Jim Cramer Pushing For IRA Treasury Bond

as if it was his own idea. It is beyond amazing. All I can do is LOLRL (laughing out loud, really loud). Mr. Jim Cramer of CNBC Mad Money is simply pushing the administration's idea of forced IRA accounts stuffed with the specially-designed Treasury bond.

I was made aware of Mr. Cramer's latest antic via Market Ticker. I followed the link provided there, and voila, almost word for word with the administration's plan that's been floating around. This blog posted the detail of this attempt to grab more money by the administration, here.

Cramer: 30-Year, 5% Treasurys? (7/6/09 Mad Money)

"Cramer has a solution for average Americans looking to recoup investments losses after a tough two years in the market: Rebuild America Retirement Bonds."

"...he [Cramer] called for the Treasury Department to issue 30-year, 5% bonds as a way to help families who are desperate to recover their savings."

And here's the administration officials:

"Officials in the Obama administration are moving quickly to develop the investment infrastructure behind the president’s proposal for mandatory automatic enrollment in individual retirement accounts, which could be supported by the creation of Treasury-issued retirement bonds."

"J. Mark Iwry, deputy assistant secretary for retirement and health policy at the Department of the Treasury, said that administration officials are exploring some “conservative” options for investing the assets of 78 million Americans that he estimates could be automatically enrolled in this “universal” workplace retirement system."

Back to Cramer:

"CD rates are just too low right now, and stocks have been too volatile to trust. As a result, typically cautious investors have few places to put their money."

Back to the administration officials [follow this link on my post]:

"And if their auto-IRA assets are invested in a vehicle that could decline in value or at least fluctuate frequently, these workers may be discouraged from continuing to save, and could choose to opt out of the plan.

"Using R bonds as the cornerstone for these accounts, however, could eliminate this volatility issue."

One original idea, Mr. Cramer.

Back to the administration official:

"The administration, which included an auto-IRA provision in its 2010 budget, has gained some bipartisan support for the proposal, Mr. Iwry added."

Back to Cramer:

"So call your congressman, call your senator and let the White House know you want these bonds to be issued."

78 million Americans who could "benefit" from such scheme, according to the article in my post. Multiply that by $100,000 each in the account, and you will get $7.8 TRILLION. Now the administration can spend, spend, spend on everything they ever dream of.

I urge you to contact your Congressman and your Senator to block this fraud.

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Big Banks Refuse California IOUs

After indicating they would accept California's IOUs from their customers, big national banks are breaking their promise and will stop accepting them on Friday.

Big Banks Don't Want California's IOUs (7/7/09 Wall Street Journal)

"A group of the biggest U.S. banks said they would stop accepting California's IOUs on Friday, adding pressure on the state to close its $26.3 billion annual budget gap.

"The group of banks included Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and J.P. Morgan Chase & Co., among others. The banks had previously committed to accepting state IOUs as payment. California plans to issue more than $3 billion of IOUs in July."

The article did say not all banks will stop accepting IOUs on Friday; some credit unions will still accept them.

So the IOUs from the 10th largest economy in the world is not good enough for the national bankers, some of whom have to bid every single week on the U.S. federal government's IOUs (Treasuries).

Or are the national banks, particularly those deep in TARP money, taking orders from the Fed and Treasury? Maybe the president wants to run California, along with GM, Chrysler, AIG and health care.

The stock market is sinking anew in the last half hour of trading. Dow Jones Industrial is down 145 (-1.75%) to 8179, S&P 500 down 15 (-1.76) to 882, Nasdaq is down 36 (-2.05%) to 1750.

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Obama Advisor Tyson Wants Second Stimulus

Here comes. Laura Tyson, one of Obama's economic advisors, wants second stimulus package to make sure the economy will recover.

Obama Adviser Says U.S. Should Mull Second Stimulus (7/7/09 Bloomberg)

"The U.S. should consider drafting a second stimulus package focusing on infrastructure projects because the $787 billion approved in February was “a bit too small,” said Laura Tyson, an outside adviser to President Barack Obama."

"A bit too small", Professor Tyson? $787 billion is about the size of annual GDP of Turkey. The budget deficit in the fiscal 2008 was $459 billion and that was a record. Already, thanks to the (soon-to-be-first) stimulus package and last October's bank bailout package, the budget deficit projected for the fiscal 2009 is already over $1.8 trillion. Professor Tyson wants to increase that by another... trillion, this time, if the first package was "too small"?

This is lunacy. Where does she suppose the money is coming from? (Oh I see, never mind. Surtax for the "rich" (people earning more than $250,000)) Never mind also that the top 1% of income earners already pay 40% of federal income tax, and top 5% pay 60%. Yes, and money grows on trees and vegetable gardens at the White House.

"“The economy is worse than we forecast on which the stimulus program was based,” Tyson, who is a member of Obama’s Economic Recovery Advisory board, told the Nomura Equity Forum. “We probably have already 2.5 million more job losses than anticipated.”"

How should anyone still listen to her or the likes of her? Sorry we badly missed our estimate but trust us with more money and we will get it right, someday, maybe, if we're lucky.

"Even Democrats have bemoaned the pace of the package’s implementation. House Majority Leader Steny Hoyer, a Maryland Democrat, said on “Fox News Sunday” June 5 that congressional Democrats are “disappointed” stimulus funds weren’t distributed faster."

Bemoaning is good, but the problem is not the pace of implementation. It's where it's going. The bulk of "stimulus" money is going to state and local governments to pay for the welfare services and other pet projects that got tacked on to the bill. (See my post.) Or you could say the entire bill is about politicians' pet projects over a decade or two. How would that "stimulate" the economy is a mystery to me, number one; and number two, the economy may not want to be "stimulated".

At least the private sector of the economy is shedding the excess (capital, inventory, manpower). The government is furiously adding the excess and penalizing the private sector for shedding the excess by increasing regulations and de facto taxation. Explicit taxation will come with healthcare "reform" and the "climate" bill.

"Tyson, 62, later told reporters that the U.S. can afford to pay for a second package, even as the fiscal deficit soars. She said the budget shortfall is “likely to be worse” than the equivalent of 12 percent of gross domestic product that the administration forecast for 2009 and the 8 percent to 9 percent it projected for next year.

"Tyson said the U.S. should shift away from its dependence on consumption to grow, and promote expansion through investment and exports. The dollar will need to weaken in the longer term to promote export-led growth, she said. "

Professor Tyson may have been stressed out from a plane ride to Singapore. She's almost incoherent. The U.S. (= taxpayers) can afford to pay for a second package even if she firmly believes the budget deficit will be far worse. The dollar will need to weaken? It is already at 20-year support. How much lower does she want? 40? That's what the chart pattern of U.S. dollar indicates. And how much longer does she think the creditors of the U.S. debt tolerate the weak dollar?

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Learn From The Super Rich Where & What To Invest

How the Woes of the Wealthy Can Guide You to Global Investing Profits
(by Martin Hutchinson 7/2/09 Money Morning)

"The Capgemini/Merrill Lynch World Wealth Report appeared last week and it makes for some grim reading.

"But it also provides global investors with some insights into the best markets to invest in.

"Among the ultra-high-net-worth-investors (ultra-HNWI) - those with investible assets of $30 million or more - the population plunged 24.6% and their wealth by 23.9%. That’s as you might have expected, in a year when global equity values fell close to 50% and real estate was also weak. Nevertheless, there were some regional variations that were significant - and that should help us decide which global markets to play for profit, and which ones to avoid."

"For a start, how bad the year was depended very much on where you lived. German HNWI wealth declined only 2.7% in U.S. dollar terms, and Brazilian HNWI wealth only 8.7%, in spite of a sharp fall in the value of the Brazilian real against the American dollar. At the other extreme, Hong Kong-based HNWIs saw their wealth decline 61.3% and Indian HNWIs 31.6%, in spite of the fact that the Indian economy remained robust.

"These disparate performances reflect the different asset allocations of the various HNWI groups. German and Brazilian HNWIs invest primarily in bonds, while - at the opposite extreme - Hong Kong HNWIs were very heavily invested in stocks, with the total value of the Hong Kong stock market being five times the island’s gross domestic product (GDP) - the highest ratio anywhere the world."

"A second lesson investors can learn from the experiences of the HNWIs is that many of the so-called “alternative” asset classes provide poor diversification. Real estate and commodities did poorly in 2008, while hedge funds and structured investment vehicles did only slightly better than equities - but with a lack of transparency and an excessive fee structure that made those alternative investments truly unattractive. "

Hmmm. So it's Germany and Brazil, and cash and bonds. And it is not to make money but to not lose money badly.

And there is this increasing concern for price inflation caused by monetary inflation. If that happens, cash and bonds won't help much in preserving the wealth, big or small. As the author concludes [emphasis is mine];

"Apart from putting all your money in cash and bonds (which will not help if we get high inflation, about the only one of the deadly financial plagues mercifully absent in 2008), The Global Wealth Report offered no real defenses against sharp wealth downturns in recessions. I would suggest one only: A purchase of long-dated out-of-the-money index “put” options, traded on the Chicago Board Options Exchange. In flat or rising markets, these will lose you money, but they have the huge advantage that in a real bear market - such as that of September to March - they will potentially provide a real lump of cash if sold near the market bottom. And that cash can then be used to buy stocks and other assets while they are at their cheapest."

The stock market still hangs in no-man's land, although a lot of traders are salivating at the apparent "head and shoulders" formation on a major index (S&P 500, see my post in the other blog). They want to go short so badly here, so the market may throw a curve ball yet again.

But the author's time frame - September to March for potential "real bear market" - happens to agree with mine, and it seems to agree with what people who follow Elliott Wave seem to be saying ("P3 is coming"). I like his suggestion, and I wish I had known what I know now back in September last year.

Now that the government may be taxing each individual rich person for carbon emission, even the super-rich will need a extra good hedge.

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Michelle Obama's UC Merced visit cost school $1M

And the first lady wasn't even paid for her appearance. What a shame.

Michelle Obama's UC Merced visit cost school $1M (7/6/09 AP via Yahoo News)

"MERCED, Calif. – The final price of the University of California, Merced's commencement ceremony featuring first lady Michelle Obama was more than $1 million — surpassing the original estimate tenfold.

"Private contributions and interest on a private endowment fund have helped cover the cost. UC spokeswoman Patti Waid Istas said that nonstate dollars and other contributions will be used to cover the remaining balance of around $362,338.

"The school had budgeted $100,000 for the May commencement ceremony. The price tag ended up being $1.04 million.

"The address attracted about 12,000 visitors, requiring additional transportation, audiovisual and multimedia needs and other items. Obama was neither paid for her appearance nor compensated for travel and security."

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Wind Power May Be A Health Hazard

Now that the climate bill (H.R. 2454) has passed the House and the U.S. is embarking on the brave new world of dramatic increase in alternative energy production, it may be wise not to repeat the same problems that the pioneers (Europe and Japan) have suffered. Here's one from Japan on wind power. The article appeared in Japan a year ago, along with flurry of reports about health problems caused by the windmills.

Wind power may have its own environmental problems (7/5/09 Physorg.com, translation from the article appeared in Japan's Yomiuri Shinbun)

"Shinjuro Kondo, 76, who moved into his Japanese neighborhood 17 years ago, said, "Stiff shoulders, headaches, insomnia, hand tremors... Since February last year, soon after the test operation of windmills started, I developed various kinds of symptoms."

"Kondo's neighborhood is about 350 meters away from a group of windmills. More than 20 percent of about 100 neighbors also complain of similar physical disorders. They said their symptoms become less severe when the windmills stop due to mechanical troubles and other reasons.

"Currently, the relationship between such physical disorders and the windmills is not clear. But infrasonic waves generated by the windmills' rotors is suspected to be the cause. The sound waves oscillate once to 20 times a second, a frequency too low to be heard by human ears."

The article goes on to say there is no research done on the infrasonic noise and human health. Not true at all. There are numerous studies in Europe regarding infrasound and its effect on humans.

What is infrasonic/infrasound? Infrasound is sound that is lower in frequency than 20 cycles per second, the normal limit of human hearing. Hearing becomes gradually less sensitive as frequency decreases, so for humans to perceive infrasound, the sound pressure must be sufficiently high. The ear is the primary organ for sensing infrasound, but at higher levels it is possible to feel infrasound vibrations in various parts of the body. (Wikipedia.org)

You may not hear infrasound by your ears, but the cells in your body may feel it and respond.

One experiment in England where "a team of UK researchers held a mass experiment where they exposed some 700 people to music laced with soft 17 Hz sine waves played at a level described as "near the edge of hearing"" The result? "The presence of the tone resulted in a significant number (22%) of respondents reporting anxiety, uneasiness, extreme sorrow, nervous feelings of revulsion or fear, chills down the spine and feelings of pressure on the chest." (Wikipedia.org)

And here's from an article that appeared in Asahi Shinbun on 1/18/09 (the article is in Japanese):

"Wind power is expected to be the next generation of renewal energy source. However, an increasing number of people living near the power-generating windmills are complaining about headaches, dizziness, insomnia, and other health problems. No definitive study on the cause, but it is agreed that these problems have to do with the sound emitted by the windmills nearby. More and more windmills are being installed closer to homes, which may be exacerbating the problems.

"Tsuyoshi Okawa, 40, and his family started to notice something was wrong in January 2007, immediately after the windmill nearby went into operation. Symptoms include numbness, headache and insomnia. The symptoms are relieved once they are far away from their house (and from the windmill), and come back as soon as they come back home.

"He had the noise level measured at his house. The result: his house was vibrating at a very low frequency (infrasound). He was told that there was no effect on health, but [since his body clearly says otherwise] he rented an apartment so that his family can escape there to get a decent sleep at night."

Once quiet farmland is now literally a nightmare for the residents suffering from insomnia, so that the city folks can claim they are using "clean" energy. All for the sake of preventing "global warming". For those environmentalists who argue it is still worth it, please consider what kind of effect it may be having for wild life. It is not just birds flying into the blades.

After all, very low frequency sound has been used as a deadly weapon.

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Rumor: Swiss Government To Cut Diplomatic Ties With U.S.?

from Lewrockwell.com Blog.

William Tell, Call Your Office (Lew Rockwell, 7/5/09 The LRC Blog)

"Writes a Swiss friend:

There are rumours in Geneva this weekend that the Swiss government is on the edge of breaking off diplomatic relations with the US, over the harassment Swiss banks and the Swiss government have been getting from the IRS, calling it a violation of national sovereignty. I knew they were pissed off… but didn’t think they’d ever tire of being Mordor’s paid minions. I can also tell you that Americans here have been going bats over the IRS’s new demands for what amounts to double taxation and full disclosure, or confiscation of passports at US borders and threats of jail time. It all smacks of an amazing level of desperation. When I was little, the Soviet mission here was ringed by barbed wire and guard towers. Today, it’s the US mission which has barbed wire and guard towers."

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Obama's Visit To Russia: The Great Game Is Still On

I ran into this minor article about Obama's visit to Russia:

Obama assured of a chilly Russian welcome despite first signs of thaw (7/4/09 Scotsman.com)

The article is about this week's visit by the U.S. president to Russia, one of the few countries that seem to be immune to the charm and charisma of the president that so many people talk about.

But what caught my attention was the following passage, and I couldn't let pass the ignorance of the writer on the subject:

"Washington also sees Russia as playing a pivotal role in the diplomatic chess game Mr Obama has launched in the Middle East and Asia.."

The diplomatic chess game Mr. Obama has launched in the Middle East and Asia? He has done no such thing. Give me a break. He is merely continuing where his predecessor had left off, who in turn was merely continuing what his predecessor had left off.

Have you heard of The Great Game? It's been played across Eurasia and Middle East for nearly two centuries, mainly between the British Empire and the Russian Empire. Even after both were no longer empires, the game continued. Iran has always been one of the central interests. The United States seems to have joined the game in 1950's by installing Shar of Iran, and gotten increasingly active in late 1970s under Jimmy Carter, whose national security advisor was Zbigniew Brzezinski, who has been advising Obama.



Mr. Brzezinski's book, "The Grand Chessboard: American Primacy And Its Geostrategic Imperatives" published in 1998, spells out strategies for U.S. dominance in Eurasia and seems to follow what he and President Carter did in Central Asia.

It is indeed a grand old game. And Russians have been playing this way longer than Americans. Mr. Putin and Mr. Medvedev would chuckle at the idea that "Mr. Obama has launched the chess game".

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Will Stimulus Money Create Jobs As Biden Says?

Vice President Joe Biden is now saying the government underestimated the severity of the recession ("We misread the economy"). Who could have known? Actually a lot of people knew and even told him and other government officials so. And Mr. Vice President is also saying the stimulus money is just about to flow in earnest and it will make a big difference.

Oh really?

So let's take a look at the stimulus bill that was passed back in February, $787 billion monstrosity with 1000 plus pages of the bill that no one in the Congress read but passed anyway. (Just like climate bill the House just passed, just like the bank bailout bill that passed last October - no one bothered to read.) Here's a nice summary table by Wall Street Journal, who clearly read the bill to glean out the information:

Getting to $787 Billion - What's In the Stimulus Bill (2/17/09, Wall Street Journal) [warning: the page is very slow to load. If you are impatient it may crash your computer. I was, and it did.]

Here are top 15 uses of money:

• $116,199 million: $400 payroll tax credit for workers earning up to $75,000; married couples filing jointly get $800 for income up to $150,000


• $90,044 million: Federal aid to states for Medicaid spending


• $69,759 million: Middle-income taxpayers get an exemption from the alternative minimum tax of $46,700 for an individual and $70,950 for a married couple


• $40,600 million: Aid to states to balance education budgets, prevent cutbacks and modernize schools

So far, nothing that would stimulate employment.

• $29,000 million: Grants for highway improvements

Good, finally some seasonal/temporary employments! But the rest...

• $26,960 million: Extension of jobless benefits for up to 33 weeks


• $24,749 million: 65% subsidy for laid-off workers to continue paying premiums for former employer's health plan for nine months


• $19,991 million: 13% increase in food stamp payments


• $17,559 million: Incentive payments to hospitals and physicians who computerize medical-records systems


• $17,114 million: Increase in Pell Grant to $5,350 in 2009 and to $5,550 in 2010, and other increases to student aid


• $14,830 million: Increased eligibility for refundable child tax credit, with all income over $3000 qualifying


• $14,225 million: One-time payment of $250 for retirees, disabled people, SSI recipients, railroad retirees and disabled veterans


• $13,907 million: Tax credit of up to $2500 for tuition and college expenses


• $13,143 million: Extending by three years the placed-in-service date for renewable energy investments


• $13,000 million: Funding for 'Title I' education programs for disadvantaged children

Top 15 spendings make up over $521 billion (66% of stimulus money), with only $29 billion going to job creation, albeit temporary. If other spending categories create jobs, it will do so by adding new program administrators here and there.

Let's go down the list. There are an awful lot of "oversight" costs, which I take to be additional administrative costs to oversee the stimulus programs.

Among lesser items, you find gems like these:

• $2,500 million: Broadband grants to rural communities
• $1,300 million: Grants to Amtrak
• $1,000 million: Extra money for Census [which is now taken over by the White House, which may be unconsitutional]
• $650 million: Coupons, education and consumer support for digital to analogue converter box program [this is a double payment, as the original bill more than adequately funded the program till the end of 2009. I wonder where the money is actually going...]
• $500 million: Extra money for women, infants and children (WIC) special nutrition program
• $50 million: Training high-risk youth in construction job skills [Ummm, construction? Don't you think we have more than enough of people with these particular skills?]

My favorite is this one. I don't know what it is but sounds mighty and strong:

• $100 million: Army "warrior transition complexes"

There are numerous construction projects, for sure, of government offices and facilities. If you read through the list, the biggest beneficiary of this stimulus, to be paid by the U.S. taxpayers, is the government.

We may end up like a stereotypical third world where the new, shiny government buildings hover over the dilapidated roads, commercial buildings, and houses. Oh I forgot. Houses owned by low-income families will benefit. So their houses will be in decent shape.

For the rest of us non-governmental and not qualifying as low income family, good luck to us. We will need a lot of it.

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Japanese Version of Fannie and Freddie

The United States didn't just export CDOs and MBSs around the world. It also exported the system to create such securities. Japan's Housing Finance Agency is one such system.

I don't how I got to that site, but after a series of clicking through different sites I landed on the homepage of Japan Housing Finance Agency. This used to be a government agency with full government backing to issue low-interest mortgages to home buyers. Now the agency has been turned into an "an Incorporated Administrative Agency" (another iteration of government-industry collaboration/collusion) as the result of "privatization" of government services under Prime Minister Koizumi in 2007 (which also saw the privatization of Japan's postal service), and guess what their main business is these days: mortgage securitization.

In Japan, the most common mortgage type for residential properties is Adjustable Rate Mortgage, with 3-year, 5-year, or 10-year fixed. Now under Japan Housing Finance Agency's securitization and guarantee programs, Japanese banks are encouraged to issue 35-year fixed mortgages. It is virtually risk-free for the mortgage issuing banks, as they don't need to carry the mortgages on their books.

Yes, you guessed it. The agency is modeled after Fannie Mae and Freddie Mac.

Japan Housing Finance Agency has AA rating from Standard & Poors, and the mortgage backed securities (MBS) that they issue carries AAA rating. (Well that sounds familiar.) As of August last year, the agency's president was very confident that Japan wouldn't be affected by the sub-prime loan debacle in the United States. (That sounds familiar, too, like the U.S. Fed chairman Bernanke saying sub-prime loan problem will not affect other loans or economy at large.)

On their site, I also found the names of the analysts who cover MBSs issued by the Agency. Usual suspects there, among a smattering of Japanese brokerages: Goldman Sachs, Credit Suisse, Deutche Bank, Citigroup, Merrill Lynch, Morgan Stanley, J.P. Morgan Chase, UBS. (Many of them happen to be advising the privatized Japan Post Bank, the largest bank in the world measured by total assets. What a surprise.)

The U.S. always leads, Japan follows. That pattern hasn't changed after all these years. It has also been said that when the U.S. sneezes, Japan develops full-blown cold. To be sure, there is no sub-prime lending in Japan. I hope I am over-sensitive because of the disaster that hit the world that resulted from debt securitization (CDO, MBS, ABS) and derivatives.

By the way, have you noticed an increasing number of analysts and traders saying Japan is a buy? (Hope for another bubble never dies.)

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OT: Forth Of July for Marines In Afghanistan

Whether you are against the war or for the war, you would probably agree this is not the way to celebrate the Fourth of July, even if they chose to be in the military.

Marines march in grueling Afghan sun for July 4
(7/4/09 AP via My Way News)

"Taliban militants were nowhere in sight as the columns of U.S. Marines walked a third straight day across southern Afghanistan. But the desert heat proved an enemy in its own right, with several troops falling victim Saturday to temperatures topping 100 degrees Fahrenheit.

"The Marines carry 50-100 pounds (23-45 kilograms) on their backs. But because they are marching through farmland on foot, they can't carry nearly as much water as their thirst demands.

"The high heat, heavy packs, limited water and three straight days of walking through tough farmland terrain were taking a toll, he said. Several Marines threw up or were dry-heaving from the heat. Three passed out, and other Marines rushed to share the weight and pour water on overheated bodies.

"It's pretty taxing on your body. There's no way to prepare for this," said [HM3 Navy Medic from Dallas] Trujillo.

"One cruel irony: A helicopter dropped off a load of water to the Marines early Saturday, but because they hadn't yet reached their final destination, they took only what they could carry and left hundreds of bottles behind for Afghan villagers to drink."

These Marines are marching in desert heat as part of President Obama's new Afghanistan initiative: Operation Khanjar ("sword strike"). It is General McChrystal's first major move in Afghanistan since his appointment.

The president says "America’s Key Goals Can Be Completed ‘Without Us Increasing Our Troop Levels’". (That sounds awfully familiar. It is also difficult to believe, as the US is to build a new embassy in Islamabad bigger and pricier than the one in Baghdad.)

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Views On Cap And Trade

Gerald Celente


Warren Buffett

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Pravda: Obama To Stay At 13,000 Dollar Suite at Moscow Ritz-Carlton

This from Pravda:

Barack Obama to stay at 13,000-dollar luxury suite at Moscow's Ritz-Carlton Hotel (7/3/09 Pravda)

The article is actually a summary of the interview Obama gave to Itar-Tass news agency and Russia TV Channel, but the editor at Pravda was apparently more interested in speculating where Obama would stay in Moscow, hence the title.

Pravda has done some intelligence work:

"Most likely, the US President will stay in Moscow at Ritz-Carlton Hotel." Because..

"Ritz-Carlton has closed the booking for July 5-8, whereas Marriott does not seem to be taking any special preparations at the moment."

"If Obama chooses Ritz, he will be accommodated in a five-room Kremlin view luxury suite with huge panoramic windows." How nice.

"The presidential suite at Ritz-Carlton Hotel costs 430,000 rubles a night ($13,870). " So that's for the prez, and

"cheapest suite at the hotel costs 35,000 rubles a night ($1,129)." That's for the entourage.

I know and understand the argument that the president of the U.S. cannot just stay any cheapo hotel - there's prestige, there's security. Still, it would be refreshing to see the multimillionaire president cut back on luxury just a bit, a token gesture to save the US taxpayers' money in tough times would be just fine with me.

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Reporters Grill Gibbs Over Prepackaged Question To Obama

"The point is the control from here. We have never had that in the White House. And we have had some control but not this control. I mean I'm amazed, I'm amazed at you people who call for openness and transparency and have controlled..." veteran White House reporter Helen Thomas said Wednesday.

The venerable Helen Thomas was referring to a now-famous preplanned question by Obama to a Huffington Post reporter.

And Mr. Press Secretary laughed at her from the podium. I totally fail to see what was so funny that made him laugh like that.

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7 Banks Closed By FDIC In 1st Week Of July 2009

7 banks failed today, according to FDIC. That many banks failed in entire month of May, and this is just the 1st week of July.

The closures will cost FDIC $314.3 million. FDIC's reserve ratio as of March 31, 2009 was 0.27%.

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Unemployment Number By The Duration

This is not your ordinary recession.

The graph below shows the number of people unemployed by the duration of unemployment. It was created at St. Louis Fed's FRED site. Shaded areas indicate recessions.

The spiking blue line is the number of civilians unemployed for 15 weeks and over. For the first time since 1980s, people out of work for 15 weeks and over zipped past people out of work for less than 15 weeks. And it happened early on in the recession.

In the recession in early 80's, people out of work for 15 weeks and over didn't surpass the other two categories until at the very end of the recession. In early 90's and 2000's, the blue line never went above the other two lines until after the recessions were over.



A sudden, spectacularly huge spike like this reminds me of other data like bank excess reserve, and monetary base. Another indication that this recession is "credit-driven". Debt-driven is probably more apt description, though.

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June Job Loss Sinks US Stock Market

So a "lagging" indicator is spooking the market again. Job loss in June was larger than expected, at 467,000. The unemployment rate was 26-year high, at 9.5%.

467K jobs cut in June; jobless rate at 9.5 percent
(7/2/09 AP via Yahoo Finance)

"Employers cut a larger-than-expected 467,000 jobs in June and the unemployment rate climbed to a 26-year high of 9.5 percent. Workers also saw weekly wages fall, suggesting Americans will have little appetite to spend and the economy's road to recovery will be bumpy.

"The Labor Department report, released Thursday, showed that even as the recession flashes signs of easing, companies likely will want to keep a lid on costs and be wary of hiring until they feel certain the economy is on solid ground.

"June's payroll reductions were deeper than the 363,000 that economists expected and average weekly earnings dropped to the lowest level in nearly a year.

However, the "real" unemployment rate, as many call, which includes people who have stopped looking for job or settled for part-time jobs, is much higher: 16.5%.

"If laid-off workers who have given up looking for new jobs or have settled for part-time work are included, the unemployment rate would have been 16.5 percent in June, the highest on records dating to 1994."

PLEASE read the post below about "credit-driven" recession by Karl Denninger (or click here). We are looking at the WRONG parameter (unemployment number) to assess the depth and severity of the current "credit-driven" recession.

As of 9:35 AM PST, Dow Jones Industrial Average is down 177 (over -2%) to 8,326. S&P 500 is down 21 (-2.3%) to 901. Nasdaq is down 45 (-2.5%) to 1,799.

On my stock screen, greens are scarce. TLT (20-year+ Treasury bond ETF), POT (Potash, fertilizer company), UUP (long US dollar ETF), MA (Mastercard), AIG.

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Karl Denninger On Credit-Driven Ressession (and Swipe at Dennis Kneale)

On his Market Ticker on Tuesday, Karl Denninger took a swipe at CNBC's Dennis Kneale, whose harangue against bloggers has been widely disseminated over the Internet (like my post below). But his ticker also has a very good explanation of why the current resession may be very different from the previous recessions in the U.S., except for the Big One in 1930s.

Here is his take on "inventory-driven ressession" and "credit-driven recession". We are in the latter, credit-driven recession.

To Dennis Kneale: You're An Idiot (6/30/09 Market Ticker)
[emphasis is mine]

"Inventory-driven recessions are primarily about excessive industrial capacity for demand. That is, manufacturers and suppliers of services get too bullish about prospects, build too much capacity and inventory, and wind up engaging in a destructive price war in an attempt to "win". This drives down profits and ultimately forces the weaker firms out of business, ergo, recession - GDP and employment decline. Having cleansed itself of the excess, the economy recovers. The trigger for these recessions is often (but not always) an external shock such as the oil embargo in the 1970s or the collapse of the Internet fraud-and-circuses games in 2000.

"The second sort of recession is a credit-driven recession. Excessive credit creation - that is, loans going too far toward "fog a mirror" qualifications (and in some cases, such as the most recent event, actually reaching "fog a mirror") drives one or more asset bubbles. These pop when effective interest rates in the economy reach an effective level of zero, usually because the amount of leverage available becomes for all intents and purposes infinite (Bear and Lehman at 30:1, Fannie/Freddie at 80:1, AIG at god-knows-what, and duped "home buyers" buying with zero down for a true infinite leverage ratio.) This excessive credit creation drives a speculative asset bidding war which in turn causes prices to go sky-high for one or more types of asset."

"Recessions cannot end until the conditions that caused the recession are removed from the economy. This is elementary logic and obvious to anyone with an IQ larger than their shoe size.

"For an inventory recession growth returns when enough capacity is destroyed through layoffs and inventory selloffs to bring capacity and demand back into balance. Employers then hire new workers and the economy recovers.

"For a credit recession, however, there is a much larger problem: The reason real interest rates went negative is that debt has a carrying cost and consumes free cash flow; so long as the debt taken on in the credit binge remains the cash flow impact also remains.

"Default and bankruptcy clears excessive credit (debt) from the system - if it is allowed to occur. But if it is not, then the bad debt remains on the balance sheets somewhere and the cash flow impact remains in the economy. Employment remains weak, capital spending restart attempts falter as demand fails to return and credit quality continues to remain insufficient to support new credit demand."

So, when we see the inventory number reduced and unemployment number stop going down further, and we say "Look, the economy bottomed!", we are looking at TOTALLY WRONG PARAMETERS to assess our CREDIT-DRIVEN RECESSION.

Almost all economists being paraded on TV, or writing for big newspapers and magazines, take it for granted that the recession we are in is INVENTORY-DRIVEN recession, the one most of them are familiar with. If Denninger is right (I think he is), it doesn't matter if the inventory level is reduced to zero or the unemployment number stops going down. Until the bad debt is purged from the system somehow, there will be no recovery. As Denninger says, at best we'll be turning Japanese. At worst, worse than the Great Depression.

In addition, Denninger has this to say about U.S. consumers "saving": [emphasis is his]

"Consumers are not saving, they are paying down debt in a furious attempt to avoid defaulting on nearly $1 trillion in outstanding credit card balances that have gone from 11% interest to 29.6% along with OptionARMs that are experiencing a tripling of payments while the home's value is underwater and precludes refinance, all while consumers are being laid off by the hundreds of thousands monthly."

In other words, consumers are barely treading water. And the likes of Dennis Kneale are wondering why consumers are not spending, so that we can get out of this inconvenient pesky little recession. Hope and fortitude. LOL.

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Increasing Noise Against Bloggers And Alternative Media

from so-called mainstream media (MSM), in case you haven't noticed. Here are two latest "attacks" from the professional, high-caliber high-standard media personalities.

Dennis Lets Zero Hedge Have It (6/30/09 Zero Hedge)

CNBC host Dennis Kneale calling bloggers "digital dickweed, including Zero Hedge.

(Sorry but his whole rant does sound like a skit in Saturday Night Live rejected by the SNL producer.)

Murdoch CEO Labels Bloggers “Political Extremists" (7/1/09 Infowars.com)

John Hartigan, the CEO of Rupert Murdoch’s News Limited, labels bloggers and alternative media outlets as “political extremists”.

"... the blogosphere is all eyeballs and no insights..."

And let me remind you that the government wants to monitor the blogsphere:

Blog Czar Is Next? FTC plans to monitor blogs for claims, payments

And let me also remind you that Obama's Cyber Czar is yet to arrive, and the front runner is not very promising for cyberspace freedom or what's left of it:

Cyber Security Czar Front-Runner No Friend of Privacy (6/22/09 Wired)

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GM Reminds Holders That Common Stock Has No Value

Another bit stock, GMGMQ, General Motors' pinksheet, has been trading rather well since bankruptcy, as it shouldn't. The value of common stock will be zero in all likelihood. So the company put out the warning today.

GM Statement re: GM stock price and volume (7/1/09 GM)

"GM management has noticed the continuing high trading volume in GM's common stock at prices in excess of $1. GM management continues to remind investors of its strong belief that there will be no value for the common stockholders in the bankruptcy liquidation process, even under the most optimistic of scenarios. Stockholders of a company in chapter 11 generally receive value only if all claims of the company's secured and unsecured creditors are fully satisfied. In this case, GM management strongly believes all such claims will not be fully satisfied, leading to its conclusion that GM common stock will have no value. "

That seems to have done the trick. GMGMQ is trading at 85 cents, down 23 cents or 21% from yesterday's close. (The chart to the right is an intraday chart of GMGMQ.)

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AIG's 1-20 Reverse Split Not Working Miracles...

American International Group (AIG) did the 1 for 20 reverse split, hoping that would boost the stock price. Today is the first day that the stock is traded after the reverse split. So far, it is not working as they hoped.

AIG is currently trading at $18.79, or pre-reverse split price of $0.94, down 19% from Tuesday's close of $1.16. It is down 36% from Monday's open, which was $1.46.

The U.S. government has 79.9% stake in AIG, 0.1% short of 80% so that the government doesn't have to bring AIG's books on to the government's equally dismal books. So in two short trading days U.S. taxpayers lost about $20 billion. Nice trade, if you were shorting.

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China's Manufacturing Expands A Fourth Month

Remember the article by Ambrose Evans-Pritchard of Telegraph on Monday, saying China is having a credit bubble and not a real economic recovery?

No, says Bloomberg, it is the real growth and real recovery, and it's only beginning.

China Manufacturing Expands a Fourth Month, PMI Shows (7/1/09 Bloomberg)

"China’s manufacturing expanded for a fourth month as a 4 trillion yuan ($585 billion) stimulus plan and record bank lending revive the world’s third-largest economy.

"The official Purchasing Managers’ Index rose to a seasonally adjusted 53.2 in June from 53.1 in May, the Federation of Logistics and Purchasing said today in Beijing in an e-mailed statement. A reading above 50 indicates an expansion. "

"China’s economy may keep improving in the third and fourth quarters, enabling the nation to meet its 8 percent economic growth target for this year, central bank Governor Zhou Xiaochuan said this week. Export orders expanded for a second month, adding to signs that the global economy may be over the worst of its slump."

They have the 8 percent growth target to meet - after all, it is still a Communist country. But wait, "export orders"?? To where? Who is buying?

In case anyone doubts the official government statistics in China, we have analysts from Bank of America and J.P. Morgan Chase who vouch for the validity of the numbers:

"“China’s recovery is gathering further momentum,” said Lu Ting, an economist with Bank of America Merrill Lynch in Hong Kong. “It has been recovering faster than the market had expected.”"

"“China’s stimulus program is having a demonstrable effect on domestic spending, which has resulted in increased manufacturing activity,” said Jing Ulrich, Hong Kong- based chairwoman of China equities at JPMorgan Chase & Co."

Domestic spending? Increased manufacturing activity? It feels like we're reading about two different countries: one according to Telegraph, which is blowing a credit bubble resulting in speculation in stock and commodity markets, the other according to Bloomberg, which looks set to pull out of recession by producing goods.

Both can't be true, can it? Remember Telegraph's Evans-Pritchard:

"China's banks are veering out of control. The half-reformed economy of the People's Republic cannot absorb the $1,000bn (£600bn) blitz of new lending issued since December.

"Money is leaking instead into Shanghai's stock casino, or being used to keep bankrupt builders on life support. It is doing very little to help lift the world economy out of slump."

I tend to side with Telegraph that it is a destructive bubble that China is having. But with their economy and their stock markets going nowhere fast, many Americans and many more Japanese may be wishing they too had a bubble, any bubble - ah the good old days when every asset class kept going up in price until one day the sky fell ....

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