2/15/12…the market will go up

…until it doesn’t! It has been eight days since TB’s last missive. If you recall he said he would be in the Bay Area until Feb. 23rd. He also said he might write if something significant happened – worthy of comment.

The stealth rally continues on low volume. January 26th was the last day of above average (4 billion shares) for combined trading in NYSE listed stocks. It was 4.5 billion shares – on a mixed day! Shares actually traded on the NYSE have been running around 800 million shares…200 million below the average of the past year. A year ago that average was 1.1B shares, and two years ago 1.34B shares. The last 1B share day was January 31st and before the December 16th. Is this the ‘stuff’ sustainable rallies are made of? …especially when we go up or down every day on Greece of all things. The economic data is mixed, but indicative of a slowly improving trend…but will that solve the unemployment problem? Will it cause wages to rise to people can consume more? We have settled into an ‘acceptance’ phase now…people are back using their credit cards…but for essentials. How long can this last? People are amazingly resilient; it is our ability to adapt that has allowed us to thrive. Consider people in the middle east faced with the possibility of death daily, yet somehow they go on…sometimes they rationalize it, sometimes they just put their dreams aside and focus on daily survival…do we want to end up there?

Of course many things have happened…the most occupying of the media lately being Whitney Houston’s death. It seems to have pushed even the elections off the top news stories…pretty ghoulish, no? …or is it simply we are tired of hearing false promises and disinformation from the presidential candidates?

This self-imposed sabbatical has been useful to TB however. He has spent the time renewing old friendships and listening to other points of view…something that is difficult to do back home. The surprising thing is how many he has met with share his views on the political and economic climate.

If you want to get some facts on the state of the economy take the advice two different friends gave him on separate occasions: go to http://www.billmoyers.com. Then before he could do it he saw one of the airings on PBS Sunday and repeated last night. We need more people like Bill Moyers and Charlie Rose who can through interviews shed light on the real world…and it is not a pretty sight.

Today, TB plans to watch the rest of the videos on the website, but the one he viewed already was so riveting he watched it twice. It started out with a young black woman, very articulate, who spoke on the millennium generation and how they still believe in the American Dream which is pretty amazing as we watch millions of formerly middle-class Americans lose their homes…most through no fault of their own so don’t be sucked into believing that the mortgage crisis was caused by itinerant farm workers from Bakersfield buying $300,000 homes on $10,000 worth of income then defaulting on the first payment date.

That farm worker had every right to attempt to purchase a home with no money or assets…but the bank or more likely mortgage company had the responsibility to recognize a bad loan and reject it. Also, in that and millions of other cases, loan officers falsified data to make them qualify for the loan. Why? To earn a commission! The appraiser was cajoled into inflating an appraisal, the loans were sold to Wall Street who in turn packaged them into sub-prime mortgage pools and after receiving an investment grade rating by the rating agencies, sold them to unsuspecting investors. The  high quality was based on the ‘historical’ default rate for subprime going back to WWII. Garbage in, garbage out! Until around 2004, subprime comprised about 5% of the mortgage market. Thus to base default rates on this data was absurd. Worse, mortgages were inserted into pools and if rejected they could slip them into other pools – the rating agencies allowed these substitutions three times, then they were out…but think  how the chances of slipping them past improved?

The middle class is growing in the emerging market countries, especially India and China, while ours is shrinking. The main asset of the wealthy is not their home but their investments. For the middle class it was largely their home and much less investments. That was the American Dream: home ownership!

Since the 1980’s the wealth distribution, thanks to tax cuts and loopholes largely benefited the wealthy. Since the millennium, 66% of the benefit went to the top 1%, thus widening the wealth gap.

A friend who is a specialist in foreclosed properties in Southern California (at one time he was one of the top buyers of them), has been approached by several consortiums of wealthy individuals…he bids for them, takes a fee, insures that there are no liens on the property, and thus participates in yet another wealth transfer from the ailing middle class to the wealthiest Americans who already own most of the assets.

Back to the woman: she feels that her generation will become disillusioned soon. They are burdened with student loans – the private ones with 18% interest – and thanks to the financial crisis jobs are paying way less than in 2008. Manufacturing jobs are paying 50% less. An engineer who might have been offered $80,000 three years ago will probably see $50,000. More workers are being paid hourly and part-time. The data doesn’t sort out those with more than one job who are still struggling.
The second part of the program was an interview with Bruce Bartlett who has written two books on the impact of supply-side economics and for this has become a pariah within the GOP. Before you dismiss him consider that he created the supply-side rules in the Reagan administration. He believed in it! Now he has seen and tried to correct the errors which created the largest wealth transfer in history.

He doesn’t focus on the top 1%…he looks at the top 0.1% of taxpayers. By the way, the IRS had to create this category in 2005 as it grew so rapidly. The GOP insists that there are far too few people in this class to make an impact and instead focuses on everyone having skin in the game. Ask yourself this: does a CEO have skin in the game when he wins whether or not he performs?

But Bartlett’s biggest concern is that the financial sector AND this group have bought the government. They own it and are using it for their own benefit…nothing is more representative of this than the SuperPAC’s, thanks to the Citizens United ruling by the Supreme Court. If you know anything about PAC’s it is that they are allotted by the CEO and studies have shown that it is for their benefit…either for their own tax status or for future political ambitions. Money talks. Consider that there are 24 lobbyists in Washington for each member of Congress. The average elected official spends one of every three minutes fundraising. You don’t get funds by talking like Bruce Bartlett…not on your life.

So rather than seeing himself as the outlier, TB has learned that more and more people are coming to this conclusion…and sadly nothing is likely to be done about it. Thus the Koch brothers, libertarians and the sixth wealthiest men in America have each pledged up to $100 million to defeat Obama…and Obama has done little if anything to remedy the situation. Meanwhile, the GOP insists that the solution is to revise the tax code…if you got this far and believe that is possible you are the American Dreamer.

It is great to get out with people and talk face to face on things that just don’t come up on phone calls. To see and feel their sincerity…and frustration. How can we be the only industrialized nation in the world that doesn’t have some form of universal health care? How much is it costing us by not having preventative medicine and instead having the indigent go to emergency rooms. What are we saying about us as Americans when we say tough luck if you don’t have health insurance? Not by choice but because you can’t afford it. Meanwhile, formerly non-profit hospitals and health insurance companies have converted. Who wants to donate a wing to a for-profit hospital? Isn’t the incentive of the insurance company CEO to get rates as high as possible while limiting claims payments? Leave it up the states? It is the states that are corrupted and have favored the insurance companies. Hospital bills are paid by insurance companies for a fraction of what they are billed by negotiation…meanwhile an individual will be sued for the entire amount if they can’t pay…is this America? No, it is the worst form of discrimination…how can the right push to abolish abortion yet take no responsibility for the child…particularly if the woman is a victim of rape or incest?

Do we deserve to live in this great country? To take its benefits and not give back in any way? You decide.

Hope all is well,
TB

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