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Published Monday through Friday about 8 AM Central Time Except Holidays

 

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Which Economy Gets Saved?

Although I keep threatening to just not do Saturday reports so I can get things done around the ranch -- a trip to the lumber store for some cabinet-making plywood and hardwood top feed into the wood shaper is on the list this morning  and welding up the array holder for the solar panels comes up this afternoon -- these are serious times and because I'm pondering whether to enter an options trade next week, I've been especially restless of late.

 

The report that two more banks went belly up this week: Franklin Bank of Houston, Texas, and Security Pacific Bank of California, with combined assets of almost $6-billion, is a pretty stark reminder that the economy is barely hanging onto life.  It's got a pulse, but it's barely fogging the mirror.

 

Part of the market rally came on the heals of Barack Obama's hints that he's in favor of more stimulus and aid to the auto industries didn't hurt.  As the Dow soared Friday almost 250 points by the close, despite the report that 10-million Americans are unemployed, the report that GM was running out of cash was moderated by the prospect of 'help from Uncle."  GM was down less than half a point, although at its recently depressed prices that's a decline of more than 9%, but Ford managed to hang on to the small gain.  The overseas autos did OK, too:  Honda was up and so was Toyota, perhaps on speculation that Detroit would relinquish even more market share.

 

I'll get into this a bit more for subscribers this weekend, but since the 1950's, it seems to me that we have seen the emergence of three different economies within the US.  The original was the bricks and mortar/industrial economy - the one that made cars, airplanes, televisions, and so on.  Then we saw the evolution of the financial services industry - a mother giant of late with more notional value than the entire world's gross product.  And not to be overlooked - because it serves both, is the services economy.

 

It's a kind of three-legged milk stool.  Supposedly.

 

Unfortunately, now that tables have turned on  the financial services leg, it will 'take down' a big chunk of the services sector as well.  And, since we have irresponsibly allowed American corporations to outsource most of our former industrial economy to China and India, the industrial leg of that milk stool has also been hacked.

 

What stands as a challenge for the Obamanation is how to repair the foreshortened milk stool.  I think you know the answer...it's obvious to me:  Rebuild infrastructure and on-shore industry. 

 

Imposing tariffs, as was done in the last depression under the Smoot Hawley Tariff Act will likely not be played this time around, although I'd argue that bad Fed policy in the last depression had more negative influence than did Smoot-Hawley, but the capitalists have managed to effectively rewrite history and give a thorough black-eye to tariffs.  Big money to be made playing them wage-rate differentials when sales flatten out.

 

The reality the fat-cats won't cop to is that making goods overseas - and I don't care whether it's the apple from another continent, or a refrigerator in an Asian country - happened because the wage-rate differential between a higher standard of living economy and a lesser one fell to the bottom lines - and that's bonus time.  Not to say that's bad - hell, it's the same strategic decision I'd make, too, if my bread were buttered only on the one side.. 

 

The problem at a national policy level is whether the export of jobs has gone so far as to now be unrecoverable with something simple - like tariffs or a stimulus - or whether the rest of the world will just start backing away from US dollars.  I guess we'll find that out over the coming few weeks with the G-20 meetings next weekend.

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My friend The Bond Dude made a very interesting observation to the effect that he thinks China will keep playing the dollar game only so long as it helps China build a strong middle class.  The way he's got it penciled, once the Chinese have a strong enough middle class (e.g. enough consumers - perhaps 300-million or so...) then the Chinese can let their currency appreciate extensively relative to ours and assume Masters of the Universe global power.

 

They could then phase their industrial output into domestic consumption - and paradoxically, the recent earthquake in China has set off a massive rebuilding effort - and that does what?  Increases the growth rate for China's middle class.

 

You have noticed, I hope, that China's premier Wen Jiabao says "Industrialized nations should ditch unsustainable lifestyles"?  Wonder if he's been lurking around here...a rational person looking at global numbers of humans and how much resource is left would likely come to no other conclusion. 

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Some indications are that the Obamanation may be a lot more 'talk' than 'action' when it comes down to tangible change.   Headlines like "Obama's change leaves by the back door" are cropping up in reaction to the disappointing appointments of old-guard paradigm defenders and ex-Clintonistas in the early days of the next administration.  Have we been snookered by the PTB?  I wouldn't bet against that...

 

Ultimately, I expect the reason the market climbed last week was that the Obamanation showed its true stripes:  It's going to be a refried Clinton era with, oh sure,  a few new faces who will likely talk more about change that get down to the business of infrastructure rebuilding, going green, and articulating a believable, achievable new kind of American Dream.

 

If the Obamanation doesn't identify and strong act on the fundamental causes of disappearing jobs, salutatory initial moves like extending unemployment benefits are going to turn out 'nice but no cigar.'

 

Till these guys articulate a plan to rebuild the milk stool, onshore jobs, and reel in the banksters, it's the same train wreck all over again - just with a different engineer.

 

Rehashing Iran

Certain lobbies in Washington seem committed to whipping Iran phonic behavior - and with enough old-guard/paradigm defenders, I notice that headlines like "Obama: Iran must be kept from developing nukes" are predictably popping up.

 

Sure, Iran could someday develop nukes.  So could Denmark. But if you take a thoughtful read through the National Intelligence Estimate:  Iran: Nuclear intentions and capabilities report from 2007, the hype seems just a little, well, overworked. 

 

Nevertheless, the alarmist lobbies point at every earthquake in Iran as really being an 'underground nuke test'.  They don't want you to notice the scientific data such as the depth of 29 kilometers....LOL.    Is the word gullible in the dictionary?

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But, speaking of quakes, you are keeping your eye on what's going on north of Puerto Rico?  Swarming all over the place down there...

 

Where's the US?

Horrible war is raging in the Congo and this weekend, the UN is holding meetings to talk about it.  Notice anything?  How about: the US not throwing in a big military commitment?  The pattern to notice - and I'm not being overly critical here, is that Congo don't have pipeline routes or oil resource to offer in sufficiency to garner the huge kind of outlays that go into the Middle East wars... Longer term, this is why China wins Africa.

 

Them Winds Are Back

The Cayman Islands are under a hurricane watch for Hurricane Paloma which has popped up to Cat-3 strength overnight.  Although not headed for the US, it sure sees likely to whack Cayman Brac but good as it heads off to the northeast over eastern Cuba and up toward the southern Bahamas, or maybe the northern Turks group.

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Know this, if you live or have plans to go visiting, early this week would be great because often after big storm action like this, bits of treasure wash up on the beaches in the area - man y a ship went down in historical times in that neighborhood..  I know people's who've come up with some dandy doubloons from after-storm beach combing...

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Speaking of which, the economic fallout of the recession is hitting the Caribbean - hotel bookings are falling noticeably.  30-50% declines are reported.  Should be some real deals there this winter.

 

Something Fishy

A request for an "International declaration against unsustainable salmon farming sent to United Nations" caught my eye.  I guess it's because I'm thinking our kids will be alive when the very last - ever - order of fish and chips is sold..

 

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Coping:  Backing Up Your Bank

Ah...once again, a reader report underscores my contention that you should back up all of your critical financial records on your own media.  Here's why...

"Hi George,

A friend who had about $250K in IndyMac with a joint account lost "about $40K" when it failed some time ago. He writes that contrary to federal law, the Feds have not liquidated the bank, and are continuing to operate it on a day to day basis. And also that his $250K "cannot be found on the books" any longer.

Just thought you'd like to know.

Do your own offsite backups of your account stats. Most institutions provide downloads in various formats like QuickBooks or Microsoft Money. I don't know how valuable it would be in a "he said, she said" situation, but it's better than nothing, and cheaper than a forensic accountant. Do it now. "

Well, I think your friend is wrong - IndyMac is operating as a federal bridge bank and if you read, they may be operated for up to three years.  On the other hand, can't find $250K?  Ouch!!!

 

Yeah, I have automatic backups going off here almost all the time - having experienced some vicious attacks via the net, I don't trust anyone with data - so we use rotating hard drives (drive #1, Drive#2, etc, not rotating at 7,200 rpm you dunce...) and with the price of 1.5 terabyte drives down under $150, there's really no excuse.

 

Bankers and Lamp Posts Department

I assume you are aware of www.endthebailouts.com?  "86% of Bailout Money Used for Executive Bonuses"

 

 I get emails like this one all the time:

"I think it's time to put an end to this. We had a Tea Party over taxation without representation. Are we a nation of complete cowards and pansies now? If we don't take control now, then when?

How p*ssed off do you have to be to act upon this? When your kids don't eat? When your dog is eaten by the neighbors?

You pay taxes? I sure the hell do. Don't forget. Our new future leader approved the bailout too, so don't tell me things are going to change. They won't, at least not for the better. Not from him.

We sold ourselves somewhere down the line. I don't know when it happened, but it happened. Now, We The People are waiting for government to make things better, and they just screwed us for CEO bailouts. Go back to sleep if you want. This cannot happen without ramifications from the leaders of this country, which happens to be the citizens of the United States of America.

I will probably end up in Guantanamo for this, and I don't give a flying f*ck. It's time We The People took a real hard look at what our government is doing, and hold them f*cking accountable. My name is (withheld - G) , and I approve this message. Peace.

I figurer the new guy deserves a chance.  But change?  About the only change I see so far is in my pocket.

 

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"Live on $10,000" Updated

What?  You haven't ordered the ebook "How to Live on $10,000 a year -- or less"?  Suit yourself.  We're all going to live it shortly, anyway.  I just thought you might like a heads up by reading about how to do it before you get pink-slipped.  But, suit yourself OR visit www.liveontenthousand.com.  Yep - still possible.  I also took a bit of additional material that was pertinent from recent issues of Peoplenomics and included them.  The whole thing runs about 65 pages, but it gives you a vision of how to not only live on the aforementioned dollar amount, but also how to migrate up the economic foodchain if you make a little more than that and do some active savings...  Click here for the page with more details on it.