Been A While

Here we are all the way past the first quarter of the year 2012 and I have not done a single post all year. And this one will not be large or intense. Watch the EU carefully. Greece was nothing. Portugal, likely the next to fall, is really nothing either. Spain, on the other hand, will be significant and it is coming. France is not so smarvy either. Couple their problems (you are talking youth unemployment rates of over 50%) with a slow down in China and - it is coming. I have given up in guessing when as can kicking abilities surprise me all the time, but IT IS COMING. Good luck with all that

Choosing Words Carefully

There are few folks on Earth that choose their words more carefully than the Fed. Indeed, interpreting their verbiage is virtually a science. So when I read that the Fed told GOP senators that it does not have the intention "or the authority" to bailout Europe, you have to wonder exactly what they mean by that. Seriously, hundreds of millions of support by the Fed over the past few years directly went to assist European financial institutions. Did they lack the "authority" for that? Is support for their financial institutions not support for Europe? Does the Fed not intend to support European financial institutions if things take a dive, which odds are good they will eventually do in some countries? And are the GOP Senators asking the right questions?

http://www.washingtonpost.com/business/markets/bernanke-to-discuss-european-financial-crisis-with-republican-senators/2011/12/14/gIQAoZbEuO_story.html

So what else can I say - China real estate prices in decline (as the government there has pushed to do), old news. The shine wearing off the recent EU pact for a cure with bond rates climbing again (new news but hardly unexpected). Politicians kissing babies and otherwise in NH to get votes, an age old game.

Disclosures: None

We Are the 75%!!

I attach a revisionist history from CNN.

http://finance.fortune.cnn.com/2011/12/08/blame-bankers-occupy/

The point they seek to make is that the big banks did no better than the poor in terms of government help and bailouts this past recession - seriously! They make truly stupid comments like, under the Dodd-Frank bill:

"Wall Street is now subject to the most massive new regulation to be imposed on it since the 1930s"

Now if "massive" is just a reference to the number of pages, they may be correct, but they imply it is massive in impact. The final bill was so watered down and gutted it was a waste of paper. And indeed, the financial institutions have already figured out ways around any financial impact from the bill. In the six months before Dodd-Frank, I paid virtually nothing in fees and charges to my bank for the privilege of having them hold my money pretty much interest free. In the past six months, over $150, mostly with new fees/service charges they inacted six months ago. They are making up for any losses just fine.

CNN argues that the big banks during the real estate/lending/derivative bubble were making the same they were making 15 years ago. Opps, I am sorry, not exactly what CNN said. It actually said:

"The industry has made no more money over the past five years than it was making 15 years ago, and in 2007 and 2008 it suffered the greatest losses in its history."

Now this is a bit tricky to decipher, but read it carefully. It implies that during the bubble the industry was not making any more than it did 15 years ago, but what it truly says is that over the past five years - which by definition includes the worst two in history - they still did about the same as they did 15 years ago. So you had years where the banks were gluttons preying off the gullible, off-set by the two worst years in history, to lead to results commensurate with historical earnings. Yep, the banks really paid the price for their foolish ways.

The other key point made by CNN is that the debt crises is a two-way street. You have the big banks offering no income verification loans and if you can fog a mirror you can get a loan, loans. And you have everyone who can fog a mirror getting a loan. Now let's set aside for a moment the relative financial sophistication of the big banks versus the mirror foggers, and focus on a lost fact in all this; these two groups aside there is a big group that fits neither camp. I say 75% in the title to this but it could easily be 10% higher or lower. Nonetheless, there is a majority of Americans who did not take out loans they could not afford, who had income they could prove and who are still making payments. We are not the 99% and I resent the "Occupy" crowd from lumping us in to their 99%.

The point here is that there were a lot of irresponsible folks taking loans they could not afford, many of whom not financially sophisticated enough to perhaps understand it but certainly many as well trying to game the system and play the real estate bubble, but there were also a host of big banks gaming that same bubble massively. And if CNN believes folks on the short end of the stick got relief similar to what the big banks got, they are truly smoking something good.

So both ends of the candle are to blame, but the majority of Americans sit in the middle and are paying the price. When it comes to what I am calling the "We are the 75%" neither the big banks nor the occupy crowd get to tout superiority in message. So stick that in your pipe and smoke it CNN (which I assume does not have tobacco in it.)

I think it is the 75% that need to start a revolution!

Disclosures: None.

Bubble On, Bubble Off, Bubble On, Bubble Off . . .

Let's talk China. It was not so long ago that they were increasing bank reserve requirement ratios to a high 21.5% to cool an overly hot real estate market, a/k/a bubble, fueled by the same easy lending that cooked us here in the U.S. Now the economy there, rosy by most countries' standards, is too slow to support its massive population, so last week it cut the reserve requirement to 21% and is fully expected to cut more in January. This, in addition to some coordinated central bank moves in Europe and the U.S., is credited for last week's rather incredible market advance.

But here is the problem - China was right about the bubble and right to cool it. Most global investors, as it turns out, predict a banking crisis in China in the next five years - go figure - and China is now doing steps to make it worse. Makes you kind of wonder why the markets responded positively. Well, they are a tad fixated on the short term and the need for China to overheat its economy to keep the world from falling into an economic black hole. They do not care what happens there in five years as long as it moves to keep things chugging along for the next few years. Just my take, of course. Hopefully by the time their bubble bursts the rest of the world will be back on its feet and able to keep is chugging. Any takers on this prospect?

http://www.bloomberg.com/news/2011-12-07/poll-investors-predict-china-bank-crisis.html

By the way, holding your breath about the EU? Good luck with that. Read the following and get a grip.

http://www.nytimes.com/2011/12/08/business/global/as-europes-bond-market-dries-up-traders-fear-for-jobs.html

http://www.reuters.com/article/2011/12/08/us-ratings-eu-idUSTRE7B62GQ20111208

http://www.bloomberg.com/news/2011-12-07/japanese-futures-little-changed-before-summit-australian-shares-decline.html

http://www.reuters.com/article/2011/12/07/us-citi-jobs-idUSTRE7B61P720111207

I could attach a lot more, but you get the picture. Seriously, the lipstick is off these PIIGS.

Disclosures: None.

That's Going to Leave a Bruise

Everything was sailing fine. Central banks circling the wagons, governments saying some smarter things, I got my closet cleaned out - everything was simply dandy. Then that old fuddy duddy S&P had to come out this evening with a credit rating watch (like expect a downgrade for some soon) on several EU countries, including France and Germany (okay, France has been suspect for a while but Germany?, seriously). I suspect the strong market gains we have seen of late are going to be shaved back a tad. Nothing too terrible, but a shave nonetheless - at least for now. Long term, I do not see a tad, but I am not about to try to predict how long the powers that be in EU can keep this ship afloat. They already surpassed my expectations by at least a year. But the darn thing will sink in time.

http://www.bbc.co.uk/news/business-16042346

Good to be Prepared

Here is a nice piece on what some companies are doing to prepare for a possible collapse of the Euro, or at least certain contries perhaps leaving the EU. Good to plan, but as certain companies are finding, there is not a lot they can do. Some stuff yes, but not a lot.

http://www.reuters.com/article/2011/11/30/us-euro-zone-contingency-idUSTRE7AS0H020111130?feedType=RSS&feedName=topNews&rpc=71&google_editors_picks=true

Also worth noting is Standard & Poors downgrading of a bunch of big banks. They announced this was coming, so no surprise, but tell that to the downgraded banks.

http://www.reuters.com/article/2011/11/30/sp-ratings-idUSN1E7AS23C20111130

Housing prices also dipped in September, after months of small increases. Go figure:

http://www.latimes.com/business/realestate/la-fi-home-prices-20111130,0,3352737.story?track=rss&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+latimes%2Fmostviewed+%28L.A.+Times+-+Most+Viewed+Stories%29

But hey, all is well, the Victoria's Secret Fashion show is on tonight:

http://popwatch.ew.com/2011/11/29/victorias-secret-fashion-show-reasons-to-watch-the-best-special-of-the-season/

"A New Plan"

I am linking an article from MSNBC on why stocks are up dramatically today, but I simply have to quote here part of the first line:

"U.S. stocks jumped Monday as optimism grew that European leaders would come up with a new plan to resolve the region's debt crisis . . ."

http://bottomline.msnbc.msn.com/_news/2011/11/28/9073132-stocks-surge-amid-euro-zone-consumer-hopes

If you live in a cave, you may have missed the fact that EU has been under a good bit of financial stress for at least three years. Even I predicted in January 2009 (yes - nearly three years ago) that the EU might lose a few members, and at that time I specifically mentioned Greece, so the problems in the EU are no recent development and have been obvious for a very long time, even to me. And if you follow the press, European leaders have been flying all over the place to meet, falling over each other to throw out words of confidence and doing all that they can to right the ship. Indeed, those leaders unable or unwilling to tote the EU line are now or soon to be gone. None should ever dare put the vote of their own citizens in the line ahead of EU unity or financial interests. That would be blasphemy.

The point here being that European leaders do not have any new plan. They have no new thoughts, no new agenda, no ground breaking approach. They have nothing more for us than they did last week, last month or last year. Nor can they. There are no great or even good options for the EU. They have a list of options and the best they can do is try to pick the least painful, but due to the EU being made up with a bunch of independent countries with independent agendas and priorities, the odds of them ending up with the least painful alternatives are relatively low. A betting man might wager that the EU's fate will simply be whatever happens if they cannot agree on something else to happen, i.e. default. They cannot and will not get their collective act together, but who cares. At the end of the day a collective decision by the EU is not likely to lead to a much better outcome than a failure to act. Sovereign default in some form is in the cards for a number of members, elevated bond rates are in the cards for all members and holding the EU together (perhaps with a few less countries) is going to be probably the best they can muster out of this long term.

Let me put it this way. Any plan that calls for austerity to work and lead to a substantive reduction in debt at the PIIGS so that they can pay their debts and not default is a plan that will take over a decade to complete, if they are lucky. Seriously 2020 and beyond. Do you really think the citizens of Germany, France or the PIIGS are willing to suffer that long? Heck, I am tired of this as is everyone else following the action. Seriously EU, stick a fork in it, those PIIGS are done!

Now the other part of the article (which by the way everyone is pointing at, not just MSNBC) is that heavy Black Friday spending is spurring retail stocks. Yes baby, the consumers are back in the game! Let me hear ya' shout out!!

I know the logic here. Consumers buy stuff. Stores do well and become optimistic. Stores order more goods to fill shelves and build inventories. Manufacturers build more goods and hire people to build the goods. More people have jobs and an income and can afford to buy stuff. Repeat cycle and everything is honky dory. But let me repeat the cycle with a bit of (my sense of) reality:

Heavily indebted consumers with underwater homes buy stuff, thereby increasing their debt burden. Stores that slashed prices dramatically to draw in customers think they did well and become optimistic. Stores order more goods to fill shelves and build inventories in the hopes consumers keep up the buying. Manufacturers build goods overseas in cheap labor countries and hire people overseas to build the goods. More people overseas have jobs and an income and can afford to buy stuff overseas. Repeat cycle and everything is where we started except consumers have more debt and stores have more idle inventory.

You judge - am I a pessimist or realist?