headlocal

Elizabeth Warren: The End of the Middle Class

Brainpower - yeah right! NO problem, Robert.

The scum chosen by the electorate to "run" the country showed their hand with the DC school voucher program (canadafreepress.com/in...) in selling out the kids to the teachers' unions. It's hard to see the electorate as any more worthy, or astute.

The climate "change you can believe in" is outed by hackers as scientific fraud, and so therefore all the clean/green-tech jobs are in serious dissonance with reality (sorry Arnold, Barack). As are the heavy VC investments (think Kleiner Perkins) in the entire sector.

Any sensation that the republic is turning into 3rd-century-AD Rome is probably right. Perhaps the SECOND Republic will do better.

Sucker's Rally Approaching an End

Techzone 12 is right. The debt is being transferred from the banks to the public balance sheet...which is fair enough, since it was the euphoric delusion of "unlimited abundance" persistently preached by LBJ and others all the way to BHO, Dodd, Frank et al, that created the conventional wisdom that CRA, BS mortgages etc were fine, and then both coerced and incentivized the banks to facilitate the toxic debt, creating both the bubble and its implosion. Rubin and Bill Clinton are the prime perps to recognize here, both for the 1993 restrictions on corporate deductability of income which unleashed the cult of "performance-based compensation", and use of the Boston FED "analyses" on redlining to pressure banks into lowered-standards-unde...

Events have consequences. Marketing master Ted Levitt suggests "The future belongs to people who see possibilities before they become obvious." In the present fiscal toxemia, the names Kyle Bass, Michael Burry, Steve Eisman, and Jeff Greene are among those who recognized the dissonance, foresaw the meltdown, and ignored the conventional "wisdom" while positioning themselves to score billionaire-level victories. The ongoing transfer of toxic costs to the public balance sheet is the price of 45 years of delusional romanticism. As long as our "leaders" ignore this point, there is no reason to take them seriously in anything. Just figure out what they're peddling, and SHORT them, ruthlessly.

On this same "possibilities before they become obvious" theme, CareerBuilder has a 3/09 survey saying 6 of 10 upcoming retirees will take years to recoup losses in their 201Ks, my estimate is an extra 4 years in the workforce, on average, for the next several years. Rough guess, an extra 2.4M jobs needed, maybe more, as this becomes a new norm...likely losers - the college grads in classes of 2009-2012, whose potential employers won't have 2.4M vacancies to fill each year. "Normally", unemployment is a lagging indicator, but a mass boomer postponement has potential to put a whole new spin on "change we can believe in". Read about it in TIME, March 2011, or later.



On Apr 13 02:02 PM techzone12 wrote:

> It's called a sucker's rally, because it sucks you in...
> What we are witnessing is the transfer of debt from the big banks'
> balance sheets to the taxpayer. So all of a sudden, the banks are
> making record "profit"!. Congrats!. It's time to distribute new bonuses!.
> Enjoy the ride!
>

Despite its woes (huge deficit; anemic economy; broken political system), Joel Kotkin says the U.S. is a great long-term bet. His reasoning: 1) Viable demographics. 2) Energy resources. 3) Agriculture. 4) Military prowess. 5) Entreprenurial hotbed. "If the U.S. stays true to its unique traditions, it will remain the world's best investment for decades to come."

item 5) 50% of the "entrepreneurial hotbed" successes, Silicon Valley startups, were founded by the 8% of the populace known as legal immigrants. Both they and their newly-under-attack VC friends are quite prone to use the coming wave of super-teleconferencing to redomicile their next ventures to friendlier tax domains; in fact, using the exit-tax provisions of the HEART Act of 2008, they can accelerate taxation into 2010 and opt-out of the OBAMANATION OF DESOLATION before BHO's tax increases ravage their portfolios "because it's fair".

item 1) all you need to know about "viable demographics" is that a majority of them elected Obama president. And Careerbuilder reports (~2007) that 86% of job seekers think benefits are the most important point about a job. Some bunch of hotshots.

"If the U.S. stays true to its unique traditions, it will remain the world's best investment for decades to come." These traditions are rapidly dying off with the aging of THE GREATEST GENERATION. By and large, the boomers and their descendents have neither the interest or the inclination to even care - between the MSM and mediocrity of public education, the only group holding true are immigrant entrepeneurs, who have increasing incentives to export such traditions to friendlier lands.

The Coming Economic Nightmare: Part 1

Right, Graham!

Seeing possibilities before they become obvious (Ted Levitt's dictum on owning the future) is a lonely business, and takes a willingness to be apart from the herd.

Your prognostications remind me of Escher's painting, SWANS, which features a flight of black swans mingled among white ones. Most people prefer to ignore the black ones (unconscious para-racism, perhaps).

Hard to tell whether your scenario is a portrait of unintended consequences, or these are deliberately/wishfully ignored in the hope they lie outside what mathematicians call a "radius of convergence".

We Could Soon See 1 Million Jobs Lost in Single Month

Alan -
Your article is probably prescient, but over the last two years we have been running ~2.4M jobs lost monthly...these have been offset by ~2.5M new jobs, according to the BLS's quarterly "Business Employment Dynamics Summary", which come out with about 8-month lags.

In the two most recent reports, 4Q07 and 1Q08, 7.4M jobs were lost each quarter; these were offset by 7.7M new ones in 4Q07, and 7.1M in 1Q08.

To my astonishment, it seems the unemployment rate number that gets so much attention is really the small difference between two far larger numbers, and this has several points of impact:

a) in a credit-starved downbeat economy, it is hard to imagine who wants to continue creating enough new jobs to balance the "normal" rate of job losses;
b) 7.4M jobs lost quarterly = ~29.6M jobs lost annually, or one sixth of all the jobs in the economy...while some of these were doubtless due to attrition, probably 20M involved an involuntary termination, and unless the victims were recluses and hermits, probably 50% of the working populace must have a close personal connection with one of these terminations, so the political implications of 50% or more of the workforce seeing friends and acquaintances scrambling for work are clear;
c) these numbers are as-of 3/08...job creation is not booming, and unless the ~30M new jobs created in '07 are closely replicated, even Obama's 2.5M new jobs is a small drop in a large bucket.

Your projection of a 6M job loss is, from a labor-dynamic perspective, a projection that some sectors will create a total of ~23M new jobs, assuming that the 29.5M loss rate does not increase. Both numbers may include mild optimism, but I hope to be show to be unduly pessimistic.

1Q08 data available at:
www.bls.gov/news.relea...

Ben’s Right: Fed Didn't Cause the Crunch, Securitization Did

Andrew -

excellent article.

However, outside of its scope was the society-wide willingness to accept that the law of gravity no longer held, that houses were ATM-proxies, that giving away money without real regard for ability to repay was sound practice, and a whole litany of such things; these all set the stage for the wide-scale debacle that followed.

Over the mid-2000s I was always puzzled by why there seemed to be so much money flowing around Southern California and southern Nevada, even though the actual economy seemed moribund. Silly me - I just didn't notice the de facto mega-stimulus effect of all the securitized debt.

OTOH, I have a measure of how well the "stimulus" spending from DC will work, given that CA, NV, AF, and FL all had concentrated doses of even higher scale from the bubble. We can profit (sic) from the bubble by seeing it as a lab for Keynsian multiplier effects in a scenario unconstrained by well-meaning policy theories from PC creeps. Or we can leave this issue to the academics,

...and spend our valuable time contemplating more-fun deep macro issues, like FICA collapse, globalized entrepreneurship and VC flight (moving carried interest offshore), using HEART-Act provisions to realize cap gains before Obama-Tax-rate hikes...so many opportunities, so little time.

Social Security Trust Fund 2009: Economy Has Crippled the Fund, Major Overhaul Now Needed

BK - your mean-spirited means-test won't work.

Anyone who could be a target of your welching will convert their income stream into a flow of Roth-IRA assets. The main consequence of "thinking" such as yours will be a blizzard of unsolicited invitations to dinner-shows by financial planners, clogging the mail boxes in targeted zip-codes.

The Law of Unintended Consequences will once again prevail. People respond to incentives, especially those astute enough to have the income stream you choose to use as justifying welching. Ask some of your country-club friends what countermeasures they will use.

Besides, with the coming inflation, every SSI recipient will eventually have over $100K in taxable income just on the SSI checks, and there will be no constituency for your scam.

You may MEAN well, but your means-test is just plain MEAN.

More on the Rise and Fall of Urban Economies

Skimmed a Florida book, discovered 30% of the populace are "creative", something suggesting towns should be "...gay-friendly, to support artists, to encourage creativity, and to build amenities like bike lanes..."

Careerbuilders has a survey saying 86% of job seekers place primary value on BENEFITS. Leaves ~14% for the risk-taking to grow an economy. Not 30%; the extra 16% "creatives" must just be poseurs.

Meanwhile the NVCA's "AMERICAN MADE" study (www.nvca.org/index.php... a dramatically different point on entrepreneurship, something about 40% of high-tech firms being founded by the 8% of the populace comprised of legal immigrants. The ones attracted by strong science and engineering schools, and only incidentally connected with "...gay-friendly, supporting artists, encouraging creativity, and building amenities like bike lanes..." mainly because Silicon Valley, California is such a locale. Delete the 8% from the 14% risk-tolerant entrepreneur-candidate pool, and the remaining 6% may be too busy to cavort on gay-friendly bike lanes while finger-painting or whatever Florida's "creatives" do.

In fairness to Richard F, he did most of his work in an era of bubble giddiness, with money sloshing around everywhere that people had taken leave of their senses, and the law of gravity. CA, NV, AZ, FL all probably looked like case-closers for his pitch until the souffle collapsed and their U6 unemployment rates headed for 20%.

In my limited vision I see a higher correlation between "gay-friendly bike lanes" and uncontrolled local tax rates and undisciplined public spending. Must be "the all-hallowed young creatives" at work. THEIR mid-life crisis will be when they get the bill for voting for "change you can believe in", and start choking on their $5 lattes.

Economist Joseph Stiglitz calls for an unemployment Powell doctrine, urging "overwhelming force" be used to combat 10% joblessness. He says the February $787B spending package was too small and risks a vicious cycle of deceleration, and that banks aren't restructuring home loans because they're still allowed to carry them at face: "I call that marking to hope, not marking to market."

Meanwhile the NVCA reports that the House is planning to punish VCs by treating their carried interest as ordinary income instead of capital gains. NVCA also points out that 40% of successful high-tech entrepreneurs come from the 8% legal-immigrant population (i.e. an immigrant is 11X more likely to do a job-creating venture than a local honkie).

Quoth Mark Heesen, president of the NVCA:
“Taxing VCs who are working with fast growing start-up companies so that large corporations can continue to receive tax breaks is ill conceived policy.”

How soon before the boom in cloud computing results in Silicon Valley redomiciling itself into a friendlier fiscal domicile, and leaving America to the class-warfare folk to squabble over table scraps, pubic options, crap-and-trade, underwater bailouts, zombie banks, consensual "warming", endless deficits, etc ad nauseam?

If Stiglitz et al were shown to have created at least ONE job with positive contribution margin, their opinions might hold water. Meanwhile, contemplate Europe and Argentina as the likely templates for the American future. 10% unemployment there is "the usual"; soon enough it will be the "new normal", as Obama-fatigue settles over the countryside and "change we can believe in" comes to pass in all its glory.

Cramer's Call: Another Rally Top Indicator?

drbob66 is right. So is StoneFoxCapital.

Greg is talking smack. DJI hit 9955 on Oct 6, crossing 10,000, headed south. It hit 6547 on Mar 9, after other lows on Oct 10, Oct 27, Nov 20.

Greg owes Cramer an apology. Or top Jim's 14yr X 24% net return in his hedge fund.

Whichever, good luck, mate.




On Apr 10 07:39 AM drbob66 wrote:

> "On Monday October 6, Cramer went on the today show and told people
> to sell any stock money they might need in the next five years. The
> market bottomed that Friday."
>
> Huh? The market bottomed on October 10th? Really?

The Great American Hole Gets Deeper by the Day

That's not all. Virtually every older S&P firm, the ones that have pension liabilities, will have to make actual cash infusions this year for the first time in a while, since the "assets" are of similar quality to everything else denominated in $$s. The impact of these donations on the pretax bottom lines may be considerable, although I don't have a solid read. I'm not sure whether current talk of estimated $50 earnings for the S&P 500 includes this element. I'm guessing not, since there is enough negative news already, and why be the first to ruin an already gloomy conference call by bringing this up and getting hosed by your analysts and "rating" agencies.

I expect there are hordes of PE firms calculating how hard a drop these effects can cause, so they can buy in at an SPX level of maybe 450 for little more than bonds covering a target's pension obligations and extracting warrants at significant concessionary levels to boot. Sitting on a pool of capital, I'd wait on this event. Think of it as a PE take on "Change we can believe in". Sovereign-capital funds can also play this gambit, as long as their home economies aren't deeper into the tank.

Social Security Trust Fund 2009: Economy Has Crippled the Fund, Major Overhaul Now Needed

Pungent -

You are technically right on "doomed from the start", but the real killer is the fact that medical sciences and lifestyle-behavior changes keep advancing the life expectancy of the recipients. Demographics changes are actuarial disaster to the FICA assumptions.

Right now, about 98% of all medical-advance spending invests in keeping the FICA recipient pool alive LONGER. As one about to join the pool I am quite happy with this, and I have realistic expectations of active-lifestyle persistence to well past 90, but in aggregate, when there are 27M other people above 85 with me, it will create a large strain on somebody.

And that doesn't even begin to contemplate the large number of FICA checks that will flow abroad as retirees already living in Guadalajara, Costa Rica, Poland, and other friendly environs have demonstrated. Balance-of-payment issues of biblical proportions will soon follow.

Increased schooling can't be the only reason for the crash in youth participation in the labor market (chart), writes John Robertson at the Atlanta Fed's Macroblog, but let's hope it's the major one.

Right -

all the kids are back in school getting advanced degrees in poli-sci, comparative Bosnian literature, eschatological conceits of jihadeen suicide videos, community organizing (Obama's favorite) or other career-enhancing subjects...all the while waiting for the boomers to recoup their 201K losses and get around to retiring in 5 years or so after their original plan.

Maybe even a course on concepts like positive-contribution-... business operations...

Meanwhile, read BUSINESS EMPLOYMENT DYNAMICS – FIRST QUARTER 2009 (most recent one available)bls.gov/news.release/p... to see the REAL story: chart 1 shows that in 1Q09 almost 5M new jobs were added to the economy, but about 8M jobs were lost.

Typically the private economy has created ~30M jobs annually, and squished maybe 27M...mostly in the new business and small business sectors. With the bailouts, health care mandates coming up, crap-and-trade offensives on illusory climate change, the cuts keep coming, but why would any entrepreneur put real money on the line for any but the most exceptional talents?

The NVCA (www.nvca.org/index.php...) consistently reports that the VC community creates a decent job for an investment of ~$40K...the government blew $50B to "save" 50K GM jobs; that's $1M/job to pay off union contributions; so Congress is now looking to punish VC by treating their highly variable carry-interest as ordinary income instead of capital gains. Anyone notice how many VC firms have branches in India and China now: they're not there to create private-sector jobs for ACORN alumni.

Against John Robertson's HOPE, and Obama's logo, recall Garson Kanin's dictum: Amateurs hope; professionals work.

Social Security Trust Fund 2009: Economy Has Crippled the Fund, Major Overhaul Now Needed

BK -

if I spend 50 years telling Bill Gates he is entitled to an SS check because of his contributions, and then I welch, as you propose
a) I establish myself as lacking integrity, which like virginity, can not be recovered, and
b) I have pissed off a 160-IQ-class proven winner, in effect daring him to respond, for example by spending all the Gates Foundation billions OUTSIDE of the USA. Or moving MSFT HQ to Mumbai or Beijing, and keeping the Seattle facility as a branch sales office. whatever...

Your plan is to stiff maybe 5% of the recipients under some Obama-nable notion of fairness. That isn't enough to make a dent, just a lot of enemies, smart enemies.

IRS data (www.irs.gov/taxstats/i... that your 65M hittees (the sub-median group) contribute ~3% of all income tax revenues, BEFORE special credits and kickbacks, so it's not like they are the mythical TAXPAYERS that I hear so much about, and politicians express concern over.

Anyhow, since your "target market" makes a lot of $$ from capital gains (deconstruct the IRS data and see it's recently ~60% for the top 1%), they have the ability to time their gains, even in retirement, and as of this year they can Roth-convert their income into nonexistence on the AGI line of their 1040's. Call your own financial planner and ask her how easy it is to NOT show $100K AGI.

However, once you provoke your society's productive class into gaming the system, you lose their trust, their goodwill, their willingness to take risks in a hostile OBAMA-NATION, and WE might as well be Argentina. Make that YOU - I have dual citizenship options.

That isn't fair, it's stupid.

Hasta la vista, gringo!

11 Take-Aways from Buffett's Annual Letter

Fred - tasteful number, stopping at 11 entries.

My favorite number is 17, as in how many waves makes a perfect session, the number of syllables in a haiku, etc. e.g. reformatting Ted Levitt:

The future belongs to those who grasp possibilities the quickest.

and, from Onassis:

The key secret of business is to know something nobody else knows.