Bonus Bonanza

As 2009 comes to a close the banks, lavishly supported by big taxpayer funded bailouts, Fed programs and zero interest loans they can use to speculate in commodities and securities markets, are now poised to finally report a profit. MSNBC estimates bank profits through Q3 to be $22.5 billion. That's total industry profits, an amount that is not even half of what one major bank received in free bailout money. Last year Paulson handed out TARP money in $50 billion checks to the big four, with lesser banks being given amounts of $10 to $25 billion each. After all that, and trillions more in Fed program support, the banking industry has a net profit of $22.5 billion. And this is not even mentioning the FASB accounting rules changes that allow banks to report the values of their rotten loan portfolios at double their real worth.

Now get this... After manipulating that little profit of $22.5 billion, the banking industry is all set to congratulate themselves with an annual Christmas bonus bonanza reported to exceed $162 billion!!! The banks are paying over seven times their total profits in bonus money? Wow...what an industry. Sign me up. This bonus payout also exceeds all Federal money devoted to helping small business and stimulating employment in this depression. Total bank lending to small business is way down this year...and why not? Banks have determined that they can use the free zero interest Fed loans better by speculating in the markets, not lending. In fact, banks make most of their money this way now, not by traditional lending operations or even their usurious credit card operations.

So Merry Christmas, America. Think on this if you end up in the unemployment line. And come January a million people will see their unemployment insurance benefits expire, (about 30,000 per day)....This just about the time those fat bonus checks get deposited in the accounts of the men and women who wrecked the economy, and sent all the rest of us the bill.

Fire and ICE

"Some say the world will end in fire, Some say in ice. From what I've tasted of desire I hold with those who favor fire." - Robert Frost

The IntercontinentalExchange (ICE) saw some fire it didn't like this morning. On Friday, Nov 20, there was a sudden, massive spike in the value of the dollar index. Marketwatch reported: "The lead contract surged as high as 82.18, up from a 75.38 close on Thursday. Such a move was improbable given that in spot markets, the dollar's moves against major currencies such as the euro were limited to about 1%." Friday's move spiked 9%. Someone was buying long on the dollar, betting it would strengthen. The sudden spike prompted ICE to look into the matter, and they decided that all trades above 76.50 would be canceled. In short, the stampeding dollar bulls were all quietly herded back into the pen.

Oddly, this is not the first time this has happened in recent weeks. On Nov 3rd this story crossed the wires at Reuters: "NEW YORK, Nov 3 (Reuters) - The IntercontinentalExchange said it had canceled some trades in the U.S. dollar index that roiled the market early on Tuesday. The ICE Futures U.S. dollar index , which tracks the greenback's value against a basket of six other major currencies, jumped to a one-month high early Tuesday as concerns about the global banking sector ignited safe-haven demand for the greenback." I note here that when the dollar goes down, stocks move in the inverse direction and go up. When the dollar goes up, stocks fall.

The two stories echo one another, making me wonder who would have the clout and the know how to trigger such sudden trading moves in the index. Then I ran across another interesting story by Graham Summers on The Market Oracle. Summers presented charts showing which stocks the notorious trading firm Goldman Sachs was betting against by holding net short positions. Four of their top ten net shorts were financial companies, and there were two gold mining stocks and one big oil stock on that list as well. They were also betting against the Euro, indicating faith in a rising dollar. Summers concludes: "To be blunt, it’s clear that Goldman believes the financial crisis is nowhere near over: four of its top ten largest shorts are financial companies. It’s also worth noting that Goldman is betting against gold and the euro. Given Goldman’s incredible access to, and close relationship with, the regulators and federal government, I see this as further proof that we may be seeing another stock crisis triggered by a Dollar rally in the near future. Indeed, if the Dollar rallies we could very well see stocks AND commodities COLLAPSE."

So Goldman is bullish on the dollar, bearish on commodities like gold and oil, and has little faith in its banking brethren....and someone with trading clout and acumen has been trying to jump start a dollar rally on at least two occasions in the last two weeks where both dollar rallies had to be squelched by ICE.

Hummmm....

Here's another view of this situation in an excellent article from Seeking Alpha that came out on November 24.

Ukraine Flu Update

A strange, deadly flu continues to germinate in Ukraine, but "Swine Flu" is a paper tiger.

On Nov 3rd I commented on a story that got wide circulation on the Internet, but was entirely ignored by mainstream media. It concerned an outbreak of a new, deadly strain of flu in the Ukraine. I've been following the news out of Ukraine of late and here's an update.

The "flu" has now reportedly infected about 1.3 million people. Death rates have been remarkably low, but the way people do die is frightening. Ukrainian doctors report that this new bug, (clearly not the H1N1 strain circulating elsewhere), bypasses the trachea and goes directly to the lungs. You don't get the normal onset of sore throat that typical flu causes. But once in the lungs there is hemorrhaging that causes severe lung damage. People cannot get oxygen, and go into cardio-pulmonary shock. These were symptoms similar to the dread "Spanish Flu" outbreak of 1918-1919. The death toll since Oct 31 has risen by an average of a little over 13% per day, but remains low, just 315 deaths reported from this new killer to date. This is a remarkably low mortality rate.

There is something odd with this data. The Spanish flu had a mortality rate of at least 2.5% at the peak of that pandemic. But if the 1.3 million people in Ukraine have been infected with this new bug circulating there we would expect to see 13,000 deaths to have just a 1% mortality rate, and about 30,000 deaths if this new bug were as lethal as the 1918 virus. Instead we have seen only 315 deaths. This tells us that the new strain in Ukraine is either very picky about who it kills, or that the 1.3 million infected clearly don't have this new strain, but are probably infected with other milder strains of the flu. (There are at least 5 flu strains in circulation this year).

In general, however, the "Swine Flu" appears to be fairly weak. WHO reports only about 4000 deaths in the U.S. since April attributed to H1N1. On average, 36,000 die from "normal" flu in the U.S. alone each year. So the dread "swine flu," and all the hoopla about the vaccinations, appears to be much ado about nothing. The Swine flu may be a rapidly spreading illness, but it is simply not that threatening, and appears to have a mortality rate many times weaker than the "normal" flu.

So is the emerging outbreak in Ukraine evidence of a newly mutated strain of swine flu? WHO knows...or perhaps they don't know. The international agency has been surprisingly mute on the subject, and has not released genetic sequences on this new strain. Labs in the UK are presently working on this. WHO's official statement reports: "The initial analysis of information indicates that the numbers of severe cases do not appear to be excessive when compared to the experience of other countries and do not represent any change in the transmission or virulence of the virus."

So take all these reports together, look at the death tolls, and you have to conclude that this year's flu season is a paper tiger. CDC estimates that 22 million Americans have contracted the disease with only 4000 deaths. If this were anything like the 1918-1919 Spanish flu it would have already killed 550,000 people.

People in the Ukraine have much more to worry about than the flu. They were considering printing a billion hryvnias to combat the flu bug, but that proposition was vetoed. Meanwhile, their national rail agency defaulted on its $550 million loan, their banks have all been downgraded to B- by ratings agency Fitch, their national debt reached 44.5% of GDP this year, their foreign trade surplus fell 26.9%, their steel sector is reducing output 20%, and they can't pay Russia for natural gas. Clearly their financial flu is much more threatening than the viral stuff.

I'd say the same for things here in the U.S.

2012

I started my weekend with Shakespeare's "Midsummer Night's Dream" and ended it with John Cusack in 2012. That's quite a polarity. While the timeless Bard delighted audiences of his day with the delicate twists of language and plot that have survived for over 450 years, our modern day "plays" on the big screen have a life span of about six weeks before they hit the DVD dump cycle in their retail life. Then we move on to the next blockbuster. But this movie seemed determined to leave every block well busted, from the sun drenched shores of Malibu sliding into the sea in massive burning chunks, to the dizzy snowcapped heights of the Himalayas getting swamped by a massive tsunami. (Warning: plot spoilers dead ahead).

In my mind, the movie was a strange metaphor for the disaster that has been unfolding on our daily news outlets the last 18 months. The planet's core was superheated by mutating neutrinos spewed out by massive solar flares, and this led to the destabilization of the earth's crust--so goes the explanation offered up by the film. I couldn't help but think of the financial world overheating on leveraged securities, causing the crust of capitalism to shift under the foundations of institutions that have stood for nearly a century, and sending them toppling to the ground like the high rises of LA.

It was ironic that Cusack and his precious family make their initial escape in the stretch limmo he drives for a wealthy Russian fat cat. How many "investors" out there imagined themselves at the wheel as they barreled through the toppling wreckage of AIG, Lehman Brothers, Bear Stearns, Merrill Lynch, Fannie Mae, Freddie Mac, and Countrywide last year? Cusack trades an expensive watch to rent a small plane so he and his family can escape the cataclysm that catches the Terminator Governor, and most of the fast living inhabitants of the state, by surprise. (What was the pilot going to do with the watch besides count the seconds remaining before doomsday?)

Guess what--California IS sliding into the sea after all. As I watched, the lyrics of the famous song ran through my mind..."Day After day, more people come to LA. Don't you tell nobody the whole place is slipping away. Where can we go, when there's no San Diego? Better get ready to tie up the boat in Idaho." But where is Cusack headed? He's just come back from a road trip to Yellowstone where he met a crazy pirate radio broadcaster who claimed he had a map to the place where secret "ships" are being built, a hidden sanctuary where only the wealthy are issued tickets to board seven massive Arks built by the Chinese, (of course), that will serve to save a remnant of humanity. Want a boarding pass? First pay the hefty ticket price of $1 billion Euros per head. So Cusack returns to the park just as it's about to go into a supervolcano fit, and finds the map--filed somewhere after "Roswell" in the crazy DJs van. They escape the thousand degree plumes of the supervolcano, (by flying through them unscathed), and catch a ride on a big Russian transport conveniently waiting at Vegas. Thank god for the stretch limmos and Antonov 225s of the wealthy.

They head for China, and there is a great scene where the massive Antonov skids to a crash landing on a Tibetan glacier, stopping at the very edge of the cliff. The pilot sighs with relief, but a moment later the cliff collapses sending the plane plummeting to a fiery destruction. That's a bit where we are now in this crisis. The economy has skidded to a stop at the edge of the next cliff. Everyone is talking recovery! Things are about to take a sudden turn down again, though you will not know this by watching stocks.

That said, our heroes are safely off the plane in a Bently and they approach the last refuge of the rich and famous, where we are treated to a scene during boarding where the doddering Queen of England shuffles by at the end of a leash led by her little mutt. Just what contribution the gray haired dowager intends to make to humanity at age 86 escapes me. It simply goes without saying that those who presently hold wealth and power get a berth on the Ark, and the rest of humanity is left to fend for itself as all hell breaks loose. Everyone in India, for example--and I mean EVERYONE--is completly submerged by a massive tsunami. The loss of all those customer service and tech support reps is, in and of itself, a catastrophe. But, in spite of that, cell phone service seems to humm along just fine throughout the whole disaster flick. The only place it wasn't working was in the theater itself, where viewers were admonished to turn off their phones before the flick. At one point Cusack receives a call, and his phone uses the exact same ringtone as mine. Even though I knew my phone was "off" I could not suppress a reflexive start when I heard the ringtone, wondering who would be calling me on a Sunday night.

In our own little disaster movie, those that once held wealth and power in the halls of JP Morgan, and Goldman Sachs, well they continue to get a pass here too. It's pretty much business as usual at the trading desks of GS, while Main street crumbles away. Our high rises may not be crashing into massive chasms, but the banks and financial houses that built them have all fallen into the deepest hell of insolvency. The insiders have already taken to their stretch limmos and private planes to make their hasty exit to the last remaining Arks of financial stability. You and I don't get a boarding pass. It's also ironic that Cusack's American family has to haggle with a Chinese guard to beg admission to Ark number four, who will only relent when his Amah (Grandmother) shames him into opening the gate.

America, as a nation, is now so beholden to the Chinese and their $2 billion per day Treasury bond habit that we would certainly be lost without them. Not to mention the fact that virtually everything we've been buying during the last ten years of boom time was also made in China. It was only fitting that the Chinese built the Arks that saved humanity.

We caught an early show and then fled through a deserted shopping mall to head for our own wheels and hi-tail it to a good Thai restaurant, grateful that everything was still standing. Later that evening there was a fairly extensive power failure in our area, and I could not help but wonder if the lights went out in the theater right in the middle of California falling into the sea during the late show. That would certainly get the viewers reaching for their cell phones, neh?

You can read more of my ruminations on this movie and the disaster of our economy here.

Round Trip Tickets

In my recent post "Gentlemen's Agreements" I commented on how the dollar carry trade has been used to speculate up prices of stocks and commodities. Today's news presents yet another perfect example. Philip Davis, on the popular economics blog site "Seeking Alpha," writes about a scam in the commodities trades for oil that he says is 50 times worse than the Bernie Madoff ripoffs. He writes of what the industry calls "Round Trip Trades," using the metaphor of an airline traveler traveling out to a distant location, and then returning again.

"Round-trip” trades occur when one firm sells energy to another and then the second firm simultaneously sells the same amount of energy back to the first company at exactly the same price. No commodity ever changes hands. But when done on an exchange, these transactions send a price signal to the market and they artificially boost revenue for the company. This is nothing more than a massive fraud, pure and simple."

It was revealed that many major trading firms engage in these trades, mostly on unregulated exchanges, and up to 80% of their total trading traffic is comprised of "Round Trip" deals. Since no commodity is ever really traded, (just a contract to buy or sell), the oil trading exchanges have been recording trades that exceed the volume of actual oil delivered many times over...by hundreds of times in fact.

Davis writes: "Over the course of an average month at the NYMEX, 5 BILLION barrels of oil will be traded, with a fee being collected on every single transaction, which is ultimately passed down to US consumers, yet less than 40M barrels will actually be delivered. That is just 8 tenths of 1 percent of actual demand for the product that is being traded - 99.2% of the oil transaction fees being paid by the American people do nothing more than create fees for the traders and record profits and bonuses for the trading firms!" As usual, he claims Goldman Sachs is thick in these bogus trades to drive up commodity prices and rake in the fees, controlling some 60% of the market.

Here is a perfect example of what goes on "behind the scenes" as it were. Most people have no inkling of such doings, and others will simply respond that they don't care about these things, being too concerned with their own immediate lives. Why does such fraudulent speculation matter? Why should it be written about and exposed? Because the price speculation caused by such activities translates directly into pressure on your monthly living expense budget. Davis calculates that before these shadowy trading exchanges got set up to manipulate the price of oil and other commodities higher, the average American spent just 7% of their monthly income on food and fuel. Just a few short years later that number has risen to 20%.

No one talks much about the price of oil these days, which has moved from around $40/barrel earlier in the year to prices near $80, doubling in just a few months time, all while demand has been declining due to the Great Recession, and oil inventories have been rising. Demand down, supplies up...That usually translates to lower prices. Not this time, however. The price doubled instead, and now you know why. The fat cats on Wall Street have just been logging scads of round trip trades, batting the price back and forth like a ping-pong game. It's kept the price of oil artificially inflated, and you've been paying for it each time you fill up at the pump.

Most people will agree that the simple necessities of life cost much more now. This is why, and this is also why writing about it matters, because in the end we all pay for the shenanigans of the Wall Street Wizards and their trading schemes. Quite literally. The world is full of deception and fraud. Can I change the world with a blog post? No, but telling the truth about it matters, at least to me.

Unscheduled Maturities

Ever notice how banks use tortuous and disingenuous language to describe their affairs? We get non-performing things, quantitative easing, risk based pricing, (which is what they call it when they jack your interest rates up to 30% or more,) and a whole raft of other verbal nonsense, language that is deliberately meant to mask reality and paint a rosier picture of events wherever possible. Losses too painful to endure are simply written "off balance sheet" by accounting tricks. Everyone talks about "transparency," yet they use this language to hide things that are obvious to anyone who reads and thinks. And the big thing they are really hiding behind all this deceptive language is one word: insolvency.

Case in point: Here's a quote from California Controller's November 2009 Analysis - Guest Article by Dr. Randall Zisler.

"A crisis of unprecedented proportions is approaching. Of the $3 trillion of outstanding mortgage debt, $1.4 trillion is scheduled to mature in four years. (In the state of California alone)... We estimate another $500 billion to $750 billion of unscheduled maturities. Unfortunately, traditional lenders of consequence are practically out of the market and massive amounts of maturing debt will not easily find refinancing. Marking-to-market outstanding debt will render many banks, especially regional and community banks, insolvent, especially as much of the debt is likely worth about 50% of par, or less."

Read that again... Unscheduled maturities? Let me translate.

The crisis of unprecedented proportions approaching is the next big wave of mortgage resets for Option ARMs and other "exotic" real estate "products" that were hawked by lenders during the great housing boom. The piper has played, with house flipping, home equity loans, refis, trips to home depot for those granite countertops, and now the piper must be paid. With unemployment north of 17.6% (U-6), and rising, these trillions in mortgage resets will result in a new tidal wave of "unscheduled maturities." What a euphemism! Unscheduled maturities? Let's say it plainly: "DEFAULTS."

The nub of this problem is the statement that "marking-to-market outstanding debt will render many banks, especially regional and community banks, insolvent...." The clear truth in this statement is that banks are insolvent now. If normal accounting rules apply, many would be defunct. This is why Mark-to-Market accounting regulations have been suspended, allowing banks to carry underwater residential, and now commercial loans, at "Mark-to-Fantasy" values. But reality is this: the loan is in default, the "unscheduled maturity" was a formerly employed paying customer who has lost his or her job and mailed back the keys. The loan will never "perform" again, no matter how many tricks the accountants roll out. It has done all the maturing it is ever going to do. Like an over-ripe fruit, it has fallen from the lending tree and is now simply rotting on the ground.

The banks know this, but insist on pretending otherwise. This loan, like the house, is now worth only what someone else is willing to pay for it, and no one in their right mind would pay full value when they know the house has lost 50% in just two years time. So the banks have tried to sell off all this rotten fruit at a farmer's market called "The Fed" where they trade their bad produce as collateral for zero interest loans. They've also asked Uncle Sam to back them up to the tune of trillions. Yet they remain insolvent--and this is just from the damage already incurred in this crisis. I have some more news for them: the "unscheduled maturities" have been in a lull lately, but they are about to resume with hurricane force. The banks know this as well, because they set up all these loans to reset to higher, unaffordable payments, and they know exactly when those resets will occur.

As I have said many times, this crisis, the whole of it, was designed and delivered by the banks. They created it, and now they will perpetuate it with all this squirming denial and bogus accounting. That's the world you are living in. Now... Make damn sure your credit card is paid on time--or else you might be considered a "deadbeat." No, that's actually a term bankers apply to people who pay off their card balances in full each month. (They can't collect any interest on you so you are called a "dead beat.") Those that carry huge balances at 30% interest are known as "preferred customers."

Gentlemen's Agreements

A couple of stories are of interest today, both advanced by two of the top 10 economic bloggers. The first was covered by Mike (MISH) Shedlock, who wrote about the new accounting rules change aimed at forestalling the ongoing commercial real estate collapse. In effect, the FDIC and regulators have dicided to "extend and pretend" that the crisis isn't happening. Wall Street Journal reported: "Federal bank regulators issued guidelines allowing banks to keep loans on their books as "performing" even if the value of the underlying properties have fallen below the loan amount." So underwater loans that are still squeaking by in generating enough rental income to service the debt will not have to be written down as losses or restructured to current market values.

MISH comments: "2,600 banks and thrifts have commercial real-estate-loan portfolios that exceed 300% of total risk-based capital and regulators ignored it every step of the way. Now that loan losses are soaring, regulators came up with new rules so that banks can pretend the losses are not real."

Doug Hoerning, Senior Editor of Casey Research writes: "What do you do if, 85-90% of the entire commercial real estate market is under water relative to its financing? What happens to a property when its value drops way below the loan, a seller can’t get enough money to get out, a buyer can’t raise enough money to get in, and the bank can’t afford to foreclose? Simple. It just sits there, carried along on the bank’s books at some inflated “mark to fantasy” price that makes the institution’s balance sheet look passable. The industry even has a catchphrase for the situation: “A rolling loan gathers no moss.” See how gentleman's agreements work?

Next comes Karl Denninger, who's been watching what he calls "the Dollar Carry Trade" the last few days. Basically, with the Fed setting interest rates at zero, banks can get money for nothing and "carry" it elsewhere to lend at higher rates of interest. They can also use it to buy assets like commodities, gold, oil futures, and all this activity drives up the price of these things. This has been moving more dollars around and, as a consequence, the dollar has lost value against other currencies, particularly the Euro. Our old greenback has, in fact, lost 20% of its value since March of 2009! What this also means is that stocks, commodities, oil, gold, all take more dollars to buy than it took last March. Hence we see stock prices bid up, and presto! We get an apparent market rally. Denninger puts up charts that show the current rise in the S&P 500 exactly correlates to the line of the diminishing dollar. This is something any trained statistician could not fail to see. He writes of the chart presented here: "Notice the near-perfect inverse correlation. The Dollar goes up, the market goes down. The Dollar goes down, the market goes up."


Denninger's comment: "The collapsing dollar is a policy. It is the means by which the stock market has been propped up in an insane attempt to "instill confidence" in "economic recovery" that, on balance, is clearly not occurring. As a consumption-based economy we cannot recover until and unless employment recovers and we replace debt-based consumption with earnings-based consumption." The intrepid Mr. D. predicts that this dollar carry trade will soon begin to manifest in much higher energy prices for oil, gasoline, natural gas, heating oil, repeating the post Katrina woes those $4 / gallon days brought us a few years back. This time, try $6/ gallon.

The problem with a deliberately weakened dollar? Most people's income cannot keep pace with the slide. Has your income increased 20% since March? That's what it would have to do to give you the same buying power today that you had just 9 months ago. As the dollar weakens we will no longer enjoy cheap prices for imports, and prices will rise here. What has saved us thus far from a 20% price inflation? Simple. The Chinese make most everything we buy, and the value of the Yuan is pegged to that of the dollar.

The point of these two stories? It is clear that current policy simply refuses to admit losses that have already occured and is engineering or manipulating a false stock market rally. Neither policy corresponds to anything real happening in the economy. The bad loans remain bad, even if gentlemen's agreements pretend they are not. The sagging dollar is what makes stocks go higher, not the underlying value of the companies based on healthy economic growth. The "recovery" is therefore a blend of one part denial, and one part trick accounting. Lather, rinse, repeat.

It's all a deliberate hocus pocus magic trick. Yet these gentlemen's agreements can also unwind with terrible results. What happens if China, with vast reserves of dollars, doesn't like the fact that their dollar holdings have also lost 20% of their value in the last 9 months? Many analysts now predict that there will eventually be a move to "dump dollar assets," which will come home to roost in a near worthless US dollar. What they don't clearly predict is when this might happen, most hedging their bet by saying 2 to 5 years.

Monopoly

Multi-billionaire Warren Buffett landed on the Railroads recently, and he decided to buy. Anyone who has ever played the game of "Monopoly" knows how lucrative and profitable it can be to hold the railroads. Mr. Buffett seems to agree. But what was most fascinating about the mainstream media's spin on the deal was that they concluded it was a sign of imminent economic recovery. Marketwatch quoted Art Hogan, chief market strategist at Jefferies & Company, as saying a buyer would not pick up a railroad "unless you thought the economy was going to do better and that energy prices are going to go higher."

He was half right. Energy prices are definitely going to go higher, and when they do they will make long haul trucking with diesel a very expensive way to move stuff around the country. To my mind, Buffett is well beyond the main stream media cheerleaders. He's looking years ahead to when the railroads, possibly driven by clean coal, become a revitalized transportation center for the nation as a whole, with truck and air freight on the decline due to hefty oil prices. But America is the Saudi Arabia of coal, and coal fired trains will again dominate transportation in the middle of this century.

Does Buffett's vision necessarily mean the economy is ready to spike up again? Certainly not, and for the very same reason that those higher energy prices will bring another wave of painful change to the nation accustomed to running everything on gasoline. But the men who inherit the Buffett empire will be sitting pretty with control of key railroads, and the money to put them to work. Buffett's vision is a sign of hope that some real big money knows what lies ahead, and is getting positioned for the decades to come. It says nothing, however, about the imminent recovery of the economy, and one should not take the stubborn rally in the DOW for any sign of real improvement either. Look at other key indicators.

Consider these headlines: (All from this week's news)

U.S. Rail Traffic still down sharply, -13.7% in Oct. -18.2% from 2007
Commercial Mortgage Lending down 54% YoY
Commercial Property to Hit Bottom in 2010
NY Times: Broader Measure of Unemployment stands at 17.5%
Washington Post: Real Unemployment 20.2%
The Nation: Stunning Unemployment Numbers For Americans Under 30
Number of Unemployed for 27 Weeks or Longer Skyrockets
Wall Street Journal: Upper Class Unemployed Running Out Of Money
SF Chronicle: Defaults Soaring in Upper Eschelon Zip Codes
Yahoo Finance: Gold Bars Selling Like There's No Tomorrow
Fannie Draws From Emergency Treasury Fund...Again ($15 Billion)
Miami Herald: Lending Drought Leaves Little Financing For Businesses
Personal Bankruptcies climb 9% in October
LA Times: Airlines and Hotels Facing A Bleak Holiday Season
Treasury Expects to Hit Debt Limit Next Month

Bottom line? If you look at real economic activity, shipping, orders, sales, job creation or decline, home sales or foreclosures, credit expansion or contraction, it doesn't take much thought to determine we are not in a recovery. An uptick in the rate of decline is not a recovery either. We will recover when debt diminishes, assets appreciate, unemployment drops, jobs grow, sales increase, credit expands. Until you see that on a sustained basis, forget all the talk about recovery. None of those indicators are positive. Not one.

This is not doom and gloom. It is simply the truth.

Kick 'em While You Can

You're watching an old move where a couple of thugs are shaking down a hapless mark who was a victim of their loan sharking operation. The poor fellow is huddled on the ground, and the thugs are kicking the crap out of him, even as you hear a distant whistle of the police, finally responding to all the commotion in the alley. The thugs look over their shoulder as they hear the whistle, smile, then pour it on all the more, getting in as many well placed kicks to the stomach and groin as they can.

That's a fitting image of what the banks are doing just now. With epic unemployment numbers and record foreclosures gutting the Middle Class in this country, credit has also been contracting at a break neck pace, (an annualized 7.6% decline just last month). And the kicker? The banks are accelerating the exploitation of credit card holders, ratcheting up all the unfair practices that prompted congress to legislate prohibitions due to take effect next year.

Marketwatch reported this morning: "Credit-card issuers are hiking interest rates, penalties and fees in full force ahead of stringent new laws that take effect in February. In fact, some 400 credit cards from the nation's 12 largest bank issuers -- accounting for 90% of the $89.8 billion in outstanding consumer credit -- are still using most of the same tactics that the Federal Reserve has called "unfair or deceptive" and that will be outlawed in fewer than four months, according to a new report from the Pew Health Group's Safe Credit Cards Project."

99.7% of banks have boosted credit card interest rates, which have gone up an average of 20% since December of 2008. Some rates have spiked 30% to 50%, and one credit card company has even issued a card with a rate of 79.9% !!! Talk about a nice size twelve to the stomach! Beyond this, banks are still continuing all the unfair practices that I wrote about years ago here, like applying your payment to the lowest interest balance first. They've also decapitated credit lines, which had the effect of lowering millions of FICO scores. Then they based the rate hikes, fees, and penalty interest rates on the fact that your credit score fell. Recently they have set up fees for cardholders who don't use their cards enough, or in one case, charge at least $2400 per year. Is it any wonder that the default rate on credit cards is now 11.49%? People are fed up.

Marketwatch reported a Citibank spokesman as saying: "These actions are necessary given the doubling of credit card losses across the industry from customers not paying back their loans and regulatory changes that eliminate repricing for that risk." That is to say: "We're kicking the hell out of you now, for as long as we can, because deadbeats like you haven't been paying us back, and the cops are going to crack down on our loan sharking operation next year." My take on this earlier in this blog was exactly correct: 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. And they have. 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.

The new law takes effect Feb 22. It was passed last May, but it gave the banks ten months before they had to cease and desist all the dirty practices that have gouged consumers for years. That's was just like giving the bad guys a year head start before you go after them, and look what they have done with that time.

A Strange Connection

If you read the web each day it sometimes happens that odd and apparently unrelated stories make a strange connection in your head. Here's one I bumped into this morning. Some of you may recall a story that crossed the news wires last August about a man named Joseph Moshe who was arrested in a police standoff in LA. The mainstream press loved the story at first. A FOX affiliate gave it a full 8 hours of "Breaking News" coverage. NBC reported at that time that: "According to police and prosecutors, Moshe called the Los Angeles Police Department's Command Division on Wednesday and threatened to blow up the White House." Here's how the LA Times covered it that day.

But digging deeper I find numerous stories revealing that Moshe made no threat to the White House. What did he do to incur the wrath of the FBI and SWAT? He was reported to have called in to a local talk radio show claiming that he was a microbiologist, and that a big pharmaceutical company, (Baxter) was going to release a tainted vaccine that was really an engineered bioweapon from one of its facilities in the Ukraine. He called the "Dr. True Ott Show," and a little research on Ott will reveal that he's been stumping against the H1N1 vaccine and the threat of "forced vaccinations" as part of a grand conspiracy connected to the "New World Order." So the inference is that Ott would give Moshe a sympathetic ear. These stories allege that the threat Moshe made was that he was going to "go public" with this information about the bioweapon release in the Ukraine. Moshe was arrested after enduring multiple barrages of tear gas and pepper spray, and a Taser. He was then apparently deported to Israel, and some stories claim he was secretly an agent for the Israeli MOSSAD.

All of this happened last August 17-21. You can google it up, but you will find that most of the mainstream news reports of this incident are now buried deep in the results. Most of what you will find is now carried on sites like "Conspiracyplanet" and "Above Top Secret." OK, so there's a lot of wild speculation on the Internet and plenty of scary conspiracy stories.

But suddenly, all in the last week or so, we get some alarming news about a strange viral infection that begins like the flu and then suddenly gets much worse, causing a massive Cytokine storm that floods the lungs with blood and fluid, much like plague or hemorrhagic fever. And here's the odd thing about this story... Where is this outbreak occurring? The Ukraine, 3 months after the Moshe story broke, and in exactly the place he claimed the bioweapon would be released. This is now the story in Ukraine, where a glance at today's headlines reads like this:

Mystery outbreak sparks WHO concern as disease spreads
Ukraine to make 1 million medical masks
Ukraine closes all schools to fight swine flu
Experts from WHO begin work in Ukraine
Number of people with viral pneumonia rapidly growing in Lviv
Experts: Flu epidemic could effect stock market
1 billion allocated to fight flu epidemic
Virus spreads to Poland

Was Moshe a raving lunatic willing to endure tear gas, pepper spray and a taser to try and reach safety at the Israeli embassy before being apprehended? There's one other possibility...Perhaps he was telling the truth.

False Dawn

"Economists" were polled again and they say that the recently announced 3.5% spike in GDP is evidence the recession has ended. But Martin Weiss took that assessment to task today with a warning and some very astute analysis from John Williams and Jim Grant. The "recovery," they say, is a false dawn. Weiss goes so far as to call it a "hoax."

How did we get that 3.5%? Williams calculates that 1.7% was contributed by auto sales, the rush to trade in clunkers for free government money. Sales spiked to near normal levels for 30 days, then collapsed again after the "Cash for Clunkers" program expired. So the government simply bought 1.7% of the reported 3.5% increase. Another 0.6% came from subsidized housing construction. Housing construction? With 25 months of unsold housing and a raft of unprocessed foreclosures behind them, why in the world would anyone be building more new housing in this country? To be blunt then, we got another 0.6% by building something we simply don't need at all--wasted dollars. Lastly, Williams notes that another 0.9% came from companies replacing inventory. They were not ordering due to record low consumer spending, but now, with Christmas looming and inventories low, retailers had to order in new stock. Add that up and you get 3.2%, or almost all (92%) of the "recovery." And most of that was simply government stimulus.

So the real economy is not doing anything at all that an honest "economist" should consider healthy growth. Weiss quotes another analyst, Jim Grant, who estimates the government stimulus applied to try an stop this recession is 54 times greater than that applied to the Great Depression. In effect, we have the best recovery that government money can buy. But with deficits and total government debt now at truly staggering levels, how long can Uncle Sam continue to foot the bill?

Government spending cannot replace the real economy, and therefore an uptick largely dependent on government spending is, as Weiss puts it: "all part and parcel of the Great Recovery Hoax of 2009-2010."

Meanwhile nine more banks failed while we were all out celebrating Halloween and watching the Yankees working on another World Series. I was invited to a costume party in Carmel, one of California's most wealthy enclaves, where homes are still "offered" for multiple millions and art galleries abound. In the middle of a crowded bar filled with witches, headless ladies, ghosts, and other ghoulish figures, I looked out and saw a lone man, obviously homeless, pulling a small cart with a backpack filled with all his worldly possessions. It was an odd thing to see in a place like Carmel, and I'll admit that I wondered at first if he was really homeless, or if that was just his Halloween costume. Me? With only a few hours notice I decided to dress up as the most frightening thing I could possibly imagine. I donned my dockers and a nice navy blue blazer and went as a Wall Street Investment Banker. After all, they've done more damage to the nation than Godzilla, Rodan, King Kong, T-Rex or any other monster we've dreampt up.

So now the last of the Halloween candy will go on sale and the markets will stock up on turkey and pumpkin pie as we hurtle toward the next guidepost on the road to "recovery," Black Friday. It may have a new meaning this year if the "consumers" remain on their credit starved diet. Stay tuned.