Decline of the Empire

Waiting For The End Of The World

I intentionally gave this post the same name as the one The Big Picture's Barry Ritholtz put up on Saturday November 27, 2010. If a Google search turns up his story, maybe mine will appear as well.  Once again, Barry has published his customary optimistic crap. However, my intention is not just to trash Ritholtz, as pleasurable as that is to do, but to also make some important points along the way.

Tom Petruno of the Los Angeles Times published a column Still betting on economic doomsday — and still waiting in which he liberally quoted Ritholtz. Always on the alert for an opportunity for self-promotion, Barry quotes Petruno quoting him—

In today’s LA Times, Tom Petruno looks at the Zombie Bears: Still betting on economic doomsday — and still waiting. (I have a few choice words in it).

Despite the U.S. economy growing (5 Qs in a row), improving data, and a stock market making two-year highs, to some people, things are still bad and getting worse:

“On the Internet, there is an army of people who will immediately and bitterly dispute anything they read suggesting that 1) the U.S. recovery is real or 2) the global financial system has any hope of avoiding another meltdown.

Barry Ritholtz, head of investment research firm Fusion IQ in New York, calls these folks the “zombie bears.”

“They will not admit the economy is getting better, albeit slowly,” Ritholtz wrote this week on his widely read economics and markets blog, The Big Picture. “They insist the recession was a depression; they insist it never ended. These are the bears who cannot be killed. They will stay bearish, regardless of the data that all but insists otherwise.”

That ought to sting coming from Ritholtz because he was a hero to the bear camp heading into the 2008 financial and economic crash. He had predicted a severe comeuppance after the nation’s long debt binge, and we got it.

But by the time the stock market hit its low point in March 2009, “We already had a massive crisis and collapse, so the worst of what came before was already reflected in equity prices and trader psychology,” Ritholtz said. It was time to reassess.

By refusing to believe that a recovery would follow, the zombie bears have sat out a 70% rebound in the Dow Jones industrial average from its 2009 low — and far bigger gains in many foreign markets.

Dave here, your Zombie Bear. Let's get back to reality. First of all, Barry is basically a successful trader who does his own research, so he sees the world through a winning gambler's eyes. Fusion IQ finds tomorrow's market winners today. No doubt Ritholtz is tweaking those who did not trust the phony rally in the phony stock market. The Bears missed the latest now-you-see-it-now-you-don't bubble because of that mistrust. These zombies thought (and still think) that underlying fundamentals in the economy—for example, the household debt mountain—did not justify a big "rally" in the stock market. They obviously lack Barry's considerable trading acumen, which emanates from Barry's considerable Ego.

But Ritholtz's claims do not apply just to the stock market, for he knows the economy is getting better, albeit slowly. We pessimists seem to have missed this obvious trend. Never one to question the official data the government hands him, Barry no doubt missed my post GDP Is Almost Worthless, in which I cited BEA data that shows that without entitlements spending on Medicare and Medicaid and some other BEA phony baloney, spending by American households would still be 0.6% below it pre-recession peak in the 4^th quarter of 2007. But let's not forget—the recession is over! My bad.

Beyond Barry's choice words about our inevitable recovery, Tom Petruno did remember to write some other stuff and quote some other people, to wit—

In any other economic recovery, setting a 2 1/2-year low in weekly unemployment claims would have been unequivocally good news.

But in this recovery, many Americans take upbeat data like the latest report on new jobless-benefit filings with a truckload of salt. Or reject it entirely.

After all, they say, how can we believe anything the government tells us?

This certainly doesn't feel like a recovery to most people. The U.S. economy has grown for five straight quarters, but a CNN/Opinion Research poll in late September showed that 74% of Americans thought the recession still hadn't ended.

So what if the stock market hit two-year highs this month? Isn't trusting the market only slightly dumber than trusting government statistics?

Well, OK—it's hard to say which is dumber, trusting the phony stock market or trusting phony government statistics. Why in hell would Main Street Americans believe government pronouncements that say things are getting better when their own two eyes tell a different story? And of course most ordinary Americans—so-called retail investors, otherwise known to Wall Street as suckers—had the good sense to get out of the stock market a long time ago.

We should always remember that there are two economies in the United States, the one we live in (aka. the Real Economy) and the one Barry lives in (aka. the Money World, and look at this follow-up). This latter economy, which includes the Wall Street Banks, hedge funds, various trading firms and the like, is doing just fine—thank you very much Mr. Geithner! The Real Economy is still foundering—this certainly doesn't feel like a recovery to most people. In fact, it doesn't feel like a recovery to 74% of the people.

Speaking of two economies, here is Petruno describing the Zombie Bear position—

The psychologically unsatisfying reality is that the Great Recession has further bifurcated the economy. Most people still are working, yet for many it will be a long time before they get another job, if they ever do. Many companies are more efficient than ever and are sitting on mounds of cash, but their success often is overshadowed by stories of other businesses hanging on by a shoestring.

The question, then, is whether the "haves" can offset the "have-nots" to a great enough degree to keep the recovery going.

This is where the zombie bears concede nothing to the economic optimists.

The recovery is a sham, the bears say, because the global economy's dive in 2008 and early 2009 was halted by massive financial intervention by governments and central banks worldwide: unprecedented money-printing and rock-bottom interest rates.

Petruno provides a pretty good summary here, but I would like to emphasize that once it is a question of whether the "haves" can offset the "have-nots" to some great degree to keep the "recovery" going, you "have-nots" should know that you are already toast. If you, like Blanche Dubois in A Streetcar Named Desire, must now always depend upon the kindness of wealthy strangers to feed and clothe your children, you might as well throw in the towel right now, you might as well resign yourself to a lifetime of indentured debt slavery. Yassa' boss! I be taking dat leftover corn-pone! Gonna feeds da chillen.

Of course, Barry Ritholtz doesn't have this problem. He no doubt gets lots of corn-pone, and that's where his opinions come from. Perhaps he would like to share the Good News on the economy with each of the 50 million Americans living in poverty.

Here's Petruno quoting analyst John Hussman, who, unlike Ritholtz, actually knows what he's talking about—

"The worries about things falling apart stem from the sense that we haven't really fixed anything," said John Hussman, an economics PhD who heads the $9-billion Hussman Funds in Maryland.

That's right! I am fond of sending you this message on DOTE: we haven't really fixed anything. And it seems that as the Empire declines, the elites that run this immoral mess we call America are so corrupt that they are perfectly incapable of instigating some healthy, meaningful change. Thus we can expect more and more of the same inequitable stuff that got us to this sad state. As New York Times columnist Bob Herbert said, all we are good at in this country is bulldozing money to the very wealthy.

There is one final point I need to make. Here's Barry talking about his own psychological genius—

I spoke with the reporter about the recency effect, about how people’s views are disproportionately shaped not by long term trends, but by what occurred most recently:

“It’s human nature to see our present situation, and the future, through the prism of our recent experiences. After living through what was (or is) for many people the worst economic nightmare of their lives, it’s not surprising that we’re now constantly looking over our shoulders, fearful that another crisis is imminent.”

Well, let's see—how recent is recent? Ritholtz's view is based on some very recent (albeit phony) data pointing to a "statistical" recovery in the economy he lives in (but not in the one we live in). I'm sure Barry lost some money when the financial system melted down, but now he's feeling no pain. But his real view is based on modern-day historical experience suggesting that economies always seem to fix themselves—it happens automatically, like breathing. Thus there is nothing special about our historical situation. Ritholtz has Faith. Progess is inexorable. Progress is the ultimate Free Lunch. Nothing can change this outcome.

I demolished this naive position in The Law Of Civilization And Decay and Economists—The High Priests Of Progress. Perhaps we should embrace an historical view that isn't measured in decades, but rather a view that encompasses many hundreds (if not thousands) of years. Empires rise, wield their awesome power, and finally they Decline & Fall. America's decline started almost 30 years ago.

But I seriously doubt that Barry Ritholtz has read Edward Gibbon, who regarded history as "little more than the register of the crimes, follies and misfortunes of mankind," or any other historian who documented the life cycle of human civilizations. Needless to say, the United States will not be an exception to the usual rule, despite what Barry Ritholtz believes. You don't learn much about history finding market winners or trading stocks and bonds.

So, yes, I am a Zombie Bear, and proud of it. Am I waiting for the End of the World? Not at all—it's already arrived! I guess you could say that I'm waiting for the End of the End

GDP Is Almost Worthless

There has been some good economic news lately. Weekly jobless claims, which are volatile, fell to "only" 405,000 last week. The BEA's advance estimate for GDP showed that the economy grew 2.0% in real terms during the third quarter. More than once, I said that I expected the GDP estimate to be revised downward, for that's what the BEA almost invariably does. But, no! The estimate was revised upward instead.

The U.S. economy expanded at a faster clip than initially forecast in the third quarter, helped by more robust consumer spending and by stronger exports, the Commerce Department estimated Tuesday.

The economy grew at a 2.5% annualized pace in the quarter, revised up from the initial estimate of 2.0%, the government said in its second estimate of quarterly gross domestic product. GDP growth was 1.7% during the second quarter.

Perhaps you did not notice an increase in your general economic happiness. Most likely, you did not notice that increase because it did not occur. And yet here is the government telling us that the economy is expanding at a pretty good clip. In fact, real GDP is now only 0.65% less than it was in the 4th quarter of 2007, which was its pre-recession peak. The "size" of our economy is basically the same as it was before the downturn. Now you must ask yourself some critical questions—

• How can the economy be about the same size now as it was in late 2007 when U5 unemployment is over 11%. as opposed to about 5% then? When the housing market is only a pale semblance of its former self? When America's public debt has grown by trillions of dollars beyond its 2007 level?  When the trade deficit has once again widened to pre-recession levels?

If you're having trouble seeing how GDP could be what it is, you are not alone. The fact that population grew while the economy didn't over the last three years could not possibly explain it. The only reasonable explanation is that the GDP number is almost worthless. Before I demonstrate that, I'd like to quote Bob Herbert as I did in Hiding From Reality—Retail Sales And Inflation.

We don’t even seem to realize how deep a hole we’re in. If student test scores jumped a couple of points or the jobless rate fell by a point and half, the politicians and the news media would crow as if something great had been achieved. That’s how people behave when they’re in denial.

When GDP is said to grow at a 2.5% annual rate, "politicians and the news media crow as if something great had been achieved," but nothing has been achieved. Actually, the official story is that GDP growth is moderate, and not yet robust enough to create more jobs, boost the sagging housing market, etc. Thus the same number of people are out of work, the public debt is larger, and the ghostly housing market still struggles toward its inevitable bottom. The official story is nonsense. The only possible "real world" conclusion is that GDP is a misleading form of government propaganda.

Looking At Personal Consumption Expenditures

The BEA data shows that Personal Consumption Expenditues (PCE) make up 70.35% of GDP (as of the end of October). The graph below shows the PCE component of GDP.

From Calculated Risk

Even though GDP as a whole remains slightly below its end-2007 level, PCE is at its highest level ever! Media types who tell us that "consumption" is 70% of GDP are also implying that "consumer spending" drives the economy. If GDP goes up, PCE goes up, and thus "consumers" must be consuming more than ever before. That's the official story on NPR or in the New York Times or anywhere else you care to look.

Economist Michael Mandel takes a closer look at PCE spending in his Where Americans Are Spending More (August 9, 2010). His blog is called Mandel On Innovation and Growth, so that gives you an idea of where he's coming from.

Since the recession started in the fourth quarter of 2007, the common theme has been about Americans cutting back on their spending. But the latest numbers from the BEA show aggregate personal consumption expenditures are up 2.9%, or $285 billion.  So we must be spending more on something! 

We sure are! Mandel breaks down the BEA GDP data for us.

You can see that we have dramatically increased our spending (in absolute terms) in three four areas—healthcare, housing, education and alcoholic (beer, wine and the hard stuff). But wait! There's a problem with this data, excluding our need to drink heavily—

... the data also shows a big gain in spending on education, healthcare, and housing, but it’s impossible to know how much of that increase is actually coming out of the pockets of households. Education spending includes government tuition aid and spending by private nonprofits out of their endowments and contributions; healthcare spending including Medicare, Medicaid, and employer-paid insurance; and housing includes a huge imputation for owner-occupied housing, which may or may not correspond to an actual increase or decrease in out-of-pocket spending.

Once we take those three huge categories out of the data, the remaining PCE has actually gone down by 0.6% since the recession started.

Well! So much for the notion that PCE implies ever-increasing "consumer" spending by households. Healthcare spending, which makes up the bulk of the spending increase, consists of government entitlement payments (Medicare and Medicaid) for the most part. So as onerous healthcare expenditures rise (in real terms), so do personal income expenditures, and so does GDP.

But aren't Medicare and Medicaid payments on track to bankrupt —or make even more bankrupt, if that's possible—the federal government and the state governments? I will admit that our ever-expanding healthcare industry does create some jobs—I assume you've seen the movie The Blob—but how many jobs does the huge imputation for owner-occupied housing create?

Remarkably, Mandel manages to make hay out of the $1.5 billion increase in spending on telephone equipment.

Right there up at the top is America’s love affair with mobile devices, where spending has soared almost 17% since the recession started.  Also supporting my thesis of a communications boom–spending on wired, wireless, and cable services have risen by 5%.

Even if increased spending by households is non-existent very dubious at this point, there is little doubt that Americans have also cut back on spending in other areas. Mandel also gives us that data.

Whereas Americans have spent $1.5 billion more on smart phones or whatever, they have also spent $3.8 billion less on clothing and footware. And apparently (minus $64.2 billion) they have stopped repairing their cars. Most of the other items we have curtailed spending on are luxuries. Let's hope few people are going without shoes or a working motor vehicle they need to get to work as GDP grows and grows.

This GDP nonsense is beyond depressing. It's not the propaganda per se—I expect the government to lie or actively mislead us—it's the fact that Americans would rather accept the illusion of growth than admit that our economy is going to hell in a handbasket. As Bob Herbert said, that's how people behave when they're in denial.

If you're interested in how the economy is doing, and almost all Americans are, then you should understand that GDP is almost worthless as an indicator of where we stand. As for denial, there is no general solution to this problem, which means that the economy will have to sink beneath the waves again before there's any real possibility of Americans acknowledging how far gone we really are. But by then, it will be too late to do anything about it.

China's Dangerous Food Crisis

While we can argue all day long about whether the United States has significant "non-core" inflation in food and energy prices—it does —there is no doubt at all about what is happening in China. Tom Stevenson of the Telegraph (UK) reported on the situation.

Although headline prices in China rose by 4.4% in October compared with a year earlier, the food component of the CPI (by far the most important in a low-income country like China) jumped by more than 10%.

Even that probably understates what is going on. The Xinhua news agency reported last week that a basket of 18 staple vegetables was 62% higher in the first 10 days of November than in the same period last year.

Foods that have caught the attention of speculators have risen in price even more quickly. Garlic has almost doubled. Ginger is up 90%. In the well-fed West, this would be an inconvenience if it was noticed at all in the overall supermarket bill. In the developing world it has the potential to overthrow governments.

Nothing instills the fear of God in a Chinese leader more than soaring food prices, which may be followed by food riots and general chaos in the streets, which may be followed by the Guillotine. Not lacking motivation, China's leaders are implementing price controls, subsidies and cracking down on hoarding. Unfortunately for them, China's economy is overheating and right now there appear to be more problems than China's government can reasonably be expected to handle. But that's the subject of another post. I will stick to their food problems today.

First, we see that real (inflation-adjusted) world food prices are the rise again.

Source: The Economist. I added a rough trend line. From the Economist: "Food prices have risen sharply this year according to The Economist's food-price index... The world should prepare for  “harder times ahead”  according to the UN's Food and Agriculture Organisation unless production of food crops increases significantly next year. China's government is even considering price controls on food (and energy) to tame inflation and head-off popular discontent. Yet as our index shows, in real terms food is still cheaper than it was 30 years ago."

The Economist reassures us that food is still cheaper than it was in 1980 (when there was an oil supply shock) but their smug explanation ignores FAO data on how many hungry people there are in the world.

 
Graph from the UN's Food and Agriculture Organization (FAO).

Societe Generale's Albert Edwards uses the FAO graph, and goes on to explain—

One consequence of the Fed trashing the dollar is that commodity prices have been surging...

China is rightly concerned by this. It remembers the events of 1989 when runaway 28% inflation contributed to the unrest in that year and threatened the regime's grip on power. Hence you are seeing the Chinese authorities respond aggressively to this  inflation threat, not only tightening monetary policy more rapidly (which seems pretty pointless to us) but about to introduce food price controls and crack down on those old scapegoats, "the speculators".

But the threat of social unrest goes wider than China. The FAO estimates that the majority of the world's undernourished people live in developing countries. Two-thirds live in just seven countries (Bangladesh, China, the Democratic Republic of the Congo, Ethiopia, India, Indonesia and Pakistan) and over 40% live in China and India alone.

Asia stands out as particularly vulnerable to rising food prices because that is where the overwhelming majority of the hungry reside (see chart above).

Soaring food prices in China will exacerbate their already considerable hunger problem, but Edwards made an even more important point as reported by Tom Stevenson in the Telegraph—

More interesting, I think, is what will happen to food prices in the longer term. Société Générale recently drew a comparison between what is happening in global food markets today and the dramatic and permanent hike in oil prices in the 1970s.

The conventional wisdom has it that oil shot up because of the embargo triggered by the 1973 Arab-Israeli war. Had that been the main cause, however, it is likely that the price would have fallen back to pre-war levels just as quickly as it had risen. The permanent rise in prices suggests a different cause and SocGen points the finger at the peak of US oil production in the early 1970s and a consequent rise in US dependence on oil imports.

Something similar is happening with regard to China's grain import dependency today, a result largely of a mismatch between inadequate land and water resources and a growing population. Rapid industrialisation and stagnating agricultural productivity have compounded the problem.

Imports of grain as a proportion of total consumption in China fluctuated between zero and 5% for 40 years between 1960 and 2000. Since the turn of the millennium, however, the dependency ratio has risen to 15%. If the rise in US demand for imported oil since the 1970s is the right model, then food prices could remain permanently elevated.

Imported oil is America's Achilles' Heel, but we have lots of grain. But China must now import 15% of its grain each year, and they have a growing imported oil dependency as well. There are lots of reasons to think that China's overheated economy is in trouble in the short-term, but the added stress brought on by "elevated" food prices may lead to longer term instability there. Tech Ticker's Aaron Task interviewed Adrian Day, who has studied the food crisis in China. Here's a quote and the video.

Set aside for a moment questions about the accuracy of [China's CPI] data—or whether inflation in China is the result of Ben Bernanke's QE2 or China's own easy money policies, and consider:

• An estimated 200 million migrant workers have moved from rural areas to Chinese cities in recent decades, with another 400 million predicted to follow suit in the next 20 years, according to The Independent.
• China had an urban population of 620 million by the end of 2009, which was 46.6 percent of the nation's total population, China Daily reports. Urban residents are expected to comprise about 52 percent of the Chinese population by 2015, and 65 percent by 2030.

That's a lot of mouths to feed and a big reason why Adrian Day of Adrian Day Asset Management is "extremely scared" about the potential for food price spikes to lead to rioting—and even wars in the coming years.

Remedy du Jour -- November 27, 2010

Here's today's remedy for what ails us—straight, no chaser. Enjoy your long weekend.

 

 

Note: you will likely get a 30-second advertisement before you can watch  this next video. Please be patient, this was by far the best version I could post here. If it plays ads after the video, turn off the sound in the upper right-hand corner.

 

 

Airport Security And The 4th Amendment

All mainstream commentators agree: the protest of the TSA's body searches at America's airports was an abysmal failure. They also agree that that's how it should be. My local "newspaper" the Pittsburgh Post-Gazette reprinted a Bloomberg column by Margaret Carlson called Man Up When It's Time For Your Junk Pat-Down—

Who likes going through security? I’ve ground my molars while stuck behind someone wearing lace-up boots, and that’s before the new, anatomically correct scanner, which takes a graphic picture of your bits, paunches and other concessions to gravity.

It’s a whopping assault on our dignity. The airlines would love to return to the days of putting the customer first. To the guy in uniform with blue rubber gloves, we’re potential terrorists with explosives in our undergarments just pretending to be going home to grandma’s house for Thanksgiving.

Try feeling the Transportation Safety Administration agent’s pain. Exposed to public scrutiny while they work, it’s easy to get annoyed when TSA workers chit-chat about last night’s game or today’s lunch. Still, the mistakes are whoppers: a man whose urostomy bag was broken, a breast-cancer survivor compelled to show her prosthesis.

Enduring security screening is all we are asked to do in the war on terror while others are subjected to multiple deployments to Iraq and Afghanistan. It should be embarrassing to shirk our part in averting another attack. Yet for a loud minority being touched by a TSA agent is too much of an inconvenience.

Enter John Tyner, a guy with a cell-phone camera who decided against the full-body image in favor of the pat-down, achieving instant celebrity when he warned the agent “touch my junk and I’ll have you arrested.”

To him, let me say, in another cliche of the moment, Man up! For a country where porn gets the most Internet traffic and the TV family hour is awash in sex, it’s interesting that the place where we’ve decided to get prudish is an antiseptic exercise where the purpose is to keep a 747 with 500 people on board from being blown up.

She goes on in this vein. Margaret is proud of her willingness to endure a "whopping assault" on her dignity, but she's doing her part to keep us all safe. After all, it is "all we are asked to do" in the war on Terror, and compared to serving in useless, destructive wars in Asia, it is the least we can do.

Margaret seems to be unfamiliar with the Bill Of Rights. In particular, she seems to be unfamiliar with the 4^th Amendment in that document.

Amendment IV

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

In so far as TSA airport searches are a clear violation of the 4^th Amendment—notwithstanding the ambiguity of the word "reasonable"—because no Warrants are issued by a judge citing probable cause allowing somebody to "touch your junk" against your will, which is not "reasonable" in any context I can think of, then it would appear that "all" that is required of us (as Margaret put it) in our war on an Abstract Noun is to give up our rights as listed in the Constitution.

[I apologize for that last paragraph. There are many reasons why I am not a lawyer, not the least of which is that lawyers have done far too much damage already.]

The last time I flew, a TSA employee took my tube of toothpaste. Doesn't sound like much, does it? But taking my toothpaste was a violation of my 4^th Amendment rights. And it is insulting for a simpleton like Margaret Carlson to tell me to "Man Up" as my constitutional rights go up in smoke.

Got it, Margaret? Still feeling so smug?

Let me be clear here. I'm not activist like Glenn Greenwald (video below). I'm not trying to change the system. This game is rigged. In an Empire, as opposed to a Republic governed by the rule of law, we American citizens gave up our constitutional rights long ago. And after 9/11, when the war on an Abstract Noun commenced, the active elimination of those rights by the Government accelerated greatly. I described what we have to "endure" now in The TSA Protection Racket. There's little or no chance we will ever regain our rights.

But here's the bottom line: when you or Margaret willingly undergo a dose of radiation or TSA employees feeling you up at the airport, at the very least you need to understand what has disppeared that you used to have—your rights as citizens as defined by the Constitution.

In the video below Glenn Greenwald explains what you need to know about civil rights and terrorism. I suggest you watch it so you know exactly where you stand in America. Is it too much to expect that Margaret Carlson might watch it too? Probably so.

Black Friday

It's pathological, it's mindless, it's embarrassing, ... it's Black Friday!

Earlier this week I told you how I feel about the Holiday shopping spree in Shop 'Til You Drop. You might also look at I Consume, Therefore I Am. I should add that Holiday temp hiring is a welcome development for those without jobs, or for those who need second (or third) jobs to make ends meet. For example—

Toys R Us is hiring 45,000 temporary workers – that’s up 30 percent from last year. Amazing is hiring more than 15,000 and UPS is bringing in 50,000 more workers.

However, a surge in retail sales during the Holidays should not be mistaken as signalling that the United States has a Real Economy, although Americans are sure to be confused about this as they always are. And now, Black Friday...

Black Friday 2010 starts with a bang (CNNMoney.com)

Neither rain nor snow could keep throngs of determined bargain hunters from hitting stores nationwide at the stroke of midnight on Black Friday, one of the biggest sales days of the year.

Black Friday, the day after Thanksgiving, typically marks the start of the annual holiday gift-buying marathon. This year, retailers are eager to rev up their holiday sales as soon as possible to make up for the past two lackluster holiday seasons.

So for bargain hunters who kick off their gift shopping Friday, merchants have made the deals especially sweet, particularly on key holiday favorites such as toys and electronics -- and it seems to be working...

Nicolosi said midnight shoppers made a beeline for deals on gaming consoles such as the Sony PS3 and Nintendo Wii bundle, and Apple iPad and iPod accessories...

Toys R Us didn't even wait until Friday to launch its Black Friday bargain bonanza. For the first time in the chain's history, all of Toys R Us' stores opened at 10 p.m. on Thanksgiving instead of the usual midnight opening.

 

For Retailers, Black Friday Expectations Are High (New York Times)

The day after Thanksgiving is called Black Friday because it is the day that retailers hope to turn from unprofitable (in the red, in accounting terms) to profitable (in the black) for the year. Last year, consumers spent $18.6 billion on Black Friday, according to MasterCard Advisors SpendingPulse.

Analysts surveyed by Thomson Reuters expect November sales for stores open at least a year to increase 3.5 percent, a sharp uptick after last year, when sales increased just 0.5 percent.

Hoping that consumers might finally be returning, retailers are trying just about anything to capture their cash. Many stores began running special offers in October this year. Online sites for Staples, Macy's and Kohl's offered Thanksgiving Day specials. Sears, Kmart and many Gap and Old Navy stores were open on Thanksgiving Day, with Toys "R" Us opening its doors at 10 p.m. on the holiday, and most Wal-Marts opening at midnight.

“You’ve seen retailers getting much deeper in their discounts, but also much earlier and more aggressive — they’re doing anything they can to get the consumer to spend money,” said David Bassuk, managing director of retail at the consulting firm AlixPartners.

 

 

 

Happy Thanksgiving

Here's hoping you have things to be thankful for today. I remember Thanksgivings when I didn't have a pot to pee in and nobody to share my misery with. I also remember Thanksgivings where I was surrounded by loved ones and didn't have a care in the world. If you're feeling really down and out today, thank God you're not Imogene Hall, who got pancaked by real estate crooks in Florida. I hope Imogene is doing better than the last time I looked.

If you're a big-shot Wall Street banker, you're probably off on a yacht somewhere enjoying your ill-gotten gains.

But if you have a heart, you'll know why this was the only film clip I could play today.

Happy Thanksgiving.

 

Is Wall Street Doing God's Work?

If you are looking for some good reading over the Thanksgiving weekend, and you're skeptical that Wall Street is doing "God's work" as Goldman Sachs CEO Lloyd Blankfein so beautifully put it, I recommend you read John Cassidy's What Good Is Wall Street? Cassidy, who writes for the New Yorker, has been an abject apologist for Wall Street and government bailouts, but now he's learned a thing or two. Critical thinking is so rare among purveyors of the status quo that we must praise it whenever we find it.

The subtitle of the article is much of what investment bankers do is socially worthless. This is the great truth Cassidy has discovered, but it is only a partial truth. In fact, much of what investment bankers do is economically and socially destructive. I laid out the only reasonable position one might take toward Wall Street in Goldman Sachs Should Not Exist. Unfortunately, DOTE was only a few months old at the time, which means that only a handful of people have read it.

Cassidy still does not quite understand what he's talking about, which is easily forgivable in a person in the early stages of trying to figure out how the world works. For example, here Cassidy is talking about financial houses as rent-seekers—

Other regulators have gone further. Lord Adair Turner, the chairman of Britain’s top financial watchdog, the Financial Services Authority, has described much of what happens on Wall Street and in other financial centers as “socially useless activity”—a comment that suggests it could be eliminated without doing any damage to the economy. In a recent article titled “What Do Banks Do?,” which appeared in a collection of essays devoted to the future of finance,

Turner pointed out that although certain financial activities were genuinely valuable, others generated revenues and profits without delivering anything of real worth—payments that economists refer to as rents. “It is possible for financial activity to extract rents from the real economy rather than to deliver economic value,” Turner wrote. “Financial innovation . . . may in some ways and under some circumstances foster economic value creation, but that needs to be illustrated at the level of specific effects: it cannot be asserted a priori.”

Turner’s viewpoint caused consternation in the City of London, the world’s largest financial market. A clear implication of his argument is that many people in the City and on Wall Street are the financial equivalent of slumlords or toll collectors in pin-striped suits. If they retired to their beach houses en masse, the rest of the economy would be fine, or perhaps even healthier.

While I'm sure Turner's remarks caused much consternation among London bankers, the point that has been missed here is that rent-seeking on Wall Street necessarily requires government policies that allow banks to engage in socially parasitic activities. This quote is from my Goldman Sachs Should Not Exist—

Rent seeking is one of the most important insights in the last fifty years of economics and, unfortunately, one of the most inappropriately labeled... The idea is simple but powerful. People are said to seek rents when they try to obtain benefits for themselves through the political arena. They typically do so by getting a subsidy for a good they produce or for being in a particular class of people, by getting a tariff on a good they produce, or by getting a special regulation that hampers their competitors.

Cassidy's article is long and contains much valuable material, even if he himself does not quite yet grasp the full implications of what he's talking about. Still, he has quoted Lord Turner, and as Diogenes' lantern implies, an honest man is hard to find. These quotes from near the end of Cassidy's piece give you a sense of his still-evolving point of view—

Despite all the criticism that President Obama has received lately from Wall Street, the Administration has largely left the great money-making machine intact. A couple of years ago, firms such as Citigroup, JPMorgan Chase, and Goldman Sachs faced the danger that the government would break them up, drive them out of some of their most lucrative business lines—such as dealing in derivatives—or force them to maintain so much capital that their profits would be greatly diminished. “None of these things materialized,” Altman noted. “Reforms and changes came in, but they did not have a transformative effect"...

Since the early nineteen-eighties, by contrast, financial blowups have proliferated and living standards have stagnated. Is this coincidence? For a long time, economists and policymakers have accepted the financial industry’s appraisal of its own worth, ignoring the market failures and other pathologies that plague it.

Even after all that has happened, there is a tendency in Congress and the White House to defer to Wall Street because what happens there, befuddling as it may be to outsiders, is essential to the country’s prosperity. Finally, dissidents like Paul Woolley are questioning this narrative. “There was a presumption that financial innovation is socially valuable,” Woolley said to me. “The first thing I discovered was that it wasn’t backed by any empirical evidence. There’s almost none.”

I would say that there is considerably more than a "tendency" in Congress and the White House to "defer" to Wall Street. The next step in Cassidy's evolution will be his discovery that the cozy arrangement between Washington and Wall Street is not quite on the up and up.

Captain Renaud:  "I'm shocked, shocked to find out that gambling is going on in here!"
Waiter:  "Your winnings, sir."
Captain Renaud:  "Oh, thank you very much. Everybody out at once!"

Needless to say, it can not be said of social parasites like Goldman Sachs—the financial equivalent of slumlords or toll collectors in pin-striped suits—that they are doing God's work

The TSA Protection Racket

The 9/11 terrorist attack in 2001 gave the federal government the excuse they needed to do things they've always wanted to do since the creation of the National Security State under President Harry Truman between 1947 and 1950: illegal unconstitutional surveillance, search and seizures. The original bogeyman was Communism, but as time went on the Empire found new reasons to intrude on the private lives of Americans. The "War On Terrorism" is the latest and greatest incarnation of the American government's uncontrollable impulse to humiliate and clamp down on its citizens.

Power corrupts and absolute power corrupts absolutely, as Lord Acton noted in the 19th century. This typical human story is far older than the Bible. Gangsters call the arrangement I am about to tell you about a Protection Racket. Every Empire that ever existed has run various rackets in which you give up money (taxes) or your civil liberties or something else precious to you (like your first-born daughter) so you can live free of fear. Free of fear, that is, from everybody except the criminals government running the racket.

You see, we (the government) want to control your every thought and action, but we need a good excuse to do it, especially in a country which has a Constitution and a Bill of Rights. And Osama bin Laden handed us that excuse on a silver platter. Now, in the name of protecting you, we can treat you any way we like, we can at all times remind you who's boss. Your fear of terrorism, which we do everything in our power to maintain or exaggerate, feeds perfectly into our need to control you.

So now, if you want to get on an airplane, we can dose you with radiation, look at an X-Ray of your naked body, fondle your breasts and genitals, and otherwise handle you or pat you down anyway we see fit. And it's all for your own protection—that's what you think and that's the beauty part! And we needn't stop there. If we have any flimsy some reason to suspect you're a terrorist or a would-be terrorist, we can listen in on your phone calls, read your e-mail, or even hide in your closet if need be to find out for sure if you're up to no good as we assume you are.

But wait, it gets better. If you refuse to be humiliated or otherwise intruded upon, we—the Transportation Security Administration (TSA) wing of the National Security State—can fine you up to $11,000 for opting out. How's that for smacking you around? There's no way out, you belong to us, baby! As soon as you buy that plane ticket and step into that security line, we own you. Got it?  And if we decide to do the same thing at bus stations or want to stop you at random while you're driving on the interstate, there's not a damn thing you can do about it because we own you.

Only a few Americans are truly upset about all this, and even among these dissenters there are only a few people who understand the actual problem. It's depressing to see how easily people give up the few rights they have to a Protection Racket. The real problem is that once you've surrendered your civil liberties, you never get them back. Unchecked, the inevitable result is some kind of Fascism. There are those who say we're already done for, and they may be right.

Tomorrow is the day before Thanksgiving, the busiest travel day of the year in the United States. Some folks are planning to protest TSA full body searches and I applaud them. A slowing of the human traffic through the security machines is the inevitable result, which will just annoy the sheeple people who want to get where they're going as fast as possible.

Those who willingly acquiesce to humiliating poking and prodding have forgotten that before 1950, when the United States was a Republic and not an Empire, American citizens had well-specified civil rights as spelled out by the Founders. But that was 60 years ago, and there's been a lot of water gone under the bridge since then.

My suggestion is that you greet the TSA with KMA—kiss my ass. Be prepared for a hard time if you resist. Stephen Colbert provided the only insightful response to this TSA racket, Update: I've decided you should watch another video instead of the Colbert. This new one is called TSA feeling up 3 year-old girl. It seems that Mandy's Teddy Bear set off the detectors (twice) and the TSA went a little bit crazy.  Her obedient Daddy sure is an understanding guy ... the kind of guy who didn't think twice about it when the Nazis rounded up the Jews.

As before, I've added a second insightful video for you to watch.

    

 

Shop 'Til You Drop

With the Holiday Season upon us, Americans should take the time to reflect on where we've been and where we stand. This country is in deep, deep doo-doo, but Denial rules the airways. Most Americans say they believe in God. If that's true, now would be a good time to consult a Higher Power and pray for deliverance from people like Jacqueline Doherty at Barrons Magazine—

Off To The Mall

AFTER TWO PAINFUL YEARS of retrenchment, American consumers are flexing their wallets again. They have paid down debt, boosted their savings and otherwise strengthened their personal balance sheets since the recession hit with terrifying force in the second half of 2008.

As a result of their improving circumstances, the nation's merchants are likely to enjoy a jolly holiday season, with retail sales up 3.5% to 4%, exceeding both last year's meager 0.4% gain and expectations of 2.3% growth forecast by the National Retail Federation. More important, the consumer-dependent U.S. economy could grow by as much as 4% in 2011, well ahead of the current consensus estimate of a 2.4% increase in next year's gross domestic product. Consumer spending accounts for more than 70% of GDP, although that figure includes government spending on health care.

Look almost anywhere these days, and the data paint a picture of household finances on the mend. After three years of deleveraging, total U.S. consumer debt has fallen by roughly $1 trillion, to $11.58 trillion, from a peak of $12.5 trillion in the third quarter of 2008, according to data from the Federal Reserve Bank of New York. In particular, credit-card debt has shrunk by 16%, to around $730 billion, and auto loans have fallen about 12%, to $710 billion.

Moreover, household financial obligations—defined as debt and lease payments, rent, home insurance and property taxes—have fallen to 17% of disposable income, down from an all-time high of 18.9% in the third quarter of 2007 and below the 30-year average of 17.2%, notes James Paulsen, chief investment strategist at Wells Capital Management...

Poor Jacqueline. She has cited the Federal Reserve debt data, but seems to have no idea what it actually means. See my recent article Descending The Debt Mountain (graph below). Household debt stood at $4.6 trillion in 1999, and subsequently reached $12.5 trillion in 2008. Americans have shed $900 billion in debt, which means they have gotten rid of only 11.4% of the debt they piled up between 1999 and 2008. And now Jacqueline—may I call you Jackie?—has decided that American "consumers" are now ready to shop 'til they drop. Jesus wept. But wait, there's more. If she had looked at the Household Debt Mountain, Jackie would have seen that 74% of it is mortgage debt. No doubt she simply overlooked the fact that most observers see average national house prices declining from anywhere between 5 and 12% in the next couple years. And what does that mean? If you've got a mortgage, it means less equity and relatively more debt on the household balance sheet.

I was unaware of the "household financial obligations" data until Jackie cited it, and I'm glad these payments are down to "only" 17% of disposable income, but I wonder if she knows that 77% of households live paycheck-to-paycheck. Well, OK, I concede the point—those poor losers who Barrons just wishes would go off and die or otherwise disappear won't be hitting the Mall Of America (left) anytime soon, but that still leaves 23% of households with money or credit to burn.

Doherty quotes James Paulsen, a starry-eyed optimist who calls the current "recovery" the strongest of the last 25 years. I assume Paulsen was the most deluded upbeat source Barrons could find. His data on household financial obligations conflicts with results I published in The Worst Is Yet To Come In Housing. He's the one who told Barrons we may get 4% GDP growth next year. Perhaps Paulsen is unaware that U5 unemployment is over 11% and there's a Big Elephant in the room called the "Housing Market"—

Paulsen expects household debt to "bottom out and start turning up next year," as the recovery blossoms. Noting that fears of a double-dip recession have faded and leading indicators have risen, he expects the economy to grow by 3.5% to 4% next year.

Having reduced our collective household debt from $12.5 trillion to $11.58 trillion (11,580,000,000,000), Barrons' Brilliant Idea is that we Americans have retrenched for a few years, and now it's time to screw this austerity nonsense. The time is ripe for Americans to go off to the mall and create more debt. Run up the credit cards, buy a new car, and don't be afraid of those student loans—perhaps they really aren't the Gateway To Debt Slavery. If you're really feeling frisky, buy a house that may decline in value over the next few years.

If we Americans work hard enough, and I know we can—that old American Can-Do Spirit is back!—we can get that debt pile right back to where it stood in 2008. But this won't come for free. You've got to get in your car, you've got to buy some gas if you're low, you've got to drive to the mall, you've got to remember to bring the plastic with you, you've got to park your car—if you can find a spot!— you've got to walk from the car to the entrance, you've got to stroll around aimlessly with a dazed look in your eye, you've got to stop in various shops and boutiques to look over the merchandise and finally—this is the most important part—you've got to whip out that plastic and buy some stuff you don't need.

Then, and only then, will we Americans ascend to the debt mountain top, where once again we will reign supreme as the Stupidest People on Earth. Only then will Un-American foreigners look upon us with wonder, their eyes fixed upon our debt pile, and say—

Those people aren't too smart, are they? Somebody has got to pay for all this, and those bankrupt, war-crazed fools have got all the weapons! What are we going to do now?

Happily, that's not our problem—it's their problem. We're Americans! So shop 'til you drop.