T.G.I.F. ???

To listen to the mainstream media trying to spin appalling numbers on the economy into signs of recovery is amusing. It's almost as if the nation views the current crisis like one of those long, terrible work weeks that has finally come to an end. T.G.I.F - "Thank God It's Friday" is in the air, as news stories cite university polls claiming consumer "confidence" ticked up, and other stores trumpet a slowdown in jobless claims...This while GM heads in to Bankruptcy June 1st, Chrysler is all but dead, interest rates spiked up on mortgages and all but froze the financing pipeline yesterday, foreclosures continue to increase at a breakneck pace, and statistics show that 25% of all prime, 45% of all Alt-A, 50% of all Subprime and an alarming 73% of all Option ARM loans are now underwater. Somehow the media managed to take those numbers and come up with a story that "12% of homes were under water." How did they get 12% by averaging 25, 45, 50 and 73? Simple: they added in all homes owned free and clear. They talked about homes instead of homes with mortgages. It's duplicity at best, deception at worst. There was even excitement about the sad fact that the US GDP shrunk by -5.7% instead of -6.3%. TGIF! Weekend at last. Market rally! Party time!

I think not.

A slowdown in the downward spiral for job loss, housing depreciation, foreclosures or any other marker is not a recovery. The massive effort of the Treasury and Fed to backstop the declines in finance, housing, auto sales and other areas may have created the illusion of stability being restored, like a pilot who manages to take a falling plane out of a spin--yet the nose is still pointed decidedly down. Let's face it--any real recovery will depend on real production and growth. A recovery is job gain each month, not job loss. A recovery does not see record numbers of mortgages in delinquency and default. A recovery is not diminishing housing sales, construction and sluggish spending all across the retail sector. The consumer confidence number is just a mood. Any real recovery will depend heavily on significant new consumer spending, and that is just not happening--not with the debt load people are carrying, credit all but gone, and unemployment that will continue to climb for some time. And where will the new jobs come from? Wal-Mart can only hire so many new retiring Boomers for door greeting positions.

The stock market spring rally is just a trader's game, nothing more. It is in no way reflective of growing profitability in the companies issuing stocks. Consider GM's depressing profit outlook and the fact that its stock is now selling at about 8o cents a share. Meanwhile, oil is up 30% to near $66, and the Bond markets have been very jittery. I hate to sound so negative, but a wise man once told me: "Statistics are like bathing suits--they reveal just enough to be interesting, while hiding that which is essential." And the essential truth behind the numbers is that we are far from any sign of a real recovery. We can yell TGIF and look for some relief in this brief weekend of our stabilizing fall, but come Monday morning it's back to reality.

First Light

Astronomers have a term they use for all the excitement and drama that is held in the moment they first expose a new telescope to the distant light of the universe. With the successful refit of the Hubble Space Telescope, we have, in effect, something brand new built upon the old, and a promise that new light from distant stars and galaxies will be seen with new and stunning clarity.

Our lives are like that old telescope, and we have galleries of images stored in our heads and hearts, the light of memory still shining brightly within when we summon it. All of us have experienced joy, success, love, and also failure, loss and sorrow. But to my mind the key to happiness is in finding something new in your life each day to “continue the mission.” Times of transition and change are replete with this energy of exploration and discovery—the same excitement that accompanies first light.

Moving to a new town, meeting someone new, reaching out to the possibility of relationship and love again are all “first light” experiences, a curious mixture of anxiety, hope, anticipation, and expectation. Life has given me all these challenges in the last year, and it takes courage to open yourself to this energy again, particularly if you have suffered a recent loss or setback, as so many have in this flagging economy. Yet consider that if you can find a way to discover the “yet more” in each day of your life, to see the first light of the day as a harbinger of all possibility, you will be in the perfect frame of mind to find real happiness.

We’ve been through a great deal in the last year. People have lost homes, businesses, jobs, marriages, loves. They have packed up their hopes and memories in cardboard boxes and shipped them UPS to an uncertain future. They have taken to the highway, heading east or west, with the thrum of anxiety in their gut, and a flower bud of hope and courage in their heart. Hard times test us all, but it is how we find the courage to open ourselves to the possibility of new life after the harsh winter that we are truly defined. A wise man once said: ‘courage is not the towering oak that sees storms come and go, it is the fragile blossom that opens in the snow.’

Sometimes the greatest courage is saying “yes” to another, even after the sorrow of loss has wounded you deeply. But without that courage to see first light in another’s eyes, life itself is lost. And so on this memorial day, as we commemorate the courage of so many who have fought and died to preserve the values we hold dear, let us also celebrate courage in another way—by finding in these times of dislocation and distress a process of rebirth and discovery, and a glimmering of “first light.” Believe in a future where every good thing you have hoped and reached for in life is still possible. Say “yes” to someone. Break the silence in the grocery store line with a smile and a kind word. And if you are fortunate to have found a new place in this world, or a new person where you shared the joy of first light, as I have recently, then believe in all that might become.

We have to do this on a personal level if we are ever to do it as a community, a city, a state, or a nation. Yes, the problems we face now are daunting, and they will present us with challenges we have not experienced in this nation for many generations. But take hold of someone’s hand in the days ahead. Pull together. See that first light in their eye and, by all means, believe in the promise it holds. This is real courage. This is the seed of all love.

Banker's Blues

The credit card reform bill passed the Senate yesterday and is headed to President Obama's desk soon for signing. The hitch, as I reported earlier when this was in the House, is that it won't take effect for 9 months. Nothing like giving the crooks a good lead before you go after them, eh?

Yet the "spin" on this story, tucked somewhere near the lead of most news on it, was that "the bill may reduce credit." The line is that since banks can't hang you with interest rates that only the mafia once charged, slam you with rate hikes applicable to the entire card balance, (effectively increasing the price on everything you have charged,) hike rates at their whim, delay your payment processing and then slap on a late fee, skewer you with over limit fees instead of declining a charge, apply your monthly payment only to the lowest interest balance first, and do a whole host of other nasty tricks, now they can no longer "manage risk."

Manage risk? These are the companies who over-leveraged themselves at 40 or 50 to 1 and loaded up their level 3 asset columns with metric tons of bad assets that they now refuse to declare or value by current market conditions. Manage risk? These are the geniuses who drove their own organizations to insolvency with outrageous derivatives and swaps that went bad. They lost, in true Carl Sagan fashion "billions and billions" of dollars with their reckless and irresponsible lending and securities schemes. But now, after legions of banking industry attorneys failed to lobby away this bill, the banks claim "it will reduce credit." Let me correct that right now--the BANKS will reduce credit, not the bill.

You see, after all their failed gambling games, they still want to pretend the real culprit behind the economic mess they created is YOU. They shake their heads solemnly, wag their fingers and now, since they can no longer slam you with all these unfair and usurious credit card practices, they just won't extend credit. In a recent post I showed how, in spite of $12.5 trillion in free taxpayer money, Fed programs, and other "facilities" intended to free up credit, the banks have consistently reduced lending month by month. Now they promise that fewer will receive those nifty credit card offers and, just for spite, say goodbye to bonus bucks, frequent flyer miles and other "perks." Perhaps it's their way of saying thanks for all the fuss we made about John Thain's $48,000 office carpeting, or his $5000 waste basket.

Yes, my dear reader--YOU are the culprit in their eyes. They drove themselves to insolvency, received truckloads of public money in bailouts, but by god, they're going to keep a close eye on all the slaggerds out there who may be three days late on a $36. credit card payment. And they have the unmitigated gaul to brand us all with their little FICO score to measure how well we abide by their unfair credit game rules.

The banks got what has long been coming to them in this legislation. We had to wait for the Democrats to get control for this reform bill to happen, and it would have never happened in a Republican controlled congress. Yet the Dems, for all their good intentions, still exhibit a spineless quality that runs through the middle of most of their get tough legislation. The 9 month grace period was a bone they tossed to the Boyz who fund their re-election coffers.

So unfortunately, while banks can raise your interest at the drop of a hat, they get nine long months now before any of these reform measures take effect. That means they'll be kicking the big credit card squeeze into overdrive, cutting credit lines, hiking interest rates and doing all the other things--making hay while the sun still shines. And then...why they will have to mail you your bill in a timely manner now, and notify you of a rate hike 60 days before it happens, and tell you why they raise your interest--heaven forbid! And if you pay promptly for 6 months after a rate hike , they have to lower your interest rate again. (Gawd!!!) And they can no longer target your monthly payment to the high interest rate balance to cap and protect amounts owed at lower interest rates. (Yikes!)

What's a banker to do now? They'll have to find another way to poke and prod and punish their borrowers. And if the lead line in the spin on this story is any indication, they just wont extend credit now. Like an angry child, they will simply take their football and go home. Earth to CEO--count the free taxpayer dollars sitting on your books at 0% interest. And realize also that the money in your vault doesn't belong to you at all. We walked in and handed it to you for safekeeping and convenience. It's ours. Kapish?

The Amazing Loan Financing

It's called "TALF," and it really stands for the 'Term Asset-backed Loan Facility' program Geithner and the Fed launched in March, committing $200 billion of your taxpayer dollars. (Soon to expand up to $1 trillion). But wow, is it ever an amazing loan finance program! A private "investor" (some individual or more likely a corporation with big bucks, can put down 6% and Uncle Sam will pony up the remaining 94% in a non-recourse loan. That means if, for any reason, they sour on the deal they can walk away and will not be held responsible for paying back that 96%. So theoretically, this investor could put down $600k, receive a check from the government for a cool ten million, and spend it all with no obligation to repay it. If he walks away all he loses is the initial $600k down, but he got ten million for that, so sign me up today!

It gets better. These loans are in the form of a security that is collateralized by student loan portfolios, credit card accounts, and groups of auto loans. They are re-starting the securities game that destroyed the housing market! In an effort to get credit flowing again, Geithner desperately wants to revive securities trading in this area. Bear in mind that, as the name implies, these 'securities' are really just ways for banks and investors to avoid risk--like all the sub-prime loans that were bundled into securities and traded away to fat cats in China, (who are now just a tad peeved, I might add). It's a way of passing risk of default in the loans underlying the security on to the next chump, so understandably the Boyz created a big trading game on these things, and then dreamed up insurance policies called Credit Default Swaps to further isolate themselves from risk. Think AIG here--that's where billions of taxpayer dollars went recently, so AIG could pay off this swap insurance on securities that went bad. The game was so fun that the Boyz started taking out bets on which securities would actually go bad, cute little gentlemen's agreements called "Derivatives." There are mountains of these derivatives bets that were made against housing securities stacked up in the vaults of Citigroup, BofA, and JP Morgan/Chase--all bad bets that are now IOUs to some "counterparty" out there in the shadow world of financing.

So an investor plunks down $600k, gets a "security" valued at $10 million AND a guarantee from Uncle Sam that the value will not depreciate if the underlying loans go bad. That's what killed the housing market--an accounting rule called "mark to market." It basically said that if Joe Shmoe walked away from his home, defaulting on the loan, and the house depreciated to 50% of its original value, then the value of the security relying on that house for collateral would also be reduced. But not this time. The Amazing Loan Financing program says your 94% free security for $10 million never depreciates. Soooo...That makes it a government backed miracle, and something that will be extremely easy to sell or trade to another fat cat "investor." Put your $600k down, buy a security, sell it to another fat cat for $10 million and smile. Presto! The securities trading tables are up and running again!

Basically what TALF does is remove virtually all risk to investors so they will start buying, selling and trading securities again, and re-issuing swaps and derivatives and all the rest. It's been so lonely around the craps and roulette tables these last six months. It used to be that cops would seek out these gambling houses and bust them up. Now the Feds are basically setting up new gaming sites all over town, and begging the gangsters to come back. The Boyz can buy a security, sell it off to another "investor" keep the profits, and they have no risk. Who gets the risk? You do. If anything defaults and goes bad, Uncle Sam picks up the tab using taxpayer funds, social security funds, or just by ramping up the printing press and printing more greenbacks.

Do you see the basic premise underlying the TALF program? Do you smell the steaming pile of god awful truth sitting there? Unless the Boyz get their money, guaranteed, and in truck loads, they won't play the game. If they won't play the game, then you don't get an auto loan, and GM goes down. It's that simple. The wealthy are so powerful now that we have to pay them off in the equivalent of 94% tribute. Nothing happens for you and me unless the Rich Dads are taken care of first.

Now consider this--car buyers spent about $220 billion last year to buy new autos in the US. For the $1 trillion Uncle Sam is setting aside in this TALF program, the government could have picked up the tab for all the cars bought in the US for the next five years instead of giving it away to wealthy Rich Dads. (They could have also put a condition that it would only be for US made cars.) Meanwhile, Chrysler and GM go into bankruptcy, and you keep wondering how long that '91 Honda will keep running.

Angels & Demons

As the shadowy 'Bildeberg Group' was meeting in Greece this weekend to supposedly decide the fate of the known universe and the interest rate on your maxed out credit cards, I thought it only fitting to go see the new Dan Brown conspiracy theory flick. This one features a master plot to assassinate the pope, kidnap the four cardinals likely to replace him, brand them with hot Illuminati iron, and then destroy the Catholic Church with antimatter. Not even Alex Jones could have dreamed up this plot, folks.

But you have to have been born and raised a Catholic to truly enjoy the full pompous, ritual threaded majesty of this film. I remember kneeling in those old Latin masses listening to the drone of sonorous chanting and choking on incense back in the days before the folk guitar replaced the organ as God's preferred means of getting us to sing. Ah, those were the days! The nuns had a saying back then: "Give them to us for eight years and we have them for life!" Thankfully, I managed to escape their influence and ended up a Zen-Taoist. Go Figure. But I am eternally grateful to Sr. Stacy Stigmata, and all the rest, for forcing me to diagram sentences and memorize 20 new vocabulary words each week. I can read and write English! (Though I wish they had taught me how to type).

This book was actually a prelude to Brown's blockbuster 'Da Vinci Code' and it has all the hallmarks of his slick writing style--3 to 5 page scenes, each threaded with a clever plot hook to keep you turning pages. If you read the book, all the talk about the preferiti and the Camerlengo didn't phase you one bit. But if you didn't read the novel, you were probably wondering why these guys couldn't speak a language you could understand, and were just glad that the ancient masters left their clues, hidden for centuries in the Vatican Archives, in the King's English. Basically, the movie is a grand scavenger hunt, following the fabled "Path of Illumination" through Rome where every other statue in the place is pointing a finger, toe or iron arrow in the direction you are supposed to go next. It was lots of fun. I would have watched it just for the grand tour of Rome on the big screen, and all the scenes inside the chapels and churches, where a demonic assassin is executing one of the four kidnapped cardinals each hour before the antimatter is set to explode and vaporize Vatican City, and all the church leaders at conclave, at midnight.

There...I've gone and spoiled the whole film for you. But not really. The fun is in the hectic, fast paced chase through Rome, as the hero Robert Langdon solves one cryptic riddle after another. I half way expected Gollum to pop into the middle of this thing, claim the riddles were just not fair, ask Langdon what he had in his pocketses, and demand his ring. Oh... that was another film.

The bottom line? Three scapulars out of five for this one. It was better than the 'Da Vinci Code' not nearly as irreverent as this review, and the cinematic views of Rome were lovely. Enjoy it! And when you are finished, say two 'Our Fathers,' three' Hail Marys' and get the hell out. (Oops... did I say 'hell?' Make that five 'Our fathers.' And if you are into fun stuff like self flagellation, have at it!)

Deflation

I've been saying for some time that the primary force on the sagging economy is, and has been, deflation--the contraction of credit and money in circulation. It's effect is to force a general lowering of prices, and today we hear that prices fell 0.7% last month, the first time we have seen such numbers since Ike was in office. Deflation is a two edged sword. As one side slashes prices to try and stimulate new sales, it gives your dollar more buying power and benefits savers. Indirectly, it even acts as a wage increase. But the other side is that all dollars you owe in debt are equally heavy, and making a monthly payment on a debt therefore takes proportionally more and more of your spending power. Stated simply: in times of deflation cash is king, and debt is your worst enemy. And the reason why the beneficial effects of deflation will not help us now is that we are mired in debt.

There is simply too much debt in the system, at every level, from personal finances, to family budgets, to cities, states, and finally the government itself. We have all been living a lifestyle that relied on huge credit flows to sustain purchasing and, to my mind, credit is simply a debt that eventually has to be paid back if you ever use it.

If you look honestly at the economy now, you will see that very few sectors show any promise of growth, and most are relying on the government for whatever vitality they now have. The financial industry received massive government support in the last 6 months, and sales of homes, cars, or any other big ticket item rely increasingly on government guarantees or Fed programs to underwrite the loan. Cities and states are now begging for government bailout funds, and looking for ways to raise taxes. The bond market, a primary way in which Uncle Sam raises cash, is being propped up by a $300 billion bond purchase program by the Fed! The Chinese and Japanese are seeing the light and cutting back on the underwriting of U.S. debt, and this is a bad omen.

The question is this--how long can the government continue to guarantee an economy that continues to decline under the enormous pressure of deflation and debt? And how can a recovery begin until that debt is purged and assets begin to appreciate in value again? What we are seeing in that little price decline of 0.7% is an event that has not happened in several generations--deflation. It's here, it's real, and it can continue for years. Credit is gone, customers thin out, businesses lay off workers and cut prices all through the system to try and boost sales, but the debt eating away at consumer buying power prevents them from lining up at the blue light special, and so the cycle repeats.

Yet like any force in nature, there is an equal and opposite reaction out there that will eventually halt and reverse deflation, an even more fearsome force--rampant inflation. The Fed has, in fact, been trying to re-inflate the economy and restore credit flows for months, albeit unsuccessfully. It's efforts to restore credit have failed largely because the banks are cutting back lending in this environment, no matter how many bailout bucks they are given. They are carrying massive and growing debt and the bailout money simply vanishes into that black hole.

Total bank lending declined $50.3 billion in November of 2008, dropped another $18.2 billion in December, then plummeted $60 billion in January of 2009. After holding the line in February, it continued to fall, with banks lending $43.2 billion less in March, and another $40.6 billion less in April. So all the Fed effort to restimulate lending and credit has come to naught. The government commited $700 billion in TARP funds to the banks and another $182 billion was channeled to them through AIG, the Fed set up loan backstop guarantee programs totalling $6.2 trillion, The new stimulus bill promised $1.1 trillion, another $745 billion was commited in housing initiatives--the result? Since October of 2008, Banks have cut lending by $210 billion. Clearly you can drag a horse to water, but you can't make him drink. In this case the government can't make banks lend, nor can it force debt burdened consumers to borrow. So with the private sector in this debt/deflation standoff, the government is underwriting just about everything these days.

Where does the government get all these trillions when it is now running on a massive deficit itself? Uncle Sam cannot get the money he needs through taxes, and bond sales are no longer working their magic. What then? Bernanke's answer is the printing press--monetizing the enormous debt as needed to keep the system running by simply printing more dollars. The Fed balance sheet has balooned in recent months. His great gamble is that he can somehow then manage the orderly flow of all these new dollars into the economy. If he pulls it off he will be named "Man of the Century," but if he loses control we get the oncoming train of runaway inflation at the end of the deflation tunnel we are in now, and then even the spendthrift savers in the economy go down. We may have to live through both forces, deflation and then inflation, before things find a new balance--years from now, not a few months or fiscal quarters.

Scientists Await Gibbs Report

Claim On Origin of Swine Flu Virus Disputed

Biologist Adrian Gibbs, developer of the anti-viral drug Tamiflu, shocked the scientific community last week with an assertion the new H1N1 ("swine") flu virus may have resulted from a lab accident. Canadian Press reported: "After hearing of Gibbs' theory, the WHO scrambled to draw in researchers from leading human and animal influenza laboratories around the world in a bid to determine if the claim has merit and if it does, whether that changes the advice WHO gives member countries on the threat posed by the new H1N1 swine flu virus."

One of the things that bothered Gibbs was the apparent rapid rate of mutation in the virus. "Well, the data looks to me like that. And that should be checked," said Gibbs. But other researchers working on the virus say they do not see this evidence of rapid mutation. Again from Canadian Press: "We don't see evidence that there's accelerated evolution indicating that there would have been a new host that the virus was introduced into, be it eggs or any other host," said Dr. Nancy Cox, head of the influenza division at the U.S. Centers for Disease Control in Atlanta."

Other scientists felt that Gibbs claim was irresponsible in that it should have first been published in a technical journal for peer review before being made public. Gibbs suggestion, that the virus was possibly spawned in lab eggs used to cultivate vaccines, was obviously disturbing, for it introduces the element of human error into the recent outbreak.

Earlier speculation on the origin of the virus centered on "Patient Zero," a young Mexican boy who lived near a pork slaughterhouse that was cited for dumping waste products into nearby water sources. Smithfield, an American owned corporation, denied its activities had anything to do with the outbreak in Mexico. It would be difficult to see how this earlier story on the origin of the virus would relate to the assertions made by Gibbs. meanwhile, Ansa of Italy reported today that a leading virologist, Itaria Capua, has stated: "in a preliminary review (with WHO) we came to the conclusion, based on different points of view, that there was insufficient evidence to conclude that the virus was produced in a laboratory. This theory remains an hypothesis along with many others.''

In yet a stronger statement, Medical News Today reported: "The World Health Organization (WHO) have refuted the suggestion made by Australian virologist Adrian Gibbs that the new A/H1N1 influenza virus that has infected over 6,000 people around the world was accidentally made in a lab and said that the evidence shows it is a naturally occurring virus." (Yet Gibbs has not yet formally published his report).

So the jury remains out on the origin of this virus, but the odds on favorite is that it originated naturally. It will be interesting to see the actual Gibbs report, and review peer comments when it is published. I will follow up here as soon as the data is available.

What Recovery?

Time Magazine asks the question: If consumers don't kick-start the economy, what will? It's a fair question, coming as it did with the news that April retail sales ticked down again, and unemployment data turned in its 15th consecutive month of blockbuster job losses. As I tried to point out in my article "The Little Engine That Can't" the consumer is tapped out. I asserted long ago that the US economy was not running on real earned dollars, but on borrowed money and credit--"equity extraction." Take a look at this chart from Calculated Risk that I saw in an article sent to me by a reader. It clearly shows just how much of the spending we did in recent years (the blue) came from all those bankers in the hall competing for our business. Our GDP without home equity extraction is represented in red. See what I mean? Those granite counter tops were good money, but guess what...

The equity is gone folks. It continues to melt away, week after week. The housing decline still has a ways to go, and just how eager will banks be to lend as it continues to decline, now that there is no collateral out there worth anything to prop up a loan? Don't look for all these gravely injured banks to start any real robust lending without a healthy, housing market.

For decades bank lending has rested on three pillars, the "three Cs of lending," which were Character, Credit, and Collateral. (Lately the fourth C has come to predominate, "Crime," but there I go again picking on the bankers.) The first was tossed out the window when things like Option ARMs and other trick mortgages were dreamed up by enterprising lenders. Since banks figured out how to avoid risk in a security sale, character hasn't counted for much. If you had a pulse you could get a loan on a house during the boom. And we have all seen just how little credit mattered as well given the sub-prime loan sharking that went on in recent years. But that third C, collateral, is something banks still look at very closely. It is the erosion in the value of this collateral--real estate--that has so burdened their balance sheets with bad debt. If housing values still have double digit percentage point of declines ahead, why would banks lend at any level sufficient to really restart our economy, particularly given the massive debt they already carry? Without that lending, the consumer isn't going to scrape together the cash to start the old shopping craze again. Real unemployment is reaching staggering levels now, the U-6 figure well over 15% and rising. So where is our so called recovery coming from?

Time looks at government spending, with all that stimulus money and shows that only 6% of the $787 billion allocated has been spent so far. What about private investment? Sorry, it fell an alarming 38% in the first quarter of 2009. So government and private investors won't stand in for the Little Engine That Can't. I'll agree with Time when they conclude: "it's hard to see how the U.S. can put together a strong, sustainable recovery," at least in the next few years. I'm inclined to think that we still have a lot of pain ahead before things start to really recover in new industries that survive the fall.

About That Bug...

Noted researcher Adrian Gibbs, the developer of Tamiflu, has claimed the Swine Flu accidentally evolved in a batch of eggs being used to produce vaccines! He asserts it escaped from the lab by accident, which is an unsettling thought to be sure. Also, Gibbs says the virus appears to be mutating three times faster than similar bugs, an ominous thought if it mutates to a more severe form. It is interesting that WHO is now calling the germ the "Novel/H1N1" strain, adding weight to the assertion that it was synthetically created. Yet the rapid mutation rate is what is most frightening about this virus. It is not something that tends to occur naturally in any other virus of this class. Clearly, this is a unique creature, and may indeed have originated in a bio-lab.

Milfuegos put up a long post concerning the history of H1N1 that makes for an interesting read here. Again, the scariest thing in this research is that they deliberately went out looking for corpses to harvest samples of the 1918 Spanish flu! The arrogance of 'mankind' knows no bounds. The virus is the most ancient life form on the planet, and one we have only just barely come to understand. The thought that we can blithely tinker with these virulent germs in a lab is madness.

On another note, a Canadian researcher was stopped at a North Dakota border check and found to be carrying virus samples into the US! He was taken into custody for attempting to smuggle 22 vials stolen from Canada's National Microbiology Lab. And there was another story last week about flu virus "inadvertantly" shipped to European labs. This is crazy, folks. We are playing with fire when we tamper with these germs. It's bad enough that things like Ebola, HIV, and killer flu exist in nature, but to deliberately engineer new strains like this is lunacy. The rapid spread of the 'Swine Flu' in this latest outbreak should be a sobering wake up call for the world's health organizations. It moved from ground zero in Mexico to nations all across the globe in a matter of two weeks time. Now the germ is out there, mutating at rates never seen before in a flu virus, and that is a frightening thought considering that the flu is perhaps more dangerous to us than a monster bug like ebola.

Narrow Ledge

I spent some time in the San Francisco Bay Area over the weekend, passing through the heart of the city, over the Golden Gate and into Marin County with my camera. It was the first time I had ever been to Sausalito, a posh tourist haven paradise on the north bay that is loaded with charm. It was a beautiful, balmy day and the streets were so crowded with people that you could not walk five steps without maneuvering to avoid someone. Restaurants had their valets out roping in cars for the $8 unlimited parking. A small flotilla of sail boats cruised in Sausalito Bay. In short, it was the perfect image of the California coast, and I remarked to my friend that it would take years to wear down the conspicuous wealth in an area like this. No “Great Recession” here, that’s for sure.

Yet elsewhere the nation contemplated the present state of the economy. With the blooming of spring, the freefall we have experienced since last September has slowed, but I note that whenever the hero falls off a cliff in a movie he always lands on a narrow ledge, avoiding the full plunging descent into the abyss. Is that where we are now? The market has rallied, statistics gurus are claiming unemployment is slowing, people are calling the bottom of the housing market and whispering about a recovery. I’m sorry to say I can’t agree with any of it, in spite of the delicious lunch I had in an outdoor patio in Sausalito last Saturday.

To say that things are improving when we go from 656,000 jobs lost in March to “only” 611,000 jobs lost in April is a bit of a stretch. Two of our big three auto makers are on the skids, ready to shut down some 1800 dealerships. The big teacher layoffs haven’t even hit the pink slip stage yet. Rumor has it California will lose over 50,000 teacher jobs soon as contracts expire in June. While spending may have ticked up a nudge, with Easter and Mother’s Day getting people out in the nice spring weather, the unemployment numbers continue to tell a story of more trouble ahead. People are getting behind in bills. Credit card lenders are experiencing the enormous write offs I predicted years ago, with default rates on a track to hit 20% to 25%. Advanta just issued a notice that it will close one million customer credit card accounts and cease lending June 10. This will go on until we begin to see real new job creation, and that could be years away.

In short, the narrow ledge we are standing on now may have interrupted our fall, but it is crumbling away, and the tattered vine we are holding to pull ourselves out of this mess consists of fudged statistics, unfounded assertions of “green shoots” and imminent recovery, and a strange notion that just because we aren’t falling as fast as we were before, things are getting better. They aren’t—at least not yet. There is still too much distress in the credit markets, too much unemployment, and the grueling pressure on assets as housing values continue to erode. As for care sales, the market is flat out dead. The pain in commercial real estate has yet to fully manifest, and this is a loan market segment that dwarfs the “sub-prime” segment that was thought to trigger the housing bust. Don’t look for a bottom just yet, and please ignore the stock market, long divorced from the reality of life on Main Street. The spring rally has run its course and we should see the bears back in short order. For an excellent analysis of the forces still eroding our economy, read this article by Martin Weiss.

But hey—it’s nice in Sausalito!

Holy Ground

“All we do our whole lives is go from one little piece of Holy Ground to the next.”
Seymour: An Introduction - J.D. Salinger

A friend called a few days ago with a bit of bad news. He was moving out of his home, into the warehouse he used at his business, a small manufacturing company that is just one of so many struggling to survive in this depressed economy. His wife, the sweetheart he had met as a young man in college, had left the previous day, driving east to Florida where a job waited for her in Miami. The ink was barely dry on the divorce papers, and he had just finished an exhausting two days packing up the last of all the “stuff” that had accumulated over the years in their home, an agonizing task, as everything seemed to be connected to another time, another place, the pastures, glens and hollows of a long marriage—all holy ground he had walked in years past. I was friends with them both, so it is always hard when something like this happens. It was the final end to a long partnership, in both love and business, for they worked together as a team for decades. Together, when they cooperated, they seemed to spin out magic. She was the dynamic public face of the company, handling sales calls and writing orders with large companies like Disney, Target, and Wal-Mart. He was the quiet, steady producer, managing the daily operations, staff, design and manufacturing process for the products they created together.

They were like wood and fire, but there came a time when the fire began to waver, grew weary, and looked for other work, leaving the wood to smolder on and eventually grow cold. Once they stopped working together as a team, the dynamic they created with their unique talents and temperaments came to an end. I watched the company slowly shrink and die, from 8 employees, to 6, to 4, then 2 and finally it was just one remaining, an artist/ receptionist holding forth in the front office while my friend worked all the manufacturing alone in the warehouse. He had lost all the big accounts, but had managed to transition to an all web based business, squeaking by each year like so many others. Now the marriage had finally ended, and he has become the master of all that remains of those years. The boxes clutter up the warehouse where he sits now, holding forth on this last piece of holy ground as he continues to face the hardship of a small business owner trying to survive the worst economic decline of our lives.

Having just made a life migration of my own, with a sortie to North Carolina in search of love and fortune, I had returned a year ago to my beloved California, like a knight out seeking the grail, coming back to Camelot, the quest having failed and the kingdom all in disarray. It is so hard, in these times of dislocation and transition, to perceive the sanctity of the place where you end up after a long chapter of your life has concluded. But I knew in my heart of hearts that, even with dreams lost, love unfulfilled, the future uncertain, and so much fear and suffering in the land, this was holy ground as well. So I sent that opening quote to my friend to offer a small strand of hope, along with the affirmation that you get a second chance in life, in all things—in love, work, and anything you do. As long as you are willing to live, and can find a way to believe in yourself, there is always “yet more.”

I thought, also, of all the people in the country who may find themselves in distress now, with lost homes, lost jobs, failing businesses, their retirement nest egg melting away, their dreams lost, packed up in boxes now and sealed with tape, consigned to a moving van, or to UPS, and heading out to some other piece of holy ground to start over. And I wondered for a time if love would ever win through in this world, and why people grow apart and turn away from one another, or fail to fight more dearly to preserve what might have been possible between them. Yet, being ‘all growed up now,’ I knew also that the line by “Badly Drawn Boy” was so true. In the song “Promises” he laments: “Sometimes you just have to walk away…”

So here’s to all the lonely, discarded, unhappy people out there, struggling on in this time of so much uncertainty and pain. Look down at your feet. You are standing on holy ground. This is your time, your place, wherever you are, whether it be nestled among the boxes of your warehouse, or out on a turnpike somewhere east of Memphis, moving on. If you can find the sanctity of this moment, in spite of all you have lost and left behind, you will have your fist around the nub and soul of life itself, and you’re going to be just fine. Think to yourself that you aren’t just trying to get somewhere now, to a time or place when things are all better and you can finally rest at ease. This is that time. Because if you can’t find it here and now, you won’t find it anywhere. It is from this ground that your new life will grow, that the new America itself will be born. It may not be anything at all like the dreams you had. The faces and places will all be different, but it will be yours, ours, the new nation we create from the hardship and trial of these years… Holy ground, hallowed ground, and we’re all standing on it this very moment, here and now.

Mind Boggling

Every day search engines tabulate the top searches to get a line on emerging trends and public interests. With all the earth shattering news we've been subjected to the last 6 months, I thought it might be interesting to take a look at what's on people's minds. So I checked out top 10 search reports for a few days...What did I find? Was it swine flu, Chrysler's demise, the machinations of the banking scandal? Silly me. The H1N1 virus is in the number 74 spot today on Google, far behind more weighty and serious matters like the "Janet Jackson wardrobe malfunction," (#3), or beach volleyball, body moisturizer and Star Wars, all appearing in the top 20 for Google. A look at the top 10 each day can be enlightening.

Today, for example, Yahoo's top five searches are music or movie celebrities, many I've never even heard of. These celebrity names always seem to dominate the top five spots on Yahoo's daily list. When you get to the middle spots, people seem to be searching out things associated with some aspect of daily life, like "MP3 Downloads" (#5 yesterday), or "Summer Movies" (#6 today). But further down the list a few terms reveal the more serious problems people are dealing with. Yesterday "Auto Warranty" was #7, "Bankruptcy" was in the #8 spot, and "Flight Attendant Jobs" was #10. People were worrying about that old used car, wondering how they can get out of debt and looking for jobs. On May 4th Apartment Locators, Storage Sheds and Radar Detectors slipped into those spots in the 6 to 10 range. People are on the move, perhaps leaving a foreclosed home to look for an apartment, or just heading out of town at 100mph to escape the bill collectors...How else to explain the sudden interest in radar detectors?

Annual statistics are equally revealing. Last year, as the stock market and economy collapsed, financial firms pancaking down on one another like floors of the World Trade Center, what was on America's mind? Answer: Brittney Spears. She held down the #1 spot for the hottest search item of 2008 on Yahoo. (Google had Obama #1, but he was only #3 on Yahoo, behind Spears and the WWE Wrestling league which came in at #2). The rest of Yahoo's top 10 list had celebrities like Angelina Jolie, Jessica Alba, Hannah Montana and, of course, American Idol. For Google we saw digital wonders like Facebook, AT&T, iPhone, and YouTube in the top five spots for tech searches. None of the stories that shook our world made the ranks. What does this say about us?

I realize that the Internet is broadly used by lots of kids who aren't likely to pay much attention to hard news, but then again, they all go to school don't they? Did our teachers talk to them about what was going on? It was nonetheless mind boggling to me to think that whole generations of Americans remain fascinated by utterly trivial personalities and pop nonsense while some of the most significant stories and occurrences in the last century have crossed news wires in the last 6 months. Were they all really aware of the bad news and just seeking refuge with Brittney Spears? I don't think so. And were people looking for solutions to the problems we face now in energy, finance, the economy, restructuring and downscaling our lives to a sustainable level? Nope. The top searches in the "How to" category on Google were how to draw, kiss, write, cook and hack. How to spell was also in the top ten. It appears we are a nation of would be artists, lovers, writers, gourmet chefs and cyber criminals, some worthy occupations to be sure, but I was surprised no one wanted to learn about debt management, saving, budgeting, home food gardening, alternative energy, or recycling.

The bottom line? Americans are more interested in breakfast recipes and fitness equipment than our skyrocketing unemployment, the astounding malfeasance in the banking industry, or anything remotely concerned with our future energy prospects or living arrangements. The Great Recession is being suffered quietly, as in that search for "bankruptcy" that made #8 on Yahoo yesterday. But Americans continue to remain largely clueless, uninformed and obsessed by trivialities. They continue to distract themselves with media and entertainment--this while we are now facing the most serious dislocation of our lives in this nation.

It's just mind boggling.

Hide & Go Seek

We've all played the game. You close your eyes and count to ten while someone hides, then the hunt begins. The House is playing hide and go seek these days, as it threw a bone to consumers by passing legislation aimed at curbing unfair practices by banks--then closed its eyes and counted to ten. The bill will not take effect for a full year!

The bill was intended to rein in bank policies on credit card lending, such as double cycle billing, arbitrary rate hikes, high interest, exorbitant fees, applying your payment to the lowest interest rate balance first, raising interest on balances you rang up years and years ago, slashing credit lines and punishing cardholders in lock step when they miss a single payment, a policy known as 'universal default.' You can read all about the dirty little tricks the banks have used for years to politely rob you here. The bankers fought the bill tooth and nail, but when it became apparent that Obama was going to push the legislation in a recent meeting, they huddled to lobby instead for a "cooling off period," and got their wish. It's like the cops giving a burgler a few hours to get well away before they go after him. The new law will not take effect for a year, which gives the banks another 12 long months in the heart of the deepest recession of modern times to squeeze cardholders as never before.

Interest rates are being hiked across the board, credit lines decapitated, dormant accounts closed, fixed rates converted to variable rates, fees increased. This is the banker's way of saying "thanks" for the billions US taxpayers provided for the purpose of simulating lending--and bear in mind that even after all those bailouts lending is still down, foreclosures are up, fees are through the roof. In effect, the House, the "people's chamber," has just told the criminals they are going to be arrested for their crimes--next year. See you in the Caymans!

It's a little like old Bernie Madoff relaxing in his Manhattan penthouse after being caught with his hand in the til to the tune of $50 billion. Some guy robs a 7/11 and gets identified on camera. The police stop by his house to tell him they'll be by, sometime next year, to arrest him. This is the kind of latitude that money buys when your elected representatives need lots and lots of money to get re-elected. You don't give it to them, the bankers do, and that is the whole of it in one little rotten nutshell. The House action was cowardly and shameful. We should just forget state elections for representatives and simply have each bank send a rep to the House instead. Those 'too big to fail' will staff the Senate chamber. That's pretty much what we have now anyway.

So, the banking lobby fought a skillful delaying action on the Hill, and won another 12 long months to continue their shameful and usurious practices concerning credit card lending, just like the mortgage bank lobby killed the "cramdown" provision intended to bring relief to homeowners and ease foreclosures. It's what prompted Senator Dick Durbin, sponsor of the defeated cramdown provision, to throw up his hands in exhasperation and exclaim: "It's the bankers who run the place." These things happen because the bankers, in nice three piece suits, are up on the Hill every day bending the ears and stuffing the pockets of our elected representatives--while we sit around watching American Idol and eating cheeze doodles. Well, a lot can happen between now and the next election cycle in the House. A year delay on this bill takes us right into prime time campaign contribution season. It will be my bet that the credit card reform bill will be watered down again before it ever takes effect--if it ever takes effect at all.

Isn't democracy wonderful?

Much Ado About Nothing

A wise man once said: "We have nothing to fear, but fear itself." And looking at the numbers logged thus far by the H1N1 Swine Flu, (just 160 confirmed cases and 1 death) , I would have to say this is all much ado about nothing. Our society is like a hypersensitive nervous system, with the Internet, Myspace, cell phones and Twitter spreading bad news at light speed.

An interesting story appeared in early May when the Twitter flu headline site for Veratect, a data mining company, began to get a lot of traffic. It seems the company had provided early warning to both WHO and the CDC about unusual reports of severe respiratory illness with flu-like symptoms appearing in rural areas of Mexico at least 10 days before the outbreak occurred, but the warnings were apparently not acted upon. I guess early warning systems are only useful if you pay attention to them!

But the story certainly got plenty of attention by April 25th when it became clear that there was some kind of health emergency underway in Mexico City. A week later, while the virus has spread very fast, it simply isn't killing people or becoming a real Pandemic threat--not even close--and scientists now say it may be much weaker than normal flu. Consider what it would be like if we covered the onset of our normal flu season each year like this. Twitter updates as the first victims fall ill in late September, back to school canceled, by October the World series is in jeopardy as tens of thousands of cases are reported daily in all 50 states. If we directed our attention on it, the flu season would appear worse than the black plague!

I wrote an article some time ago about how people consistently fear the wrong things, blowing some threats way out of proportion, while ignoring real serious threats. It was written in the middle of the Bush/Cheney years, when fear was used as a policy tool almost daily. Here's the link. It may give you a new perspective on this, and you can realize that "Love in the Time of Swine Flu" is entirely possible.

Hungry?

The Australian government can't make up its mind. When WHO raised its alert level to 5 of 6, the government advised citizens to stockpile food and water. Yet in the same breath they also advised them not to panic and start a run on stores. The Sydney Herald reported: "Residents are advised to stock their pantries with drinks, including three litres of water for each person each day, dried and long-life food such as canned meals, toilet paper, batteries, candles, matches, manual can openers and water sterilizing tablets"Just where do they expect people to get these things if they are not to make a run on stores?

The Aporkalypse Now virus appears to be adding much stress to already strained social support systems world wide. Farmers are rioting in opposition to pig slaughtering, and Alternet reports that there are now 3 million hungry mouths to feed in New York City alone. More and more people, largely unemployed blue collar workers, are lining up daily at food banks. Hunger in America is growing, and may be coming to a neighborhood near you, if it is not there already.

I said these times would usher in a new lexicon for Americans. In place of getting, watching, and doing what we want, we may soon find ourselves out of work, out of food and doing just what the government says. I am already seeing the first signs of waning abundance, even in the relatively well off area of California where I live. The shelves of a large national drug store outlet looked strangely depleted when I visited yesterday. The old JIT ("Just In Time") inventory replenishment model seems to have become JNT, ("Just Not There!") I have noticed many product items slowly depleting in the last several months, and not being replaced. I bought shampoo, hand sanitizer gel, and some hair product, and in every case these three commonly stocked brands were the last item of that particular product on the shelf. It was a strange feeling, as most Americans are accustomed to the constant availabliity of all these heavily advertized products, and we shop 24/7 here. But things are changing.

Get ready for words like shortage, shortfall, depletion, scarcity and just plain "sold out" to become more and more common. It hasn't hit the food stores in my area yet, but I'll bet that many stores in Australia will be pillaged after that foolish announcement by the Auzie government. What in the world were they thinking?

In all this, one thing the Doomers constantly talked about the last few years was the need to prepare for a crisis before it happens. Once it does happen, advisories to secure essential food or supplies will just create panic binge buying, rapidly deplete the store shelves, and stress a long, thinning supply chain that has been squeezed by companies tightening their belts in this difficult economy.

Hungry? I sure hope not.

100 Days

Like President Obama, I have been pleased with the performance of the new administration, but I am not content. Obama has done much to chip away at the Orwellian policies of the Bush/Cheney years, but he has also made some key errors, in my view.

The good news is that in the first 100 days President Obama has:

1) Frozen White House staff salaries in a time when most Americans are earning less.
2) Tightened lobbying rules for congress.
3) Loosened Freedom of Information Act disclosure standards.
4) Closed Guantanamo and banned cruel interrogation, calling it what it was--"torture."
5) Closed secret CIA prisons overseas in the Bush/Cheney Gulag Archipelago.
6) Lifted seals on Ex President documents to quash all the secrecy.
7) Lifted prohibitions on stem cell research.
8) Promoted equal pay for women.
9) Tightened compliance regulations for banks and financial institutions.
10) Imposed limits on executive salaries.
11) Launched a bold, yet hugely expensive stimulus plan.

The bad news is that the team governing economic policy, (Bernanke, Geithner, Summers), is a clique of wealthy Wall Street insiders who have largely pursued a policy of saving the big banks at all costs--and the cost so far has been enormous. Why is it that only multi-millionaires are called to serve the nation? They live in a world so vastly different from rank and file Americans that their ideas seldom consider the wellbeing of the little guy. It's all about saving the other Rich Dads out there, while the Poor Dads go hungry. No real transparency has been enforced, and the entire effort to date has been to re-start the securitization game banks have been playing the last decade.

James Kunstler was so correct when he stated that Obama should have focused on managing this historic downscaling and contraction of our life styles in a way that served the public, and not on restoring the old, and obviously unsustainable, status quo on Wall Street.

Change.Gov has failed us profoundly on that score.

InfraGard?

It seems we get a new word introduced into the language every few minutes. I ran across this one today following a link from Matt Savinar's Peak Oil news page. It was an article talking about a public/private cooperation in times of crisis and emergency. Seems we have a whole lot of that going on these days. Spawned during the Bush years, Infraguard appears to be an organization encompassing some 30,000 US businesses that cooperate with NORTHCOM to do exactly what their name implies--guard critical infrastructure.

In October, 2006 they participated in a conference entitled "Surviving the Pandemic." In January of 2007 they issued a press release that stated: "The InfraGard National Members Alliance (INMA) is pleased to announce January and February as Pandemic Awareness Months." Pleased to announce??? At that time it was the Avian flu threat that was on everyone's lips, but I checked their web site and find them to be completely mute on this latest swine flu outbreak, and not a single event has been scheduled on their calendar for 2009. Their latest newsletter, back in Sept of 2008, mentioned a "Security Dreamer" conference where some of the subject matter was about heady subjects like "access control," (all about getting past locked doors), and new video surveillance architecture--the kind of thing that would make Orwell turn in his grave. Their active forum has no recent entries so the group my be winding down.

Is it just me or does it seem a tad unsettling that this group is so dedicated to one thing in a time of national emergency--protecting infrastructure from...why from the people, of course, the citizens of the United States. Who else?