MANDELMAN’S MONTHLY MUSELETTER – VERSION 8.0
Yes, it’s that time again…
Okay, so I figure it’s been a month plus since the last Mandelman’s Monthly Museletter, but the last one was so darn long, mostly because I had so much fun writing the piece about the homeowner meeting held in Phoenix, by the Arizona Housing Department, that I thought I’d bounce back with something much more, shall we say… pithy.
So, here goes… pithy… Mandelman style… enjoy!
1. Oregon Woman Accuses Vice President Al Gore of Sexual Misconduct in 2006
She’s a Portland massage therapist and she has accused the Vice President of “unwanted sexual contact,” during her visit to the Veep’s room while he was staying at a hotel in 2006. Vice President Gore responded immediately when he told reporters in no uncertain terms: “I did not have sexual relations with that woman.”
Asked why she’d make such an allegation, Gore replied that he wasn’t sure, but that it likely depended what the definition of “is,” was.
Actually, the truth of the matter is that the DA has declined to file charges due to a lack of evidence, officials said last week. But, it was just too good for me to overlook. Some things write themselves, you understand.
2. Fear Deflation, Pray for Inflation Bloomberg, June 7, 2010
According to figures released by the Labor Department on May 19th, The consumer price index dropped 0.1 percent in April, the first such decrease since March 2009, Take out gas and food and what is referred to as the “core rate” of inflation was unchanged, the smallest 12-month gain in 40 years. This is what’s referred to as deflation, and here’s a definition:
Definition of Deflation:
A decline in general price levels, often caused by a reduction in the supply of money and/or credit. (A reduction in the supply of money or credit? Sound familiar?) Deflation can also be brought about by direct contractions in spending, either in the form of a reduction in government spending, personal spending or investment spending. (Well, I wouldn’t bother looking for any reduction in government spending, but the other two? Hell, yes we have.) Deflation has also had the side effect of increasing unemployment in an economy, since the process often leads to a lower level of demand in the economy. (I’d say it’s a pretty good match, how about you?)
Meanwhile, the U.S. debt has almost doubled to $7.96 trillion from $4.4 trillion in mid-2007. The Obama administration is financing the spending that was intended to spur the economy, and our increasing budget deficit. So, we spent trillions to spur the economy last year, no secret there. How’d it work out for you? I’m not feeling that spurred.
Below you’ll find out how well it worked in the housing market. While the incentives were there, we had a little bit of activity, but as soon as it stopped… and all stimulus stops eventually… sales fell off a cliff. Cash for clunkers cost about a billion bucks… how’d that go? Any residual effect, other than there are fewer buyers now cause we pushed them all into the special sale days then? Nope, none. We stimulated nothing in the way of actual demand… we just borrowed from future demand.
And on top of foolishly spending trillions to stimulate nothing, except maybe banker bonuses, now we’re financing that spending… putting it on our favorite national credt card: American Excess. Perfect, so now we can pay for the Cash for Clunkers program with interest over the next Lord knows how many years all the while getting no benefit from the amount being spent.
Michael Silverstein’s Ode to Deflation
The Fed’s new concern
Prices are sinking
They say they discern
But about this new thinking
I’m way out ahead
In deflation’s cold realm
I’ve long had to tread
My whole life’s deflated
It’s lost it’s old puff
What used to be easy,
Has now gotten tough
By a host of deep downturns
I have been beset
The only thing rising
Is my credit debt
3. And now the latest from Nobel Prize Winning Economist, Paul Krugman
“We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.”
Krugman went on to say that he plans to supplement his own personal income in the years to come by working as a motivational speaker, and through sales of his new exercise DVD, “Sidestepping Authority,” featuring Paul’s new iTunes playlist, “Songs to Commit Suicide By.”
Order today for $19.95, but if you order next month, it’s only $14.95, and by Christmas… we’re hoping for $9.95 OBO!
4. HAMP’s Supplemental Directive Issued May 11, 2010, announced the details of the new Home Affordable Unemployment Program, or “UP”.
As of July 1st, unemployment income can no longer considered income for HAMP purposes because unemployed borrowers will have to be considered for the UP program. The “UP” program… is that someone’s idea of a joke?
A borrower who is unemployed and requests assistance under HAMP must be evaluated for and, if qualified, receive an UP forbearance plan before the borrower may be considered for HAMP. For borrowers being considered for trial period plans with effective dates on or after July 1, 2010, servicers may no longer consider unemployment insurance benefits as a source of income when evaluating borrowers for HAMP. For purposes of this Supplemental Directive, the term “borrower” includes any co-borrower.
However… I’m told that subsequent to that directive, on June 3rd, or thereabouts a waiver postponing UP may have been issued, so please check it youself before driving anyone from the plan. Check with the Vice President of Modification Prevention at your favorite HAMP serivcer, or call the new Office of the Obstructionist at 800-BITE-ME.
President Obama, when asked what he wanted unemployed people to remember about the new plan to help the unemployed, said: “It’s for YOU!”
So, just remember, the president said to the millions unable to find work… “UP… YOURS!”
Tax credits end and straight to a 33 percent decline
Many pretended to be surprised about the collapse of new homes sales in May, which sank 33 percent reaching the lowest level on record in the U.S. Experts say that potential buyers stopped shopping for homes because of unusually pleasant weather during the month in most parts of the country, and maybe some stopped because they could no longer receive government tax credits, but no more than a handful fell into this category, according to a study published by someone claiming to have published a study.
The Commerce Department said that it’s just another sign that the housing market, which was destroyed a few years back largely by millions of lying, irresponsible sub-prime borrowers, many of whom had brown skin, is still struggling to recover, and could weaken the broader economic recovery that is already being enjoyed by tens of elitists employed by the banking industry.
There was also a disappointing report issued earlier in the week showing sales of previously occupied homes had dipped in May, but industry analysts, paid to make statements on television said that we don’t remember seeing what and who and whatever we’re talking about, so sha na na, and there we go.
Some still wanted to link the sudden precitipious drop in new-home sales to the expiration of federal tax credits of up to $8,000, but others say that near 20% unemployment and no job growth are also factors that can impact the market. With mortgage remaining at rates that are near-historic lows, however, many still blame the pleasant weather and any rain or wind that may have taken people’s minds off buying a home in May. Some said they wanted to buy homes in May, but were simply too busy fastening the cords attached to their bodies to 100-pound boulders before jumping into lakes and rivers in all 50 states.
Paul Dales, U.S. economist with Capital Economics,” paraphrasing what he is said to have wrote in a note to his clients:
“We fear that the appetite to buy a home has disappeared alongside the tax credit, after all, unemployment remains high among poor people, and job security… or rather security guard jobs are still few and far between… and and credit conditions are still a tad on the tight side for those with FICO scores under 900.”
Fed Chairman Ben Bernanke continued to express his total confidence that the nation won’t fall back into a “double dip” recession. At the same time, the recovery remains vulnerable to threats and chief among them is a fragile housing market.
New-home sales fell to a seasonally adjusted annual sales pace of 300,000, the government said last Wednesday, the slowest sales pace on record dating back to 1963. It also was the largest monthly drop on record.
Sales have now sunk 78 percent from their peak in July 2005, but 1963 was a good year in other ways, a government spokesperson was quick to add. For example, the weather was quite nice that year as I remember it.
6. BMO Capital Markets: Go to Cash – In Plain English and My new view of the U.S.A.
Before I even print the tiny little bit of what BMO Capital Markets has to say about our economic situation, I’ve got to tell you… BMO and this document were like a slap in the face… the USA no longer feels like #1 at anything to me.
And I was born and raised during the wonder years so that’s a big deal. I was allowed to stay up late to watch American Superheroes land on the damn moon, for heaven’s sake. I watched John Wayne tame the West and almost singlehandidly win WWII week after week after week after week. We had Howard Hughes, comic books like Richie Rich, JFK, and the New York Hilton.
We were the land of Cadillacs and Lincolns, Harvard University and MIT, riding lawn mowers, Mickey Mantle and US Steel… heck, even our mid-range family motels had Color TVs and Pools. We had a black family that moved on up to the East Side and had as much or more than the rich white family, and we had Shaft. We were THE country where not only was anything possible, it was probable, and maybe even inevitable.
The rest of the world didn’t have anything to compare to what we had over here, and I knew that to be the case, because I had seen it for myself. You want to talk culture shock? I knew culture shock.
The first time I went to London it was 1970. The Age of Acquarius had only recently dawned. We flew over on a 747, by itself the epitome of America the superpower, JFK International to Heathrow. London in 1970 had, in many ways, just cleaned up the rubble left by WWII; in fact you had the impression that there were still a few piles left about here and there. You could close your eyes and hear the air raid sirens and see the flames and fire hoses. They wrapped your fish and chips in yesterday’s day’s Times, and you ate it with a mixture of salt, vinegar and newspaper ink.
England’s middle class families were storing food in “larders,” slightly cool closets, as if the refridgerator was yet to be invented. In terms of clothing, everything was itchy. And let me tell you… when you checked into a hotel, you walked up nine flights, and slept on sheets that smelled of someone old. The view out the window of the narrow iron fire escapes and service entrances were something out of Oliver Twist. And I won’t even describe what was served for breakfast, except to say that just because it comes from a pig and has been packed in salt, doesn’t make it bacon.
You went down the hall for the W.C. (Water Closet) when you needed the bathroom. I spent a good half an hour once looking for the handle, only to be told by my father that it was hanging from a chain over my head, which was just about the last place on the planet I would have thought to look. In fact, I would have looked for the handle down the hall in another room before I’d thought that perhaps it was hanging from the ceiling. You’d pull it, and basically an atom bomb would explode. My parents probably don’t fully appreciate how lucky they were that I didn’t fall eleven stories to my death in a panicked attempt to save myself when the bomb went off.
There was no Color T.V. or Pool, but even where there was a black and white television set, there was nothing on it to watch, save maybe an hour or two a week, when if you were lucky, John Wayne was still kicking someone’s ass. And the cars… we Americans could put their cars in our trunks, and don’t even think about FM radio or air conditioning.
If you had brought a Lincoln Mark IV to London in 1970, the power windows alone would have been the equivalent of having a jet-pak personal flying device. And this was England… France was worse. You want to know why in Paris they’re always sitting outside in cafés on the Left Bank or walking at night along the Champs-Élysées? Because no one wants to go inside their hotel room, that’s why. Three nights in a hotel in France will make you kiss the television set’s screen when the BBC comes on in London, and then you can watch three hours of some old guy sitting in a chair talking about the chemical makeup of Dover’s white cliffs.
Of course, all that was before we lied and lost in Viet Nam, saw and sang of four dead college students gunned down in O-hi-o, and then watched Nixon spend his Saturday night firing the Attorney General before being run out of town on a rail. When Gerald Ford pardoned him after being sworn into office we knew the fix was in. We stopped caring right about then, if we hadn’t already. Besides, we were more concerned about whether our license plates ended in an odd or even number to see if we’d be allowed to wait for two hours in a line to fill up with gas.
It would be another decade before Ronald Reagan would make us feel truly proud to be Americans once again. It always seemed to me in many ways, the Great Depression, which had begun in 1929, had really ended in 1984, but at the same time I also knew with certainty that we were the United States of America, and with all of our problems, the rest of the world was only trying to catch up… and much of it wasn’t coming up fast.
Then I found the document, published by BMO Capital Markets, from which I pulled the two short paragraphs characterizing today’s economic conditions below… and wow, I tell you what… WOW! I knew we had lost most of out lead over the last twenty years, but I hadn’t realized just how bad things had become. There’s a link at the beginning of this diatribe that will tale you to the BMO Capital markets document. You’ll have to do some clicking around, but if you like the subject matter, it’s damn impressive.
My point about this country is that when I was reading the BMO report, it occurred to me not only how thorough and objective it was, but how meticulously prepared and presented it clearly was as well. Like, I realized that for one thing, if it were made in the USA, it would likely be more one sided, more salesy, and comparatively, well… flat.
Like, no one here would have taken the time to attend to the details, or include the number of sources because, hey… who has time for that crap anymore? I mean, in this country we can’t even answer the phone anymore… it’s press eight to hear a duck quack, no matter where you’re calling because we’ve squeezed every nickel of profit, we’ve maximized every efficiency, we’ve reengineered every quality improvement initiative all in the name of shareholder returns and Wall St. banking fees of one kind or another.
Just think of how many people in this country’s C-Suites have learned to avoid being the one who leaves the meeting for a conference call without the action item belonging to them. They essentially make their living talking on the phone and producing nothing.
Okay, that’s enough… I think I’ve made my point. Here are the reasons for my ranting on about this… we’re in big trouble, economically speaking, and here’s what BOM Capital Markets has to say. When you’re done, check out the document… it may be a little too technical for a lot of people, but some will probably love it.
We advocate switching out of equity positions and going to cash.
The European sovereign debt crisis appears to be nowhere near over. The global credit environment is worsening. Cost of capital is going up and availability is going down. There are large gaps between where the credit market prices risk and where the equity market is priced. Equity is lagging the deterioration in credit conditions. Moves in currency, equity and commodity markets are mirroring the moves in the credit market. Global growth, in a credit-constrained environment, will slow. Profits will be squeezed by the higher cost of capital.
The crisis has exposed the decline of USA hegemony across the globe.
Apart from the credit freeze, spending by consumers will also decrease in the forthcoming months because of falling property value, the end of withdrawing money from equity (that had shot up during the boom years), increasing unemployment and falling income. All the ingredients are mixing together to make for an intense and severe depression. Meanwhile thousands of homeless have taken to the streets as foreclosures increase.
Washington has not remained an idle spectator while the drama unfolded. It has taken vigorous action to prevent further worsening of the situation. In the short term it has been modestly successful but how far that will be sustained in the long run, time alone can tell.
About BMO Financial Group
Established in 1817, as Bank of Montreal, BMO Financial Group is a highly diversified financial services organization. With total assets of CAN$388 billion / US$359 billion as at October 31, 2009, and more than 36,000 employees, BMO provides a broad range of retail banking, wealth management and investment banking products and solutions.
WELL THAT’S IT FOR THIS ISSUE OF MANDELMAN’S MONTHLY MUSELETTER… DON’T MISS ANOTHER ONE WHEN YOU…
And, always remember…
The church is near, but the road is icy.
The tavern is far, but we will walk carefully.