Roll Over, Beethoven

Abysmal.

Is there a better word to describe today's job numbers from the Bureau of Labor Statistics? Only 43,000 nonfarm payrolls (according to the Establishment Survey) have been added in the U.S. economy in the last two months, a number insufficient to accommodate all the new entrants to the workforce, never mind the 8 million-plus who lost jobs since December 2007.

If you prefer the Household Survey for your employment data, put on your seat belt. The number of people employed nationwide in June plunged either by 445,000 (Table A-1 here) or by 542,000 (Table A-8 here, ag plus non-ag) depending on which table you peruse. The so-called Adjusted Household Survey, which tries to dovetail the establishment and household methodologies, comes in at minus 401,000. Pick a number, any number, it's all the same. Upchuck city.

Mike Mish Shedlock points out that there has been no progress in upgrading part-time jobs in the past year:

Dave Rosenberg has a chart showing the difficulty the unemployed are having trying to get back to work:

Lee Adler shows how payroll withholdings (hence wages and salaries) are flatlining:

The stock market looked primed for major pukage at the open today. But hours after the BLS release came a report that consumer credit expanded in May. Traders jumped on that slim reed as evidence that the economy is picking up steam. Karl Denninger cautions, however, that any growth in non-revolving credit (red line, below) is purely the result of federally guaranteed student loans. Absent indentured college graduates, non-revolving credit is still contracting (green line). Revolving credit (blue line--think credit cards) is not rebounding meaningfully.

Look at these charts carefully, then invest accordingly.

Loon Count 2011

Saturday, July 16th, is the date for Maine Audubon's annual statewide survey of the loon population on Maine's lakes and ponds.

Check out this stunning slide show from last year's photo contest.

Quote for the Week, July 3-9, 2011

Politics, n.--A strife of interests masquerading as a contest of principles.
--Ambrose Bierce, The Devil's Dictionary

Message for MainePERS

Dial 1-800-GET-ME-OUT

Late yesterday came word that Bank of America was close to a settlement whereby a whopping $8.5 billion will be paid out to institutional investors holding toxic mortgage-backed securities peddled by Countrywide Financial, which BofA took over in 2008. This is the biggest settlement to date over claims arising from the subprime mortgage boom that helped precipitate the near-meltdown of financial markets three years ago.

[update 07-05-11: The price tag may go higher. Today a court filing on behalf of an investor group called Walnut Place challenged the proposed settlement for "the secret, non-adversarial and conflicted way in which [it] was negotiated." The Walnut Place investors want to opt out and pursue recourse separately, feeling that the $8.5 billion for a class-action suit is not enough.]

The deal follows the bank's settlements earlier this year with Fannie Mae and Freddie Mac (for $2.8 billion) and Assured Guaranty Ltd. ($1.1 billion). As of March 31, Bank of America was seriously under-reserved for an outcome of this magnitude, with a provision for representations and warranties of just $1 billion (scroll to page 22 here). The latest settlement wipes that away, plus all year-do-date earnings as well. In addition to the $8.5 billion payout, the company will set aside $5.5 billion to rebuild the aforementioned reps-and-warranties reserve (because yes, Mathilda, there are more claims coming). And it doesn't stop there. According to a statement:

The company also expects to record $6.4 billion in other mortgage-related charges in the second quarter of 2011, including a non-cash, non-tax deductible impairment charge of $2.6 billion to write off the balance of goodwill in the Consumer Real Estate Services business, as well as charges related to additional litigation costs, a write-down in the value of mortgage servicing rights, and additional assessment and waiver costs for compensatory fees associated with foreclosure delays.

Add all those items together, and the total damage to the company's balance sheet is over $20 billion. Not even Jamie Dimon makes that much.

Karl Denninger points out that $20 billion is a hefty 12% of BofA's market capitalization (share price multiplied by share count). And the litigation is not over. BofA and other lenders are currently negotiating with the 50 state attorneys general and the feds regarding shoddy lending practices and abusive foreclosures. The bill for those transgressions may add up to as much as $20 billion industry-wide. The MainePERS investment portfolio continues to hold 2.5 million shares of Bank of America common stock and almost a million shares of another highly exposed bank, Dimon's own JP Morgan Chase (see below). The share prices of those two are in serious downward trajectories as the hedgies are fleeing in droves.

While MainePERS portfolio managers sit on their hands.

[update 07-06-11:]

Maine Treasurer Bruce Poliquin referred my letter of June 18th to MainePERS, from whom I have received the following reply:

Thank you for your email inquiring about the MainePERS investments. Treasurer Poliquin requested that we respond. I apologize for the delay in my response. It was very busy closing up the fiscal year.

Hopefully we can ease your concern about LD 1524. MainePERS is committed to transparency because we are a public fund. Our investments are fully disclosed in a number of venues, our website and investment reports being two. Also, our investment process has multiple layers of checks and balances to ensure ethical investing including regular reviews by both internal and external auditor who have access to all confidential data.

LD 1524 is not intended to limit any information that assures the public about the propriety of our investments. Its’ primary purpose is to limit other investors (e.g. competitors of MainePERS, hedge funds, money managers) from using the public disclosure process to obtain competitive information, sensitive financial information, and trade secrets which may disadvantage MainePERS and the funds with which we are investing.

The exemptions in LD 1524 were drafted to be as limited as possible to provide the public with a clear view of our investments and to allow MainePERS to make the solid investments on behalf of its beneficiaries. These exemptions are similar to exemptions provided to the Finance Authority of Maine (FAME) and Small Enterprise Growth Fund of Maine (SEGF) for their private party transactions. Similar exemptions are also found at numerous other state pension funds and university systems.

Your second concern is one that is most appropriately directed to the Legislature, the sponsor of state pension plans. The Legislature has created a work group to develop a new plan based on Social Security participation for all new hires after 2015.

Managing a $10.5 billion dollar portfolio takes a significant amount of work to develop an asset allocation strategy. We always welcome thoughts and perspectives such as yours when we are going through the allocation process.

I know I can’t directly answer some of your concerns, but I hope this information is helpful.

Sandy Matheson, Executive Director

Maine Public Employees Retirement System

Mainer Saves Garden Patch

The weeds were...

...outta control, I tell ya, OUTTA CONTROL!

Gould Farm

Monterey, MA

June 2011

Quote for the Week, June 26-July 2, 2011

Let us live so that when we come to die even the undertaker will be sorry.
--Mark Twain

E-Street Sax Man Passes

Clarence Clemons

1942-2011

Quote for the Week, June 19-25, 2011

A countryman between two lawyers is like a fish between two cats.

--Benjamin Franklin

Dear Bruce

Open Letter to Maine's State Treasurer:

Treasurer Poliquin--

I am dismayed to read in this morning's Lewiston Sun Journal about the progress of LD 1524, a bill that, if implemented, would pull a veil over some of the state's investments on behalf of MainePERS beneficiaries. If I were a state employee coerced into mandatory pension contributions, I would sure as hell want to know where my money was.

I have already communicated to you that I believe the state should be out of the retirement-planning business altogether. The projected returns of 7+% per annum are totally unrealistic given the current trends of an aging population, growing structural unemployment, and collapsing credit. Liquidate MainePERS. Let beneficiaries get their money back (with a reasonable return and, if necessary, a cash-out bonus) while they can, before the looting runs its course.

And if we're going to continue playing the markets, let's dispense with the "passive" management approach. There will be more losers than winners in the next 5-7 years, so buying the indices practically guarantees poor performance. A good place to start would be culling the zombie banks from the MainePERS portfolio. Every hedge-fund manager on the planet worth his salt is doing exactly that. The financial sector can only shrink from here.

Sincerely--

Bill Hine, Peru, ME

[update 07-06-11:]

Treasurer Poliquin referred my letter to MainePERS, from whom I have received the following reply:

Thank you for your email inquiring about the MainePERS investments. Treasurer Poliquin requested that we respond. I apologize for the delay in my response. It was very busy closing up the fiscal year.

Hopefully we can ease your concern about LD 1524. MainePERS is committed to transparency because we are a public fund. Our investments are fully disclosed in a number of venues, our website and investment reports being two. Also, our investment process has multiple layers of checks and balances to ensure ethical investing including regular reviews by both internal and external auditor who have access to all confidential data.

LD 1524 is not intended to limit any information that assures the public about the propriety of our investments. Its’ primary purpose is to limit other investors (e.g. competitors of MainePERS, hedge funds, money managers) from using the public disclosure process to obtain competitive information, sensitive financial information, and trade secrets which may disadvantage MainePERS and the funds with which we are investing.

The exemptions in LD 1524 were drafted to be as limited as possible to provide the public with a clear view of our investments and to allow MainePERS to make the solid investments on behalf of its beneficiaries. These exemptions are similar to exemptions provided to the Finance Authority of Maine (FAME) and Small Enterprise Growth Fund of Maine (SEGF) for their private party transactions. Similar exemptions are also found at numerous other state pension funds and university systems.

Your second concern is one that is most appropriately directed to the Legislature, the sponsor of state pension plans. The Legislature has created a work group to develop a new plan based on Social Security participation for all new hires after 2015.

Managing a $10.5 billion dollar portfolio takes a significant amount of work to develop an asset allocation strategy. We always welcome thoughts and perspectives such as yours when we are going through the allocation process.

I know I can’t directly answer some of your concerns, but I hope this information is helpful.

Sandy Matheson, Executive Director

Maine Public Employees Retirement System

Greeks Refuse To Go Along

Tension outside the Greek Parliament,

Athens

June 15, 2011

Remember what this means for the U.S. financial sector.

$21M for One Guy for One Year?

The Financial Times has an interactive graphic detailing what the CEOs of the big Wall Street banks are getting paid. You might want to review the bidding because before year's end the banks will be back to the taxpayers for another bailout.

Go here.

Take THAT, LeBron!

Ohio guv rubs it in.

Of course, the Mavs should remember the old saw about the Grand Prize being an expenses-paid week in Cleveland. Second-place prize? Two weeks in Cleveland....

Maybe next year.

Derrick Jackson Does the Smokies

Most thru-hikers will tell you: Maine is their favorite stretch of the Appalachian Trail. But the Great Smoky Mountains run a close second. The Boston Globe's Derrick Jackson, who often trains his photo eye on Maine, headed south to see what all the talk is about. His latest photo gallery appears here.

Quote for the Week, June 12-18, 2011

Leading is easy, the hard part is getting people to follow.
--Yogi Berra

Hot Potatoes Coming Our Way

Nice place to visit, wouldn't want to lend there.

Greece is like really REALLY far away. So who in America cares if the Greek government fails to pay off its sovereign debt! What happens in Greece stays in Greece, right?

OK, so maybe there will be a little leakage to the rest of the European Union. Or a lot. The European Central Bank, truth be told, has an Airbus A380 full of paper not only from Greece, but from the other PIIGS as well. If they all default, the ECB becomes insolvent, as will a gazillion European banks holding the same crapola. U.S. banks have less direct exposure to European peripheral debt, so we're all good on this side of the Pond.

Or not. To the surprise of absolutely no one, the biggest U.S. banks have concocted yet another way of trying to get money for nothing. They have sold insurance to the European banks in the form of credit default swaps (CDS), which, upon a default "event," obligate the seller (read: "greedy U.S. bank") essentially to buy the bad bonds at face value from the swapholder ("clever Euro bank"). In other words, the risk of default is transferred from the bondholder to the seller of the swap. The U.S. banks are betting that they are the clever ones, that the PIIGS will be bailed out before they are ever allowed to default. The CDS, they hope, will expire worthless.

But look:

...the Greek people, never to be confused with their government, are not interested in having services curtailed, benefits trimmed, and paychecks confiscated just so that all the banks, European and American, can get paid 100 cents on the dollar. Nor are their German brethren willing to guarantee loan payments ad infinitum. A nasty "event" is increasingly likely--and may be only days way.

Financial commentator John Mauldin's weekly newsletter, posted today, is entitled "Time to Get Outraged." He reckons that the CDS exposure of U.S. banks totals $120 billion, enough to bankrupt them should dominoes start to fall. In the "event," expect TARP Two, where the banks extort more bailout money from U.S. taxpayers. As for the banks' shareholders (that's you, MainePERS), they get wiped out. It's a win-win for the banks. The Europeans come out whole, and American CEOs continue to get paid. It's a lose-lose for the rest of us.

How exposed is MainePERS stepchild Bank of America? Let me count the ways:

[from BofA's first-quarter 10Q filed with the SEC]

[update, 06-12-11:]

ZeroHedge has a provocative post up today with evidence that the beneficiaries of the Federal Reserve's latest round of quantitative easing (a.k.a. QE2) are not U.S. banks nor their domestic customers, but foreign banks:

"In summary, instead of doing everything in its power to stimulate reserve, and thus cash, accumulation at domestic (US) banks which would in turn encourage lending to US borrowers, the Fed has been conducting yet another stealthy foreign bank rescue operation, which rerouted $600 billion in capital from potential borrowers to insolvent foreign financial institutions in the past 7 months. QE2 was nothing more (or less) than another European bank rescue operation!

[click to enlarge]

...if there is one definitive proof of the Fed abdicating any and all of its mandates, and merely playing the role of globofunder explicitly at the expense of US consumers and borrowers, not to mention lackey for the banking syndicate, this is it."

Quote for the Week, June 5-11, 2011

Progress is precisely that which the rules and regulations did not foresee.
--Ludwig von Mises

This Little Piggy Went to Market...

...these BIG piggies foreclosed:

PiggyBankBlog.com

Meanwhile, VOICE of Northern Virginia tells Jamie Dimon and Brian Moynihan (CEOs of JP Morgan Chase and Bank of America, respectively) to...

"get your hard hats on!"

Slip(per)-slidin' Away

late afternoon

May 31, 2011

Peru, Maine

Quote for the Week, May 29-June 4, 2011

A mule will labor ten years willingly and patiently for you, for the privilege of kicking you once.
--William Faulkner

Dear Brian, WYADII

...which is text-speak for What You Are Doing Is Illegal.

Bank of America's CEO

Released earlier today: a letter from Utah's Attorney General to Brian Moynihan, President and CEO of Bank of America, informing him that "all real estate foreclosures conducted by ReconTrust [a unit of Bank of America] in the State of Utah are not in compliance with Utah's statutes, and are hence illegal." Not only that, but "ReconTrust's exercise of fiduciary powers in the State of Utah is a violation not only of State law, but also applicable federal law."

Other than that, Bro (er, Brian, or whatever), you run a squeaky-clean operation. MainePERS will stand by you to the end.

[update, 05-26-11:]

Go ahead, try it. Google "Bank of America settlement" and see what you get. Today there's this:

Bank of America Settles Illegal Overdraft Fees Lawsuit for $410 Million

And this:

Bank of America To Pay $20 Million for Military Foreclosures

In the first one, BofA was accused of recording ATM transactions to maximize overdraft fees. Specifically, the bank debited not in chronological order, but by transaction amount, largest items first. This way a customer skirting a zero balance would incur penalties sooner and more often. GOTCHA! In the second one, a BofA subsidiary illegally foreclosed on 160 military servicemembers in 20 states between January 2006 and May 2009. People joining the military are protected by the Servicemembers Civil Relief Act, which requires a court order for foreclosure on a home mortgage held by a serviceman or woman. In several cases cited by the Justice Department, BofA refused to delay foreclosures even after receiving documentation that the homeowners were on active duty.

If you believe you were improperly foreclosed on by Bank of America before the end of December 2010 (as per SCRA), call 1-800-896-7743, mailbox 6. There may be a check waiting for you.

Maybe Bank of America should be renamed Bank Against America. Something to think about as we remember veterans this weekend.

"Same Old Gong Show"

Looking for an adult discussion about the national debt? You won't find it in Washington, says former OMB Director David Stockman. The parties are too busy posturing. Budget management by default will lead to exactly that: DEFAULT.

Quote for the Week, May 22-28, 2011

Every election is a sort of advance auction of stolen goods.
--H.L. Mencken

Blooms Go Boom

Top brass monitor the Bin Laden hit from the Situation Room

"Obama's Reset:

Arab Spring or Same Old Thing?"

by Nick Turse

How the President and the Pentagon Prop Up Both Middle Eastern Despots and American Arms Dealers

[excerpt:]

"For decades, the U.S. has provided military aid, facilitated the sale of weaponry, and transferred vast quantities of arms to a host of Middle Eastern despots. Arming Arab autocrats, however, isn’t only the work of presidents past. A TomDispatch analysis of Pentagon documents finds that the Obama administration has sought to send billions of dollars in weapons systems -- from advanced helicopters to fighter jets -- to the very regimes that have beaten, jailed, and killed pro-democracy demonstrators, journalists, and reform activists throughout the Arab Spring.

The administration’s abiding support for the militaries of repressive regimes calls into question the president’s rhetoric about change. The arms deals of recent years also shed light on the shadowy, mutually supportive relationships among the U.S. military, top arms dealers, and Arab states that are of increasing importance to the Pentagon."

Complete article viewable here.

Duck, Duck, GOOSE!

Hedge-fund manager David Tepper [above] can't dump his Bank of America stock fast enough. In 2011's first quarter, his Appaloosa Management fund (according to its latest 13-F filed with the SEC) sold nearly 8 million shares of BAC, trimming its stake by almost a third. Appaloosa now holds 17.2 million shares, or 15 million fewer than what it had on January 1, 2010.

Meanwhile, super-investor John Paulson [above] sloughed off almost a quarter-million shares of BAC in Q1, after jettisoning over 27 million shares in 2010. Mega-super-investor George Soros [below] got rid of 1.2 million shares in Q1, leaving him with a small residual of 29,400 shares, which apparently no one wanted. Since September 30, twenty-five hedge funds have exited BAC completely.

MainePERS, going its own way, is holding tough at 2.5 million shares. But recent headlines about Bank of America suggest that Tepper, Paulson, Soros et al. are right to bail and that MainePERS should be following suit. The Huffington Post reports that BofA is one of five mortgage companies audited by the federal Department of Housing and Urban Development and accused of defrauding taxpayers while foreclosing on homes purchased with government-backed loans. According to HuffPost:

"The audits conclude that the banks effectively cheated taxpayers by presenting the Federal Housing Administration with false claims: They filed for federal reimbursement on foreclosed homes that sold for less than the outstanding loan balance using defective and faulty documents."

Bank of America got the inspector general's first-ever Foot-Dragging Award for failing to remediate its foreclosure practices even after announcing a temporary moratorium on foreclosures last October to clean up its act.

Over the weekend, Gretchen Morgenson of the New York Times reported on an investigation by an arm of the U.S. Justice Department that, despite the cartel's stonewalling, has gathered extensive evidence of the abusive loan-servicing practices of Bank of America, among others. An official in the the United States Trustee Program, which monitors the bankruptcy system, cites the industry-wide imposition of improper and inflated default servicing fees, including charges for legal work, property inspections, insurance, and appraisals. The same official estimates that the error rate may well be ten times higher than what has been represented in sworn testimony to Congress by the banksters.

Bank of America's stock price has retraced most of its year-end Santa Claus rally [below]. Unfortunately, MainePERS forgot to redeem its gift card.

BAC share price ($)

Michael Moore,

"Some Final Thoughts on the Death of Osama bin Laden"

[excerpt:]

"We did exactly what bin Laden said he wanted us to do: Give up our freedoms (like the freedom to be assumed innocent until proven guilty), engage our military in Muslim countries so that we will be hated by Muslims, and wipe ourselves out financially in doing so. Done, done and done, Osama. You had our number. You somehow knew we would eagerly give up our constitutional rights and become more like the authoritarian state you dreamed of. You knew we would exhaust our military and willingly go into more debt in eight years than we had accumulated in the previous 200 years combined....

If we really want to send bin Laden not just to his death, but also to his defeat, may I suggest that we reverse all of that right now. End the wars, bring the troops home, make the rich pay for this mess, and restore our privacy and due process rights that used to distinguish us from any other country. Right now, our democracy looks like Singapore and our economy has gone desperately Greek."

Complete commentary viewable here.

Quote for the Week, May 15-21, 2011

Emergencies have always been the pretext on which the safeguards of individual liberty have eroded.
--Friedrich von Hayek

Musings

Rolling Stone Readers

Pick the Best Ballads

of All Time

Cued up here.

Come On, Baby, Light My Water

Scientific Study Links

Flammable Drinking Water

to Fracking

ProPublica has the story.

Quote for the Week, May 8-14, 2011

[The accumulation of debt] is perhaps the NATURAL DISEASE of all Governments. And it is not easy to conceive anything more likely than this to lead to great and convulsive revolutions of Empire.
--Alexander Hamilton, first U.S. Treasury Secretary

Jobs? What Jobs?

Boing!

[click to enlarge]

Unemployment claims do their pogo-stick thing.

The Labor Department just reported that initial claims for unemployment benefits jumped last week to 474,000, a number not seen since last August. Furthermore, last week's figure was revised upward from 429K to 431K. Upward revisions have been the norm, so this week's eye-popper could end up even higher. The bump was attributed largely to "temporary" layoffs in the auto industry, where domestic manufacturers (particularly GM) spent the first quarter of 2011 stuffing channels. Just how temporary depends on how quickly that inventory moves off dealer lots.

The 4-week moving average of initial claims climbed to 431K, the highest since November. The average had dipped under 400K late this winter, leading to hopes that the economic recovery in the U.S. might be self-sustaining. Today's number puts a damper on that thinking. Look for confirmation in tomorrow's monthly employment report from the Bureau of Labor Statistics. While you're waiting, consider the structural trends demonstrated by these two graphs:

From Zero Hedge:

[click to enlarge]

From Calculated Risk:

[click to enlarge]

[update, 05-06-2011:]

This morning's BLS release shows an upside surprise of 244,000 nonfarm jobs added in April, at least according to the Establishment Survey. But the Household Survey tells a different story. According to Table A-1, there were 190,000 fewer people employed in April compared to March. And Table A-8 tells us that there were 210,000 more part-time workers in nonfarm industries. McDonalds may be hiring, but is anyone else?

More on McJobs here.

Quote for the Week, May 1-7, 2011

If the present Congress errs in too much talking, how can it be otherwise in a body to which the people send one hundred and fifty lawyers, whose trade it is to question everything, yield nothing, and talk by the hour?
--Thomas Jefferson, U.S. President (1801-09)