This says it all

California’s budget disaster – a huge problem.  Guess what?  The Los Angeles City Council’s Budget director is a pension double-dipper.  How about that – he’s getting $443,789 a year from California taxpayers!

“Los Angeles Councilman Bernard Parks, City Hall’s budget committee chief who is warning that soaring payroll and pension costs threaten the city’s financial stability, receives $22,000 a month in city retirement benefits, in addition to his $178,789 a year salary, records and interviews show.”

“While collecting one of the city’s biggest pensions– about $265,000 per year — plus a hefty city salary, he has overseen a contentious debate about which services and jobs to cut.

“I don’t discuss my salary or my pension and I earn both of them,” Parks said in a brief phone conversation.”  http://www.latimes.com/news/local/la-me-parks-pension21-2009may21,0,7737972.story

Media reports of H1N1 (Swine Flu) deaths in United States

2009 Swine flu deaths in United States – media reports

Prologue Mexico – the 1^st  death on April 13, 2009

“May 1, 2009—When Maria Adela Gutierrez died just weeks ago, her illness was a mystery. Now, experts have uncovered clues as to how she became Mexico’s first fatality in the 2009 swine flu outbreak.

© 2009 National Geographic (AP)

Unedited Transcript

Mexicos first confirmed death from the H1N1 strain of influenza, known commonly as swine flu, happened more than a week before doctors confirmed her ailment.

The 39-year-old door-to-door tax inspector was hospitalized with acute respiratory problems.

Maria Adela Gutierrez had symptoms much like this woman now in the hospital, but doctors couldnt figure what was wrong with her. She arrived gasping for air her hands and feet blue from oxygen-starved blood.

They administered antibiotics, but she only got worse. They put her on a ventilator, and sent test samples to a lab.

On her third day, test results indicated coronavirus.

SOUNDBITE (Spanish) Jesus Manuel Salcedo Cruz, Gen. Director, Hospital Gral. Dr. Aurelio Valdivieso: “Her evolution from day 9 to day 10, and the lab tests that were done, showed that it was not a typical case, as with other pneumonias contracted in the area. She presented altered liver enzyme function and low leukocytes, which implies a different type of problem.”

A day later Gutierrez died. And it was days later before her illness was identified as a mutated swine flu virus. “  http://news.nationalgeographic.com/news/2009/05/090501-mexico-firstdeath-video-ap.html

 

‘REGULAR FLU” March, 2009:  4 children in MA:  “Officials say a 12-year-old girl from Worcester County died on Sunday from complications from the flu. She is the only child among those who recently died who did get the flu shot this year. 

According to the MDPH, the girl had no underlying health problems.

Just two days earlier on March 14, a 15-year-old Newton boy died from influenza-related pneumonia.

These two cases are the latest in a series of flu-related deaths among children.

The first confirmed pediatric death associated with the flu involved a 6-year-old child from Suffolk County. The child, who died on March 2, suffered from a number of health problems that officials believe contributed to complications from the flu.

The second flu death happened on March 1, but was just recently reported to the DPH. This case involved a 14-year-old child from Middlesex County, who also had health problems that officials believe contributed to complications from the flu. “  http://wbztv.com/local/flu.season.emergency.2.678871.html

 

1 RULED OUT/1 UNCONFIRMED April 28, 2009: CA “The Los Angeles County coroner’s office said today that further testing indicated neither of two flu-related deaths being investigated in Los Angeles County appeared to be linked to the swine flu.

Euphoria?

Is the truth about H1N1 (swine) flu being told to the public?

UPDATE: VIRUS SPREADS
Worse Than Thought
Media Misleading On Swine Flu Facts
Texas ER Doctor: Swine Flu Much Worse Than Feared
Leaked Email – 4-30-2009

The following email was written by Dr Marcus Gitterle, MD Christus Santa Rosa Health Care In New Braunfels, and leaked on the internet. Hospital spokespersons have authenticated the email, but refused further comment.

The email was sent to family members, and It speaks for itself.

It is printed here in original form, and has not been edited.

San Antonio Lightning Newspaper, SanAntonioLightning.Com
And SALSA Connection Are Trademarks And Services Marks
All Rights Reserved
Copyright 1999-2009 RG Griffing Publications
Write The Editor

G-20 Better batten down the hatches London

Bankers acting foolishly: “Likewise the actions of banking staff are unlikely to engender much good feeling from the attendant crowds. BoE employees (presumably) were seen laughing and pointing from the stone balconies of the landmark building, shown below. The protesters immediately began a chant of “JUMP BANKERS!” and worse.” [ftalphaville]
Above photo: bankers (?) peering out from balcony at Bank of England laughing at the crowd below.

Starve the veterans/feed mismanaged insolvent investment banks?

Okay taxpayers, would you rather pay the compensation the United States has promised to disabled, injured veterans and surviving spouses of soldiers being killed in Iraq and Afghanistan…or shell out billions of dollars seemingly on request to investment bankers who sold each other worthless securites? It seems that the VA is stockpiling veterans’ claims, and literally shoving them into desk drawers. At the same time, Congress barely blinks an eye at the huge corporations begging for a refill to their bankrupt coffers.

Here’s the latest on the VA claims fiasco:

“A new report about Veterans Affairs Department employees squirreling away tens of thousands of unopened letters related to benefits claims is sparking fresh concerns that veterans and their survivors are being cheated out of money.

VA officials acknowledge further credibility problems based on a new report of a previously undisclosed 2007 incident in which workers at a Detroit regional office turned in 16,000 pieces of unprocessed mail and 717 documents turned up in New York in December during amnesty periods in which workers were promised no one would be penalized.

“Veterans have lost trust in VA,” Michael Walcoff, VA’s under secretary for benefits, said…”

http://www.armytimes.com/news/2009/03/military_veteransaffairs_unopenedmail_030309w/

Note: Aside from disability , medical, and survivor claims, there is a serious problem involving homelessness of veterans. “Firm estimates of the number of homeless Iraq war veterans are hard to come by. In June 2005, the National Coalition for Homeless Veterans reported the number of Operation Iraqi Freedom and Enduring Freedom (Afghanistan) veterans seeking assistance from community-based homeless services providers had exceeded 400.

The group Veterans for America, formerly the Vietnam Veterans of America Foundation, estimates that 10,000 veterans of Iraq and Afghanistan are now living on the street.

Activists concerned about increases in the number of homeless veterans argue for greater federal investment in affordable housing and social services. Of particular concern is the wait for mental health care, which can run as long as six months.

A recent study by Harvard�s Kennedy School of Government found that by the time the Iraq and Afghanistan wars end, there will be at least 2.5 million vets. Because of that, the Harvard study concluded, Congress will have to double the Veteran Administration�s budget simply to avoid cutting services”. [finalcall.com]

Econ. 101?

Hattip Jesse’s Cafe

Here’s hoping your ETF isn’t on the ETF deathwatch list

Better check it out:
“The number of exchange-traded products on Deathwatch jumped to 171, an increase of nearly 12% from a month ago and another new record. The current list consists of 134 ETFs and 37 ETNs that are at least six months old and failed to have an Average Daily Value Traded (ADVT) of at least $100,000 during the month of February.”
The chart can be found here:
etfdeathlist

Global populism? Rejection of “extraordinary politics” afoot?

Is it right that the many are being asked, or forced, to bear the burdens of the economic disasters created by the few?  In many countries, the population is rising up and shouting a resounding No!

So far, it seems Americans are remaining largely silent.  The phenomenon has been well described by Naomi Klein (of Disaster Capitalism fame) – read the following paragraph, originally published in The Nation:

“Perhaps the sturdiest thread connecting this global backlash is a rejection of the logic of “extraordinary politics”–the phrase coined by Polish politician Leszek Balcerowicz to describe how, in a crisis, politicians can ignore legislative rules and rush through unpopular “reforms.” That trick is getting tired, as South Korea’s government recently discovered. In December, the ruling party tried to use the crisis to ram through a highly controversial free trade agreement with the United States. Taking closed-door politics to new extremes, legislators locked themselves in the chamber so they could vote in private, barricading the door with desks, chairs and couches. “

You can keep the change

We’re back from a hiatus since the election. 

Having fervently hoped for change we could believe in, that hope is slowly fading.  We were looking forward to watching a thorough house cleaning — put Madoff in jail for a start, put someone relentlessly honest in charge of Treasury for Pete’s sake!  The list was a long one.  Mark to market and get this slow motion train wreck over and done with.

Sadly, it sure looks as if we’re just treading the same wornout paths as everything collapses around our ears.  Perhaps that old Republican speech writer Peggy Noonan captures it best in her WSJ op-ed:

“Meanwhile, the inquest on President Obama’s great stimulus mistake continues.

His serious and consequential policy mistake is that he put his prestige behind not a new way of breaking through but an old way of staying put. This marked a dreadful misreading of the moment. And now he’s digging in. His political mistake, which in retrospect we will see as huge, is that he remoralized the Republicans. He let them back in the game.

Mr. Obama has a talent for reviving his enemies. He did it with Hillary Clinton, who almost beat him after his early wins, and who was given the State Department. He has now done it with Republicans on the Hill. This is very nice of him, but not in his interests. Mr. Obama should have written the stimulus bill side by side with Republicans, picked them off, co-opted their views. Did he not understand their weakness? They had no real position from which to oppose high and wasteful spending, having backed eight years of it with nary a peep. They started the struggle over the stimulus bill at a real disadvantage. Then four things: Nancy Pelosi served up old-style pork, Mr. Obama swallowed it, Republicans shocked themselves by being serious, and then they startled themselves by being unified. But it was their seriousness that was most important: They didn’t know they were! They hadn’t been in years!”

China resents dollar hegemony

Chinese central bankers are angry, and exploring ways to end the “dollar hegemony.”  If the dollar ends its reign as the global reserve currency, the implications for the US are complicated and negative. 

Read the latest:  http://www.nakedcapitalism.com/2008/10/china-launches-salvo-against-dollar.html

Paulson’s Plan

Here’s the interesting backstory according to F. William Engdahl in his recent article excerpted here:

“Stock market falls of 7 to 10% a day make for dramatic news headlines and serve to foster a broad sense of unease bordering on panic among ordinary citizens. The events of the last two weeks among EU banks since the dramatic state rescues of Hypo Real Estate, Dexia and Fortis banks, and the announcement by UK Chancellor of the Exchequer, Alistair Darling of a radical shift in policy in dealing with troubled UK banks, have begun to reveal the outline of a distinctly different European response to what in effect is a crisis ‘Made in USA.’

There is serious ground to believe that US Goldman Sachs ex CEO Henry Paulson, as Treasury Secretary, is not stupid. There is also serious ground to believe that he is actually moving according to a well-thought-out long-term strategy. Events as they are now unfolding in the EU tend to confirm that. As one senior European banker put it to me in private discussion, ‘There is an all-out war going on between the United States and the EU to define the future face of European banking.’

In this banker’s view, the ongoing attempt of Italian Prime Minister Silvio Berlusconi and France’s Nicholas Sarkosy to get an EU common ‘fund’, with perhaps upwards of $300 billion to rescue troubled banks, would de facto play directly into Paulson and the US establishment’s long-term strategy, by in effect weakening the banks and repaying US-originated Asset Backed Securities held by EU banks.

Using panic to centralize power

As I document in my forthcoming book, Power of Money: The Rise and Decline of the American Century, in every major US financial panic since at least the Panic of 1835, the titans of Wall Street—most especially until 1929, the House of JP Morgan—have deliberately triggered bank panics behind the scenes in order to consolidate their grip on US banking. The private banks used the panics to control Washington policy including the exact definition of the private ownership of the new Federal Reserve in 1913, and to consolidate their control over industry such as US Steel, Caterpillar, Westinghouse and the like. They are, in short, old hands at such financial warfare to increase their power.

Now they must do something similar on a global scale to be able to continue to dominate global finance, the heart of the power of the American Century.

That process of using panics to centralize their private power created an extremely powerful, concentration of financial and economic power in a few private hands, the same hands which created the influential US foreign policy think-tank, the New York Council on Foreign Relations in 1919 to guide the ascent of the American Century, as Time founder Henry Luce called it in a pivotal 1941 essay.

It’s becoming increasingly obvious that people like Henry Paulson, who by the way was one of the most aggressive practitioners of the ABS revolution on Wall Street before becoming Treasury Secretary, are operating on motives beyond their over-proportional sense of greed. Paulson’s own background is interesting in that context. Back in the early 1970’s Paulson started his career working for a rather notorious man named John Erlichman, Nixon’s ruthless adviser who created the Plumbers’ Unit during the Watergate era to silence opponents of the President, and was left by Nixon to ‘twist in the wind’ for it in prison.

Paulson seems to have learned from his White House mentor. As co-chairman of Goldman Sachs according to a New York Times account, in 1998 he forced out his co-chairman, Jon Corzine ‘in what amounted to a coup’ according to the Times.”

Reading the entire article is recommended.  Link here →  http://www.financialsense.com/editorials/engdahl/2008/1009.html

Credit bubble USA

Vultures coming home to roost

Read this before you travel: Feds can seize your documents without any suspicion of wrongdoing

Now it’s come to light that any papers you have with you when you travel are fair game, and may be taken, read and even copied for any reason or no reason at all.  “The Bush administration has overturned a 22-year-old policy and now allows customs agents to seize, read and copy documents from travelers at airports and borders without suspicion of wrongdoing, civil rights lawyers in San Francisco said Tuesday in releasing records obtained in a lawsuit.  The records also indicate that the government gives customs agents unlimited authority to question travelers about their religious beliefs and political opinions, said lawyers from the Asian Law Caucus and the Electronic Frontier Foundation.”  http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/09/23/BA9P133LEA.DTL&tsp=1

More from the EFF:  “Recently obtained documents show that last year the Department of Homeland Security quietly reversed a two-decades-old policy that restricted customs agents from reading and copying the personal papers carried by travelers, including U.S. citizens. The documents were made public today by the Asian Law Caucus (ALC) and Electronic Frontier Foundation (EFF), which sued the government under the Freedom of Information Act (FOIA) to obtain policies governing the searches and questioning of travelers at the nation’s borders.

The documents show that in 2007, Customs and Border Protection (CBP) loosened restrictions on the examination of travelers’ documents and papers that had existed since 1986. While CBP agents could previously read travelers’ documents only if they had “reasonable suspicion” that the documents would reveal violations of agency rules, in 2007 officers were given the power to “review and analyze” papers without any individualized suspicion. Furthermore, whereas CBP agents could previously copy materials only where they had “probable cause” to believe a law had been violated, in 2007 they were empowered to copy travelers’ papers without suspicion of wrongdoing and keep them for a “reasonable period of time” to conduct a border search.”   

 

Risk of United States losing its AAA credit rating is real

“After the most astounding and terrifying week in markets in a generation, when the whole ‘house of cards’ almost tumbled according to George Bush, . . . [t]here is now a serious risk of foreign investors balking at the scale of US financing needs (and certainly at anything like current yield levels), and the country losing its crucial AAA credit rating, as Japan did in 1998. After calling a dollar rally way back in June, I’m afraid it’s now well and truly over, and the fundamental outlook for US government bonds, already poor, has now become downright appalling. “ 

http://deadcatsbouncing.blogspot.com/2008/09/cash-for-trash-but-will-america-lose.html

Kudos to Russ Winter for following the bouncing ball

An immediate must-read.

Excerpt: 

“Naturally I need to weigh on what is being called the biggest “bailout in history”. I do not believe that is what is going down at all. Instead the US Government is facilitating the greatest asset grab of securities since Alexander Hamilton’s agents and cronies picked off the continentals from the Rubes back in 1790. Hamilton’s associates (friends of Hamilton) did not pay anything close to par either, instead these Continentals went for enormous discounts. And Paulson’s new Leviathan hedge fund (the US Treasury) will end up paying deeply distressed prices as well. Therefore it is most important to follow the real bouncing ball on this, and not be fooled. This post is going to be my primary framework over the next several months, so any discussion with me or use of my ideas is meaningless unless you are aware of my thinking.”

http://wallstreetexaminer.com/blogs/winter/?p=1918

Why the Paulson plan is not a rescue in 31 words or less

“The central bank action treats a symptom of the disease, not the disease itself,” said Stephen Lewis, chief economist at Insinger de Beaufort. “It is a palliative. At root, there is no way of imbuing worthless financial claims with value.”

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/09/19/ccambrose119.xml

 

“To whom and for what?”

A must-read from Interfluidity:

http://www.interfluidity.com/posts/1221805538.shtml

The government has a plan

Looks as if the stock market thinks the government’s (vague at this point) plan will save us all.

But…not so fast.  Those with an attention span of more than 30 seconds will question how, exactly, the government is going to improve anything about the “crisis.”  My favorite synopsis so far is Lee Adler’s:

“The gist of the story is that they are going to ban short selling, and create an agency to buy all the bad paper, which isn’t even possible because there’s not enough money to buy all that crap even if every government in the world participated. Hell, China and Russia already own a ton of it, and look how great they’re doing. So let’s just borrow a bunch of gazillions from them and make indentured servants out of the US middle class for the rest of their lives, their children’s children’s lives, yea even the lives of all the children of the US, South Africa, and Iraq, such as and whatnot till the end of time. Hey, it’s only money after all.”

http://wallstreetexaminer.com/?p=3158

A quick note on CDS

Credit Derivative Swaps – either you really get it, or you’re in the dark – right?  No!  Here’s a primer on the current CDS problems roiling the markets this week:

“Counterparty risk in the CDS market lies with the sellers of protection, or the insurers of risk. Banks are the primary sellers of CDS, totaling 40% of all written CDS and representing notional exposure of $18.2 trillion. Hedge funds appear to be in over their heads as well. According to printed statistics and consistent with anecdotal evidence, hedge funds are sellers of 32% of all CDS, insuring exposure of $14.5 trillion. Recent estimates indicate that the entire hedge fund market is approximately $2.5 trillion in net assets under management. Thus, hedge funds are bearing risk in excess of their ability to pay the piper if anything goes wrong. Those left holding the bag will be the sellers of CDS (the insurers), owners of CDOs, financial guarantors of CDOs, and may include another link in the food chain.”

If we focus on banks alone and convert the roughly $20 trillion notional exposure into a $20,000bn / 50 = $400bn net exposure (factor 50 as in Robert Pickel article) and divide by 10 major banks this still results in a net exposure of around $40bn per bank. “

rgemonitor.com

Strange days: Federal Reserve to take stocks in exchange for cash

Amongst the financial news today is something that is truly strange and new.  For the first time in almost a century, the Federal Reserve has announced it will lend out money in exchange for equities (shares of stock).  According the the Reuters’ report:

“One of the biggest changes the Fed made was to accept equities as collateral for cash loans at one of its special credit facilities, the first time that the Fed has done so in its nearly 95-year history. 

One of the most striking new Fed action was its decision to accept equities as collateral for cash loans under its Primary Dealer Credit Facility for investment banks. Until now, collateral was limited to investment-grade debt securities.”

What does this mean?  Essentially, that the quality of the collateral held by the Federal Reserve is continuing to deteriorate.  Long gone are the days of AAA rated collateral requirements.  The Federal Reserve is now potentially the largest player in the stock market.  At the very least, it will be subjected to stock market risk, a scary thought.  Is this the role of a Central Bank? 

The action is summarized by Nouriel Roubini as follows:

[T]he Fed is accepting even more toxic collateral for the TSLF and PDCF, including even equities; so now after having nationalized the mortgage market via the takeover of Fannie and Freddie the government is also starting to manipulate directly the stock market (a step that started with the SEC restrictions on naked short sales of the primary dealers; so the process of turning the US market system in a socialist system controlled by the government is now in full swing. And the Fed takes massive credit and now market risks by its effective purchase of equities.”  http://www.rgemonitor.com/roubini-monitor/253567/if_lehman_collapses_expect_a_run_on_all_of_the_other_broker_dealers_and_the_collapse_of_the_shadow_banking_system

America is in shock after Fannie/Freddie government action – biggest nationalization in human history

America – home of reverse-socialism, where we privatize gains and nationalize losses. 

Nobody says it better than Nouriel Roubini of RGE Monitor:

“Today instead the US has performed the greatest nationalization in the history of humanity. By nationalizing Fannie and Freddie the US has increased its public assets by almost $6 trillion and has increased its public debt/liabilities by another $6 trillion. The US has also turned itself into the largest government-owned hedge fund in the world: by injecting a likely $200 billion of capital into Fannie and Freddie and taking on almost $6 trillion of liabilities of such GSEs the US has also undertaken the biggest and most levered LBO (“leveraged buy-out”) in human history that has a debt to equity ratio of 30 ($6,000 billion of debt against $200 billion of equity).

 So now Comrades Bush, Paulson and Bernanke (as originally nicknamed by Willem Buiter) have now turned the USA into the USSRA (the United Socialist State Republic of America). Socialism is indeed alive and well in America; but this is socialism for the rich, the well connected and Wall Street. A socialism where profits are privatized and losses are socialized with the US tax-payer being charged the bill of $300 billion.”

“Like scores of evangelists and hypocrites and moralists who spew and praise family values and pretend to be holier than thou and are then regularly caught cheating or cross dressing or found to be perverts these Bush hypocrites who spewed for years the glory of unfettered wild west laissez faire jungle capitalism (and never believed in any sensible and appropriate regulation and supervision of financial markets) allowed the biggest debt bubble ever to fester without any control, have caused the biggest financial crisis since the Great Depression and are now forced to perform the biggest government intervention and nationalizations in the recent history of humanity, all for the benefit of the rich and the well connected. So Comrades Bush and Paulson and Bernanke will rightly pass to the history books as a troika of Bolsheviks who turned the USA into the USSRA. Fanatic zealots of any religion are always pests that cause havoc and destruction with their inflexible fanaticism; but they usually don’t run the biggest economy in the world. But these laissez faire voodoo-economics zealots in charge of the USA have now caused the biggest financial crisis since the Great Depression and the nastiest economic crisis in decades. So let them be shamed in public for their hypocrisy and zealotry that has caused so much financial and economic damage.”

rgemonitor.com

Little hope for a job

In the real world it’s going to be harder and harder to find a job.  Here’s the Manpower chart showing the percentages of employers who expect to  be hiring this year (hat tip Mish Shedlock):

If you’re invested in stocks, be careful

Commentators and analysts far and wide are advising extreme caution in the financial markets.  There is no single answer that will likely work well over the entire period of financial problems.  Obviously, this is not the time to sit back and relax; this is the time to stay alert and pay attention.  You will no doubt need to adjust your strategy as time passes.  Here’s a chart many are using to illustrate what happened to stock market investors during the Great Depression: after the initial stock market decline, many bought at what they thought was the bottom, and indeed made big money on the rebound (in modern parlance, the “dead cat bounce”).  But note what happened next:

Foreign central banks switching into Treasuries, not willing to buy Fannie/Freddie bonds

As noted by many including Brad Setser and Yves Smith, in August 2008, foreign central banks added close to $46 billion ($45.92b) to their custodial holdings of Treasuries at the New York Fed. Also in August, they reduced their holdings of Agencies by a bit over $13 billion ($13.33b).

What this may mean to the U.S. is that if and when Fannie and Freddie cannot find buyers for their bonds at a do-able interest rate, Fannie and Freddie must at that point cease to exist in their current form, by government bailout or otherwise.

Here is the chart:

(Link: http://www.nakedcapitalism.com/2008/09/setser-if-trends-continueagencies-wont.html)

Yes, Virginia, there is a business cycle.

Listening to the “mainstream media,” one would think that we have nothing much to worry about in terms of a real economic downturn.   Does it make sense to hold the belief that business-as-usual will simply continue?  Have we entered a more enlightened golden age in which the business cycle no longer operates? 

No.  In short, what goes up must come down!  Here is Martin Hutchinson’s comment on the reality of the business cycle.  We may be in overshoot mode at the moment, but it will correct downward:

“In the end, it is likely that the market will again overshoot, as it did in the early 1980s, so that even well-run countries like Brazil and Colombia, or adequately run non-Latin countries like Turkey and Indonesia, will be forced into default simply by the absence of new bond market financing. In 1982, Mexico was poorly run and deserved to default, but Brazil was quite well run and could have survived default had the bond market remained open.

Needless to say, the world’s stock markets will not be exempt from the overshoot phenomenon. So far, only a few emerging markets, notably China, have experienced any significant downturn. In the West, stock prices are generally still well above those prevailing in 2006, considered at the time a boom year.

However, when the decline does finally come, it will be severe. Inflating the early 1995 Dow Jones Industrial Index level of around 4,000 by the increase in nominal GDP since then gives a value of 7,800 today, which may be considered the stock market equivalent of the 3.2 times house price-to-earnings ratio that is considered equilibrium in the housing market.

Needless to say, even a drop to 7,800 would cause consternation and hand-wringing among Wall Street and investors generally. It should be noted however that 7,800 is the equilibrium level for stocks, not a prediction for the bottom, which must of necessity be much lower, as price declines reinforce negative investor psychology and pessimism; 5,000, or even 4,000 would seem reasonable predictions for the Dow’s low.

Given the economic changes involved, the market may well take close to a decade to get there. After all Japan, subject to a similar bubble in 1990, took 13 years to reach its low on the Nikkei, which at 7,603 in April 2003 was 81% below its December 1989 high of 38,916. ”

His bottom line summary:  “The overshoot phenomenon means we are not yet halfway through the current downturn, even in housing. It is most unlikely that deflation of the 1995-2007 asset price bubble will be accomplished in less than five years, since its deflation will be fought every inch of the way by politicians and Wall Street. Maybe we should start buying in summer 2012, but 2013 would be safer.”

http://atimes.com/atimes/Global_Economy/JI04Dj01.html

US and UK begin wargames in Gulf

So the big naval buildup is engaging in joint war games.  Anyone’s guess how this will turn out.

From the Navy Times:  “The Navy says American, British and Bahraini ships are carrying out a five-day exercise to improve security in the Persian Gulf and better protect coalition ships against vessels “deemed threatening.”

The Navy statement released Wednesday by the Bahrain headquarters of the 5th Fleet says the exercise is dubbed “Goalkeeper.” It started Sunday and is led by Britain’s Royal Navy Commodore Peter Hudson.

Hudson is quoted as saying the maneuvers will help fine-tune skills such as “locating and tracking” vessels that threaten ships patrolling the Gulf and “handling command-and-control” operations during a potential confrontation.

Gulf waters and the narrow Strait of Hormuz have seen close encounters between U.S. and Iranian vessels.”

http://www.navytimes.com/news/2008/08/ap_navy_gulf_exercise_082708w/

From Iranian press:  “Earlier in August, a large armada of US and European naval vessels were reportedly deployed to the Persian Gulf to reinforce the US strike force in the region.

The deployment took place following a military operation, which saw more than a dozen warships from the US, Britain and France conducting war games in the Atlantic Ocean.

The current statement by the Bahrain headquarters of the US 5th Fleet claims that the joint maneuvers are aimed at better protecting coalition ships against vessels ‘deemed threatening’.

This comes as the West has intensified its go-to-war rhetoric against Iran.”

http://www.presstv.ir/detail.aspx?id=67748&sectionid=351020101

California prison medical system adding to state’s giant financial troubles

“Frustrated and showing signs of temper, California’s prison medical receiver on Wednesday asked a federal judge to give him what the governor, the controller and the Legislature have not – enough money to fix the state’s correctional health care crisis.

The bill will be $8 billion over five years, J. Clark Kelso said at his downtown Sacramento office. It would go toward building seven new chronic-care facilities to house 10,500 inmate patients and upgrading medical units at all 33 state prisons.

In the legal motion filed in U.S. District Court in San Francisco, Kelso blasted ahead in what amounted to the receivership’s boldest move yet in the 2 1/2 years since it was created by judicial mandate

Kelso acted under authority granted to him by Henderson, the federal judge who ruled in 2005 that California is violating the Eighth Amendment of the U.S. Constitution by failing to provide adequate medical care to its prison population. The judge said in his fact findings that one inmate a week was dying due to medical neglect, a figure that has remained substantially unchanged, according to later surveys conducted by the receiver’s office.

The receiver’s primary remedy has been to build the seven chronic-care facilities and upgrade medical units. He has slated the new facilities for Folsom, Stockton, Solano County, San Diego, Ventura, Whittier and Chino.

Kelso said the state’s failure to approve a budget “raises the very real, immediate prospect that our construction program will fail.” He said he needs $360 million this year to continue the planning process and $3.1 billion in the next fiscal year. The state currently faces a projected $15.2 billion deficit for 2008-09.

Legislators are three weeks from the end of session, a period during which they could still gut and amend a bill to give Kelso his bonds.

He said he doesn’t want to bank on a last-minute fix.

“I indicated to the Legislature I did not want to be drawn into the budget vortex where late-night deals are made, without public consideration and without thoughtful consideration,” Kelso said, his voice rising. “I don’t want to be drawn into that.

“I’ve waited really as long as I can wait.”

http://www.sacbee.com/111/story/1155728.html

Back to school nightmares: homeless students

Here’s a trend that nobody wants to see, yet it is real.  The number of students who are homeless is on the rise this school year.  In parts of Florida, there are significant numbers of school age children who will be going to school during the day but homeless at night.  According to this report  by Kate Santich in the Orlando Sentinel:

“Amid a foreclosure crisis and sour economy, the number of homeless families is growing. In Seminole County alone, more than 600 school-age children are expected to spend at least part of the year in motels, shelters or even tents in the woods, according to a new report. An additional 450 homeless children in the county are younger than 5, officials estimate.

<snip>

‘The immensity of the homeless student population shocked all of us,’ said Beth Davalos, a social worker who helped deliver the results of a yearlong study of Seminole County’s family homelessness Wednesday. ‘After all, just a few years ago we had one of the highest income levels in the state.’”

http://www.orlandosentinel.com/news/local/state/orl-homelesskids1408aug14,0,4922435.story

How we invest (tongue firmly in cheek)

From Naked Capitalism

Clear (and correct) explanation of US budget deficit – thank you John Crudele

John Crudele takes the mystery out of the deficit numbers.  Here’s the bottom line, but the article is well worth reading in full here → crudele

“Our nation’s debt was $8.899 trillion on July 25, 2007. Just put the word “trillion” after the above family’s budget to make things simpler.

On July 25, 2008, our indebtedness had risen to $9.540 trillion.

Do the math.

The US went $641 billion deeper into debt over the past year – even as the government was claiming a deficit of “just” $389 billion.

Why are the numbers so different? Mainly, it seems, because Washington has the right to “borrow” excess Social Security funds, and last year the nation’s retirement system coughed up $181 billion to paper over part of the budget deficit.

That would be fine if the Social Security money actually belonged to the government. But it doesn’t.”

British bank Lloyds TSB’s profits plunge 70%

http://www.thisislondon.co.uk/standard/article-23523323-details/Profit+crash+rocks+banks/article.do

The news hit London on July 30th that one of the most conservative of the British major banking institutions saw its profits plunge by 70%.  “The result was far worse than a pessimistic City was expecting and raised fears for high street rivals. HBOS, which owns Halifax, reports tomorrow and Alliance & Leicester the day after.  Lloyds TSB blamed the global credit crunch and losses in its insurance business. The figures will heighten government fears that more small banks could collapse such as Northern Rock. Lloyds was regarded as the most conservative of the big banks and had won praise for resisting the temptation to make risky loans during the boom years.”

Oops we did it again…

Big Picture points out that investors have been falling for the “lather, rinse repeat” routine regarding the financial health of investment banks and other financial institutions.  Read the post: http://bigpicture.typepad.com/comments/2008/07/how-fucked-are.html

But how long can these people keep any credibility?  Here’s the Merrill Lynch illustrations:

U.S. Debt Ceiling raised again

On Saturday the Senate passed the new “housing rescue” bill with almost no debate.  And in case you missed it, it gives Treasury Secretary virtually unfettered power to saddle the taxpayers for generations to come with another roughly trillion dollars of debt.  (According to the NY Times, “the only real limit on the Treasury’s authority is the new $10.6 trillion debt ceiling. There is roughly a $1.1 trillion cushion between the new limit and existing federal debt of $9.5 trillion”). 

Here it is – read it and weep:

SEC. 3083. INCREASE IN STATUTORY LIMIT ON THE PUBLIC DEBT.

Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $10,615,000,000,000.

Cops threaten to arrest angry Indymac customers

Police ordered angry customers lined up outside an IndyMac Bank branch to remain calm or face arrest today as they tried to pull their money on the second day of the failed institution’s federal takeover.

At least three police squad cars showed up early today as tensions rose outside the San Fernando Valley branch of Pasadena-based IndyMac.

 

Fears in the bond market

Fears seem to be mounting in the bond market.  The possibility of effectively nationalizing Fannie Mae and Freddie Mac may be the catalyst.  From acrossthecurve.com:  “The decimation of the wealth stored in US Treasury debt, once viewed as the safest of all venues, resulted from the reports that the US government was planning to bail out FNMA and Freddie Mac. This prompted a flight from the US Treasury assets into all sorts of paper. It was a vote of no confidence  as Treasury paper underperformed all other asset classes.I am writing this a little early today so these closing levels may not hold as equities have recovered on news that Bernanke has said he will open the Discount window to the GSEs . That should not be a surprise. “

Freddie Mac