Father Fed Not Coming to Locklear's Aid

It does not take an abundance of super smarts to know that the level of trouble we are in today is infinitely higher than the level of trouble the nation was in yesterday. When you pop open your google news page and Heather Locklear is depressed, Shaq is losing his job (as a pretend lawman with the Maricopa Sheriff's Department), and Tiger is getting operated on for an ACL tear, and two of the three events are happening in your state, you realize it's a different world from where you came from yesterday.

The drop in housing prices that have wiped out four years of gains? Not so important. It was 1.4% from March to April, and 15.3% year over year, though the decline was smaller than expected, so sugar in your bowl of esparagus.

Nariman Behravesh, of Global Insight, said of house prices: "The pace of the price drops seems to be slowing a little bit, which suggests we may be approaching a bottom ... the market has other things on its mind, mainly oil prices, inflation and what the Fed's going to do. It's almost like the housing and sub-prime crisis are old news."

(Guardian/UK)

What's interesting here- aside from whether Shaq will get his job back as times are pretty hard and I don't want him to lose income or anything, even if it's just the psychological paycheck of playing cop- is that people might be imagining what the Fed will do.

The Federeal Reserve of the United States of America will do nothing! Remember that. Obviously rates are not going down any time soon given inflation sitting on the Fed's action hand, nor can the Fed raise rates at a time when so many (meaning banks, not us little people) seem to be struggling. The Fed will strike that contemplative pose with furrowed brow, hand firmly stroking beard, and continue to stroke and stroke.

Father Fed's face and tone and words may be soothing, as though the weight of economic knowledge is brimming through that head and fine tuning just so, but the lack of actual action will hardly be reassuring for our delicate psyches. Impotence is not bliss, for the Fed or us.

Your Christmas Goose is Cooked!

The pinch is starting to be felt in the states in many ways. California is facing a possible $20 billion shortfall, with approximate cuts in education of $4 billion, the BBC reports in an article by Rajesh Mirchandani.

Of course there are side issues as well, as in the case of North Hills in the San Fernando Valley where 85% of the kids speak spanish; the costs of teaching them English and the fact that these kids are more than likely the children of illegals should cause a moment of thought, as it is one of those things ignored when times are good. The article ignores that point as well, which I suppose is like spitting in the soup of disaster we all must eat, legal or not.

Why is California proposing these cuts? Because with the economic slowdown and falling revenue from sales and property taxes, the state faces a budget deficit that could top $20bn this year.

One good sign of things about to turn around will be when financials stabilize. That won't be soon, though a bonanza for investors when that inflection point comes. Right now banks are in a scramble for funds and obtaining them in a manner least pleasant for existing shareholders: issuing more stock and cutting dividends. The god of economics is surely not mocked, and whatsoever a bank sows, that shall it also reap: as in a crop of losses. But as surely as "Investors Face Risks Risk From Banks," as the Time article puts it, the more astute mental framework, with rosy side up, is to look to the opportunity when dividends start moving back up, and not for the dividends, but the stocks themselves.

That the price movement we are getting (in real goods) is not the price movement we want is not helped by the wipeouts of cropland in Iowa and neighboring states. Never have Iowans had such a long tail, as their woes impact your Christmas goose.

The floods impact feed costs, which forces meat producers to trim their flocks, causing rises in meat prices. Time Magazine points out:

The floods engulfed an estimated 2 million or more acres of corn and soybean fields in Iowa, Indiana, Illinois and other key growing states, sending world grain prices skyward on fears of a substantially smaller corn crop. The government will give a partial idea of how many corn acres were lost before the end of the month, but experts say the trickle-down effect could be more dramatic later this year, affecting everything from Thanksgiving turkeys to Christmas hams.

Those ecology minded folks will probably take this moment of topsy turvyness to capitalize on the "evils" of many things, whether driving that car you drive, or eating that meat you eat, though sometimes, and while watching certain shows on the PBS's Create channel, I wonder if the whole concept of sustainability and environmental correctness is just another means for the wealthy to distinguish themselves from the riff raff, now that we can all get out hands on certain luxury items.

You might be able to buy the low end of famous designer's pocketbook or sunglasses line, paying $200 or $300, but can you afford to change YOUR LIFE, buying organic day in day out? Can you afford the extra miles to the local market filled only with "sustainable, locally grown" produce? Can you afford a new Prius or to go electric? Or retrofit your house to leave you with a negative infinity carbon footprint? No you can't. The linked article is interesting in that some of the stars mentioned are only willing to buy the biggest ecologically minded house they can get their hands on. One can assume that when you are thus well endowed, a partial castration is better than none, no?

There is true cost to ecological living, so it's interesting that such a message can get traction precisely as incomes and the entire economic structure are coming apart. Will such environmental initiatives come apart as economic woes mend?

This time, I think, will be different (no really).

Weekend in China

We usually like to post some interesting China news on the weekend, pretending we are on vacation there, but alas, this weekend was not nearly long enough (though nothing was accomplished just the same).

The Olympics in Beijing is soon upon us, and for those most involved, I imagine they will feel a big letdown afterewards as life returns to normal. The euphoria level will drop quite a bit.

Right now the excitement is motivating those inclined toward marriage to make August 8, 2008 the day to tie the knot. The number eight is one of those lucky numbers for Chinese, and the BBC tells us that couples are rushing to make the start of the Olympics their magic moment of love. Some 9,000 couples in all are expected to marry.

The number eight also brings good fortune in Chinese folklore, and the eighth day of the eighth month of 2008 is regarded as especially propitious.

We can view this as an exceptionally happy moment that will surely lead to major depression. Olympics over; I married the wrong girl and further this marriage thing is less fun; I met a sexy Norwegian tourist on day five of the Olympics and now I can't hook up.

Then again, maybe not. Sometimes it's good to get swept away into something bigger than yourself, and the Olympics and love are as good a time as anything to lose yourself and be happy. Let's hope the memory of the moment works as a bond that binds and adds to a long term joy. Would I do it? I think so.

*

We know India is not China, but we are going to pretend that it is for thematic convenience purposes as we travel to Jalandhar, India. And if you never thought somebody or something in India would specifically impact your life, then we have some learning to do.

Apparently, and this is news to me, India and parts of Asia had a green revolution about forty years back that allowed for a level of food production that could sustain the population. Irrigation systems and high yielding crops were introduced. Long story short, the lack of government investment and strains on the farming ecosystem have reduced output today. Everyone up to president Prime Minister Manmohan Singh is concerned about the situation, even as farmers stop farming and others sell their land to developers.

India’s supply of arable land is second only to that of the United States, its economy is one of the fastest growing in the world, and its industrial innovation is legendary. But when it comes to agriculture, its output lags far behind potential. For some staples, India must turn to already stretched international markets, exacerbating a global food crisis.

(N.Y. Times)

For some reason this amazes me, but yet it's not surprising. Some farmer in some small zone on the other side of the world can impact the price I pay for my box of Rice Krispies. This is one of those articles that reminds you why the N.Y. Times is such a valuable newspaper, and it's also one of those pieces of journalism that teachers should be clipping and using in their classrooms. It touches on so many areas-geography, history, supply chains, environmental concerns, economics- and helps to put related situations, like flooding in Iowa, in perspective.

Often enough people will look at the price of oil, or the price of anything, and simply blame politicans or Bush, and ignore external factors. Most certainly many people have difficulty taking those external factors-other nations-seriously. Our sense of power to solve problems is overrated, which in turn often makes our solutions to problems inefficient. We tend to seek localized answers for international problems as though the U.S. exists in a vacuum unaffected by anything else.

The world, and the Olympics and love within it, all call out for attention and sometimes you have to jump in to fully understand.

Dow 12,000 Cracked, 11,000 to Come

A bad sign in the stock market today as the Dow dropped below 12,000 for the first time in several months. That always seemed the level that coincided with Fed action, back when the Fed was in greater fear of market meltdown than inflation. But now the Federal Reserve's hands are tied, and nothing can be done save to watch the collapse.

This was a long time coming, and as a few of the readers here know, we have long complained that the market was not reflecting true or coming reality. Well, it's moving in that direction, which will only exacerbate the hurt in the real economy. It's one thing to take the hit in gas prices, or mortgage payments, or even the job, but combine that with growing losses in the 401K plan, and that makes the difficulty complete.

The Dow has not been below 12,000 since about October of 2006, while touching that mark back in March. This week's drop, according to the N.Y. Times, was due to continued worries over inflation and the health of financial firms.

Back in August or so of 2007 the collapse of Bear Strearn's hedge funds and the initial losses announced by Stanley O'Neal at Merrill Lynch were seen and judged almost as anomalies and non-normative. O' Neal received particularly harsh blame as though Merrill's situation was unique. Now we know better.

Clearly Merrill's losses were not unique, and the questions remain about asset valuation in the financial sector. Until that is cleared up, as in really cleared up to the point of full and accurate disclosure, the markets will continue to follow the lead of gravity.

I recall reading earlier today that credit card companies were beginning to tighten up on their existing card holders, decreasing credit lines and such, and we can only imagine that will increase, along with defaults going into next year as people get tapped out and the full scope of the economy's predicament becomes clear.

Friday’s losses came as oil prices rose, reversing Thursday’s declines. Crude oil futures in New York traded up $2.69, to $134.62 a barrel. Analysts speculated that the rise resulted from media reports of increased tensions between Israel and Iran which could, in the long run, decrease the supply of Middle Eastern crude.

Dreary reports on the prospects of regional banks, which have been battered by the tight credit market, also weighed down the major indexes. “People don’t know the extent of the damage,” said David Kovacs, an investment strategist at Turner Investment Partners in Berwyn, Pa. In many cases, he said, investors are barely aware that the regional banks exist.

N.Y. Times

In many ways people fail to truly connect with what is happening in the world. Right now it is the gas prices that are causing most of the grief, along with inflated food bills. Others are taking a full on hit with mortgage problems. But many go on without much thought.

I've got friends who are more concerned about new iphones than re-allocating the consumption towards capitalizing on the period we are in. While it's difficult to know an exact time to buy, or even what to buy, we are fast approaching a period of chaos where most everything will be so beaten down that bargains can be had.

Short of a systemwide collapse of capitalism, every fundamentally sound but struggling financial institution will bounce back. It might take some guessing to pick the exact moment they are at bottom, and it might be impossible to predict how long it will be till they rebound, but more than a few will, and in a large way.

In my mind 12,000 was an important marker. I don't imagine anything is going to propel us permanently back above that number for some time given all the unexpected and unclaimed losses working their way through the system; combine that with inflationary pressures that will force the Fed to follow a tighter path and we are in a different world.

Nor do I imagine people are really pricing in the damage hitting the farmbelt:

The floods have also disrupted other economic activity in the area. Tourism has fallen even in areas unaffected by flooding because people are avoiding travel to the Mississippi river area in general. Barge traffic on the Mississippi has been slowed as well.

Officials say this year's floods will likely surpass the devastation of the 1993 floods in the region, which resulted in losses of over $20 billion.

It's all so much, and all at the same time, and yet on a day to day level I don't know if the average person just ignores it all out of ignorance, bliss, or fear. Perhaps it is some of the company I keep.

Mortgage Crisis Branches Trimmed, Root Untouched

And so it begins. The arrests for the criminal activity that helped create our current mortgage crisis have begun. Two hedge fund managers from Bear Stearns have been indicted for fraud (against their own investors) and forced to do the perp walk, and more than 400 other low level mortgage industry players have also been indicted in dealings related to fraud.

We can be certain that when all is said and done, the amounts of fraud committed by the "average joe" will surpass anything found on Wall Street or by politicians, though the commentary will not generally reflect that. In the newspapers, and when addressing home buyers, most of the mortgage debacle writing takes the form of wounded soul reporting, where we the innocent get tips on how to avoid foreclosure from banks, or how to balance the higher gas prices with our home payments. ("Try carpooling and coupons", says anonymous newspaper).

The sweep of the 400 (tagged "Operation Malicious Mortgage", cute) was a grab bag of street level mortgage industry types:

Real-estate developers, brokers, agents and appraisers were among those charged, along with lenders, lawyers and so-called straw buyers, said Sharon Ormsby, a section chief for financial crimes in the FBI's criminal investigation division.

(Dow Jones via CNN)

As the government grinds into action, they are clearly NOT starting with the individual buyer. Using such a tactic leaves people in rather ignorant bliss, and certainly going forward the major mortgage industry participants will apply the type of tough loan and credit conditions that will eventually puncture that bliss.

According to Forbes, other targets may include "investment banks, hedge funds, credit rating agencies, brokerage houses and due diligence firms - which evaluate loans packaged into investments."

However, this still leaves major questions unexplored. We cannot assume fraud on the part of sellers accounts for all the mortgage difficulties that we face, nor can Wall Street be blamed as the cause of the valuation problems.

Wall Street's chief sins can be rolled into probably three areas: supplying too much liquidity (which is almost like suggesting too much oxygen is a bad thing), the use of leverage, and the inability (honestly or otherwise, often otherwise) to provide accurate valuations for securities.

The mortgage industy's primary sins can be narrowed down to economically vapid products (no doc loans), fraudulent application of standards, and lack of vetting.

But the third leg of the current crisis still remains the individual buyer and those involved with fraud rings.

While we will see the professional fraudsters punished, we still cannot help but note that the bulk of the crisis is centered around homeowners unable or unwilling to pay for the homes they purchased, so the indictments we are seeing now are are not entirely central to addressing root causes and culprits.

Golf, God, and Other Unrelated Thoughts

Some weeks are not good on a personal level. I am stuck in one of those weeks, in such a month, in such a quarter, amidst a year that apexed early and is now all downhill. Sans skateboard, it's quite a scabby ride, which makes for moments like the past few days where the reality of the local (my life) rather transcended the reality (the wider world) that we like to blab about here on BALT.

And what happened while we were away? Well, the South African golfer Retief Goosen accused Tiger Woods, winner of this year's U.S. Open, of being an empty suit via the faking of an injury. Tiger would go on to cancel the rest of his season due to that "faked" injury.

Which reminds us of a certain type of golf fan who, after acknowledging Tiger's "okay-ness," will use every moment to drop the name Nicklaus, or point out that Tiger has a bad attitude, is too corporate, or lacks the style of players from the olden days. In other words, everything but the golf forms their opinion and the reasons given for the dislike, easily duplicated in more than a few other players, seem irrelevant at best.

Well we will see a lot of that type of attitude in politics, as people who normally vote Democrat for the issues look for every other reason to find fault with Obama and stick it to themselves via supporting a Republican. You will find the same faults, or larger, in the opponent, but Obama will be the recipient of sudden grave concerns that have nothing to do with really running the government and crafting the type of sound policy that won't land us exactly where we are today.

In the same way people find really stupid reasons to knock Tiger Woods and ignore his relevant achievements, so to with Obama, using this and that to mask deeply held biases that they dare not express outright (and barely realize they hold inside).

Of course there was more to the past few days than golf (or a South African golfer sounding like Hillary Clinton). Our heartland continued to suffer from the type of flooding that should certainly affect food prices in an unappealing manner. More importantly, one wonders how the people in Iowa will live, and where.

Some of this reminded me of a debate a friend and I were having about God and the existence of evil.

The general answer to the question of why evil is permitted was that removing evil from the world would demand violating man's freewill in ways large and small, significant and insignificant. God would be running round playing superman, making people eat broccoli or not drink or any number of things; he would be using all his energy to keep us from messing up our own futures. But such control creates men that are not truly free, and thus God does not get what he wants: free men who truly choose his company and want to be with him.

But, said my friend, "How do you explain natural disasters? That is not man's choosing." '

The floods in Iowa brought that back to mind, atop the earthquake in China and other disasters. My conclusion was that freewill is not linear, and static in time. You may in fact be living in the town on the banks of a river where your father chose to build his home, and despite his knowledge of what might happen periodically every fifty years. Even scientifically (and avoiding a Biblical drift), man moved out of Africa, choosing to relocate and set up house around the world, facing and embracing nature as he went.

The assumption by man in most cases is that weather and nature is a type of fixed force, like gravity, that must be navigated and that it can kill you. It is not in our control like our wills, but neither is gravity, and in the same manner that we avoid situations that make gravity most effective (like trying to leap from one building to another), we avoid weather if we know it to be harmful. It is not a surprise and is akin to confronting a wild animal. We know what happens when we encounter one and seek not to have the encounter. Nature runs hot and cold, automatically.

"Yes but that does not explain every natural disaster"

But we must go back to the idea that freewill is not linear, and the actions of a man today can affect the life of a person tomorrow. A pregnant mom using drugs today impacts the life of another in the future via her freewill.

That is why the decisions we make today in how we treat people and the world are so important. It is why the admonition "Love Your Neighbor" is somewhat the antidote to evil. To the extent that applies in ever wider circles, the level of evil (negative freewill) decreases.

"Yea but still, what if you get hit by lightning?"

My friend, ever wise, was arguing on behalf of a friend of his who saw her son die in a car accident. She was not fully grasping the freewill argument, and thought that acts of nature rather negated the freewill thesis.

My tendency is to avoid nature question because so many natural disaster end up being disasters due to choices by men (in location, housing construction, in monitoring or not monitoring weather). But there are other ways to look at it that don't lead back to freewill.

Of course, if God cannot possibly exist because of evil, or because of destructive weather, then we must ask, in what circumstances can that "ideal God" exist? Sometimes the better answer is revealed by flipping the observation.

The answer to that is that a perfectly benign natural world would prove the existence of God for those people who would disappear God for a harsh natural world. That is the God people are really asking for if they dislike a God who allows nature to occasionally take its destructive course.

But if nature must be reversed, and held in check, would the world even function as it does? More and more we discover that many elements in the natural world are interrelated. If all the bees in the world start getting sick, it has an effect beyond bees. Stop a bee sting by getting rid of a bees, or relegating bees to walking like the ants, and that has a massive impact on the plant world, and the world beyond that.

In essence, God would have to "recreate" the earth, that same earth that we know and love. Now we often imagine that God can easily just stop this or that, but the likelihood is that the science that we use and understand today is merely the far fringes of the "magic" of God, and that there truly is process involved. God creates, he does not do magic, and making the natural creation less harmfull would involve rebuilding the earth and the natural relationships from the ground up.

Thus, for God to stop evil, both manmade and natural, it would involve a combination of enslaving man and remaking the world we have grown used to. Kiss that honey goodbye. Turn that sunset (skin cancer) off. Stop that rain so those rivers don't flood and remove the plates from beneath the surface of the earth so we don't quake.

Or leave us with our reality: you can be God, allow man to choose you or not via freewill, and hand him the beauty of nature (and all that entails) and also hand him a way of living so that freewill is reinforced by love.

In looking at my own recent escapades it would seem that I am my worst enemy, and my will my greatest evil, boomeranging me constantly with my shortsighted intent. I suffer, as do those impacted by my choices, but that is hardly God's doing, nor will he cease to exist for not directly coming to my rescue thus far.

Dodd: Yes to Mozilo, No to Obama (Accidentally)

The AP reports that some of our favorite senators, like Christopher Dodd of Connecticut, received pleasurable treatment by the "tilted by shady loans" mortgage firm Countrywide Financial Corp.

As we remember, Bank of America in a move both generous (and good for the country) and possibly shortsighted (as in stupid for the books), decided to buy the company and all that goes with it.

Apparently it was not only Dodd, but other high ranking government and corporate officials who were able to get slightly better rates not available to the average Joe. This would include former CEO of Fannie Mae Jim Jones, who until a week or so back headed Democratic Pary nominee Obama's vice presidential search team, and who lost that job upon the discovery of his dealings.

The difference between these men and your average Joe, however, is that their loans won't go bad and were not the cause of Countrywide sinking under huge losses. (I mean, if we ignore possible oversight duties). Or maybe we can say the profits that Countrywide shaved on these loans could have been better used toward all the bad loans by the little man?

In any case I would think Dodd just shot himself in the eligibility foot and while always a long shot choice as vice king of America, he is now an impossible choice.

Mmmm, Thornburg Billion Dollar Jumbolaya

As the campaign goes on we will hear the suave voice of Obama and the grizzled huff of McCain address an assortment of economic issues, and both men, with varying levels of enthusiasm or subtlety, will lay the blame for our economic state in the lap of the current president.

Standing right behind the current administration for verbal spankings will be Wall Street and the mortgage industry. No matter the party, expect largely the same line. Nowhere will the citizens be asked to step up, drop trousers, and take their corporal like good little troupers.

Which brings us to Thorburg Mortgage, announcer of mega-losses in the billion range (some of which are unrealized):

Based in Santa Fe, New Mexico, Thornburg specializes in large mortgages that typically go to buyers of more expensive homes who have good credit.

It proved vulnerable to tighter credit markets as investors stopped buying those home loans. Thornburg also suffered from demands for more collateral from its own lenders.

We sit here reading a Reuters write up of how they came to lose $3.31 billion in the first quarter, a staggering sum amounting to over $20 per share.

Results included a $1.54 billion write-down of the value of mortgage-backed securities and securitized loans Thornburg owns.

The company also realized a $651.6 million loss on the sale of some adjustable-rate mortgages, and had an unrealized $126.1 million loss on a separate adjustable-rate mortgage transaction.

Of course it's hard to ignore the word "mortage" in those losses, (duh, one says... it's in the company name) and how these mortgages and mortgage-back securities lost value.

My question is, "If the average person making payments on these mortgages were timely and not deliquent, would these securities be losing value?" I mean, what is the root cause of all of this?

Are we to assume, as the politicians do (so as not to offend the voter) that all mortgage payment/value issues are due to fraud and people being duped into contracts they did not want or understand? Are we to assume that the average person, or the average jumbo loan buyer, is unsophisticated on a level that creates losses at such a staggering level? To rephrase, are the losses due to fraud (on the part of mortgage types) or greed (by the home lusting population), and further, can the liquidity created by Wall Street (and the government) be responsible for this all?

Perhaps if Thornburg were awash in profits, and yet the sky was falling, we could forgive the homeowner their role in the shenaniganomics, but somehow the word "mortgages" kind of points a finger. There are a lot of mortgage and jumbo liars out there.

(Care to taste those 71 cent shares, which may yet face further value dilution?)

Hillary: Bitter Puppetmatron

I was up watching George Stephanopolis on ABC with his panel of commentators. The idea that Hillary Clinton was the recepient of sexism in her campaign was floated, and acknowledged to some degree, but without specific point of evidence by Hillary proxy Diane Feinstein.

But let us be clear. Hillary used sexism, racism, and class, among other distortions, directly against her opponent. When not attempting to infantilize him, or make him the effete elitist, she was busy stoking the fires of race, suggesting that he could not possibly know or represent the needs of certain whites. He was naive, an empty suit, and told fairy tales. He was just like Jesse Jackson, and less capable than even the Republican candidate.

And only when her rear was being handed to her did Hillary suddenly realize that there were a ton of unhappy, disatisfied, bored, comfortable, middle-aged, aggrieved women like herself whose hopes, resentments and issues she could tap into as one last breath of life for her campaign. That the media even let her push that line was a resource available to her that no man could match.

If she was the recepient of any hostility directed at her sex, it was entirely in her head, and more a function of the type of actions that most male candidates would not have gotten away with. As I've stated before, it was a brash attempt by Hillary to universalize her own flaws across all women. So if someone says "Hillary is power hungry," it becomes an accusation against all women, rather than an accurate perception of one deeply flawed woman.

It takes a special type of arrogance that allows you to spew every type of deceitful implication on your opponent, and then, when the media calls you on it, you cry sexism. Or when you can do unto others, but when others (and not even your opponent) do unto you, you gripe-stitch it into a mantle of oppression.

How about this? How about running a campaign without skipping states and blowing off voters because you think the job is yours? How about not coming out in December of 2007 saying you will have it wrapped up by February? How about not mismanaging campaign funds so that you have no money to engage a real oppononet? How about not taking the black vote for granted, assuming that you can mock the black candidate and still have blacks stupid enough to vote for you? How about not stoking the fires of race and kissing up to the types of folks who, in all reality, would represent the true sexists out there? How about not suggesting your opponent is elitist or naive as you and your spouse sit with $100 million of partially unsourced income? And how about not perpetuating the ultimate lie, even today, that you had the popular vote.

And now till whenever, we will see Hillary as puppetmatron, sending out her surrogates to promote the lie. Feinstein did so today, and a day after Hillary's supposed concession to Obama.

Our Economic Plight: the Dark Night

Oil prices shot up this past week, and one cannot discount Israel's suggestion of military action on Iran as a part of the incentive for higher prices, though who really knows anymore what makes prices move.

ExxonMobile has been running some "honest talk" style commercials talking about their engineers and technology and the search for new sources of energy (via a picture on the tv screen of the sun, windmills, etc). It's very hard to tell who the evil party is when it comes to rising oil, though reducing it to the usual suspects is probably not the means to solving the problem.

Needless to say, last week was not a good week. The BBC reports:

The spike in oil prices coincided with a dollar slump, plummeting share prices on Wall Street and US unemployment suffering its biggest rise in 20 years.

It also comes as energy officials from the world's biggest consuming nations meet in Japan to discuss fuel prices.

Officials and ministers from the Group of Eight key industrialised nations (G8), as well as China, India and South Korea, are meeting for two days in the northern city of Aomori, to plot a strategy to deal with volatility in oil, gas and coal markets.

On Friday light crude set a high of $139.12 in after-hours trading on the New York Mercantile Exchange after hitting $138.54 at the regular session.

And of course it is not merely oil prices rising, but all the derivative products and sectors of the economy that get knocked off balance as oil costs are factored into doing business. According to the N.Y. Times,

"Companies that make hard goods using raw materials derived from oil, like tires, toiletries, plastic packaging and computer screens, are watching their costs skyrocket, and they find themselves forced into unpleasant choices: Should they raise prices, shift to less costly procedures, cut workers, or all three?"

I am betting they do all three with the disastrous result of lowered income across the country combined with higher prices. That trend would also explain how Wal Mart is now basking in its capabilities, enjoying real growth. As Wal Mart goes, so goes the economy in the opposite direction, it would seem.

So far this year, the nation’s employers have been cutting jobs at an accelerating pace, particularly last month, when the unemployment rate jumped to 5.5 percent from 5 percent. But with the vise on corporate profits tightening and the price of oil continuing to climb, more dire action, including job cuts and higher prices, may be in store, economists say, although there is still room to avoid such steps.

(N.Y. Times)

And if this was not enough--the oil thing, the (un) employment thing, the inflation thing-- we are not nearly at a point when financial institutions have unwound their books, acknowledged all their losses, and stand at the ready to resume business as usual.

Whether it's Lehman seeking $5 or so billion in funding (and with the speculation that the funding will come from foreign sources, as has been the trend), or banks adding to the already "$213 billion raised last summer" (FT) to compensate for losses of equal size, there is clearly more hurt headed our way.

The Financial Times states that:

Accounting changes could force US banks to take thousands of billions of dollars back on to their balance sheets in the coming months in a move that is likely to curb further their lending and could push them into new capital raisings, analysts have warned.

And while you might be thinking, well thank goodness Wachovia and other banks are raising cash, we are reminded that, "Although many leading banks have strengthened their capital, these steps have been focused on repairing the damage wreaked by credit losses – rather than offsetting any impact of new assets rolling back on balance sheets." (FT).

Those accounting discussions that might force changes will not show up any time soon, but remain just one more bomb in a pipeline of easily flowing economic misery. Toss in various bank downgrades by Standard and Poors and things are shaky indeed, as each downgrade increases the collateral that counterparties might demand.

If the banks are too busy building capital and hoarding it to remain within regulartory guidelines and to sustain against unknown or "misaccurately" prepared valuations on the books, or to bolster against assets brought back on the books, then we will not see the type of environment necessary to lead the economy forward out of the slump.

Thus loans won't get made, deals won't get done, expansions will not happen, and things will grind right to a recession about the time the new president is smiling and swearing his way into the new job.

Eventually several someones will make a killing on a convergence trade that calls for a rise in fictional assets (meaning dealers of financial products) and a fall in hard assets (gold, oil, commodities), but mostly the average American seems to be in for a world of hurt for some time into the future.

On the upside, it's a good movie season and the best place to remove the real world from the brain is in the air-conditioned cool of a dark room. Get your snacks, get your woman (or man), and watchThe Dark Knight descend upon us all.

Time Warner Hates Dancing Latinas

Remember back in the good old days at the start of the internet when you discovered AOL? You would pay a flat fee for a period of time per month, and if you went over that time period the charges racked up like crazy? But it was all so new and the thrill of meeting new loves in internet chat rooms outweighed the $200 bill that ultimately arrived.

Well now the cable companies are taking us back to the good old days by slapping greater costs on us for usage of their data transmission pipes.

That is NOT good. Rather than do the technologically farsighted act of increasing capapacity, the cable companies would like to reduce your ability to download the entire Star Trek series while simultaneously working on your blog and watching dancing Latinas on Youtube. (And why is that? Why are there over two hundred "dancing Latina" videos on Youtube? Who is the target market for these largely home spun videos? Someone in that community should be very concernced. Less Obama hate, more Latina daughter managment. But I digress).

Comcast will begin limiting bandwidth usage for the heaviest users in Chambersburg, Pa., and Warrenton, Va., and since none of us actually live there, we probably take a "What happens in Warrenton, stays in Warrenton and does not really exist" approach to worrying about this matter. But to get Biblical, what happens to the least of these, my brethren, can happen unto you. Or something not quite like that exactly.

Comcast said that on Friday it would begin tests in Chambersburg, Pa., and Warrenton, Va., that would delay traffic for the heaviest users of Internet data without targeting specific software applications. Public interest groups complained in November that Comcast targeted users of BitTorrent, a file-sharing application, by blocking or delaying video and other files exchanged with the technology. Free Press said the practice discriminated against certain content and impeded users from having full access to the Web

"First they came for BitTorrent users, and then they came for me," we will be saying when we are rolled back from flat fees to paying $2 a day for access, plus 10 cents for every megabyte. You don't, and we don't, see that now, but just wait. (Stuff like this happens when you are sleeping and dreaming dreams... about dancing Latinas).

Time Warner will begin its acts against humanity in Beaumont, Texas, which again, does not affect anyone in the real world as far as we know; but you don't drop nuclear waste on, say, Iceland, just because you have never seen anyone from there aside from Bjork. It works the same way with Beaumont, but Time Warner Cable is going to be sneaky like that. Creeping and sneaking.

Time Warner Cable is trying a different approach with a test that will charge customers more for larger volumes of data and faster Internet access. The metered-billing test, which the company compared to cellphone billing structures that charge extra for those who go over their minutes, will begin tomorrow with new customers in Beaumont, Tex. The company said its approach allows customers to choose plans that fit their needs.

You see where this is all headed? Are you prepared to start setting aside those nickles and dimes for the cable companies? That was money you were saving to sample those awful new McDonald's chicken sandwiches (don't bother), and now you will have to reallocate toward maintaining your high download capacity.

Of course there is a solution to all of this which would be both sensible and ultimately a wise business decision, given that internet usage will only increase going forward. The companies involved could increase their pipelines, expanding capacity so that bottlenecks won't occur. But apparently that is crazy talk.

Obama Wins Historic Nomination

This is an exciting moment, and one of many feelings. (Not merely for me, but for those around the world, as we can see from the block excerpts taken from this ABC News article).

I have voted for conservatives in every presidential election that I have been old enough to vote. That meant, Bush in 1988, Bush in 1992, Dole in '96, and Bush again in 2000 and 2004.

Brazil:

Brazilians said that Obama represents a change from the old guard of U.S. politics and will seek to engage in positive relations with Latin America...

Brazil's potential has already been tapped by other countries, such as China and Iran, and the consensus is that if the United States is not going to acknowledge its economic growth, then there are other countries that are only too happy to take the opportunity to do business with Brazil."

There are certain things you expect from a conservative president. You expect a financially sound government, Supreme Court justices that are not too expansive (and that make sure religious rights are not violated), and support for the capitalist system that propels prosperity around the world.

Additionally, as a social conservative, I want a presidency that at least makes the argument that moral decisions can and do impact government and society in terms of cost. I want the bully pulpit of the presidency to acknowledge the importance and value of faith, and of morality, however generalized. If they can encourage life as well, and promote the idea of fewer abortions, or abortion alternatives, then even better.

Kenya

Obamamania was in full force in Kenya last night and today as Kenyans throughout the country celebrated Barack Obama's primary victory. In his father's village of Kogelo, Obama's family said it was proud of the Illinois senator and was looking forward to the general election. "We are still fighting," said Sarah Obama, his grandmother. "We are praying for him and hope that he wins the presidency."

Across Kenya's capital city of Nairobi, people gathered at bars and around TVs at home to watch the results come in all night. Friends sent text messages -- instant updates on the delegate count, such as "4 more to go."

"Everyone says that America is racist, that there's no way a black man can win," said Michael Kenedege, a Nairobi businessman. "And Obama's win is telling the world that America can rise above it."

Along came Obama, and in conjunction with a Bush administration that has struggled to execute. I think Bush can be faulted primarily on one issue and that's Iraq. While it was not a necessary war, I do believe arguments can be made that it was just, and I do believe it could have been handled much better than it has.

Iran

Clinton had enjoyed some local support among Iranians who were nostalgic for her husband's presidency. President Bill Clinton's secretary of state, Madeleine Albright, is remembered for moves toward reconciliation and understanding between the U.S. and Iran.

But much of that support for Clinton dissipated after she threatened to "obliterate" the Islamic Republic if it attacked Israel. What remained was a desire for a swift and sharp change from the policies of the Bush administration.

"I'm so happy to see that finally Hillary is out. … I was so angry with Hillary for staying in the race and forcing Obama to spend energy on the primary," said Sina Tabesh, 23, who follows U.S. politics from his home in Tehran.

Right now there are many things not quite right, and some issues that were typically considered "liberal" are gaining wider acceptance; there is a desire by many to see some broad changes in healthcare policy, and the value of a more nurturing posture toward the environment is becoming evident across the globe. Then too, with the difficulties of the United States in dealing with Iraq, Iran, and North Korea, and even looking at Israel's failure to dislodge Hezbollah from Lebanon, it is becoming clear that military diplomacy cannot do all things. Rumsfeld in my mind, the great ruiner of all possible good outcomes, can be the posterboy for that failure.

China

However, several Chinese people interviewed by ABC News said that they believe Obama's youth and energy will bring a fresh perspective to Washington.

They also believe that as a black man, he may be more sympathetic to the Chinese. "He is an ethnic minority himself," Peng said. "He won't discriminate against the Chinese peop

I have read and watched. I tend to read conservative websites most often, and have become dismayed at the dismissiveness and glee that has been directed toward Obama, and echoes of that were also present in Hillary's campaign. It would seem that the pure historic nature of Barack's achievement means little, and people are content to snicker, or sit superior under the delusion (which will be obvious later) that Obama cannot (and should not) possibly win.

It is as if people cannot hold two ideas in the head at the same time: you can admire Barack and the historic nature of his achievement and respect his efforts, while still being in favor of McCain. But it does not really work that way at all with many folks.

Japan

Opinions of each candidate varied on the streets of Tokyo.
"Barack Obama seems young and inexperienced," said Masaharu Ikenaka, a 23-year-old student who studies management. "Hillary can have support from her husband, and she has some experience in the past. She could have done a better job."

A 26-year-old store clerk, Masami Hayata, said Obama is simply "cool."

"He symbolizes a change," said Hayata, who sees Obama as a good public speaker. "He knows how to reach out to people with his communication skills -- something I have not seen in Japanese politicians."

Although she likes the idea of the possibility of seeing the first African-American president, Fuku Nakamura is not sure how such a precedent will play out in history. "I never thought I would see one [an African-American president] in my lifetime," said the 68-year-old homemaker.

You can read the headlines and comments from around the world and see the rest of the planet warm to the idea of new blood, and having someone they perceive as being willing to work with others to achieve positive goals. This is a far cry from the reaction of some Americans, including a particular portion of the right side of the political spectrum.

England

Obama's claim to victory is the lead story today in nearly all the U.K. papers. The press has described Obama's announcement as "historical," an "epic struggle" and a "moment in history."

But newspaper editors have urged caution. The Times reports that "It's fair to wonder, as the 2008 U.S. general election finally gets under way, whether this might be just another false start. It might. But for the time being, Barack Obama is changing the world."

I recall the alarm that "blacks are voting for Obama because he is black," a claim that ignores that initial support Hillary had until she took it upon herself to try to emasculate Obama and club him to death via race, class, and finally sex, in successive order. Also, the claim about blacks really ignores the fact that whites have been voting for whites for this country's history, as have blacks, and one ought not to be surprised nor outraged when blacks choose the black candidate when 1) the platforms of both candidates are relatively similar and 2) the non-black candidate opts to marginalize and dismiss the black candidate, playing to race to overcome his organizational, speaking, and campaign skills.

I think McCain has tried over his history to be honorable, and independent, opting to do what he feels is right, even if it offends other Republicans. That is as it should be, and if he runs a respectful campaign without going too low, I won't be overly upset if he wins. But that also depends on what he is offering; will McCain continue with Republican tinkering around the edges, or will he propose real change?

Obama personifies changes, and his platform will represent actual change. If you are a voter and unhappy with the way Iraq is going, or believe your healthcare should be less costly, or that we should communicate with enemies and friends alike, then your choice should be clear. One ought not play games with the election. Look at what you believe is right and find that candidate that most closely represents those positions that are important to you.

Germany

The ARD/ZDF morning show featured Karsten Voigt, the German government's envoy for transatlantic relations, who said, "Most Germans see Sen. Obama as a kind of mixture of JFK and Martin Luther King."

"Germans perceive Barack Obama as being peace-loving and cooperative, and that is what Germans admire in foreign politicians."

The tabloid newspaper Bild Zeitung called it "a historic victory." The front page of the Koelner Stadt Anzeiger read "Obama wins -- endless marathon is over." The Passauer Neue Presse said, "Obama is the winner -- Hillary ready to run for vice president."

Obama did not make it to the front page of Die Welt, but the online version of the newspaper exulted that Obama has achieved the "impossible -- he's the first black candidate to run for the White House. Commentators compare his win with the first landing on the moon."

This election I will probably vote for Obama, and for any number of reasons, but mostly because I want our government to start fresh. I am not one that thinks Bush has done an overly bad job. There is a certain type of conservative person who finds it convenient to distance themselves from Bush and join in the mockery (and yet, will vote for whichever Republican comes down the pike). For me Bush is not easily mockable. I think the problems of the economy now came about from easy credit, the result of policies meant to combat the recession at the beginning of his term in 2001.

France

Most French TV networks and radio stations led with the Obama win.

The conservative morning newspaper Le Figaro devoted half its cover page to Obama. Next to a picture of Obama and his wife, Michelle, the headline reads, "Barack Obama is ready for the battle for the White House. The candidate has already won primaries in its camp. It remains to be seen how Hillary Clinton will concede and negotiate her way out."

At that time we were getting over the dot.com nonsense. All that supposed prosperity began to reverse on Bush's watch. The answer to a slowing economy, low interest rates, was a corrective to past problems, but an over correction as well. In other words, the economic times of Bill Clinton were not so solid as we imagine (many of the jobs later being undone, many of the companies disappearing), and Bush's efforts ought not to be judged so harshly as they are.

In any case, what a moment. It will be hard to listen to the efforts to dismiss Obama. I get the campain mail from the Republican National Committee with their generic slogans and hyper-alarm. (Liberals do the same). I would hope that poeple could just be fair, honest, and treat each other with respect.

I would hope that those who do not like Obama for his positions (or even his personality), could sit and acknowledge the moment, and take some delight in how far this nation has come. A black and white candidate for a black and white nation, representing everyone and every color in between.

Wealthy, Fat and Falling Apart

In case you thought the growing bad news was hurting only the working man, we can take heart in the news brought to us by the New York Times that we are all suffering, even the wealthy among us. Have you stopped hitting Wendy's at lunch? A bit more Ramen, less pork roast and deli meat? Carpooling maybe? Not going drinking after work or bringing your own liquid indulgences when you do?

Well here in the United States we all take our suffering together, democratically. How are the (N.Y.C.) wealthy cutting back?

So New York’s very wealthy are addressing their distress in discreet and often awkward ways. They try to move their $165 sessions with personal trainers to a time slot that they know is already taken. They agree to tour multimillion-dollar apartments and then say the spaces don’t match their specifications. They apply for a line of credit before art auctions, supposedly to buy a painting or a sculpture, but use that borrowed money to pay other debts.

It hurts doesn't it? Whether it's the single semi-racist mom of West Virginia (according to Hillary) who struggles to feed the seven kids she shares with her brother (according to Vice President Dick Cheney's recent cracks), or the average John Carney the 3rd, struggling to maintain the appearance of comfort in the competitive waters of Manhattan, we all hurt.

Justin Sullivan, managing director of Regent Jet, which leases private airplanes, said most clients in real estate and on Wall Street are switching to chartered jets over private jets, and cutting their flight budgets by about 25 percent. One New York real estate developer cut his budget to less than $250,000 a year from $1.5 million a year.

We are moved. Heartened. Leave it to the Times to remind us that to be human is to suffer. But our hope is to always pull a thimble of valuabe information--preferably financial-- from the mountain of anecdotal tonguing that is the New York Times at its worst, and here is an important passage:

The very wealthy can’t hide anything from their nutritionists and personal trainers, because they see the weight gain. Heather Bauer, a dietitian who works with many Wall Street executives who pay $600 to $800 a month for her services, says her clients have been eating and drinking more in the last six months. She sees results of this indulging each time they step on a scale, and in their journals that record what they’ve eaten.

Do you see it? No, look harder. Read that paragraph again. Yes, if you are seeing what we are seeing, then you are seeing a valuable new investment tool. A brand new economic indicator that will help you fine tune your portfolio in these parlous times. And it's very contrarian in its complexity.

The normal assumption is that in hard times, people will spend less. Maybe even eat less. This usually happens after the first phase of income instability where people eat more as a substitute for actually doing real but costly activities. Thus they stay home and order Pizza Hut for the family in lieu of Disneyworld, but this is quickly usurped by the "spend no money, sell the second car, can't pay the mortgage, move to a rental and eat ramen phase,"; waistlines grow thinner.

But the wealthy, well they eat and drink more when times get rough, according to the NY Times, so they provide an excellent observational data point to determine when it is time to reverse your portfolio and stampede into the housing and banking sector.

So keep your eyes on the wealthy and their guts. The more gutless, the better the times we are in.

Just in case you are misreading that indicator, and are thinking, "Well they look fat enough to me now," (relative to one's own starving situation) let me offer some real data points to act as corrective to your faulty analysis.

First, construction spending is continuing its two year downward journey, falling .04% in April. Ultimately this is good, since eventually supply and demand will fall into balance. but until that equilibrium happens, it is, well, kinda bad. This drop was dominated by declines in residential housing contruction, while the commercial sector headed ever so slightly in the opposite direction.

And as if to remind us that these stats involve real businesses, Toll Brothers announced huge drops in income and revenue for the third quarter.

Toll Brothers Inc, the largest U.S. luxury home builder, posted a quarterly net loss on Tuesday, hurt by weakened demand in most markets amid the nation's housing slump, but the results were not as bad as Wall Street had expected.

The net loss totaled $93.7 million, or 59 cents per share, in the second quarter ended on April 30, compared with a year-earlier profit of $36.7 million, or 22 cents per share.

(Reuters, via N.Y. Times)

But the kernal of valuable information amidst the losses is the strengthening of the balance sheet and capital. Are you buying this yet? No really, are you buying this? Because at some point, you should be buying this.

Lenny Dykstra Thinks You are Stupid

Former Met Lenny Dykstra, nicknamed "Nails", has but one thing to say to you: Annuities.

(And by YOU we mean, former athletes. For the rest of us, we can probably ignore him and the fees involved in his suggestion).

It's also nice to know that Lenny does not take his own advice. He works under the assumption that ball players are probably too stupid to get involved in managing their own investments. In other words, less education, more supervision. Kind of the totalitarian method to investing.

Weekend in China

The reconstruction process in China's earthquake zone is moving into the planning stages and the scope of what has to be done is simply daunting. The thing that fascinates with China, in things good and bad, is simply its size and the numbers involved. Here we are dealing with an area the size of Iceland, with "30 million affected and another 5 million losing their homes" (China Daily).

Despite the massive amount of work that needs to be done, financing the reconstruction seems to be the least of the worries, and a reflection of China's ongoing economic vitality.

The country's sound fiscal condition will ensure adequate funding for the reconstruction, says He Fan, an economist with the Chinese Academy of Social Sciences (CASS).

Fiscal revenues amounted to 5.13 trillion yuan last year, up more than 30 percent year-on-year. Revenues are expected to increase to more than 6.4 trillion year this year, says Liu Yuanchun, economist and head of the School of Economics at the Renmin University of China. "Therefore the funding demand can be met by adjusting the government expenditure structure and using private donations."

"In the worst-case scenario (in the event of fiscal difficulties), China can use financial instruments such as a 30-year special quake treasury to pool money," says He from CASS. "In this way, it can spread out the fiscal pressure."

Concerns remain about reconstructing in an area prone to quakes.

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It's not only within China that we see economic change from both domestic and international influences, but the face of Chinese business in the wider world is changing as well. From the Golden China Brands blog we see a move by Chinese retailers into Europe in an attempt to create large scale retail experiences.

“I visited today one of the Chinese stores of the Oriental Group in Eindhoven, the Netherlands. A truly amazing experience, showing that the Chinese are becoming mainstream in a rather unexpected way. I knew already quite some well-run Chinese stories, but this was a supermarket chain, having products also from Thailand, Japan, Malaysia, Indonesia and other Asian countries. The staff was in majority Cantonese, but I noticed also Thai and Dutch staff members."

(More at can also be found at China Herald)

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For a lot of fun insight on what is going on in China, take a walk over to China Machete.

I started to focus on one particular post about a well endowed television show host who seems to have gotten sacked for the appearance of nipple, but there are a bunch of good posts: everything from the lack of adequate aircraft in the Chinese military (PLA), to whether it is seemly for IRC's (interracial couples) to be smooching in public. Particularly interesting is a piece (from April) on Australia's Mandaran speaking prime minister Kevin Rudd, who is proving a big hit among the Chinese population.

One can only imagine what having an American president with such fluency might do on the world stage, but the majority of politicians here speak politics, mostly and unfortunately.

And here, a quote from the least important item:

As a shallow man, I can admit that one of the few pleasures the movie report gave me was having a perv on Jingwei’s giant knockers. I have always been rather curious about the story behind these knockers – judging by the slenderness of Jingwei’s legs, she is skinny like her co-host. I wonder whether some plastic surgery may have come into play. Being well aware of Jingwei’s assets, I am bewildered about why she decided not to wear a bra before going on air.

*

And finally, did you know that UPS has its Asian logistics hub in China? Well now you do, and you can read it here. This represents a loss for the Phillippines and the hub at the former Clark Air Force base.

This is not new news, but it's important, representing increases in, and the importance of, inter-Asian trade.

UBS Breaks Heart of Trusting Hedge Fund

This is amusing. We won't even pretend to fully understand how credit default swaps work, nor are many people consumed with a desire to find out on this delightful weekend.

But it's important, so this is the equivalent of broccoli for your life, in that when some financial meteor next hits, you won't be reduced to blaming Freemasons or Bush and his oil friends (and who are these oil people anyway that are supposedly the puppet masters behind each and every Bush act, from sneezing to invading Iraq? Don't answer because you don't know).

The N.Y. Times presents to us a deal between two parties: big bank UBS and a hedge fund firm named Paramax which had about $200 million in capital. UBS wanted to insure $1.31 billion in highly rated senior notes, and Paramax said "Gee sure, we will set aside $4.6 in our special purpose "entity" and insure you. You convinced us!"

Under the terms of the deal, UBS would pay Paramax 0.155 percent of the $1.31 billion in notes annually for its insurance and Paramax would deposit collateral to back the swap, increasing it if the value of the underlying notes declined.

(N.Y. Times)

According to the article, "the notes reflected performance of subprime mortgages in a collateralized debt obligation underwritten by UBS."

As events would proceed, the "subjective" values of the securities dropped, and UBS requested more collateral.

The basic disagreement seems to be over UBS continuing to hit up Paramax for more collateral after a theoretical restructure of the deal was supposed to cap any further losses. But UBS continued to issue margin calls and when Paramax refused, they sued. Paramax countered for the $33.9 it lost in the swap. They say they took the word of UBS that the likelihood of a harmful downward revision was unlikely.

In looking at the capital Paramax had available, it would seem they were optimistically stoned out of their financial minds, and one cannot imagine them coming out with a gain on the transaction in any way, shape, or form. It seems their argument stands on the idea that UBS mispriced the securities and misled them at the same time. But they come off sounding slightly ridiculous.

As the article points out we can expect more of these suits piling up in the courts and the effects of unwinding these transactions will obviously be harmful to certain parties and affect the markets in ways we know not how. But it's hard to imagine if bad things can happen, that they won't, and Paramax seems to have ignored that.