Main Street Sacrificed to the Gods of Wall Street

While every minute of every trading day seems focused on these financial issues, there is a whole real economy out there. And this is our pickle. Once we get through with the "credit contagion" issues - we still have the (regional) recession to deal with (for new readers, by regional I mean those in rural states are living the highlife as are many associated with energy i.e. portions of Texas/Oklahoma). This is why this market is extremely frightful - we have double trouble - the credit issue on one hand that gets all the attention and then a very real potential for a powerful consumer led recession the likes of which we have not seen since the early 80s. The latter gets no attention as Wall Street is dominated by NYC types and all they care about is bailing out the financial system - thats why Fed cuts to zero would make most of them happy - no matter what the effects on the real economy. I was looking through CNNMoney.com, and it is striking to now see the stories of the real effects I outlined long ago really beginning to hit people. [Do the Bottom 80% of Americans Stand a Chance?] But since it's a slow motion implosion it is not sexy like Bear Stearns turning into dust within 72 hours. So I believe it continues to get ignored and/or people are simply ignorant - with the salaries made on Wall Street, it creates a disconnect from Main Street.

What is striking is while the system is pumped with floodgates of paper money, and inflation is constantly pooh poohed as "moderating by 2nd half 2008" - almost all these stories have the common thread of rampant inflation busting frail budgets - keep in mind anecdotal study after study says 70% of Americans live paycheck to paycheck regardless of income strata (as we have greater incomes, our spending expands at similar pace). I am aghast at the CNBC cheerleading (paralleled by countless blogs, economists, and pundits) that the decision to cut 75 basis points instead of 100 is a clear sign the Fed now cares about the dollar and inflation. Pathetic. 75 basis point is a historic type of cut, rarely done in the past. 100 basis points was NEVER done before (don't quote me, but I believe I read that). So this move to only do 75 is "good" for the dollar and "a strike back at inflation"? Really, the logic on The Street is beyond me many times. I find it laughable. Main Street is being sacrificed to the gods so that NYC can be saved. Bottom line, no matter what line of crapola people in NYC says over and over - maybe if they say it enough they will believe it and not feel as guilty.

Let's look at some headlines

Inflation is Americans' Top Economic Concern (the other 10% work in the Fed or in NYC investment houses)

* Americans are worried about the economy, and inflation tops their list of concerns. Ninety-one percent of respondents to a recent poll said they are somewhat or very concerned about the rising rate of inflation, according to a national CNN/Opinion Research Corp. poll released Tuesday. And 86% said they are worried about jobs. Of the over 1,000 American adults surveyed in the poll conducted March 14-16, 65% said they are "very concerned" about inflation, and 26% said they are "somewhat concerned."
* Through a series of recent speeches, Fed officials have made it clear that their primary concern is unemployment. Though they have stated that rising inflation is a worry, the central bankers have pledged to continue to cut rates in an attempt to prevent the economy from entering a recession and losing even more jobs. "The Fed's biggest concern right now is supporting the financial system by trying to stimulate growth," said Bullard. "The Fed is counting on the fundamentals - rising inflation should dissipate as the economy slows." (just like in the 1970s, right?)

A Slice of Pizza Gets Pricier

* Pizzeria owner Joe Vicari shakes his head as he prepares to rip open a 50-pound bag of flour for another batch of dough. "That's 37-bucks. $37. I couldn't believe it!" says Vicari.
* Since opening Mariella Pizza in mid-town Manhattan 30-years ago, Vicari, says he has never experienced such a jump in the cost of his ingredients
* "I can't even believe how much the flour [goes] up. When I see the bill I can't believe it, that's too much," says the veteran pizza maker, who emigrated from Sicily. Only four weeks ago, Vicari says, he was paying just $16-a-bag for Gold Medal brand flour, which at $37-a-bag now seems more golden than ever. (agflation, it's everywhere)
* Cremosa, the source said, is allocating flour to restaurants, refusing to allow customers to buy more than they had purchased the prior week. (allocation = rationing = shortages)
* Vicari struggles with the thought of raising the price of a slice, which he lifted to $2.50 only a few months ago due to an increase in cheese costs. But, he concedes, if flour rises a few dollars more, above $40-a-bag, he probably will pass along the higher expense to customers.
* Why? You can lay part of the blame on ethanol. Huge demand for ethanol has farmers planting more corn to produce the fuel when they could be growing wheat. "Ethanol was competing against wheat for acres in 2007," said Joe Victor, grain analyst with Allendale Inc.
* "Fifty-nine-percent of everything we raised in 2007 is leaving the U.S.," said Victor. "That's 9-10% greater than normal." As a result, Victor said, U.S. wheat supplies are at their lowest level since the end of World War II, another factor pushing prices skyward.
* The good news for U.S. consumers is that high wheat prices have led farmers to plant a large crop of winter wheat, which could temper retail prices later this year. (and then next year the shortages will be back to corn, or soybeans, or whatever they are substituting to plant wheat)
* "It's killing us, it's killing us. It's forcing me to pass it on to the consumer," said Frank Karalis co-owner of Europan Bakery Café in Manhattan. Karalis was holding a menu on which he had just crossed out every price and written in new, higher prices he plans for next week: Bagel with butter $1.30, up 20-cents; Muffins $2.25, up 25-cents; Paninis $7.20 up 25-cents.

Cash Strapped, and Driving Less

* Americans are finally driving less - thanks to rising gas prices. Seventy-two percent of respondents to a recent poll said recent price increases in gasoline have caused financial hardship for them or their households.
* Rising fuel prices have caused most Americans to cut back on their driving. Of the over 1,000 American adults surveyed in the poll conducted March 14-16, 64% said they have made some changes to their driving behavior as a result of higher gas prices, with 19% saying they have cut back on driving enough to have a major effect on their daily lives. And 5% say they have stopped driving altogether.
* Gas sales have started to sink as Americans curtail their driving. A recent Commerce Department report showed sales at gasoline stations, which have been bolstered recently by record-high fuel prices, tumbled 1%.

I won't copy it over, but if interested, here is "13 short blurbs" of typical Americans and the same concepts I have been proposing - jobs in the service economy are not paying most enough to keep up with real world costs, high inflation is eating away at living standards, people are giving up on a lot of things just to get by. This is why I find retail stocks, and their rallies to be bull traps. 2008 and 2009 are going to be very painful for the consumer. And the myth that all it takes is 5.5% mortgage rates to get the home boom reinflated is also simply fiction. Maybe for those in the 10-20% percentile in America. But not for most. Not until home prices fall meaningfully - something every government agency seems to be working in concert to help forestall or prevent. Damn thing about market forces - they are all powerful (in the end).

Comments

[ezrasfund:]

Not lon ago CNBC pundits were listening mouths agape as T Boone predicted $100 oil. Now they are chortling that oil has plunged to $99. Just how long has it been?

2008 Mar 20 10:00 PM

[Tony Soprano:]

Since there is so much angst directed toward the Fed and the US Government, I decided to listed some events, not all of them, that had dramatic ramifications on lives, cost and the psychology of our country. I started in 1906 because it’s just a little over a hundred years. As I compiled the list, I could not help but feel the great sacrifices that many American’s have made and what a resilient country, economy and government we have in American.

The 1906 San Francisco Earthquake and fire, registered 8.25 on the Richter scale; estimates range from 700 to 3,000 dead or missing, approximately 225,000 injuries and $400,000,000 in 1906 dollars.

Recession, May 1907-June 1908, 13 mo

Recession Jan. 1910-Jan. 1912, 24 months

Completion of the Panama Canal, 1914 – 27,500 workers are estimated to have died

Recession Jan. 1913-Dec. 1914 23 months

World War I -- 116,708 killed – 33 billion

Spanish influenza, 1918, killed over 500,000 people in the worst single U.S. epidemic.

Recession Aug. 1918-March 1919 7 months

Recession Jan. 1920-July 1921, 18 months

Recession May 1923-July 1924 14 months

Recession Oct. 1926-Nov. 1927 13 months

The Great Mississippi Flood of 1927, flooded 27,000 square miles, 246 killed

The Great Depression, Black Tuesday, crop prices fell by 40 to 60 percent, after the panic of 1929, and during the first 10 months of 1930, 744 US banks failed. (In all, 9,000 banks failed during the 1930s). By 1933, depositors had lost $140 billion in deposits.

The Dirty Thirties, longest drought of 20th century. Peak periods were 1930, 1934, 1936, 1939, and 1940. The dust bowl covered 50 million acres in the south-central plains during the winter of 1935-1936.

Labor Day Hurricane of 1935, 400 killed

Recession May 1937-June 1938 13 months

World War II – 408,306 killed – 360 billion

Wartime Controls: 1941-1945 rationed consumer items ranging from sugar to gasoline

Recession Feb. 1945-Oct. 1945 8 months

The Marshall Plan, July 1947 – 13 billion in economic and technical assistance were given to help the recovery of the European countries

Recession Nov. 1948-Oct. 1949 11 months

Korean War, July 1951 - July 1953 – 33,000 killed in action

Recession July 1953-May 1954 10 months

Recession Aug. 1957-April 1958 8 months

Recession April 1960-Feb. 1961 10 months

The Cold War, some estimates shows $8 trillion was spent, worldwide, on nuclear and other weapons between 1945 and 1996

The Cuban Missile Crisis, Oct. 1962

Good Friday Earthquake (1964) In Alaska, it was the fourth biggest earthquake recorded

Vietnam War, 1963 – 47,378 killed in action

The murder of JFK, 1963 Nov

The Gulf of Tonkin Incident, Aug 1964

The murder of Dr King, April 1968 and Bobby Kennedy, June 1968

The city riots of April, 1968 – 30 cities affected

Hurricane Camille, Aug 1969, 259 killed

Recession Dec. 1969-Nov. 1970 11 months

Stagflation of the 1970s began

Nixon first imposed wage and price controls on August 15, 1971

Oil Embargo, Oct 1973 long gas lines

Recession Nov. 1973-March 1975 16 months

Articles of Impeachment of Nixon started
(Approved by a vote of 27-11 by the House Judiciary Committee on Saturday, July 27, 1974.)

Deregulation: 1974-1992 this era began when Nixon left office

Three Mile Island nuclear power plant crisis, March 1979

Mount St. Helens eruption 1980

Recession Jan. 1980-July 1980 6 months

Prime reached unbelievable 20% in January 1981,

AIDS was first reported June 5, 1981 by the government – It is thought that more than one million people are living with HIV in the USA and that more than half a million have died after developing AIDS.

Recession July 1981-Nov. 1982 16 months

California earthquake 1983

The 87 market crash - Black Monday

California earthquake, 1989

Recession July 1990-March 1991 8 months

Iraq invaded Kuwait on August 2, 1990

The Persian Gulf War, 1991 or Desert Storm Jan 1991

Hurricane Andrew 1992 very destructive United States hurricane

The Great USA Flood of 1993

Intervention in the Former Yugoslavia,

Dot Com Bubble, climaxed on March 10th, 2000 with the NASDAQ peaking at 5132.52

9/11 Attack, 2,974 people died

Recession March 2001-Nov. 2001 8 months, Airline Industry Collapsed

Enron bankruptcy in late 2001, employed 22,000

WorldCom, July 21, 2002, filed for Chapter 11
Iraq War, March 19, 2003 – 4,000 dead

Hurricane Katrina, late August 2005, 1,836 people lost their lives

Start of the Great Housing Recession or Sub-prime Recession 2006 or 07, 08? Date to be determined.

2008 Mar 20 10:15 PM

[ezrasfund:]

Will the editors please block Tony S from posting the same lengthy "stuff" over and over again?

2008 Mar 20 10:20 PM

[simplesimon:]

It is refreshing to read a financial opinion relevant to the real world. I sometimes wonder if any of the -as described above-NYC pundits ever worked as a self employed working stiff in small town USA? I have. I can tell you frankly that all that is required for your small scale, but "actually build something for America" business to stumble into " kick you out in the street arearrages" is a week or so of bad news from the desks of, again, NYC news producers. And we have had more than a week or so of grim news, and even 'grimmer' forecasts.
I've heard more than one astute advisor remark on these pages, that a good deal of the very real capital vanishing in the market can be traced to the old fashioned term 'panic'. Yes...vanity, and excess did indeed run us into the ditch. ( who among us has not seen the Hummer turn in front of us at the intersection without the slightest hint of a turn signal...(too busy talking on their cell phone with comments like "Have your little people get in touch with my little people" ) ..are the term "vanity and excess" starting to emerge out of the inchoate gas of our manifold reasons for economic woes? We don't really need 8 mile a gallon behemoths, while Norway, for instance suffer $9 a gallon gas! We don't really need a house with 8,000 square feet...but the banks "need" the large derivitives from lending money to the vain and extravagant, don't they?
It may sound over simplistic...but some leadership with vision, inspiring self discipline, could help...like return to working on realistic vehicles and homes, and renewable energy, like geothermal and wind...and there are crops that yield more fuel energy, such as "tropical maize"...never heard of it, huh? All you have heard is doom and gloom, n'est ce pas? So some natty ( translate arrogant, and greedy ) financial demigods ran us in the ditch...with the media 'fanning the flames' of fear...the world will not come to an end. In tandem with the efforts to 'shore up the markets', we could all use a little less fearmongering, which we receive every day, even on Good Morning America...something frightening and disturbing every single day...less of that, please. For the love of God!

2008 Mar 21 09:22 AM

[Maarja:]

While I agree with much of what you say, Simple Simon, I would like to point out that Norway suffers with $9 gallon gas because their government keeps a large chunk of that for taxes. Their barrel of oil is not any more expensive than ours.

2008 Mar 21 10:06 AM

[nukldrager:]

Bill Cara's "Getting Back To Financial Basics" March 18 was informative. In response to an earlier Tony S list, I offered... No doubt the Americans who can count themselves with the "owners" of capital can fully agree about the greatness of America, while the "service" portion of Americans, largely equipped with the grade school textbook version of America, are wondering wtf their money is disappearing so fast, and since I live in this great country, why is my income going down, and my outgo going up?. Mr. Cara here provides an answer in his expose of financial basics. Now is the time for capital to return to it's rightful owners. I don't think the average consumer is aware of that. And while consumers won't be allowed to go the way of the buffalo, the herd is shrinking, at least for now. No poetry intended...
Main Street doesn't "own capital", or very much of it. Let's face it, management won a long time ago.

2008 Mar 21 10:09 AM

[gordon:]

Bush has never in his life had to take responsibility for, or calculated the ripple-affect of his decisions. Ethanol a prime example, tortillas for the poorest in Mexico going up 4-fold is so far removed from his elitist, pompous ignorant mind. HERE'S ANOTHER ONE! Did you know Australia had the wheat contract for Iraq (again, flatbread cultural staple) and when Australia decided to pull troops, Bush canceled it and gave it to US wheat growers! That meant we have to import from Canada! America, wake up to the most corrupt gov't in history, and an impotent media.

2008 Mar 21 12:33 PM

[Jason Rines...:]

Two stories while I was traveling:

1) Women on train works for Waterford and brand manager was freaking out saying her entire 2008 ad budget was cut to zero. Sales were plummeting off a cliff. No surprise, good crystal dishes are not a necessity. This will be a harsh consumer led- recession and it will catch up to the Wall St./NYC guys as well. Some of their middle class neighbors just might be getting a little resentful, invest in building a bigger fence.

2) Revlon - Revlon has been running in the red for six months. This manager whom told me this was way up in the hierchy and said product was being shipped to itself to keep the books showing the company is still solvent. It isn't.

3) Medical Device company rep was practically in tears speaking to wife since he lost a deal taking two years to construct. The prospect cut all non-necessity spending to the bone and is considering the deal again in 2010 but for now will use existing equipment.

This is real, people. I am beyond fear mongering as I knew the numbers and where we were headed in June and began to send serious plans of action. Now I am helping neighbors and letting them know about history, that we will make it through again to good times but we must all become AMERICANS again and serve each other to survive, not ourselves.

2008 Mar 21 01:13 PM

[gordon:]

Good post, iThink. We work for homebuilders, since 1980. Lennar our largest account, opening only one project in 2008, (So Calif) In-house marketing staff abandoned, offices combined, sold a bunch of land to Merrill, to stay afloat, we don't look for normal new home marketing ever to come back, an entire new corporate structure will emerge. They are trying to placate buyers of first phases, where the projects were abandoned, by pulling smaller architectural plans to build "something" on vacant lots that are finished pads w/streets in.
Many projects need a certain number of homes built before any ammenities can be funded, i.e., parks, rec. centers, homeowners assoc elections.

2008 Mar 21 01:52 PM

[misterchan:]

Lots of good posts. It sounds like Americans are waking up to what is happening in America. Also, I enjoyed reading the list of Tony S., so please keep including him.

2008 Mar 21 11:00 PM

[Metzenbaum ...:]

That gas sales number... was it based on volume, or dollar sales? (A 1% decrease on rapidly inflating dollar sales makes for an even bigger drop.)
My American friends, look at the major commodities in something besides US$ over the last year... they are much less hyperbolic. US is importing commodity inflation b/c of your ever-more-worthless dollar.
Aside: now that yen carry trade has gone pfft, why not borrow US$ to buy Eurobonds? Positive yield in an appreciating currency... just asking.

2008 Mar 22 09:23 AM

[TraderMark:]

Thanks for the posts everyone.

It is sad the normal folks have so much more sense than leadership. Or put another way, leadership has a lot of financial incentives just to keep things going on the track they are.

One day this will come to a head as more of the regular folk realize what is happening to them. Just sad it has to be this way instead of some proactive good we can do; we are always reactive instead of proactive in our policies. Oh well, back to the nuclear fall out shelter ;)

2008 Mar 22 05:35 PM

[pochovilla:]

(Sunday) .25 + (Tuesday) .75 = .75
Conclusion. The FED is getting tough on inflation because the Street expected 1.0
Is this a loss of memory? Poor arithmetic skills? Were the quants off this week? Sunday's cut doesn't count because it wasn't a normal business day?
I learned .25 + .75 = 1.0 Where did I go wrong?

2008 Mar 23 03:01 AM

[crabby:]

ezrasfund: Don't be a priss. Let Tony Soprano type what he will.

2008 Mar 28 01:04 AM