Strong Productivity Defies Trend

[PaceAdvantage]

In the six U.S. recessions since 1970, worker productivity, or output per hour, grew a sluggish 0.8%, on average. But since the end of last year, even amid economic weakness, productivity is estimated to have grown an average 2.5% at an annual rate.

They just don't make recessions like they used to!

The rest here:

http://online.wsj.com/article/SB121779042940308055.html?mod=googlenews_wsj

[skate]

Oh yeh!

I'm waiting for "the others" to acknowledge the Stimulus Package. What a little Money can do in the hands of the people, and not the Gov., Oh Yeeeeh!

Some have a difficult time relating Debt =Growth, also the Debt dwindles while the Growth will Grow on the Dwindled Debt.


It's not easy being correct all the time (since i got my new dictionspeller), but it is fun.

[highnote]

There are two parts to this message...

I wonder how much the US Auto industry is contributing to productivity?

This is an interesting newsletter. I copied it in its entirety because it is a free newsletter and there is a link at the end if you want to subscribe. So I'm doing the author a favor. John Mauldin has become one of my favorite people to read. This week's edition is not by him, but by another very good writer and Hedge Fund manager.

----------

It is indeed a very interesting time in which to live, especially watching the financial markets. The disconnect among authorities, regulators, companies and investors is almost too much to comprehend. There are no precedents for the turmoil we are in. This week we read an essay by a name familiar to readers of Outside Box, Michael Lewitt of Hegemony Capital Management (www.hegcap.com). As usual he offers us some very cogent comments on the continuing efforts by those in authority to bail out the system, along with insights on the deal by Merrill and the woes at GM. It is a very interesting letter, so I will stand aside and let Michael jump in.

John Mauldin, Editor
Outside the Box






Survival of the Unfittest
By Michael Lewitt


"Can we doubt (remembering that many more individuals are born than can possibly survive) that individuals having any advantage, however slight, over others would have the best chance of surviving and procreating their kind? On the other hand, we may feel sure that any variation in the least degree injurious would be rigidly destroyed. This preservation of favourable individual differences and variations, and the destruction of those which are injurious, I have called Natural Selection, or the Survival of the Fittest."

- Charles Darwin, The Origin of Species (1859)

Honest to God, HCM is trying to find the light at the end of the dark tunnel that the U.S. economy and financial markets have become. But every time we turn around, regulators and other power brokers continue to avoid making the hard choices necessary to deal with the problems at hand. As a result, the practices that led the current credit crisis are being preserved, and changes that could lead to more stable and healthy markets are being pushed into the future (perhaps forever). The last month has provided so much grist for this mill that we hardly know where to begin, but begin we must. Our survey of what can only be described as a regulatory wasteland begins with the SEC's misbegotten short-selling legislation.

Regulatory Malfunction
On July 21, 2008, the United States Court of Appeals for the Third Circuit overturned a $550,000 indecency fine against CBS for airing singer Janet Jackson's wardrobe malfunction during the 2004 Super Bowl halftime show. The court ruled that the Federal Communications Commission had "capriciously departed" from its policy over the past 30 years of policing the airwaves with "practiced restraint" when it imposed the fine. Importantly, the court stated that, "[l]ike any agency, the FCC may change its policies without judicial second- guessing. But it cannot change a well-established course of action without supplying notice of and a reasoned explanation for its policy departure." This demand for consistency and fair warning in the law has been absent from enforcement of the nation's securities laws for many years, resulting in botched prosecutions, inconsistent regulation, and damage to the system.

The latest example of regulatory malfunction in the financial markets is the SEC's limitations on selling short the stocks of 19 financial firms. Readers should understand that this stopgap measure will have absolutely no impact on the underlying value or the long-term stock prices of these companies. This is merely a political bone being thrown to those who would sooner blame short-sellers for the credit crisis than the institutions (and the individuals responsible for mismanaging them) who acted in a wholly irresponsible manner. Leon Cooperman, one of this generation's great investors and a man always willing to speak his mind, described the situation very frankly in a recent interview in Barron's: "The financial economy is in disarray and that is really a result - and you can quote me on this - of imprudent financial activity by the commercial banks and investment banks. They levered themselves up. They did things that were foolish. They should be ashamed of the way they conducted themselves, and now they have to right that, and they are de-leveraging."1

By engaging in selective protectionism of a few favored companies rather than re- imposing the uptick rule and treating all companies equally, the SEC furthered the appearance of favored treatment for large institutions that raises serious moral hazard concerns and dampens confidence in U.S. financial markets. The following is the list of the 19 firms that the powers-that-be decided were worthy of special protection from market forces:

BNP Paribas Securities Corp.
Bank of America Corporation
Barclays PLC
Citigroup Inc.
Credit Suisse Group
Daiwa Securities Group Inc.
Deutsche Bank Group AG
Allianz SE
Goldman, Sachs Group Inc.
Royal Bank ADS
HSBC Holdings PLC ADS
J.P. Morgan Chase & Co.
Lehman Brothers Holdings Inc.
Merrill Lynch & Co., Inc.
Mizuho Financial Group, Inc.
Morgan Stanley
UBS AG
Freddie Mac
Fannie Mae
Among the more interesting aspects of this list is the fact that more than half the names are non- U.S. firms enjoying the protection of the U.S. regulators and the fact that some large U.S.-based firms that are clearly being pummeled by short-sellers are missing from the list (i.e. Wachovia Corp., AIG International Group, Inc., Washington Mutual). The ostensible basis for inclusion on the list - status as a primary dealers plus Fannie and Freddie - speaks to the reactionary nature of the rule-making. Finally, this desperate measure is yet another example of the capitalism-for-the poor, socialism-for-the-rich economic model that American financial authorities have adopted over the past two decades.

As has been widely noted, the SEC effectively restricted "naked short selling" several years ago but failed to adequately enforce the rule. ("Naked short selling" involves selling short shares of stock that one has not borrowed or determined are borrowable. As The King Report points out, SEC Release 34-50103 dated July 28, 2004 states that Rule 203(b)(3) "requires any participant of a registered clearing agency...to take action on all failures to deliver that exist in such securities ten days after normal settlement date, i.e., 13 consecutive settlement days. Specifically, the participant is required to close out the fail to deliver position by purchasing securities of like kind and quantity." A "threshold security" is defined as a stock experiencing an unusually high number of fails to deliver. A "fail to deliver" is a failure to actually deliver shares that have been borrowed to effect a short sale and are most commonly associated with "naked" short sales. Rule 203(b)(3) is the rule that the SEC has failed to enforce with sufficient teeth, effectively allowing "naked" short selling to run rampant.)

As a result, when it announced that it would enforce the rule selectively with respect to a select number of financial stocks that had been battered by short sellers (ignoring the fact that a number of these companies had posted tens of billions of dollars of losses due to gross mismanagement and deserved to be sold), the agency effectively admitted that it had been failing to enforce its own rules. The SEC's announcement predictably sent holders of naked short positions scrambling to borrow stock while other short sellers ran to cover their positions in these and other financial stocks in anticipation of a rally in these shares. The result was a historic rally in financial shares that was given a boost by the bailout of Freddie and Fannie but was wholly unrelated to any improvement in the underlying businesses of the companies whose stock prices rose so sharply.

The real question is why the SEC did not reinstitute the uptick rule, which, in one of the those coincidences that you can't make up, was repealed on the same day that the Bear Stearns' hedge fund problem came to light, June 13, 2007. Re-imposing the uptick rule on all stocks rather than trying to protect a handful of financial stocks from the verdict of the market would seem to be a far more enlightened method of regulation. HCM has made this point before, writing in April (The HCM Market Letter, April 1, 2008, "How To Fix It") the following:

"Short selling is an absolutely legitimate way to invest or hedge a portfolio. The SEC made a major error when it repealed the [uptick] rule last year. The repeal of this rule increased downside volatility exponentially and contributed to the ability of quantitative and other computer-driven selling to push the market lower based on technical rather than fundamental investment considerations. The SEC should reinstitute the [uptick] rule immediately." (emphasis in original)

In addressing concerns that short-sellers are unfairly targeting financial stocks, the SEC had a choice about how to proceed. By taking the path it did, it appears to have continued an unfortunate tradition of enforcing rules that are already on the books but that practitioners have practiced with relative impunity because regulators have allowed them to. The King Report noted that the New York Stock Exchange fined and censured J.P. Morgan Chase, Citigroup, Daiwa Securities, Goldman Sachs and Credit Suisse two years ago for failing to enforce rules against naked short selling.3 Apparently these penalties (which were a couple of million dollars) were insufficient to end the abuses, and the fines were treated as just another cost of doing business.

Wall Street firms that lend stock and bonds to short sellers earn enormous profits from such activities. According to a recent article in the Financial Times, "US prime brokerage firms, most of which are owned by big Wall St. banks, will reap revenue of $11 bn this year" from lending stock to facilitate short-selling.4 Accordingly, the securities industry has very little interest in seeing any crackdown on short-selling. Fines of a couple of million dollars are hardly sufficient to dissuade them from ignoring the rules when they stand to earn billions of dollars from the activity in question. As distasteful as it is to see the largest financial institutions in the world thumb their noses at the rules, it is even more discouraging to see the regulators allow them to do so.

What most disturbed HCM about the SEC's decision was the fact that it is just the latest example of the beggar-the-poor, boost-the-rich policies that the American financial authorities have followed over the past two decades. HCM understands perfectly well that allowing financial institutions to fail is not a viable policy either politically or economically. But while the government acted literally overnight to protect Goldman Sachs and Lehman Brothers and 17 other financial institutions and their already wealthy executives, Congress took much longer to debate and pass a mortgage rescue plan to help the millions of less fortunate homeowners who are on the verge of losing their homes. There is obviously an enormous difference between an agency's ability to issue a rule overnight and Congress's ability to legislate, but at some point - and that point is coming sooner rather than later in HCM's opinion - the American people are going to ignore that distinction and ask why Wall Street continues to get bailed out before Main Street. There is nothing pre- ordained about the policy choices that are being made. As Professor Lawrence E. Mitchell writes in his recent book, The Speculation Economy, "modern American corporate capitalism is the result of human choices. It is a system we maintain out of choice. It is a system that has ramifications beyond the economic that have helped to embed social norms of individualism that interfere with the cooperation necessary for a successful economy and a thriving society. It is within our power to change it, to modify its rough edges or to accept it as it is. But these choices can only be made with understanding."5 Smoothing out the rough edges is a very mild version of what needs to be done. What needs to be done is to make difficult policy choices that will necessarily involve the infliction of pain on certain constituencies that have thus far been protected from the consequences of their own sins.

HCM is not proposing that the authorities stand by with their hands in their pockets while firms like Fannie Mae and Freddie Mac or Bear Stearns face collapse. What HCM is arguing, however, is that such rescue plans should not provide protection for the shareholders of these companies. The minute the U.S. government was compelled to open the discount window to the investment banks, it should have made it very clear that there would be no support for the shareholders of these companies. Bear Stearns' shareholders received $10/share more than they deserved when that company was bailed out by the Federal Reserve and J.P. Morgan Chase.

This leads to a conclusion that was discussed several months ago in this publication (The HCM Market Letter, April 1, 2008, "How To Fix It"). Since it is apparent that we are not prepared to allow certain firms to fail, then we must take steps to limit their ability to endanger the system in the first place. This requires rules that impose limitations on financial institutions' leverage; eliminates their ability to conceal assets and liabilities in opaque off-balance sheet entities; restricts asymmetric compensation schemes that reward insiders for taking indecent risks with their firms' capital at the expense of shareholders and ultimately taxpayers; and adopt economic and monetary policies that encourage productive investment rather than speculation. This is no small order, but it is eminently achievable. Moreover, it is absolutely necessary if American capitalism is going to continue to flourish and maintain the confidence of the keepers of the world's capital in the years ahead.

Sticking One's Head In The Sand
In April, HCM wrote the following about the egregiously leveraged off-balance sheet entities known as Structured Investment Vehicles (SIVs) that inflicted so much damage on the global financial system (The HCM Market Letter, April 1, 2008, "How To Fix It"):

"Off balance sheet entities should be outlawed immediately, plain and simple. If first Enron and now the SIVs haven't taught us the necessary lessons about hidden liabilities, the system probably doesn't deserve to survive. Speaking as someone with extensive knowledge of these off-balance sheet entities, it would not be difficult to render them extinct relatively easily. It would be doing the world a favor."

On July 30, the Financial Accounting Standards Board (FASB) reluctantly caved in to pressure from the very institutions that created these off-balance sheet monstrosities and agreed to delay for one-year (a period that will undoubtedly become extended if the financial industry remains under pressure a year from now) the introduction of rules that would have forced banks to consolidate more off-balance sheet vehicles onto their balance sheets. FASB Chairman Robert Herz did not go gently into the good night, however, admitting, "t does pain me to allow something that has been abused by certain folks, to let that go for another year." Mr. Herz also noted that he was "chagrined" by what had been uncovered about these vehicles as the new rule was being prepared, noting that a combination of poor reporting and lax enforcement had led to the current situation.

The FASB was caught between a rock and a hard place. The reality is that banks can't absorb additional liabilities onto their balance sheets at the current time without violating capital rules. These institutions are barely capable of remaining solvent as it is. They are continuing to report massive write-offs and are experiencing tremendous resistance when they try to go back to the well to raise additional capital. Accordingly, requiring the addition of what may amount to several trillion dollars of off-balance sheet liabilities onto banks' balance sheets is simply inconceivable at the present time because it would automatically render several of the world's largest financial institutions (including several on the protected species list from attacks from short-sellers) instantly insolvent. But giving banks a one-year reprieve may simply buy them time to develop other strategies to keep these assets hidden in the opaque shadow banking system.

Moreover, regulators need to assure global investors that no new vehicles of this type will be permitted to be formed in the future. News that the new rule has been delayed suggests that the balance-of-power still lies with institutions that remain too large to fail and can still lord it over regulators by pointing to the catastrophic consequences that hard-and-fast accounting standards will unleash on the financial industry. But the result is that the system sticks its head in the sand for another year as it prays for a recovery in the value of the trillions of dollars of highly complex and illiquid securities (many of them derivatives). HCM would wager heavy money that we have not heard the last about delaying adoption of this rule.

Merrill Lynch: The Dundering Herd
Merrill Lynch & Co. Inc.'s decision to dump $30.6 billion of mortgage securities at an average price of $0.22 on the dollar barely a week after its quarterly earnings announcement (which itself included a $10 billion write-down on such securities!) raises more questions than answers about the firm and the prospects for credit markets to recover from their current crisis. Merrill Lynch agreed to sell these securities to Lone Star Funds for $6.2 billion, yet barely two weeks earlier the sale the firm had valued those identical securities at $11.1 billion. Moreover, the sale is structured in such a way that Merrill Lynch is financing 75 percent of the transaction. This means that Lone Star is on the hook for the first $1.7 billion of losses, and then Merrill Lynch will eat any losses beyond that. In other words, another $0.05 drop in the value of these securities would leave Merrill Lynch back on the hook for more losses. Either this will prove to be one of the most desperate transactions done in the annals of the current credit crisis, or John Thain knows something the rest of us don't want to know about the real value of the toxic waste he just sold to Lone Star. At the same time, Mother Merrill announced the sale of 380 milion new shares of stock to raise $8.5 billion in new equity capital. The issuance of additional shares at current prices triggered a make-whole provision in an earlier share sale to Singapore's state investment agency, Temasek that cost Merrill Lynch $2.5 billion. Temasek, the firm's largest shareholder, turned around and reinvested this $2.5 billion in Merrill's new share offering along with an addition $900 million. These announcements not only left Merrill Lynch shareholders severely diluted but, if they had been paying attention to the quarterly earnings call, deluded.

This transaction may constitute one of the oddest corporate announcements in recent memory.6 First, it suggests that Merrill Lynch's quarterly earnings announcement was grossly inaccurate since, with respect to these assets alone, the firm's valuation was apparently off by a factor of 40 percent. Second, it raises serious questions about the values all financial firms are placing on their mortgage securities. Either Merrill is alone in mis-marking its book by 40 percent, or other firms are grossly over-valuing their holdings and will be forced to report large write-offs in the third quarter. What is particularly troubling (but gives the anti-quantitative HCM a wonderful dose of schadenfreude) is the enormous gap in valuations that different firms (i.e. Lone Star and Merrill Lynch) can apparently derive from securities that are allegedly valued according to mathematical models whose precision is such that they would have problems hitting the side of a barn.

And naturally Merrill Lynch's announcement, which included a highly dilutive share sale to compensate for the multi-billion capital loss suffered by the firm, led to a rally in the firm's stock price. Let us get this straight - the firm admits that it grossly mis-marked its book, reports a(nother) multi-billion dollar loss, announces a hugely dilutive stock offering, and the stock rallies? Makes perfect sense to us. And people wonder how and why the financial markets continually fall into crisis!

[highnote]

Part two:

Fannie and Freddie
Merrill Lynch' actions raise a more serious question, however, which is why investors would bet on a recovery in financial institutions at all at this point in time? The reason to do so, it seems, lies more in a bet on what public officials will do than on whether these companies are worthy investments or will have any future value. Investors betting on a turnaround in financial shares are really betting on whether government officials are going to allow these companies to fail. Thus far, it appears that the answer is a resounding "no." The government has demonstrated that it will do everything in its power (and sometimes more than its power expressly permits) to prevent failure. The question, of course, is whether the size of the problems at some point will exceed even the government's grasp.

The bailout of Fannie Mae and Freddie Mac is particularly bizarre in this respect. The very fact that a bailout was necessary demonstrated beyond a shadow of a doubt that the entities were insolvent and that the public shareholders should have lost all of their money. The only reason these two companies were not forced to declare bankruptcy is that the U.S. government agreed to stand behind their obligations. Yet the stocks continued to trade at a value greater than zero and will not be wiped out by the government support plan. Yet the real shareholders in terms of bearing the biggest risk of loss in these companies are no longer the holders of the publicly traded shares but the American taxpayers, who are effectively guaranteeing the companies' multi-trillion dollar obligations. Accordingly, the taxpayers should be the ones who received any gains on the equity value of these dinosaurs as they are restructured to operate in the future.7 Just because government officials state that they don't "expect" such guarantees to be called upon doesn't erase the fact that such obligations are in place and must be honored. To put it politely, Treasury Secretary Paulson and Congress effectively picked the pockets of the American people by denying them the upside on their new investment in Fannie and Freddie.

And despite passage of the bailout plan, investors in the agencies are not necessarily out of the woods, as HCM suggested earlier this month. On July 9, HCM warned that investors should be cautious in betting on the unsecured obligations of Fannie and Freddie, writing "investors should not presume that a federal bailout will provide a lifeline to all of the companies' investors....subordinated debt holders also should not expect protection in a bailout that would not only be unprecedented in size but also cast the United States' balance sheet and currency in a wholly unfavorable light." (The HCM Market Letter, July 9, 2008, "The Deepening Crisis"). HCM's cautiousness contrasted sharply with the statements and actions of bond giant PIMCO, which has effectively bet the ranch on the debt securities of Freddie and Fannie based on a belief that the government would never permit these institutions to fail. But sure enough, proving once more that even paranoids have enemies, S& P announced on July 25 that it was placing Fannie and Freddie's subordinated debt and preferred stock ratings on CreditWatch Negative. This was based on the fact that the language in the government plan "increases the likelihood that subordinated debt holders and preferred stockholders would face greater subordination risk. This heightened risk is not incorporated into [S&P's] current subordinated debt and preferred stock ratings on Fannie Mae and Freddie Mac. We may lower these issue ratings one to two notches at the conclusion of our review of the final legislation."8 We very much admire the individuals at PIMCO, but we are entering uncharted territory and recommend investors act with an extra degree of caution. It wouldn't be the first time that investors learned the hard way that a security that was deemed riskless turned out to be nothing of the sort.

Demolition Derby
The slow motion death of the American automobile industry is almost too painful to watch. The flood of bad news coming out of Detroit has literally swelled into a tsunami in recent days, and there is no end in sight.

First came another credit rating downgrade. On July 31, Standard & Poor's did another number on the industry. In three separate reports, it downgraded General Motors Corp. and GMAC LLC, Ford Motor Co. and Ford Motor Credit Co., and Chrysler LLC and DaimlerChrysler Financial Services Americas LLC (DCFS). The stated rationale for these downgrades (S&P could have chosen a dozen reasons) was basically concern over shrinking cash flows and liquidity at all three companies and their finance arms. While S&P can hardly be blamed for stating the obvious, the rating agency probably didn't go far enough in continuing to rate the automakers ‘B-,' one notch above the once infamous CCC+ level. In today's world, of course, a CCC+ rating no longer bears the stigma that it once did, but in the case of these companies, it is only a matter of time before they bear the insignia of insolvency that such a rating portends. The world is witnessing a classic case of an industry in denial. Rather than taking the truly radical steps necessary to address its problems, Big Auto's management is still engaging in incremental change in the hope that it can buy itself enough time to effect a changeover to more fuel efficient models. Unfortunately, these executives are doing nobody any favors by delaying the inevitable balance sheet restructurings that are going to be a necessary component of the endgame for their industry.

Just prior to S&P's move came the effective collapse of the automobile leasing industry. In the days prior to the S&P downgrade, the automobile financing industry came totally unglued. This is the latest indication of how severely credit is being rationed at all levels of the U.S. economy. Chrysler Finance was the first of the Big Three automakers' finance arms to announce that it would stop extending automobile leases. This decision, which is nothing less than catastrophic for Chrysler's vehicle sales despite unconvincing protests to the contrary by the privately-owned carmaker, was due to the fact that leasing has been rendered unprofitable by Chrysler Finance's rising borrowing costs and the plunging residual value of Chrysler's gasguzzling vehicles. Chrysler debt is trading at levels that suggest an imminent bankruptcy filing.

GMAC and Ford Motor Credit are not expected to eliminate leasing entirely but are likely to severely cut back on auto leases since they can't make any money on these transactions. Wells Fargo has also withdrawn from the business of financing car leases. Other financial institutions are sure to follow.

The dramatic reduction in the availability of auto financing will be another nail in the coffin of the American automobile industry (at some point the coffin will have so many nails in it that it won't need any wood). Leases account for roughly 26 percent of annual auto sales. Just as subprime mortgage financing led many consumers into homes that they couldn't afford, low-cost auto leases allowed many people to lease cars to which they otherwise wouldn't have had access. Leases also led many consumers to replace their vehicles in a much shorter period of time than they ordinarily would have done, leading to higher auto sales. Automobile manufacturing and financing is a significant component of the American economy, and we are watching it being deconstructed piece-by-piece before our very eyes. The economy is seeing the dark side of what happens when financial engineering creates false demand for consumer goods that is unsustainable on a fundamental basis.

Finally, on the last day of July and first day of August, GMAC and GM issued two lackof- earnings releases that not even the happy faces on financial television could spin in a positive way. On July 31, GMAC released its second quarter 2008 results, a loss of $2.5 billion (that would have been much worse without $1.55 billion of lease support payments that GM is obligated to make to GMAC under risk-sharing and support agreements dating from 2006.) GM reported that it has $30 billion in North American leases, including $12 billion in SUVs and $6 billion in other trucks. If current trends hold, GMAC is looking at further multibillion writedowns on these vehicles. Residential Capital LLC contributed $1.9 billion of losses to GMAC during the quarter compared with a $254 million loss a year earlier. HCM will leave it to others to try to find a silver lining at GMAC. The hard truth is that the deterioration of every aspect of this company is accelerating.

Not to be left out in the cold, on August 1, GM announced a grotesque $15.5 billion loss for the second quarter of 2008 ($27.33/share on an $11.00 stock price for those who are still counting such things). Global sales plunged by 18 percent during the quarter, with U.S. sales fading by 16 percent through June. July trends continue to point sharply downward, and the effective elimination of leasing by GMAC can only further reduce sales. A significant portion of the loss was attributable to charges for attrition programs (i.e. job reductions), an adjustment to its reserve for its former parts-maker Delphi Corp., and a $2 billion loss attributable to lower residual values for leased vehicles. But at this point, HCM would seriously discount the one-time nature of these charges, which continue to hit GM's balance sheet with depressing regularity as the company continues to try to dig out from the detritus of its past business structure and history. Backing out these so-called one-time charges left GM with a $6.6 billion quarterly loss, which was still 450 percent larger than analysts projected (which is further evidence that nobody, and HCM means NOBODY, has a clue about how GM is going to survive as a going concern).

The latest news out of Detroit makes it abundantly clear that the endgame for the Big Three is going to be massive bankruptcy restructurings. One would hope that politicians in Washington, particularly the two Presidential candidates, would begin formulating national energy plans that include restructuring plans for the American automobile industry. No viable energy plan will meet this country's needs without creating the proper tax and other economic incentives to build fuel-efficient vehicles. Rather than continuing to be one of the problems that lie at the heart of the American economy, the recovery and revitalization of the auto industry could be a major component of an economic and energy policy that could lead this country out of the difficult times we are experiencing and are doomed to repeat unless we take some bold steps right now.


--------------------------------------------------------------------------------


Your wishing he was still fishing analyst,


John F. Mauldin


InvestorsInsight Publishing, Inc. -- 14900 Landmark Blvd #350, Dallas, Texas 75254

© InvestorsInsight Publishing, Inc. 2007 ALL RIGHTS RESERVED



http://www.investorsinsight.com/

[highnote]

They just don't make recessions like they used to!

The rest here:

http://online.wsj.com/article/SB121779042940308055.html?mod=googlenews_wsj


Here's a quote from another subscription newsletter from Dr. Marc Faber at http://www.gloomboomdoom.com. Faber is a well known and respected analyst who has been around a long time.

Originally, I had expected a summer rally to get underway and to last
from late June to late July. The rally came with some delay and began
July 16th from an extremely oversold position and amidst a record short
position. Now, while I think that it is quite possible that stocks will
rebound another 10% or so in order to move the investment community
once again into the bullish camp, it is also likely that after a rebound
equities will move once again lower as it becomes evident that the global
economy is in recession with dire consequences for corporate earnings. I
would, therefore, use stock market rebounds around the world as a selling
opportunity.

[skate]

we oriented from manufacture to service type economy.

the results will become apparent.

When the economy shows strength , will the media append the positive flow to Bush?

debt=growth

[skate]

OOOoooh, i need to post this.


Hey hey hey, did ya here about the 1.9% 2Q GDP, seems they forgot to put in the month of JUNE (must have been a Neolibs dude).

Yeh yeh yeh, with June now included, we had a 3% 2Q and now the-skate is back in love again.:kiss:


i just love the-skate.

[Valuist]

The stimulus checks helped temporarily prop up 2nd quarter earnings, most of which were revised sharply downward. There won't be any of that to window dress 3rd quarter earnings.

Unfortunately, nothing has changed except oil is a bit cheaper. The SEC did its best to manufacture a fraudulent rally in financials by threatening to crack down on short selling of 19 companies given preferential treatment. That threat ended yesterday, and not surprisingly, the bear market rally came to a crashing halt. More mortgages will reset, which will mean more foreclosures, which will bring down home prices further.

Better learn how to trade because we've seen in the previous 10 years, buy and hold hasn't worked anywhere as good as it did in the 80s thru the late 90s.

[Valuist]

we oriented from manufacture to service type economy.

the results will become apparent.

When the economy shows strength , will the media append the positive flow to Bush?

debt=growth

What strength? Where? I must've missed that.

Considering the Dow is almost unchanged since 1999, its doubtful any media member will throw bouquets at the current administration.

[46zilzal]

PA, reminds me of the "mom" who comes to watch little Johnny soldier boy march: he is completely out of step with his troop, but Mom harps:"Why are all those OTHER boys out of step?"

[Tom]

46 reminds me of a memory! :D

[Secretariat]

More on the PA and GW's great economy.!!!!

http://news.yahoo.com/s/ap/20080814/ap_on_bi_go_ec_fi/economy;_ylt=AvLtvq_4RhdBd5xBes5onLes0NUE

Consumer prices rise at double the expected rate
By MARTIN CRUTSINGER, AP Economics Writer

WASHINGTON - Consumer prices shot up in July at twice the expected rate, pushed higher by surging energy and food costs. The latest surge left inflation running at the fastest pace in 17 years.

The Labor Department reported Thursday that consumer prices rose by 0.8 percent last month, twice the 0.4 percent gain that economists had been expecting.

It marked the third straight month of oversized inflation increases following jumps of 0.6 percent in May and 1.1 percent in June. And it leaves inflation rising by 5.6 percent over the past year, the biggest 12-month gain since January 1991.

[PaceAdvantage]

More on the PA and GW's great economy.!!!!What is it with the goons and their reading comprehension problems?

Point to me any post of mine where I say we have a great economy? I have never even implied this. I have often times said WE ARE NOT IN A RECESSION...YET....and I have often said we are definitely in the middle of an economic slowdown.

I have never EVER stated that we have a great economy.

I'm so tired of correcting all you nimrods intent on misrepresenting what I type.

[46zilzal]

I'm so tired of correcting all you nimrods intent on misrepresenting what I type.
when the reality of the economy continuing to go south we get regular installments of how that is not so.....AND the source for those are from two posters.

[PaceAdvantage]

when the reality of the economy continuing to go south we get regular installments of how that is not so.....AND the source for those are from two posters.No, that's not what you get. My posts are completely COMPATIBLE with an economy that is going south. I never said the economy wasn't going south.

An economy can go south and also NOT BE IN A RECESSION.

That is my point. Despite all the doom and gloom, we still haven't had job losses approach any prior recession on a monthly level. Until that happens, and until GDP goes negative, you can piss into the wind all you want.

You guys obviously don't understand the meaning of recession. Hell, even all those big ivory tower establishments have yet to officially call the US in a recession. What are they waiting for?

Yet, all you geniuses here on PA Off-topic know better. I hope you're getting yourselves all set up for the fall. You can profit handsomely from it, if you're so convinced we haven't seen the worst yet....

Call me when you're filthy rich.

[lamboguy]

a recession is when your neighbor is out of a job and about to lose his family and his house.

a depression is when you are busted, disgusted, and can't be trusted

[Tom]

This economy has been going south ever since the democrats took over Congress. And now they are on a 5 week vacation.

You just KNOW the American people are going to remember this come election day. The dems have given them a test drive in their Politico-mobile and and it had to be towed back to the dealership!:lol:

Keep talking Sec, you will give the congress back to the repubs. :lol:

[lamboguy]

its always the democrats fault, for your whole life you will be blaming democrats!!!

with such a bad left wing president like bush, its a great excuse

[sammy the sage]

the GDP has been NEGATIVE for the past 5 month's...but P.A. of course has IGNORED that thread!

http://www.paceadvantage.com/forum/showthread.php?t=49057

By the way...P.A....WTF...is this productivity ""THOSE IN CHARGE"" are measuring???

Does INFLATION have anything to do w/these figures as well???..or perhaps it's the illegals...WHO CONVENIETLY get counted...since their doing MOST of the MANUEL labor now days!!!

[Tom]

its always the democrats fault, for your whole life you will be blaming democrats!!!

with such a bad left wing president like bush, its a great excuse

Do you blame the dirt when you get wet? :rolleyes:

Oh, wait, no, you blame NYRA! :lol:

[PaceAdvantage]

the GDP has been NEGATIVE for the past 5 month's...but P.A. of course has IGNORED that thread!

http://www.paceadvantage.com/forum/showthread.php?t=49057

By the way...P.A....WTF...is this productivity ""THOSE IN CHARGE"" are measuring???

Does INFLATION have anything to do w/these figures as well???..or perhaps it's the illegals...WHO CONVENIETLY get counted...since their doing MOST of the MANUEL labor now days!!!Holy Shit, another genius! You also must be filthy rich, since you are in possession of actual economic figures, not the bogus kind being bandied about everywhere else. What's it like shoveling boatloads of money into your closet at night?

As for ignoring alternate views on how GDP should be calculated, why, just yesterday afternoon I thanked someone for starting a thread on just that subject:

http://www.paceadvantage.com/forum/showthread.php?t=49698

Hey....were they calculating the GDP numbers differently during the 2001-2003 recession? Even during that recession, GDP went negative.

How about monthly nonfarm job losses....let's examine some recent recessions and note how massive the job losses were, even EARLY ON in the recession cycle:

http://www.dailyfx.com/export/sites/dailyfx/story-images/2008/04/other/other/NFP1_4-3.gif

We haven't even come close to those numbers yet.

So you don't want to use GDP to signal a recession, fine. You think that number is rigged....was it similarly rigged in 2001 when it went negative?

Let's use nonfarm payroll monthly job losses. Let me know when job losses approach any of the historical numbers referenced above....

I know...this time it's "different."

[sammy the sage]

""Holy Shit, another genius! You also must be filthy rich, since you are in possession of actual economic figures, not the bogus kind being bandied about everywhere else. What's it like shoveling boatloads of money into your closet at night?""

I told EVERYONE exactly what was going and WHAT would HAPPEN to the STOCK market 6 month's ago... :p

can't help it if you didn't cash in! ;)

[sammy the sage]

I can GUARANTEE another thing as well....

Whom-ever wins the election...THERE WILL BE REVISED figures...ie...showing what a mess/recession there is/has been for last 9 month's to a year..(which you & Bush say currently does not exist claim)...the NEW GUY has too deal with...just to cut himself some slack!

New Guy ='s new fig.'s....of course it'll be twisted...but that's the WHOLE point I've been trying to make!

But as I've stated before...those in charge...write history or COOK THE BOOK's...so to speak...

[PaceAdvantage]

I told EVERYONE exactly what was going and WHAT would HAPPEN to the STOCK market 6 month's ago... :pThen you best help lamboguy with his gold prediction....he seems to be in a world of hurt lately...

[Valuist]

Gold has been bad lately. Even if its longer term prospects are good, no use to try and catch a falling knife. Once it stablizes and consolidates, I'd consider. But in the meantime, I'll watch on the sidelines and see how low it goes.

[sammy the sage]

""Then you best help lamboguy with his gold prediction....he seems to be in a world of hurt lately."""

I tried and tried :bang: :bang: :bang:

[lamboguy]

the gold market has busted me, along with bush, and i can't win a horse race!!

[skate]

What strength? Where? I must've missed that.

Considering the Dow is almost unchanged since 1999, its doubtful any media member will throw bouquets at the current administration.

Missed?
Yes you did.

And, a, what is it about "THE media MEMBER" and bouquets that turns you ON?

UP:eek: 3% GDP in the second Q and they don't even tell YOU about IT, sounds like an alarm clock to me, did you even know about the 3%. That's 3% of 15 Trillion Dollars, hello!

you heard up 1.9 from YOUR Media , but they didn't give you Junes 1% increase.

Just helping;)

[skate]

Gold has been bad lately. Even if its longer term prospects are good, no use to try and catch a falling knife. Once it stablizes and consolidates, I'd consider. But in the meantime, I'll watch on the sidelines and see how low it goes.

Reminds me of the time you wanted to do the Short on Apple.

Everything, as in every, goes up and down. Always...

[Valuist]

Missed?
Yes you did.

And, a, what is it about "THE media MEMBER" and bouquets that turns you ON?

UP:eek: 3% GDP in the second Q and they don't even tell YOU about IT, sounds like an alarm clock to me, did you even know about the 3%. That's 3% of 15 Trillion Dollars, hello!

you heard up 1.9 from YOUR Media , but they didn't give you Junes 1% increase.

Just helping;)

No I didn't miss anything. You, apparently, have been asleep for the past year. We're only in the midst of one of the worst financial crisis in modern history. But you can stay in denial.....meanwhile watch your own investments crumble to nothing. Good luck with that.

[PaceAdvantage]

We're only in the midst of one of the worst financial crisis in modern history.How so?

Is it the massive unemployment? Umm...wait...there is no massive unemployment...scratch that....

Is it the huge gas shortages and record lines at gas stations, the gas rationing, etc. etc.? Ummm...no good there....no such thing going on....scratch that...

Oh, I know...is it the hundreds and hundreds of bank failures, similar to what was seen during the S&L scandal of 20 years ago? Oh wait, only a handful of banks have failed this year so far....my bad....

One more guess....it's the housing market right? All those foreclosures and all those people being thrown out on the street....THIS must be what you are talking about....worst financial crisis in modern history....hmmmm.....but about 94% of American mortgages are not threatened, and the majority of those that are threatened will be able to keep their homes anyway, according to a recent column in the Wall Street Journal. That doesn't sound like the worst financial crisis in modern history to me....

Not only that, but housing prices are still about 33% higher than they were in 2000....

So really, what specifically are you referring to when you decry that we are "in the midst of one of the worst financial crisis in modern history?"

[sammy the sage]

As I've stated previously...this has been going on for awhile...it's finally geeting so bad...it's has make the news..

http://www.cnn.com/2008/US/08/19/economy.ap/index.html?eref=rss_topstories

READ these 2 quick paragraphs....

""For July, wholesale energy prices jumped by 3.1 percent following a 6 percent gain in June. That increase reflected big increases in the price of natural gas, home heating oil and liquefied petroleum gas, which offset a 0.2 percent dip in gasoline costs.

Food prices rose by 0.3 percent in July after a 1.5 percent surge in June. Beef prices jumped by 7.4 percent, the biggest increase in nearly four years. Milk prices shot up by 5 percent, the biggest gain in a year, while soft drink prices rose by 2.4 percent, the largest increase in four years.
!""

WHAT a F'G JOKE...still controlling and lying about the #'s...MILK all by itself went up over 10% around christmas...and another 15% since!!!

[PaceAdvantage]

Are you saying that inflation is what has us "in the midst of one of the worst financial crisis in modern history?"

[highnote]

So really, what specifically are you referring to when you decry that we are "in the midst of one of the worst financial crisis in modern history?"


I probably should let Valuist repond, but I'll give it a shot...

My understanding is that in modern his -- say post depression -- the financial industry has never suffered greater losses. Wachovia is on the verge of going under, Freddie Mae and Fannie Mac we all know about by now, Bear-Sterns needed bailed out, Lehman may still go under. World-wide there are hundreds of billions of dollars in losses.

I don't think it means the end of the world or the American way of life, but it's not exactly the roaring 90's either.

From Marc Faber newsletter www.gloomboomdoom.com:

From my fixed interest securities and from my
business I have a relatively high cash flow and, therefore, I am a happy
holder of gold and a buyer on the way down (in fact, irrespective of the
price I buy every month some) for the following reasons. I am not a great
believer in insurance policies but since I think that sooner or later the
entire financial system will blow up I want to make sure that whereas my
assets, which are on deposit and could become worthless through default,
I shall still be left with some assets that are mine (physical gold in a safe
deposit box – not in the US). I should like to emphasize that this is also a
point which speaks for owning some stocks.

Let us assume the financial system blows up. Large deposits could
become worthless overnight. But if you own shares of companies – even
though they may decline in value – you will still own these shares since
they are a certificate of an ownership and not liabilities of someone else.
So, no matter how negative a stance one might have toward equities, at
this point the ownership of some solid companies might be more
desirable than being a creditor in a financial system that may not be able
to pay at some point in the future.

I have a friend who is an outstanding economist who thinks that the Asian
current account surpluses will shrink in 2009 by about 50% from their
peak in 2007. In this scenario, global liquidity would become extremely
tight and would have a devastating impact on asset markets including real
estate, commodities, non-AAA bonds and equities. Such a decline in the
Asian current account surpluses would cut the US current account deficit
by half and lead to a very strong USD. Another friend of mine is a global
strategist (his team was voted best global strategy team). He thinks the
S&P will decline to 500, which would imply a Dow Jones that is between
5000 – 6000 (see Figure 9).

Now, 500 for the S&P 500 would seem like an extreme prediction. But if
indeed the global economy slumps and liquidity tightens as much as a
decline of the US current account deficit would imply, we could be in for
a nasty shock in all asset markets. I should also like to emphasize that the
Dow has now broken below its long term trend-lines going back to 1974
and 1982 (see Figure 9). Also a new bull market is unlikely to get
underway soon because mutual fund cash positions are still very low (see
Figure 10)

Please compare today’s cash positions to the cash positions which existed
at the 1982 (12%) and 1990 (13%) market lows! Over the last 18 months,
households have been heavy sellers of equities (in order to maintain their
spending). The support for equities in 2007 came only from LBOs and
share repurchases (see Figure 11 and Figure 12).

[PaceAdvantage]

I don't think it means the end of the world or the American way of life, but it's not exactly the roaring 90's either.Whoever claimed that it was the roaring 90s?

But, is it really "one of the worst financial crisis in modern history?"

I don't think so, not the economy as a whole. Is it one of the worst financial crisis for those entities who made risky-ass housing loans? Yeah...it is....

Other than that....

[sammy the sage]

""Other than that....""

you mean RAMPANT INFLATION doesn't count???

[sammy the sage]

By the way...State of NY....just fired 35k employee's...by THEMSELVE'S!

those figure's have not been not EVEN BEEN included yet in unemployment #'s...you can figure other state's doing the same thing relative to population level's...

Hell...my county in fla...just let go 20% of it's workforce!

[highnote]

Whoever claimed that it was the roaring 90s?

It was just a figure of speech.


But, is it really "one of the worst financial crisis in modern history?"

I don't think so, not the economy as a whole. Is it one of the worst financial crisis for those entities who made risky-ass housing loans? Yeah...it is....

Other than that....

That is what I was talking about -- financial industry crisis.

In fact, you'd probably want to own shares of good quality companies because if the financial system collapses, at least you'll still own the shares. No matter what happens, GE, Coke, Pfizer, et al are probably not going to disappear.

[pandy]

They just don't make recessions like they used to!

The rest here:

http://online.wsj.com/article/SB121779042940308055.html?mod=googlenews_wsj


Warren Buffet is on CNBC live right now, and he says we're in a recession, that's good enough for me.

[Tampa Russ]

Warren Buffet is on CNBC live right now, and he says we're in a recession, that's good enough for me.

I watched the show this morning. I was hoping he would say some things that made me feel better, but he just reinforced what my gut is telling me. This lovely experince is going to last a while...years, not months. Here in the Tampa Bay area, things are not good. There is no local market for real estate. Businesses are closing, and the retail space is being vacated. It ain't pretty.

[PaceAdvantage]

Warren Buffet is on CNBC live right now, and he says we're in a recession, that's good enough for me.He's been saying this for a very long time. If it's so obvious, why does he have to keep repeating himself?

[PaceAdvantage]

""Other than that....""

you mean RAMPANT INFLATION doesn't count???Does inflation = worst financial crisis in modern history?

[JustRalph]

I can't wait for the Oracle from Omaha to check into a nursing home.........

maybe they will stop giving him TV time.............. half of my money mags come to the house with his picture on every other cover........drives me nuts.......

[skate]

Ya see, back in the day, when an orange COST .10, ya couldn't find an Orange.

Now, when the orange cost $1.00, you can actually buy one. And what happens when the Price of the orange goes up or down .10, Bingo, inflation /deflation like never before...like never before...




wow, what a killer:eek:

[skate]

it happens to be the way Capitalism works... ya think



When your house cost $100,000 (always exceptions, not the rule) and the price drops $50,000, you'll have a problem, yep.

When your house cost $300,000 and the value goes up to $500,000 (nicely done) and two years later goes down $60,000, ...what? You want me to cry:(



Biggest drop ever...psst, it's called capitalism:bang:

[skate]

More on the PA and GW's great economy.!!!!

http://news.yahoo.com/s/ap/20080814/ap_on_bi_go_ec_fi/economy;_ylt=AvLtvq_4RhdBd5xBes5onLes0NUE

Consumer prices rise at double the expected rate
By MARTIN CRUTSINGER, AP Economics Writer

WASHINGTON - Consumer prices shot up in July at twice the expected rate, pushed higher by surging energy and food costs. The latest surge left inflation running at the fastest pace in 17 years.

The Labor Department reported Thursday that consumer prices rose by 0.8 percent last month, twice the 0.4 percent gain that economists had been expecting.

It marked the third straight month of oversized inflation increases following jumps of 0.6 percent in May and 1.1 percent in June. And it leaves inflation rising by 5.6 percent over the past year, the biggest 12-month gain since January 1991.

For strength, the USA, has Two Points of interest which = Growth. We have Food and Fuels.
If we raise the price of Food, we then sell the food for a profit. Others need our Food, just like we want to buy fuel from Them, they buy our food and the higher the better. Because then we will have the money to buy food and fuel.

[skate]

So let's see now the GDP figures were fine when it came to judging the strength of the economy, but NOW, with a 3rd Q 3.3% increase, the media goes out looking for economist to fudge in other figures, i guess, that way we can keep the neolibs from committing suicide. Invent a new angle for them.


That would be an increase of 3% of $15 Trilliiiiiiiooooon Dolllllars:cool:
Let's hear it for the boys in the White Hats. Yipppppy!:jump: