Economy News, Ocean Economy

Does anything mean what it used to?

2009-12-20T07:21:00.000-08:00

Flashback May 24, 2006 CNN Money reported Yields throw the Fed a curve.

Fed Chairman Ben Bernanke repeated the view expressed by his predecessor Alan Greenspan that an inverted yield curve is no longer a good indicator of a recession ahead.

"In previous episodes when an inverted yield curve was followed by recession, the level of interest rates was quite high, consistent with considerable financial restraint. This time, both short- and long-term interest rates -- in nominal and real terms -- are relatively low by historical standards."

Apparently Greenspan and Bernanke are in agreement that the yield curve does not mean what it used to.

The Yield Curve 2000-2007

A snapshot as of February 26, 2007.

The above chart thanks to Bloomberg. Click to refresh.

Flash Forward February 26, 2007
Greenspan says Recession "possible" by end of year

Former Federal Reserve Chairman Alan Greenspan said Monday it is "possible" the U.S. economy might fall into recession by the end of the year. He said the U.S. economy has been expanding since 2001 and that there are signs the current economic cycle is coming to an end.

"When you get this far away from a recession, invariably forces build up for the next recession, and indeed we are beginning to see that sign," Greenspan said via satellite link to a business conference in Hong Kong. "For example in the U.S., profit margins ... have begun to stabilize, which is an early sign we are in the later stages of a cycle."

Greenspan also said he has seen no economic spillover effects from the slowdown in the U.S. housing market.

"We are now well into the contraction period and so far we have not had any major, significant spillover effects on the American economy from the contraction in housing," he said.

OK guys, which is it? Does the yield curve mean what it used to or not?

On February 17th Greenspan said Worst of U.S. housing slowdown over.

"I think the worst is behind us," Greenspan, 80, told a Toronto conference Wednesday, during a speech broadcast live via satellite. "We are in the midst of a very significant inventory liquidation of unsold new homes."

Greenspan"s comments represent a view similar to those of his successor, Ben S. Bernanke. Bernanke told the Senate Banking Committee this week that the Fed expects economic growth to strengthen "somewhat as the drag from housing diminishes."

Fed policymakers predicted gross domestic product will increase by 2.5 per cent to 3 per cent this year.

In the statement after the Federal Open Market Committee"s most recent meeting on Jan. 31, the Fed said recent data suggest "somewhat firmer economic growth," while the housing market is showing "some tentative signs of stabilization."

Housing Inventory

The Chicago Tribune is reporting Canceled contracts masked glut of homes

Housing analyst David Seiders told Chicago-area builders Thursday that the federal estimate of 3.5 million homes for sale at the end of 2006 is "grossly understated."

"There is a big inventory overhang out there, and it"s bigger than anybody understands," he said.

In an annual forecast on the local industry in Addison, Seiders, chief economist of the National Association of Home Builders, cited the high level of sales contract cancellations in 2006. It created a snag in the recordkeeping, so many homes marked as sales in government data ended up back on the market too late to be counted as inventory, he said.

"Cancellation rates more than doubled between the end of 2005 and the end of 2006, meaning that net sales for the year nationally may be down 65 percent."

Employment

In addition to the yield curve not meaning what it used to, it seems that employment does not mean what it used to either. The Wall Street Journal is reporting Policy Makers At Fed Rethink Inflation"s Roots.

For decades, a simple rule has governed how the Federal Reserve views the nation"s economy: When unemployment falls too low, inflation goes up, and vice versa.

But Fed officials have rethought that notion. They believe it takes a far bigger change in unemployment to affect inflation today than it did 25 years ago. Now, when inflation fluctuates, they are far more likely to blame temporary factors, such as changes in oil prices or rents, than a change in the jobless rate.

Summary

The yield curve seems to be strongly hinting at recession except for the fact that it does not mean what it used to. Besides, data suggests a "somewhat firmer economy".
Then again, "a recession is possible by the end of the year" so maybe the yield curve really does mean what it used to.
Of course if a recession does happen, a housing spillover will have nothing to do with it.
The primary reason we should not worry about a housing spillover is because it hasn"t mattered yet.
Besides, housing is stabilizing even though Housing Starts and Permits are Plunging.
And somehow "We are in the midst of a very significant inventory liquidation of unsold new homes" even though inventory is rapidly rising because of cancellations.
And finally, after a decade of thinking things through, the best the Fed can come up with regarding the cause of inflation is that it is not related to employment but instead it is caused by "temporary factors".

A careful analysis of the above comments leads me to believe that Greenspan and Bernanke both stepped through the magic looking glass and are now commenting on happenings in wonderland.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Dell Walks Away

2009-12-20T06:21:00.000-08:00

Walking away is becoming increasingly popular. The practice has now spread to commercial real estate.

Michael Dell of Dell Computers is the latest walker. He is walking away from a sweetheart call centre deal in Edmonton Canada.

Dell Canada is closing its Edmonton call centre after only three years, putting more than 900 people out of work. The computer giant said the move was part of company-wide efforts to "increase the efficiency of its business, improve performance and provide better value for customers."

Dell was lured to Edmonton by a 20-year sweetheart lease deal at Edmonton Research Park, and has consistently touted the call centre as a top-performing global facility. The deal with Edmonton Economic Development Corp. included a $1-a-year lease on 15 acres of land, and a property tax rebate worth $1.1 million. It becomes void if the number of employees drops below 500.

Building a stand-alone facility was part of the deal with the city, and the building displaced the Norwesters rugby club and other sports groups using the clubhouse, fields and volleyball courts. At the time, EEDC said the concessions - a first for the organization - were worth the extra $30 million a year in economic activity generated by luring the Round Rock, Texas-based company here.

Alternatives For Walkers

In the Business Of Walking Away we explored You Walk Away and their business model of providing legal advice to prospects for a fee. That is a model I understand. When it comes to making a decision involving hundreds of thousands of dollars, the upfront fee of $995 seems reasonable.

Today I found another site called Walk Away Now. The business model of Walk Away Now is buying homes. I am not fond of this model because the only way it can possibly work is if they pay you far less than your home is worth. They also have a plan to buy your home with a leaseback. I am especially leery of the leaseback model. Should the buyer for any reason default on his mortgage, the lessee will be forced out of the house.

Harry Macklowe From Mogul To "Super"

The Daily Intelligencer is reporting Harry Macklowe Doesn"t Own Those Seven Buildings Anymore.

Harry Macklowe got a little carried away last year: He bought seven midtown office buildings, including the General Motors Building, in ten days. He spent over $7 billion on the deal � but only $50 million of that was his own money.

My comment. The above paragraph is partially inaccurate. Macklowe purchased the General Motors Building for a then record $1.4 billion in 2003. That building is now reported to be worth as much as $3.8 billion.

Next week, his loans are coming due, and seeing as we"re smack in the middle of a worldwide credit crunch, there"s no way for him to refinance. Which is why this week, The Wall Street Journal has just reported, Harry has made a tentative agreement with his lender, Deutsche Bank, to turn the buildings over to them. No more buildings for Harry. Well, not exactly.

Even though Deutsche Bank would control the properties, "Macklowe would still retain the titles, to avoid triggering costly New York City transfer taxes, and Macklowe Properties would still manage the buildings." So basically, dude just went from being a mogul to being a super.

Poof $2.4 Billion Vaporized

Macklowe put up the General Motors Building as collateral on a foolish $7.6 billion real estate shopping spree with no money down and no cash on hand to make interest payments. Depending on the actual current value of the General Motors Building and terms of the workout with Deutsche Bank, he vaporized as much as $2.4 billion of personal wealth.

I am trying to understand the mentality of someone worth billions, willing to risk a huge portion of it, perhaps almost all of it, in an attempt to make more billions. What was it he thought he knew that Sam Zell didn"t?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

McCain Mailer Puts Palin On Top Of The Ticket

2009-12-20T05:07:00.000-08:00

New McCain Mailer Pushes Palin As Ticket-Head And Moderate

Cable Networks Cut Off McCain For Palin

The McCain campaign and the RNC are sending out a mailer that pushes Gov. Sarah Palin as both the figurehead of the GOP ticket and a centrist.

David Hicks may fight Guantanamo Bay conviction

2009-12-20T02:47:00.000-08:00

LONG-TIME Guantanamo Bay inmate David Hicks is considering challenging his conviction by a US military commission following President Barack Obama"s directive that all prosecutions be suspended and the controversial prison be shut.
Hicks"s father, Terry Hicks, told The Australian yesterday he had spoken to his son after Mr Obama"s inauguration to discuss how the former kangaroo-skinner might have his 2007 conviction overturned. "If it turns out that the challenge can be made, I believe it should be made, and of course David will go along those lines as well," Mr Hicks said. "But it could end up being that you can"t challenge it. We don"t know yet" Hicks was sent to Guantanamo Bay in January 2002 following his capture by Northern Alliance forces in Afghanistan shortly after the US-led invasion. In 2007, he signed a plea agreement in which he pleaded guilty to providing material support to a terror organisation. He was returned to Australia, where he served seven months in Adelaide"s Yatala prison before being released. But advocates for Hicks have long expressed concerns about the conditions under which he signed the agreement.
LinkHere

Freed Gitmo prisoner sues US

CNN

ISLAMABAD, Pakistan (CNN) � Muhammad Saad Iqbal is a free man afterserving more than six years at the U.S. military�s detention facility inGuantanamo Bay, Cuba � without any charge.
Now, Iqbal is suing the U.S. government for unlawful detention.
�I am angry in my heart,� Iqbal said in a recent interview. �It�s easyfor the U.S. government to say, �There are no charges found and he�s free.��But who will be responsible for seven years of my life?�

Obama: Right-Wing Attacks On Michelle "Out Of Bounds"

2009-12-20T02:13:00.000-08:00

In an interview with Katie Couric, Barack Obama says that the thing that made him angriest in the campaign was right-wing attacks on his wife Michelle.
COURIC: What did the McCain team do in the course of this campaign that made you the angriest?
OBAMA: You know, I, I think that, ahh, you know, I -- a lot of the stuff that has made me angry hasn"t directly come from the McCain campaign. I mean, I, I do think that there is a -- there is a Republican or rightwing -- media outlet-- set of media outlets that went after my wife for a while in a way that I thought was just completely out of bounds. And -- and I, you know, frankly I-- you know, I would have never considered or expected my allies to do something comparable to the spouse of an opponent. ... I just feel like family is -- are civilians. And they don"t sign up for this stuff. They support their -- their spouse. But generally, you know, they"re really -- should be bystanders in this process, even if they"re campaigning for you. You know, they"re saying nice things about -- about their -- their, in this case, their husbands. I mean, that"s what you expect.
LinkHere

Few in U.S. See Jazeera�s Coverage of Gaza War

2009-12-20T01:36:00.000-08:00

The Other Coverage Of War In Gaza... Hardly Seen In US

Last June, Al Jazeera English produced a report from Gaza about a young couple who were preparing to marry during the relative calm of the cease-fire between Hamas and the Israeli government, a time when they could finally shop for furniture and, as the reporter put it, let themselves �dream that a happy life together is within reach.�
Now that reporter, Ayman Mohyeldin, a former CNN producer, can be seen with a helmet and flak jacket answering questions from an anchor back in the studio in Doha, Qatar, describing the Israeli bombing and ground campaign in Gaza intended to stop Hamas missiles from being fired into Israel.
In a conflict where the Western news media have been largely prevented from reporting from Gaza because of restrictions imposed by the Israeli military, Al Jazeera has had a distinct advantage. It was already there.

More Than 1,000 in Iraq�s Forces Quit Basra Fight

2009-12-19T23:30:00.000-08:00

By STEPHEN FARRELL and JAMES GLANZ
Published: April 4, 2008
BAGHDAD � More than 1,000 Iraqi soldiers and policemen either refused to fight or simply abandoned their posts during the inconclusive assault against Shiite militias in Basra last week, a senior Iraqi government official said Thursday. Iraqi military officials said the group included dozens of officers, including at least two senior field commanders in the battle.
The desertions in the heat of a major battle cast fresh doubt on the effectiveness of the American-trained Iraqi security forces. The White House has conditioned further withdrawals of American troops on the readiness of the Iraqi military and police.
The crisis created by the desertions and other problems with the Basra operation was serious enough that Prime Minister Nuri Kamal al-Maliki hastily began funneling some 10,000 recruits from local Shiite tribes into his armed forces. That move has already generated anger among Sunni tribesmen whom Mr. Maliki has been much less eager to recruit despite their cooperation with the government in its fight against Sunni insurgents and criminal gangs.
A British military official said that Mr. Maliki had brought 6,600 reinforcements to Basra to join the 30,000 security personnel already stationed there, and a senior American military official said that he understood that 1,000 to 1,500 Iraqi forces had deserted or underperformed. That would represent a little over 4 percent of the total.
LinkHere

WANTED: Dead or Alive . . . REWARD!

2009-12-19T23:10:00.000-08:00

WANTED: Confirmation of whether or not the Constitution is DEAD or ALIVE.

Your REWARD: Become a hero and save the nation.

Details: This website provides evidence that Continuity of Government plans were actually instituted on 9/11, and may still be in effect. If true, America will not be able to end its nightmare until this fact is revealed to the public and until the COG plans are rescinded.

The entire Homeland Security Committee of Congress asked the White House to see documents related to Continuity of Government Plans, and the White House refused to share them, even though that committee has full security clearance to view such plans. Here is a brief video of DeFazio"s testimony to Congress on the topic (or here is the transcript).

In addition, Professor Peter Dale Scott asked Congressman DeFazio whether or not Continuity of Government plans were currently in effect, and that DeFazio responded that he did not know.

How to Claim Reward: Find out the answer to the simple question: are Continuity of Government plans currently in effect? No executive branch waffling or double-speak. Just a yes or no answer.

Ask your Congressman. Ask your Senator. Ask someone who would know.

Then let us know.

CNN: GOP Oprah boycott not hurting ratings

2009-12-19T21:13:00.000-08:00

A group of Republican women is angry that ultra-popular talk show host Oprah Winfrey, who has endorsed Barack Obama for president, won"t invite GOP vice presidential nominee Sarah Palin to speak to her show"s massive audience.Oprah"s backing Obama is unprecedented, and since announcing her endorsement last year, the Chicago-based host has said she won"t open her show to any presidential candidates. Obama"s only appearances on the show came in 2005 and 2006, before he"d officially launched his presidential campaign.Both prominent Chicagoans, Oprah and Obama knew each other before he became a nationally known politician. She said it was that connection that led her to endorse him but pledged not to use her show or magazine to promote his candidacy. "I made the decision that I have the right to do it as an American citizen," she said last year. "But I will not use my platform. I can use my own personal voice."That reasoning isn"t good enough for the Florida Federation of Republican Women, which has launched a nationwide boycott of all things Oprah. It doesn"t seem to be working.

LinkHere

111 Nations, But Not US, Adopt Cluster Bomb Treaty

2009-12-19T18:25:00.000-08:00

Shawn Pogatchnik, for The Associated Press, reports from Dublin, Ireland: "Chief negotiators of a landmark treaty banning cluster bombs predicted Friday that the United States will never again use the weapons, a critical component of American air and artillery power. The treaty formally adopted Friday by 111 nations, including many of America"s major NATO partners, would outlaw all current designs of cluster munitions and require destruction of stockpiles within eight years. It also opens the possibility that European allies could order US bases located in their countries to remove cluster bombs from their stocks."
LinkHere

CIA Secret "Torture" Prison Found at Fancy Horseback Riding Academy

2009-12-19T16:36:00.000-08:00

The CIA built one of its secret European prisons inside an exclusive riding academy outside Vilnius, Lithuania, a current Lithuanian government official and a former U.S. intelligence official told ABC News this week.

Where affluent Lithuanians once rode show horses and sipped coffee at a caf�, the CIA installed a concrete structure where it could use harsh tactics to interrogate up to eight suspected al-Qaeda terrorists at a time. A full report on the can be seen on ABC"s World News with Charles Gibson tonight.

"The activities in that prison were illegal," said human rights researcher John Sifton. "They included various forms of torture, including sleep deprivation, forced standing, painful stress positions."

Lithuanian officials provided ABC News with the documents of what they called a CIA front company, Elite, LLC, which purchased the property and built the "black site" in 2004.

Lithuania agreed to allow the CIA prison after President George W. Bush visited the country in 2002 and pledged support for Lithuania"s efforts to join NATO.

"The new members of NATO were so grateful for the U.S. role in getting them into that organization that they would do anything the U.S. asked for during that period," said former White House counterterrorism czar Richard Clarke, now an ABC News consultant. "They were eager to please and eager to be cooperative on security and on intelligence matters."
LinkHere

Sources Tell ABC News Top Al Qaeda Figures Held in Secret CIA Prisons
10 Out of 11 High-Value Terror Leaders Subjected to "Enhanced Interrogation Techniques"

Two CIA secret prisons were operating in Eastern Europe until last month when they were shut down following Human Rights Watch reports of their existence in Poland and Romania.

Current and former CIA officers speaking to ABC News on the condition of confidentiality say the United States scrambled to get all the suspects off European soil before Secretary of State Condoleezza Rice arrived there today. The officers say 11 top al Qaeda suspects have now been moved to a new CIA facility in the North African desert.

CIA officials asked ABC News not to name the specific countries where the prisons were located, citing security concerns.

The CIA declines to comment, but current and former intelligence officials tell ABC News that 11 top al Qaeda figures were all held at one point on a former Soviet air base in one Eastern European country. Several of them were later moved to a second Eastern European country.

All but one of these 11 high-value al Qaeda prisoners were subjected to the harshest interrogation techniques in the CIA"s secret arsenal, the so-called "enhanced interrogation techniques" authorized for use by about 14 CIA officers and first reported by ABC News on Nov. 18.

Rice today avoided directly answering the question of secret prisons in remarks made on her departure for Europe, where the issue of secret prisons and secret flights has caused a furor.

Without mentioning any country by name, Rice acknowledged special handling for certain terrorists.
LinkHere

List of 12 Operatives Held in CIA Prisons

Obama V. Press: White House Calling "Em Out

2009-12-19T15:45:00.000-08:00

"This thing has become a three-ring circus."

Obama aides say they can"t rely on reporters to referee public debates.

There was never a single moment when White House staff decided the major media outlets were falling down on the job. There were instead several such moments.
For press secretary Robert Gibbs, the realization came in early September, when the New York Times ran a front-page story about the bubbling parental outrage over President Obama"s plan to address schoolchildren -- even though the benign contents of the speech were not yet public. "You had to be like, "Wait a minute,"" says Gibbs. "This thing has become a three-ring circus." LinkHere

Obama Wins Health Care Debate

2009-12-19T13:04:00.000-08:00

Tonight President Obama did what he had to do - deliver a powerful speech on health care. The Huffington Post has full Text and Videos of Obama"s Health Care Speech for those who missed it.

Bear in mind this is NOT an endorsement of Obama"s plan. Indeed, president Obama does not even have a plan. Rather, he will sign whatever regulation gets passed by Congress.

Victory for Obama is getting something, anything, passed no matter how good or bad that legislation is. Moreover, we can easily see what he is willing to give up to get health care legislation passed.

For Republicans Something Better Than Nothing

The only standing ovation Obama received from the Republicans was on the issue of tort reform. That is the price Obama is willing to pay to get bipartisan support. All it takes is for a few senators to believe "something is better than nothing".

For icing on the cake, Obama praised Senator McCain. Once again, all Obama needs to do is win a handful of Republican senate votes to have this sail through as bipartisan effort. He will settle for a couple of senate votes.

Jeers Over Illegal Alien Coverage

Measured by very loud jeers, and rightfully so, no one in Congress believes Obama"s claim about illegal aliens receiving care. President Obama is being disingenuous and most in Congress know it. However, most won"t publicly admit it.

It is highly likely illegal aliens will not pay into the plan but will receive care anyway.

President Obama repeated his claim that no one will lose existing coverage. He cannot possibly know. If businesses decide it is cheaper to dump employees into the government plan they will do so in mass.

Where"s The Good Faith Deposit?

Earlier today Caroline Baum stated Obama�s Promises Could Use a Good-Faith Deposit

So what should the president say or do this evening in his attempt to enlist support for his health-care overhaul? He could start by explaining the seeming inconsistency in his plan to save money by spending money.

�If I went to my board of directors with a similar proposal for �cost reduction,� they would laugh me out of the conference room -- and then my job!� writes reader Michael Dunlop, vice president of operations/IT at Parts Associates Inc. in Cleveland.

Spend and Save

The Congressional Budget Office estimated the cost of various health-care plans approved by House of Representatives committees at $1 trillion over 10 years. Obama says he will pay for the bulk of the increase in spending by rooting out $500 billion in Medicare waste.

A good-faith deposit would resonate with the public after all the talk: 28 speeches on the subject of health care, or 121 if you include speeches and remarks where Obama mentioned health-care goals, according to political Web site Politico.

It would be a lot easier to start with cost containment, as outlined by David Walker, former comptroller of the Government Accountability Office and longtime deficit hawk, in a Sept. 4 Wall Street Journal interview. If the U.S. creates �new obligations� before it gets its fiscal house in order, �we�ll have a Thelma and Louise moment where we go over the cliff,� Walker says.

A CBS poll also found that 67 percent of Americans are confused about health-care reform and 60 percent think the president has failed to explain his plan clearly.

The poll numbers comport with reality on the ground. Lawmakers went home for the August recess to find constituents anxious about change and wary of signing away their current medical benefits and signing on to ObamaCare.

The president is going to have to convince those with health insurance why they will be better off under his plan.

That includes reconciling his promises to individuals with business economics. Obama has reiterated that individuals can keep their current plan. Yet employers may find it�s cheaper to pay a government-imposed penalty than provide coverage.

Did Obama Provide A Good Faith Deposit?

Tonight, after listening to the speech, inquiring minds are asking if Obama provided a "good faith estimate".

The answer is a resounding "No".

Unfortunately the question is moot. The intent of tonight"s speech was to win a handful of votes, not to provide clarity to anything.

Republicans Reply

A Republican surgeon gave a solid reply to Obama"s speech. Please consider a Reply to Obama speech by Charles Boustany

I read the bill Democrats passed through committee in July. It creates 53 new government bureaucracies, adds hundreds of billions to our national debt, and raises taxes on job-creators by $600 billion. And, it cuts Medicare by $500 billion, while doing virtually nothing to make the program better for our seniors.

The President had a chance tonight to take government-run health care off the table. Unfortunately, he didn�t do it.

...

We do have ideas the President hasn�t agreed with. We�re grateful the President mentioned medical liability reform, and we hope he�s serious. We need to establish tough liability reform standards, encourage speedy resolution of claims, and deter junk lawsuits that drive up the cost of care. Real reform must do this.

Let�s also talk about letting families and businesses buy insurance across state lines. I and many other Republicans believe that that will provide real choice and competition to lower the cost of health insurance. Unfortunately, the President disagrees.

You can read more about all these reforms at healthcare.gop.gov. These are common-sense reforms we can achieve right away � without destroying jobs, exploding the deficit, rationing care, or taking away the freedom American families cherish.

This Congress can pass meaningful reform soon to reduce some of the fear and anxiety families are feeling in these very difficult times. Working together in a bipartisan way, we can truly lower the cost of health care while improving quality for the American people. I�m Dr. Charles Boustany. Thanks for listening.

In his Speech Obama was critical of the amount Bush spent on the war. Wait a second. Isn"t Obama the peace president? If so where are the troops? Obama stated this will not add a penny to the deficit. If so, why do we have a $trillion deficit. The answer is we count only what we want to count. This is a criticism of both parties, not just Democrats.

Obama reiterated his idea that everyone must participate in a "Government Knows Best" mandate. He did not say what that will mean in terms of costs to generation Y, the Millennials. For more on Millennials, please see Spending Collapses In All Generation Groups.

What"s clear is generation Y and the wealthy will be subsidizing everyone else in socialized medical scheme. Some will agree with the idea, others not, but Obama pretends the issue isn"t there. Obama also pretends this is not socialized medicine.

If this was a genuine debate, Charles Boustany won. But this was not a genuine debate. This was a Hail Mary play hoping to resonate just enough to pick up a few votes. My scorecard says something will pass. For Obama, this is victory. Everyone else must decide for themselves. One thing is clear: Generation Y is getting the shaft.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Burn Rates

2009-12-19T12:02:00.000-08:00

John Doe on the Southern California Real Estate Bubble Crash Blog made an interesting post about Burn Rates.

Over the past few days, we"ve had the chance to review the proverbial Canary in the Coalmine, San Diego. It doesn"t look good. Inventory has been continuing its parabolic rise. It surpassed its all-time record set in July 1995 of 19,250 some time late last month. The population adjusted inventory record will likely be surpassed within 1 month, give or take a few weeks.

Median prices have been flat for at least a year, with considerable weakness shown in recent months that show down since summer last year. Housing analysts agree that houses are not like stocks, and prices will not go down because they have intrinsic value that is not like a piece of paper like stocks.

True, houses are not like stocks in every way, but a market is still a market, and certain attributes of a house ARE different than a stock.

One of the biggest differences between the typical house purchase and the typical stock purchase is that most homes have substantial holding costs while stocks often have little or none (not opportunity cost, just the cost to keep someone from taking it away from you). This is your burn rate. With flat or shrinking equity, time to sell means over time, you lose money, even if you are just standing still.

OK, so let"s look at some hard data:

1. According to Bubble Tracking, Current inventory stands at just over 20K and last months" sales were 2600. That puts us at roughly 7 3/4 months inventory, a decidedly bad place for the local area to be in.
2. In recent months, the average payment homeowners committed to was just over $2700/month. If you take the premise that the average home is going to take nearly 8 months to sell, the selling opportunity (new holding costs) for the current strike price could be as much as 7.75*2700=or about $20K If inventory goes higher to 10 months, it would be $27K. Keep in mind the average new payment includes equity rolled in, so we don"t really get a lift from current equity.
3. Interest rates are most likely on the rise. We demonstrated that the average spread between Fed Funds Rates and 30 Year rates were about 3%, current rates are about 2.5% too low (payments should be about 50% higher than they currently are). With net out-migration, don"t expect expanding rents or newcomers to handle the coming inventory.

The burn rate for many San Diegans should start to get difficult to handle in the near future.

I asked Mike Morgan of MorganFlorida his take on Burn Rates. At least San Diego is holding up better than Florida (for now). Not only does Florida have high carry costs, home prices are collapsing on top of it all. The insurance situation with hurricanes and sinkholes is not exactly helping either.

Here was Mike"s response:

I just completed a two day tour of Gulf Coast and East Coast Florida developments, visiting developments in Naples, Marco Island, Bonita Springs, Miami, Palm Beach and the Treasure Coast. After speaking with several sales agents for builders, it was clear they were all willing to make deals to make sales. This is unheard of. Historically, the listed price is the price. No more. Now, you can just about name your price and name you incentives from free upgrades to price reductions, a car, vacation timeshare, etc.

The most disturbing thing I heard was from the resale market. In the same developments where builders are trying to sell, the resale market is huge. We saw 20-50% numbers of the total number of homes in developments that are on the resale market listed in the local MLS systems. The builders agents are NOT selling homes. How can they, when the flippers are willing to undercut any price the builders can drop to. To analogize this, think about going to a new car dealer to buy a new car, but right next door is a lot filled with the same brand new cars for 10-20% less. Same car, same warranty and a wider selection, but 10-20% less. There is no reason to buy the car from the dealer. And there is no reason to buy these homes from the builder, when you can buy the same home for less from a flipper that is desperate to cut his losses.

We were the only traffic at any of the builders we visited. They had no other buyers and they all told me the same thing. Sales are dead, and they will do whatever it takes to make the sale. But we heard the same thing from the agents for the flippers. I�ll stake my reputation that we start seeing negative sales numbers in Q3 or Q4. It is inevitable. Moreover, with lower prices and higher selling expenses, margins will be squeezed to low single digits . . . if they are lucky.

Think about this. In the high-rise market with a 1.5M condo, the carrying costs for Condo Association Dues, maintenance, insurance and taxes are about $4,000 a month. And that is without a mortgage. Add an 80% mortgage and your carrying costs jump to more than $10,000 a month. For a $500,000 home the number is more than $3,000 a month. The builders have been telling the Street that the high end market has no investors. I found more flip inventory in the high end than the low end!

The carrying costs apply to flippers as well as builders. As the builders complete inventory and get a Certificate of Occupancy, they must start paying Insurance, Mortgages, Association Dues and taxes based on the appraised value of the units. That, combined with lower margins and a halt in sales will crush the builders� bottom lines.

The market is in far worse shape than I had anticipated. If some of the Wall Street Analysts got out of their offices and into the field, they�d be singing a different tune. And with another Fed increase inevitable after yesterday�s CPI, it is clear the builders are in more trouble than they have ever been in. It is different this time.

It�s a lot worse than I thought. And I have been accused of being too negative!
I will put more together next week.

Mike

Perhaps this explains why would be flippers are walking away from $80,000 deposits.
By the way, those are the lucky ones. Condo buyers that closed are trapped in a situation with no buyers and no renters. The foreclosure party has just started.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

OPR report will be devastating to Bush legal opinions

2009-12-19T10:12:00.000-08:00

SEC Issues Order To Protect Those Most Responsible For Naked Shorting

2009-12-19T07:21:00.000-08:00

The naked short selling saga continues. If the SEC was attempting to initiate a short squeeze in financials during options expirations week, it managed to do just. See Short Squeeze In Financials Continues.

Fannie Mae is up another 25% today to $13.66 in the wake of Selective Enforcement of Regulation SHO and Bernanke"s statement: "It"s important for Fannie Mae and Freddie Mac bonds and stocks to rise so they can keep raising capital and aid the mortgage market."

Selective Enforcement

As long as the investment banks and brokers were making money engaging in naked shorting of stocks, there was no problem. However, when the bears began using the tactic against the broker dealers and investment banks, it became time to selectively enforce the existing regulation.

Today the SEC has gone one step further. (sorry no link for the following)

Emergency Order amended

WASHINGTON (Dow Jones)--An emergency order issued by the Securities and Exchange Commission to impose new restrictions on short sales in 19 stocks will not apply to bona fide market makers, the SEC announced Friday.

The SEC amended the order at the recommendation of its staff to shield market makers from the new restrictions, which will take effect on Monday and could last for up to 30 days. It said the change was made to allow market makers "to facilitate customer orders in a fast-moving market without possible delays" that might come from complying with the emergency order "and to prevent substantial disruption to securities markets."

The SEC said the exemption covers registered market makers, block positioners and other market makers that sell short as part of their bona fide market making and hedging activities in the affected shares, as well as standardized options on the shares and exchange-traded funds that include the affected shares.

Bonafide Market makers

BNP Paribas Securities Corp
Bank of America Corp
Barclays PLC
Citigroup Inc
Credit Suisse Group
Daiwa Securities Group Inc
Deutsche Bank Group AG
Allianz SE
Goldman Sachs Group Inc
Royal Bank ADS
HSBC Holdings Plc ADS
JPMorgan Chase & Co
Lehman Brothers Holdings Inc
Merrill Lynch & Co Inc
Mizuho Financial Group Inc
Morgan Stanley
UBS AG

Here"s The Deal

Anyone in the above list can continue to naked short with full approval from the SEC. No one else can.

The implications are that the market makers will be accumulating massive quantities of financial shorts as everyone else is squeezed out.

Looking one step ahead, think what happens to the bid after everyone else is squeezed out and the market makers hold all the financial shorts.

If the intent of the SEC was to force prices up, it is going to fail big time, in due time. If the SEC"s intent was to temporarily increase the trading profits of the broker dealers, it will succeed.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

SEATTLE TIMES: New CEO: Gates Foundation learns from experiments

2009-12-19T06:09:00.000-08:00

The Bill & Melinda Gates Foundation spent billions of dollars exploring the idea that smaller high schools might result in higher graduation rates and better test scores. Instead, it found that the key to better education is not necessarily smaller schools but more effective teachers.

By DONNA GORDON BLANKINSHIP

Associated Press Writer

SEATTLE �

Some people might cringe while recounting how much money the foundation spent figuring this out. But the foundation"s new CEO, Jeff Raikes, smiles and uses it as an example to explain that the charity has the money to try things that might fail.

"Almost by definition, good philanthropy means we"re going to have to do some risky things, some speculative things to try and see what works and what doesn"t," Raikes said Wednesday during an interview with The Associated Press.

The foundation"s new "learner-in-chief" has spent the nine months since he was named CEO studying the operation, traveling around the world and figuring out how to balance the pressures of the economic downturn with the growing needs of people in developing nations.

The former Microsoft Corp. executive, who turns 51 on Friday, joined the foundation as its second CEO after Patty Stonesifer, another former Microsoft executive, announced her retirement and his friends Bill and Melinda Gates talked Raikes out of retiring.

In the past decade, the foundation has given away nearly $20 billion, mostly in global health, global development and U.S. education.

It has been ramping up its giving since Warren Buffett, head of Omaha, Neb.-based Berkshire Hathaway, announced in June 2006 that he would make annual donations of about $1.5 billion to the foundation, with the money to be distributed in the year it is donated.

Raikes is also from Nebraska, where he grew up on the family farm near Omaha. He and his wife, Tricia, formed the Raikes Foundation in 2002 to support youth development, education and community issues in the Seattle area.

He hasn"t lost his easygoing manner during his transformation from business leader to nonprofit CEO.

One of the things he"s learned is the foundation must take a different direction with its education grants. The most effective path, he said, is to support good, effective teachers.

Between 2000 and 2008, the foundation spent about $2 billion toward improving America"s high schools and another $2 billion for scholarships, primarily for low-income and minority students.

It saw graduation rates go up in many foundation-supported schools. But it didn"t see significant improvements in student achievement or in the number of students who left high school ready to enroll in college.

Raikes said the responsibility for social innovation often falls on nonprofit organizations because the private sector doesn"t see the profit margin in it and most citizens don"t want the government speculating with their tax dollars.

The foundation plans to continue to experiment with its education policy.

"We"re going to try some things and I"m quite confident that some things will succeed and I"m quite confident that some things will fail," Raikes said.

He noted that half of the more than 1 million students who drop out of school in the United States each year are from just 100 school districts.

What can make a difference for those kids? Raikes wants to find out.

The foundation also is investing money to improve data collection in public schools - in part, to better find out what works - and to help community colleges improve graduation rates.

Raikes talked of a study of the Los Angeles Unified School District after an initiative to reduce class sizes led to a liberalization of rules on who could be hired to teach.

The district found that whether a teacher had a certificate had no effect on student achievement.

Raikes said the district found that putting a great teacher in a low-income school helped students advance a grade and a half in one year. An ineffective teacher in a high-income school held student achievement back to about half a grade of progress in a year.

The Harvard researcher who studied the Los Angeles district, Thomas J. Kane, now works for the Gates Foundation as deputy director of education for data and research.

Kane and others will be figuring out how to use foundation money to define effective teaching, how to attract good teachers and help them improve, and how to reward them so they stay in the classroom, Raikes said.

"We really have to focus classroom-by-classroom," said Jim Morris, chief of staff at the L.A. district. "Every teacher matters just like every student matters."

The district recently examined its schools that had high student achievement despite poverty and a high percentage of students learning English as a second language, and found the schools have a lot in common, Morris said.

They have high expectations for kids, strong professional development for teachers, administrators who use data to guide teachers and learning, a group of teachers who work together to improve classroom learning, and a strong parent group.

But Morris said the key is excellent teachers. Everything else successful schools do is to support those teachers and what they do in the classroom, he said.

Because of the economy, the L.A. district is contemplating teacher layoffs, like most districts across the nation. Morris said it is trying to shrink central office staff and cut corners elsewhere to keep as many teaching jobs as possible.

Los Angeles Unified has about 37,000 teachers and expects to lay off between 2,100 and 2,500 before the next school year, he said.

---

On the Net:

Gates Foundation: http://www.gatesfoundation.org

L.A. Unified School District: http://notebook.lausd.net/portal/page?-pageid33,48254&-dadptl&-schemaptl-ep

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Ex-Marine Acquitted Of Slaying 4 in Iraq

2009-12-19T05:38:00.000-08:00

CHELSEA J. CARTER, THE ASSOCIATED PRESS
A former Marine accused of killing unarmed Iraqi detainees was acquitted of voluntary manslaughter Thursday in a first-of-its-kind federal trial. The jury took six hours to find Jose Luis Nazario Jr. not guilty of charges that he killed or caused others to kill four unarmed detainees on Nov. 9, 2004, in Fallujah, Iraq, during some of the fiercest fighting of the war... Prosecutors alleged that Nazario either killed or caused others to kill four unarmed Iraqi detainees in Fallujah during "Operation Phantom Fury," which resulted in house-to-house fighting. Other former Marines testified during the five-day trial that they did not see Nazario kill detainees but heard the gunshots. The case came to light in 2006 when Sgt. Ryan Weemer, Nazario"s former squadmate, volunteered details to a U.S. Secret Service job interviewer during a lie-detector screening that included a question about the most serious crime he ever committed. That screening was not admitted at Nazario"s trial... continua / continued

Revealed: FBI warned CIA repeatedly about interrogation

2009-12-19T04:19:00.000-08:00

Previously censored documents released late Friday by the Department of Justice have shed more light on the FBI investigation into CIA interrogation tactics. Part of the record shows how FBI officials understood that the "battleground tactics" used by the Pentagon were ineffective and wouldn"t lead to prosecutions. As early as 2003, the Federal Bureau of Investigations sent repeated warnings to the Department of Defense, but abusive interrogations occurred for 4 more years.

These latest documents were part of an ongoing Freedom of Information Act lawsuit being conducted by the American Civil Liberties Union. Last week, newly released memos indicated that the FBI began to conduct an investigation into CIA interrogation techniques and secret prisons, but was denied regular access to prisoners. Department of Justice officials decided that there was not enough evidence to prosecute CIA interrogators.

This week, fresh documents in the ACLU lawsuit go deeper into the conflict between the FBI and the Pentagon. The belief at the Bureau was that though the Army-based interrogation tactics were useful for battlefield information gathering, "the reliability of information obtained using such tactics is highly questionable, not to mention potentially legally inadmissible in court.� This memo from May 2003 brings important questions to mind: Did the Office of Legal Counsel lawyers drafting later memos for the CIA not know about these early warnings? Did the CIA dismiss these warnings altogether, or were they told to ignore them?

Senior officials from the Criminal Investigative Task Force �lamented the fact that many DHS [Defense Human Intelligence Services] interrogators seem to believe that the only way to elicit information from uncooperative detainees is to use aggressive techniques on them.�
LinkHere

"Our Earth Is Degenerate in These Latter Days. There Are Signs That the World Is Speedily Coming to an End. Bribery and Corruption Are Common"

2009-12-19T01:20:00.000-08:00

The quote above probably sounds like a garden-variety quote from a fundamentalist, right?

Why am I wasting space by repeating the quote?

It is actually from an Assyrian tablet from 2800 B.C.

Print this post

Five Points on the Markets, Earnings, Economy

2009-12-18T22:29:00.000-08:00

In this morning"s Breakfast with Dave, Rosenberg makes Five Points on the Markets, Earnings, Economy.

1. This remains a hope-based rally (with strong technicals). I say that because during this six-month 50%+ rally in the S&P 500, the U.S. economy has shed 2.4 million jobs, which is almost as many as we lost during the entire 2001-02 tech wreck � in just six months. The market�s ability to shrug off the loss of 2.4 million jobs is either a sign that it is treating this as old news or sees the cost-cutting as good news for profits. Either way, what we are seeing transpire is without precedent � the magnitude of the employment slide versus the magnitude of the market advance. Truly fascinating stuff.

2. Companies have not really been beating their earnings estimates � only the very final estimates heading into the reporting quarter. For example, the consensus view for 3Q EPS at the start of the year was $21.00, last we saw the estimates were down to just over $14.00. But there is a deeply rooted belief that earnings are coming in better than expected. This is a psychology that is difficult to break. It is completely unknown (for some reason) that corporate revenues are running at a -25% YoY rate, which compares to the -10% we saw at the worst part of the 2001-02 bear market and the -3% trend at the most negative point in 1991.

3. Valuation is a poor timing device but even on �normalized� trailing 10-year earnings, the S&P 500 is trading near 18x, which is now above the historical average of 16x.

4. All the growth we are seeing globally this year is due to fiscal stimulus; not just here in Canada and the U.S., but also in Korea, China, the U.K., and Continental Europe too. For 2010, the government�s share of global growth, by our estimates, will be 80%. In other words, there are still very few signs that organic private sector activity is stirring. For a Keynesian, government stimulus is necessary, but the question for an investor is the multiple one attaches to a global economy that is still relying on a defibrillator. The problem is that governments do not create income or wealth, and today�s stimulus is really a future tax liability. Curiously, that future tax liability is likely going to pose a roadblock for the return to a �normalized� $80 operating EPS estimate that strategists are now starting to pen in for 2011.

5. While Mr. Market may be pricing in a fine future for the U.S., but when the 3-month Treasury-bill yield is 13bps north of zero, which is completely abnormal, you know that there are still substantial fundamental imbalances that need to be worked through.

Treasuries Yields Topped In June

$TNX - 10 Year Treasury Yield

click on chart for sharper image

After hitting an intraday high just above 4 in June, 10-year treasuries seems to be having second thoughts about the strength and/or duration of the recovery.

Stock are pricing in one hell of a recovery in earnings, completely ignoring demographic factors, secular changes in consumer spending patterns, foreclosures, and a miserable jobs market that is unlikely to bottom for another year.

The latest earnings estimates for the third quarter are $14. Let"s do the math. 1000/ (14*4) = PE 18.

If $80 in earnings is on the horizon as some now claim, the treasury market does not see it. Nor do I.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Rumors of a possible compromise circulate

2009-12-18T21:40:00.000-08:00

Mehdi Noorbaksh, Harrisburg University of Science and Technology, emails a message to TehranBureau: "There is a possibility, and I am saying a possibility, for a compromise on the election result among the involved parties in Iran in the next couple of days. I received a call from Iran late last night indicating that there is a possibility for a runoff between Mousavi and Ahmadinejad. There are a few points that we should consider in this context."
His full message is here.

Excellent Video of Obamas" Speech clip, to check the crowds out.

2009-12-18T19:44:00.000-08:00

View of Barack Obama�s Speech at Invesco Field in Denver

This Wanker is unfriking believable, God save us all

2009-12-18T18:21:00.000-08:00

McCain: I Turn To Palin For Foreign Policy Advice

In an interview this morning with NPR, Sen. John McCain (R-AZ) said that he has often turned to Gov. Sarah Palin (R-AK) for foreign policy advice:
NPR: Given what you�ve said Senator, is there an occasion where you could imagine turning to Governor Palin for advice in a foreign policy crisis.
MCCAIN: I�ve turned to her advice many times in the past, I can�t imagine turning to Senator Obama or Senator Biden because they�ve been wrong. They were wrong about Iraq, wrong about Russia �
NPR: But would you turn to Governor Palin?
MCCAIN: I certainly wouldn�t turn to them, and I�ve already turned to Governor Palin particularly on energy issues and I�ve appreciated her background and knowledge on that and many other issues.
According to the McCain campaign, Palin�s foreign policy experience that the senator is relying upon includes: 1) the fact that Alaska is near Russia, and 2) she allegedly �knows more about energy than probably anyone else in the United States of America.� In the NPR interview, McCain talked about Palin�s proximity to Russia, stating that it was important because �they have had certain relationships.� (They haven�t.)

Best Quotes on the Financial Crisis

2009-12-18T16:23:00.000-08:00

In case you missed them, here are some of the best quotes from the last few weeks on the financial crisis:

"The way Tim Geithner has structured the banking plan, the Obama Administration will, sooner or later, almost certainly be facing another AIG bonuses-type of outrage."

�Worsening economic figures are being used to confirm that more bailouts are needed rather than that previous ones might be failing. The logic is much like medieval blood letting: The patient died because we didn"t drain Enough of his blood.�

Senior S&L Regulator Says Government Engaging in Massive Cover-Up of Economic Crisis: "The entire strategy is to keep people from getting the facts"

Nobel economist Paul Krugman: "These days America is looking like the Bernie Madoff of economies: For many years it was held in respect, even awe, but it turns out to have been a fraud all along"

Nobel economist Joseph Stiglitz: "Quite frankly, this amounts to robbery of the American people. I don"t think it"s going to work because I think there"ll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer."

Congress Grayson: "Stop stealing our money"

Economist: "What we have is something perilously close to a dictatorship of the Fed and the Treasury, acting in the interests of Wall Street"

"The real AIG scandal is that the company"s trading partners are getting fully paid rather than taking a haircut."

Former AIG chief: Government used AIG "to funnel money to other institutions, including foreign banks"

Analyst: "Technically, the U.S. is already bankrupt because it has a debt that is almost four times the size of its economy"

Leading economist: ""The Treasury is spreading the fire, not putting it out"

Nobel Economist Ed Prescott: ""Don�t subsidize inefficiency.... let these businesses go bankrupt. They gambled, they lost. That�s part of life"

Nobel economist Myron Scholes: Existing over-the-counter CDS should be ""blown up" and closed out"

TARP watchdog: "We do not seem to be a priority for the Treasury Department"

TARP watchdog: "The very notion that anyone would infuse money into a financially troubled entity without demanding changes in management is preposterous."

Obama to Bankers: "�My administration is the only thing between you and the pitchforks."

Matthews To Obama Town Hall Protester: Why Did You Bring A "God Damn Gun"?

2009-12-18T13:45:00.000-08:00

Visit msnbc.com for Breaking News, World News, and News about the Economy

The Poisonous Queen Ahahahahahahah

2009-12-18T12:48:00.000-08:00

The Daily Show With Jon Stewart

M - Th 11p / 10c

The Poisonous Queen

comedycentral.com

Daily Show
Full Episodes

Economic Crisis

Political Humor

Happy New Year

2009-12-18T12:28:00.000-08:00

Happy New year to everyone in the 159 countries that visited this blog in December (and even to those in the 25 or co countries that did not).

click on image to see larger map

Happy New Year from our friends at Minyanville to all of you as well.

Click here to play video.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

CNBC: Obama Spokesman: Warren Buffett Was Criticizing Washington, Not the White House

2009-12-18T10:19:00.000-08:00

Companies:Berkshire Hathaway Inc.

The White House was watching Warren Buffett this morning on CNBC.

In his Squawk Box appearance, Buffett repeatedly criticized both parties for trying to take advantage of the financial crisis to push for their own partisan goals. He recommended both sides concentrate only on reviving the economy, noting that he"s heard some Democrats say a "crisis is a terrible thing to waste."

"In my view, it"s an economic war, and--I don"t think anybody on December 7th would have said a `war is a terrible thing to waste, and therefore we"re going to try and ram through a whole bunch of things and--but we expect to--expect the other party to unite behind us on the--on the big problem." It"s just a mistake, I think, when you"ve got one overriding objective, to try and muddle it up with a bunch of other things."

While expressing his continuing support for President Obama, Buffett called on him to send a clearer and more authoritative message to the American people about the government"s support for the financial system.

And he appeared to criticize a "cap and trade" system for reducing greenhouse gases, calling it a "regressive" tax that would be passed on to consumers.

At today"s White House briefing, Press Secretary Robert Gibbs was asked to respond. He sees a lot of common ground between Buffett"s views and those of the administration.

QUESTION: And the second question, Mr. Warren Buffett, who I guess you could say is an informal advisor to the President, did an interview this morning and he had obviously many fine things to say about the President, but he did say two things and I was wondering about your reaction. One, he referred to the cap and trade as a regressive tax that consumers would ultimately pay for; and then two, he said that the message, the economic message that the world was getting from this administration was "muddled." I was just wondering if you had a reaction to either of those.

GIBBS: Well, I would -- I think I would point you back to the transcript of Mr. Buffett in terms of your second question. I"m not entirely sure that the message wasn"t directed at Washington writ large. And I think --

QUESTION: Aren"t you "Washington writ large"?

ASK WARREN BUFFETT 2009

GIBBS: I think we dispensed with that several hundred years ago in a revolution. (Laughter.)

No, obviously there"s 535, plus the administration, that regularly are asked and share their opinions related to the economy. You know, I think that many of the things that Mr. Buffett said, the administration would understand and agree with -- particularly I think the stories that I read this morning talked about the notion that Mr. Buffett said Democrats and Republicans are going to have to get along and work together in order to get the country out of this economic mess. And I don"t -- this is me saying this, not him; I don"t want to paraphrase what he said -- but I think the administration believes that saying "no" isn"t an economic policy.

QUESTION: What about the cap and trade being --

GIBBS: Well, let me finish this one first. I think Mr. Buffett also said that we"re not likely to fix this in five minutes. I don"t think we"re likely to fix this in six weeks and six days; that the depth of the challenges we face -- as made even more apparent on Friday with rising unemployment figures -- denote the urgency of this problem, and the urgency with which the President pursued a recovery plan.

In terms of cap and trade, the President and the administration look forward to working with Congress to put a solution together -- a market-based solution that will drive us to energy independence and create a market for -- an even more robust market for alternative fuels and, as I said, the steps that we need to become energy independent.

This is a process that rewards the innovation of the market, a principle that many previously have espoused.

Current Berkshire stock prices:

Class A: [US;BRK.A 73195.0 --- UNCH (0) ]

Class B: [US;BRK.B 2310.05 -16.95 (-0.73%) ]

Related Links

Berkshire Hathaway Annual Letter to Shareholders 2008 - Read the latest Berkshire Letter

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This Week in 9/11 Truth

2009-12-18T07:57:00.000-08:00

This has been a fast-pace week. For those of who you have been busy to keep up, let me summarize:

President Jimmy Carter said calls for a new 9/11 investigation "sound good"

President Bill Clinton said he didn"t agree with the Bush investigation into 9/11 (he also said 9/11 was not an inside job, but he didn"t say it wasn"t intentionally allowed to happen or that the U.S. air force was not stood down)

9/11 truth was discussed again in the Japanese parliament

Conservative Arizona state senator Karen Johnson said she is a 9/11 truth seeker

Anti-war icon Tom Hayden encouraged people to keep on pushing for an investigation into 9/11

And a BBC anchor who reported on WTC7"s collapse early agrees there may be a "conspiracy

Indeed, the truth is coming out so quickly that the neocons are starting to panic. For example, the disinfo boys trotted out a ridiculous psyops wherein Al-Qaida"s No. 2 supposedly says that theories questioning the official version of 9/11 are propagated by Iran.

And White House speech writer and arch neocon David Frum violently assaulted a 9/11 truth activist for simply asking him some questions.

Is the tide starting to turn?

Judge: White House Aides Can Be Subpoenaed

2009-12-18T07:21:00.000-08:00

Karl Rove Held In Contempt By House Judiciary Committee

WASHINGTON � President Bush"s top advisers are not immune from congressional subpoenas, a federal judge ruled Thursday in an unprecedented dispute between the two political branches.
Congressional Democrats called the ruling a ringing endorsement of the principle that nobody is above the law. They swiftly announced that the Bush officials who have defied their subpoenas, including Bush"s former top adviser Karl Rove, must appear as part of a probe of whether the White House directed the firings of nine federal prosecutors. Democrats announced plans to open hearings at the height of election season.
The Bush administration was expected to appeal.
In his ruling, U.S. District Judge John Bates said there"s no legal basis for Bush"s argument and that his former legal counsel, Harriet Miers, must appear before Congress. If she wants to refuse to testify, he said, she must do so in person. The committee also has sought to force testimony from White House chief of staff Joshua Bolten.
"Harriet Miers is not immune from compelled congressional process; she is legally required to testify pursuant to a duly issued congressional subpoena," Bates wrote. He said that both Bolten and Miers must give Congress all nonprivileged documents related to the firings.

LinkHere

SRepublicans Unveil Health Care Plan

2009-12-18T00:28:00.000-08:00

GOP Health Care Plan Lets Patients Choose To Spend Own Money

The Republican Party has a deal for you: Under the health care proposal the GOP released Wednesday, you are fully entitled to spend your own money in the free market to purchase health insurance, a chief backer of the plan, Sen. Richard Burr (R-N.C.), said Wednesday.
=======
Patients then have a choice, said Burr. They can either choose a plan that doesn"t cover much and has high deductibles, or they can buy a better one.
LinkHere

Congressional Most Endangered List

2009-12-17T22:44:00.000-08:00

The San Francisco Chronicle is reporting Many vulnerable lawmakers said "no" to bailout.

Two-thirds of Congress" most vulnerable members � Republicans and Democrats alike � chose to protect their seats on Election Day rather than follow their party leaders and vote for an unpopular economic bailout plan.

Their votes helped doom the plan President Bush, congressional leaders and top economic officials said was critical.

"We"re all worried about losing our jobs," Rep. Paul Ryan, R-Wis., said, endorsing the bill and voting for it after leading a rebellion against an earlier version last week. "Most of us say, "I want this thing to pass, but I want you to vote for it, not me,"" he said, speaking for colleagues who have tougher re-election fights than his own.

The three vulnerable Republicans who voted "yes" were Reps. Christopher Shays of Connecticut, Mark Kirk of Illinois and Jon Porter of Nevada.

The three vulnerable Democrats voting "yes" were Tim Mahoney of Florida, Paul E. Kanjorski of Pennsylvania and Jerry McNerney of California.

Metrofax Most Vulnerable Target List

Note: The fax list is to every office of targeted reps. Please fax every office.

Congress,Paul Ryan,Congress,2022253393,2022253393
Congress,Paul Ryan,Congress,6087524711,6087524711
Congress,Paul Ryan,Congress,2626542156,2626542156
Congress,Paul Ryan,Congress,2626375689,2626375689
Congress,Christopher Shays,Congress,2022259629,2022259629
Congress,Christopher Shays,Congress,2035790771,2035790771
Congress,Christopher Shays,Congress,2022259629,2033571050
Congress,Mark S. Kirk,Congress,2022250837,2022250837
Congress,Mark S. Kirk,Congress,8479407143,8479407143
Congress,John C. Porter,Congress,2022252185,2022252185
Congress,John C. Porter,Congress,7024341378,7024341378
Congress,Timothy Mahoney,Congress,2022253132,2022253132
Congress,Timothy Mahoney,Congress,9416279101,9416279101
Congress,Timothy Mahoney,Congress,7728710651 ,7728710651
Congress,Paul E. Kanjorski,Congress,2022250764,2022250764
Congress,Paul E. Kanjorski,Congress,5708258685,5708258685
Congress,Paul E. Kanjorski,Congress,5704966439,5704966439
Congress,Gerald McNerney,Congress,2022260861,2022260861
Congress,Gerald McNerney,Congress,9257370734,9257370734
Congress,Gerald McNerney,Congress,2094768587,2094768587

Phone Numbers

Please phone every office.

Paul Ryan, Phone: (202) 225-3031 Fax: (202) 225-3393
Janesville, WI Phone: (608) 752-4050 Fax: (608) 752-4711
Kenosha, WI Phone: (262) 654-1901 Fax: (262) 654-2156
Racine, WI Phone: (262) 637-0510 Fax: (262) 637-5689

Christopher Shays, Phone: 202-225-5541 Fax:202-225-9629
Bridgeport Phone: 203-579-5870 Fax: 203-579-0771
Stamford Phone: 203-357-8277 Fax: 203-357-1050
Norwalk Phone: 203-866-6469 No Fax
Ridgefield Phone: 203-438-5953 No Fax
Shelton Phone 203-402-0426 No Fax

Mark S. Kirk, Phone: 202-225-4835 Fax: 202-225-0837
Northbrook, IL Phone: 847-940-0202 Fax: 847-940-7143

John C. Porter,Phone: 202-225-3252 Fax: 202-225-2185
Henderson Office Phone: 702-387-4941 Fax: 702-434-1378

Timothy Mahoney, Phone: (202) 225-5792 Fax: (202) 225-3132
Port Charlotte, Phone: (941) 627-9100 Fax: (941) 627-9101
Stuart, FL Phone: (772) 878-3181 Fax: (772) 871-0651

Paul E. Kanjorski, ph: 202-225-6511 fx: 202-225-0764
Wilkes-Barre, PA ph: 570-825-2200 fx: 570-825-8685
Scranton, PA ph: 570-496-1011 fx: 570-496-6439

Gerald McNerney, (202) 225-1947 Fax: (202) 225-4060
Pleasanton, CA (925) phone: 737-0727 Fax: (925) 737-0734
Stockton, CA 95207 phone: (209) 476-8552 Fax: (209) 476-8587

Fax Title: Scrap The Paulson Plan, Instead Try This

Today the Irish government announced a surprise decision to safeguard the Irish banking system for two years, guaranteeing all deposits, covered bonds, senior debt and dated subordinated debt of the four main banks.

The Result

Investors welcomed the news. By 0755 GMT, Allied Irish Banks PLC (AIB) rose 14%, Anglo Irish Bank PLC (ANGL.DB) rose 22%, Bank of Ireland PLC (IRE) rose6.7% , and Irish Life & Permanent PLC (IPM.DB) rose 22%.

Why Ireland"s Plan Works

What Ireland is fighting is the same thing that the Fed is trying to fight here (outflows from banks and money market funds into short term government debt.)

The problem is NOT mom and pop pulling bank deposits, it is corporate treasurers and state treasurers whose jobs are on the line pulling deposits from weak banks and putting them into stronger ones.

The fastest way for the US and other governments to solve this is to raise deposit insurance ceilings. This is a far better option than ballooning the Fed"s balance sheet more.

Furthermore, I would highlight that fully guaranteed deposits would put the US government even more at the top of the capital structure of banks. Existing senior debt is all of a sudden now fully subordinated to a potentially unlimited amount of insured deposit debt.

Why the Paulson Plan Fails

The Paulson plan fails because it does not stop mistrust between banks or mistrust by depositors. All it does is throw $700 billion in taxpayer money down a black hole.

The Paulson plan is also unconstitutional. There is no constitutional authority for the US Government or the Federal Reserve to use public (taxpayer) money for what is definitely a private purpose (bailing out Wall Street).

Finally, the Paulson plan takes time to implement fairly, and there are many holes in the oversight process.

How To Stop The Run On Banks

Temporarily guarantee all deposits at US Banks. Implement rules to ensure weak banks do not misuse this privilege by adopting risky lending practices. Conduct an orderly shut down all undercapitalized banks.

Modified Paulson Proposal Is A Disgrace

The modified Paulson bill is so full of holes and toothless provisions it is a disgrace to suggest it is close to being ready for a vote. Most importantly, the bill will not create a single job, nor will it solve the underlying economic problems. Over 190 major economists agree.

Fox Oversees Henhouse

The bill sets up an oversight board, which is directed to �ensure that the policies implemented� by Mr. Paulson are proper. Mr. Paulson is to be one of the five members of the board watching over his own actions. He is joined by the chairman of the Federal Reserve, the chairman of the Securities and Exchange Commission, the Housing Secretary and the director of the Federal Home Finance Agency.

The oversight committee is a complete joke.

New Proposal Cedes Congressional Authority To The Administration

Paulson, or whoever the next Treasury Secretary is, can buy whatever he wants, at whatever price he wants. Why should Congress give such authority to anyone at any time?

If you vote for this Bailout Bill I will vote against you.

I will do more than that, I will work actively for your opponent, no matter who that person is, doing everything in my power to contribute to your defeat.

If you vote for this bill I will contribute my time, energy and money to your opponent, whoever that may be.

I will talk to my friends, my family and my co-workers and urge them to do the same. I have already contacted many friends and have asked them to do the same.

Please scrap the Paulson proposal in entirety and try something that might work, that is constitutional, and does not put taxpayer money at risk. I have submitted such an alternative to consider. The Paulson proposal must be scrapped in entirety.

Your Name
Your Email Address

If you live in their district, please add your address and phone number.

Thanks
Our goal is to not lose a single rep, but to gain some that are on the edge.
Your help is appreciated.

Also see How To Stop A Run On The Banks

Make sure you contact every senator as well, details are in the above link.
Thanks

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

If the Feds are Going to Bail Out Anyone, They Should Bail out the PEOPLE and the STATES, Not the Financial Giants

2009-12-17T21:28:00.000-08:00

Fitch"s downgraded Ohio"s bond credit rating Wednesday.

Moody"s has warned that it will probably downgrade California"s debt rating in the near future.

Many other states are not far behind.

Downgrading a state"s rating increases borrowing costs, and thus destabilizes the state"s economy. And, of course, many states may have more problems than just credit downgrades.

As I have long argued, if the feds are going to give bailouts to anyone, it should be individuals and the states - not the big financial giants - because preserving the states which make up the United States is a lot more important than maintaining the status quo financial system.

And unless the people have some relief, they will not be motivated to borrow from the banks, so all of the bank bailouts will be useless in restarting the economy. Indeed, if the government had just given the money handed out so far to the people instead of the big banks and financial companies, we"d be on our way out of this financial crisis already.

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The CIA used the waterboard "at least 83 times during August 2002" in the interrogation of Zubaydah. IG Report at 90, and 183 times during March 2003

2009-12-17T19:10:00.000-08:00

in the interrogation of KSM, see id. at 91.

CIA WATERBOARDED KHALID SHEIKH MOHAMMED 183 TIMES IN ONE MONTH

WATERBOARDED ZUBAYDAH 83 TIMES IN ONE MONTH

Bob Cesca: Obama Unfairly Tainted by Crimes He Didn"t Commit

2009-12-17T17:13:00.000-08:00

We"ve seen this before: specious attempts to connect Barack Obama with corrupt or controversial figures in Chicago, followed, then, by a Republican and establishment media outcry for the president-elect to denounce and reject them. It appears as if in this post-Bushie universe, the president-elect doesn"t have to be involved in corruption in order to be pegged as corrupt. Indeed, he can be entirely and vigorously declared to be absolutely corruption-free and still be tagged with the red letter "T" for "taint." This is what we can expect for the next four years. The crazy has only just begun.
=====
Really, is there anything the President-elect can do to satisfy these people?
Let"s check the recent historical record. When former House Majority Leader Tom DeLay was accused of ethics violations and money laundering, and then was indicted on charges of conspiring to commit campaign finance fraud and consequently resigned from Congress in disgrace, President Bush publicly denounced and rejected DeLay -- a fellow Texan.
Oh. Wait. President Bush didn"t denounce DeLay at all. In fact...
Bush Expresses a Belief in DeLay"s Innocence New York Times
President Bush Shows Support to Embattled DeLay The News Hour
President Says DeLay Is Not Guilty of Money Laundering The Washington Post
Bush Declares DeLay Innocent The Washington Post
Lott urges Bush to give DeLay "aggressive support"The Washington Times
Bush to Give DeLay a Lift to Show SupportThe Los Angeles Times
Read that last headline again. Not only did President Bush not denounce and reject the corrupt Republican leader, but DeLay was literally rewarded with a free ride aboard Air Force One. Both men wantonly tainting each other aboard the presidential aircraft.
LinkHere

Nationalization of the Banking System

2009-12-17T16:02:00.000-08:00

Bank of America to Buy Countrywide Financial for $4 Billion entirely in stock. With that purchase, Bank of America will become the nation"s top mortgage lender.

The stock-swap deal will put an end to the independence of the troubled California lender headed by Angelo Mozilo, and represents an increase from the Charlotte, N.C., bank"s August investment of about $2 billion.

"We believe this is the right decision for our shareholders, customers and employees," said Mozilo, Calabasas, Calif.-based Countrywide"s chairman and chief executive, in a statement.

Terms call for Countrywide stockholders to receive 0.1822 of a share of Bank of America stock in exchange for each share they own. The purchase is expected to close in the third quarter. It"s expected to be neutral to Bank of America earnings per share in 2008 and contribute to the buyer"s bottom line in 2009, excluding merger and restructuring costs.

Bank of America expects $670 million in after-tax cost savings in the transaction, fully realized by 2011.

"The potential payoff if things improve is very big for Bank of America," said Kathleen Shanley, analyst at Gimme Credit, in an interview before the deal was announced.

"Countrywide is the largest mortgage franchise in the country, and it"s a huge servicer. But we don"t know how long the mortgage downturn will last and how bad the mortgage losses will ultimately be."

Countrywide debt due in 2016 was trading at roughly 41 cents on the dollar before news of a potential deal broke Thursday, while the company"s bank debt was changing hands at about 70 cents on the dollar, she said.

Deal Greased From The Start

It"s clear this Buyout deal was greased from the start. Countrywide"s debt at 41 cents on the dollar may just have been the ticket to get the deal done.

Who wanted to see a cascade of defaults on that? That risk has just been transferred to Bank of America. Billions were riding on a default of Countrywide. Winners and losers traded places overnight.

Nationalization of the Banking System

Mr. Practical chimed in this morning with these comments on the deal:

We are starting to see the first steps in nationalization of the U.S. banking system. Large institutions are being "cajoled" into buying smaller ones. They could wait for bankruptcy to buy the assets, which would be smart, but they aren"t as I believe the show is worth much to Washington: it is very important that equity investors be calmed by that stabilization effect.

No matter. As the bad assets are pooled we will eventually see some type of government bailout or quasi-nationalization of the banking system. Banks literally have no capital left.

Stay the course. Risk is high. We will be seeing many more "interesting" things from government as it becomes a larger and larger part of the economy. But remember, stocks are options on profits. The real owners of companies are bondholders who always get paid first.

When companies raise capital at 12%, like Citigroup (C), profits go away. When the government steps in, profits go away.

Mozilo Wins Big Running Countrywide Into The Ground

Countrywide"s Mozilo is entitled to $115 mln severance.

Countrywide Financial Corp. founder Angelo Mozilo is entitled to $115 million in severance-related pay if his troubled company is acquired by Bank of America Corp. (BAC) , The Los Angeles Times, citing regulatory filings, reported Friday.

The newspaper said free rides on the company jet are also included in Mozilo"s departure deal, and the company will pick up his country club bills until 2011.

Neither Mozilo nor Countrywide officials returned calls for comment, The L.A. Times said.

This is great news for Mozilo. He can concentrate on his tan after raking in over $1 billion dollars over the years on Countrywide stock options.

Countrywide CEO with Hoofy and Boo

Click here for some practical advice for Angelo Mozilo CEO of Countrywide.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Grayson Blasts Dems For Snowe Obsession: "Olympia Snowe Was Not Elected President Last Year"

2009-12-17T14:35:00.000-08:00

Just get out of the way

Rep. Alan Grayson (D-Fla.) continued his streak of rousing floor speeches Thursday night, this time berating Democrats for their obsession with Sen. Olympia Snowe (R-Maine).
"We as a party have spent the last six months, the greatest minds in our party, dwelling on the question, the unbelievably consuming question of how to get Olympia Snowe to vote on health care reform," he said. "I want to remind us all that Olympia Snowe was not elected President last year. Olympia Snowe has no veto power in the Senate. Olympia Snowe represents a state with one half of one percent of America"s population."
"What America wants is health care reform," he continued. "America doesn"t care if it gets 51 votes in the Senate or 60 votes in the Senate or 83 votes in the Senate. In fact, America doesn"t even care about that, it doesn"t care about that at all." LinkHere

PR NEWSWIRE: Gullible Consumers May Get Gored on Gold Price: Sellers Beware

2009-12-17T13:25:00.000-08:00

FT. LAUDERDALE, Fla., June 10 /PRNewswire/ -- As cash-strapped consumers sell their gold to pay for everyday necessities, complaints against gold dealers have risen. The biggest offenders according to a recent tally on the Better Business Bureau"s website, BBB.org, are companies advertising heavily to buy unwanted gold jewelry on cable television channels. One company had 314 complaints in the previous 36 months. Another had 97. The complaints range from pricing discrepancies and misleading advertising to customer service issues and claims for lost shipments.

"Not every internet gold buyer is dishonest," says Michael Gusky, whose company, GoldFellow.com has no complaints against it. "GoldFellow.com," according to Gusky, "was created to provide consumers a safe, competitive and easy method to sell unwanted gold, sterling silver and platinum."

A 30-year gold jewelry industry veteran, Gusky attributes his company"s success and rapid growth to a higher level of trust achieved through his company"s transparent business practices and higher payments.

"The owners of GoldFellow(R) are the most honest and ethical dealers I have had the pleasure to do business with," says Carla Stern who first tried to sell her unwanted jewelry to two other internet gold buyers. "GoldFellow(R) paid me $1800 for the same package I had sent to a highly advertised on TV and Internet dealer, who tried to pay me only $310," explains Stern.

Gusky has a theory for why his pricing is so much higher than the competition"s.

"We could spend millions on television like the competition - or we could put the cash in our customer"s pockets. We prefer to pay the customer higher prices," he says.

According to the company"s Website, www.goldfellow.com, the company"s competitive differences include providing every customer with free FedEx(R) shipping and insuring each package for $1000. Its complete online payment schedule is updated daily and unlike many competitors, GoldFellow(R) customers must see and accept their offer before they are paid.

"Don"t take my word for it," says Gusky. "Do your homework."

Gusky strongly recommends reading a company"s Website and comparing policies and pricing before choosing a gold buyer.

"Ask how much you will be paid for one pennyweight of 14 karat gold jewelry and compare prices. Ask if you will be notified of your value before you"re paid," he suggests. "And for goodness sake, never agree to drop your valuables in a regular mailbox. There"s no record or proof that it has been mailed - and it"s not insured although many of our competitors would like you to believe otherwise."

Gusky, and his wife Robin who is also active in the company, made their reputation during 30 years in the gold jewelry business. Their company grew to become the largest karat gold jewelry manufacturer in America, culminating with a sale to Warren Buffett"s, Berkshire-Hathaway in 2007.

SOURCE GoldFellow, LLC

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Recommended Amazon Reading

Applied Value Investing: The Practical Application of Benjamin Graham and Warren Buffett"s Valuation Principles to Acquisitions, Catastrophe Pricing and Business Execution by Jr.,Joseph Calandro
Buy new: $37.77
Not yet published

Kindle 2/Kindle DX: Amazon"s New Wireless Reading Devices (Latest Generation)

Warren Buffett partnership letter of 1969

2009-12-17T12:06:00.000-08:00

Warren E. Buffett, General Partner May 29 th, 1969

To My Partners:

About eighteen months ago I wrote to you regarding changed environmental and personal factors causing me to modify our future performance objectives.

The investing environment I discussed at that time (and on which I have commented in various other letters) has generally become more negative and frustrating as time has passed. Maybe I am merely suffering from a lack of mental flexibility. (One observer commenting on security analysts over forty stated: �They know too many things that are no longer true.�)

However, it seems to me that: (1) opportunities for investment that are open to the analyst who stresses quantitative factors have virtually disappeared, after rather steadily drying up over the past twenty years; (2) our $100 million of assets further eliminates a large portion of this seemingly barren investment world, since commitments of less than about $3 million can not have a real impact on our overall performance, and this virtually rules out companies with less than about $100 million of common stock at market value; and (3) a swelling interest in investment performance has created an increasingly short-term oriented and (in my opinion) more speculative market.

The October 9 th, 1967 letter stated that personal considerations were the more important factor among those causing me to modify our objectives. I expressed a desire to be relieved of the (self-imposed) necessity of focusing 100% on BLP. I have flunked this test completely during the last eighteen months. The letter said: �I hope limited objectives will make for more limited effort.� It hasn�t worked out that way. As long as I am �on stage�, publishing a regular record and assuming responsibility for management of what amounts to virtually 100% of the net worth of many partners, I will never be able to put sustained effort into any non-BLP activity. If I am going to participate publicity, I can�t help being competitive. I know I don�t want to be totally occupied with out-pacing an investment rabbit all of my life. The only way to slow down is to stop.

Therefore, before yearend, I intend to give all limited partners the required formal notice of my intention to retire. There are, of course, a number of tax and legal problems in connection with liquidating the Partnership, but overall, I am concerned with working out a plan that attains the following objectives:

1. The most important item is that I have an alternative regarding money management to suggest to the many partners who do not want to handle this themselves. Some partners, of course, have alternatives of their own in which they have confidence and find quite acceptable. To the others, however, I will not hand over their money with a �good luck�. I intend to suggest an alternative money manager to whom I will entrust funds of my relatives and others for whom I have lifetime financial responsibility. This manager has integrity and ability, and will probably perform as well or better than I would in the future (although nowhere close to what he or I have achieved in the past). He will be available to any partner, so that no minimum size for accounts will cause any of you a problem. I intend, in the future, to keep in general touch with what he is doing, but only on an infrequent basis, with any advice on my part largely limited to a negative type.

2. I want all partners to have the option of receiving cash and possibly readily marketable securities (there will probably be only one where this will apply) where I like both the prospects and price but which partners will able to freely convert to cash if they wish.

3. However, I also want all partners to have the option of maintaining their proportional interests in our two controlled companies (Diversified Retailing Company Inc. and Berkshire Hathaway Inc.) and one other small �restricted� holding. Because these securities will be valued unilaterally by me at fair value, I feel it is essential that, if you wish, you can maintain your proportionate interest at such valuation.

However, these securities are not freely marketable (various SEC restrictions apply to �control� stock and non-registered stock) and they will probably be both non-transferable and non-income-producing for a considerable period of time. Therefore, I want you to be able to go either way in our liquidation � either stock with the restricted securities or take cash equivalent. I strongly like all of the people running our controlled business (joined now by the Illinois National Bank and Trust Company of Rockford, Illinois, a $100 million plus, extremely well-run bank, purchased by Berkshire Hathaway earlier this year), and want the relationship to be life-long. I certainly have no desire at all to sell a good controlled business run by people I like and admire, merely to obtain a fancy price. However, specific condition may cause the sale of one operating unit at some point.

I believe that we will have a liquidation program which will accomplish the above objectives. Our activities in this regard should cause no change in your tax planning for 1969.

One final objective I would like very much to achieve (but which just isn�t going to happen) is to go out with a bang. I hate to end with a poor year, but we are going to have one in 1969. My best guess is that at yearend, allowing for a substantial increase in value of controlled companies (against which all partners except me will have the option of taking cash), we will show a break even result for 1969 before any monthly payments to partners. This will be true even if the market should advance substantially between now and yearend, since we will not be in any important position which will expose us to much upside potential.

Our experience in workouts this year has been atrocious � during this period I have felt like the bird that inadvertently flew into the middle of a badminton game. We are not alone in such experience, but it came at a time when we were toward the upper limit of what has been our historical range of percentage commitment in this category.

Documenting one�s boners is unpleasant business. I find �selective reporting� even more distasteful. Our poor experience this year is 100% my fault. It did not reflect bad luck, but rather an improper assessment of a very fast-developing governmental trend. Paradoxically, I have long believed the government should have been doing (in terms of the problem attacked � not necessarily the means utilized) what it finally did � in other words, on an overall basis, I believe the general goal of the activity which has cost us substantial money is socially desirable and have so preached for some time. Nevertheless, I didn�t think it would happen. I never believe in mixing what I think should happen (socially) with what I think will happen in making decisions � in this case, we would be some millions better off if I had.

Quite frankly, in spite of any factors set forth on the earlier pages, I would continue to operate the Partnership in 1970, or even 1971, if I had some really first class ideas. Not because I want to, but simply because I would so much rather end with a good year than a poor one. However, I just don�t see anything available that gives any reasonable hoping to �get lucky� with other people�s money. I am not attuned to this market environment, and I don�t want to spoil a decent record by trying to play a game I don�t understand just so I can go out a hero.

Therefore, we will be liquidating holdings throughout the year, working toward a residual of the controlled companies, the one �investment letter� security, the one marketable security with favorable long-term prospects, and the miscellaneous �stubs�, etc. of small total value which will take several years to clean up in the Workout category.

I have written this letter a little early in lieu of the mid-year letter. Once I made a decision, I wanted you to know. I also wanted to be available in Omaha for a period after you received this letter to clear up anything that may be confusing in it. In July, I expect to be in California. Some of you are going to ask, �What do you plan to do?� I don�t have the answer to that question. I do know that when I am 60, I should be attempting to achieve different personal goals than those which had priority at age 20. Therefore, unless I divorce myself from the activity that has consumed virtually all of my time and energies during the first eighteen years of my adult life, I am unlikely to develop activities that will be appropriate to new circumstances in subsequent years.

We will have a letter out in the Fall, probably October, elaborating on the liquidation procedure, the investment advisor suggestion, etc.

Cordially,

Warren E. Buffett

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Vacancy Theory

2009-12-17T10:42:00.000-08:00

I just received the following analysis on vacancies from a friend and would like to share it. Here goes, from Ramsey Su, with a study on San Diego vacancies:

The Study
Analyze all sales in SD, on a monthly basis, to determine the percentage of properties that are vacant at the time of marketing/sale. This study is based on all sales reported in the SD MLS from Jan 2004 thru Nov 2006.

The Theory
The occupant of an occupied property has to seek new shelter upon completion of the sale. This implies that they will be buying or renting something else, creating a positive chain of events for the market. Vacant properties, on the other hand, imply that the occupants had already moved into another dwelling. The sale of a vacant property is not likely going to add to the demand. Therefore, the higher number of vacant properties for sale and sold is an indication of weaker markets ahead (and vice versa).

The Results
The percentage of vacant properties was lowest during the summer of 2004, in the low 20% range. The resale market was strong and continued to be strong. Oct 05 clearly marked the turning point (see table below) of the San Diego real estate market with negative year to year comparisons for every month since then. The percentage of vacant properties sold also increased at that time. On a year over year basis, 27.4% of sales were vacant during 2004 vs 36.4% in 2005 and 44.5% in 2006 thru Dec 22nd, the last day that I downloaded data for the study. For the first 22 days of Dec 06, 50.5% of the 1,393 sales were vacant.

Looking ahead
There have been much debate about the pent-up demand vs the real estate crash ahead. The market will give us the answer soon enough.

Indicators supporting the pent-up demand theory:
1. New listings do not overwhelm the market after the holidays.
2. The percentage of vacant listings decline. Each sale should generate yet another sale.
3. Sales activities pick up at an equal or faster pace than new listings.

Indicators supporting the crash theory:
1. New listings spike up after the first of the year.
2. The percentage of vacant listings increases, especially in REOs.
3. Sales activities trail supply.

Ramsey Su Opinion

Owners of vacant properties should have a greater urgency to sell, therefore more willing to negotiate and will likely drive down the price in the process.

For the owners who can no longer support the debt service with no income or utility from living in the unit, it should increase the likelihood of foreclosures.

The public home builders have stated that the inability of buyers, who are under contract, to sell their existing homes as one of the major reasons for cancellations. The ones who are willing and able to buy a new home before selling their existing home might have already done so, resulting in a portion of the vacant properties listed for sale. The remainder may be either unwilling or unable to complete the purchase of a new home until their existing home is sold. Therefore, in order for the home builders to have a strong season during the traditional peak months of Feb and March, existing home sales must pick up immediately after the first of the year.

Support Data

Total number of sales and percentage vacant
When the market is strong, the percentage of vacant properties is low, and vice versa.

Active listings
As of Dec 22, 06, SD MLS has 17,384 total listings (single family and condos). Of the total, 6,404 or 36.8% are listed as vacant. As stated above, 50.5% of Dec sales so far are vacant. Does that imply owners of vacant properties are indeed more eager to sell?

Pendings
For the first 22 days of Dec 06, the MLS listed 1,616 properties as pending (in escrow). 870 or 53.8% of these listings are vacant. This indicates that the trend is heading toward higher vacant listings, not lower.

Expired listings
From Oct 1, 06 to Dec 22 06, there were 7,912 listings that expired. 2,438 or 30.8% of those listings were vacant. Does that imply owners of occupied properties are more willing to hold out for their dream price?

Thanks for sharing Ramsey.
This trend will be interesting to watch.

Given that it is Christmas Eve here is a story I would like to share.
Bus riders get gifts from Secret Santa

A woman hopped aboard buses, greeted passengers with "Merry Christmas" and handed each an envelope containing a card and a $50 bill before stepping off and repeating the process on another bus.

She did it so quickly that descriptions of the woman varied among surprised Spokane Transit Authority passengers on several routes Thursday, The Spokesman-Review newspaper reported Friday.

"She kind of kept her head down. I don"t remember ever seeing this lady before," said bus driver Max Clemons.
"I had a young man in the back of the bus. He looked like he was going to start crying. He said in broken English, "She don"t know how much this will mean to me at Christmas,"" Clemons said.

Transit authority spokesman Dan Kolbet said efforts to identify the gift-giver were unsuccessful. Her generosity didn"t appear to be part of a marketing gimmick, he said.

The woman gave envelopes to about 20 passengers, he said. Each was sealed with a sticker that said: "To a friend from a friend." The woman, accompanied by one or two young boys, pulled the envelopes out of a cloth satchel. The buses were pulling away from stops before riders even knew what happened.

Merry Christmas Secret Santa
Merry Christmas and a peaceful and prosperous new year to everyone here as well.
May 2007 will be your best year ever.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Personal Reflections About Labor Day Weekend

2009-12-17T10:24:00.000-08:00

My wife Joanne and I left last Wednesday for a long Labor Day weekend of camping, biking, golfing and kayaking. We were in the Manistee, Michigan area for a couple of nights in a hotel, then went camping at Sleeping Bear Dunes National Lakeshore in Empire and Glen Arbor.

In Manistee, there is a nice riverwalk area of downtown that stretches for several miles. However, there was no business. Forty to fifty percent of the buildings were vacant, most for sale, some for rent. These were older buildings, but most had character. There were old drug stores, shoe stores etc., some with signs like "doing business since 1932", but not any longer.

From the outside the buildings did not seem dilapidated. The area was clean, and the riverwalk nice. We walked a stretch of it. The downtown area is a nice area for tourists, but not if there aren"t any. And without tourists, one after another, after another, businesses close.

The year round population of Manistee is about 6,500 with most businesses along route 31. People go through Mainstee mainly to get somewhere else (Traverse City or Sleeping Bear Dunes to the North, Luddington to the South) via Route 31 which passes right through the middle of Manistee. A few hotels and fast food restaurants like Wendy"s dot Route 31.

If you are into golf, I can recommend the Manistee National Golf Course and Resort. I did some posts from the resort and one more on Monday on the way home from Sleeping Bear Dunes.

What Happened To Downtown?

Property prices and rents are not supportive of a vibrant downtown area, no mater how attractive the area might otherwise seem.

This is a reflection on many tourist towns Anywhere, USA, as opposed to a problem isolated to Manistee, or even the state of Michigan.

Sleeping Bear Dunes Area

After leaving Manistee, we camped at Sleeping Bear Dunes in the Platte River campground. Outside the park, along the river there are also "For Sale" signs seemingly everywhere. Along one stretch of road bordering the Platte River and Platte Lake, about 1/4 to 1/3 of the places were for sale. These seem like second homes that people do not want any more. Prices are way down but asking prices are still too high.

Once again, prices are not supportive of the local economy where wages are low and jobs are seasonal.

We kayak on the Crystal River in Glen Arbor. A shuttle service for our kayaks is a very reasonable $5 per kayak. $half million and up homes dot the river. The shops are full of customers, and most of the houses on Glen Lake and the Crystal River are very nice.

All is not what it appears. Many of the shops are for sale. They simply cannot make it operating on business 3 months of the year, and most of that on weekends.

Sperling"s Best Places has this overview of Glen Arbor (zip 49636), Michigan.

As of 2009, Glen Arbor (zip 49636)"s population is 402 people. Since 2000, it has had a population growth of 2.78 percent.

The median home cost in Glen Arbor (zip 49636) is $428,720. Home appreciation the last year has been -9.00 percent.

Compared to the rest of the country, Glen Arbor (zip 49636)"s cost of living is 50.09% Higher than the U.S. average.

Glen Arbor (zip 49636) public schools spend $5,162 per student. The average school expenditure in the U.S. is $6,058. There are about 19 students per teacher in Glen Arbor (zip 49636).

The unemployment rate in Glen Arbor (zip 49636) is 9.50 percent(U.S. avg. is 8.50%). Recent job growth is Negative. Glen Arbor (zip 49636) jobs have Decreased by 8.20 percent.

Wikipedia notes "Glen Arbor is home to many other small businesses that thrive off of the tourist economy."

"Seemingly thrive" would be a better description. For sale signs on homes are everywhere. Many businesses are for sale as well. Does it really make sense to have a half million dollar weekend home in the area, where seasonal use is three months?

It appears many are deciding the answer to that question is "No". It"s all part of lifestyle downsizing.

After The Boom

These are the kinds of problems cities face after the boom. There are few jobs for the locals and those locals cannot afford to live in the area unless they have been there a long time.

Cities like Manistee fall out of favor as a destination and the downtown areas collapse.

Road Traffic High Over Labor Day

It is hard to tell much of anything about the traffic on the way up because we left Wednesday evening. However, the roads were packed on the return trip all the way from Sleeping Bear to Chicago. Is this reflective of an economy getting better, or extremely good weather and people simply wanting to get away for a weekend?

Given what has happened to hotel rates and occupancies in general, I suspect the latter. Regardless, judging from the for sale signs, the "Tourism Economic Model" is coming unglued.

Labor Day Wrapup

In case you missed it, please consider Friday"s post How Overpriced Is The S&P 500?
Calculated Risk answered questions that many people have been asking about the unemployment rate and how it relates to jobless claims in Comparing BLS Job Losses and DOL Unemployment Claims.
Gallup Statistics show Job Creation Down 35%, Consumer Spending Down 33% From Year Ago.
Karl Denninger has some thoughts about debt levels and ability to service debt in 2009 Labor Day Ponderings.....

Reflections On Unions

I received many emails regarding Public Support of Unions Collapsing.

Some think that unions would "Save America" and that my stance is "Un-American".

Sorry folks, it is crystal clear that public unions have wrecked many cities. Pension promises have been made that cannot possibly be met without bankrupting everyone else. As for private unions, look at GM, auto parts, and any other collapsed businesses.

Unions benefit the few, at the expense of everyone else. Moreover, a key point that nearly everyone misses is that because of automation, manufacturing jobs are shrinking everywhere, including China. Those jobs are gone and they are not coming back.

In general, union wages are too high, with too many benefits relative, with too few people earning them. It"s good for the few employees, it is bad for everyone else.

It"s Not How Much One Makes But How Far It Goes

Like it or not (and most don"t) this is a global economy. The US cannot make itself into a self-sustaining island. Moreover, the idea that we can pay everyone $35 an hour and compete globally is ludicrous.

As I have said many times, the problem is not wages, but how far wages go. Greenspan and Bernanke have wrecked the US dollar. Financial engineering drove property prices up to insane levels. The US wastes $trillions attempting to be the world"s policeman. There are so many student loan programs that the cost of education has soared. This is what happens when one throws money around.

Get rid of those things and the US dollar would soar. Deflation is not a curse but a cure. Wages and prices need to come down.

Finally, there is also a major attitude problem in the US. Too many think they "need" an SUV, granite countertops, a huge house, TVs in every room, Nike shoes, and anything and everything else, all on credit.

Want and need are two different things. The party is over. The Collapse Of The "Ownership Society" marks the end, and tourist towns will be increasingly in trouble.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

BLOGGING STOCKS: Oxford Club bets on Buffett

2009-12-17T10:07:00.000-08:00

Posted May 15th 2009 3:00PM by Steven Halpern
Filed under: Berkshire Hathaway (BRK.A), Newsletters, Stocks to Buy

Long-term growth stock expert Alexander Green sees long-term upside potential for conservative investors willing to invest along side of Warren Buffett.

Here, the investment director of The Oxford Club reviews Berkshire Hathaway (NYSE: BRK.B), a holding in his model portfolio.

"The market surprised investors with the magnitude of its drop over the last year and a half. Then it surprised them again with a furious rally that began in early March.

"What lies just ahead? No one knows for sure, of course. But we do know several investments that are attractively priced at current levels, such as Berkshire Hathaway (BRK.B), a conservative choice, run by investment great Warren Buffett.

"Buffett summed up 2008 perfectly when he said in his annual report, "By year end, investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game."

"Yet � like us � Buffett remains optimistic. He and his partner, Charlie Munger, have become two of the world"s richest men by following � and improving � the value discipline pioneered by Benjamin Graham.

"When you own a share of Berkshire Hathaway, you have a stake in dozens of fine companies, including GEICO, Benjamin Moore, Dairy Queen, Fruit of the Loom, MidAmerican Energy, See"s Candies, ConocoPhillips, American Express, Burlington Northern, Costco, General Electric, Johnson & Johnson, Kraft Foods, Nike, Proctor & Gamble, Wal-Mart, Washington Post and many others.

"Buffett has not been sitting on his hands lately, either. In recent weeks, he has been:

� Maintaining Berkshire"s Gibraltar-like financial position.
� Widening the "moats" around his businesses to give them durable competitive advantages.
� Expanding and nurturing the cadre of outstanding managers who, over the years, have delivered Berkshire exceptional results.
� Adding to those companies he feels are undervalued.

"Sure, Berkshire"s stocks � like everyone else"s � got a substantial haircut over the past year or so. Yet Buffett remains philosophical: "This does not bother Charlie and me. Indeed, we enjoy such price declines if we have funds available to increase our positions ... I like buying quality merchandise while it is marked down." We couldn"t have said it better ourselves."

Steven Halpern"s TheStockAdvisors.com offers a free daily overview of the favorite stock picks and investment ideas from the nation"s leading financial newsletter advisors.

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Conyers publishes massive report on "Imperial Presidency"

2009-12-17T08:58:00.000-08:00

Conyers report demands Bush investigation

Everyone wants to know: will Obama order investigations into the Bush administration"s abuses of power? But, perhaps the new question should be: if he doesn"t, who will?

House Judiciary Chairman John Conyers, Jr. (D-MI) is at least going to try.

Conyers published a nearly 500-page report (PDF link) Tuesday titled, "Reining in the Imperial Presidency: Lessons and Recommendations Relating to the presidency of George W. Bush." Conyers" report makes 47 recommendations "designed to restore the traditional checks and balances of our constitutional system," reads the foreward. Recommendations include the establishment of a "blue ribbon" commission to fully investigate the Bush administration, and the launch of criminal probes."

Even after scores of hearings, investigations, and reports, we still do not have answers to some of the most fundamental questions left in the wake of Bush�s Imperial Presidency," Conyers said in a release. "Investigations are not a matter of payback or political revenge � it is our responsibility to examine what has occurred and to set an appropriate baseline of conduct for future administrations."

On Jan. 6, Conyers introduced a bill that, if passed, would create the "Commission on Presidential War Powers and Civil Liberties," which would seek to root out President Bush"s abuses.

�The Bush Administration�s approach to power is, at its core, little more than a restatement of Mr. Nixon�s famous rationalization of presidential misdeeds: "When the president does it, that means it�s not illegal,"" Conyers wrote in the report"s foreward.

Constitutional law professor Jonathan Turley told MSNBC"s Keith Olbermann on Monday, "We now have President Bush speaking quite candidly that he was in the loop, we have Dick Cheney who almost bragged about it. The question for Barack Obama is whether he wants to own part of this by looking the other way."

Obama told ABC"s George Stephanopoulos on Sunday, "We have not made final decisions, but my instinct is for us to focus on how do we make sure that moving forward we are doing the right thing. That doesn"t mean that if somebody has blatantly broken the law, that they are above the law. But my orientation"s going to be to move forward."

"If waterboarding is torture -- and Barack Obama has said that it is torture," Turley emphasized, "and torture is a war crime, then the president has committed a war crime if he did order waterboarding. You have to do some heavy lifting to avoid the simplicity of that logic."

"What I would want to do is to have my Justice Department and my Attorney General immediately review the information that"s already there and to find out are there inquiries that need to be pursued," Obama told Philidelphia Daily News reporter Will Bunch in April 2008.

Obama added, "if crimes have been committed, they should be investigated," but agreed with Bunch"s assertion that the effort could turn into a "partisan witch hunt" that threatens to consume his first term.

LinkHere

Scholar: Obama "owns" Bush "war crimes" if he gives pass
Prosecutor: Gitmo techniques "despicable"

GM, Ford, Chrysler Sales Collapse

2009-12-17T07:59:00.000-08:00

The Wall Street Journal is reporting Auto Sales Tumble, But Industry Sees Signs of Hope.

Sales of cars and light trucks fell 15.5% to 1.25 million last month, down from 1.48 million a year earlier, according to Autodata Corp. The closely watched seasonally adjusted annualized selling rate was 13.7 million vehicles, up from 12.55 million in July, but down from 16.3 million in August 2007, Autodata said.

"There are early indications of somewhat improving conditions," said Ford Motor Co. economist Ellen Hughes-Cromwick, in a conference call with analysts and reporters. She pointed to a decline of about 40 cents a gallon in the price of gasoline, improvement in a key measure of consumer confidence and an upward revision in the federal government"s estimate of second-quarter economic growth.

"The biggest issue is credit," Chrysler President Jim Press said in an interview. "It isn"t the gas mileage of the vehicles turning people off, it"s getting credit and financing.

Disingenuous Talk At GM, Ford, Chrysler

There are no legitimate reasons to state "There are indications of somewhat improving conditions". Falling crude prices are a strong sign of a collapsing global economy. Second quarter GDP is simply not believable. See GDP Much Weaker Than Headline Numbers for the rationale.

To suggest that auto financing issues are "the biggest issue" is complete silliness. People are tapped out and increasingly frugality is one issue. GM, Ford, and Chrysler producing SUVs, trucks, and cars that are now out of favor is another reason.

Car Sales Post 10th Straight Decline

Bloomberg is reporting GM, Ford Drag U.S. Car Sales to 10th Straight Decline.

Here is my favorite quote from the article. It is from Chrysler President Jim Press: "Maybe towards the end of "09, going into 2010, there"ll start to be some signs of recovery."

GM Celebrates

In celebration of our 100th anniversary, we"re sharing our GM Employee Discount. You pay what we pay. Not a cent more.

2009 models include Chevy HHR, Cobalt, Malibu, Impala, Equinox, Avalanche, Silverado, Buick Enclave, Pontiac G5, G6, Vibe, G8, Solstice, Torrent, GMC Acadia, Sierra, Saturn Aura, SKY, OUTLOOK, Cadillac CTS, SRX, DTS, STS, HUMMER H2 and H3. At participating dealers only. Take delivery by 9/30/08. See dealer for details.

If things were improving, would GM be celebrating?

On June 24 GM announced price hikes on 2009 models by an average of 3.5%. I called it GM"s Ridiculous Bluff. Indeed it was.

I panned GM"s Employee Pricing Ploy on August 19th with this statement:

"GM is offering over $4,000 in incentives and extending the offer to some 2009 models as well. It will not be long before the offer is extended to all 2009 models (and/or some other incentive program is put in place for 2009 models)."

Well that did not take too long.

The original offer was due to expire on September 2nd, but has now been extended to September 30th. Coverage of included 2009 models has been expanded to most 2009 models as noted in the above list.

Shop Until You Drive

Chrysler continued its "Shop "Til You Drive" Campaign by offering Up to 40 Percent Off MSRP.

"To help consumers, we are offering some of our most popular vehicles at significant savings. In August, we saw this formula generate new signs of momentum on vehicles like our Chrysler and Dodge minivans, Dodge Ram light-duty trucks and Jeep(R) Liberty. In September, we will continue to offer competitive values and showcase dynamic new vehicles like the 2009 Dodge Challenger, and hybrid Dodge Durango and Chrysler Aspen SUVs."

Chrysler"s "Shop "til You Drive Sales Event" continues through Sept. 30, offering up to 40 percent off MSRP on select vehicles, and zero percent APR for 72-months on the 2008 Dodge Ram, Dodge Durango, Chrysler Aspen, Jeep Grand Cherokee and Jeep Commander. Especially strong values are available on Dodge Ram pickup trucks, with up to $9,000 discounts in select markets.

The only sign of momentum is in reverse. Nonetheless, at 40% off Chrysler will eventually clear inventory. What a difference from 2006.

Chrysler Achieves All Financial Targets

Chrysler CEO says Chrysler Shrinking to a Profitable Size.

Chrysler cut a million units of assembly capacity in the past year, pared its lineup and now will thin its dealer ranks with a goal of making money on annual sales of as many as 2.5 million vehicles, down from an "unprofitable" 4 million, Press said today in Los Angeles.

In the first half of 2008, "we"ve achieved all of our financial targets that Cerberus set at the start of the year," Press said.

Those must have been the easiest financial targets in automotive history.

Chrysler Tops Peers in Bankruptcy Risk

On August 15 Bloomberg reported Chrysler Tops Peers in Bankruptcy Risk, JPMorgan Says.

Chrysler LLC is the most likely of the three U.S. automakers to file for bankruptcy protection in the next two years, JPMorgan Chase & Co. said, citing a panel discussion among credit-rating companies.

General Motors Corp. is the next most likely and Ford Motor Co. is the least, JPMorgan analyst Himanshu Patel wrote in a report today, quoting discussion yesterday by analysts from Standard & Poor"s, Moody"s Investors Service and Fitch Ratings. S&P and Moody"s both cut Chrysler"s credit one level on Aug. 7, seven steps below investment grade.

Moody"s cut GM"s rating to Caa1 on Aug. 13. S&P lowered GM and Ford to B- on July 31. Fitch downgraded Ford to B- on Aug. 1, matching its action on GM on June 25.

Without government (taxpayer) bailouts, these companies simply cannot survive.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Panic Speaks Louder Than Words

2009-12-17T07:21:00.000-08:00

CNN Money is reporting Beige Book Finds "Limited" Credit Hit Outside Of Housing.

The U.S. economy kept chugging along in August, with a credit crunch having only a "limited" impact outside housing, the Federal Reserve said in its beige book report Wednesday.

All 12 Fed districts reported that economic activity continued to expand, thanks in part to gains in manufacturing and services. Employment and wages grew modestly and retail sales were "generally positive," the beige book said.

But other reports Wednesday were gloomy. Private-sector job growth fell to a four-year low of 38,000 in August, according to ADP. (NYSE:ADP) And Challenger, Gray & Christmas said announced layoffs shot up 85% last month to 79,459, on housing market woes.

[See Mass Layoffs Soar for more information on ADP and Challenger]

The Fed said most districts reported housing woes worsening, with home prices flat or down.

However, "outside of real estate, reports that the turmoil in financial markets had affected economic activity ... were limited," the beige book said.

Let"s stop right there. If this economic mess was indeed contained to housing and the economy is chugging along as the beige book song is singing, then why the panic discount rate cuts as outlined in Now we know who and why.

Chugging Along

The stock markets are still positive for the year.
Housing is contained.
According to Treasury Secretary Paulson this is the strongest global economy ever.
Unemployment is at record lows.

Given the panic rate cut by the Fed on options expiration Friday, insane housing proposals from every corner (See List of Absurd Housing Bailout Proposals and Still More Ideas To Fix Housing), a Fed promise to provide needed liquidity, and one month treasuries trading down to 1.4%, one might actually (and foolishly) believe that things are chugging along with limited impact from housing.

Panic Around the World

Australia Central Bank to Buy Mortgage Backed Debt

Bloomberg is reporting Australian Central Bank to Buy Mortgage-Backed Debt.

Sept. 6 (Bloomberg) -- Australia"s central bank said it will buy debt backed by home loans to add cash to the financial system, after the U.S. subprime credit rout eroded demand for asset-backed securities and drove up interest rates.

ECB Holds Rates - Adds Temporary Repos

Reuters is reporting ECB holds rates, watches prices and markets very closely.

European Central Bank President Jean-Claude Trichet said on Thursday the ECB would monitor price risks and financial markets very closely, toning down his anti-inflation rhetoric after it left its key interest rate at 4.0 percent.

Trichet noted that volatility on financial markets in the past few weeks had raised uncertainty about the euro zone economy. "Given the high level of uncertainty, additional information is needed before further conclusions for monetary policy can be drawn," he told a news conference.

"The Governing Council will monitor very closely all developments on the basis of our assessments and by acting in a firm and timely manner we will ensure that risks to price stability do not materialize," he continued.

Trichet did not repeat the ECB"s stance of "strong vigilance" on inflation risks, wording which has preceded most of the rate increases in the ECB"s current tightening cycle, but said he would use the phrase again when the time was right.

Trichet said the ECB would hold an extra tender of longer-term securities to ease credit costs beyond the overnight market where the bank has intervened most heavily.

Highlighting tensions in money markets, the ECB lent banks an extra 42.2 billion euros in temporary overnight funds on Thursday after noting that money market volatility had increased, its first such emergency operation since mid-August.

You have to laugh at this for two reasons: Why bother with pussyfoooting around with phrases like "strong vigilance" when everyone knows full well what it means. My how fast we have gone from inflation worries to something quite different, all in a month. And what about all this emergency lending and bailouts of German banks?

ECB Announces Longer Term Refis

ECB to hold extra longer-term refi-Trichet.

Thu Sep 6, 2007 9:31AM EDT
The European Central Bank said on Thursday it will launch a supplementary long-term refinancing operation as it strives to improve liquidity in the money market.

"We have decided to launch a supplementary longer term refinancing operation. It will be carried out at a variable rate tender, with no pre-set allotment amount and we will apply the standard tender procedure," ECB President Jean-Claude Trichet said.

"We are up to our responsibility and I am very proud of that," Trichet added in his news conference, following the ECB"s decision to leave official interest rates unchanged.

He gave no date for the supplementary operation.

On Aug. 29, the ECB lent out 50 billion euros for 91 days to cover banks" medium-term funding needs at its regular long-term funding operation. Banks bid for a total of 119.75 billion euros.

A special one-off three-month tender the previous week was also massively oversubscribed.

Trichet said the move had no bearing on the ECB"s monetary policy stance. "These are two different things," he said.

If this has "no bearing on monetary policy" why was a rate hike scheduled a month ago cancelled? Who does Trichet think believes that story?

And what"s with this nonsense about "We are up to our responsibility and I am very proud of that"? Exactly what is there in this mess that anyone should be proud of?

Hyperinflation in Venezuela

Bloomberg is reporting Venezuela"s Overnight Rate Soars as Central Bank Suspends Loans

Venezuela"s interbank overnight lending rate surged as high as 90 percent after the central bank suspended short-term loans to banks, traders said.

The overnight rate rose from an average rate of 22 percent yesterday. Government debt sales this week also drained cash from the financial system, leaving some banks scrambling for funds today, said Richard La Rosa, a trader at brokerage ActiValores Sociedad de Corretaje SA in Caracas.

Minyanville"s Todd Harrison had a quick Buzz this morning on Venezuela.

Does this matter? You betcha, Minyans--in a globalized machination tied together by $500 trillion in derivatives, it all matters. It"s just a function of what matters when and how much.

Paulson Flashback from SmartBrief:

"Looking over periods of stress that I"ve seen, this is the strongest global economy we"ve had."

Paulson is of course confusing strength with crack up credit booms. We are now on the back side of that credit boom, otherwise known as the start of a credit bust. It is foolish to believe the Fed or anyone else can contain it.

And as for the Beige Book where this post started: "outside of real estate, reports that the turmoil in financial markets had affected economic activity ... were limited" ... Sorry Ben Bernanke. No one buys it. If this was truly contained to real estate, we would not be seeing so much panic. And panic speaks louder than words.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

George Bush, at Sea in the Desert

2009-12-17T03:17:00.000-08:00

Michael Winship writes: "President Bush"s recent speech before the Knesset, ostensibly to celebrate Israel"s 60th birthday, was not only a display of political cynicism at its worst - using a diplomatic occasion to perpetrate an unseemly attack on Barack Obama - but a microcosm for the disregard with which the president holds the rest of the world. And vice versa."
LinkHere

Terrorism Trials Rushed to Influence US Election

CNN News reports: "Defense lawyers for five suspected al Qaeda members asked a military appeals court Thursday to delay their clients" arraignments because several of the attorneys have not received security clearances that would allow them to participate in the hearing."
LinkHere

It"s close-knit. It"s kind of like Wasilla, Alaska, except that it"s different.

2009-12-17T02:02:00.000-08:00

Bill Ayers talks back

Sarah Palin called him a terrorist, Barack Obama called him an acquaintance. A Salon editor who knew Ayers back when talks to the ex-Weather Underground member turned Republican talking point. LinkHere

Inflate And Die

2009-12-17T00:55:00.000-08:00

Richard Russell has been preaching the mantra of Inflate Or Die for quite some time. Here are two references.

November 26, 2002
Inflate Or Die

The frantic Fed has taken the threat of deflation very seriously. The are seriously afraid that the US might be following the deflationary path of Japan, and they have decided to do what I predicted they would do all along. The Fed"s dilemma can be described in three words. The three words are --

Inflate Or Die.

Jun 13, 2007
I"m an old-timer...

On June 7 the national debt of the US was $8.85 trillion. The annual interest on this debt is $406 billion or over one billion dollars each and every day of the year. The debt is increasing at the rate of $1.38 billion a day. Thus, we see the magic of compounding, but unfortunately what we"re seeing is compounding in reverse.

With the above in mind, you have to ask yourself, "How in the world is the US going to finance its rising and compounding debt?" And the answer rings loud and clear -- it will be financed through inflation. I"ve said it for years, and I"ll say it again -- it"s a case of "inflate or die," and the US has no intention of dying. So we"ll inflate, it"s simply a matter of how rapidly we inflate and how successful the government and the Fed are in keeping the American people in the dark about what"s happening to their money.

Recently, I"ve watched David M. Walker, our brave Comptroller of the United States, as he tours the nation and evidently will continue to tour until the 2008 elections. Walker is talking to anyone who will listen about the recklessness of borrowing money from foreign lenders to pay for running the US government and about the "demographic tsunami" that will arrive when the baby-boom generation begins to retire.

I"ve held all along that the next war will not be a military war. It will not be a matter of the major powers fighting each other. The coming war for power and world leadership will be an economic war. It will be fought with competitive currencies and the movement of gold and the potential threat of nuclear bombs.

All the above is why I suggest that my subscribers accumulate gold. Furthermore, I"ve suggested that subscribers think of their gold holdings in terms of the number of ounces held. As for the price of gold, the price will take care of itself as the dollar slowly (I hope slowly) slides into the dusky realms of fiat-history.

I have to admit "Inflate Or Die" has a nice catchy ring to it. Unfortunately there is no substance in it. Oh, I understand the premise alright: borrow money today and pay back tomorrow with cheaper dollars. But there is one huge problem with that idea. No, make that three.

Government liabilities are rising faster than the stated rate of inflation, particularly Medicaid and Medicare
Servicing consumer debt is becoming impossible for many borrowers because of sinking home prices in conjunction with higher property taxes, higher insurance costs, and higher interest payments.
Interest payments+ongoing expenses are rising far faster than wages+asset appreciation for most borrowers.

That said, Richard Russell is right about the next war: "The next war will not be a military war. It will not be a matter of the major powers fighting each other. The coming war for power and world leadership will be an economic war. It will be fought with competitive currencies and the movement of gold and the potential threat of nuclear bombs."

The economic war Russell described is already being waged. You can see it now in Congress with Veto Proof Insanity and if that is our battle plan we are in deep cereal trouble.

Richard Russell is also right about gold as outlined in Best of Richard Russell from December 31, 2003.

Paper money is now being created wholesale throughout the world. Stated simply, all paper currency is now valued against each other. But more important, ultimately ALL paper is ultimately valued against the only true, intrinsic money -- gold. In world history, no irredeemable paper currency has ever survived. Since all the world"s currency is now irredeemable (in gold), this means that in the end, the only form of money that will survive is real intrinsic money -- gold.

It"s not a question of whether gold will survive, it"s a question of when the world"s current paper money will deteriorate and finally die. I can tell you that irredeemable paper will not survive -- but obviously I can"t tell you when it will die. The timing is the only uncertainty.

But as right as Russell may be about gold and economic war he is wrong about the Inflate Or Die thesis. I simply do not think there is a choice (or if there is one it will do any good).

The Challenge

I challenge anyone else to explain how rising inflation is going to bail out Medicaid or Medicare when costs due to an aging of baby boomers are rising exponentially compared to wages, tax revenues, or the composite CPI.
I challenge anyone to explain how inflation (in conjunction with rising mortgage payments) is going to bail out homeowners who are struggling right here right now to make mortgage payments.
I challenge anyone to explain how rising interest rates are going to help either consumers or the government pay their bills.
I challenge anyone to explain how inflation is going to cure the problem of debt increasing at the rate of $1.38 billion a day with the magic of compounding going in reverse and real wages shrinking (even before that compounding).

Simply put, the idea that there is a choice between inflation and economic death is fatally flawed. Wages are not keeping up with expenses and in an environment of wising interest rates, that spells disaster for many people. For proof see Foreclosures Reach Record Levels Across Country.

In another sign that the housing market is taking a major tumble, Americans across the country are getting foreclosure notices at a record pace. New data released this afternoon indicates that one in every 656 homes in the United States went into foreclosure during May.

Irvine, Calif.-based RealtyTrac says more than 176,000 people got foreclosure notices last month. That is the highest figure they have ever recorded in their monthly report and is 90 percent higher than the numbers from a year ago. "Such strong activity in the midst of the typical spring buying season could foreshadow even higher foreclosure levels later in the year," said James Saccacio, CEO of RealtyTrac, in a release accompanying the data.

M3

Check out this chart of M3 from Bart at Now and Futures.

So what has attempting to inflate out of the dotcom bubble busting brought us?

The Reflation Attempt

A housing bubble that has now popped
Record foreclosures
GDP inching up at +0 .3% (and that is with hedonics and imputation added in)
70+ subprime lenders blowing up
Government liabilities growing faster than tax receipts
Interest on the national debt is soaring
Rising equity prices (for now) but benefits highly skewed to a small portion of the population
Massive consumer debts
Extreme speculation in assets worldwide

From the Fed�s own flow of funds we see just how ineffective the Fed has become: in 1980 it took $1 of new debt to create $1 of GDP whereas today it takes $7 to $8 of new debt to create $1 of GDP. Each reflation effort takes more and more dollars to produce any results. The problem now is that nearly all debt is going for unproductive purposes and nearly all of the benefit to those who least need it.

One can not inflate out of a problem, when inflation is the problem. Simply put, it"s not Inflate Or Die, but rather Inflate And Die that describes the current sad state of affairs.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Repossessed Toys Are A Booming Business

2009-12-16T22:42:00.000-08:00

The San Diego Union-Tribune is reporting The Economy is forcing many to let go of luxury toys.

With paperwork in hand, Ashley Sparks set off in search of his newest target � a 2005 Winnebago motor home.

Sparks, an adjuster for ABA Recovery Service, found the vehicle on a well-manicured street in Point Loma, surrounded by homes nearing the million-dollar mark.

This was an easy one. The owner willingly handed over the keys, and Sparks" partner drove off in the latest luxury item repossessed by the Grantville company.

Egley-Sparks" adjusters have hooked up and hauled away opulent motor homes worth $800,000 and powerboats with price tags of $300,000. They"ve picked up travel trailers, dirt bikes, all-terrain vehicles and the trailers used to carry them.

Never in her 28 years in the repossession business has Egley-Sparks seen so many discretionary luxuries being lost to hard times. And it"s happening all across the country, economists and industry analysts say.

More boat owners can no longer afford their vessels, said Eric Leslie, director of marina operations for Harbor Island West Marina.

Although he does not have specific numbers, Leslie said he knows marinas up and down the Southern California coast are seeing a surge in owners giving up their boats. Demand for slips has also declined sharply, Leslie said, though the marina remains more than 90 percent occupied.

Buzz Gibbs, owner of Montgomery Field"s Gibbs Flying Services, said he"s seeing the same pattern. "I"ve had more of my customers dispose of their airplanes than before," he said.

The super-wealthy are more easily buffered from the economic decline, but it"s the worst of times for middle-and upper-middle-class Americans who splurged on toys in recent years, said David Jones, president of the Association of Independent Consumer Credit Counseling Agencies based in Fairfax, Va.

"It"s happening in numbers never seen before," said Jones, who estimates that 2.25 million Americans sought debt consolidation in the past year, a 20 percent increase over the year before.

Boom Time For Repo Man

From Yachts To Luxury Autos, Loans Go Unpaid As The Economy Struggles. It"s a Boom Time For Repo Man.

Though the struggling economy means hard times for most people, it"s a godsend for the repo man, the person who shows up � often unexpectedly � to snatch your property when you"re behind on payments.

Fort Lauderdale boat repossessor and auctioneer National Liquidators, business has tripled in the last 18 months as higher maintenance fees, fuel and docking costs � as well as the real estate crisis � have put boat owners behind on payments.

The same is true for those repo (short for repossession) men � and a few women � who spend their days and nights hunting and snatching luxury cars and SUVs from distressed owners.

"Before the house, everything else goes," says Clarke, a former navy engineer who has never seen more boats in five years on the job. He has taken small motorboats, sailboats and multimillion-dollar yachts. For the 63-footer he takes on this day, its loan hasn"t been paid for months, with $200,000 overdue.

Along with nine other agents, the company recovers up to five boats daily throughout Florida. Each is listed online for auction within a week; most are bought by foreigners.

Gas, economy drown Delta boating

InsideBayArea is reporting Gas, economy drown Delta boating.

Brian Riley of Martinez, a day trader, once lived for his twice-monthly boating trips to Bethel Harbor for cruising, wakeboarding and relaxing. But now, with the cost of gas, "I"m lucky if I get there once a month," Riley said.

And there hangs the economic fate of California"s Delta, which comprises roughly 1,000 miles of navigable waters from Pittsburg to the west, to Courtland to the north, to Stockton to the east, then on to Tracy and back to Pittsburg.

As prices for fuel hover close to $5 a gallon at marinas, the marine industry in the Delta is sinking.

"The whole Delta economy is based around boating," said Jamie Bolt, harbormaster of Bethel Harbor marina. As gas prices soared, business at marinas, bait-and-tackle shops, boat dealerships, restaurants and repair shops plummeted.

"We"ve been here for 30 years and have seen the ups and downs of the area, but it has never been this bad," said Harriet Russo of Capra Quarius Marine Boatworks repair service in Bethel Island. "People aren"t taking their boats out. They can"t afford the gas."

"We judge what"s going on in the economy on how many people are using our launching ramp," said Christian Lauritzen, harbormaster of Lauritzen Yacht Harbor in Oakley. "A normal Saturday would be 40 boats. Now, we"re launching 15 to 25 boats."

The boating industry makes a substantial contribution to California"s economy. The state is third in the nation in boat, motor, trailer and accessory sales, with retail sales hitting $820 million in 2007.

"That figure will probably be down in 2008," said Ellen Hopkins of the National Marine Manufacturers Association. California and Florida already have posted the biggest declines in boat sales in the United States.

Frugality is the new reality. For many it is a forced event.

Also notice the potential downward spiral effect on marina owners. Fewer boat sales and decreasing willingness to splurge on gas means less marina business. Deflation is going to hit the value of marinas. Any marina owners who were struggling before are not going to survive now.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

BLOOMBERG: Allstate Hires GM�s Mark LaNeve as Chief Marketing Officer

2009-12-16T20:09:00.000-08:00

By Jamie McGee

Oct. 12 (Bloomberg) -- Allstate Corp., the insurer that spent $364.6 million on advertising last year, hired General Motors Co.�s top U.S. sales executive as chief marketing officer and senior vice president.

Mark LaNeve will report to Chief Executive Officer Thomas Wilson when he joins Allstate Oct. 26, the Northbrook, Illinois- based insurer said in a statement today. GM had announced that LaNeve, 50, would depart and appointed Buick-GMC General Manager Susan Docherty as vice president of U.S. sales.

LaNeve�s �success in building stronger brands through marketing, consumer focused product design and local sales presence will accelerate our strategy to reinvent protection and retirement,� Wilson said in the statement.

LaNeve steps into an insurer advertising battle that pits Allstate pitchman Dennis Haysbert against Geico Corp.�s gecko mascot and Progressive Corp.�s spunky saleswoman, Flo. Geico, owned by Warren Buffett�s Berkshire Hathaway Inc., was the only publicly traded insurer to spend more on advertising last year, paying $624.6 million, according to data compiled by TNS Media Intelligence.Progressive spent $294 million.

Allstate is spending more of its advertising budget this year on commercials that feature Haysbert, who played the U.S. president on News Corp. television show �24,� TNS said. Allstate�s television ads increased to 80 percent of its overall advertising expenses in the first six months of 2009, compared with 68 percent in all of 2008, according to TNS data.

Joan Walker, Allstate�s vice president for corporate relations, had served as interim chief marketing officer job. She will keep the corporate relations job, Allstate said today.

Allstate fell 18 cents to $31.74 at 1:09 p.m. in New York Stock Exchange composite trading. The shares have declined 3.1 percent this year. The appointment was first reported last week by Business Week.

Recommended Amazon Reading

The Snowball: Warren Buffett and the Business of Life by Alice Schroeder
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DEALBREAKER: Peacocks Stick Together

2009-12-16T17:13:00.000-08:00

Posted by Bess Levin, Mar 11, 2009, 11:49am

The Daily Show With Jon StewartM - Th 11p / 10c

Basic Cable Personality Clash Skirmish "09

Daily Show Full Episodes
Important Things With Demetri Martin

Political Humor
Economic Crisis

It"s Day 79 of Daily Show vs. CNBC. Since Jim Cramer"s been the only one to officially respond to the criticism of his life"s work, and because he"s agreed to show up for an face-to-face rumble on Thursday, the last few nights have backed off Rickles Santelli (the original source of Stewart"s ire), and been devoted to taking the shouter down for some of his bold calls over the last year, including but not limited to Buy Bear. At issue last night for Stewie was yesterday"s blitzkrieg of media appearances by Cramer on all GE-owned networks (including a stop at the Today Show to suggest that TDS start making fun of Warren Buffett).

Related Links

Berkshire Hathaway Annual Letter to Shareholders 2008 - Read the latest Berkshire Letter
Daily Forex Updates - Daily Forex data, commentary & tools to help make trading Forex easy
Share Investor Blog - Stockmarket & Business commentary
Share Investor New Zealand Business News- Get more business news
Shareinvestorforum.com - Discuss this topic further

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The Four Filters Invention of Warren Buffett and Charlie Munger by Bud Labitan
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DSCC Accuses GOP Of Wasting 1,000 Hours In The Senate

2009-12-16T16:56:00.000-08:00

The capacity of Democrats to cast Republicans as a party without solutions has, to a certain extent, allowed for progress on a whole host of fronts - not least of which has been the maintenance of an advantage in generic public opinion polls.

And as party leadership inches closer to getting health care reform through Congress, and as the 2010 congressional elections approach, the charge that the only agenda Republicans have is to undermine the president"s, seems likely to only intensify.

On Friday, the Democratic Senatorial Campaign Committee will put out a web video that accuses Republicans of "wasting 1,000 hours in the Senate" through procedural rules and other parliamentary ploys. The spot - reminiscent of the notorious Mac v. P.C. television commercials - casts the GOP as a stuffy white-collared tycoon who "just kind of wants to see [Dems] fail."
LinkHere

THE EXAMINER: Coke calorie information will stare at Warren Buffett

2009-12-16T15:34:00.000-08:00

October 8, 8:52 AMWarren Buffett ExaminerWilliam Freehling

AP photo of the new Coke calorie counterWarren Buffett is said to slurp several cans of Cherry Coke a day. Soon a stark reminder of how many calories that entails will stare him in the face.Coca-Cola recently announced that it will start placing calorie information on the front of all its cans and bottles. Coke and others are under pressure from wellness advocates to better inform consumers about their products" ingredients and calories.

Coke ran a full-page color ad in yesterday"s Wall Street Journal about the planned change.

"Increasingly, Americans are realizing the importance of living a balanced, healthy lifestyle," Coke says in the WSJ ad. "We see that. And here are a few of the things we"re doing to help make it easier for people to achieve their goals."

Coke goes on to say it will put the calorie counter on its packaging and will introduce a new 90-calorie slim can in 2010. It"s also working with schools to reduce total beverage calories.

So will Buffett, whose Berkshire Hathaway owns an 8.6 percent stake in Coke worth about $11 billion, develop a guilty conscience as he stares at the labels? Will he opt for the slim cans?

Don"t bet on it.

Recommended Amazon Reading

For God, Country, and Coca-Cola: The Definitive History of the Great American Soft Drink and the Company That Makes It by Mark Pendergrast
Buy new: $17.90 / Used from: $8.64
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Sarah Palin the Iraq War "Task that is from God."

2009-12-16T14:45:00.000-08:00

Stop, In the Name of God

Isn"t the sanctity of human life a moral cause in its own?

By Mamoon Alabbasi
Earlier this month, the Iraq war, arguably the biggest mass murder expedition of the twenty-first centaury, was branded by Republican vice-presidential pick Sarah Palin as a "task that is from God."
Continue

Narrow, Surprising Victory in Seattle Mayor�s Race

2009-12-16T14:29:00.000-08:00

Source: NY Times

SEATTLE � A former Sierra Club leader who rode his bicycle to campaign events and relied heavily on volunteer support claimed a narrow and surprising victory on Monday in the race for mayor of this environmentally friendly city.

�You cared, you believed, and we�ve got a lot more work to do,� Mike McGinn told supporters after the city�s mail-in election showed him winning 51 percent of the vote, by a margin of 4,939 votes out of about 190,000 cast in the mayor�s race.

He was met by the same chant he heard on the campaign trail: �We like Mike!�

* * *

Mr. McGinn, who was outspent more than 3 to 1 and did not receive endorsements from major political and business leaders, defeated Joe Mallahan, a vice president with T-Mobile who contributed more than $200,000 to his own campaign.
LinkHere

Freed journalists home in US after NKorea pardon

2009-12-16T13:04:00.000-08:00

Visit msnbc.com for Breaking News, World News, and News about the Economy

BURBANK, Calif. -- Two American journalists jubilantly reunited with family and friends early Wednesday upon returning to the United States with former President Bill Clinton, whose diplomatic trip to North Korea secured their release nearly five months after their arrests.
The jet carrying Euna Lee and Laura Ling, reporters for Al Gore"s San Francisco-based Current TV, and Clinton arrived at Burbank"s Bob Hope Airport at dawn. Clinton met with communist leader Kim Jong Il on Tuesday to secure the women"s release. LinkHere

U.S. Support of Israeli War Against Gaza May Trigger Depression

2009-12-16T12:45:00.000-08:00

Famed trend forecaster Gerald Calente is warning that America"s unconditional support of the brutal Israeli war on Gaza could lead to an oil embargo against the U.S. which would tip the U.S. into full-scale depression and induce panic food and fuel buying.

So if you were on the fence about whether or not the U.S. should continue to support the war against Gaza, your own economic self-interest should convince you that it is not.

Note: The U.S. will likely slide into a depression even if we stop supporting the war crimes in Gaza, but an oil embargo could accelerate the beginning of the depression.

Chemical Traces of High Explosives in WTC Debris

2009-12-16T10:45:00.000-08:00

In an article published this week in the journal Environmentalist, chemical engineer Kevin Ryan collects evidence from EPA documents that suggest there was both Thermate and high-explosives in the debris from the WTC collapse. Ryan was formerly employed by Environmental Health Labs, a division of Underwriters Labs, before he was fired for raising these and other questions.

LinkHere

Commercial Paper Tanks

2009-12-16T09:20:00.000-08:00

Bloomberg is reporting Commercial Paper Has Biggest Weekly Drop Since 2000.

Outstanding U.S. commercial paper fell 4.23 percent, the biggest weekly drop in almost seven years, as investors fled asset-backed debt and opted for the safety of Treasuries. Commercial paper outstanding has fallen by $181.3 billion in two weeks. The most recent decline is the biggest by percentage since at least November 2000, according to data compiled by Bloomberg.

"The shrinkage of the commercial paper market will force companies to obtain money elsewhere" [said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co.], "Some will be unable to obtain funding and will shut or scale back their operations."

"There is a significant amount of cash in the system, it"s just not getting to the
parts of the market that need it," Conrad DeQuadros, a senior economist at Bear Stearns Cos., said in an interview today in New York.

Once again Bear Stearns gets it wrong. There is not a "a significant amount of cash" anywhere. In fact there is a mad scramble for cash as a Mad Dash For Cash and Sudden Demand For Cash both show.

DeQuadros is confusing cash with credit and by association credit with either liquidity or value. Professor Succo gave a timely warning about the latter in Don"t Confuse Risk Taking With Value. Mr. Practical was right on time with Credit Crunch Not Going Away.

With the above in mind, let"s change the statement made by DeQuadros so that it"s accurate. This will take quite some doing. Here goes:

"Demand for cash has been rising fast but there is little cash to be found. The huge drop in commercial paper and the emergency funding of Countrywide (CFC) by Bank of America (BAC) are examples of what happens when there is insufficient cash. Yes there is credit available but at prices no one really wants to pay. Credit is only available at good rates to corporations that don"t need it. Those who need a credit lifeline are struggling to get it. That"s what happens in a credit crunch. If you need credit no one wants to extend it to but if you don"t the Fed is begging you to take some".

This is why Bernanke"s Bluff as depicted in Bernanke"s 16 Gun Salute is doomed to fail.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Bay Area Rapid Transit Union Sets Strike Over Pension Benefits

2009-12-16T07:21:00.000-08:00

San Francisco commuters may be in for a rough week as the Bay Area Rapid Transit (BART) transit union has voted to go on strike in a wage and benefits dispute.

The San Francisco Chronicle picks up the story in BART sets strike for midnight Sunday.

BART workers will strike beginning at midnight Sunday, the union that represents train operators and station agents announced this afternoon. The union made the announcement after the BART board of directors voted unanimously today to immediately impose work rules on the 900-member Amalgamated Transit Union Local 1555.

BART"s daily ridership averages about 340,000 and those passengers will need to find a new mode of transportation come Monday morning.

BART"s board of directors expressed remorse that they had to unilaterally impose a new contract, which would give management the ability to impose new work rules and would require members of the ATU to pay into their own retirement system, which would equate to about 7 percent of their salary.

BART faces a projected $310 million deficit over the next four years, and management wanted to cut labor costs by $100 million over that period to help balance the budget. The agency raised fares and cut service starting July 1.

Management Overly Generous

Starting Monday, assuming a contract agreement is not worked out, commuters could be in for a rough week. However, that is better than giving into the ATU and having fares skyrocket.

Management was overly generous as it is, asking the union to pick up less than 1/3 of the projected shortfall. Why shouldn"t it be 2/3, 3/4 or all of it?

Proud To Be ATU

Inquiring minds are looking into the ATU Amalgamated Transit Union.

The ATU is the largest transit union in North America. ATU transit and allied trade members enjoy the highest wages and benefits in the industry. We are leaders in the fight to ensure safety in mass transit. And we work hard to improve service to our riders. We"re proud to be ATU.

At a time most of the rest of the country is suffering and has no pension plan at all, the ATU with the highest wages and benefits in the industry is demanding more.

PATCO Revisited

The best thing for San Francisco commuters is if every one of the union workers never works another day for BART in a Ronald Reagan vs. PATCO type of decision.

On August 3, 1981 the [PATCO - Professional Air Traffic Controllers Organization] union declared a strike, seeking better working conditions, better pay and a 32-hour workweek. In doing so, the union violated a law {5 U.S.C. (Supp. III 1956) 118p.} that banned strikes by government unions.

Ronald Reagan, declared the PATCO strike a "peril to national safety" and ordered them back to work under the terms of the Taft-Hartley Act of 1947. Only 1,300 of the nearly 13,000 controllers returned to work.

Subsequently, Reagan demanded those remaining on strike return to work within 48 hours, otherwise their jobs would be forfeited.

On August 5, following the PATCO workers refusal to return to work Reagan fired the 11,345 striking air traffic controllers who had ignored the order. The union was decertified on October 22, 1981.

More government unions need to be dissolved, 100% of them to be precise. Amalgamated Transit Union Local 1555 is a good place to start.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Low turnout in Iraq"s election reflects a disillusioned nation

2009-12-16T06:08:00.000-08:00

Source: McClatchy Newspapers
Voter turnout in Iraq"s provincial elections Saturday was the lowest in the nation"s short history as a democracy, despite a relative calm across the nation. Only about 7.5 million of more than 14 million registered voters went to the polls.
Interviews suggest that the low voter turnout is an indication of Iraqi disenchantment with a democracy that, so far, has brought them very little.
Since the U.S.-led invasion in 2003 and the fall of a brutal dictator, Iraqis witnessed unprecedented violence in their nation and what they believe is humiliation under a foreign occupation. Even on Saturday, U.S. tanks could be spotted across Baghdad on largely empty roads.
Following elections in 2005 Iraq spiraled into a sectarian war. People cowered in their homes while others literally killed each other in the streets. Many here feel the people they elected were party to or at least complicit in the violence. The security forces, too, were feared as sectarian death squads; Iraqis believed that American raids or passing U.S. tanks sometimes resulted in innocent civilian deaths.
LinkHere

McCain"s Campaign Manager Announces Contest In Disturbing Video

2009-12-16T03:55:00.000-08:00

In what Wonkette calls "the most tragically awkward video in the history of YouTube," a dazed McCain campaign manager Rick Davis stares goggle-eyed at off-screen cue cards, robotically making a call for Americans to stalk their neighbors with video cameras, and reveal what secret Islamofascists might be walking among us. The lucky winner will be flown to the Republican National Convention to enjoy a session of "Seven Minutes In Heaven" with Larry Craig at the Minneapolis airport, and then it"s off to Guantanamo Bay!
This contest, by the way, is the "true story" upon which the Liv Tyler thriller The Strangers is based.

American Neighbor Convention Contest - SUBMIT NOW!

LinkHere

The Ongoing Cover Up of the Truth Behind the Financial Crisis May Lead to Another Crash

2009-12-16T02:09:00.000-08:00

William K. Black - professor of economics and law, and the senior regulator during the S & L crisis - says that that the government"s entire strategy now - as during the S&L crisis - is to cover up how bad things are ("the entire strategy is to keep people from getting the facts").

Indeed, as I have previously documented, 7 out of the 8 giant, money center banks went bankrupt in the 1980"s during the "Latin American Crisis", and the government"s response was to cover up their insolvency.

Black also says:

There has been no honest examination of the crisis because it would embarrass C.E.O.s and politicians . . .

Instead, the Treasury and the Fed are urging us not to examine the crisis and to believe that all will soon be well.

PhD economist Dean Baker made a similar point, lambasting the Federal Reserve for blowing the bubble, and pointing out that those who caused the disaster are trying to shift the focus as fast as they can:

The current craze in DC policy circles is to create a "systematic risk regulator" to make sure that the country never experiences another economic crisis like the current one. This push is part of a cover-up of what really went wrong and does absolutely nothing to address the underlying problem that led to this financial and economic collapse.

Baker also says:

"Instead of striving to uncover the truth, [Congress] may seek to conceal it" and tell banksters they"re free to steal again.

Economist Thomas Palley says that Wall Street also has a vested interest in covering up how bad things are:

That rosy scenario thinking has returned to Wall Street should be no surprise. Wall Street profits from rising asset prices on which it charges a management fee, from deal-making on which it earns advisory fees, and from encouraging retail investors to buy stock, which boosts transaction fees. Such earnings are far larger when stock markets are rising, which explains Wall Street�s genetic propensity to pump the economy.

The media has largely parroted what the White House and Wall Street were saying. As a Pew Research Center study on the coverage of the crisis found:

The gravest economic crisis since the Great Depression has been covered in the media largely from the top down, told primarily from the perspective of the Obama Administration and big business, and reflected the voices and ideas of people in institutions more than those of everyday Americans�

Citizens may be the primary victims of the downturn, but they have not been not the primary actors in the media depiction of it.

A PEJ content analysis of media coverage of the economy during the first half of 2009 also found that the mainstream press focused on a relatively small number of major story lines, mostly generating from two cities, the country�s political and financial capitals.

A companion analysis of a broader array of media using new �meme tracker� technology developed at Cornell University finds that phrases and ideas that reverberated most in the coverage came early on, mostly from government, particularly from the president and the chairman of the Federal Reserve...
Three storylines have dominated: efforts to help revive the banking sector, the battle over the stimulus package and the struggles of the U.S. auto industry. Together they accounted for nearly 40% of the economic coverage from February 1 through August 31. Other topics related to the crisis have been covered much less. As an example, all the reporting of retail sales, food prices, the impact of the crisis on Social Security and Medicare, its effect on education and the implications for health care combined accounted for just over 2% of all the economic coverage.

Actions by government officials and business leaders drove much of the coverage. The White House and federal agencies alone initiated nearly a third (32%) of economic stories studied through July 3. Business triggered another 21%. About a quarter of the stories (23%) was initiated by the press itself and did not rely on an external news trigger. Ordinary citizens and union workers combined to act as the catalyst for only 2% of the stories about the economy.

Fully 76% of the datelines on economic stories studied during the first five months of the Obama presidency were New York (44%) or metro Washington D.C. (32%). Only about one-fifth (21%) of the stories originated in any other city in the U.S., and about a quarter of those emanated from two other major media centers: Atlanta and Los Angeles.

As I have previously reported, concentration in the mainstream media (along with a number of other dynamics) has severely undermined the credibility of the media.

Why Should We Care?

Why should we care if there has been a cover up?

Well, initially, if there has been activity which is harmful to the economy and may lead to another financial crisis, wouldn"t we want to know about it, so that we prevent it from happening again?

The answer is obviously yes.

But if the government, Wall Street, and the media are all in cover-up mode, then independent auditors, financial analysts and economists cannot shine a light into financial practices to find out what really went wrong.

In addition, if we don"t know what"s really going on, we can"t gauge whether the government"s economic policies are working. For example, Time Magazine called Tim Geithner a "con man" and the stress tests a "confidence game" because those tests were so inaccurate.

William Black said:

How do you think we did the stress tests? Like doing a stress test on an airplane wing, but you don�t actually have airplane wing. And don�t know what airplane wing is made out of. It�s a farce.

I agree.

Without accurate information, we will not know if we"re heading in the right or the wrong direction.

Fraud

One of the foremost experts on structured finance and derivatives - Janet Tavakoli - says that rampant fraud and Ponzi schemes caused the financial crisis.

University of Texas economics professor James K. Galbraith agrees:

You had fraud in the origination of the mortgages, fraud in the underwriting, fraud in the ratings agencies.

Congress woman Marcy Kaptur says that there was rampant fraud leading up to the crash (see this and this).

According to economist Max Wolff:

The securitization process worked by "packag(ing), sell(ing), repack(aging) and resell(ing) mortages making what was a small housing bubble, a gigantic (one) and making what became an American financial problem very much a global" one by selling mortgage bundles worldwide "without full disclosure of the lack of underlying assets or risks."

Buyers accepted them on good faith, failed in their due diligence, and rating agencies were negligent, even criminal, in overvaluing and endorsing junk assets that they knew were high-risk or toxic. "The whole process was corrupt at its core."

Elizabeth Warren suspects fraud as the cause of the crisis.

William Black says that massive fraud by is what caused the economic crisis. Specifically, he says that companies, auditors, rating agencies and regulators all committed fraud which helped blow the bubble and sowed the seeds of the inevitable crash. And see this.

Indeed, as I have previously noted, the giant ratings agencies have a culture of covering up improper ratings (and they essentially took bribes for giving higher ratings).

Black also notes:

Everyone involved knew that the CDOs which packaged subprime loans were not AAA credit-worthy (which means that they are completely risk-free). He also said that the exotic instruments (CDOs, CDS, etc.) which spun the mortgages into more and more abstract investments were intentionally created to defraud investors

The government knew about mortgage fraud a long time ago. For example, the FBI warned of an "epidemic" of mortgage fraud in 2004. However, the FBI, DOJ and other government agencies then stood down and did nothing. See this and this

"Accounting is the weapon of choice in the financial sphere", with the top executives involved in these fraudulent schemes vacuuming out huge profits for themselves and select insiders, and having auditors rubber stamp what"s being done

In November 2007, one rating agency - Fitch"s - dared to take a look at some loan files. Fitch concluded that there was the appearance of fraud in nearly every file reviewed

Black and economist Simon Johnson also state that the banks committed fraud by making loans to people that they knew would default, to make huge profits during the boom, knowing that the taxpayers would bail them out when things went bust.

See also this, this and this.

The Economy Won"t Recover Until We Prosecute

So there was a little fraud, no big deal, right?

Wouldn"t looking backwards at fraudulent conduct be distracting for the people, the government, and the economy? Shouldn"t we look forward so we can recover?

No.

Specifically, the Wharton School of Business has written an essay stating that restoring trust is the key to recovery, and that trust cannot be restored until wrongdoers are held accountable.

The Wharton paper states:

The public will need to "hold the perpetrators of the economic disaster responsible and take what actions they can to prevent them from harming the economy again." In addition, the public will have to see proof that government and business leaders can behave responsibly before they will trust them again...

Economist James Galbraith agrees. For more on the importance of trust in the economy, see this.

The stakes are high. As Pam Martens, who worked on Wall Street for 21 years, writes:

The massive losses by big Wall Street firms, now topping those of the Great Depression in relative terms, have yet to be adequately explained. Wall Street power players are obfuscating and Congress is too embarrassed or frightened to ask, preferring to just throw money at the problem and hope it goes away. But as job losses and foreclosures mount and pensions and 401(k)s shrink, public policy measures to address the economic stresses require a full set of unembellished facts...

It was four years after the crash of 1929 before the major titans of Wall Street were forced to give testimony under oath to Congress and the full magnitude of the fraud emerged. That delay may well have contributed to the depth and duration of the Great Depression. The modern-day Wall Street corruption hearings in Congress ... must now resume in earnest and with sworn testimony if we are to escape a similar fate.

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1978 Warren Buffett Letter to Berkshire Hathaway shareholders

2009-12-16T01:59:00.000-08:00

To the Shareholders of Berkshire Hathaway Inc.:

Visit the Share Investor Blog

   First, a few words about accounting.  The merger with
Diversified Retailing Company, Inc. at yearend adds two new
complications in the presentation of our financial results.
After the merger, our ownership of Blue Chip Stamps increased to
approximately 58% and, therefore, the accounts of that company
must be fully consolidated in the Balance Sheet and Statement of
Earnings presentation of Berkshire.  In previous reports, our
share of the net earnings only of Blue Chip had been included as
a single item on Berkshire�s Statement of Earnings, and there had
been a similar one-line inclusion on our Balance Sheet of our
share of their net assets.

   This full consolidation of sales, expenses, receivables,
inventories, debt, etc. produces an aggregation of figures from
many diverse businesses - textiles, insurance, candy, newspapers,
trading stamps - with dramatically different economic
characteristics.  In some of these your ownership is 100% but, in
those businesses which are owned by Blue Chip but fully
consolidated, your ownership as a Berkshire shareholder is only
58%. (Ownership by others of the balance of these businesses is
accounted for by the large minority interest item on the
liability side of the Balance Sheet.) Such a grouping of Balance
Sheet and Earnings items - some wholly owned, some partly owned -
tends to obscure economic reality more than illuminate it.  In
fact, it represents a form of presentation that we never prepare
for internal use during the year and which is of no value to us
in any management activities.

   For that reason, throughout the report we provide much
separate financial information and commentary on the various
segments of the business to help you evaluate Berkshire�s
performance and prospects.  Much of this segmented information is
mandated by SEC disclosure rules and covered in �Management�s
Discussion� on pages 29 to 34.  And in this letter we try to
present to you a view of our various operating entities from the
same perspective that we view them managerially.

   A second complication arising from the merger is that the
1977 figures shown in this report are different from the 1977
figures shown in the report we mailed to you last year.
Accounting convention requires that when two entities such as
Diversified and Berkshire are merged, all financial data
subsequently must be presented as if the companies had been
merged at the time they were formed rather than just recently.
So the enclosed financial statements, in effect, pretend that in
1977 (and earlier years) the Diversified-Berkshire merger already
had taken place, even though the actual merger date was December
30, 1978.  This shifting base makes comparative commentary
confusing and, from time to time in our narrative report, we will
talk of figures and performance for Berkshire shareholders as
historically reported to you rather than as restated after the
Diversified merger.

   With that preamble it can be stated that, with or without
restated figures, 1978 was a good year.  Operating earnings,
exclusive of capital gains, at 19.4% of beginning shareholders�
investment were within a fraction of our 1972 record.  While we
believe it is improper to include capital gains or losses in
evaluating the performance of a single year, they are an
important component of the longer term record.  Because of such
gains, Berkshire�s long-term growth in equity per share has been
greater than would be indicated by compounding the returns from
operating earnings that we have reported annually.

   For example, over the last three years - generally a bonanza
period for the insurance industry, our largest profit producer -
Berkshire�s per share net worth virtually has doubled, thereby
compounding at about 25% annually through a combination of good
operating earnings and fairly substantial capital gains.  Neither
this 25% equity gain from all sources nor the 19.4% equity gain
from operating earnings in 1978 is sustainable.  The insurance
cycle has turned downward in 1979, and it is almost certain that
operating earnings measured by return on equity will fall this
year.  However, operating earnings measured in dollars are likely
to increase on the much larger shareholders� equity now employed
in the business.

   In contrast to this cautious view about near term return
from operations, we are optimistic about prospects for long term
return from major equity investments held by our insurance
companies.  We make no attempt to predict how security markets
will behave; successfully forecasting short term stock price
movements is something we think neither we nor anyone else can
do.  In the longer run, however, we feel that many of our major
equity holdings are going to be worth considerably more money
than we paid, and that investment gains will add significantly to
the operating returns of the insurance group.

Sources of Earnings

   To give you a better picture of just where Berkshire�s
earnings are produced, we show below a table which requires a
little explanation.  Berkshire owns close to 58% of Blue Chip
which, in addition to 100% ownership of several businesses, owns
80% of Wesco Financial Corporation.  Thus, Berkshire�s equity in
Wesco�s earnings is about 46%.  In aggregate, businesses that we
control have about 7,000 full-time employees and generate
revenues of over $500 million.

   The table shows the overall earnings of each major operating
category on a pre-tax basis (several of the businesses have low
tax rates because of significant amounts of tax-exempt interest
and dividend income), as well as the share of those earnings
belonging to Berkshire both on a pre-tax and after-tax basis.
Significant capital gains or losses attributable to any of the
businesses are not shown in the operating earnings figure, but
are aggregated on the �Realized Securities Gain� line at the
bottom of the table.  Because of various accounting and tax
intricacies, the figures in the table should not be treated as
holy writ, but rather viewed as close approximations of the 1977
and 1978 earnings contributions of our constituent businesses.


                                                                       Net Earnings
                                 Earnings Before Income Taxes            After Tax
                            --------------------------------------  ------------------
                                  Total          Berkshire Share     Berkshire Share
                            ------------------  ------------------  ------------------
(in thousands of dollars)       1978      1977      1978      1977      1978      1977
                            --------  --------  --------  --------  --------  --------
Total - all entities ......... $66,180   $57,089   $54,350   $42,234   $39,242   $30,393
                            ========  ========  ========  ========  ========  ========
Earnings from operations:
Insurance Group:
  Underwriting ............. $ 3,001   $ 5,802   $ 3,000   $ 5,802   $ 1,560   $ 3,017
  Net investment income ....  19,705    12,804    19,691    12,804    16,400    11,360
Berkshire-Waumbec textiles     2,916      (620)    2,916      (620)    1,342      (322)
Associated Retail
   Stores, Inc. ............   2,757     2,775     2,757     2,775     1,176     1,429
See�s Candies ..............  12,482    12,840     7,013     6,598     3,049     2,974
Buffalo Evening News .......  (2,913)      751    (1,637)      389      (738)      158
Blue Chip Stamps - Parent ..   2,133     1,091     1,198       566     1,382       892
Illinois National Bank
   and Trust Company .......   4,822     3,800     4,710     3,706     4,262     3,288
Wesco Financial
   Corporation - Parent ....   1,771     2,006       777       813       665       419
Mutual Savings and
   Loan Association ........  10,556     6,779     4,638     2,747     3,042     1,946
Interest on Debt ...........  (5,566)   (5,302)   (4,546)   (4,255)   (2,349)   (2,129)
Other ......................     720       165       438       102       261        48
                            --------  --------  --------  --------  --------  --------
  Total Earnings from
     Operations ............ $52,384   $42,891   $40,955   $31,427   $30,052   $23,080
Realized Securities Gain .....  13,796    14,198    13,395    10,807     9,190     7,313
                            --------  --------  --------  --------  --------  --------
  Total Earnings ........... $66,180   $57,089   $54,350   $42,234   $39,242   $30,393
                            ========  ========  ========  ========  ========  ========

   Blue Chip and Wesco are public companies with reporting
requirements of their own.  Later in this report we are
reproducing the narrative reports of the principal executives of
both companies, describing their 1978 operations.  Some of the
figures they utilize will not match to the penny the ones we use
in this report, again because of accounting and tax complexities.
But their comments should be helpful to you in understanding the
underlying economic characteristics of these important partly-
owned businesses.  A copy of the full annual report of either
company will be mailed to any shareholder of Berkshire upon
request to Mr. Robert H. Bird for Blue Chips Stamps, 5801 South
Eastern Avenue, Los Angeles, California 90040, or to Mrs. Bette
Deckard for Wesco Financial Corporation, 315 East Colorado
Boulevard, Pasadena, California 91109.

Textiles

   Earnings of $1.3 million in 1978, while much improved from
1977, still represent a low return on the $17 million of capital
employed in this business.  Textile plant and equipment are on
the books for a very small fraction of what it would cost to
replace such equipment today.  And, despite the age of the
equipment, much of it is functionally similar to new equipment
being installed by the industry.  But despite this �bargain cost�
of fixed assets, capital turnover is relatively low reflecting
required high investment levels in receivables and inventory
compared to sales.  Slow capital turnover, coupled with low
profit margins on sales, inevitably produces inadequate returns
on capital.  Obvious approaches to improved profit margins
involve differentiation of product, lowered manufacturing costs
through more efficient equipment or better utilization of people,
redirection toward fabrics enjoying stronger market trends, etc.
Our management is diligent in pursuing such objectives.  The
problem, of course, is that our competitors are just as
diligently doing the same thing.

   The textile industry illustrates in textbook style how
producers of relatively undifferentiated goods in capital
intensive businesses must earn inadequate returns except under
conditions of tight supply or real shortage.  As long as excess
productive capacity exists, prices tend to reflect direct
operating costs rather than capital employed.  Such a supply-
excess condition appears likely to prevail most of the time in
the textile industry, and our expectations are for profits of
relatively modest amounts in relation to capital.

   We hope we don�t get into too many more businesses with such
tough economic characteristics.  But, as we have stated before:
(1) our textile businesses are very important employers in their
communities, (2) management has been straightforward in reporting
on problems and energetic in attacking them, (3) labor has been
cooperative and understanding in facing our common problems, and
(4) the business should average modest cash returns relative to
investment.  As long as these conditions prevail - and we expect
that they will - we intend to continue to support our textile
business despite more attractive alternative uses for capital.

Insurance Underwriting

   The number one contributor to Berkshire�s overall excellent
results in 1978 was the segment of National Indemnity Company�s
insurance operation run by Phil Liesche.  On about $90 million of
earned premiums, an underwriting profit of approximately $11
million was realized, a truly extraordinary achievement even
against the background of excellent industry conditions.  Under
Phil�s leadership, with outstanding assistance by Roland Miller
in Underwriting and Bill Lyons in Claims, this segment of
National Indemnity (including National Fire and Marine Insurance
Company, which operates as a running mate) had one of its best
years in a long history of performances which, in aggregate, far
outshine those of the industry.  Present successes reflect credit
not only upon present managers, but equally upon the business
talents of Jack Ringwalt, founder of National Indemnity, whose
operating philosophy remains etched upon the company.

   Home and Automobile Insurance Company had its best year
since John Seward stepped in and straightened things out in 1975.
Its results are combined in this report with those of Phil
Liesche�s operation under the insurance category entitled
�Specialized Auto and General Liability�.

   Worker�s Compensation was a mixed bag in 1978.  In its first
year as a subsidiary, Cypress Insurance Company, managed by Milt
Thornton, turned in outstanding results.  The worker�s
compensation line can cause large underwriting losses when rapid
inflation interacts with changing social concepts, but Milt has a
cautious and highly professional staff to cope with these
problems.  His performance in 1978 has reinforced our very good
feelings about this purchase.

   Frank DeNardo came with us in the spring of 1978 to
straighten out National Indemnity�s California Worker�s
Compensation business which, up to that point, had been a
disaster.  Frank has the experience and intellect needed to
correct the major problems of the Los Angeles office.  Our volume
in this department now is running only about 25% of what it was
eighteen months ago, and early indications are that Frank is
making good progress.

   George Young�s reinsurance department continues to produce
very large sums for investment relative to premium volume, and
thus gives us reasonably satisfactory overall results.  However,
underwriting results still are not what they should be and can
be.  It is very easy to fool yourself regarding underwriting
results in reinsurance (particularly in casualty lines involving
long delays in settlement), and we believe this situation
prevails with many of our competitors.  Unfortunately, self-
delusion in company reserving almost always leads to inadequate
industry rate levels.  If major factors in the market don�t know
their true costs, the competitive �fall-out� hits all - even
those with adequate cost knowledge.  George is quite willing to
reduce volume significantly, if needed, to achieve satisfactory
underwriting, and we have a great deal of confidence in the long
term soundness of this business under his direction.

   The homestate operation was disappointing in 1978.  Our
unsatisfactory underwriting, even though partially explained by
an unusual incidence of Midwestern storms, is particularly
worrisome against the backdrop of very favorable industry results
in the conventional lines written by our homestate group.  We
have confidence in John Ringwalt�s ability to correct this
situation.  The bright spot in the group was the performance of
Kansas Fire and Casualty in its first full year of business.
Under Floyd Taylor, this subsidiary got off to a truly remarkable
start.  Of course, it takes at least several years to evaluate
underwriting results, but the early signs are encouraging and
Floyd�s operation achieved the best loss ratio among the
homestate companies in 1978.

   Although some segments were disappointing, overall our
insurance operation had an excellent year.  But of course we
should expect a good year when the industry is flying high, as in
1978.  It is a virtual certainty that in 1979 the combined ratio
(see definition on page 31) for the industry will move up at
least a few points, perhaps enough to throw the industry as a
whole into an underwriting loss position.  For example, in the
auto lines - by far the most important area for the industry and
for us - CPI figures indicate rates overall were only 3% higher
in January 1979 than a year ago.  But the items that make up loss
costs - auto repair and medical care costs - were up over 9%.
How different than yearend 1976 when rates had advanced over 22%
in the preceding twelve months, but costs were up 8%.

   Margins will remain steady only if rates rise as fast as
costs.  This assuredly will not be the case in 1979, and
conditions probably will worsen in 1980.  Our present thinking is
that our underwriting performance relative to the industry will
improve somewhat in 1979, but every other insurance management
probably views its relative prospects with similar optimism -
someone is going to be disappointed.  Even if we do improve
relative to others, we may well have a higher combined ratio and
lower underwriting profits in 1979 than we achieved last year.

   We continue to look for ways to expand our insurance
operation.  But your reaction to this intent should not be
unrestrained joy.  Some of our expansion efforts - largely
initiated by your Chairman have been lackluster, others have been
expensive failures.  We entered the business in 1967 through
purchase of the segment which Phil Liesche now manages, and it
still remains, by a large margin, the best portion of our
insurance business.  It is not easy to buy a good insurance
business, but our experience has been that it is easier to buy
one than create one.  However, we will continue to try both
approaches, since the rewards for success in this field can be
exceptional.

Insurance Investments

   We confess considerable optimism regarding our insurance
equity investments.  Of course, our enthusiasm for stocks is not
unconditional.  Under some circumstances, common stock
investments by insurers make very little sense.

   We get excited enough to commit a big percentage of
insurance company net worth to equities only when we find (1)
businesses we can understand, (2) with favorable long-term
prospects, (3) operated by honest and competent people, and (4)
priced very attractively.  We usually can identify a small number
of potential investments meeting requirements (1), (2) and (3),
but (4) often prevents action.  For example, in 1971 our total
common stock position at Berkshire�s insurance subsidiaries
amounted to only $10.7 million at cost, and $11.7 million at
market.  There were equities of identifiably excellent companies
available - but very few at interesting prices. (An irresistible
footnote: in 1971, pension fund managers invested a record 122%
of net funds available in equities - at full prices they couldn�t
buy enough of them.  In 1974, after the bottom had fallen out,
they committed a then record low of 21% to stocks.)

   The past few years have been a different story for us.  At
the end of 1975 our insurance subsidiaries held common equities
with a market value exactly equal to cost of $39.3 million.  At
the end of 1978 this position had been increased to equities
(including a convertible preferred) with a cost of $129.1 million
and a market value of $216.5 million.  During the intervening
three years we also had realized pre-tax gains from common
equities of approximately $24.7 million.  Therefore, our overall
unrealized and realized pre-tax gains in equities for the three
year period came to approximately $112 million.  During this same
interval the Dow-Jones Industrial Average declined from 852 to
805.  It was a marvelous period for the value-oriented equity
buyer.

   We continue to find for our insurance portfolios small
portions of really outstanding businesses that are available,
through the auction pricing mechanism of security markets, at
prices dramatically cheaper than the valuations inferior
businesses command on negotiated sales.

   This program of acquisition of small fractions of businesses
(common stocks) at bargain prices, for which little enthusiasm
exists, contrasts sharply with general corporate acquisition
activity, for which much enthusiasm exists.  It seems quite clear
to us that either corporations are making very significant
mistakes in purchasing entire businesses at prices prevailing in
negotiated transactions and takeover bids, or that we eventually
are going to make considerable sums of money buying small
portions of such businesses at the greatly discounted valuations
prevailing in the stock market. (A second footnote: in 1978
pension managers, a group that logically should maintain the
longest of investment perspectives, put only 9% of net available
funds into equities - breaking the record low figure set in 1974
and tied in 1977.)

   We are not concerned with whether the market quickly
revalues upward securities that we believe are selling at bargain
prices.  In fact, we prefer just the opposite since, in most
years, we expect to have funds available to be a net buyer of
securities.  And consistent attractive purchasing is likely to
prove to be of more eventual benefit to us than any selling
opportunities provided by a short-term run up in stock prices to
levels at which we are unwilling to continue buying.

   Our policy is to concentrate holdings.  We try to avoid
buying a little of this or that when we are only lukewarm about
the business or its price.  When we are convinced as to
attractiveness, we believe in buying worthwhile amounts.

Equity holdings of our insurance companies with a market value of
over $8 million on December 31, 1978 were as follows:

No. of
Shares      Company                                     Cost       Market
----------  -------                                  ----------  ----------
                                                       (000s omitted)
246,450   American Broadcasting Companies, Inc. ... $  6,082    $  8,626
1,294,308   Government Employees Insurance Company
             Common Stock .........................    4,116       9,060
1,986,953   Government Employees Insurance Company
             Convertible Preferred ................   19,417      28,314
592,650   Interpublic Group of Companies, Inc. ....    4,531      19,039
1,066,934   Kaiser Aluminum and Chemical Corporation    18,085      18,671
453,800   Knight-Ridder Newspapers, Inc. ..........    7,534      10,267
953,750   SAFECO Corporation ......................   23,867      26,467
934,300   The Washington Post Company .............   10,628      43,445
                                                   ----------  ----------
          Total ................................... $ 94,260    $163,889
          All Other Holdings ......................   39,506      57,040
                                                   ----------  ----------
          Total Equities .......................... $133,766    $220,929
                                                   ==========  ==========

   In some cases our indirect interest in earning power is
becoming quite substantial.  For example, note our holdings of
953,750 shares of SAFECO Corp. SAFECO probably is the best run
large property and casualty insurance company in the United
States.  Their underwriting abilities are simply superb, their
loss reserving is conservative, and their investment policies
make great sense.

   SAFECO is a much better insurance operation than our own
(although we believe certain segments of ours are much better
than average), is better than one we could develop and,
similarly, is far better than any in which we might negotiate
purchase of a controlling interest.  Yet our purchase of SAFECO
was made at substantially under book value.  We paid less than
100 cents on the dollar for the best company in the business,
when far more than 100 cents on the dollar is being paid for
mediocre companies in corporate transactions.  And there is no
way to start a new operation - with necessarily uncertain
prospects - at less than 100 cents on the dollar.

   Of course, with a minor interest we do not have the right to
direct or even influence management policies of SAFECO.  But why
should we wish to do this?  The record would indicate that they
do a better job of managing their operations than we could do
ourselves.  While there may be less excitement and prestige in
sitting back and letting others do the work, we think that is all
one loses by accepting a passive participation in excellent
management.  Because, quite clearly, if one controlled a company
run as well as SAFECO, the proper policy also would be to sit
back and let management do its job.

   Earnings attributable to the shares of SAFECO owned by
Berkshire at yearend amounted to $6.1 million during 1978, but
only the dividends received (about 18% of earnings) are reflected
in our operating earnings.  We believe the balance, although not
reportable, to be just as real in terms of eventual benefit to us
as the amount distributed.  In fact, SAFECO�s retained earnings
(or those of other well-run companies if they have opportunities
to employ additional capital advantageously) may well eventually
have a value to shareholders greater than 100 cents on the
dollar.

   We are not at all unhappy when our wholly-owned businesses
retain all of their earnings if they can utilize internally those
funds at attractive rates.  Why should we feel differently about
retention of earnings by companies in which we hold small equity
interests, but where the record indicates even better prospects
for profitable employment of capital? (This proposition cuts the
other way, of course, in industries with low capital
requirements, or if management has a record of plowing capital
into projects of low profitability; then earnings should be paid
out or used to repurchase shares - often by far the most
attractive option for capital utilization.)

   The aggregate level of such retained earnings attributable
to our equity interests in fine companies is becoming quite
substantial.  It does not enter into our reported operating
earnings, but we feel it well may have equal long-term
significance to our shareholders.  Our hope is that conditions
continue to prevail in securities markets which allow our
insurance companies to buy large amounts of underlying earning
power for relatively modest outlays.  At some point market
conditions undoubtedly will again preclude such bargain buying
but, in the meantime, we will try to make the most of
opportunities.

Banking

   Under Gene Abegg and Pete Jeffrey, the Illinois National
Bank and Trust Company in Rockford continues to establish new
records.  Last year�s earnings amounted to approximately 2.1% of
average assets, about three times the level averaged by major
banks.  In our opinion, this extraordinary level of earnings is
being achieved while maintaining significantly less asset risk
than prevails at most of the larger banks.

   We purchased the Illinois National Bank in March 1969.  It
was a first-class operation then, just as it had been ever since
Gene Abegg opened the doors in 1931.  Since 1968, consumer time
deposits have quadrupled, net income has tripled and trust
department income has more than doubled, while costs have been
closely controlled.

   Our experience has been that the manager of an already high-
cost operation frequently is uncommonly resourceful in finding
new ways to add to overhead, while the manager of a tightly-run
operation usually continues to find additional methods to curtail
costs, even when his costs are already well below those of his
competitors.  No one has demonstrated this latter ability better
than Gene Abegg.

   We are required to divest our bank by December 31, 1980.
The most likely approach is to spin it off to Berkshire
shareholders some time in the second half of 1980.

Retailing

   Upon merging with Diversified, we acquired 100% ownership of
Associated Retail Stores, Inc., a chain of about 75 popular
priced women�s apparel stores.  Associated was launched in
Chicago on March 7, 1931 with one store, $3200, and two
extraordinary partners, Ben Rosner and Leo Simon.  After Mr.
Simon�s death, the business was offered to Diversified for cash
in 1967.  Ben was to continue running the business - and run it,
he has.

   Associated�s business has not grown, and it consistently has
faced adverse demographic and retailing trends.  But Ben�s
combination of merchandising, real estate and cost-containment
skills has produced an outstanding record of profitability, with
returns on capital necessarily employed in the business often in
the 20% after-tax area.

   Ben is now 75 and, like Gene Abegg, 81, at Illinois National
and Louie Vincenti, 73, at Wesco, continues daily to bring an
almost passionately proprietary attitude to the business.  This
group of top managers must appear to an outsider to be an
overreaction on our part to an OEO bulletin on age
discrimination.  While unorthodox, these relationships have been
exceptionally rewarding, both financially and personally.  It is
a real pleasure to work with managers who enjoy coming to work
each morning and, once there, instinctively and unerringly think
like owners.  We are associated with some of the very best.


                                  Warren E. Buffett, Chairman

March 26, 1979

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GM to Become "Government Motors"

2009-12-15T23:14:00.000-08:00

The clock is ticking for GM. If an agreement with the bondholders and the unions is not reached by June 1, GM is headed for bankruptcy court. If the deal is approved as currently on the table, the Treasury department would become GM"s largest shareholder.

Bankruptcy looks increasingly likely as GM Bondholder Group Says Offer Isn�t �Reasonable�.

General Motors Corp. bondholders find the automaker�s offer to exchange their $27 billion in debt for equity unreasonable and said they should be treated more equitably with labor unions.

�We believe the offer to be a blatant disregard of fairness for the bondholders who have funded this company and amounts to using taxpayer money to show political favoritism of one creditor over another,� the ad hoc committee of GM bondholders said today in a statement.

Bondholders are being asked to swap all their claims for 10 percent of the equity in the reorganized company. The offer is contingent on cutting at least half of GM�s $20.4 billion of obligations to a United Auto Workers retiree-medical fund, known as a Voluntary Employee Beneficiary Association, through a debt- for-equity exchange that would give the VEBA as much as 39 percent of common stock in the Detroit-based carmaker.

Without an accord, bondholders face the uncertainty of bankruptcy, GM Chief Financial Officer Ray Young said today. At least 90 percent in principal amount of the notes must be exchanged by June 1 to satisfy the U.S. Treasury, GM said today in a statement.

�This is an offer that�s designed to fail,� said Kip Penniman, an analyst at fixed-income research firm KDP Investment Advisors in Montpelier, Vermont. �To get 90 percent of them to agree to such a deal where there�s no cash, no other debt and pure equity while leaving the union VEBA arrangement unchanged from previous considerations is absurd.�

Bondholder Math

The Market Cap of GM is $1.25 billion. The administration wants bondholders to forfeit $27 billion in debt obligations in return for equity shares worth a mere $125 million (10% of $1.25 billion).

Can anyone blame bondholders for walking away?

Conflicts for Government

The Wall Street Journal is reporting Control Would Create Conflicts for Government.

The government could be exposed to a host of conflicts and potential unintended consequences if it ends up -- as now appears likely -- with a controlling stake in General Motors Corp.

Under GM"s latest restructuring plan, the U.S. would get at least a 50% stake in the largest Detroit auto maker. Even without a majority stake, the government was able to use its muscle in March to oust GM Chief Executive Rick Wagoner. But such a major holding would turn GM into a sort of Government Motors, making the federal government the company"s de facto boss and bank lender.

A direct stake could create other uncomfortable conflicts: The Obama administration would be setting emissions and mileage standards for cars in Washington while having to implement them in Detroit. It also would make the government a direct partner of the United Auto Workers, which would get a 39% stake in the company under GM"s latest blueprint for survival.

A final GM plan is still many months away, and early reaction from bondholders suggests that the plan won"t come together in its current form. But even if it flops, the proposal reveals that the government, in close consultation with GM, is prepared to become more deeply immersed in the operations and rehabilitation of the auto maker.

Both the Bush and Obama administrations have grappled with how to shore up the economy without getting directly involved in running companies. They were unable to avoid an entanglement with insurer American International Group Inc., in which the government now owns an 80% stake after committing more than $170 billion in emergency relief. It will soon own more than a third of banking giant Citigroup Inc., with which it has had a sometimes-fraught relationship.

But in contrast with those cases, the GM proposal comes as part of an all-out administration effort to restructure the U.S. auto industry, including the country"s third-largest car company, Chrysler LLC.

"The big question is whether the government, as a shareholder, will be focused on GM making money, or it making clean and green cars, or whatever other political agenda they have for the auto space," says Peter Kaufman, president and head of restructuring at investment bank Gordian Group LLC.

The Treasury"s current plan is to hold its GM ownership stake in some form of trust, say people briefed on the situation. The administration"s auto team is now drafting documents that lay out how that trust and its government-appointed trustees will manage the government"s majority stake.

Still unclear is how long the government would maintain its ownership, these people say. There are differing views in the administration, with some advocating a quick sale of the stake while others argue the government needs to take a long-term view and hold GM for a long time to get a better price. One administration official said the government would likely sell its shares gradually, but only after GM had regained its financial moorings and rebuilt its reputation.

GM to Eliminate 21,000 Jobs

The New York Times is reporting G.M.�s Latest Plan Envisions a Much Smaller Automaker.

For all the uncertainty swirling around General Motors, the troubled automaker said Monday that one thing was clear: it must become drastically smaller if it hopes to remain a viable company, regardless of whether it has to file for bankruptcy.

G.M. said it would eliminate another 21,000 factory jobs, close 13 plants, cut its vast network of 6,500 dealers almost in half and shutter its Pontiac division.

By the time it is finished, G.M. expects to have only 38,000 union workers and 34 factories left in the United States, compared with 395,000 workers in more than 150 plants at its peak employment in 1970.

Where once G.M. had a 50 percent share of the market for new vehicles in the United States, the company hopes to at least hang on to its current 18 percent share.

Analysts warned that even those projections could be optimistic. �There is still a huge risk for market share losses beyond what the company is forecasting,� said John Casesa, an industry consultant.

G.M., however, still faces difficult odds of restructuring outside of bankruptcy court.

The company is still negotiating with the United Automobile Workers union. The government wants the union to accept company stock to finance half of G.M.�s $20 billion obligation for retiree health care.

If bondholders approve the debt-for-equity exchange, they would own about 10 percent of G.M., making them a minority shareholder in a company controlled by the Treasury and the U.A.W.�s retiree trust.

According to the offer, the Treasury would own at least 50 percent of G.M. in exchange for forgiving about $10 billion in federal loans. The union trust, in turn, would receive a stake of about 39 percent.

A committee of big G.M. bondholders on Monday called the offer a �a blatant disregard for fairness for the bondholders� and an example of �political favoritism� toward the U.A.W. �The current offer is neither reasonable nor adequate,� the committee said.

Representative Thaddeus McCotter, a Michigan Republican, is concerned that some bondholders want the company to go bankrupt because they also hold credit-default swaps insuring them against losses.

He is urging the Treasury secretary, Timothy F. Geithner, to disclose which G.M. bondholders have default swaps from the American International Group, the insurance company that was bailed out by the government.

�It would be unconscionable to use taxpayer money to help people benefit from the bankruptcy of General Motors,� Mr. McCotter said.

Deal Recap

If the deal goes through as currently proposed....

The Treasury (taxpayers) would be stuck with 50% of GM"s equity (currently worth $625 million) in exchange for forgiving about $10 billion in federal loans.
The UAW would get 39% of GM"s equity (currently worth $488 million) in exchange for giving up $10 billion in health care benefits
Corporate bondholders would get 10% equity (currently worth $125 million) in exchange for giving up $27 billion in bonds.

Under the above agreement there is still a missing $10 billion piece of the puzzle: "The government wants the union to accept company stock to finance half of G.M.�s $20 billion obligation for retiree health care as noted above."

What happens to the other $10 billion? Does it vanish into thin air? My guess is this would be dumped on taxpayers via the Pension Benefit Guarantee Corporation (PBGC)

Everybody loses but the credit default swap holders. Now who might that be? JPMorgan, Goldman Sachs, and/or Citigroup by any chance?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Obama And McCain Talk Infidelity

2009-12-15T22:51:00.000-08:00

Katie Couric asked each candidate why they think so many prominent political figures risk so much with marital infidelity.

Obama said in part:

I have no idea. The more I"m in public I don"t even want to pick my nose... I"ll leave that to the psychologists... I want to make sure that people, that, that there is no gap between who I am and the face that I"m presenting in the world. You want people to know that what you say is what you mean.

McCain hedged and wouldn"t address the question, so Couric followed up a second time. He said in part:

"I don"t know and I don"t understand people"s personal lives... I"m really not running to president to address [that]... I really don"t make any comments about that... I want to be a good president and try to lead an honorable life... I"ve been an imperfect servant so I"m not judging."
WATCH THEIR FULL ANSWERS:

The price of Glenn Beck Day: $17,748.85.

2009-12-15T20:39:00.000-08:00

tombaker says:
said Norris, prior to the event:

�He�ll be greeted as a liberator � the whole thing will pay for itself.�

Last month, Bud Norris, the mayor of Mt. Vernon, WA, controversially decided to award hometown boy Glenn Beck the ceremonial key to the city and declare Sept. 26 �Glenn Beck Day.� In response, approximately 800 people turned out to demonstrate � �the largest protest anybody could remember� in the town � and the city council unanimously passed a resolution that distanced itself from the mayor�s decision. Now, the Seattle Times reports that the event cost the small town $17,748.85, an amount that has stunned the Mt. Vernon finance director. Additionally, the event didn�t make the $10,000 the mayor had expected to donate to a local theater:

There were 577 tickets sold that generated $14,425, before expenses.

Income from ticket sales would have been higher if 92 comp tickets hadn�t been given out.

Norris says he gave comps to Beck�s family, �community leaders, people in leadership roles. � I�m told that�s pretty common.�

So the tickets sales netted $5,746.83 � after $5,754.17 was deducted for the hall rental, and $2,924 deducted for radio ads.

Why radio ads for an event that received such free publicity and was sold out in one day?

�The radio advertising was to make sure we sold tickets. I didn�t know what kind of response we would get. I didn�t want to go through all this and have 50 people show up,� says Norris.

Nevertheless, Norris has no regrets: �I don�t go to bed at night worrying about what people are saying about me on the Internet or blogs.� (HT: Gawker)
LinkHere

Pakistanis Aided Attack in Kabul, U.S. Officials Say

2009-12-15T18:35:00.000-08:00

By MARK MAZZETTI and ERIC SCHMITT
WASHINGTON � American intelligence agencies have concluded that members of Pakistan�s powerful spy service helped plan the deadly July 7 bombing of India�s embassy in Kabul, Afghanistan, according to United States government officials.
The conclusion was based on intercepted communications between Pakistani intelligence officers and militants who carried out the attack, the officials said, providing the clearest evidence to date that Pakistani intelligence officers are actively undermining American efforts to combat militants in the region.
The American officials also said there was new information showing that members of the Pakistani intelligence service were increasingly providing militants with details about the American campaign against them, in some cases allowing militants to avoid American missile strikes in Pakistan�s tribal areas.
Concerns about the role played by Pakistani intelligence not only has strained relations between the United States and Pakistan, a longtime ally, but also has fanned tensions between Pakistan and its archrival, India. Within days of the bombings, Indian officials accused the Directorate of Inter-Services Intelligence, or ISI, of helping to orchestrate the attack in Kabul, which killed 54, including an Indian defense attach�.
This week, Pakistani troops clashed with Indian forces in the contested region of Kashmir, threatening to fray an uneasy cease-fire that has held since November 2003.
The New York Times reported this week that a top Central Intelligence Agency official traveled to Pakistan this month to confront senior Pakistani officials with information about support provided by members of the ISI to militant groups. It had not been known that American intelligence agencies concluded that elements of Pakistani intelligence provided direct support for the attack in Kabul.
LinkHere

Have you no sense of decency at long last? Have you left no sense of decency?

2009-12-15T16:05:00.000-08:00

Have You Left No Sense Of Decency?

Bob Cesca

If the corporate media had been as diligent about watchdogging the president as they have been about watchdogging Rev. Wright, it"s very likely we wouldn"t have invaded Iraq. If the corporate media had spent as much time exposing the obvious flaws and grotesque inequalities of Reaganomics throughout the last 30 years as they"ve spent on Wright, we wouldn"t necessarily be staring into the maw of another depression. If the corporate media were as diligent about debunking the lies surrounding Iran"s so-called nuclear program as they"ve been about Wright, there wouldn"t be such a sense of inevitability in terms of attacking -- or entirely obliterating -- Iran.

Marine reservist chases, assaults Greek Orthodox priest who he mistook for an Arab terrorist.

2009-12-15T15:45:00.000-08:00

COProgressive says:
Isn�t it great what being feed a constant diet of hate and fear can do for you critical thinking ability?
�Collective fear stimulates herd instinct, and tends to produce ferocity toward those who are not regarded as members of the herd.� � Bertrand Russell

Alexios Marakis, a Greek Orthodox priest visiting the U.S., got lost in Tampa and tried to stop and ask directions from Marine reservist Jasen D. Bruce. But instead of offering help, �Bruce struck the priest on the head with a tire iron.� The reservist believed Marakis, who spoke limited English, was an Arab terrorist. Bruce chased the priest for three blocks, �and even called 911 to say that an Arabic man tried to rob him.� According to a news release:

�During the chase, the suspect called 911 and claimed an Arabic male attempted to rob him and he was going to take him into custody,� a Tampa Police Department news release states. �When officers arrived, the suspect claimed the man was a terrorist.�

Police arrested Bruce for �aggravated battery with a deadly weapon� and are investigating whether he committed a hate crime.
LinkHere

NASDAQ: Berkshire gets its own options-06/18/2009

2009-12-15T13:41:00.000-08:00

commentary by: Chris.McKhann

Options are now being offered on Berkshire Hathaway Class B shares, a somewhat ironic turn for a company whose famed CEO Warren Buffett once denounced derivatives as "financial weapons of mass destruction."

Today marks the first day of trading for the options, and I see a grand total of about 40 contracts that have changed hands. This is not entirely surprising because volume in the underlying shares is not large either, with 21,000 shares trading today.

BRK.B shares are down $26.95 on the day to trade at $2,847.05. They have been stuck in a range between $2,800 and $31,150 since March, when they climbed from lows down below $2,300. The price had been as high as $4,700 in October but losses have mounted, largely because of derivative exposure.

Buffett has tried to temper his "WMD" comments since making the remarks but still says he believes in buying stock, not options. That belies his heavy use of derivatives, though he is a seller, not a buyer in most cases, using options much like the insurance his company sells.

But the new options on the B shares may allow smaller players to partake in Berkshire Hathaway"s fate. The A shares trade for $88,000 each, but 100 shares of B class would cost $28,520. So while the options are not cheap by any stretch, they do allow a lower-cost alternative.

It should be noted that Buffett is not responsible for the options on his company (as opposed to the ones in his portfolio), and Berkshire has nothing to do with the options being offered.

(Chart courtesy of tradeMONSTER)

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Fallout From US Slowdown Hits Canada

2009-12-15T11:16:00.000-08:00

The US housing slowdown has brought about a need for Major Furniture Liquidations in Canada and the US.

Liquidation World Inc. (TSX:LQW) today announces a number of new major furniture liquidations being offered throughout its stores in Canada. The recent and dramatic changes to the US housing market, precipitated by the sub-prime mortgage crisis, have impacted a number of major US furniture vendors.

Maurice Chelli, SVP Merchandising said: "The US housing slowdown has had ripple effects in the furniture sector. As a result we have recently acquired several million dollars worth of furniture inventories and we are continuing to see new opportunities almost on a daily basis. The result is a wide array of high quality furniture being liquidated throughout our Canadian outlets.

While these same economic factors are causing price deflation in the North American furniture market in general, the sheer volume of deals has put us in the position of being able to choose the deals that deliver the best value to our customers. In one recent example, we sold more than a million dollars worth of living room furniture for less than $500,000.00. For the value-driven Canadian consumer, there has never been a better opportunity to purchase household furniture."

No Profit In Liquidation Business

Inquiring minds might be wondering if the liquidation business is booming. Let"s take a look at Liquidation World"s Fiscal 2007 Results.

Canadian operations recorded a net loss of $6.7 million ($0.81 per share) versus net earnings of $1.3 million ($0.16 per share) in fiscal 2006.
In the US, revenue for the year declined by 4.9% to $28.2 million from $29.7 million in fiscal 2006. US operations recorded a loss of $5.0 million for the year versus net earnings of $0.2 million in fiscal 2006.
In the US, revenue for the year declined by 4.9% to $28.2 million from $29.7 million in fiscal 2006. US operations recorded a loss of $5.0 million for the year versus net earnings of $0.2 million in fiscal 2006.
In the fourth quarter of fiscal 2007, the Company announced that it would wind down its US operations and forecasted a loss of $1.5 to $2.5 million related to the closure.
Subsequent to year end the Company closed 15 of its 18 US outlets.

Liquidation World Liquidates US Operations

In spite of the supposition that "there has never been a better opportunity to purchase household furniture" it seems there is no profit in the liquidation business.

With that, Canadian based Liquidation World had no choice but to liquidate its US operations.

Canadian Economy Shows Strains From US Slowdown

The Financial Post is reporting Canadian economy beginning to show the strain.

Canada"s manufacturing and forestry sectors may already be in recession and the U.S. slowdown and spike in the Canadian dollar are beginning to have a greater impact on the broader economy, with the mining and wholesale trades contributing to weaker economic growth in November, new figures show.

Canadian gross domestic product (GDP) slowed to 0.1% in November from 0.2% in October, resulting in an annualized growth rate of 2.7%, Statistics Canada figures showed yesterday. The pace of growth is not expected to pick up anytime soon, with the Bank of Canada predicting growth of 1.8% in 2008.

"It"s clear that Canada"s economy is not immune to the weakness south of the border and the strong Canadian dollar," Sal Guatieri, senior economist at BMO Capital Markets, said.

The agricultural and forestry industry took the biggest hit in November, declining 0.4% for an annualized contraction of 3.8%.

"There"s really no sign of a recovery in forestry products," Mr. Guatieri said, adding growth in one of that industry"s main markets, the housing sector, was also slowing.

Mining growth fell 0.4% in the month and was down 0.7% on the year. Manufacturing activity declined by 0.3% in November, but remained slightly higher over the year at 0.2%. While wholesale trade fell 0.1%, but maintained a healthy annualized growth rate of 8.8%.

Paul Ferley, assistant chief economist at RBC Capital Markets said the Bank of Canada will likely cut interest rates from 4% to 3% over the next six months as the U.S. slowdown "will likely put additional downward pressure on the pace of activity in Canada."

In spite of an enormous housing bubble in Canada, speculation is that Bank of Canada will cut interest rates from 4% to 3%. How far down the road to ZIRP Canada is willing to follow the US remains to be seen.

The further the Bank of Canada is willing to cut, the more pressure there will be to unwind various carry trades.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Biden: "Abuse of power" is "most serious" abuse

2009-12-15T11:05:00.000-08:00

A vote for Obama/Biden is a vote for your interests, Senators Clinton and Biden told the audience at a Scranton, Pennsylvania rally alongside former President Bill Clinton. Also, Biden called the upcoming election literally the most important in one"s lifetime.
"I"m deputizing every one of you to make the that has to be made" to undecided family and friends, Sen. Clinton told the audience, "because Barack and Joe are not asking you to marry them... they"re asking you to vote for them and vote for yourselves."
"This election is too important to sit on the sidelines of history," she added.
"There is the one most serious abuse a man or a woman, or a government, can engage in...is to abuse power," Biden noted in a segue to the economy. While no particular person was named, Biden"s opponent, Alaska Governor Sarah Palin, was found in a report released on Friday related to the "Troopergate" investigation to have abused her power in violation of Alaska"s state ethics law. Gov. Palin, her husband Todd and their aides were accused of a campaign of pressure on state officials aiming to get their ex-brother-in-law, Alaska State Trooper Mike Wooten, fired during his divorce battle with the Governor"s sister. Public Safety Commissioner Walt Monegan was believed to have been let go because he refused to dismiss Wooten.

LinkHere

Real Estate Pyramids

2009-12-15T09:44:00.000-08:00

Sfgate.com tells how a couple Buys, Borrows, Buys with leverage to build an empire of eight vacation properties.

In the three years since Sacco and McCook put their faith in real estate, the couple have embarked on what might conservatively be called an E-ticket ride, pulling equity from appreciating properties to provide down payments for the next investment. They have bought eight vacation properties - four homes in Florida, three in California and 100 raw acres on top of a mountain in Lake County.

They move from home to home, depending on which one needs work, which one isn"t occupied by vacation renters and where they are shopping for the next property.

Sacco readily admits that she and McCook have made mistakes -- mistakes she would like to help her clients avoid. This summer, the couple ignored their own formula (don"t invest in the market that"s going crazy -- invest next door) and bought two high-end condos in Florida before learning how competitive the vacation rental market was there.

Now, only a few months later, they are putting them on the market to reduce their debt and stress. "We broke our own rules," she explains. "Vacation (rentals) are not for the faint of heart."

Sacco estimates that along with McCook"s mother, who has been a silent partner, they"ve made $1.3 million since they began their buying spree, but all of this is still in equity on their properties. Their monthly reality is more sobering. They have $2.3 million in mortgage debt and negative cash flow that ranges from $5,000 to $15,000 monthly depending on the season.

So how do they pay the bills?

"We sort of count our equity loans as our income," she says, with the slightest wince. "If we had real jobs, we"d be fine, but we just need to get some money in. Some people call it a pyramid, but I don"t like to think about it that way."

Surreal financing? Bubble economics? Perhaps. But it"s also the way people are increasingly approaching real estate: as a bet that in the long run can"t be beat.

Some of these stories are almost too hard to believe. Then again truth is often more unbelievable than fiction. Let"s see... They have zero outside income, negative cash flow of $120,000 a year or so, and living expenses while they hop from home to home are 100% dependent on cash out refis from rising home prices. After having "made a mistake" on Florida vacation rentals, this advice is offered: "Vacation rentals are not for the faint of heart." Like the rest of what they are doing is standard procedure? Heck what do I know, maybe it is.

"If we had real jobs, we"d be fine, but we just need to get some money in. Some people call it a pyramid, but I don"t like to think about it that way."

No, if they had "real jobs" they would not be fine on negative $120,000 cash flows.
They may not like to think of it as a pyramid but that is exactly what it is.

Mish question of the day: Which is more amazing?

That someone is silly enough to build a pyramid like this?
That someone else is silly enough loan them money to keep their pyramid growing?

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

The Doctor is Calling

2009-12-15T07:21:00.000-08:00

Copper is often referred to as "Dr. Copper" because of its unique ability to forecast economic trends. On September 15th I sent the following chart on copper to a friend.

I proposed copper was about to break down. Technically that near perfect symetrical triangle is a continuation pattern which in this case would be a bullish formation.

OK Mish, so why the "?" assuming down?
That�s a good question and enquiring minds deserve answers. Here goes:

One of the biggest uses of copper is housing and housing has clearly fallen off a cliff
Copper went into contango

In a previous conversation with this friend from a few months back we discussed the idea that the bull in copper would end as soon as copper went into contango. Although I was very aware that much (but not all) of the backwardation had worn off, I did not have a graphical presentation of it.

It seems I am not the only person watching copper. Greg Weldon at Weldon Financial posted the following charts on Minyanville on September 21.

In reference to the above chart Greg Weldon wrote:

I still believe that Copper simply cannot �escape� the horror-show that has become the US Housing market, particularly as defined by an expected deepening contraction in new home building. Observe the teetering price as relates to the underlying support offered by the most recent double low ($3.265-3.275) and the med-term 100-Day EXP-MA.

It was the following chart that really caught my attention.

Boom! 2 1/2 years of backwardation in copper is now officially over.

Greg Weldon went on to say:

"The chart above plots the 100-Day Exponential Moving Average of the Cash-to-Three Month Spread for Copper, traded on the London Metal Exchange. Copper�s spreads are in free fall, and this spread has completely wiped out all of its HUGE $200+ per tonne backwardation and has collapsed into contango, indicating an amply supplied market for the first time since the 4Q of 2003.

A breakdown in Copper would be a confirming signal, and �should� provide the proverbial �next shoe to drop,� in terms of a broadening disinflation becoming increasingly dominant in the entire commodities sector."

Flashback December 2005

Back in December of 2005 Sterling"s World Report asked the question Will Dr. Bernanke Get Along with Dr. Copper?

Many traders have affectionately referred to copper as �Dr. Copper� because it is considered to be �the only metal with a PhD in economics.� That is, copper historically has been considered to be an excellent barometer of the overall state of global economic activity because of its widespread use in industrial applications.

What Dr. Copper is saying right now is that the world economy is booming. As can be seen in Chart 1, the price of copper has nearly tripled since 2001 and is approaching $2.00 a pound. Much of that is attributable to the growth in China, which has created nearly insatiable demand for copper as it upgrades its electric power grid. But a booming housing market in the U.S. and strong growth throughout much of the developed and developing world are also part of the story.

Although copper went on to soar way past $2.00 lb all the way to well over $4.00 lb in May of 2006, the message from Dr. Copper seems quite different today.

A technical Break

We now officially have a break in that symmetrical triangle.
Let"s take a look at a chart of copper as of September 22, 2006.

The interesting thing to me is that hardly anyone is taking these trendline breaks seriously even though there are breaks practically everywhere you look: oil, natural gas, sugar, the $CRB itself, and now a technical failure in copper. Yet posts of charts like these on Silicon Investor and other places just bring a big yawn. In fact, in a response to one of my blogs from just a day or so ago, someone used commodity charts to show "current inflation".

Has everyone really forgotten about the lagging effect of 17 consecutive rate hikes? No, not everyone. Brian and I at the Survival Report along with Greg Weldon and many of the professors on Minyanville are taking these breaks very seriously. Are the technical breaks in various commodities we see now akin to the technical breaks in JDSU, LU, CSCO, and INTC in 2000 that most disregarded? Right now it is hard to say, but the complacency and buy the dip mentality sure seems similar.

Perhaps this is nothing more than a head fake lower on gold, silver, natural gas, crude, gasoline, sugar, and copper. Then again perhaps the good doctor (along with confirming indicators such as M1 money supply, the inverted yield curve, and housing) is telling us that this patient (the US economy) is very ill. I think you know which way I am betting: The weakness in Housing is about ready to spill over into other areas. A consumer led recession is on its way.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/