Solitude Blog

Below is a condensed version of a longer interview with Thomas Sowell. He is my favorite economist/commentator and is also the author of several books. I have them all in my library.

Financials lead us down and they just might do so again. Below is a chart and my predictions. Feel free to go back in the archives and read what I wrote back in March 2009. The DOW has held up a little better than these financials have the last few months, but that changed the past few days. It could be a sign of things to come. Back in March of 2009, I was talking about the overall market and the economy, but since financials lead us down before, this looks like the canary in the coal mine. Notice the last drop of the past few days right at the tail end of this chart. These financials could be opening act for the DOW correction. If only any of our leaders saw this coming as clearly as I did. Remember, they are geniuses (according to themselves and the media,) and we are just mere ignorant commoners. I hope you made money on it!

President Obama has complained for a year that “the banks aren’t lending.”

So, the morons in the White House have a brilliant plan to deal with it. They are going to slap the banks with a punitive tax amounting to $90-$100 billion. Since banks lend at a ratio of a minimum 10:1, this means that $1 trillion less will be lent to small business, corporations, and individuals.

If Obama thinks bank lending is bad now, wait til he removes $1 trillion of loan capital.

If the architects of the bailout (like Tim Geithner) wanted to prevent these bonuses and spur bank lending, they would have demanded that the TARP funds be used to improve their balance sheets, and if any profits were made from the investment of these funds, then those profits would be used to offset rising loan losses further strengthening the banks. The administration also would not be engaged in wealth destroying policies that have made entrepreneurs reluctant to get loans in the first place.

As it stands now, many banks are still suffering, but the profits they are earning are being paid out as bonuses and not being used to rebuild their balance sheets since they know the government will not let them fail since as in Citigroup’s case they are owned by the taxpayer.

Also, our investment in Citigroup is taking a beating today as Obama pushes this bank tax. So Mr. Taxpayer, you bought Citigroup and now Obama is causing that investment to go down in value! Wow! Is he available for financial consultations?

This is all one big ponzi scheme so the government can pay for the limitless bailout they have guaranteed Fannie and Freddie and the tens of billions we have put into GM.

One last thing, Warren Buffet who was a huge supporter of Obama’s pap has come out strongly against the bank tax. He of course owns shares in Wells Fargo and other financials. Hmmmmmm.

If every plumber in the USA disappeared tomorrow, what would happen? We would be in deep shit.

If every intellectual mainstream economist/columnist/thinker/pundit disappeared tomorrow, what would happen?

NOTHING.

The unemployment rate is steady at 10% after a -85,000 jobs number. Of course, there was also another HUGE drop in the labor force which artificially makes the unemployment rate look better than it really is. This has been the real story for the last several months and will continue to be the untold story of 2010.

The Birth/Death model is also a total farce. I will discuss this more in a future post.

For whatever reason, I have good instincts when it comes to the stock market, economy, and investments. I always look at the numbers, but even if the numbers are as good as can be, if my instincts tell me to stay away then that is what I will do.

I often watch TV and see an “expert” on the economy bombard the viewer with data points that back up whatever his or her forecast is. Lets take commercial real estate as an example. The trendy forecast lately seems to be that commercial real estate has bottomed or is in a nascent recovery already. I have seen this forecast made countless times over the last month or two. Had I been on the show when this “expert” gave this forecast I would have replied with this little story.

For the past 12 months I have been driving past a newly constructed strip mall. It looks very nice and has ZERO tenants. For the past 9 months, there has been a huge sign out front saying they will give you 12 months free rent if you sign a lease there. Today, there are ZERO tenants. They are literally giving away free retail space for a year and can’t get one tenant! This is a good neighborhood with good average income and a below average crime rate. Does this square with a commercial real estate recovery?

Inevitably, the “expert” would tell me that while there certainly are still some areas struggling, my ANECDOTE is just that and does not represent the overall commercial real estate market as the “data” clearly shows.

Let me tell ya something…If it ever comes down to my instincts and anecdotes vs. “expert” data or government (BLS) statistics; I’ll take my instincts and anecdotes EVERY SINGLE TIME.

Don’t be afraid to trust your instincts, especially when you have the track record to back it up.

(By the way, be on the lookout for the possibility of a LUDICROUS seasonal adjustment to the unemployment report upcoming. The government can and will make the jobless rate literally ANYTHING IT WANTS.)

I resolved a few years ago to literally never believe government statistics. After years of study, I have come to the conclusion that the government produced unemployment rate should almost always be 50% or so higher than what it is purported to be.

We now sit around 10%, meaning that it should be closer to around 15%. Other statistics minded people think it should be even higher than that, but hey I’m a nice guy. And no, I am not talking about the U6 number which includes underemployed people. The U6 number should also be 50% higher taking it from around 17% to around 25%.

The problem is, the government and their media allies have a virtual stranglehold on the data and information flow. The Internet is breaking their monopoly up, but it remains a tough nut to crack.

“Stranglehold” - Ted Nugent (via YouTube)

Begin the new year with Joe Satriani. The economy is bad, but at least we have good music.

Here is Senator Judd Gregg’s take. (from National Review Online-The Corner)

Gregg: Welcome to a New America   [Robert Costa]

American government changed last night. “We are now functioning under a parliamentary form of government,” says Sen. Judd Gregg (R., N.H.) in a conversation with NRO. “An ideological supermajority in Congress, along with a government run by community organizers, has taken over.”

“They’ve taken over the student-loan program, they’ve taken over the automobile system, and now they’re taking over the health-care system. There is no limit to their belief that people should be controlled by smart bureaucrats in Washington,” says Gregg. “They’re putting our country on a path that will reduce the quality of life for the next generation, undermine our nation’s wonderful exceptionalism, and Europeanize our economy to curb its growth.”

Harry Reid’s health-care bill “was purchased,” says Gregg. “Our system of checks and balances is gone. We now have a government that lurches with great speed even though our system is founded upon incremental change.” And don’t hope that the House stops the runaway train, he says. “I think the House is ideologically even further to the Left than the Senate. There are many people there who are committed to taking us down the road toward nationalization.”

“In the future, discretionary dollars won’t be able to be spent on college or a new house, but on this massive new burden for Americans,” says Gregg. “Eventually, at some point, the pressures on the private sector will tip the scales so that employers offering private insurance send people over to the health-care exchange. It’s all part of their ultimate goal to get a vast amount of people subsidized by the government.”

This is an “unsustainable course for our nation,” says Gregg. “We can’t sustain the debt we’re adding. Soon we’ll reach banana-republic status.”

I agree. Actually, it is worse.

The financial accounting that is going on right now at the White House, CBO, and Congress would land business executives in jail. This fraudulent accounting is exponentially worse than Enron.

The guys at Enron went to jail for far less than what is being committed on a daily basis in this Congress.

Today Barack Obama said we need to spend money to reduce the deficit.

We literally are living in the bizarro world where up is down. I am not even going to explain how stupid this is. If you don’t get it, then there is nothing I can say to you anyway. God help us.

The budget deficit for the first two months of the fiscal year is $292 billion according to reports released yesterday.

At this pace the total annual deficit will be $1.752 trillion for 2010. Hopefully they will slow down their binge spending, at least a little.

68 years ago today Pearl Harbor was attacked. It was the act that brought the USA into WW2. On a personal level, it brought my Grandfather Danny (who I am named after) into the war as well, where he fought in the pacific in the army infantry.

As the years tick by we lose more and more WW2 veterans. Before you know it, they will be gone. So, if you get a chance, thank one.

In my opinion, the employment data released today is ludicrous. I do not believe it. The BLS reports -11,000 and the unemployment rate dropping from 10.2 to 10. The ADP report shows -169,000. I now believe the BLS numbers are being cooked for political reasons. In the past I wrote that the BLS was removing too many people from the labor force in order to make the numbers look better and that has only continued. November’s real numbers are far closer to what ADP reported.

Here is the updated chart showing the market going up as unemployment also goes up, and stays up.

http://blog.american.com/?p=7572

Here is a very bearish case for the economy being made by Martin Hutchinson at prudentbear. You can read the whole piece here.

Here is the part where he lowers the boom…

At some point, probably before the end of 2010, the bubble will burst. The deflationary effect on the U.S. economy of $150 plus oil will overwhelm the modest forces of genuine economic expansion. The Treasury bond market will collapse, overwhelmed by the weight of deficit financing. Once again, the banking system will be in deep trouble. The industrial sector, beyond the largest and most liquid companies and the extractive industries, will in any case have remained in recession – it is notable that, in spite of the Fed’s frenzy of activity, bank lending has fallen $600 billion in the last year. Unemployment, which will probably enter the second downturn at around current levels, will spike further upwards. The dollar will probably not collapse, but only because it will have been declining inexorably in the intervening year, to give a euro value of $2 and a yen value of 60 to 65 yen to the dollar.

In the next downturn, the Fed will not be able to cut interest rates, because inflation will be spiraling, as in 1980. Instead it will need to raise them while dealing with a profound crisis in the bond markets. Capital in the U.S. will become still more difficult to come by, and unemployment will approach 15%. The U.S.’s only saving graces will be that the inflation will have prevented much further decline in the nominal prices of houses, while the decline in the dollar will have finally swung the payments deficit towards balance. U.S. real wages will be forced downwards by high unemployment, while banks’ relief on the home mortgage front will be balanced by a tsunami of collapsed credit card debt and other consumer debt.

2011 and 2012 will be very unpleasant years, as the Obama administration struggles to get closer to budget balance without pushing up taxes so far as to cause yet a third recession. Stock prices will be at or below their March 2009 lows, and will stay there even as earnings of export-oriented companies will be robust. (Conversely, retailers dealing in cheap imported goods, such as Wal-Mart, will be devastated.)  Wages will be generally declining relative to prices, although may show some growth in nominal terms as inflation will be considerable. Foreign goods and services will be inordinately expensive in dollar terms.

If he is right, and he certainly could be, then this is bad, real bad. Even if he is close, it is still incredibly bad. If true, it will also mean that Obama will be in deep trouble come 2012. Even the media might not be able to save him if this scenario plays out.

At this rate the DOW is going to be at 20,000! Sure, unemployment would be around 20%, but we would be really productive and efficient!

Do you realize that there has been a vote on a health care bill in the House of Representatives that will cost the country $2 Trillion that no one has read?

Does this make sense to you?

The media has lied to you about it, but oh well. The American people voted the Neo-Marxists in and now they are getting what they voted for, namely debt enslavement. 

So…Congratulations on enslaving your children to China! Years from now, I am sure they will thank you!

Here is a great chart that a blogger has been updating as the months pass. It illustrates what is happening vs what the White House predicted in light of their massive “stimulus” package.

You can see just how wrong the super geniuses in the White House have been. The problem is that this mistake cost us a trillion dollars in the failed stimulus bill alone.

Today the “official” unemployment rate has risen to 10.2%. It would be alot higher if it was not for the BLS using a smaller number for the labor force. They do this because so many have given up looking for jobs at all.

I was out last night and I met a charming woman. We had a very friendly conversation and as it turned out she makes her living as a market analyst. After speaking for a bit, she asked me how I would describe the economy and stock market during the last 18 months or so. This is what I told her.

A car is speeding at 60 MPH toward the edge of a cliff. George W. Bush is driving and Hank Paulson is in the passenger seat. As they get closer to the cliff, they rig the steering wheel and gas pedal to keep going, and they jump out of the speeding car and roll to safety. They dust themselves off and go about their day.

Barack Obama and Tim Geithner emerge from the backseat of the still speeding car. They contort their positions and get into the front seats via the sunroof. Thinking quickly, Obama  and Geithner remove the rope from the steering wheel and the brick from the gas pedal. They let out a big sigh of relief.

Not wanting to waste time, Obama shifts gears, and pushes the gas pedal to the floor and accelerates to 120 MPH, still heading toward the cliff.

Makes sense, doesn’t it? She thought so too.