Monday, May 31, 2010

Friday, May 28, 2010

Vital Signs

Is there a pulse?

You decide:

Real Disposable Personal Income


Initial Unemployment Claims

Stuck at roughly 450K.

Commercial and Industrial Loans

No bounce yet from the recent 20+ percent decline.

MBA Purchase index
(tracks new home mortgages)

Can you tell when the First-time Home Buyer Credit expired (twice)?

TED spread
(difference between LIBOR and US 10-year Treasury yield)

The higher this goes, the closer we get to a seizure in the credit markets.

Wednesday, May 26, 2010

The Bailouts Must End

John P. Hussman, Ph.D., of Hussman Investment Trust:

Treasury Secretary Timothy Geithner has scheduled a trip to Europe this week to urge European leaders "to pay better attention to potential market reactions to policy moves, and to accelerate the European rescue program." This promises to be a fiasco. What could European leaders possibly find more arrogant than to be lectured on bailout policy - not simply by the U.S., but specifically by a one-trick pony bureaucrat whose chief trick is the ability to smoothly talk the language of prudence while simultaneously pillaging the fiscal stability of an entire nation for the benefit of bondholders who made bad loans?

...It would be wise for investors to abandon the fear-mongering word "failure" in preference for the instructive word "restructuring." Thinking of credit strains in terms of failure prompts a natural but improper impulse to avoid that failure through bailouts, at the cost of those who had no part in the mismanagement. In contrast, recognizing the need for restructuring places the costs directly where they belong - on those who provided and managed the capital. It also immediately turns attention to proper solutions and negotiations between the borrowers and lenders.

Complete commentary at

Monday, May 24, 2010

How about that recovery?

Maine Unemployment Rate Drops in April is what the headline flashed in Friday's Portland Press Herald. From 8.2% all the way down to 8.1%. A mere rounding error. What the story failed to point out is what really matters: 6,500 jobs were lost in Maine in April. As the chart above shows, this U-turn in the jobs number means that we have not even hit bottom yet. Expect another thousand or more jobs to be lost before July 1 as school districts pare down for the coming fiscal year.

Bottom line: the state's revenue projections for FY2011, already bleak, may need to be revised downward once more.

Monday Muse

Maire Brennan

To the Water

Thursday, May 20, 2010

Oh, Yeah? Take That!

"The bottom line is, boycotts work."

--L.A. Mayor Antonio Villaraigosa,
justifying the city council's resolution to punish Arizona
for its new immigration law.

"If an economic boycott is truly what you desire, I will be happy to encourage Arizona utilities to renegotiate your power agreements so Los Angeles no longer receives any power from Arizona-based generation. I am confident that Arizona’s utilities would be happy to take those electrons off your hands."

--Arizona Corporation Commissioner Gary Pierce,
offering in response to re-allocate 25% of L.A.'s power supply

Wednesday, May 19, 2010

He's BA-A-ACK!

Global markets are wilting under this carnivore's breath.

Leo Isaak explains why:

I'll start out by getting right to the point: I'm incredibly bearish right now....

I think Europe could very well destroy any hope of a recovery that we thought we might see. Not only that, I think it could push the world off of a precipice of debt that, if it were to occur, would create something resembling outright disaster. Austerity combined with savage debt service issues and crushing currency devaluation is impacting the entire world... Frankly, I'm nothing short of terrified.

Complete article viewable at

Monday, May 17, 2010

Sunday, May 16, 2010

A cynic is a man who, when he smells flowers, looks around for a coffin.
--H.L. Mencken

Friday, May 14, 2010

Gone Clippin'

The pool below Kees Falls sparkles in the afternoon sunlight.
Caribou Trail

Monday, May 10, 2010

World's Largest Defibrillator: Will It Work?

Yesterday the European Union announced a trillion-dollar plan to rescue the region's weaker economies. In his weekly market comment this morning, John P. Hussman explains why the attempted "shock and awe" will succumb to "aw, shucks."


Looking at the current state of the world economy, the underlying reality remains little changed: there is more debt outstanding than is capable of being properly serviced. It's certainly possible to issue government debt in order to bail out one borrower or another (and prevent their bondholders from taking a loss). However, this means that for every dollar of bad debt that should have been wiped off the books, the world economy is left with two - the initial dollar of debt that has been bailed out and must continue to be serviced, and an additional dollar of government debt that was issued to execute the bailout.

Notice also that the capital that is used to provide the bailout goes from the hands of savers into the hands of bondholders who made bad investments. We are not only allocating global savings to governments. We are further allocating global savings precisely to those who were the worst stewards of the world's capital. From a productivity standpoint, this is a nightmare.

Complete article viewable at

Monday Muse

Judy Collins


Sunday, May 9, 2010

Quote for the Week, May 9-15, 2010

If you could kick the person in the pants responsible for most of your trouble, you wouldn't sit for a month.
--Theodore Roosevelt, U.S. President (1901-09)

Saturday, May 8, 2010

Fritz in Fine Form

Interview with former Senator Ernest Hollings (SC)


I got elected in 1948. In those days you had to do a good job to get re-elected... Not anymore. I can tell you for that crowd coming into Washington today re-election is the first order of business and that means money. In my last race, I raised $8.5 million which is $30,000 per week, every week for six years... Senator Mike Mansfield used to have a vote on Monday morning to get a quorum for the Senate to do business and would keep us in session until Fridays at 5:00. Not anymore. Mondays and Fridays are gone. We fund-raise. We love filibusters. We get a Republican and a Democrat to hold the floor and the rest go out and fund-raise....

I am as frustrated as any. I speak and write but it has no effect on Larry Summers and Tim Geithner, who sank the trade policy. They want to keep Wall Street and the banks up and Goldman Sachs up. They don't give a damn about jobs or environmental safety or labor in Shanghai. As long as the market's up they think we have a good economy. The market's up my ass. We're broke. Everybody's broke...

It is ridiculous to manage our fiscal affairs in this way. The only way to fix it is to educate the public on what is going on. Rather than a "hue and cry" about Wall Street, we should be talking about how to fix our nation's finances..
. Summers and Geithner ought to be fired immediately.

Complete interview viewable at
(free this week only)

Friday, May 7, 2010

ZIRP Should Be Zapped

David Stockman, "Fed Policy Stealing From Our Future"


We are now well into the second year of green shoots, but in word and deed the Fed remains entombed in the zero interest rate policy (ZIRP)...[which] is incredibly destructive because it gives precisely the wrong signal to key economic constituencies, including speculators, savers, and politicians....

The risk/reward equation for rank speculation on the yield curve has become downright mouthwatering. Based on the Fed’s promise of no policy surprises, daredevils throughout the financial markets have put on massive carry trades, believing -- perhaps correctly -- that they will have plenty of forewarning when it's time to get out of risk assets. Meanwhile, funded by the Fed’s cornucopia of essentially zero-cost repo, these risk assets are earning handsome spreads and/or valuation gains, thereby minting profits while the speculators wait.

These massive trading gains being reported by Wall Street banks, however, do not represent economic profits from capital deployed in value-added service to the household and business sectors; that is, they are not comparable to returns from underwriting new equity issues for corporations or providing asset management services to households. Rather, they amount to pure rents extracted from valueless, hyperactive trading inside the Fed’s artificially steepened yield curve.

To be sure, the dead-weight economic cost of this pointless churning of the secondary markets in securities and derivatives may not be fatal. But at the end of the day, it does represent a massive, unjustifiable income transfer from the struggling multitudes to the fortunate few, and a demented social policy that forces investors to incur great risks to obtain any return at all on their savings.

Complete article viewable at

Thursday, May 6, 2010

Credit Crisis One of Credibility

George Friedman, "The Global Crisis of Legitimacy"

Systemic risk emerges when it appears that the political and legal protections given to economic actors, and particularly to members of the economic elite, have been used to subvert the intent of the system. In other words, the crisis occurs when it appears that the economic elite used the law’s allocation of risk to enrich themselves in ways that undermined the wealth of the nation. Put another way, the crisis occurs when it appears that the financial elite used the politico-legal structure to enrich themselves through systematically imprudent behavior while those engaged in prudent behavior were harmed, with the political elite apparently taking no action to protect the victims....

This is a political crisis then, not an economic one. The political elite is responsible for the corporate elite in a unique fashion: The corporation was a political invention, so by definition, its behavior depends on the political system. But in a deeper sense, the crisis is one of both political and corporate elites, and the perception that by omission or commission they acted together — knowingly engineering the outcome. In a sense, it does not matter whether this is what happened. That it is widely believed that this is what happened alone is the origin of the crisis. This generates a political crisis that in turn is translated into an attack on the economic system.

Complete article viewable at

Tuesday, May 4, 2010

These Piggies? Not So Little

Seven more banks were closed by the FDIC on Friday, bringing the total for the year to 64--and the total since January 1, 2009, to over 200. Ho-hum, business as usual, right? Not exactly. What makes Friday's tally noteworthy is the cost to the Deposit Insurance Fund: over $7.3 billion for these seven, compared to $8.6 billion for the previous fifty-seven. So losses to the DIF are accelerating.

The FDIC knew coming into 2010 that a year's worth of premiums from the insured banks would not be enough to cover expected failures. So it billed the banks not only for 2010, but for 2011 and 2012 as well, all of it due last December 31. That meant an infusion of over $45 billion into the DIF, some of which was needed to paper over a deficit from 2009. At the current burn rate, the DIF will be wiped out by the end of July. After that the FDIC will be borrowing from the U.S. Treasury, which itself is so far in the hole that Chinese airspace is almost visible underfoot.

Ever since April 16, short-sellers have been circling Goldman Sachs in a feeding frenzy sparked by a complaint by the Securities Exchange Commission that the firm had defrauded investors. The scary part is that Goldman never thought it was doing anything wrong by peddling synthetic CDOs without transparent disclaimers. It was more business as usual, no moral compass required. Goldman still believes it is clean--godly, even--but at least now it is disclosing legal risks to those who do use a compass. Yesterday the firm revealed that it has been hit with seven lawsuits so far (not counting the SEC's), alleging “breach of fiduciary duty, corporate waste, abuse of control, mismanagement and unjust enrichment.” The plaintiffs allow that, other than those few things, Goldman has done a fine job.

The cost of insuring Goldman's debt (using five-year credit default swaps) has nearly doubled since the SEC announcement, suggesting that investors do not share Goldman's estimation of its own invincibility.

Pollyannas have cheered U.S. auto sales figures for the past two months as proof that the economic recovery has taken hold. However, a glance at the graph below from confirms that sales are nowhere near the 15-16 million units per year needed to sustain the existing manufacturing capacity. We can detect a Cash-for-Clunkers spike in 2009 and the more recent (and less robust) Toyota-incentives spike. Otherwise we are stuck at a run rate of 10-11 million units annually, about where we were twenty years ago when there were far fewer registered drivers.

[click to enlarge]

Monday, May 3, 2010

Sunday, May 2, 2010

Quote for the Week, May 2-8, 2010

The fundamentalists have taken the fun out of the mental.
--Ken Kesey

Ruptures Everywhere

Twenty acres in western Maine
with gravity-fed springwater
never looked so good....