Sunday, March 29, 2009

Urgent Prayer Request

A few hours ago my step mother suffered a stroke. Early reports are not encouraging. As I type she is being helicoptered to a nearby hospital where plans are being made for an emergency operation on the brain. Details are thin at the moment. Please keep Nadeen in your prayers.

Under the mercy,

Update: Surgeons removed a large blood clot from the right side of her brain. She is in Intensive Care. Doctors believe the next 72 hrs will be of great importance.

A little Sunday humor...

From the golden age of radio... Burns & Allen explain how Jack Benny became a tight wad.

(Link is audio only)

Wednesday, March 25, 2009

"Dear AIG, I quit..."

From a letter printed in today's op-ed section of the New York Times:

DEAR Mr. Liddy,

It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I hope you take the time to read this entire letter. Before describing the details of my decision, I want to offer some context:

I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down...

Read the rest here.

Tuesday, March 24, 2009

Quote of the day...

In December 1934 and January 1935 the United States printed and distributed $100,000 gold certificates (just like a dollar bill, but with lots more zeros and exchangeable for gold - most appropriately, Woodrow Wilson was pictured on the bills) for use only between Federal Reserve Banks. Until 1969 the United States distributed for public use $10,000, $5,000, $1,000 and $500 bills that were last produced during World War II. Jack Benny famously collected the $10,000 bills. All this is nice trivia, but unless the geniuses now fiddling with the levers of United States economic power have some idea how they are going to stuff back into the bottle the very nasty inflation genie they are creating with the rillions of dollars of fiat money they are creating out of thin air as portrayed in this graphic, we are going to see these classic denomination of U.S. currency come back into widespread daily use. Think Zimbabwe’s economic problems on a slightly smaller scale.

- A comment by Dilbertnomore on an article posted at T-19.

Friday, March 20, 2009

A sad note on the advances of modern liberalism

The last act of the French Revolution came to a close on March 12, 2009, but hardly anyone was watching. The demonic forces unleashed over two hundred years ago took on the aim of destroying all monarchial authority in Europe. The rulers of the once Christian nations of Europe, or at least their governing authority, had all been executed, except for the tine nation of Luxembourg. On March 12, without much fanfare, the parliament of the Grand Duchy of Luxembourg voted to end government of their small nation by the Grand Duke.

Luxembourg was the last European nation to be governed by a real monarch. Although the tiny nation has had a parliamentary chamber, that body functioned as parliaments were originally designed to function. It was an advisory body to the Grand Duke. After new legislation was voted on by the Chamber of Deputies, Article 34 of the Constitution stated: “The Grand Duke sanctions and promulgates the laws. He makes his resolve known within three months of the vote in the Chamber.” This provision permitted the Grand Duke to perform the proper function of a monarch in a mixed form of government. He served as a check on the potential excesses of political parties legislating when they encroached on the principles of the natural law. As a hereditary ruler for life, the Grand Duke is immune from elector politics. He can thus serve as an outside supervisor of the results of the legislative process. This is exactly what he did last year in an act which precipitated the March 12 vote.

In 2008, the Chamber of Deputies voted to approve a law which authorized the intentional killing of human beings, commonly referred to by its morbid proponents as euthanasia. Such a law is contrary to the natural law. For, as St. Thomas observed in his Summa the civil law can not always punish everything that the natural law forbids but it may never sanction such evil. Now we know both by reason and divine authority that euthanasia is prescribed. It violates the first principle of the natural law - self preservation. The Church has confirmed this deduction of reason on several occasions by pronouncing euthanasia to be immoral. Even the sensus Catholicus of this overwhelming Catholic nation was clear; the populace of Luxembourg opposed the bill pushed through by the Socialist and Green parties.

Henri, the current Grand Duke, fulfilled his moral obligation as a good Catholic monarch and refused to sanction this evil legislative act. As a reward for doing the right thing, the so called “conservative” Prime Minister, Jean-Claude Juncker, called for an amendment to the Constitution stripping the Grand Duke of his authority to sanction laws passed by the Chamber of Deputies. The March 12 vote approved the removal of the word “sanctions” from Article 34. Prime Minister Juncker made clear the intention was to remove the right of the Grand Duke to approve of or reject laws. According to Juncker he must be required to promulgate all acts passed by the Chamber. The Luxembourg monarchy has thus entered the realm of Walt Disney monarchs inhabited by the remaining figure heads of Europe such as England, Spain and Belgium. They can parade around for tourists in quaint costumes and live in nice palaces, but they have no authority to protect and defend their nation by governing it.

Read the rest here.

Tuesday, March 17, 2009

Monday, March 16, 2009

Remembering the Ukrainian Genocide

KIEV, Ukraine — A quarter century ago, a Ukrainian historian named Stanislav Kulchytsky was told by his Soviet overlords to concoct an insidious cover-up. His orders: to depict the famine that killed millions of Ukrainians in the early 1930s as unavoidable, like a natural disaster. Absolve the Communist Party of blame. Uphold the legacy of Stalin.

Professor Kulchytsky, though, would not go along.

The other day, as he stood before a new memorial to the victims of the famine, he recalled his decision as one turning point in a movement lasting decades to unearth the truth about that period. And the memorial itself, shaped like a towering candle with a golden eternal flame, seemed to him in some sense a culmination of this effort.

“It is a sign of our respect for the past,” Professor Kulchytsky said. “Because everyone was silent about the famine for many years. And when it became possible to talk about it, nothing was said. Three generations on.”

The concrete memorial was dedicated last November, the 75th anniversary of the famine, in a park in Kiev, on a hillside overlooking the Dnieper River in the shadow of the onion domes of a revered Orthodox Christian monastery. More than 100 feet tall, the memorial will eventually house a small museum that will offer testimony from survivors, as well as information about the Ukrainian villages that suffered.

Read the rest here.

Saturday, March 14, 2009

Why the meltdown should have surprised no one

If you want to know what happened and why, and what is likely coming then listen to Peter Schiff's speech from last night to the Austrian Scholars Conference. Note this is an audio only which I think actually makes it easier to listen to and is easier on bandwidth than video clips.

Friday, March 13, 2009


Not a big bball fan here but the family is die hard Orange. And tonight will probably go down as the greatest hoops match of the March Madness Tournament and one of the greatest games in NCAA history.


Thursday, March 12, 2009

More on Roubini and Shiller's Dour Outlook

Another excellent analysis of where things really are... and where they may be going.

Well, you guessed it. I'm here to post up even more bullish news! And, by bullish news, I obviously mean bearish news. After all, its Nouriel Roubini and Robert Shiller.

Here's the deal, Shiller has a set of S&P earnings and P/E ratios available in spreadsheet format here. Big hat tip to Cliff Küle for flagging this Shiller data and graphs to our attention. Cliff posts up some historical info, illustrated below. First, real S&P composite earnings:
Click to enlarge:

And secondly, historical P/E ratios and interest rates.
Click to enlarge:

By that historical data, you'd think that a 5 P/E could be achieved given the severity of everything that's happened. But, if you're not that apocalyptic, then maybe somewhere around 10x would be more appropriate. And, 'Dr. Doom' himself, Nouriel Roubini thinks that the S&P500 will see 600, which could be somewhat close to 10x by his measurement. Taken from Bloomberg,

The benchmark index for U.S. stocks would have to slump 12 percent from last week’s closing level to meet his forecast. Roubini is assuming that companies in the S&P 500 will report profit of $50 a share this year and investors will pay 12 times that for equities.

My main scenario is that it’s highly likely it goes to 600 or below,' Roubini said Thursday in an interview at the Chicago Board Options Exchange Risk Management Conference in Dana Point, California. A level of '500 is less likely, but there is some possibility you get there.'


What Does a Bear Market Rally Look Like?

An outstanding article by Jeff Pierce...

Excellent chart demonstrating how powerful rallies within bear markets can be. I calculated the average decline/rally, but excluded the last decline and rally as they were so dramatic and would skew the results.
Avg % decline = 40%
Avg $ rally = 33%

Right now we’re roughly 18% off the lows on the Dow & Nasdaq. Bearish sentiment is definitely being relieved, and I can already hear people saying how with a new administration things are going to be different from here on out.

On the way to the bottom, the market must relieve bearish sentiment (make you forget your fear). It can only do this through sharp powerful rallies (where we all laugh for a day with CNBC on how close we came to the brink).

We have described these as “rocket-launched (oh they’ve saved us) bear market rallies.” Investors who cheer these sharp up moves as a sign of the bottom should take note of the chart provided by Tom Denham from below.

The treacherous nature of bear market rallies

'The market itself is forecasting recovery' reads the recent headline of a well known financial publication. As someone who follows market movements very closely and tries to read signals the markets may give about future business conditions, I was also interested in the market's recent strength.

However, I would be extremely careful in concluding that rising stock prices after a terrific decline, such as we had in the NASDAQ since March 2000, do signal improving business conditions. For a market, which has become very over-sold, it is only natural to rebound, but frequently these rebounds are merely bear market rallies, which are subsequently followed by vicious declines.

Probably the most famous bear market rally in history is the rise, which took place following the October crash of 1929. Stocks began to recover strongly following the November 13th 1929 low amidst wildly bullish comments and confident statements by a very large number of respected Wall Street personalities.

In fact, for a while the bulls were right. From a low at 199 on November 13 - down from the September 4, peak at 381- the Dow Jones Industrial rallied to a high of 294 in April 1930 (up 48%). This famous and well-documented bear market rally took place for a number of reasons. After the October 29 crash, the market had become very oversold - incidentally far more oversold than the US stock market's position on September 21, 2000. Thus, a technical rally was natural.

Also, the Federal Reserve Bank cut the discount rate immediately following the crash from 6% to 5% on November 1, 1929, to 4.5% on November 15, and to 4% on January 30, 1930. Subsequently the discount rate was repeatedly cut to 2.5% in June 1930, to 2% in December 1930, and 1.5% in mid 1931.

The interest rate cuts after April 1930 did, however, no longer support the stock market, which began to sell off once more. And by the end of the year 1930, the Dow Jones Industrial had broken below the November 1929 low and fell to 158 (from there it fell 41 in July 1932). Another reason for the 1929/1930 rally was that the economy held up following the October crash, which led a number of leading business and stock market personalities to make positive comments and to buy equities.

During the first six months of 1930, the business curve of the Harvard Barometer was almost horizontal and, therefore, did not signal a recession. Thus, the October 1929 stock market crash was widely regarded as a financial accident - a direct consequence of excessive speculation, but not as the beginning of an economic crisis that was to jolt the social and economic structure of the entire world.

No one anticipated a recession, let alone a depression. Charles Mitchell who headed the National City Bank, announced soon after the crash that the trouble was 'purely technical' and that 'the fundamentals remained unimpaired'. While President Hoover assured the American people that 'the fundamental business of the country, that is production and distribution of commodities, is on a sound and prosperous basis.'

From an article by noted economist Marc Faber which I strongly recommend.

Benedict XVI writes his bishops on L'Affair Williamson

Pope Benedict XVI has written the bishops of the Catholic Church on the upheaval surrounding the remission of the excommunication of the four Lefebvrist bishops. This includes Bp. Williamson who as I have noted before is something of a nut case and an anti-Semite. The letter is powerful and well written. I find much worth pondering in it given the season.

Monday, March 09, 2009

More of the same

Last fall my Democratic and liberal friends (I do have a few) warned me that if I voted for McCain we would wind up with George Bush's third term. Well they were right. I did vote for McCain and clearly we now have Bush III.
But Mr. Obama also signaled that he intends to use signing statements himself if Congress sends him legislation that has provisions he decides are unconstitutional. He pledged to use a modest approach when doing so, but said there was a role for the practice if used appropriately.
I said it about Bush and I will repeat it now about Obama. Signing statements are illegal and unconstitutional period. No president has the authority to pick and choose which parts of a law he will obey. If a president believes that elements in a given bill are unconstitutional his only recourse is to veto the bill. Indeed one could make a compelling argument that failure to do so would be failing to uphold his oath of office. Bush should have been impeached for this and Obama should be too if he tries to imitate W's abuse of power. This is a very slippery slope we are on.

It would appear that whether we are talking about fiscal and monetary policies or respect for constitutional limits on power; Obama is intent on following in George Bush's footsteps.

Peter Schiff explains Obamanomics...

In his first televised speech before Congress, President Obama asserted that prosperity will return once the government restores the flow of credit in the economy. It may come as a surprise to him, but an economy cannot run on consumer loans. Furthermore, credit stopped flowing in the U.S. for a very good reason: there was no more savings left to loan. Government efforts to simply make credit available, without rebuilding productive capacity or increasing savings, are doomed to destroy what's left of our economy.

The central tenets of Obamanomics appear to be that access to credit will enable people to borrow money to buy stuff, the spending will spur production and employment, and thus the economy will grow. It's a neat and simple picture, but it has nothing whatsoever to do with how an economy works. The President does not understand that consumption is made possible by production and that credit is made possible by savings. The size and complexity of modern economies has obscured these simple concepts, but reducing the picture to a small scale can help clear away the fog.

Suppose there is a very small barter-based economy consisting of only three individuals: a butcher, a baker, and a candlestick maker. If the candlestick maker wants bread or steak, he makes candlesticks and trades. The candlestick maker always wants food, but his demand can only be satisfied if he makes candlesticks, without which he goes hungry. The mere fact that he desires bread and steak is meaningless.

Enter the magic wand of credit, which many now assume can take the place of production. Suppose the butcher has managed to produce an excess amount of steak and has more than he needs on a daily basis. Knowing this, the candlestick maker asks to borrow a steak from the butcher to trade to the baker for bread. For this transaction to take place the butcher must first have produced steaks which he did not consume (savings). He then loans his savings to the candlestick maker, who issues the butcher a note promising to repay his debt in candlesticks.

In this instance, it was the butcher's production of steak that enabled the candlestick maker to buy bread, which also had to be produced. The fact that the candlestick maker had access to credit did not increase demand or bolster the economy. In fact, by using credit to buy instead of candlesticks, the economy now has fewer candlesticks, and the butcher now has fewer steaks with which to buy bread himself. What has happened is that through savings, the butcher has loaned his purchasing power, created by his production, to the candlestick maker, who used it to buy bread.

Similarly, the candlestick maker could have offered “IOU candlesticks” directly to the baker. Again, the transaction could only be successful if the baker actually baked bread that he did not consume himself and was therefore able to loan his savings to the candlestick maker. Since he loaned his bread to the candlestick maker, he no longer has that bread himself to trade for steak.

The existence of credit in no way increases aggregate consumption within this community, it merely temporarily alters the way consumption is distributed. The only way for aggregate consumption to increase is for the production of candlesticks, steak, and bread to increase.

Read the rest here.

Some recent articles on the economy

Just in case some of you have been suffering from too much cheery news of late I offer the following... (click on the links for the full articles)

The man who predicted the current financial crisis said the US recession could drag on for years without drastic action.

Among his solutions: fix the housing market by breaking "every mortgage contract."

"We are in the 15th month of a recession," said Nouriel Roubini, a professor at New York University's Stern School of Business, told CNBC in a live interview. "Growth is going to be close to zero and unemployment rate well above 10 percent into next year."

Echoing a speech he made earlier in the day, Roubini said he sees "no hope for the recession ending in 2009 and will more than likely last into 2010."

Roubini, who is also known as "Dr. Doom," told CNBC that the risk of a total meltdown has been reversed for now but that the economy is going through "a death by a thousand cuts." He also said that "most of the U.S. financial institutions are entirely insolvent..."

From US Recession Could Last Up to 36 Months: Roubini

March 9 (Bloomberg) -- The Standard & Poor’s 500 Index is likely to drop to 600 or lower this year as the global recession intensifies, said Nouriel Roubini, the New York University professor who predicted the financial crisis.

The benchmark index for U.S. stocks would have to slump 12 percent from last week’s closing level to meet his forecast. Roubini is assuming that companies in the S&P 500 will report profit of $50 a share this year and investors will pay 12 times that for equities.

“My main scenario is that it’s highly likely it goes to 600 or below,” Roubini said today in an interview at the Chicago Board Options Exchange Risk Management Conference in Dana Point, California. A level of “500 is less likely, but there is some possibility you get there.”

The S&P 500 has dropped 25 percent to 676.53 in 2009, its worst start to a year, following a 38 percent decline in 2008 that was the steepest annual retreat since 1937. In response to the U.S. recession that began in December 2007, the Federal Reserve cut its benchmark lending rate to as low as zero and President Barack Obama got congressional approval for a $787 billion economic stimulus plan...

From Roubini Says S&P 500 May Drop to 600 as Profits Fall

The stock market tanked again today, and for 2009 has lost nearly a quarter of its value. And it is only early March.

To put that in perspective, assume that the market ends 2009 at today’s prices. This would be the list of the worst years since 1900 for the Dow industrials:

1. 1931, down 53%
2. 1907, down 38%
3. 2008, down 34%
4. 1930, down 34%
5. 1920, down 33%
6. 1937, down 33%
7. 1974, down 28%
8. 2009, down 25%
9. 1903, down 24%
10. 1932, down 23%

You will note that we have not had consecutive really bad years since 1930, 1931 and 1932.

Here are the rankings for worst two-year periods, again assuming 2009 ends at today’s prices:

1. 1930-31, down 69%
2. 1931-32, down 64%
3. 2008-09, down 50%
4. 1929-30, down 45%
5. 1973-74, down 40%
6. 1906-07, down 39%
7. 2007-08, down 30%
8. 1940-41, down 26%
9. 1916-17, down 22%
10. 1920-21, down 25%

That may mean that the market really is discounting a financial disaster.

Here’s another indication that investors feel more or less the way they did during the last disaster:

It has been 513 calendar days since the stock market peaked on Oct. 9, 2007. Since then, the S.&P. 500 is down 56 percent and the Dow is off 53 percent.

On Jan. 29, 1931 — the identical number of days after the 1929 market peak — the S.&P. 500 was down 49 percent and the Dow was down 56 percent. The 1929 crash got off to a much faster start, but we have now more or less caught up.

You will note, however, that the economic news now is not nearly as bad as it was in 1931. Could there be a tad bit of overreaction this time?

Finally, the good folks at would like to let you know that the weather is also reminiscent of the bad old days:

Dust Bowl II?
The weather pattern has some similarities to that of the 1930s and given the state of the economy these days make it quite sobering. While modern farming practices and technological advances should prevent a 1930s style dust bowl over the southern Plains, indeed some hardship lies ahead unless the current pattern breaks. The spring planting season begins this month in the region and crops need moisture to sprout and grow.
From Plunging Markets, Then and Now

...The question that arises then is whether the new US budget will change things. The boost is huge. The budget deficit is projected to rise to 12.5 per cent of GDP. That is higher than at any time since the Second World War. It is double the size, relative to GDP, of Franklin D Roosevelt's New Deal in the 1930s. It is larger than the fiscal deficits run by Japan during the 1990s, which is not an encouraging precedent since they pretty much failed – though arguably Japan's so-called "lost decade" would have been even more lost without them. Finally, it is even larger than the proposed deficit that our present Government plans to run here.

So what should we make of it? I suppose I fear this administration is making the same mistake with fiscal policy that the previous one made with monetary policy. Remember how the Federal Reserve cut US interest rates way below the rate of inflation to pump up the economy after the collapse of the internet bubble? It succeeded in boosting demand. People borrowed like crazy, savings plunged, the housing boom took off, and the economy recovered. But the growth was artificial and could not be sustained.

The argument at the time was that the impact was not inflationary, and that was right for prices were held down by the imports of cheap goods from East Asia. And the credit boom was not risky as the banks were able to spread their risks by securitising their debts. In any case those debts had AAA ratings. But the lack of inflation (and those AAA ratings) lulled people into a false sense of security and we all know what happened.

The argument now is that the loss of output from recession is so huge that it makes sense for the state to borrow to reverse it. You could say the economy is a bit like an airline or a hotel – the revenue from a seat or a bed not filled is lost forever. So better to borrow now, get demand up, and claw back the borrowing later. To some extent this must be right, provided the fiscal position is indeed brought back into kilter. President Obama's plan holds that the deficit will be back to 3 per cent of GDP by the end of his term. If that were the case, it might be just about acceptable. Trouble is, the assumptions on which this deficit-reduction profile are made look to me to be quite unrealistic. GDP growth next year of more than 3 per cent? Huh?

There is a further concern. This programme assumes the US government can finance it. Now at the moment the dollar is riding high, with government assets seen as a safe haven in the storm. The current account deficit is narrowing and the Chinese are perceived to have no option but to keep investing in the US.

So for the time being the deficit can be financed, or so it would appear. But the mood of financial markets is fickle and at some stage it will turn. There have been runs on the dollar before. You could envisage a nightmare scenario where the flow of funds into the US reverses, long-term interest rates shoot up, the US fiscal position fails to improve and there is a global dollar crisis. Even without that, the debts will be a burden for a generation. The seeds of the next downturn are being sown now...

From Deficit of realism. America assumes a lot in its road map to recovery

Saturday, March 07, 2009

Greetings from the capitol of the left coast

A brief update as the first week of Lent winds down. Its political climate notwithstanding San Francisco really is a very beautiful city. I will be here for the next two days on the first leg of what I expect to be roughly three weeks of traveling. Last week was notable for a couple of things. First I was not as crushed by the beginning of the fast as I have been in the past. Am I getting used to this? That's almost a scary thought in itself.

Speaking of scary, the economy is well ... very scary right now. I really wanted to blog on that subject last week but I resisted the temptation. I expect to have some thoughts on this in the next couple of days when I have the opportunity to get online for more than a few minutes. Actually there has been a lot going on it seems. I will be digging out the in box and trying to get back to people as quickly as I can. Finally I am turning the comments back on.

P.S. Has T-19 changed their web address? I know they were changing servers. But their page has been down all day.

Sunday, March 01, 2009

Clean Week Hiatus

With the start of the Great Fast now only a few hours away...

First I wish to ask forgiveness for any offense which I may have caused anyone through this blog or any other means. Please pray for me a sinner.

Secondly, as noted in an earlier post there will be no blogging during most, if not all of the forthcoming week. Because I am not going to be online much and in the past some inappropriate comments (spam and worse) have shown up during announced down times, I will be closing down the com boxes when I go to bed tonight. See you all in a week or so (Thursday at the earliest).

Under the mercy,

And now we know the end of the story... Memory Eternal: Paul Harvey

CHICAGO — Paul Harvey, the news commentator and talk-radio pioneer whose staccato style made him one of the nation’s most familiar voices, died Saturday in Arizona, according to ABC Radio Networks. He was 90.

Mr. Harvey died surrounded by family at a hospital in Phoenix, where he had a winter home, said Louis Adams, a spokesman for ABC Radio Networks, where Mr. Harvey worked for more than 50 years. No cause of death was immediately available.

Mr. Harvey had been forced off the air for several months in 2001 because of a virus that weakened a vocal cord. But he returned to work in Chicago and was still active as he passed his 90th birthday. His death comes less than a year after that of his wife and longtime producer, Lynne.

“My father and mother created from thin air what one day became radio and television news,” their only child, Paul Harvey Jr., said in a statement. “So in the past year, an industry has lost its godparents, and today millions have lost a friend.”

Known for his resonant voice and his trademark radio feature called “The Rest of the Story,” Mr. Harvey had been heard nationally since 1951, when he began his “News and Comment” feature for ABC Radio Networks.

He became a heartland icon, delivering news and commentary with a distinctive Midwestern flavor. “Stand by for news!” he would tell listeners.

“Paul Harvey was one of the most gifted and beloved broadcasters in our nation’s history,” James M. Robinson, president of ABC Radio Networks, said in a statement. “We will miss our dear friend tremendously and are grateful for the many years we were so fortunate to have known him.”

The rest of the story.

He lived a long life. But still this is just very very sad.