TB’s Quote of the Day, submitted by a reader:
“Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country.
When you won, you divided the profits amongst you, and when you lost, you charged it to the bank.
You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin!
You are a den of vipers and thieves.”
(Andrew Jackson, 1767-1845, 7th US President, when forcing the closure of the Second Bank of the US in 1836 by revoking its charter)
…yep, because the Bible and the National Bureau for Economic Research says so, we are, correction have been, in recession since last December! Don’t you feel better knowing that (Kudlow and friends who have been in a constant state of denial don’t, but they don’t talk about it…just pretend that as always they are right)? You’ve heard of the Great Depression, this one is being tagged as the ‘Great Recession’. Swell, and like the prior it is of global proportion with China now at the center as housing prices there are plummeting…do they have subprime loans too? Be sure to take a look at the headlines in the overnight summary but only after you have had a cup of coffee!
Strange how NBER’s declaration caused the mixed signals of the stock market falling nearly 700 points and on the other hand the pros saying they are happy because we are that much closer to the bottom and the recession being over (one even said he wished it had been declared to have started last August!). This is ignorance at its worst and makes a sham of true statistics! Do any of you care what the length of the average recession is? It is precisely that kind of thinking that makes us toss out the Depression as a six sigma event…in other words, statistical noise…a pity. First, the Depression ran from 1931-45 and might have ended in 1937 had not FDR declared victory and raised taxes to pay for the mess, thus it took World War II to end it…let’s hope we don’t go to that drastic measure although India and Pakistan are working on it. Then, we had the post war boom and a series of recessions, some major, some mild, until about 25 years ago…right after Paul Volcker drove a stake through the heart of inflation. That evoked a period of ever easing credit and credit standards, even as the average person wasn’t making that much more money and the threshold for the top 10% of U.S. taxpayers remained stubbornly at $100,000 (since 1998, only the top 5% have been better off and with the drop in the capital markets that too could be in question…top 1%?), yet through skillfully engineering cycle management (with the help of technological innovations), we only had a few financial catastrophe’s (bank crisis, S&L crisis, LTCM, Asian and Russian crisis), so we ignored this one too…after all 95% of homeowners are making their payments on time and subprime is just 5% of total mortgages…that is kind of ‘Kudovian’ thinking that allowed a total lapse of regulatory controls and a slow response to the credit problems that emerged last August. So aren’t you glad that we are now legitimately in recession so that we can recover fully by next Spring?…and that means a huge rally in stocks is just around the corner. Guess what? You just had your huge rally in stocks and it lasted all of FIVE days and then gave it all back yesterday in most stocks and all but about half the FIRST day’s gain for the rest of them. The best performing financial instrument for 2008? The long Treasury Bond! …not the long TIP which has been decimated.
How the pro’s can be so optimistic is beyond TB’s comprehension when the yield on short T-Bills is effectively ZERO and you have to go out to 3 years just to earn 1%! Meanwhile, Gold and other precious metals have not been a hedge…in fact, the recommendation now is to sell gold and buy platinum based on the price ratio. Energy is totally in the tank Oil services which were hot in 2007 earning 45% (based on OIH the oil services holders), are down 60% thru 12/1…which means -42.8% (with dividends reinvested) over the entire period from 12/31/96!
Now let’s see what else is doing us in: hedge funds are being decimated…and even as they fall, private equity firms are putting the arm on their investors for the rest of their commitment forcing even more selling of hedge funds to raise capital and in turn more and more hedge funds are limiting or suspending withdrawals. Mutual funds declared capital gains as they had to sell stocks to meet redemptions…a nice Christmas present even as the Net Asset Value is falling (note that the number one reason to own an ETF is tax efficiency…iShares had just 2 of its 148 funds declare a capital gain (small ones in a REIT fund and the short Treasury fund)…why people can’t see this and also realize the number two reason for owning an ETF, low fees, is beyond TB’s comprehension. Sell your mutual funds and take your broker to lunch instead…it’s much cheaper that way.
Then there are the brokers…there are no majors left…they have either gone bankrupt or been merged into banks…except for Goldman and Morgan Stanley which the government allowed to declare themselves AS banks…and if you believe that…but wait we now have the TLC plan…oops…TLGP (Treasury Loan Guaranty Plan) as part of the CARP…oops again…TARP…as in throw a tarp over it and it might go away! Why buy a treasury or agency security when you can buy on e of these FDIC guaranteed investments (assuming FDIC has funds, which it doesn’t, but not to worry as Congress will just appropriate more money and the Treasury will print it…must be a lot of overtime for pressmen).
This is our world…a world that makes the Future Shock of Alvin Toffler, written in the Dark Ages of 1970 seem mundane.
Can you believe they are bragging that retail sales are up 1.9% over the Black Friday and Saturday of last year? 40%, 50%, 70% discounts will do that and worse the inventories are still way too high…think if we hadn’t had the banks refusing to write letters of credit…so that loads of stuff are still sitting on docks waiting to be shipped…and orders now cancelled. What’s selling? Flat screen TV’s…how many of those are made in this country? ZERO! In fact, what is made here…and that folks, is the crux of the problem: how do we encourage people to save?…first, we have to pay down debt (by the way, TB heard that the saving rates surged to near 2%…and probably by the wealthiest 2% only), credit cards, home equity loans (but if you pay them down that is a lost source of credit should you lose your job), but we need pay raises to do that and you can bet your bippy that those won’t be forthcoming, so all we can do is cut consumption, further eroding the economy…you don’t really think those savings will be lent out do you?…not with capital falling faster than deposit growth. TB is not trying to be pessimistic but realistic. Hopefully it won’t take another world war to get us out of this, because this time it would really be ugly…rather than two rival groups, how about four, five or more? Concept!
TB has been truly impressed with the way Obama has comported himself in press conferences (against some very irritating reporters trying to break him), and with his selections for the Economic Recovery and Advisory teams and the cabinet posts. What a contrast to Dubya who surrounded himself with those who felt their job was to do his bidding, not to advise or if they did so they were either ignored or ousted like Paul O’Neill. The difference even showed when he introduced the cabinet and each gave a snapshot of why they were there and then they, not Obama, introduced the next member, a symbolic showing of how it isn’t all about one man. TB heard Dubya interviewed and the man is still in denial…”sure some people don’t like me but that comes with the job.”
Certainly, we have no idea how the new President’s term will go but at least he is starting out on the right track…he hasn’t told us all we have to do is go shopping….at least yet!
Hope you all get through this week without suffering any more pain than you already have…the best of luck to all!
TB
Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC December 2, 2008.
