“The Worst Is Yet to Come” If You’re Not Petrified You’re Not Paying Attention: Tech Ticker, Yahoo! Finance

Vodpod videos no longer available.

The green shoots story took a bit of hit this week between data on April retail sales, weekly jobless claims and foreclosures. But the whole concept of the economy finding its footing was “preposterous” to begin with, says Howard Davidowitz, chairman of Davidowitz & Associates.”We’re in a complete mess and the consumer is smart enough to know it,” says Davidowitz, whose firm does consulting for the retail industry. “If the consumer isn’t petrified, he or she is a damn fool.”Davidowitz, who is nothing if not opinionated (and colorful), paints a very grim picture: “The worst is yet to come with consumers and banks,” he says. “This country is going into a 10-year decline. Living standards will never be the same.”This outlook is based on the following main points: * With the unemployment rate rising into double digits – and that’s not counting the millions of “underemployed” Americans – consumers are hitting the breaks, which is having a huge impact, given consumer spending accounts for about 70% of economic activity. * Rising unemployment and the $8 trillion negative wealth effect of housing mean more Americans will default on not just mortgages but student loans and auto loans and credit card debt. * More consumer loan defaults will hit banks, which are also threatened by what Davidowitz calls a “depression” in commercial real estate, noting the recent bankruptcy of General Growth Properties and distressed sales by Developers Diversified and other REITs. As for all the hullabaloo about the stress tests, he says they were a sham and part of a “con game to get private money to finance these institutions because [Treasury] can’t get more money from Congress. It’s the ‘greater fool’ theory.””We’re now in Barack Obama’s world where money goes into the most inefficient parts of the economy and we’re bailing everyone out,” says Daviowitz, who opposes bailouts for financials and automakers alike. “The bailout money is in the sewer and gone.”

Obama and Geithner Are Bigger Scammers than Madoff

If the goal of Tim Geithner and other regulators was “to rip off the American taxpayer for the benefit of the least-deserving wealthiest people you can imagine, well – mission accomplished,” Black says. While much of the focus is on the stress tests and banks’ efforts to raise cash, the real story is Geithner’s Public-Private Investment Program (PPIP), says William Black, an Associate Professor of Economics and Law at the University of Missouri – Kansas City.The PPIP is the “greatest boondoggle in the history of the world,” says Black, a former bank regulator who was counsel to the Federal Home Loan Bank Board during the S&L crisis. As occurred during the S&L era, Black says the PPIP will allow banks to exchange “trash for cash” and turn “real losses into faulty gains.”

Vodpod videos no longer available.

Jim Rogers says “The Dollar is Doomed”

Jim Rogers says “The Dollar is Doomed”

Elizabeth Warren – Americans’ Trust “Shattered”

Americans’ trust in the financial system has been “shattered” in the past 18 months, says Elizabeth Warren, the Harvard law professor who chairs the Congressional Oversight Panel. She says we’re on our way to restoring that trust, but only as the nation’s elites wake up to a new reality:“What we’re having to do is change an entire culture.

Let’s be clear:  The folks who’ve been running these multibillion-dollar institutions – they are accustomed only to talking to other people who run multibillion-dollar institutions. And the rest of you can stay far, far away. What has fundamentally changed is they’re now taking taxpayer dollars. And the taxpayers think that gives them a seat at the conversational table and the decision-making table. And it’s taking a while for those CEOs to figure out the game has changed. And I do believe the game has changed.”

Vodpod videos no longer available.

Elizabeth Warren

Warren acknowledges that some Wall Street CEOs keep acting as if the old rules apply.

She is appalled at Wall Street’s continued practice of handing out oversized bonuses, as evinced by the latest revelations about AIG’s 2008 pool or recent increases in bonuses across the industry.

The idea that firms need to pay up to retain top talent “carries zero” weight with the bailout monitor, who also disagrees with the criticism the Obama administration is overreaching in its dealings with Wall Street. The president, she says, is calling shots as a major shareholder, representing the taxpayer.

“We’re going from a world in which folks at the top only talked to each other, and maybe their regulators on occasion,” Warren says. “It was a very quiet and very private conversation involving billions of dollars. Once you take taxpayer money…. it’s a three-way conversation.”

In that light, Warren believes there will be more public “conversations” like the AIG hearing. She believes faith in the system may be restored by a modern version of the Pecora Commission, which investigated the banking industry after the 1929 crash, although she dodged our question as to whether she would want to lead it, as some have proposed.

Jeremy Grantham – Wild Stock Ride Ahead

Jeremy GranthamA large rally here is far more likely to prove a last hurrah … a codicil on the great bullishness we have had since the early 90s or, even in some respects, since the early 80s.  The rally, if it occurs, will set us up for a long, drawn-out disappointment not only in the economy, but also in the stock markets of the developed world.

From The Business Insider, May 7, 2009:

Jeremy Grantham was one of the few forecasters to call the crash, He was also one of the few to call the bottom two months ago–publishing “Reinvesting While Terrified” on the exact day the market bottomed.

And now, in his quarterly letter, the great Grantham has a surprise for those expecting a return to unremitting gloom: He’s (mostly) bullish!

Yes, stocks have once again reached fair value, which means there’s no enticing valuation opportunity.  But what the bears are missing, Grantham says, is that the entire world is now pumping more stimulus into the system than the entire world has ever seen.  And stimulus has a much bigger impact on stocks than it does on economies, Grantham says.

Alas, all is not champagne and roses.  After the market enjoys its little rocket ride through the end of the year, when everyone is finally certain that it’s not a sucker’s rally but a great glorious new multi-year bull market, stocks will crash and stay in the dumps for the better part of the decade.  So enjoy the ride while you can.

Excerpt from Grantham’s Q1 letter here.  Full letter from GMO.com embedded below.

Just bear our two principles in mind.  If the stock market is many times more sensitive to financial stimulus in the short term than the economy is [Grantham’s data suggests it is], then we could easily get a prodigious response to the greatest monetary and fiscal stimulus by far in U.S. history.

Second, if you don’t think there is a special, one-off, super colossal dose of moral hazard out there today, you are sadly uninformed.  The moral hazard in play today is of a massively larger order than any we have ever seen.  (But given how strangely selective the moral hazard or bailouts have been, it is enough to make those susceptible to conspiracy theories think in terms of a financial mafia led by You-Know-Who.  Too much seems to depend on which friends you have.)

So by analogy to the normal Presidential Cycle effect, driven by stimulus and moral hazard, we are likely to have a remarkable stock rally, far in excess of anything justified by either long-term or short-term economic fundamentals.

My guess is that the S&P 500 is quite likely to run for a while, way beyond fair value (880 on our revised data), to the 1000-1100 level or so before the end of the year. (For the record, I presented this case six weeks ago in Europe at 725 on the S&P, but was sadly distracted in my quarterly letter writing by a trip to Bhutan.  Poor thing.  I won’t complain, though, since my “Reinvesting When Terrified” was posted on the day the market hit its low.  You win some and you lose some.)

The market always anticipates an economic recovery and, sometimes, it must be admitted, there are several false moves (“suckers’ rallies”) before the recovery takes place. The current stimulus is so extensive globally that surely it will kick up the economies of at least some of the larger countries, including the U.S. and China, by late this year or early next year.  (This seems about 80% probable to me, anyway.)

Anticipating this, we should expect a stock market recovery – which normally leads economic recovery by six months, plus or minus two – sometime between two months ago and, say, August, which the astute reader will realize implies that this rally may already be it.

This was part of the logic behind my March posting, “Reinvesting When Terrifi ed”:  the uncertainties of the economy are so great that when the uncertainties of the stock market’s anticipation are laid on top of them, you simply must have big ranges of outcomes and hedge your bets.  Unless you have extreme luck or divine guidance, you will never catch the low.

Alternatively, there is still time – just – for another freefall leg, but time is running out.  Investor confidence is still fragile, and should we get a series of particularly shocking data points, which, in the unique position we fi nd ourselves is quite possible (say, one out of three), then confidence could crack one more time and the market could go to a new low before the major anticipatory rally I’m describing.  (This would make the current rally a short-term head fake.)

In a rally to 1000 or so, the normal commercial bullish bias of the market will of course reassert itself, and everyone and his dog will be claiming it as the next major multi-year bull market.  But such an event – a true lasting bull market – is most unlikely.

A large rally here is far more likely to prove a last hurrah … a codicil on the great bullishness we have had since the early 90s or, even in some respects, since the early 80s.  The rally, if it occurs, will set us up for a long, drawn-out disappointment not only in the economy, but also in the stock markets of the developed world.

For the full post including the May 2009 report, click here.

Obama empties out the nation’s purses

Obama, in his first 100 days will add more to our nation’s public debt than all previous presidents combined.

When Obama said, “It’s time for change” he meant it’s time to drop your hard earned coin into the government’s coffers!

WASHINGTON (AP) — Republicans say President Barack Obama’s first 100 days in office can be summed up in three words: spending, taxing and borrowing.

In the party’s weekly radio and Internet address, Rep. Lynn Jenkins chided Obama and Democrats in Congress for pushing through a $787 billion stimulus package and a $3 trillion federal budget for next year that she said will waste taxpayers’ dollars and burden future generations.

“The plans they’ve passed in the first 100 days will add more to our nation’s public debt than all previous presidents combined in 200-plus years,” said the Kansas Republican, a former state treasurer. “They’ve taken away President Obama’s promised middle-class tax cut and paved the way for a new national energy tax to be paid by every American who dares to flip on a light switch.”

Pointing to the stimulus package, Jenkins contended millions of dollars have already needlessly gone for a homeless program in a town which doesn’t have such a problem, an artwalk in New York as well as sidewalks and trash cans outside a Michigan casino.

“This bill was supposed to be about jobs, but it’s gone off the rails in practically no time at all,” she said. “It’s quickly turning into a symbol of everything wrong with Washington, D.C. — unchecked spending, no accountability and oversight.”

Jenkins said Republicans believe they can help rebuild people’s savings, revitalize the housing market and create “twice as many jobs as the Democrats’ ‘stimulus’ at half the cost.”

“Middle-class families and small businesses across America are tightening their belts and making sacrifices each and every day during this recession, and Republicans believe that it’s time for Washington to do the same,” she said.