Credit Crunch

The kinda "thinking" that got us embroiled into this mess in the first place.

Burnt Coffee

From Yahoo!: Starbucks 4Q profit drops 97 pct on closure costs.

Fewer U.S. customers and venti-sized costs for closing poorly performing stores led to lower sales and profit in the fourth quarter at Starbucks Corp., the company said Monday.

Seattle-based Starbucks said profit fell 97 percent to $5.4 million, or a penny a share, from $158.5 million, or 21 cents per share, a year earlier. The coffee retailer earned 10 cents per share when the costs from closing about 600 stores in the U.S. and 61 locations in Australia are excluded.

Maybe they should approach the US Treasury for a bailout?!?

MSM + Sheep = Shearing

On Aug 9th, the EE gave some uncontroversial advice.

Now, the LA Times chimes in with: Gift card holders may be out of luck in retail bankruptcies.

On Wall Street, lawmakers are talking about how "toxic debt" threatens banks and lending. Out on Main Street, shoppers better start thinking about "toxic" gift cards from companies that could go bankrupt. They won't be worth the plastic they are printed on.

There's a new realization that holding a gift card from a troubled retailer is like having a bank account without FDIC insurance.

Fo' shizzle, y'all, they always be behind the curve; that's why they be sheep.

Backpedaling

From some podunk paper: Economists say Obama's plans might help economy, but not overnight.

President-elect Barack Obama has been upfront in saying that the economic troubles won't be resolved within the next year. So he may avoid quick fixes and offer calm.

Fuckin' kill me before I die laughing over the fools. He's gonna offer "calm"?!?!?

Yeah, "calm" will sure pay the bills, won't it now?

O Sweet Baby Jeebus, verily, you play irony with the fools while you teach the wolves to shear the sheep raw.

BWAHAHAHHAHAHAHHHHHHHHHHHHHHHH!!!

It only took three days to backpedal?!? Lawd, this is funny.

It all comes back to Mencken, my friends!

Democracy is the worship of jackals by jackasses.

Sharpest Analysis on Oil

From Bloomberg, Caroline Baum writes: World Is `Drowning in Oil' (Again) After Drought.

She is the smartest economic reporter the EE knows, and the only one he takes seriously (even if we differ which is rare.)

Three months ago, the world was running out of oil.

Seriously. I kid you not. Everywhere you turned, you heard whispers that the day of petroleum reckoning was at hand.

Now there's too much oil, prodding OPEC to cut production targets for the first time in two years. Last week, the Organization of Petroleum Exporting Countries, confronted with the halving of oil prices since July, announced a 1.5 million barrel-a-day cut in output.

All speculative bubbles have a kernel of truth behind them to justify their existence. This time around it was China and India. These emerging Asian giants were gobbling up all the commodities the world could produce to fuel their rapid industrialization.

It wasn't that the story was untrue; it was old. Growing global demand probably was the reason for the gradual rise in oil prices from $20 a barrel to $40 earlier in the decade, and even to $60 by mid-2005.

It was the moon shot to $147 that took on a life, and a litany, of its own. Emerging nations didn't start gobbling up crude, coal and copper all of a sudden in the middle of 2007.

Yet analysts on TV and in print told us with a straight face that the doubling in oil prices from July 2007 to July 2008 was a result of fundamental demand, not speculative buying or investors, including pension funds, ``diversifying'' into ``alternative investments'' in search of ``uncorrelated returns.'' (It sounds a lot better than admitting you got suckered into buying what was going up and are now stuck with a pile of stuff that no one wants.)

``It happens in every market,'' says Michael Aronstein, president of Marketfield Asset Management in New York. ``Once it goes up an enormous amount, creating unfathomable wealth for the fortunate participants, someone makes an ex-post case as to why we are only at a beginning and it's not too late to get in.''

This advice is ``generally formulated by someone who has a vested interest in selling the stuff,'' he says.

Like the world of fashion, trends in markets come and go. Oil is a limited, albeit vast, resource. At some point in the future, we probably will run out of petroleum, at least as we know it.

Man's ingenuity is equally vast. When the time comes, given all the tax incentives that will be thrown in the direction of alternative energy, I have full confidence the world will not return to travel by horse and buggy.

The silliness that accompanies speculative bubbles isn't to be outdone by what passes for economic analysis. It's just over three months since commodities began their sharp, swift descent, and already the nonsense is starting: Lower oil prices are going to boost consumer demand.

Whoa! The price of oil (and other raw materials) is falling because of a cutback in demand, both actual and expected. Expressed as a graph, the demand curve for oil has shifted back, to the left. Consumers demand less energy (gasoline, heating oil) at any given price than they did before.

To say that lower prices will stimulate demand, a widely held misconception, confuses a movement along the demand curve (lower price, higher quantity) with a shift back in the curve (lower price, lower quantity).

Why this is such a hard concept to understand, I'm not sure. People imbue oil prices with all kinds of mystical powers. They see a falling price and treat it as a cause, not an effect.

Brilliant, simply brilliant!

Government Fried Rice (for everyone)

From Yahoo!: China announces $586 billion stimulus plan.

China announced a $586 billion stimulus package Sunday in its biggest move to stop the global financial crisis from hitting the world's fourth-largest economy.

Everyone's busy stimulating everyone else. (Stimulate me, baby!)

But nothing's working.

Could it possibly be, horror of all horrors, the fundamentals?

The Old Lady Bends Over

From all the News That's Biased to Print™, the venereal New York Times: A Downturn Begins.

EVEN though the average price for a Manhattan apartment, at $1.5 million, is higher than it was a year ago, some New York neighborhoods have already started to feel the downward tug that has wrenched the housing market elsewhere in the nation.

Please note the "positive" spin first.

Then comes the reality:

Median prices in Harlem and East Harlem were down nearly 20 percent.

Midtown East and Turtle Bay dropped 18.6 percent. Midtown West and Hell’s Kitchen dropped 8 percent.

Other neighborhoods that experienced price drops include the Lower East Side and the East Village, where median prices fell 5.5 percent; and Carnegie Hill, where co-op prices decreased 7.2 percent. Median prices in Hamilton Heights and Morningside Heights dropped 30.

Another sign that the market has slowed significantly is the marked drop in sales, decreasing 24 percent in Manhattan.

One of the best indicators of "shorting" something is when you see price increases on slowing volume. That means there are fewer and fewer transactions taking place at higher and higher prices indicating a steep decline ahead.

Watch out below, Big Apple.

F-art Lending

From New York magazine: Own a Francis Bacon? We’ll Pay You $$!

One art-world business is booming: collectors looking to borrow against works they own, especially before the fall sales threaten to lower values. “We’ve been contacted by lots of people who are feeling some sort of margin call,” says Sotheby’s CEO, Bill Ruprecht. Other lenders have virtually stopped lending against art recently, but Ruprecht says Sotheby’s is still “very comfortable” doing so. (At 2007’s end, the auction house had $176.4 million loaned out; by the middle of this year, it was $212 million.) Tobias Meyer, who runs the contemporary-art department, says he’s also seeing more “consignment advances”—sellers agreeing to put their art on the block and getting some money up front. But he’s also finding owners disappointed by their holdings’ worth. “Just because we sold a great, rare $80 million Francis Bacon, everyone with a Bacon thinks theirs is worth $40 million,” he says. “It doesn’t work that way.”

Further evidence that the credit flowed into just about every asset class (not that the people reading this needed convincing.)

And the recent art auctions were "disappointing" with 44% not meeting their "reserve price".

To Sotheby's, good luck getting any of that "very comfortable" money back before two decades.

BWAHAHAHHAHAHAHHHHHHHHHHHHHHHHH!!!

Spreading the Risk

Smart, huh?

From Bloomberg: GMAC Leaves Individuals Holding Car Lender's Junk.

GMAC LLC may leave thousands of individuals on the hook for about $15 billion of junk-rated debt unless the auto and home lender finds a way to pay its bills.

GMAC, the largest lender to car dealers of General Motors Corp., issued more than $25 billion of debt called SmartNotes over the past decade to retail investors. While GMAC has paid off the debts as they matured, five straight unprofitable quarters raised doubt about GMAC's survival, and SmartNotes due in July 2020 have lost about three-quarters of their value.

``An investment like this is totally unsuitable for the retail investor,'' said Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania, who rates GMAC bonds junk, or below investment grade. ``You're selling it to the widows and orphans who think of GMAC as being this strong, long- standing corporation when the reality is far from that.''

Shear those sheep, baby!

Calling it like...

From Reuters: Steep food price increases on way: experts.

U.S. food prices will rise by at least 7 percent in 2009 because of higher feed costs for chickens, hogs and cattle, said a group of food-industry economists on Thursday.

Let's see.

Food-industry economists = National Association of Realtors™. The same people who couldn't see the commodities bubble are now going to give us advice on the future? Who hasn't seen this one before? Raise your hand.

"We've been losing money for more than a year," said Bill Roenigk, economist for the Chicken Council, who said producers intend to cut production by as much as 12 percent. "We need to recover these feed costs."

Yes, and the EE needs a diamond tiara. Doesn't mean it's going to happen now, does it?

The "cost-of-production" theory of value was soundly debunked even before the 20th century rolled around. We're now in the 21st in case you didn't notice.

Nobody cares what it cost you to produce. Only thing that matters is whether people will buy it or not, and what price will they pay.

During a teleconference, economists from the National Chicken Council and the consultancy Farm Econ said food inflation could be 7 percent-8 percent.

This is naïve extrapolation a.k.a. driving by looking in the rearview mirror.

In case you haven't noticed, the "hyperconsumer" economy turbo-charged on credit just got taken out behind the woodshed, and was shot like a diseased dog.

Simple straightforward prediction:
demand destruction = lower prices = price deflation.

Hitler Faces Foreclosure

Jump, you Fuckers!

From the WSJ: His Job at Bear Gone, Mr. Fox Chose Suicide.

The meltdown of Bear Stearns Cos. in March marked the collapse of the modern securities industry, and the careers of some on Wall Street.

The financial crisis also claimed the life of a veteran Bear Stearns manager.

Barry Fox, a research supervisor who worked for nine years at the brokerage firm, took a drug overdose and then jumped from his 29th-floor apartment the evening in May after he learned he wouldn't be hired by J.P. Morgan Chase & Co., which was about to buy his firm. A coroner recently confirmed in an autopsy report that the death was a suicide.

Mr. Fox was devastated by the implosion of Bear Stearns and the financial hit he was likely to face, says Fred Philippi, his longtime companion. After several personal setbacks, "this Bear Stearns thing happened to be the last straw that broke his spirit," Mr. Philippi said in an interview.

...

The meltdown has also taken a more hidden toll, helping to push Mr. Fox and a handful of Wall Streeters over the edge. For instance, in early October, an unemployed financial manager in Los Angeles murdered his family before taking his own life, saying in a note to police that economic hardship drove him to despair. And about two weeks later, a Chicago futures trader fatally shot himself after reportedly sustaining big losses in his personal portfolio.

And that's why, boys and girls, you should learn to recognize the "obvious" signs of a bubble, and not get involved even if you are employed in the industry that's in the bubble and are raking in the dough yourself.

That they'd rather be dead than "less rich", and have no doubt that these people weren't exactly destined for the dole queue is mind-bending. What it says about America's collective self-delusion about money and status is even more disturbing.

The saddest part is that you can haul yourself down to your library (or internet these days), pull up a newspaper after the Panic of 1837 or the Great Panic of 1907, and you'd get a functionally equivalent story. You could change the names but you probably even wouldn't need to change the streets in New York and Chicago!

No wonder some of us consider filing Edith Wharton under "realism" in literature.

It was a freakin' bubble, the largest freakin' Asset Bubble in World History™ incorporating EVERY possible asset class that the EE can think of (and probably even some more), and it's not coming back.

EVER. (or at least not till two generations pass by.)

You may find it hard to recognize this because we've been sitting embedded inside this Mega-Bubble™ since 1983 but it has firmly ended. The entire world's FIRE economy worked by rolling debt into larger sums of debt at lower cost all the way down from 18% to 1%. The party is over.

Either you pay back the debt, or you default directly, or you default via govt. interference by fiat-inflation. All three roads lead to the abolishment of the debt. There are no other roads possible.

Until everybody firmly grasps this, we're pretty much screwed. Or to put it more poetically:

The beatings will continue until morale improves.

Spitting Image : Bring back the 80's!

One of my all-time favorite shows in the late 80's and early 90's.

Well, Maggie's long gone but classics are timeless!

Ford to Ford : Drop Dead

From Reuters: Ford Oct U.S. vehicle sales off adj. 31.9 pct.

You can read the article if you want. There's a table and stuff but the headline pretty much sums it up.

Maybe they can get a bailout. Or hold a prayer vigil.

Wait! They tried both.

Speaking of bailouts, the EE has lost track of the bailout situation. Anybody care to provide an update?

Who's doing what to whom how many times now?

Good for Nothing

From Bloomberg: Lehman Good-for-Retirement Notes Worth Pennies for UBS Clients.

UBS AG, Switzerland's largest bank, faces dozens of claims in the U.S. from clients who bought ``100 percent principal protected notes'' issued by Lehman Brothers Holdings Inc. that are now almost worthless.

Lehman's Sept. 15 bankruptcy leaves holders of the notes waiting in line with other senior unsecured creditors for what's left of their money. Notes with full principal protection are trading at 10 cents to 14 cents on the dollar, according to New York-based SecondMarket, which provides a marketplace for securities that are illiquid, or barely trade.

Never Count your Chickens...

From the venereal New York Times which has bankruptcy issues itself: A Chef Sells Customers on Providing Him Capital.

DESPERATE times call for desperate measures.

That’s why John Halko is offering customers of his hole-in-the-wall organic restaurant here a chance to invest — kind of — in his business through what he calls V.I.P. cards. The cards, ranging in value from $500 to $10,000, guarantee buyers discounted meals for years to come. He has sold two dozen cards, one for $10,000, earning about $16,000.

But Mr. Halko, 40, who spent much of his career as a chef with companies that cater to film crews on location, said he had found it maddening to expand. He wants to open a 50-seat restaurant and lounge in leased space across the street that would also offer liquor and wine and periodically feature entertainers. He has spent $100,000 on renovations for the new space, money he got with a home equity loan on his house. He is trying to obtain an additional $150,000, and so far two banks, Hudson Valley and Commerce, have turned him down, he said.

And he is also offering the V.I.P. gift cards, which will allow customers to eat at both locations free until they consume the face value of the card plus 20 percent. The arrangement, he said, feels better than asking those customers for a flat-out loan.

Meanwhile, he has had to grapple with another economic predicament: business at Comfort is down — perhaps 10 percent.

“It’s been crunch time for the past 8 to 10 months,” he said. “People are not spending money like they used to.”

$10K is ludicrous. Even if you went there once a week, and spent $200 on each trip, you'd take more than a year to get a return on your money. Assuming the place survives which given the owner's fiscal decision to "expand" during a recession makes the entire proposition absurd.

File this under moronic!

Being Ben Bernanke

The Must-Have Halloween Costume

Cardiomyopathy? We hardly knew ye!

From New York Magazine: Hedge Funds and Heartache.

The meltdown is giving Wall Streeters chest pains. Jill Kalman, who runs the cardiomyopathy program at Mount Sinai, says she hasn’t been so busy since after 9/11. “Emotional stress can induce disturbances like palpitations and racing heartbeats,” she says.

“One patient said that every time he sits at his desk he feels chest tightness,” says David Blumenthal, a cardiologist at Weill-Cornell Medical Center.

“We have seen a decided increase in chest pains,” says Daniel Megna, a gastroenterologist at Staten Island University Hospital. “It’s not just the Wall Street executives. We’re also getting the office managers and secretaries who are under threat of losing their jobs.”

Odd! The EE has never felt more copacetic in his life.

The Panties are Dropping!

From the San Diego Union Tribune: High-end goods feeling low.

On La Jolla's trendy Girard Avenue, the era of $75 lace panties is coming to an end.

Since opening in 1993, Neroli Lingerie has been supplying the finest European undergarments – with prices as eyebrow-raising as some of the steamy designs – to residents and tourists in the wealthy resort community.

Now Neroli's owner, Ceslie Rossi, is closing shop because sales no longer support the 1,200-square-foot boutique's $7,000-per-month rent.

“It's been touch-and-go for a year now, and then in September the bottom fell out – no one was spending,” said Rossi, who this month liquidated her lingerie inventory in a going-out-of-business sale. “I can't handle the stress anymore. When my art-gallery neighbor sells one painting for $20,000, they are OK, but panties – even expensive panties – is another matter.”

Looks like the "bottom" dropped out of the panty market!

"I wanna fuck a cheerleader before the US economy implodes..."

"I could be banging co-eds on the Princeton quads..."

The Pride of Home Pawnership

From NPR: For Some, Housing Crisis Stress Is Unbearable.

It's only natural to worry as the value of homes and investments falls. But the financial crisis is hitting some people harder than others. In California, the housing meltdown started early. Over the past three months, a record number of Californians lost their homes to foreclosure.

Scott Harden lives on a quiet street in North Pasadena, in a neighborhood that is aptly named Bungalow Heaven. But before dawn one recent morning, Harder woke up and smelled smoke coming from the home of his 53-year-old neighbor, Wanda Dunn.

Harden called 911. When emergency personnel arrived, they found Dunn's body in her rear bedroom. She'd apparently set her house afire and shot herself in the head. Dunn had been facing eviction from the only home she'd ever known.

Dunn had inherited her bungalow from her family and lost it after she stopped working because of a disability; she had also made some bad financial decisions.

Beverly Hills psychologist Kenneth Siegel says Californians are especially attached to their residential real estate.

"California represented for many of us the pinnacle of the effects of hard work," Siegel said, "of the ability to pull ourselves up by our bootstraps."

Owning a home, Siegel said, "represented the physical manifestation of all we have done and how hard we have worked."

But Californians' dream of a modest detached home, Siegel says, often morphed into something far grander when the economic boom of the 1990s made home loans — many of them subprime — easier to come by.

"So here, as much as anyplace else, people did overbuy, their houses were bigger than their egos," Siegel said, "and they in fact invested more of themselves and more of their savings in them."

Basically, death was better than renting after she made a "few bad financial decisions." (= pull all the equity that her parents built up out via a HELOC, and blow it all.)

As Oscar Wilde commented on the death of Little Nell, "one would have to have a heart of stone to read without laughing."

BWAHAHAHAHAHAHHHHHHHHHHHHHHHHHHHH!!!

Consumer Confidence

"The Conference Board Consumer Confidence Index™, which had improved moderately in September, fell to an all-time low in October. The Index now stands at 38.0 (1985=100), down from 61.4 in September.

Says Lynn Franco, Director of The Conference Board Consumer Research Center: "The impact of the financial crisis over the last several weeks has clearly taken a toll on consumers' confidence. The decline in the Index (-23.4 points) is the third largest in the history of the series, and the lowest reading on record. In assessing current conditions, consumers rated the labor market and business conditions much less favorably, suggesting that the fourth quarter is off to a weaker start than the third quarter.

Consumers' appraisal of current conditions deteriorated sharply in October. Those saying business conditions are "bad" increased to 38.3 percent from 33.4 percent, while those claiming business conditions are "good" declined to 9.2 percent from 12.8 percent. Consumers' assessment of the labor market was also much more negative. The percentage of consumers saying jobs are "hard to get" rose to 37.2 percent from 32.2 percent in September, while those claiming jobs are "plentiful" decreased to 8.9 percent from 12.6 percent."

7even

The Paper Turkey

From the lard-iest paper, The Manteca Bulletin reports: Bleak outlook for Thanksgiving as turkey effort is $18,635 short.

It's 32 days until Thanksgiving.

But Gail Teunissen and the rest of the Turkeys R Us volunteers have just 20 days to raise $18,725 to make sure 1,250 struggling families in Manteca, Ripon and Lathrop have at least a turkey for the main course.

They've collected just $90 so far.

Did they call Bernanke at the Fed for a turkey bailout?

Greatest Fools Morph into Greatest Depression

From Bloomberg: Evil Wall Street Exports Boomed With `Fools' Born to Buy Debt.

The bundling of consumer loans and home mortgages into packages of securities -- a process known as securitization -- was the biggest U.S. export business of the 21st century. More than $27 trillion of these securities have been sold since 2001, according to the Securities Industry Financial Markets Association, an industry trade group. That's almost twice last year's U.S. gross domestic product of $13.8 trillion.

``Securitization was based on the premise that a fool was born every minute,'' Joseph Stiglitz, a professor of economics at Columbia University in New York, told a congressional committee on Oct. 21. ``Globalization meant that there was a global landscape on which they could search for those fools -- and they found them everywhere.''

European banks, in particular, were eager adopters. Securitizations in Europe increased almost sixfold between 2000 and 2007, from 78 billion euros ($98 billion) to 453 billion euros, according to the European Securitization Forum, a trade organization.

Three Icelandic banks borrowed enough to buy $228 billion of assets, most of them securitizations, turning the country's financial system into a hedge fund. All three banks have been nationalized by the government, leading Prime Minister Geir Haarde to advise citizens to switch from finance to fishing.

In Germany, one bank, Landesbank Sachsen Girozentrale, bought $26 billion worth of subprime-backed investments, putting the state of Saxony on the hook for $4.1 billion.

In Japan, Mizuho Financial Group Inc., the nation's third- largest bank, acquired an entire structured-finance team, which proceeded to lose $6 billion issuing mortgage-backed securities.

The damage reaches all the way to Australia, where the town council of Wingecarribee, a municipality outside Sydney with a population of 42,000, bought $20 million of securities from Lehman Brothers Holdings Inc. Now, Lehman is in bankruptcy, the town council is in court and the securities are worth about 15 cents on the dollar.

Decoupling, we hardly knew ye!

The Road So Far

It's time for some "peak performance" stock-market statistics.

Markets down more than 70%:

Vietnam (-70.5%)
Peru (-73.2%)
Ireland (-73.4%)
Russia (-73.9%)
Iceland (-88.7%).

Markets down between 60% and 70%:

Hong Kong (-60.1%)
Poland (-62.6%)
China (-69.8%).

Markets down between 50% and 60%:

South Korea (-54.5%)
Italy (-55.2%)
Egypt (-56.9%)
Brazil (-57.2%)
Japan (-58.1%)
Singapore (-58.2%)
Turkey (-58.5%)
India (-58.3%).

Markets down between 40% and 50%:

Great Britain (-42.3%)
Australia (-43.3%)
U.S. S&P 500 (-44.0%)
Spain (-46.4%)
Germany (-47.0%)
Mexico (-48.3%).

The mood:

Volvo Liberal Elitist Crash

From thisismoney.com: Volvo truck sales plunge 99.7%.

The depth of the recession was revealed today as truckmaker Volvo admitted demand across the Continent has crashed by 99.7% as it took orders for just 115 new lorries in the last three months.

That compares to orders totalling 41,970 in the third quarter of 2007. Global orders for Volvo slumped 55% in the last three months while Scania, of which Volvo has majority control, said its western Europe truck orders collapsed by 69%.

115? Just 115 down from 42K!

The real economy has collapsed! Phony financial economy up next.

Gait Economic Index

(Source: The Onion)

Mood Music

Taiwan Insurers Dump MBS's

From the Asian Investor: Taiwan insurers ordered out of US agency MBS.

The FSC has not only limited insurance company exposure to Fannie, Freddie and Ginnie bonds and mortgage-backed securities, but has decided that existing credit ratings are meaningless.

The Insurance Bureau at the Financial Supervisory Commission in Taipei announced revised rules on how insurance companies can treat investments in mortgage-backed securities (MBS). The FSC says it cannot see how the United States will develop a valid mechanism to assess the credit quality of MBS issued by US federal housing loan agencies, namely Fannie Mae, Freddie Mac and Ginnie Mae.

Taiwanese insurers are now ordered to back off from investing in mortgage-backed securities arranged by the three institutions, or from holding their debt. The rules set maximum allowed exposures; beyond that, they don’t explicitly order insurers to sell their holdings, although the impression in reading the regulations is certainly one of disapproval.

(Ed: boldface in original article.)

Adios, Lemmings!

From Forbes: GM suspending benefits.

General Motors Corp. said Thursday it will suspend several benefit programs for salaried workers as it seeks to cut costs in the difficult auto market.

The automaker will temporarily stop company matching of its 401(k) program as of Nov. 1, GM spokesman Tom Wilkinson said. It also will suspend tuition reimbursement and adoption assistance programs as of the end of this year, he said.

Yeah, "temporary".

Portfolios devastated. No matching. No tuition assistance.

All assuming that GM even survives (doubtful.)

Sell your house? Ooops, you're "upside down".

Goodbye, retirement. Hello, serfdom.

Who Wants to be a Delusionaire?

From Reuters: Wal-Mart customers delay buying necessities.

Wal-Mart Stores Inc's U.S. customers, increasingly worried about their own financial security, are waiting until they get their paychecks to buy even the most basic necessities, the retailer's U.S. division head said on Tuesday.

Wal-Mart's sales typically surge around pay periods at the beginning and middle of the month. Castro-Wright said that spike has become more pronounced as consumers' budgets become more stressed.

In the last few months, the percentage of overall sales from the days surrounding those pay periods has risen 250 basis points, he said.

And, in a "disturbing" trend, Castro-Wright said Wal-Mart for the first time is seeing a paycheck-related spike in sales of baby formula, suggesting consumers are rushing to buy such necessities as soon as they have the cash.

He said credit used as a form of payment at Wal-Mart is falling and that the decline is expected to reach into the double digits this year.

Castro-Wright declined to comment about the general economy. When asked about the holidays, he said: "Christmas is going to come .... consumers are just going to be more cautious."

This is delusional thinking. Retail is going to be abysmal this Christmas.

What are these people smoking?

The New Bull

P.T.Barnum Lives!!!

From MSNBC: Hard times have some flirting with survivalism.

Atash Hagmahani is not waiting for the stock market to recover. The former high-tech professional turned urban survivalist has already moved his money into safer investments: Rice and beans, for starters.

“I hoard food,” says Hagmahani, 44, estimating that he has enough to last his family a year or two. “I’m not ashamed to admit it.”

“People keep asking when this (economic crisis) is going to clear up,” says Hagmahani, who agreed to be interviewed on the condition that he be identified only by this pseudonym, which he uses for his survivalist blog, or by his first name, Rob.

With foreclosure rates running rampant, financial institutions teetering and falling, prices for many goods and services climbing, and jobs being slashed, many Americans are making preparations for worse times ahead. For some, that means cutting spending and saving more. For others, it means taking a step into survivalism, once regarded solely as the province of religious End-of-Timers, sci-fi fans and extremists.

That often manifests itself as a desire to secure basic emergency resources — what survival guru Jim Wesley Rawles describes as “beans, bullets and Band-Aids.”

Rawles, speaking by phone from an “undisclosed location” somewhere between the Cascades and the Rocky Mountains, said he has seen traffic on his Web site, SurvivalBlog.com, explode in the last year.

Others more directly embedded in the survival industry say they, too, are seeing the biggest surge of orders since the run-up to Y2K, when angst surged over whether computers would survive the dawn of a new millennium.

“I’m getting slammed with big orders,” said Kurt Wilson, a distributor of freeze-dried foods and other provisions with decades-long shelf life, like canned meat, cheese and butter.

“I have customers who were spending 200 bucks a month now spending $5,000 to $8,000,” Wilson said from his warehouse in Coeur d’Alene, Idaho. “I get little old ladies calling up, stocking up for their grandchildren.”

Wilson, who also has an online radio show called the Armchair Survivalist, said one of his new clients is a New York interior designer who specializes in outfitting cramped Manhattan apartments with hidden food storage units that double as tasteful furnishings.

Wow, you really can sucker them coming and going. It's un-fuckin-believable!

Have you forgetten...?

... this graph, me lovelies?

Yes, yes, yes. I love you too, darling!

Frozen Foolishness

From the Irish Times: Iceland fixes crown at different rate to market.

Having been untraded for days after it collapsed, Iceland's crown is moving towards a dual exchange rate with the central bank selling foreign currency to locals much cheaper than the international market rate.

Iceland's government took control of its banking system last week and has since imposed harsh foreign exchange controls, holding an auction every day to set the value of the crown.

Friday's fix valued it at 151 to €1 and 112.69 to the dollar, slightly weaker than yesterday's levels. But the Reuters matching dealing system showed the crown at almost half that value in international trade at 275 to the euro.

"What the government is doing is giving away foreign exchange locally at much cheaper than the market rate."

If the crown continues to strengthen internationally even while weakening locally, the differential between the two rates might disappear and reach equilibrium. Otherwise, with Iceland's foreign reserves dwindling, the analyst said it could only continue local foreign currency selling for days or a couple of weeks.

This is moronic. They are setting themselves up for a "second" crisis once their foreign reserves disappear.

What should any rational Icelander (individual or corporation) do?

Either convert to euros because the rest of the foolish taxpayers are financing you. Or play the roundtrip multiple times a day. Buy at the "official" rate and sell on the open market. Take your winnings and convert them to gold.

Incredible!

Well, no nation has managed to go bankrupt twice in a month but Iceland seems to be giving it the ol' college try.

This is dumber than dumb.

So Much for Clean Tech!

From MSNBC: All-electric carmaker hits a financial wall.

Tesla Motors — maker of a $109,000, all-electric, emissions-free sports car that can do 0-60 mph in 4 seconds — this week said it had hit a financial wall, specifically a shortage of cash.

Musk said Tesla also will reduce its work force a "modest" amount and close its engineering office near Detroit, Mich., moving those jobs to new headquarters in San Jose, Calif.

"We are not far from being cash flow positive," Musk wrote, "but even if that threshold ends up being further than expected."

You are NOT cash-flow positive.

The $25B "bailout" of the Big Three screwed you over big time because you didn't get any of the taxpayer cheese.

Oil prices are going to fall in the upcoming deflation.

And you are making a $109K car headed into an epic recession.

Hasta luego, baby!

Why doesn't James Cameron film this?

From USA Today: Last Titanic survivor sells off her mementos.

The last living survivor of the Titanic is selling off her disaster-related mementos in order to pay the bill at a British nursing home.

Millvina Dean, 96, was an infant when the passenger ship sank in 1912.

"I am not able to live in my home anymore. I am selling it all now because I have to pay these nursing home fees and am selling anything that I think might fetch some money," she tells the paper. "The fees are quite expensive. The more money I can get from the auction the better."

Kate Winslet, eat your heart out, bee-yatch!

Credit Markets Explained in Musical Form

Click for the Youtube video. (work-safe, can't embed.)

Circulating Joke

Q: What is the capital of Iceland?

A: Oh... about $5.50.

Cartoon Summary of Bailout

Courtesy: sinfest.

How to become a CEO?

From MSNBC: Credit cards at the tipping point?.

Dire times are coming for consumers who hold credit cards and the banks that issue them, according to a report released Tuesday.

A spokeswoman for Capital One said she hadn't seen the report and was unable to comment on it, but pointed towards reassuring comments made by CEO Richard Fairbank at a recent equity analyst conference.

“In our U.S. card business, we're taking many actions to navigate the current downturn,” he said. “The credit card business is exceptionally resilient, with high risk-adjusted margins and a business that doesn't suffer the issues of collateral value that currently plague in particular the mortgage industry.”

He's bragging that there's nothing to worry about because there's no collateral!

Amazing. Quite splendiferous.

Stickin' it to the man

From El Universal in Mexico: Carstens: crisis en EU es peor que la de 1929. (Translation: Carstens: crisis in the US is worse than 1929.)

El secretario de Hacienda, Agustín Carstens, previó afectaciones en la economía mexicana por la crisis financiera en Estados Unidos, principalmente en exportaciones, remesas y turismo.

Desde su perspectiva, el problema económico en el país vecino es quizá peor que la gran depresión de 1929. Aclaró que en materia macroeconómica la situación mexicana es más sólida, lo que ha permitido enfrentar la incertidumbre financiera.

Translation:

The Secretary of Finance, Agustin Carstens, anticipated the impact of the financial crisis in the US principally in exports, remittances and tourism.

In his perspective, the economic problem in the neighboring country is perhaps worse than the Great Depression of 1929. He clarified that the macroeconomic situation in Mexico is more solid which has helped address the financial uncertainty.

While the "macroeconomic situation" in Mexico is "more solid" (which is fuckin' poo-inducingly scary just to say out loud), the idea that they are not going under the proverbial bus is a joke.

Get a clue, folks!

GD Part II coming up.

As Brahms once told a critic, "Any fool can see that!"

Nobody Expects the Financial Liquidation!

Shame

From Bloomberg: Bernanke Signals U.S. Should Pay More for Bad Debt.

Federal Reserve Chairman Ben S. Bernanke signaled that the government should buy devalued assets at above-market values to make its proposed $700 billion rescue package most effective in combating the financial crisis.

``Accounting rules require banks to value many assets at something close to a very low fire-sale price rather than the hold-to-maturity price,'' Bernanke said in testimony to the Senate Banking Committee today. ``If the Treasury bids for and then buys assets at a price close to the hold-to-maturity price, there will be substantial benefits.''

Analysts said Bernanke is essentially advocating that government use a pricing model that assumes that the debt will be paid in full over a long period of time. That is different from the mark-to-market model used by investment banks that prices assets at what they are worth on a given day.

Bernanke opposed efforts by banks to lobby regulators to remove mark-to-market pricing in their portfolios. A suspension of such accounting would hurt investor confidence, he said.

``They are basically saying, `Let's take a best-case scenario, let's assume we don't have losses,''' said Julian Mann, vice president at First Pacific Advisors LLC in Los Angeles. ``Home prices continue to deteriorate. There are real losses here.''

The whole thing is beyond moronic.

Mark-to-market is real. It's as real for Bill Gates as it is for you. What someone else is willing to pay this morning for your crap whether it's your used underwear or Morgan Stanley stock is real. And you'd better believe it!

In any case, banks must mark-to-market so that investors have confidence but the US Treasury doesn't require confidence?

Surely you jest, Professor!

I've never been more ashamed in life as a former academic.

The New Communists

From today's New York Times:

Dishonorable Dismention

From the Bulwer-Lytton Fiction Contest (him of the "it was a dark and stormy night" fame) which rewards bad prose, an also-has-been:

Carey, unnerved by an affair that had suffered through weeks of volatility, walked unsteadily, her dress etching complex runes in the fine patina of dust along the antiquated floor, to a rose-scented box of love letters in a vain attempt to find solace, like a security fund struggling to find liquidity in the US sub-prime mortgage market.

A Big Salute

Nasdaq reports: DHIL opts out of NASDAQ’s Covered Securities List. (Warning: PDF.)

NASDAQ issuer Diamond Hill Investment Group, Inc. (DHIL) has voluntarily opted-out of NASDAQ's list of Covered Securities under the SEC's Emergency Order, effective today, September 22, 2008. Diamond Hill Investment Group, Inc. will not be subject to the restrictions of the Emergency Order.

The EE has never heard of Diamond Hill but he raises his hat instantaneously to the gentlemen.

Sirs, you make veritable pussies out of the Morgan Stanley's and Goldman Sachs' of the world.

May your portfolios overflow with shorts, and consequently may you show these rubes and retards how the game is played!

Doffing Caps

From Yahoo! Finance: Last major investment banks change status.

The Federal Reserve said Sunday it had granted a request by the country's last two major investment banks -- Goldman Sachs and Morgan Stanley -- to change their status to bank holding companies.

Gentlemen, a moment if you will. A minute of silence for the passing of the "investment bank" model.

This is not a positive if you will. Their leverage is curtailed; they will be able to acquire all less than marginal banks, and hence they will survive but you do realize that all "marginal" banks just got tossed under the bus, don't you?

Last year, there were 5 investment banks. Tomorrow 0.

It should be reasonably obvious that this is not a "positive" thing.

The Fairy Tale Ending

The World Finally Tunes In

From the Washington Post: The Street Doesn't Look So Shiny Anymore.

The title character of my 2007 novel, "Confessions of a Wall Street Shoeshine Boy," was inspired by a real-life shoeshiner who plied his trade among the Guccis and Ferragamos of the financial district. What a view he had! From the very bottom rung of the economic ladder, he watched Wall Street insanity of outlandish proportions: the shady world of unbelievable hedge-fund profits, the supermodel girlfriends, $5,000 bottles of wine, cocaine-fueled trading and partying, the jaw-dropping castles of the new superrich being erected in Greenwich and the Hamptons.

A shoeshine boy who works on the trading floor saw his own, more modest business plummet last week, too. On Monday, as Lehman Brothers expired, he shined only five pairs of shoes instead of the usual 25 to 35. Business didn't get much better as the week wore on.

Few people on the trading floor were inclined to make small talk with menial workers last week, one such worker told me, because 90 percent of the staff had put in full days over the weekend, trying to figure out the latest repercussions for their company. All day, he saw people staring at their monitors in disbelief, pausing only to yell, "What the [expletive]?" or "This is a [expletive]-show." There was none of the usual horseplay or joking around. Instead, people were screaming into their phones and then slamming them down.

Many of the traders who were used to receiving six-figure annual bonuses have started brown-bagging their lunches instead of ordering in sushi or eating out at local restaurants. "Dude, we already passed the recession," one trader explained to the worker. "This is the Depression. Save your money."

One trading-floor denizen described how it happens: Your phone rings, and you're told to report to human resources. You stand up and announce to the people in your row that it's all over. If they like you, they hug you and maybe even applaud. In many cases, they'll be the ones to clean out your desk. Right after you get fired, you're marched out of the building by security. An employee at one of the biggest, best-run firms told a shoeshine boy, "Nobody is safe. I could be out of here tomorrow."

When a financial journalist friend of mine asked a prominent executive how this would all end, he replied, "With riots in the streets."

Losing it completely...

From the Chicago Tribune: Economist recounts talk with Fed chairman.

Several months ago, economist David Hale had a private meeting with Federal Reserve Chairman Ben Bernanke, who was trying to ward off a recession by lowering interest rates and increasing the money supply in the economy.

The problem with that approach is that the value of the dollar plunged against foreign currencies, causing crude oil prices to skyrocket because oil is pegged to the dollar. It affected food prices, gasoline and family budgets.

At a financial conference in Florida on Tuesday, Hale, a Chicago-based economist for investment managers, hedge funds and multinational companies, paraphrased the Fed chairman's response.

"We have lost control," said Hale, quoting Bernanke. "We cannot stabilize the dollar. We cannot control commodity prices."

Market in a Nutshell

Floating around on Wall Street (or what's left of it anyway.)

A2/P2 Spreads Blowout

If you want an explanation, read this.

Night of the Long Knives

From the New York Sun: Ex-SEC Official Blames Agency for Blow-Up of Broker-Dealers.

The Securities and Exchange Commission can blame itself for the current crisis. That is the allegation being made by a former SEC official, Lee Pickard, who says a rule change in 2004 led to the failure of Lehman Brothers, Bear Stearns, and Merrill Lynch.

The SEC allowed five firms — the three that have collapsed plus Goldman Sachs and Morgan Stanley — to more than double the leverage they were allowed to keep on their balance sheets and remove discounts that had been applied to the assets they had been required to keep to protect them from defaults.

The so-called net capital rule was created in 1975 to allow the SEC to oversee broker-dealers, or companies that trade securities for customers as well as their own accounts. It requires that firms value all of their tradable assets at market prices, and then it applies a haircut, or a discount, to account for the assets' market risk. So equities, for example, have a haircut of 15%, while a 30-year Treasury bill, because it is less risky, has a 6% haircut.

The net capital rule also requires that broker dealers limit their debt-to-net capital ratio to 12-to-1, although they must issue an early warning if they begin approaching this limit, and are forced to stop trading if they exceed it, so broker dealers often keep their debt-to-net capital ratios much lower.

In 2004, the European Union passed a rule allowing the SEC's European counterpart to manage the risk both of broker dealers and their investment banking holding companies. In response, the SEC instituted a similar, voluntary program for broker dealers with capital of at least $5 billion, enabling the agency to oversee both the broker dealers and the holding companies.

This alternative approach, which all five broker-dealers that qualified — Bear Stearns, Lehman Brothers, Merrill Lynch, Goldman Sachs, and Morgan Stanley — voluntarily joined, altered the way the SEC measured their capital. Using computerized models, the SEC, under its new Consolidated Supervised Entities program, allowed the broker dealers to increase their debt-to-net-capital ratios, sometimes, as in the case of Merrill Lynch, to as high as 40-to-1. It also removed the method for applying haircuts, relying instead on another math-based model for calculating risk that led to a much smaller discount.

The SEC justified the less stringent capital requirements by arguing it was now able to manage the consolidated entity of the broker dealer and the holding company, which would ensure it could better manage the risk.

Nobody Expects the HEGI Liquidation!

From the New York Daily News: Hard economic times hits the High End Girlfriend Index.

The Dow Jones industrial average rebounded a bit Tuesday, but the true index for measuring hard times - the High End Girlfriend Index - was off the charts.

The HEGI is charted by Edward Hayes, a noted lawyer who started as a Bronx homicide prosecutor but has become the go-to guy among the city's moneyed classes when promises are broken.

"Particularly if you happen to be a woman in trouble," Hayes says.

The model for the defense lawyer in Tom Wolfe's "Bonfire of the Vanities," Hayes is an astute observer of social archetypes, including a particular sort of schlub who was invisible to girls in high school but became a magnetic figure thanks to the magic of millions.

"You have a Wall Street guy and he looks like one of the seven dwarfs," Hayes says.

The schlub finds himself with a fabulous girlfriend such as used to brush pasthim as if he were a wall. He will do almost anything to keep her if his magic millions suddenly evaporate, even selling his watch and cuff links.

"The last overhead to go is a really high-end girlfriend," Hayes says. "If you're a short, ugly 40-year-old guy and you're throwing over a high-quality girlfriend, you're desperate."

The absolute economic low comes with a realization that Hayes summarizes in a sentence.

"I can't afford her anymore!"

Don't Cry For Me, Florida!

From the WSJ: Condo Buyers In Florida Seek To Exit Deals.

Condo buyers in hard-hit markets across the country have been scouring their contracts for loopholes and flaws that would allow them to back out. Investors in Florida, where many were looking to flip their condos for a quick profit in a rising market, have been particularly aggressive in using the courts.

During the housing boom, Florida -- like some other areas noted for tourism and retirement living -- attracted hordes of speculators. By some estimates, more than half of all the deposits for Miami condos were put down by people planning to flip them for a profit without living in them, says Jack McCabe, chief executive officer of McCabe Research & Consulting in Deerfield Beach, Fla.

But developers built far more condos than demand could absorb. The glutted Miami market now has close to 50,000 units -- a record four years' worth of inventory -- for sale or under construction. The national condo market, by contrast, has a 12-month inventory, up from 4.7 months in 2005, according to the National Association of Realtors.

Faced with such sobering prospects, many buyers no longer want to close on their properties, as they risk steep losses when they try to sell. In some buildings, as many of 30% of condo buyers are turning to the courts in an effort to cancel their contracts. If unsuccessful, they have to either go ahead and close on a unit they no longer want or walk away and lose their deposits, which are typically between 10% and 20% of the purchase price.

Dora and Umberto Arena, of Hollywood, Fla., are among the thousands of investors who are looking to the courts for relief. When the Arenas bought their deluxe $595,000 condo in Hallandale Beach, developers urged them to move quickly to put down their $120,000 deposit. The planned 283 units at the Ocean Marine Yacht Club in Hallandale Beach sold out in only three weeks when they were offered to the public three years ago.

"We saw this beautiful 48-slip marina in their brochures, and it sounded wonderful to have a place for a boat and to live in that brand new building," says Ms. Arena, 64.

Despite the name, the Ocean Marine Yacht Club has no marina.

I'm sorry, I'm sorry, I just can't resist it.

BWAHAHAHHAHAHHAHAHAHHHHHHHHHHHH!!!

Bass Ackwards

From the WSJ: Retailers Reprogram Workers In Efficiency Push.

Retailers have a new tool to turn up the heat on their salespeople: computer programs that dictate which employees should work when, and for how long.

AnnTaylor Stores Corp. installed a system last year. When saleswoman Nyla Houser types her code number into a cash register at the Ann Taylor store here at the Oxford Valley Mall, it displays her "performance metrics": average sales per hour, units sold, and dollars per transaction. The system schedules the most productive sellers to work the busiest hours.

Some employees aren't happy about the trend. They say the systems leave them with shorter shifts, make it difficult to schedule their lives, and unleash Darwinian forces on the sales floor that damage morale.

Current and former employees of the Langhorne store say that within months of the system's installation in May 2007, the culture shifted from collegial to highly competitive. "You could see people stealing sales from other people," says Julie Abrams, a former cashier at the store. Salespeople were "trying to get each other out of the way to get to the client," she says.

This is a classic example of Frédéric Bastiat's "unseen" problem, or as the EE calls it the "physicist's fallacy". Anything that can't be measured must not be worth anything.

The EE would really like to see the ROI on this system. After the cost of all the machines, the cost of the platform and the software, and the labor turnover that is inevitable with such a system whether the additional sales/store justifies such a thing.

The EE bets that it does not.

In fact, if retailers want to get "real", they should start with an intelligent inventory-stocking system. Putting five of each size on the racks does not work. You end up with the small's and the XXXL's and nothing in between. The inventory has to match the demographics, capisce, paisano?

Before it installed the system, AnnTaylor spent a year studying labor efficiencies. It established standards for how long it should take for employees to complete certain tasks: three seconds to greet a shopper; two minutes to help someone trying on clothing; 32 seconds to fold a sweater; and most importantly, five minutes to clinch a sale.

Incidentally, all repeat sales are built on customer loyalty. Giving your customers the bum's rush doesn't exactly endear you to them.

AnnTaylor calls its system the Ann Taylor Labor Allocation System -- Atlas for short. It was developed by RedPrairie Corp., a retail-operations software firm based in Waukesha, Wisc. "We liken the system to an airplane dashboard with 100 different switches and levers and knobs," said AnnTaylor's Mr. Knaul. "When we launched that, we messed with five of them." Giving the system a nickname, Atlas, he said, "was important because it gave a personality to the system, so [employees] hate the system and not us."

Right, because the people are total morons. They will blame the system and not you. Of course. What could be more obvious?

Now you should go twirl the other 95 knobs. Then you should design a system to check whether your knob-twirling is as efficient as can be.

That's a "meta-system" with another 20 knobs. You can call that system ASS (AnnTaylor System System) so that you can blame the system and not you.

Or you could just make clothes that people actually want so that you don't need salespeople.

That would be, like, so radical, dude!

Broke is the New Black, Baby!!!

From the Times of India, the EE's dad forwarded him a cartoon

You're My Trust-Fund Baby, Baby!

From the SF Chronicle: Rights groups faults Wachovia's mortgage aid.

Susan Fallis, a communications professor at Saint Mary's College in Moraga, so far seems to fall into the "get the loans off the books" camp of Wachovia customers. In 2004, she sold the Santa Cruz parking lot her father bought in the 1960s for his mobile home business. She reinvested the approximately $3 million into 20 single-family houses in and around Reno, with a 40 percent down payment on each one.

Sixteen of the loans were Pick-a-Payment mortgages from Wachovia. Because Reno rents dropped as her minimum payments climbed, she is now losing about $7,000 per month. She has asked Wachovia to temporarily lower the interest rate on her loans by less than two percentage points, without asking for any adjustment on the loan principal. The change would enable her to break even, but company representatives have told her allowing it "would require a complete reversal in corporate policy," she said.

If Wachovia doesn't allow any modifications, Fallis expects she will have no choice but to default in the next few months. She said everyone loses in that scenario.

Not everyone, baby! Just you, and your $3M, and your dreams of real-estate riches.

Coffee is for Closers!!!

From The Sun in the Inland Empire: Price wars in N. Fontana.

Price wars are being waged in north Fontana's upper middle-class neighborhoods as home builders drop prices, hoping to stave off multimilion-dollar losses.

They're competing against one another, but collectively, their products are going up against bank-owned properties, foreclosures and short sales on homes that were built just two or three years ago around the corner.

Jeff Hill knows all about it. Owner of Dana Point-based J. Hill and Associates, the real estate broker has about 20 short sales that aren't moving because banks and sellers are desperately trying to salvage any value they can.

One of them, a 2,572-square-foot home, lies a half-mile away from the Centex tract and is on the market for about $315,000.

"They've postponed the sale four times," Hill said about the sellers. "We have an offer, and then they go out and do their own appraisal ... and by the time they come back, the buyer finds something else. Meanwhile, the values decline even further."

Sellers should be happy with buyers' offers, Hill feels.

"Everyone saves a lot more money that way, including the lender that's foreclosing," he said. "Buyers walk away when sellers try to counter the offer."

If you're happy and you know it, walk away (clap clap)
If you're happy and you know it, walk away (clap clap)
If you're happy and you know it, 'n the realtor's is shee-it
If you're happy and you know it, walk away (clap clap)

"Real" GDP

From the BEA website: GROSS DOMESTIC PRODUCT AND CORPORATE PROFITS: Second Quarter 2008.

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.3 percent in the second quarter of 2008.

Domestic profits of financial corporations increased $24.7 billion in the second quarter, compared with an increase of $37.3 billion in the first.

Are you fuckin' kiddin' me?

Financial companies had NO true profits in either Q1 or Q2. In fact, they were busy taking writedown after writedown marking down even past profits as fake.

Guess someone forgot to tell the government statisticians.

BWAHAHAHAHHAHAHAHAHHHHHHHHHHHHHH!!!

How to Lie Academic-style

From CNN Money via Yahoo!: Job Boom Could Be Coming Soon.

There is no denying that the job market is weak.

The Department of Labor has reported that 432,000 people filed for unemployment benefits in the past week - making this the fifth straight week that jobless claims topped the 400,000 mark.

And so far this year, there has been a loss of 463,000 jobs.

Yet, some are starting to see light at the end of the tunnel on the job front. Economists at the University of Michigan said in a report released yesterday that 900,000 jobs will be added next year and that 2.6 million more will be created in 2010.

"To get this sort of recovery, you'll have to have a turnaround in housing. So you'll have to see a pickup in construction jobs. We could also get a pickup in vehicle manufacturing with the shift to smaller cars," she said.

Does anybody believe this?

We've had the biggest housing bubble in history, a financial bubble that dates back to 1983, and a credit bubble that has infested every single asset class worldwide.

The US "consumer" has no more access to credit. It's put-up-or-shut-up time.

We are just about to enter what is likely to be the most deep recession since the Great Depression. There are 18.4 million houses that are currently unsold and unoccupied in the US, and these people are betting on a turnaround in housing?

Jeez, even Chicago Cubs fans are not so retarded.

The `Preserves' are in a Pickle!

From The Washington Independent: Fraud Worsens Foreclosure Crisis.

At The Barber's Chair, in the small, quiet community of Accokeek at the far end of Prince George's County, Md., the talk often turns to the foreclosure crisis -- for good reason. Here, in the nation's most affluent majority black jurisdiction, a remarkable example of the growing wealth of the new black middle class, foreclosures are growing at one of the fastest rates in the country, and foreclosure fraud is increasing right along with it.

With locals constantly in and out, Leo Harrington, the owner, hears it all. How people who bought homes once valued at $800,000 down the the road at upscale subdivisions like The Preserves or at the one- and two-acre homesites of St. James have friends and relatives living in their basements to help pay the mortgage.

Aah, the Joys of Home Pawn-ership™!

Cannibal Sector

From the New York Times via Yahoo!: Hungry at 30,000 Feet? Pay Up.

The announcement from US Airways in June that it was going to start charging coach passengers $2 for soft drinks and bottled water — water! — on all its domestic flights, as well as $1 for coffee or tea, is only the latest sign that when it comes to flying these days, there increasingly is no such thing as a free lunch.

Well, the article goes on for a bit, and it's a bloody bore of an article so the EE will give you the precis version.

(On a side note, they used to teach the EE how to write precis versions in English class. Guess the journalists never attended an English class nor learnt how to put stuff in "tabular" format.)

Here's the precis:

All airlines are charging, and prices are retardedly high.

Whoop-dee-doodle-doo!

Who didn't see that one coming? Raise your hands now. C'mon, c'mon, don't be shy.

This is news?!?

Anyway, for those prices, you could easily get a gourmet meal from Dean & Deluca "to go" and a half-bottle of wine (like Hannibal Lecter.)

Just to be really clear for those not in the "know" of New York stores, this is the store that the snooty matrons of Park Ave. hit when they want something "catered".

So crap airline food is being priced as pricier than the gourmé-ist of gourmet foods?!?

Looks like a "cannibalistic" death spiral to me.

India Rising

From the Washington Post: Indians Trapped by Debt as Easy Money Dries Up.

In the past two months, Ravinder Raina tossed and turned on many sleepless nights trying to re-do the math of his family's monthly expenses.

Rising mortgage payments, soaring inflation and fuel prices were beginning to put the squeeze on the spending spree he'd taken for granted for the past four years. So after painstaking discussions with his wife, he drew up a list of expenses to cut. The family would stop buying famous-brand clothes. They would not window-shop if they did not need anything. They would use credit cards less and replace their gasoline-fueled car with a vehicle that uses cheaper natural gas.

The past four years have brought India economic growth of seemingly unstoppable momentum, often 9 percent a year, helped along by big inflows of foreign investment. Rising incomes and low interest rates enabled many middle-class Indians to realize the dream of owning a home, even while still in their 30s.

Trapped in debt, many middle-class Indians are struggling to cope. Raina's monthly mortgage payment has gone up by 12 percent. "I have to cut corners now, or I may not be able to pay back my loan before retirement," he said. Payments on some loans have doubled since 2004, when interest rates were at a record low.

"The boom of the last four years mesmerized them to live beyond their means," said Deepak Raheja, a therapist who runs a support group called the Hope Foundation. "In the past ten weeks, I am getting five to six new patients every week with financial worries about mortgages, loan repayments and credit card bills. All in the age group of 25 to 40. They exhibit anxiety, helplessness and depression. Some even contemplate suicide."

"The Indian middle class is now deferring purchase decisions because they are locked in the rising mortgage trap from multiple loans. They did not anticipate this cash crunch. They thought India's growth story would only go up, up and up," Bijoor said.

Gee, where have we heard that "up, up, up" before?

Prices don't drop except when they Drop

From the Ventura Star: Positive signs are seen in housing.

Prices don't appear to be falling as rapidly as they were, sales are rising, and default notices appear to be leveling off, said Mark Schniepp, executive director of the California Economic Forecast Project in Goleta.

If notices of default fall now, then foreclosures will peak and then start to decline in December, Schniepp said. Though he does not believe prices will drop much more, he predicts more year-over-year price declines.

So prices "won't drop" but he predicts more "price declines"?

My brain hurts.

Prices won't drop but they will decline. Should we bring in a buncha English majors to analyze this one?

Post-modernism, eat your heart out.

Derrida, Deleuze, Guattari, where the fuck are you?

C'mon Baudrillard, is this is a "simulacra" of reality, or a "simulation" of reality, or is this "reality", or is this reality?

Let's get a debate going, bee-yatches, about the difference between a "price drop" and a "price decline".

BWAHAHAHHAHAHAHAHHAHHHHHHHHHHHH!!!

Getting Non-Insurably Banged (Jiggly-Jiggly)

From The Bakersfield Californian: Building halted at two City in the Hills tracts.

Construction at two neighborhoods in northeast Bakersfield’s City in the Hills development has been halted by one of the builders there, K. Hovnanian Homes, a company official said.

Rosemary Arbor and Lantana’s Edge are on hold, said Joseph Manisco, vice president and chief legal officer at the company’s Southern California regional office in Ontario.

Manisco said the tracts weren’t profitable.

Corina Hilton, meanwhile, said on top of everything else, her home took more than a year to get built — she bought it almost two years ago, paying much more than units now go for — and has had numerous problems since she moved in at the end of last year.

“I got screwed,” Hilton said.

BWAHAHAHAHAHAHAAHHAHAHHHHHHHHHHHH!!!

Financial Quote of the Day

Kicking a California Realtor™ in the tits is a "deflationary" event these days.

Goring Sacred Bulls

Heaven knows the EE is not Hemingway's biggest fan but this quote from Esquire, 1935 is quite apposite:

The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.

Quick Quiz on Investments

If you only had $1,000 to "invest", what would you do?

(Let's assume you have emergency funds and all that jazz, but you only have an extra $1,000 to invest.)

Remember the goal? You need to maximize ROI (return on investment.)

The answer will probably surprise you.

(Hint: What happens if only had $500 or even $250?)

Hilarious

Awesomely funny.

(Source: Cassandra Does Tokyo.)

ACME Systematic Leveraged Macro Momentum Fund LP
321 Overprice Street
Greenwich, CT
00573

Dear Investor,

This letter is to inform you that the wheels have come off of the proverbial wagon at ACME Systematic Leveraged Macro Momentum Fund LP, and that the same awesome thematic portfolio that made you feel (in the first half-year) as if you'd become very rich in comparison to those sucking wind on their leveraged MBS portfolios or Japanese Small-Cap Value Funds, has, quite literally, spontaneously combusted in our faces.

Our long-oil (PBR, SU, SWN), long coal (MEE, BTU), long fertilizer (POT, MOS), and long iron ore (CLF, RIO) positions have been crushed (no pun intended), and though we remain hopeful going forward as the story remains "in tact", our models have forced us to sell some in response to prevailing price action. Our offsetting shorts in selected financials (MS, BLK, GS, and LM) have not fared as we expected, while our core retail and consumer discretionary shorts in AZO & URBN, DECK have quite literally been lodged deeply and inexplicably in an unmentionable orifice.

If that were all we'd not be too sullen, all things considered, but unfortunately our short US dollar positions (vs. everything), our JPYNZD & CHFAUD carry trades have also not performed to forecasted expectations, and both our our long-only, and zero-exposure long vs. short commodity baskets have imploded with a rapidity that would even frighten Taleb to vows of silence. Oh, and if that weren't enough, our gold and silver longs, too, have gone south as if trying to re-embed themselves in the ground, whilst the short Russell-2000 ETFs we've been using as a hedge have been behaving all-too priapically. These losses of course are not as bad - relatively speaking - as some of our peers (who regretfully are no longer in business) and should of course be viewed in the proper context of our delft avoidance of long exposure in the worst of the RMBS and CMBS sectors, our eschewing of becoming a CDO issuer/manager, and our resolve to avoid anything denominated in Icelandic Kronor. Unfortunately we still have a large (leveraged) position in high-yielding cov-lite loans, US sub-prime credit-card-backed receivables for which we remain unable to obtain sensible bids at levels near to where our auditors and administrators agreed that we should pay our prior year's incentive fees. Only our long Japanese REIT portfolio and our unlisted fund of Spanish Olive Groves have held their ground, though regretfully we refrained from hedging the currency risk, and so these too, are now in the red and eroding rapidly.

We have no explanation, since our trades are systematically based upon doing what others are doing (only, hopefully, faster... though, in this instance, not fast enough). Nor do we offer you apologies. You [presumably] knew the risks, and felt the glory (if only for a while). We do lament the the now-sky-high high-water mark, and the absence of performance fees (this year).

Finally, saving the best for last, we will be suspending redemptions as per the Force Majeureclause 6(c)-2 of the Private Placement Information Memorandum of the Fund. We trust you'll agree that only something supernatural could have torpedoed such a finely constructed portfolio put together by the best and the brightest Wall St. has to offer.

Yours sincerely,

Hugh G. Fallis - Managing Partner
ACME Systematic Leveraged Macro Momentum Fund LP

Uncontroversial Advice

Well, the email lines seem to be clogged. O Great EE, or O Asshole EE, now that you have already predicted what's coming down the poop-chute, what shall we do?

Insert hand-wringing. Cue Edith Wharton.

So in the great spirit of decency (rare for the EE), here's some non-controversial advice about the credit upheaval and the upcoming depression.

If you have a gift card to any store, blow the money NOW!

That store may or may not last. Chances are it won't. Will they last through the New Year? Unless, you can read a balance sheet, who the fuck knows? And even then, given their exposure to "derivatives", all bets are off.

Blow 100% of all of your gift cards right now, and don't look back.

This is about as uncontroversial as any advice about finance gets. It's pretty bleedin' obvious.

Also, don't hand out any gift cards. That's pretty fuckin' obvious too.

USA or Rural China?

From the Merced Star: Living in limbo: Tenants feeling the mortgage mess.

Brandy Menina's apartment hasn't had hot water for six weeks.

When she and her three teenage daughters want to bathe and wash their long hair, she fills up four pots and two roasting pans with water and heats them on the stove.

Sounds like the kind of problem she should complain to her landlord about. But Menina doesn't enjoy a typical landlord-tenant situation. The apartment building she lives in is in foreclosure.

Now a bank owns it, and it's hired a real estate company to sell the building. They want her out so they can sell it. Menina says she'll leave when she can -- legally, she's entitled to stay for at least another month.

In the meantime, she's waging a battle to get her hot water turned back on.

Welcome to the First World™!

The Realtard™ Chronicles

From USA Today: Realtors live close to the edge.

Jack Jentzen never saw it coming. Four years ago, as a real estate agent in Elgin, Ill., he was enjoying the rewards of the most frenzied U.S. housing market in decades, and money poured in.

Now he's fighting to keep his home.

"I'm looking at jobs that are way lower than what I was once making," says Jentzen, 43.

As his business started to wither away, so did his financial security. He took out an equity line on his house. He exhausted most of his savings. The value of his home plummeted, and his lender cut off his equity line. Credit card bills climbed.

"The money in the bank is going to run out. If we lose this house, what do we do? What does my daughter do? My dad? I felt depressed and saw a psychologist. The market's just so tough now."

Shirley Van Scoyk, a Realtor in West Chester, Pa., spends her days on her farm with the horses she boards and her 80-pound American bulldog puppy. It might sound idyllic, but days with no work feel agonizing to her. At the moment, she has only one listing — her son's house. It's been on the market for three months.

"The hardest thing, where it all starts to unravel, is the effect of the difficult market on my self-esteem," Van Scoyk says.

When home sales were booming, she reveled in snagging sales and closing deals, and then snacking on crackers and soda in her car on the way to a settlement she'd struggled to move to the table.

"When the market is challenging like this, all the drama is gone, the hunt is gone, and this eats at your soul," she says. "I love doing business, and there is less business to do. I am in mourning for my work life. … I worked hard to get to be a Realtor. It made me a professional and a success. That bothers me worse than the income loss. I'm so incredibly depressed by not having work."

Robert Millosh, a Realtor for Re/Max in Middlesex County, N.J., says he'll need to find some other job to stay in the area. He used to earn at least $30,000 annually as a Realtor. Right now, he says, home sales are so dismal that he's looking at a job change or a move to Florida or Pennsylvania.

"I am almost broke and struggling to get by from day to day," says Millosh, who is 45 and single. "I'm having an estate sale for most of the furniture I have that I don't need. My life has been ripped apart."

Milltown, N.J., is a quaint small town, the kind of place families want to move to. They have an all-American Fourth of July celebration, with a parade, fishing, rodeo, a band in the park and fireworks at night. Millosh says it would be a hard place to abandon, but he might not have a choice.

He says he got in over his head after he began caring for his mother. His house was valued at $411,000 last year when he refinanced, and this year houses in his neighborhood were selling for less than $300,000. He's trying to sell his home for $349,000. His grandmother and mother built the house in 1951 for $18,000, and Millosh took out a mortgage in 2004 when his mother began to have medical problems. The original mortgage was for $100,000.

Now, he is looking at renting out rooms. Renting out his entire house or selling it, he says, could leave him homeless.

He took a bartending class in hopes of getting a job but says he could find only jobs as a busboy. "I've been looking for a job since October of last year and have yet to find anything," Millosh says. "I apply for anything, as long as it meets my minimum salary and travel area. I figured real estate would always be there for me."

Let me remind readers again that these are "used house" salesmen. They have no particular skills. The best job one could find was as a busboy.

BWAHAHAHAHAHAHHAHHHHHHHHHHHHHHHH!!!

College Calculus : The Exponential Function

From the WSJ: Plying the Foreclosure Market.

The New Yorker Wises Up

Crazy Math

From CNN: Foreclosures linked to subprime fraud.

Mortgage scammers took advantage of loopholes in New York State lending laws to defraud homeowners and lending institutions all over the state, according to a new report released Thursday.

In one example from 2006, Suzette Francis, a woman with two young children, no assets, working as a $10-an-hour security guard and living in a homeless shelter, obtained a mortgage for $470,000 that, as the report stated, "exhibited...every characteristic and feature associated with dangerous subprime loans."

Francis had down payment and no proven income or assets. Her adjustable rate mortgage started at 10.8% and was capped at 16.85%. At that rate, even her initial monthly payment came to more than $4,400. She would have to work 400 hours a month just to pay her loan.

And yet there are only 168 hours in a "traditional" week!

The Goobernator Tries to Collect Rent

From Delaware Online: Landlord crashes Hummer into tenants' home.

A landlord who was apparently upset at his tenants because they were behind on their rent crashed his Hummer into their home – his property – and then attempted to kick the door down, according to police.

Yeah, that'll really show who's boss. Crashing a hummer into your own home.

You really showed them, dude, you really showed them.