roscoe's Oriental Rug Emporium Survive the Downturn?

Going out of business since 1957
Opening soon in Northgate!

Saturday, January 24, 2009

The Roth IRA

You really have to give kudos to the government on this one. The Roth is working out pretty well so far (for them).

1. Prepay taxes on the gains as money moves from the traditional IRA into a Roth IRA.

2. Watch all gains vanish as the market crashes twice in the same decade.

3. The government still keeps the real prepaid taxes on those illusionary gains though. Perhaps keeps isn't quite the right word. I really mean to say that the government spent that incoming money as quickly as was humanly possible along with money it also borrows from our grandchildren and/or China. Wars and bailouts aren't cheap.

4. Brace for severe recession and/or depression. One reason to brace is that the government no longer has nearly as much prepaid taxes coming to them. How many people are prepaying taxes on stock market gains these days?

5. Lose banking job, lose construction job, lose low-tech manufacturing job, lose high-tech manufacturing job, and/or lose retail sales job. Take your pick.

6. Enter retirement. Sell underwater home. Live in a cardboard box. Withdraw a paltry tax-free sum from what's left of the Roth IRA each year. Of course, it probably wouldn't have been taxed much anyway. It isn't like cardboard box dwellers are in a high tax bracket.

Unhappy with your Roth? Just say never mind

You converted, only to see the stock market tank. Let's say you switched a $150,000 IRA to a Roth IRA in 2008 but the collapse in stock prices has since knocked the Roth's value down to $100,000. Because the tax is based on the IRA's value at the time of the conversion, you're facing a tax bill of $42,000 this April (assuming a 28% tax bracket).

By recharacterizing, you can shift the $100,000 back to a traditional IRA. If your IRA is still worth $100,000 when you convert again, you'll owe $28,000 in taxes, saving yourself a tidy 14 grand.

Just one catch.

You can recharacterize a conversion anytime up to the income tax filing deadline for the tax year of your conversion, including extensions. So if you converted in 2008, you can undo it as late as Oct. 15, 2009.

That really doesn't help those who converted their Nasdaq holdings in December of 1997 (or worse, those who converted in 2000). 1997 was the year the Roth IRA was introduced. The Nasdaq closed the year at 1,570.35. It now stands at 1,477.29.

For what it is worth, I never did convert. I pay my taxes on time but I've never really felt the need to prepay taxes early.

I'm sort of a worst-case planning guy though, as is probably fairly obvious by now. If I was best-case planning guy, I would have come up with a different name for my blog. Paradise of Prosperity?

Worst-case means I'll be broke later in life. Broke people tend to be in a lower tax bracket. It therefore wouldn't make much sense for me to prepay taxes when I am fairly well off just to avoid paying taxes when I become broke.

As a side note, the government is doing a fantastic job heading me down my worst-case retirement plan. The ultimate in timing would be "dying" just as I turn "dead" broke of course, thereby allowing me to maximize every last penny of savings. So far, so good! There is some risk the government will exceed even my own worst-case expectations though. As I have said in the past, the Illusion of Prosperity blog has been consistently too optimistic. I really would not want to hasten my own death just to keep the nest egg depletion rate properly balanced, lol. Nervous gallows humor for the win. Sigh.

It might seem like I am a pessimist to plan for worst-case. Oh contraire! When I plan for worst-case, everything becomes a pleasant surprise. That's a happy thing. Imagine opening a power bill expecting to see a huge number only to see a number slightly less huge? Euphoria. Well, you get the idea anyway.

If I do somehow find myself in a higher tax bracket later on in life because my investments have done so well, then I will have very little reason to complain. I put the odds of this miracle at somewhat less than 100% though. I am worst-case planning guy after all and I generally think of miracles as being somewhat rare.

Fantastic News!


Nevermind that I never actually participated in the UK POWERBALL LOTTERY. Apparently just having an email address was all that I needed!

I found the following in my inbox today.

Attn: Sir/Madam,

Result of POWERBALL LOTTERY organized annually in
United Kingdom has being released consequently
you have just being approved a lump sum payment of
1,000,000 Euro as your e-mail address emerged one of
our lucky winners.

Result of 1,000,000 lucky Euro has being released consequently my way forthwith!

My CONsumer CONfidence being higher never! I shopping mall backing truck up 500,000 Euro handbag designers being purchased!

Saving other 500,000 Euro not all of it chickens hatched lest my hopes being too high too much though. In words other, I'll see it all believe it not exactly.

Thursday, January 22, 2009

Capital Zero?

Capital One Reports $1.42 Billion Loss on Charges (Update2)

The loss from continuing operations was $3.67 a share, missing the 29-cent average profit estimate of 20 analysts surveyed by Bloomberg.

They say that close only counts in horseshoes and hand grenades. Who am I to argue?

Capital One slumped 45 percent in the past year in New York trading as late payments and defaults rose.

The market clearly saw this coming and had already priced it in of course.

The company slipped 8.5 percent to $20.08 in extended trading at 5:58 p.m. New York time after the loss announcement.

Nope. Too much optimism.


Samsung reports first loss, and shares tumble

HONG KONG (MarketWatch) -- Samsung Electronics, the world's largest maker of computer memory chips, Friday reported its first-ever quarterly loss, as the global downturn led to losses in its component manufacturing business and declines in profit at its cell phone unit.

Shadowman posted a comment that should serve as a warning to those hoarding sand as a store of value.

Wow. If you can't even make money selling sand, we are in deep doodoo !


Every now and then I like drama. This is one of those times. There's no need to panic though. CMCTABIFA is just my way of saying that Currency Manipulation Conspiracy Theories Are Back In Fashion Again.

UPDATE 2-China's yuan "manipulation" an issue -Geithner

There is already unhappiness in the U.S. Congress with China's perceived manipulation of its yuan currency, which critics argue is a major contributor to global trade imbalances.

The value of their paper currency vs. the value of our paper currency is "perceived" to be manipulated. Yeah, that's it. I'm sure of it. It doesn't even matter if it is actually being manipulated. All that matters is that it is perceived to be.

Don't believe me? I admire your skepticism!

May 11, 2006

Treasury Report on China Currency Policy Angers U.S. Lawmakers

The Treasury, which has repeatedly said it wants China to loosen its grip over the value of the yuan, chose yesterday to avoid a direct confrontation. While China hasn't made enough progress, it isn't deliberately seeking an unfair trade advantage with its currency policies, the Treasury said in its semiannual report on the practices of U.S. trade partners.

What? Where does their trade advantage come from then? Please don't tell me that they have a billion low paid workers willing to do our jobs cheaper than we will and that we have actively encouraged the behavior by outsourcing our jobs to them. That's just crazy talk.

Preeg estimates that the value of the yuan, a denomination of the renminbi, is being deliberately held at 40 percent less than its fair market value against the dollar, giving Chinese goods a competitive advantage.

If the Yuan was so undervalued, too bad we didn't just pay our workers in Chinese currency. It would be like getting a 40% bonus. While we were at it, we should have all learned Chinese, learned to enjoy rice, started riding bicycles to work, and learned to accept a much lower standard of living in this modern highly competitive global economy. Just think how much better off we would have been.

November 11, 2004

China ends 'bicycle kingdom' as embracing cars

The reasoning behind doing away with registration, which is expected to occur nationwide, is that the bike has been downgraded from one of the most significant family purchases some 20 years ago to a cheap machine used mainly by the poor.

One has to wonder if China's recent stock market activity hasn't changed the situation somewhat (see below). Perhaps the cheap machine used mainly by the poor will make a serious comeback.

Despite this, it is not yet final curtains for the two-wheeler, the authorities insist.

For once, I was finally in complete agreement with the authorities. We couldn't all drive cars. Somebody is going to need to ride bicycles. It was either us or them.

January 2, 2009

Bicycle makes a comeback in China, for fashion, health

Along with the cycling fashion, there is a boom in bicycle sales, especially in sales of up-market bicycles.

"Two years ago, we sold about 70 bikes at best in a month, but now over 100 per month," says Xu Quansong, a salesman at a franchised mountain bike store near the West Lake in Hangzhou.

The bicycle is making a comeback thanks to fashion and health. It has absolutely nothing to do with their massive stock market collapse. Wink wink, nudge nudge.

January 22, 2009
More pain seen for China stocks before recovery

SHANGHAI (Reuters) - China's stock market, the worst performer of the world's major markets last year, faces more bad news from grim corporate earnings in the coming months, but signs are pointing toward a recovery starting in the second quarter.

What points to a recovery? Good old American non-currency manipulation know how. That's what.

The Chinese central bank is now pumping hundreds of billions of yuan into the banking system every month, in large part by virtually halting its bill issuance in its open market operations and letting redemptions of maturing bills automatically inject funds into the market.

You don't believe that this is good old American know how? Seriously?

Analysts advise overweighting infrastructure stocks, such as railways and expressways, due to the government's economic stimulus policies. Refineries' earnings prospects will be boosted by lower crude prices and government fuel price reforms.

They warn that weakening demand would particularly hit auto, airlines and commodity stocks such as non-ferrous metals.

What more proof would you need? That is EXACTLY what OUR analysts are advising US to do!

Prolonged Government Role

For those who hoped that the government bandage would be pulled off quickly as the economy heals, I have some very bad news for you.

Geithner Pledges Prolonged Effort to Stabilize Banks (Update2)

Jan. 22 (Bloomberg) -- Timothy Geithner, President Barack Obama’s nominee for Treasury secretary, pledged an expanded and prolonged government role in everything from stabilizing banks to ensuring credit for small businesses.

January 8, 2009

Obama Warns of Prolonged Crisis Without Stimulus Plan

Without a stimulus plan, it would seem to me that the crisis would intensify rather quickly but most certainly resolve itself within a year or two as the entire global banking system collapses. Just a hunch. Of course, we'd probably have to learn some new job skills. Some might learn looting. Others might learn basic firearm maintenance. There's just no telling what the new economy might hold in stores for us, pun intended.

In sharp contrast, a massive stimulus package should prolong the crisis well into the distant future as a gift for both us and our grandchildren. I have to say that it does seem to be the lesser evil. I'm probably a bit biased though. I don't have any grandchildren.

Well, as you might imagine you know I never thought that as a, as a, Congressman that I would come to a country that has way too much debt, eleven trillion dollars, and say let's do something that's going to add to that debt. - Rep. Jim Himes, Former VP of Goldman Sachs

Oh, I don't know. I'd like to think I have a fairly vivid imagination when I put my mind to it. Just look at my 125% pie chart.

To Stagflate or Not to Stagflate?

That is the question.

Platinum is much rarer than gold. It has been through a serious correction and now trades almost at par with gold. Part of me is therefore tempted to buy platinum. This feeling hits me every few weeks, as you can imagine it must with stagflationary in my name.

January 20, 2009
Platinum Gets Set for Rebound

"In the second half, we could see an improving car industry," says Sterling Smith, vice president with Chicago brokerage FuturesOne. The metal is widely used in automobile catalytic converters.

The other part of me is tempted to think...

1. A global economic ponzi scheme was discovered and that maybe, just maybe, billions of low paid global workers won't be all driving gas guzzling cars in the coming decade.

2. A global economic ponzi scheme was discovered but we'll still try to get billions of low paid global workers in cars, only to see the world almost run out of oil yet again.

3. If we do see an improving car industry in the second half, then we could also see monkeys fly out of my bottom.

Do not discount the monkeys! The last time they appeared they had a lot to tell me. They said, and I quote...

Stagflationary Mark, you should remain a long-term stagflationist but it is okay if you want to continue to embrace deflation for a few months or even a few years while you patiently wait.

The monkeys then threw some feces at me. One does not get the expert financial opinions of flying monkeys without paying a price.

I think that deep down they were actually trying to impart two important life lessons on me. First, one must take the good with the bad. Second, toilet paper will continue to be an excellent safe store of wealth. Touché my little monkey friends, touché!

Wednesday, January 21, 2009

A Saver's Worst Enemy (Musical Tribute)

As banks teeter again, Wall St. looks for answers

Timothy Geithner, Obama's pick for treasury secretary, had few answers as he began confirmation hearings Wednesday. He told lawmakers that two goals were to "get credit flowing again" and overhaul the $700 billion bailout, but he offered few details.

He had plenty of tax answers though, so at least we've got that going for us.

A Comedy of Tax Errors

By the time the hearing ended, the word "mistake" had been used 41 times and "error" another 11 times. And that was no accident.

Can we forget what I forgot to pay on my taxes?
I didn't mean to get caught like that
I can't remember what I paid or why I dodged those fees

Confirm me! Confirm me! Why?
I just need to tap the TARP
I cheated but there's not much fraud
Paid the tax through the mail last night
Problem's gone, gone

It's no surprise that I am a saver's worst enemy
'Cause every now and then I propose another spending spree
Alarm bells should be going off
As there's no ethics, still learning

Confirm me! Why?
I just need to tap the TARP
I cheated but there's not much fraud
Paid the tax through the mail last night
Problem's gone, gone

Confirm me! Why?
I just need to tap the TARP
I cheated but there's not much fraud
Paid the tax through the mail last night

It's no surprise that I am a saver's worst enemy
'Cause every now and then I propose another spending spree

Can we forget what I forgot to pay on my taxes?
I didn't mean to get caught like that

Tuesday, January 20, 2009

More Capitulation Stages of an Optimist

October 7, 2008
The Capitulation Stages of an Optimist

Stage 1: Lean Towards Safety
Stage 2: Consider Panicking
Stage 3: Admit Defeat

January 20, 2009
Advice for Uncertain Times

Stage 4: Panic!

First, taking the advice of my dear pal Ray Lucia, rock and roll star and investment guru, I can tell you that, no matter what happens, it will be good to have a nice chunk of money in cash or near cash. Yes, I know we may soon have inflation. But if we do, the rates on money market funds will rise. Cash is just a lovely thing to have in almost situation. Cash or near cash offers a level of comfort that even a large portfolio of stocks does not offer.

How do I know this is a clear sign of panic? Other than the obvious stock market crash today, that is?

Cash is just a lovely thing to have in almost situation.

Almost situation? What's an almost situation? Is that like trying to use the phone to sell your stocks during a severe market crash only to find a busy signal instead? Is it like trying to use your computer to sell your stocks but finding that the website is down? Is it like driving down to the brokerage office in person but finding a huge line of disgruntled investors waiting at the door? If indeed those are almost situations, then yes, cash would indeed be a lovely thing to have.

Cash or near cash offers a level of comfort that even a large portfolio of stocks does not offer.

Remember the days when a large portfolio of stocks offered more comfort to the optimists than cash did? Good times, good times.

I love following the stock market. In the very long run it's a beautiful thing, at least in the postwar world, and I hope it doesn't turn around and bite my head off the way it did in the tech crash. - Ben Stein, September 4, 2007

The DJIA closed at 13,448.86 on September 4, 2007. Today it closed at 7,949.09 (41% loss). Behold the power of hope.

Bernanke's Deflation Speech Revisited

November 21, 2002
Deflation: Making Sure "It" Doesn't Happen Here

The following is one of the most analyzed economic paragraphs of the 21st century.

What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

That's not what I want to write about today though. There's another paragraph from that speech I'd like to analyze (for those just now tuning in, that's my way of saying I'm about to offer some serious sarcasm and/or heckling).

So, is deflation a threat to the economic health of the United States? Not to leave you in suspense, I believe that the chance of significant deflation in the United States in the foreseeable future is extremely small, for two principal reasons. The first is the resilience and structural stability of the U.S. economy itself. Over the years, the U.S. economy has shown a remarkable ability to absorb shocks of all kinds, to recover, and to continue to grow. Flexible and efficient markets for labor and capital, an entrepreneurial tradition, and a general willingness to tolerate and even embrace technological and economic change all contribute to this resiliency. A particularly important protective factor in the current environment is the strength of our financial system: Despite the adverse shocks of the past year, our banking system remains healthy and well-regulated, and firm and household balance sheets are for the most part in good shape. Also helpful is that inflation has recently been not only low but quite stable, with one result being that inflation expectations seem well anchored. For example, according to the University of Michigan survey that underlies the index of consumer sentiment, the median expected rate of inflation during the next five to ten years among those interviewed was 2.9 percent in October 2002, as compared with 2.7 percent a year earlier and 3.0 percent two years earlier--a stable record indeed.

Hahaha! *cough*

Please forgive my outburst. It was completely unintentional. I need to gather my thoughts and put this in a more politically correct, sensitive, and caring way. Okay, I've calmed down. I can now speak rationally about the topic. Let's give this one more try.

Why couldn't the supposedly legendary academic captain of our doomed ship see the frickin' iceberg? It was HUGE! To be fair, perhaps he could be forgiven for not seeing the iceberg in the distance. Perhaps it was enshrouded in a fog bank. Anything is possible. I'm willing to give him the benefit of the doubt on this one. However, that does not explain why he couldn't hear and/or feel the iceberg as it was beginning to scrape along the sides of our hull!

October 27, 2005

Bernanke: There's No Housing Bubble to Go Bust

Fed Nominee Has Said 'Cooling' Won't Hurt

U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president's Council of Economic Advisers, in testimony to Congress's Joint Economic Committee. But these increases, he said, "largely reflect strong economic fundamentals," such as strong growth in jobs, incomes and the number of new households.


"Without these policy blunders by the Federal Reserve, there is little reason to believe that the 1929 crash would have been followed by more than a moderate dip in U.S. economic activity," Bernanke wrote.

2005 was the very peak. That harmless cooling allowed trillions of dollars worth of pristine glacial ice water to flood into the engine room. There was panic. People were screaming. I was torn. Do I embrace the risk and bottle as much water as I possibly could for resale to a high end restaurant back in the states? Or do I embrace the safety and jump into the nearest lifeboat? I opted for the latter in hopes that I could live and someday blog of Bernanke's adventures.

This is just one tale of many. I think you are really going to like Bernanke's
7th voyage in particular. I don't mean to spoil it for you, but a screaming monetary printing press maddens the crew. There's also an ample supply of stop-motion dynamation to give us the feeling that the prosperity is really happening and not just an illusion!

Sunday, January 18, 2009

The Five Myths of Undead Investing

Stanislaus County's 9 percent foreclosure rate brings joy, fear

Myth #1: Undead investing brings more joy than fear.

Little joy can come from ghosts, werewolves, zombies, and the like walking amid dying lawns, bushes, and trees. Fear, on the other hand, tends to rule the day. If someone tells you otherwise, they are probably trying to sell you something.

Myth #2: The era of undead investing continues.

Ditman is depressed that so many lawns, bushes and trees have died from neglect: "If I were more superstitious, I would think a ghost, werewolf or zombie would come walking out of these places, considering everything else about them appears dead."

This is a common mistake that many first time undead investors make. It is the confusion between the dead and the undead.


Death is the permanent termination of the biological functions that define a living organism. It refers both to a particular event and to the continuing condition that results thereby.


Undead is a collective name for fictional or legendary beings that are deceased yet behave as if alive.

Nothing that Ditman has described leads one to think that the deceased are behaving as if alive. It seems much more likely that Ditman is depressed because the dead are behaving as if they are truly dead.

Myth #3: The LARP will bail us out.

In some stories and settings, such as the Lorien Trust LARP, the word "unliving" is used as a preferential synonym.

The time for a Legitimate Asset Relief Program (LARP) was when the dead assets were behaving as if they were alive (2002-2005). All it would have taken was sustainable interest rates. It wouldn't have solved our problems but it would have made investors think twice before building and buying millions of excess homes while simultaneously hoarding oil. That time has passed (away) though.

Myth #4: Dead assets are under the control of a necromancer.

In some cases, the undead, especially skeletons and zombies, are under the control of a necromancer.

Undead assets are under the control of a necromancer. However, dead assets are increasingly under the control of our central bankers. This distinction, although subtle perhaps, can cost investors billions, if not trillions, of dollars.

Myth #5: Dead assets can be passed on like a curse or disease.

In other cases, such as zombies as depicted in film, the undead existence is passed on like a curse or disease.

Undead assets can be passed on like a curse or disease. This is true. However, dead assets actually require a financial transaction and a willing buyer. This is why banks are having such a hard time selling the homes that they foreclosed.

This should not be considered undead investment advice and you should always consult with your own financial necromancer/advisor before investing.

Sarcasm's Bull Market Continues

North Idaho home foreclosures hit record

"I could get one loan to buy four new homes in an area that was thriving," Krebs said.

Good grief. It isn't like you invested $2 million and watched the whole thing collapse like a house of cards though.

"I had $2 million invested and it collapsed like a deck of cards."

Good grief. Spiritual faith-based values would have never gotten you into this mess. You'd have been better served realizing that $2 million represents financial independence and instead used some of that money to wipe out middle-class poverty.

She said she became involved with the Marshall Reddick Real Estate Network, which describes itself as an "educational and purchasing system based on spiritual values" to help participants "achieve financial independence through real estate" with a goal to "wipe out middle-class poverty."

Good grief. I didn't see that one coming. What on earth did you need to retire? $2,000,000 would represent 20 years of $100,000 savings. What more did you want? Income that's only good on paper?

"I thought I could retire," she said. "I had $100,000 a year income, but it was only on paper."

End of Banking as We Know It (Musical Tribute)

The End of Banking as We Know It

Clearly, the entire financial industry is in the midst of a makeover. And while no one wants to call it nationalization, perhaps we can agree on this much: The money business as we have come to know it over the last two decades — with its lush salaries, big-swinging risk-takers and ultrathin capital cushions — is a goner.

Got that? Toast. Toe-tagged.

Two decades? I trace it back three decades. That's when we fell off of the gold standard. We're all big-swinging risk-takers with ultrathin capital cushions now, even if all we really want to do is bury unleveraged savings in our backyards.

When a driving economic force takes a big dive, the ripples are far-reaching. Change is painful, there is no doubt. But American business can be awfully good at reinventing itself when it needs to.

Once American business saw that automation and outsourcing could create goods cheaper than American workers could, American business reinvented the "awfully good" layoffs of American workers.

Once American business saw the Federal Reserve lower interest rates to unbelievably low levels in 2004 and held them there, American business reinvented the "awfully good" lending standards heading into the Great Depression.

Once American business saw that the profits in the banking and auto industries had not only completely dried up but had turned decidedly negative, American business reinvented the "awfully good" idea of begging our government for taxpayer bailout money to help fend off the next Great Depression.

Once American business saw that the banking and auto industries were failing and a Great Depression seemed imminent, American business reinvented the "awfully good" permanent destruction of American jobs.

Once American business realizes that there might be way too many malls and restaurants for an economy with trillion dollar deficits, one can only imagine what American business might reinvent next.

Buckle up.

Muskegon restaurants, retail shops buckle under economy

Economists are predicting the next national real estate "bubble" to pop is with commercial property. As local and national restaurants and retailers close, the shopping centers and strip malls they occupy will become vacant, forcing highly leveraged owners into foreclosures much like homeowners have experienced the past two years.

The leverage isn't working out all that well for the highly leveraged these past few years.

"People are seizing the opportunity," Post said. "They are employed but don't know for how long. This is their opportunity to start a new business. I remain optimistic on the downtown's future."

I want to make sure I understand this correctly. People are seizing the opportunity to start their own businesses because they are concerned the businesses they are currently working at might be forced to lay them off? That's a reason to remain optimistic? At what point does one become pessimistic if a banking crisis and a housing collapse can't do it?

For Businesses Big and Small, It's Lights Out

"This is now an unprecedented time as far as how bad things have gotten," said Scott Peltz, managing director of RSM McGladrey, a consulting firm that helps turn around troubled companies.

Other than that though, I feel fine.

It's the end of banking as we know it
It's the end of banking as we know it
It's the end of banking as we know it and I feel fine

Saturday, January 17, 2009

Is Your Money Safe?

Is your money safe with anyone?

Whom can you trust nowadays? Judging from the flood of comments to MSN Money after the Bernard Madoff scandal broke, the answer may be no one.

Investment advisers, banks, employers and even government can't be relied upon to keep their promises, readers told us.

This was predicted in 1966.

Gold and Economic Freedom (Alan Greenspan, 1966)

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

Well, there you have it. Nothing is a safe store of value. Stock up on as much nothing as you can possibly hoard. If all you have is nothing, then you can't actually lose anything. Nothing is therefore a sure thing. Heck, the IRS can't even tax nothing. Further, should inflation eventually rise, the value of nothing will remain a constant. Yes, that's right. Nothing is the miracle asset class!

Dizzying, huh? Perhaps I watched too much Abbott and Costello as a kid.

Signs of Hopelessness

December 21, 2008
Average home price $18,513 - Unemployment rate 21%

The Great Depression has reached Detroit. The average price of a home is now $18,513 and unemployment has reached 21%, and it’s expected to get worse.

Compare and contrast to one year earlier.

December 19, 2007

Signs of Hope in Detriot

  1. Thousands of people thronged to the renovated Detroit Institute of Arts when it reopened on Thanksgiving weekend, offering 32 hours of free admission.
  2. Two new casinos opened this fall, creating thousands of jobs...
  3. Some of the casino's patrons include Detroit's homeless. They used to buy food with the nickels and dimes they received for collecting returnable beverage containers...
  4. More jobs will arrive when Quicken Loans, a mortgage company, chooses the site downtown where it will move 4,000 employees...
  5. "If there's a bad economy, the Book Cadillac doesn't know about it."

Using hindsight, what went wrong? If hopelessness can happen in a city where even the city's homeless can afford to gamble in its newly established casinos, then it can probably happen anywhere. That's the truly scary part.

Okay, maybe that's not the truly scary part come to think of it. Attempting to set new personal sarcasm records tends to scare me more. There's SO much pressure to perform. I long for the days when the economy would only mildly implode and I could therefore just be mildly sarcastic. Those days seem a distant memory.

This post inspired by a link left anonymously in the comment section.

Friday, January 16, 2009

Port Traffic

The latest port traffic statistics were released by the Port of Long Beach today. I combined that data with the Port of Los Angeles. I then ran the data through a seasonal adjustment program and adjusted the results by United States population growth. Here are the results.

The sarcastic commentary is completely unadjusted though. I want you to see it in its original form. Call me an illusion of prosperity sadist, if you will.

This is clearly just a typical cyclical downturn. Expect it to bounce back to the red trend line shortly, just like it did during our last recession earlier this decade. As a side note, we're going to need a heck of a lot more self storage units in the years to come. There never seems to be enough space for cheap Chinese manufactured goods that we miraculously manage to buy with freshly printed money. We should take advantage of the Chinese love of our paper products for as long as we possibly can. Eventually they may tire of it.

If there is one thing we can count on to get us through these difficult times, it is export growth. I'm guessing we'll return to the red trend line in the second half of the year, perhaps during our much fabled second half of year cyclical recovery.

The naysayers seem to have a few itsy bitsy tiny nagging concerns though. Isn't that just like them? Always looking for the worst outcome and never satisfied unless they get it. So let's rationalize their concerns away and be done with them.

What if the trend line should have just been a flat line centered on 0.6 TEUs per thousand capita?

That's a really good question. However, what's the point of having a chart with a straight flat line on it? Doesn't that seem a bit silly? How can an economy prosper with straight flat lines everywhere? That's insanity. No sir. We need exponential growth on top of population growth in order to prosper. If that requires trillions of dollars in freshly printed money, then so be it.

What if we're actually just reverting to the mean?

Clearly somebody has been reading way too many introductory economic textbooks. This is all covered in the advanced economic t-shirt markets though. Reversion to the mean is a 25 sigma event when money is being printed at essentially no cost. Look, let's put this another way. If we can destroy our currency fast enough, foreigners will surely want to buy our goods (food, scrap paper, scrap metals, and our other advanced technology natural resources) from us before it is too late. Therefore, keep the faith!

See Also:

Trend Line Disclaimer

Source Data:
Port of Long Beach: Statistics
Port of Los Angeles: Statistics
The X-12-ARIMA Seasonal Adjustment Program
St. Louis Fed: Population: Mid-Month

Thursday, January 15, 2009

2nd Half of Year Recovery at Risk, Again

2nd Half of Year Recovery

Any word on the when the 2nd half of year recovery will recover? It is like we've sent a rescue team out to save the stranded mountain climbers and now the rescue team itself needs saving. Surely we can send out a few more helicopters to drop some freshly printed cash on them. If we do it enough times, they can burn it to keep themselves warm until the storm passes.

Oops! That's from July of 2008. I must not be getting enough sleep. I was looking for something a bit more current. Sorry about that. The 2008 second-half of year recovery didn't pan out so well and I really apologize for bringing that sore subject back up. Please allow me to try again.

Second-Quarter Weakness, Second-Half Comeback?

That's a heck of a lot better than the negative growth estimates from the alarmists' corner. And even though unemployment will probably creep up further, the economy should manage signs of recovery in the third quarter -- the fourth at the very latest.

What on earth is going on? Damn! I did it again. That one was from May of 2001. In my defense, all these second-half of year recoveries are starting to look the same to me. One last try. I swear I'm going to do my best on this one. No more mistakes!

January 15, 2009
U.S. Initial Jobless Claims Rose to 524,000 Last Week (Update1)

“We’ve had consistent numbers that are worse than expectations,” Dan North, chief U.S. economist at Euler Hermes ACI in Owings Mills, Maryland, said in an interview with Bloomberg Television. “That kind of tells you that the recession seems to be accelerating just a little bit and puts the forecast of a second-half recovery at risk.”

That's more like it. I sure hope I don't make these mistakes again in January of 2010 as we discuss the odds of a recovery later in that year. That could be VERY embarrassing.

Blood Bathing 101

Slow economy could make markets rife with bargains

Smith says it’s a little bit early to move on financials. “That’s where the money will be made eventually, but the bloodbath might not be over right now.”

One sector Smith likes a lot: “the retraining of America.” An example would be ITT Institute, which trains students for careers such as hairdressing and massage therapy.

If the retraining of America is centered on hairdressing and massage therapy to make us more competitive with China, then our standard of living bloodbath will continue.

1. a ruthless slaughter of a great number of people; massacre.

“With a little bit of luck, and everyone should keep their fingers crossed, this should be very inflationary, and that’s a good thing. ... Otherwise, the stuff we’re paying on is not worth anything. Inflation helps the debtor.”

If "very inflationary" leads to massive unemployment like it did in Zimbabwe, Weimar Germany, and our 1970s, then the employment bloodbath will continue. As a side note, the bloodbath will continue as long as we think the monetary printing press can actually solve the problems of massive debt, massive overcapacity, and a world that has suddenly become much more competitive and fearful.

3. a widespread dismissal or purge, as of employees.

Nocera: JPMorgan's Profit Good for the Market, But Citi 'Going to Be a Bloodbath'

Continued deterioration and "the potential for [more] panic," is also Nocera's forecast. Any good tidings generated by JPMorgan's results today could be wiped out tomorrow by Citigroup, where a loss of $10 billion or more has been predicted. "It's going to be a bloodbath," he says.

If there is continued deterioration, the potential for more panic, and major banks continue to hemorrhage money, then the economic bloodbath will continue. In hindsight, history may show that it only took one of the three.

2. Informal. a period of disastrous loss or reversal: A few mutual funds performed well in the general bloodbath of the stock market.

Source Data:'s Bloodbath

Wednesday, January 14, 2009

Illusion of Prosperity Disgrace

Nortel files for bankruptcy protection, shares plunge

Shares of Nortel plunged more than 76 percent to 7.5 cents in electronic pre-market trading on Wednesday. The TSX said it was reviewing the stock for possible delisting.

This blog heckled Nortel yesterday.

Nortel vs. Jones Soda

Did it mention that shorting a 32 cent stock would have been a good idea? No. At the time it was felt that 32 cents was already fairly cheap. In hindsight, would you have made a lot of money shorting it anyway? Yes.

There can be only one explanation. The Illusion of Prosperity blog is once again packed with excessive optimism. Stagflationary Mark clearly strives to be the next Larry Kudlow. It is an absolute disgrace. The blog was founded on the idea of heckling excessive optimism, not participating in it.

Steps are being taken to see that it does not happen again. The board has verbally reprimanded Stagflationary Mark and postponed his annual bonus 24 hours. No additional parking privileges past what he already has will be granted, without careful review. Access to the blog's vast fleet of corporate jets for personal use will generally not be allowed without 15 minutes advanced notice. 10% of the blog's personal massage therapists will be fired, 10% relocated to permanent duty aboard the corporate jets, and the remaining 80% will be outsourced to a small private exotic beach in the Bahamas (conveniently located near a small private airport).

We feel that these steps will lead us to a much more prosperous blog in the future. Thanks to these new changes, we are confident that we can boost the blog's revenues, income, and dividends 1000% over the next 10 years (from zero dollars this year to an astounding ZERO DOLLARS in 2019). Thank you for your continued support during these troubling times.

Tuesday, January 13, 2009

Nortel vs. Jones Soda

It's an epic battle of the ages pitting new economy high tech against old school turkey and gravy soda . There can be only one victor!

And the winner is... *drum roll*

Nortel vs. Jones Soda


In hindsight, I should have said that there can be at most only one victor. Zero victors was also a possibility. Oh well. Too optimistic yet again. It's my curse. I'm learning to live with it.

January 13, 2009

UPDATE 1-Nortel shares plunge ahead of interest payment

In November, it reported a $3.4 billion quarterly loss, cut its 2008 outlook and announced 1,300 layoffs, about 5 percent of its staff. It also said it would freeze salary increases, cut back on consultants and review its real estate portfolio.

Review its real estate portfolio? Um, gosh, that's a pretty bold and gutsy move.

November 7, 2008

Pop Plop, Fizz, Fizz, at Jones Soda

Jones Soda (Nasdaq: JSDA) is so edgy and anti-establishment that it even knows how to destroy itself.

See Also:
My First Sarcasm Report Revisited

Califantasia (Musical Tribute)

Has our state exhausted its prosperity?

What, if anything, will come next to pull us out of recession and return California to prosperity? Some think it will be biotechnology, services to baby boomer retirees or solving global warming.

Lurking in the background, however, is a nagging worry that there won't be anything, that the state's endemically high costs, political dysfunction and list of unresolved dilemmas, from transportation to water, have made us uncompetitive in a global economy. Just last week, a federal survey found that California has the nation's highest adult illiteracy rate.

Plastic toys from China try to route through Alameda
Dolls are made in Shanghai with lost jobs our one agenda
But if you want prosperity, it's Califantasia

It's the end of the world and the fall of North America
Oil rose in the East as was seen in the memoranda
It's understood that the Fed Reserve sold Califantasia

Pay the bankers very well to break deflation's raging
Buy up homes at a record pace and then plan for the collapsing
Your home can't be sold?
You had to fold?
Dream of Califantasia
Dream of Califantasia

Drop the cash in the backyards of the world, it becomes the next parabola
A central banker with a printing press getting high on great dilemmas
He borrows some time but it's so hard, it's Califantasia

Cash may seem the safe long-term bet, but it's conjured with abracadabra
The risk is hoarding too much as it's hardly a panacea
You say stagflation's far away but that's Califantasia

Buy and hold's been sold so much you'd think it's the referenda
Everybody has bought in on this national ponzi schema
Your home can't be sold?
You had to fold?
Dream of Califantasia
Dream of Califantasia

Dream of Califantasia
Dream of Califantasia

Destruction leads to great depression but it also breeds propaganda
And defaults are to a banking system what sticks are to pinatas
But liquidity can't save the world from Califantasia

Pay the bankers very well to break deflation's raging
Sicker than the rest, this is no test, and this is why it is caving
Your home can't be sold?
You had to fold?
Dream of Califantasia
Dream of Califantasia

The Money Pit

Bernanke says more steps needed to stabilize banks

In his first policy speech since early December, Bernanke said that while an expected U.S. fiscal stimulus package could provide a "significant boost" to the economy, the government may need to inject more capital into banks.

More liquidity!

Monday, January 12, 2009

Washington State News

January 12, 2009
2009 Washington Legislature under way

"We need to solve the big problems together," DeBolt said. "We are facing a huge budget crisis. We have ideas on our side of the aisle to help that out."

January 12, 2009
Lawmakers Cautious About Replacing Seattle Viaduct With Tunnel

The Governor, Seattle Mayor and King County Executive have reportedly agreed to support a deep-bored tunnel along Seattle’s waterfront.

Washington lawmakers seemed to be caught unaware by the deal. House Majority Leader Lynn Kessler, a Democrat, says the state can’t afford to be on the hook if there are cost overruns during construction.

Lynn Kessler: “I don’t think they have a clue – personally – how much it’s going to cost and I don’t think we should sign up for something that has a money pit at the end of it. There should be some maximum we would be responsible for.”

January 12, 2009
Decision on replacing Seattle viaduct

The tunnel is the most-expensive option at more than $4 billion. The elevated and surface plans would cost more than $3 billion. The state has committed $2.8 billion for the project.

Green is the healing color. It represents our leaders working together. Red is the fire and brimstone color. It represents steps taken to control our huge budget crisis.

The Rise and Fall of the Rhodium Empire


It was a sure thing, right up until the point it wasn't.

Do you know what the fundamentals are for Rhodium? I sure don't. By the looks of it, not many long-term investors did either.

Now check out the one picture (of large mining equipment) I think every commodity investor should see before making a large investment.

September 23, 2007

Productivity Miracle

Topic: Large mining equipment

I find it all quite humbling. Don't you?

This is one reason why I no longer hoard gold and silver, even though I remain a stagflationist long-term.

Here's a related reason.

600 Years of Silver Prices

You will note that it is adjusted for inflation. Some bulls look at that and think it is sure to rebound. That's not quite what I see. Images of large mining equipment fill my head.