Pause In Panic, Counting Many Losses

Elaine Meinel Supkis

We don't know if the financial officers at the helm of the USS Titanic can keep the tub chugging forwards a few more months. The chances they can do this are diminishing. They will bend their wills towards luring the herd of investors back to the crocodile/lion pool. Japan wants to keep this mess going longer even as they still refuse to let in most imports from the US. And the real estate fraud of 0% down payments now threaten to bring down the entire global banking system. Thanks alot, guys.

From Big Picture:

Contrary to what you may have heard on Bubblevision, U.S. markets have been badly lagging the rest of the world's bourses year-to-date. As Jim Picerno's nearby table makes apparent, the rest of the world's markets have badly outpaced those in the U.S. This should come as no surprise, as the rest of the world's economies have similarly outperformed the "Bush Boom."

I decided to make a chart of the data they had at Big Picture. What interests me most is that the world's #1 and #2 economy both have the poorest stock markets. Both have the weakest currencies. Both had beggared their own workforces to cut inflation. But also outsourced jobs like crazy to cut inflation. But within this little scheme are several exact opposites. Japan has the world's biggest profit margin from trade, for example. Japan also has the world's biggest US bond fund, double that of China who is #2. And Japan has the biggest automobile trade surplus with the US compared to all other nations.

The real puzzle is not that Japan's Nikkei is so bad but why they keep it deliberately bad for this can't be accidental. If Japan was doing really badly in global trade, etc, then it would be understandable! But this is not the case here. The US struggles with inflation while Japan enjoys the ravages of depression and the Bank of Japan does nothing to fix this even as the US and indeed, the entire world struggles with oil-induced inflation.

From the New York Times:

In part to teach philanthropy and altruism, and in part as a defense against swarms of random plastic objects destined to clutter every square foot of their living space, a number of families are experimenting with gift-free birthday parties, suggesting that guests donate money or specified items to the charity of the child’s choice instead.

Witness, perhaps, the first hyper-parenting trend that does not reek of wanton excess.

Grown-ups who have everything have long politely requested “presence” instead of presents for later-in-life birthdays and anniversaries, and some couples have recently shunned the wedding registry, instead directing loved ones to donate.

Here, in a nutshell, is the problem: the US market is all market, all the time. We are consumers from hell. We see a tsunami of junk pouring in here as everyone hopes to make money selling stuff to us. In the case of children, this has been totally out of control. Indulging children is now nonstop thanks to television and the bottomless appetites for more that is a characteristic of children. The infantilization of the mind is all about wanting infinite amounts of everything. Thanks to free trade, we have endless stuff coming here in exchange for money.

As houses grow ever bigger, the need for more space is overwhelming our culture as we seek to park tons of junk in every nook and cranny. When my grand dad was a child, children got precious few things. Mostly, it was stuff they made for themselves out of materials lying around, near at hand. In his day, to own a bag of marbles was considered a wonder. Trading cards were popular because they could be easily purchased and took up nearly no room in crowded bedrooms. When we lived in NYC, we liked things such as Pokemon cards because they took up nearly no space.

When I was a child, we got exactly 3 presents a year plus a Christmas book and three summer books. If we wanted to play an instrument, in my case, a cello, we got it as a Christmas gift. All the other things I got as a child, I bought with my own earnings. My parents were not poor at all. They were actually rather wealthy. But this was the Victorian ethos at work.

My wealthy friends got everything under the sun. I marveled at how they had closets filled with clothing and toys. Boxes of toys lining the walls, etc. They were the beginning of the toy era whereby children in America were suffocated by toys. This degrades the character and can launch a lifetime of ruinous purchasing on credit. And this is having a huge impact on our world stature: we are drowning in things while also drowning in debts.

From Bloomberg:

The U.S. House of Representatives, ignoring a veto threat from President George W. Bush, approved a $284 billion, five-year farm bill that would provide subsidies to growers of wheat, cotton and other crops.

Lawmakers passed the measure on a largely party-line 231- 191 vote, sending the farm-bill debate to the Senate, which is expected to spend more on land conservation and food-aid programs. Senate Agriculture Committee Chairman Tom Harkin says he'll introduce a bill in September.

The Bush administration says the House bill is too costly and fails to significantly cut subsidies, a sticking point in world-trade negotiations. Democrats supported the bill for its increased spending on energy and fruit and vegetable programs, as well as on food stamps and conservation.

Food stamps has so grossly declined over the years, it is virtually worthless now. But increasing spending on biofuels is insanity. We won't fuel our SUVs this way. This is quite literally burning our cake while trying to eat it too. The Doha rounds are dead as dodos. The world is going to soon deal with real competition as the US tries to escape the clutches of the economic disaster we rigged for ourselves. Spending more money while going to China for more money so we can have unfair competition with Africa will end badly! China doesn't mind us subsidzing cotton farmers. They know this keeps us happy as they get to do the value-added production while we act as if this is 1850 and England was using all that cotton from the Deep South.

Farms are dying up here where I live in New York. My farming community barely exists now. I even had to quit sheep thanks to the glut in wool and lambs. These taxpayer-supported bills no longer even try to pretend they are aimed as saving 'the family farm.' They are simple supports for wealthy investors in farmlands and the guys holding and selling farm products. And of course, these subsidies create inflation. The sole method our government, like in Japan, to fight inflation is to hammer the wages of the working class.

From CNN Money:

Mirroring the sell-off in U.S. stocks, this week saw the biggest outflow from U.S. stock mutual funds in five years, according to TrimTabs.

For the week ending Thursday, fund investors cashed out a net of $11.3 billion. The biggest outflow came Tuesday, when investors cashed out a net $5.5 billion, making it the second-highest daily outflow of the year. The highest occurred on Feb. 27, when investors sold a net $6.5 billion worth of U.S.-focused funds following a plunge in the Chinese stock market.

To put this in perspective, at the beginning of the month, the average buy-out and buy-ups were over $10 a day. Take overs were booming and $20 billion deals were common as Mayflies in May. Now the process is reversed. Indeed, the inflow of funds were based totally on the assumption stocks would rise as the plutocrats bought out each other or bought up everyone else.

From Associated Press:

The pullback Thursday and Friday wiped out $526.1 billion in shareholder wealth from the stocks in the Standard & Poor's 500 index.
*snip*
The Dow, which had seen back-and-forth sessions before the declines Thursday and Friday, only last week traded above 14,000 for the first time. The Dow's retrenchment leaves it 756 points below its high from last week. That 5.4 percent decline puts it more than halfway toward the technical threshold of a correction, which is 10 percent.

Broader stock indicators also fell Friday. The S&P 500 ended down 23.71, or 1.60 percent, at 1,458.95. For the week, the S&P gave up 4.90 percent. It was the S&P's worst performance, in percentage terms, since the week ended July 19, 2002.

The Nasdaq composite index fell 37.10, or 1.43 percent, to 2,562.24. It was down 4.66 percent for the week, marking the index's worst run since the stock market had a pullback that began Feb. 27.

In the past, I have lost large sums due to sudden declines in asset markets. This is 'funny money', namely, something is worth something higher and higher but when I am forced to sell, it could be worth a lot less than it was when it was at its highest. This phantom value is not real. Events in the real world can change value instantly. For example, if you drop a nuclear bomb on a city, real estate values will plunge to $0 instantaneously. This is why one shouldn't cry over spilt milk like in this market washout.

The problem can arise when people borrow money to buy stocks. This is a mirror of the housing asset problem: when values rise, they can use the excess value to generate wealth. But when they fall, all the banks demand payment and everyone begins to go bankrupt. Just as lending money increases the value of a savings by 10x or more each time it is lent, this is ruthlessly true moving in the other direction. Each bankruptcy causes 10x more bankruptcies which is why it is a hard dynamic to stop.

From Bloomberg:

Blackstone Group LP shares closed at a new low, making the leveraged buyout firm the worst-performing initial public offering this year.

Blackstone has tumbled 22 percent since the New York-based company sold shares in June. Fortress Investment Group LLC of New York, the first U.S. buyout firm to go public, has fallen 47 percent from a high of $37 in February. The slump occurred as investors shunned riskier bonds and loans used to fund takeovers.

``If you believe private equity is under some pressure, you are definitely going to take it out on these stocks,'' said Frederick Lane, managing director of Boston-based investment bank Lane Berry & Co.

I wrote a story about the mighty Fortess that will fall about half a year ago. I went to their web page and laughed because the goofy jerks running that stupid fund were too lazy and too disorganized to have a working web page the day they launched their IPO! I said, 'Anyone who trusts these guys deserves to lose their money. A fool and his money are soon parted.' And so it is. Investors have a responsibity to research things on their own and then to think twice. Anyone researching Fortress should have yelled the second they saw the 'Under Construction' web page.

The WSJ from Big Picture:

The bears are out of hibernation: Small stocks fell sharply Friday and the Russell 2000 had its worst week since the trading week following the Sept. 11, 2001, terrorist attacks, dropping into the red for 2007. That index hasn't had a losing year since 2002.

On Friday, the Russell 2000 fell 13.65, or 1.72%, to 777.83, and is now down 1.2% for the year to date. The S&P SmallCap 600 declined 6.30, or 1.51%, to 410.05, but remains in positive territory for the year.

Summer meltdowns usually mean little. But this is no ordinary summer. The chart at the top makes it clear, the US and Japanese stock markets are both the least performing on earth. And the dying dollar and totally assassinated yen are at the root of the doldrums afflicting both markets. Both markets depend on ravaging workers for profit and to kill inflation caused by themselves and both depend on the US worker being able to go further into debt to keep the world's trade system going.

From Yahoo:

The next and biggest wave of problem loans could come as monthly payments soar for both prime and subprime borrowers who took out adjustable-rate loans with little or no documentation, or who used so-called piggyback loans on top of their first mortgages to make up for small down payments, analysts said.

These exotic loans were the only way many borrowers -- even those with good incomes and sterling credit histories -- could afford to get into the housing market as home prices soared in the last decade. But now those decisions are looking suspect.

That was one of the messages that sent a jolt through the mortgage industry and the stock market on Tuesday after Countrywide Financial Corp. reported its second-quarter profit shrank by nearly a third as softening home prices led to rising delinquencies and mortgage defaults.

Sensibility always is thrown out the door when people want things. If housing is too expensive, one doesn't do dumb things to get a house. One has to be careful. If you can't buy a house today, one can rent until prices fall. In California, the belief was, housing would go up forever. Even so, it made no sense to buy if it meant overextending one's finances. A huge number of people literally participated in a huge lending fraud scheme! The entire point of having a downpayment was so the buyers could 'earn points' for lower interest rates from a bank because it shows they have a stake in keeping payments up and won't dump the house into bankruptcy!

As a person who has paid more than 20% down on properties, I resent people wrecking the mortgage market by this fraud. If they can't afford it, they shouldn't buy. If they need a 100% loan, they should pay a higher risk rate. This, of course, would have killed the housing asset bubble a lot earlier but the banks winked at this fraud, the real estate agents promoted this fraud and home sellers participated in this fraud!

And like all frauds, when it collapses it takes everyone down. This is why it is irresponsible for regulators, bankers, the Federal Reseve, etc to allow this and to conspire to keep it going. The Washington Post even had a series of articles ADVISING home sellers how to cheat! This was one of the most open bank fraud events in our history! Arrest everyone involved. Heh. A huge number, of course.

From the Nikkei:

EDITORIAL: Stock Sell-Off No Reason To Panic

TOKYO (Nikkei)--The global stock market retreat triggered by a plunge on Wall Street should not be taken lightly, but there seems to be no reason to fear the full-blown credit crunch that is apparently to blame for the bearish mood in the U.S.

TOKYO (Nikkei)--Market speculation that the Bank of Japan may hike interest rates in August is cooling due to a global stock market sell-off touched off by worries over surging defaults on U.S. subprime mortgages.

Japan is going to use this latest mess as an excuse to continue onwards. Just like the entire financial system in America conspired to keep the housing bubble going even if this meant fraud, so it is with Japan. They need to keep the present system going no matter what. Instead of world trade balancing, they want it unbalanced and for this unbalance to get worse and worse and worse. Of course, unbalanced systems tend to crash due to this fact they are unbalanced. The Japanese hope they can somehow avoid a crash even though it is obviously impossible. But the longer this unbalanced mess continues, the worse the crash for all things accelerate as they go downhill. It is called 'gravity'.

From Japan Times:

One year after the lifting of Japan's latest ban on U.S. beef over mad cow concerns, imports of the meat remain far below the levels seen before the first ban was imposed in 2003, an official said Friday.

The U.S. beef industry was exporting 20,000 tons of beef per month to Japan before the meat was first banned in December 2003, according to the U.S. Meat Export Foundation.

For the 10-month period from last August through May, Japan imported 15,205 tons of U.S. beef, farm ministry official Mayuko Nishibori said. The period was the most recent one for which statistics are available, she added.

And part of the unbalanced trade deal is for Japan to lock out all US imports. They keep doing this and they will never, ever stop. They, not the Chinese, are at the root of the unbalanced trade dynamics.

From Associated Press:

Chevron Corp.'s profits soared to new heights in the second quarter, capping another round of astounding oil industry earnings that have piled up as high gasoline prices squeeze household budgets.

And as always, including energy companies in the stock figures gives a false picture of the prospects for a good economy. For when energy stocks rise, this is doom for all other stocks. And the reverse is true. Energy companies should have their own listings. They go up, everyone should panic. As it is, everyone is finally in a panic. Even the lowest level of investors can see the obvious.

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Comments

[DeVaul]

I'm not sure what to think of the stock market and all the chaos that surrounds it.

Referring to "investors" as a "herd" seems to be quite appropriate given their herd-like behavior. Discharge a gun (i.e. read a report) near them and they will be "spooked" or even start a stampede.

And who are these "investors"? No one has ever introduced themselves to me as "an investor". I have heard stockbroker, exporter/importer, banker, and other occupations but never "investor". And why do they act like complete morons?

The news always tells us that investors are "waiting" for this or that report before making a decision as to what to do. Am I really to believe that someone will buy or sell a stock in xyz, inc. based on a government report? Everyone knows the government lies, so why make decisions on rank lies?

And why do they even wait for the release of all these reports? They know the exact day the report will be released. Why not do a little research beforehand to find out what will likely be in the report? The info is out there available to everyone. Why wait?

I do not know who these investors are, but they do behave just like a herd of animals. They send out no scouts or lookouts. They just wait and react to whatever happens nearby. For animals this is ok, but it is awfully strange behavior for people who plan to "make money" off of stocks.

[blues]

My understanding is that the so-called "stock market" is nothing other than a very rigged gambling casino. The insiders are privy to wholesale quantities of supposedly illegal insider information, and the media system constantly denies this, so as to draw in as many clueless suckers as possible to make up the difference. The media system is constantly depredicting what happened yesterday, so as to sound as if they know what they are talking about. They are, it seems, actually predicting that Monday will be a further disaster, so I would guess it probably will be. But there is no penalty when they just make things up. The stock market is unreal, and they are habitual liars, so what would you expect?

[Elaine Meinel Supkis]

Some 'investors' read my news service. When I used to hang out at the NYT, they read my daily morning reports there. I had a huge audience.

Today, I am smaller but have total control over my own news. Haley Barbour can't visit and order me shut down like he did in 200! Investors are people with money who buy stocks. They often are individuals who have savings.

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