Who are the patriots?

Social unrest has swept the globe and the only surprise to this fact is that it has taken some 3 years for it to happen. In foreign lands which many have never even heard of the name of the countries the people want change, real change. Some are fighting because of political repression and others because of higher food prices, thanks Ben, and they are politically oppressed. Regardless of the reasons people are on the move and America is not immune from this change.

In Madison Wisconsin we are witnessing the first of what I predict will be many protests over public union contracts. It is simply amazing that the unions are so upset over modest changes to healthcare and pension premiums, 12% is the magic number there. However, it seems the real sticking point is that Wisconsin wants to reform the collective bargaining arrangement which has consistently favored labor for the last 50 years and, in my opinion, has allowed for unions to make demands that have led to higher taxation of the people because the pension funds were so underfunded, as participants did not have to add any money to it, and healthcare costs rocketed to the moon, again, participants had to add little to no money to their health insurance plan. On top of these fantastic benefits they have job security meaning they literally cannot be fired.

In a nutshell, states are going bankrupt in order to pay a few peoples pensions, often 70-80% of the last 3 years of the employee’s highest earning pay. Oh, did I mention that they also got mandatory 4-5% cost of living adjustments during their working years and during their retirement? It is a good deal and getting these public sector jobs are difficult and you typically have to know someone to get one. You also get nice vacation time as well, often starting off with up to 3 or 4 weeks and earning more as time goes on. When things do not go well you strike to get your way.

Unions are what drove GM and Chrysler out of business and their bankruptcies allowed them to start over with their contracts. Since those contracts were redone both firms are doing much better, go figure. Ford forced unions to the table threatening bankruptcy and got their contracts redone and look what is happening there. In all 3 cases the union employees are happy. Sure, they are not as happy as they were when the Job Bank was there, they got paid for months at normal rates if they were laid off, but they have hobs, goof benefits and in GM’s case they got the biggest bonus ever, I believe, last year. This is evidence that when you take the power away from unions it actually benefits the employees, but only time will tell if this continues but so far it looks pretty good.

The public sector though, well, should they be unionized at all? I personally do not believe so, but at the same time when dealing with the government some protection is warranted so I would say a nontraditional union is needed not the super strong unions we currently see that curry state and the federal government into bankruptcy. If you are paying attention to the Madison situation it is very interesting especially from the media’s perspective.

I have been watching a lot of MSNBC lately who was classic for smashing and ridiculing the Tea Party last year. I have to say that their coverage of Madison is much, much different than their coverage of the Tea Party events. For starters the Tea Party events were all nonviolent, completely peaceful open gatherings where kooks were chased away. Contrary to all reports no racists were there and I saw plenty of nonwhite people attend and, in short, they were people who cared about the country and wanted to restore some sanity in the government which is a noble cause in my mind. They were described by MSNBC as America hating racists who want to destroy this country, all we stand for and are violent, not one report of violence was ever reported to my knowledge.

Compare that to Madison which is all white, ironic in my opinion, they spat upon state senators, pushed them around, shouted them down, shouted for an Egyptian style revolution and held signs of the usual Hitler pictures. MSNBC said these people were being stripped of their civil rights and are fighting for democracy even though their elected officials fled the state so a vote could not take place. The protesters were teachers who walked out of their jobs, that they love, supposedly, to protest for a week straight so kids are now without school which means parents are paying for daycare or babysitting. These people are not fighting for work, they are not fighting against a massive pay cut or furloughs what they are fighting about is paying an extra 12% for their benefits that are outstanding and still way underpriced.

Keep in mind that if this bill does not go through some 6,000 people will lose their jobs, think about that for a minute. Instead of giving up 12% and the right to strong arm the state later on they instead decided to walk off their jobs, spit and shove people, and cost 6,000 people their jobs. Oh, the 12% benefit hike was on the table last fall and the union rejected it and they are trying to get it back now because of the removal of the collective bargaining language in this bill, keep in mind that the senate only got rid of the collective bargaining language because they rejected the 12% then, but decided to take it when the state decided to play hardball. What the new language does is gives the state more equal say in negotiations with unions instead of the unions having 90% of the power like they have now. It is time to reduce their power especially in the public sector where we all pay for these people through our tax dollars.

As far as who are the patriots I would have to say the Tea Party wins hands down. You may not agree with their politics, but I can guarantee you they will always be polite to you, respect your views, not spit on you, shove you and they will defend your right to say whatever and gather wherever you want just as the Constitution allows. I am not so sure about the Madison people I have a feeling if you agree with them they will like you, but if you disagree with them get out of their way and that is not patriotic, American or the sign of a healthy Democracy. I had to say m peace. Thank you.

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You must remember this period of time

All the talk about the double dip recession is being blamed on not enough stimulus, but that is not true since there is a lot of money being spent right now because of the stimulus. The final spending of the stimulus funds will end this year, right near the elections ironically enough, but it is clear it did not work. We now have Paul Krugman out railing about a deflationary depression because governments are cutting back stimulus efforts. My question to him is, if stimulus is the answer and we are spending it now why are we seeing disinflationary forces? His excuse does not hold water. It is the massive government intervention that is causing the problems, not a lack of stimulus, but too much stimulus.

I am in disbelief how anyone could not have seen these problems coming, the signs were everywhere. Employment was the best indicator, but look at money velocity, what you can piece together at least, and declining credit combined with higher foreclosures, bankruptcies and weak retail sales it is clear as day that at best we stabilized at less bad and at worst we are heading for really tough times. This is not something I wanted to happen I think you would be hard pressed to find anyone wishing pain and suffering on anyone, but the signs were all there. Not to mention the implications of Europe tightening its belt and trying to force China to revalue its currency, talk about insanity, we took it to the next level.

So, Krugman may be right and we may have a deflationary depression, but I am sure it will last for only a little while. Because Bernanke will not stand for a deflationary depression, which is ironic considering Ben is the Great Depression expert and he is creating another one, and he will print our way out settling for an inflationary depression. The unfortunate part is Mr. Krugman has the reasons wrong for the depression we are in and he doesn’t seem to understand that you cannot cure debt problems with more debt, it just doesn’t work. Our debt is so large that is will now be a complete drag on GDP which means lower growth, the new normal anyone? Again, his reasoning is flawed because we just spent $1T, give or take between all the programs, on stimulus and we are not even done spending and he is calling this a deflationary depression because there is no stimulus? Maybe he likes to confuse the less informed or something, but talk about being wrong, wow.

My point is that you need to remember today, what is going on, the money that is being spent, what politicians are saying and blaming because they will, whichever party, will point to right now saying we should have done more or we should have done less. The fact of the matter is we are doing both, stimulus is declining and we are not adding more to it, and keep in mind that the data we are all looking at is still coming from April or May when much more money was being spent. All that data, even further back then April, is also showing significant decline in economic activity when the stimulus was running full speed ahead. To clarify, just because the spending is slowing now don’t blame the negative data on that since the data was generated prior to the slowdown in stimulus spending. Furthermore, employment never recovered or even showed significant improvement given the price tag.

Will the decline of stimulus spending hurt? Yes, a lot, but it needs to stop somewhere. The problem with the stimulus is that it is cruel because it extends the bad periods much longer than they should have lasted by blocking the markets from finding a true bottom. The more you spend, the more it distorts reality and lures people into a false sense of security, but when it stops the real pain begins because those fooled may have to lay more people off and readjust for a post stimulus world. So not only do the long-term unemployed receive the proverbial shaft, but newly hired employees may also receive the same treatment after they thought they caught a break.

Right now you can see what worked and what did not, but in a few months many might not remember. They may point to the 5.6% GDP print and say remember how good things were then? Well, they weren’t that good to the unemployed or those in bankruptcy or losing their homes, but that is how it will e framed and there will be cries for more stimulus. Those cries must be rejected and the only government stimulus that must continue is unemployment insurance. You cannot dump millions of Americans who are not unwilling to find a job it is that no jobs exist for them.

We tend to have very short memories and forget things quickly because of who knows what, I blame TV. You cannot forget what is happening right now because if you do they might talk you into another round of stimulus or God knows what else. We are in trouble, I know this, but we tried Krugman’s way and it failed, let’s give it the “let’s not give it the college try” and see what happens. Besides all of that, we simply cannot afford more spending especially for mediocre results, I am being generous here. While Krugman is grabbing the headlines for using the “D” word, let’s not forget I started using the term depression months ago based on the employment figures, food stamp numbers and the way foreclosures and bankruptcies were growing because I was paying attention and not traveling to my vacation house in the tropics unlike some BY Times economist.

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The Fed lost its appeal!

Thanks to Bloomberg and Fox we might now find out who borrowed what and what was provided as collateral to the Fed during the crisis we may finally know thanks to a lengthy legal battle. The Fed might continue to fight, but it may not go much further, just show us already as this data is almost 2 years old, I am sure we can handle the truth.

However, you will see that the Fed took some very questionable items as collateral or so we think. Some bankruptcy documents do show that the Fed did take some stocks and other, well, crap for collateral during the height of the financial crisis. What many people do not know is that it is against the rules for the Fed to take credit risk since it is the U.S. governments bank. These documents will either confirm or deny those rumors, but I am betting on the former, if we ever really get to see them.

Could this be the end of the Fed as we know it? I hope so because since the Fed was enacted, in secret in 1913, we have witnessed the dollar lose 97% of its value, a depression in 1920-21, the crash of 1929 leading to the Great Depression (now known to be the Fed’s fault for tightening credit), more boom-bust cycles than any other time in history, the 1970’s (really, need I say more about the 70’s? I think they introduced bell bottoms too, but I cannot prove it), the 1980 near collapse of the U.S. treasury market, the first banking crisis, Long-Term Capital, the dotcom bubble, loose monetary policy for the last 30 years, the housing bubble, the complete meltdown of the financial system, and, for its final act, complicity to destroy the dollar’s value with its current balance sheet.

Really, I cannot think of any reason why we need to reform the Federal Reserve system.

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The weather is not the reason for the bad news

I just read a story where Larry Summers, White house economic advisor, is blaming the weather for a potentially ‘distorted’ jobs report this Friday. Seriously, we are still going with the bad weather? It must be snowing everywhere, the UK, Greece, China, the Ukraine, Dubai, etc. The data all over the world, including today’s ISM number, is rolling over and in some areas it is just plain scary. I got news for you, it has nothing to do with the weather, at all.

Over the past few weeks more and more companies announced layoffs, not a good sign, and the initial claims data went way up over the past 4 weeks. The data started to roll over before the snow hit the ground. Not to mention, but the last time I checked it usually snowed in the winter time anyhow. I realize we had a few days of snow, but nothing major and it is beyond me how snow would be firing people. I will say that the weather impacted retail sales, but not all this other data.

Let’s not forget that the vast majority of the bad weather was also in the Northeast so I am very excited how the bad weather in NY caused California to have increased unemployment figures. Never in my life have I seen such a snow job being perpetrated by the talking heads and now Washington blaming bad weather for horrible economic data. What will happen next month when we have even more layoffs and there is no weather to blame? Maybe we will blame the sunshine because people are so broke they cannot afford sunglasses… wait that kind of admits the economy stinks, never mind.

My point is that the data, well before the snow, rolled over viciously and it is the economy that is the problem. We are over 2 years into this thing, recession/depression, whatever, and we are still losing jobs, that is not good. The unfortunate part is we spend trillions only to be in a position where employment is continuing to contract. It is fair to say that the stimulus probably helped a little, but clearly it was not as big of a help as the administration claims. As an aside, it will be interesting to see if some municipalities file for bankruptcy in the next couple of weeks, maybe that is because of the bad weather as well.

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When in doubt blame it on the snow

It was funny to see many of the pundits spin bad data on the weather. This equates to my daughter saying the dog ate her homework. It is hard to believe the snow is to blame for higher initial jobless claims when we are in the middle of winter. However, I will concede that retail sales will be pretty horrible because of the weather, but other pieces of data, well, not so much of that weak data can be blamed on some snow.

Housing starts stink because the housing market is in trouble and even massive government stimulus is not helping. My guess is this data will probably improve in March to April because of the last minute rush to buy homes, but I would not count on that being much of a bump. What is worse is that the President wants a permanent moratorium on foreclosures which is doing no one any good and, in fact, will hurt banks that would not be able to collect or sell an asset that is earning them anything. I am referring to Obama’s demand that before a foreclosure can happen it has to pass through the re-modification process. Capitalism is officially being suspended until further notice.

As far as jobless claims are concerned, they are going to get worse as far as I can see. I am basing this on antidotal evidence of firms continuing to announce layoffs and a jump in the mass layoff indicator a few days ago. It is crazy to think employment will improve when you have blue chip companies announcing layoffs and claims are heading back above 500K a week. This is not because of the weather it is because the economy stinks. David Rosenberg calls this a Houdini recovery and he is correct. Besides a statistical recovery and a rally in equities, which is odd considering the dismal news over the past 2 weeks, the average person is worse off than they were last year. Again, unless it has been snowing for 8 months it cannot be blamed on the weather.

Perhaps it is snowing in Greece as well, that will explain their financial problems. It is true that the weather hurts certain things, but it has a rather limited impact on employment. After all, snow removal companies would probably be hiring. The weather might hurt retail sales, but with more people using the internet, me included, to shop I would not buy the soon to be claim that the weather killed retail sales. This is all about uncertainty in the world and to deny that there is uncertainty is simply crazy.

We have problems all over the place from domestic issues to possible sovereign defaults. Let us not forget we will witness municipal bankruptcies in the near future as well, chapter 9 is the more likely bankruptcy procedure. Health care reform is back and will be passed, whether you like it or not, and believe me you should be careful what you wish for because this means higher premiums for everyone. Do you really think Anthem raised prices 39% because they wanted to? Nope, it is because, I as speculated months ago, they know they are out of business in 4 years. All of these things mixed with tight credit conditions means tons of uncertainty.

Why the markets are not down 200 points, I do not know. However, it appears that Goldman Sachs was a huge buyer or S&P 500 futures yesterday, according to Zero Hedge reports, which made this a futures driven rally, check out the trading between 3 and 6AM for more weird futures action. I do not want to spread conspiracy theories, but all I am saying is the markets are trading very odd right now. I am still very bearish, how could anyone be bullish with the horrible data we have seen as of late? This is not 1 week of bad data, but 2 months worth of bad data and the market ignores it, weird.

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