Religious Rituals of the Financial Classes

GREETINGS FROM SEDONA…

It appears that Wall Street warriors require special rituals to satisfy their craving for meaning in lives, along with seeking signs and omens for the future course of the economy and financial markets.  This applies to economists as well.  When I first entered the world of Wall Street in 1978 there was a ritual every Thursday afternoon at 4:15pm where we all huddled around the office news tape awaiting the latest money supply data.  Fortunes were made and lost by finance professionals betting on that number.  The subject and frequency of the ritual has changed over the years, morphing into the current incarnation of the jobs report monthly meringue.

Though not the most important data released this week, we begin by paying homage along with everyone else by noting that the bogus headline unemployment rate dropped from 9.4% to 9%.  The reason for the drop was 500,000 poor souls became so discouraged about their job prospects that they quit looking.  Employing some perspective, the number of employed has remained virtually unchanged from its low point in this megacycle.

Worse yet, the employment /population ratio remains near its low after a historic plunge.

This is all unprecedented in post WWII data and confirms the alarmist’s view that this economy really is the worst since the depression.  The picture for the labor force participation rate is even worse (hitting a new low) because so many people have given up any hope of finding a job anytime soon – the worst development of all, and eventually a dangerous one.

The final chart uses a different set of jobs data, but is useful in comparing the current cycle to previous ones.

What is really scary is that, despite $trillions of stimulus and fed cyber cash creation, not only has there been virtually no improvement in the key employment situation, but unmistakable signs of dangerously increasing prices are popping up all over the world, touching off food riots in poor countries everywhere.  Earlier posts have dealt with several reasons why employment has not recovered, including the wipeout of home equity for budding entrepreneurs of all ages.  The latest data is just another depressing sign along our road to ruin.

Continuing on with releases of lesser important data (saving the best/worst for last) we find that both total mortgage loans in foreclosure and homes receiving foreclosure notices both reached new highs in 2010 despite this being a full year of recovery and growth according to government data.  Even after completing the process and repossessing over 1,000,000 homes, there are still 4.3 million homes in foreclosure for more than 90 days delinquent.  It is almost certain that both will rise again in 2011.  In other words, housing is deeper in the dumper and getting worse.

Even the best data is not reflecting how long it really takes to go from the first missed payment to foreclosure, repossession and eviction.  Most sources show the average length of about 500 days.  By my reckoning, if you stopped paying your mortgage loan today it will take a minimum of two and almost certainly three years of rent free living before you must move out.  The public will learn of this eventually.  I leave it to you to divine what the public will do with that information.  Please do not even fantasize about buying a house!!!!!

The commercial real estate market is just as bad.  Those shuttered stores you see everywhere are not coming back, and not just because of the bad economy.  In past posts I have discussed the depressing demographic effects of the aging boomer generation.  On top of that is the rise of online shopping – even for an old dog like me.  Those empty brick and mortar retail establishments will become rubble in the not very distant future, and the loans they collateralize will never be repaid.

Underscoring the point is that (according to respected retail analyst Howard Davidowitz) Wal-Mart has shown declining same store sales for the last six quarters.  In addition, Gallup’s daily polling results show there has been virtually no increase in purely discretionary spending throughout this so called recovery.  Government retail sales data, which includes nondiscretionary purchases, contains several flaws in methodology including survivorship bias (they can only survey surviving enterprises and do not subtract volumes of those that closed).  This all neatly dovetails with the “two Americas” observation of John Edwards now becoming reality.  The top 20% are doing just dandy while the bottom 60% (Wal-Mart customers) are getting crushed.

None of this is not supposed to happen according to koo koo Keynesian economic theory religiously implemented by everyone in power (including nearly all so-called free market, limited government righties).  In other words, we are depressingly repeating the stagflation of the 1970’s – only worse.  For those of you that still believe the government propaganda regarding the economy generally and inflation in particular, I suggest you carefully review all of your expenditures for the last couple of years and see what you find.  I hope you don’t spend a lot on gasoline and heating oil.

Rape the Retiree and Screw the Saver – ZIP a dee doo dah

Easily the most important information released this week was that total compensation on Wall Street hit a new record at about $135 billion.  This is not a recovery high, but an all time high!!!!!  It was accomplished by policy deliberately designed to screw savers and rape retirees.

There is no doubt that any of you could make mucho moolah if you could borrow from the government at zero per cent and re-lend to that same government at a higher rate – guaranteed safety for you profit, of course.  This is how the bankster class made all that dough.  The Federal Reserve has, for some time now, enforced a zero interest rate policy (ZIRP) which means that savers and retirees get zip and the banksters get unimaginably rich on the transfer of wealth in a reverse Robin Hood process.

This explains a great deal why government printing policy has not worked and will make things much worse.  The aging boomers would normally be expected to spend less, save more and become much more conservative in deploying their assets (favoring savings type vehicles).  Therefore, getting zero on their savings only exacerbates the boomers’ demographic decline in spending.  At least in the near term, this hurts the economy generally as well as the boomers specifically.  Theft is never a good thing – even legalized pocket picking by the financial elites.

All the best to you all,

Stephen Reiss
[email protected]

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