Let Me Count the Ways

I have decided to do a weekend piece and take some more time to put together a somewhat more informative piece. Trying to do something informative daily is too tasking and too limiting, so this is the first of what I expect to be a two to three part piece. No promises at the moment on how quickly these will come out, but I am aiming to do them all this weekend. For the no promises piece, let me explain.

In addition to working full time, adopting a two year old son three weeks ago, having a five year old daughter, having my sister visiting with her four and six year olds and needing to walk and feed the dog, I have not had the optimal amount of time to do my financial reading, much less posting. So I have decided to take the weekend for this groupint as I have been reading some very significant pieces and am a bit worried about a few possibilities, short, medium and long term.

Let me begin with installment one, let me begin with the number 40.

40 and Counting

I just checked the FDIC website (it is Friday night at 10:15) and three more banks down. That makes 40 this year down, with three this week. They seem to be falling fast. With mounting problems in:

• commercial real estate;
• alt-A mortgage defaults;
• prime mortgage defaults; and
• increasing credit card defaults

It is no wonder that small and regional banks are quickly becoming toast. I have noted before, but it is worth repeating, prime mortgages involve bigger dollars than subprime so their increasing default rate, while smaller in the number of defaults, can still be big for banks in terms of dollars. Just ask Calculated Risk.

http://www.calculatedriskblog.com/2009/06/california-survey-of-loan-servicers-q1.html

But hey, the dollar is toast, so who cares if you are losing dollars.

The Dollar is Toast You Say?!

As Graham Summers at Seeking Alpha puts it, when everyone seems to be going out of their way to say the dollar is fine, it is time to figure out why they need to be reassuring us.

http://seekingalpha.com/article/144031-politicians-forget-all-those-trillions-the-dollar-s-doing-great

Now what happens if the people start forgetting what these people are saying and decide to flee the U.S. dollar? Not a good scenario. We have trading partners with trillions invested in Treasuries that could become very very bad investments quickly if the dollar devalues, and they know it. If the devaluation begins in any serious fashion, they are heading for the lifeboats and the dollar sinks while this government's ability to fund any further fiscal stimulus evaporates. Kinda scary, ain't it.

Retail in Big Time Trouble

I went to our local mall yesterday. Overall, there were several empty spaces but only about 5%. I was impressed it was not worse; no major stores gone. Now I am in New Hampshire where unemployment and other problems are not as severe, but I was still impressed. Nonetheless, what I did notice for the remaining stores was that virtually every store had a sale. And when I say sale, I am not talking 10% off. We are talking 30-70% off. A lot of clearance signs around. Disney had a significant sale. My wife and mother-in-law had been there the week before buying thing for my new son and the woman there was very busy bringing them dozens of on sale items my son would like (I know - I asked when I got home if anything was left in the store). Not a big surprise for me to learn today that CDS protection on Disney was up significantly this week - as it was on a number of companies.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aTpao1gy3_Ts

Indeed, it would seem that credit protection on a number of companies was up a lot this week. Many the most up in months. Yep, in my mind that spells recovery - not. After all, especially on the retail side, you have the consumer prices down the most in my lifetime - year-over-year - so there is no price support. Commodities over the past couple of months have risen, as has oil, due in no small part to a weakening dollar (see above) so the manufacturers and retailers are not getting cheaper products to support their cheaper prices. In short, retailers are likely now or soon paying more for products due to a weak dollar yet they have to severly discount the prices to get sales. So why are retailers doing so poorly, let us count the ways:

• As I said above their prices wholesale are likely increasing while their prices retail are decreasing, so they are in survival mode;
• Unemployment is still on the rise and is nearing double digits on a national scale. In many states it is already there. Either way it is still climbing and people with job security spend less;
• People, due to job issues or otherwise, are reducing debt on an individual level. Individuals had debt at record levels and this is needed but, unfortunately, has just begun. It will take years, not days, weeks or months. (Let me note here that individuals reducing debt is probably our only possibility for salvation here); and
• Credit companies reducing credit lines and/or increasing rates is making borrowing more difficult for individuals and small businesses. For small businesses in particular this will have a serious knock-on effect.

http://www.nakedcapitalism.com/2009/06/credit-card-squeeze-hits-small.html

It is late and I have a big day tomorrow, so night all. Sleep well and be well.

Post two of this series will hopefully follow tomorrow.

Disclosures: None.

Honky Dory!!

Yep, everything is honky dory. Not a problem. Don't believe me, believe the indicators.

http://www.bloomberg.com/apps/news?pid=20601087&sid=auf7LVI75uQY

So the economy is just fine. I have nothing significant to say today. I have company in town and no time to really read or post. All I can say is I am still in hunker down mode. My bigger fear at the moment is that some posts I am reading suggest the US will be in hunker down mode for decades - which is why I noted yesterday why I might move elsewhere. Life is too short to tie it to a country that has sunk itself in debt. I have been fiscally responsible personally and I am not about to let a stupid group of government officials to screw up my remainging life - or that of my children. Please give me a reason to stay in the US other than our family is here. Please.

Disclosures: None

Honky Dory!!

Mixed Messages

The financial news was a bit mixed today. The stock market was all over the place. Several financial institutions - many who recently diluted their shareholders by selling stock - are now repaying tens of billions in TARP money.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a7MXJA__4Q_A

So here is the question for those institutions' stockholders: did they dilute your shares by selling more shares so they could repay TARP and avoid government control over executive pay? If I were a stockholder I would certainly want to know. By the way, dozens of financial institutions were downgraded by S&P - big surprise.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aeWkrzSkd5Y0

Meanwhile Asian stocks are down more.

http://www.bloomberg.com/apps/news?pid=20601087&sid=arX88anTB0iU

Big surprise - not. I am not - obviously - believing in the market rebound. The economy in the U.S. is totally messed up for perhaps decades to come. The more I read and learn about it, the more I realize I should perhaps move to another country. We are simply too debt laden at too many levels for anthing to go well at any sustained level for the forseeable future. I am not joking here. I am considering looking at other coutries where I might live. I am willing to stand by and help the country I love, but we are self-destructing and at some point - if those like me keep getting ignored - life on the coast in Costa Rica, Mexico or the like, does not seem that bad. Worth serious consideration.

Disclosures: None.

Yikes!

This is a fantastic piece that is a must read. Even if you do not understand it all - and I am struggling - it is persuasive and, well, quite depressing. It covers a good bit of ground and it is not a quick read, but I recommend persisting to the end. It is worth it. Bottom line to the piece, U.S. attempts at stimulus have led to a bit of a situation. Investors are starting to not listen to the explanation and are focusing more on the impact. The post calls it "rational expectation." And this may lead to some rather severe problems for our attempts to finance our recovery and to make it work. The problem is, in a recovery the government does not need us to be rational. It prefers a good dose of irrationality - like continuing spending, buying Treasuries and the like. Looks like the jig is up!

http://english.caijing.com.cn/2009-06-09/110180019.html

Debt, Debt and More Debt

I have said repeatedly that common sense (along with a lot of people I respect) tells me that replacing debt with debt only creates a new bubble and it is not a good long term plan. That kicking the can down the road thingy. So far that is exactly what we have been doing. So what happens when we catch up to the can? Well, for the dot.com bubble we kicked it harder, for the housing bubble we have given it a nice kick as well, and now when we catch this debt-laden can, we are in my opinion a bit screwed. There are no apparent bubbles to replace the last one (a good thing) and we seem to be stuck with something I like to call reality. Get used to it, it is here for a long, long time.

This link talks about our debt related problems. Indeed, I recommend the site as it is dedicated to how debt got us into this mess and it was started before most realized this issue.

http://suddendebt.blogspot.com/2009/06/where-are-profits-going.html

Many, unfortunately, still do not realize that we are well in over our heads. I have read some posts lately on our debt load when Social Security and Medicare/Medicaid are included and it is a doomsday scenario. Here is one to get you started:

http://www.nakedcapitalism.com/2009/06/means-of-deficit-reduction-medicare-and.html

Personally I think both Social Security and Medicare are going to be largely gone or seriously reduced by the time I reach retirement in 18 years or so. Indeed, I suspect you will have to be over 70 to get full Social Security benefits and Medicare expenditures will be limited to less expensive procedures. It is not what anyone wants (I am getting older and I have elderly parents, so I do not want it) but it is inevitable that, despite medical advances that can save lives, we will let older people die. The cost of extending their lives through expensive medical care for 5, 10 15, or 20 years will just be too expensive for society to withstand. I may eventually be a victim of this, but I think it is the right move. We need to first protect the interests of the young and vital and leave as a secondary consideration the interests of the old and fragile. Focus more on those starting their lives. Hard reality will be facing us in the future. For my kids, I hope we do the right thing. (And yes, some day they will read this post and tell me it is why they are not paying for some procedure I am begging them to do).

Disclosures: None.

DOW WOW!!

I posted this weekend on how well the DOW was doing. Apparently a bit premature. I did mention, however, that I was going to wait a tad before jumping into the pool. It could be a decade or a score (as in two score and four years ago) before I get in the pool. We will see.

The market down today? Big deal . . . a day, a week a month, a quarter, even a year does not the market make. I have stopped focusing on the market (at least today) and focus more on our overall economy for the long run. And folks, it ain't lookin' good. I don't know where this or any recovery is coming from. The headlines at Bloomberg are as follows:

•Asian Stocks Decline on New York Manufacturing Figures, Commodity Prices
•Fisher Says Fed Can't Counter `Flood' of Treasury Borrowing With Purchases
•Treasuries Climb as Fed's Fisher, Evans Downplay Monetization of Deficit
•U.S. Stocks Extend Global Slide; MSCI World Index Falls Most in Two Months
•`Monster' Madoff Deserves `No Hope,' Fraud Victims' Letters to Court Say
•Yosano Says Japan Government Has Absolute Trust in U.S. Treasuries, Dollar

They were worse earlier today and I still view them as overly optimistic. Let us take this one bite at a time.

Bite One, Too Much Optimism

The market tanking a bit might fix this but I read multiple articles today by Paul Krugman and the like on the dangers of the government trying to take us off stimulus too soon because everything seems so great. Here is one:

http://www.nakedcapitalism.com/2009/06/great-depression-ii-meme.html

Now I am one that never thought the stimulus would work but I am also one that thinks we are better off with it than without it, so the thought that we do not need it anymore is dangerous. We do not need to stop the stimulus too soon. We do need to focus it more properly.

Bite Two - Manufacturing

The Empire State index came in below expectations (not below mine but below others) and it is being blamed for today's market reaction. To me, this is blaming the messenger. Go figure.

http://www.newyorkfed.org/survey/empire/Empire2009/empiresurvey_20090615.html

Bite Three, Commercial RE Still Off the Cliff

I really need to say little here; it is what it is.

http://www.calculatedriskblog.com/2009/06/fitch-us-cmbs-delinquencies-past-2.html

Bite Four - Job Losses Likely Not to Peak Until 2014

http://www.sacbee.com/1098/story/1936416.html

Bite Five - It is the Debt Silly

I have a lot more bites but it is getting late so let me cut to the chase.
We are way - way - too over our heads in debt. We are swimming in it and we will for years to come. It will not fix itself overnight.

http://www.financialarmageddon.com/2009/06/ball-and-chain.html

Disclosures: None