Postscript To California Dreaming

How about this from the Times:


Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.

With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.

In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.

The potential for rapidly escalating interest payouts is just one of the wrenching challenges facing the United States after decades of living beyond its means.

Let's say the forecasters get it right for once. Think about $700 billion just in INTEREST expense. It's almost unfathomable. I know the political pundits will heap a lot of blame on the current Administration and while I have my problems with the direction this Administration has gone so far--this financial catastrophe didn't just happen. It's been years in the making.

California Dreaming

There is a simple reality that we as a society are having a tough time grasping. It doesn't matter, Federal, State, County or Municipal: our collective governments are all spending far more money than they have available and even if they don't want to acknowledge it, are all essentially bankrupt.

It's with that background that the following stories out of California this week have me incredulous. We have students at UCLA protesting upcoming tuition hikes ( I wonder how a 32% increase gets figured in the CPI) but at the same time the state of California is trying to get a handle on a $21 billion budget deficit. It doesn't get any better on a municipal level as San Francisco is staring square at a budgetary disaster or so says Steve Kawa, Mayor Gavin Newsom's chief of staff.

" I don't even know if I have words to describe how bad this is,".......

Next year's budget deficit is likely to top $400 million, Kawa said. That forecast could get even worse with federal stimulus money coming to an end next year and the state likely to help balance its own budget woes by cutting money sent to cities and counties.
"It may be the perfect financial storm," Kawa said. "It's going to be incredibly difficult to find a way to balance next year's budget without some severe impacts."

It gets even better. Check out this story in today's NYTIMES, With F.H.A. Help, Easy Loans in Expensive Areas :

SAN FRANCISCO — In January, Mike Rowland was so broke that he had to raid his retirement savings to move here from Boston.
A week ago, he and a couple of buddies bought a two-unit apartment building for nearly a million dollars. They had only a little cash to bring to the table but, with the federal government insuring the transaction, a large down payment was not necessary.

Great. It doesn't take a genius to figure out how this will end. Speculators praying for a real-state uptick on the back of the taxpayer. I think more pain in on the way.

Trade Shows in the Second City

When I started this blog one of my intents was to focus on the B2B world. As time has gone by my posts have tended towards economics/politics. Here's a brief return to original intent.

As an amateur student of business and markets a daily read of Mike Shedlock’s blog (Mish) has not only helped keep me out of investment problems in this tough environment but his writing has also generated money making ideas for me as well. In one of his posts over the weekend he addressed a situation that is dear to all of our hearts---some of the outrageous costs associated with Trade Shows. Worth a read by everyone who has to deal with this kind of stuff.

http://globaleconomicanalysis.blogspot.com/2009/11/conventions-say-good-riddance-to.html

http://www.wbbm780.com/High-costs-drive-major-trade-show-out-of-Chicago/5660124

It was a painful decision for the Chicago-based trade association, whose first trip here for its annual convention impressed its members, until they got the electricians' bills."Our costs were about $200,000 more," said Lieber. "So it went from $40,000 to $240,000 for the electrical work alone…….

The city got the word Wednesday that the huge medical convention wouldn't return. They're also sweating out a decision by an even bigger show.The International Plastics Showcase has been in Chicago since 1971, but now a spokesman says: "We are looking at other options."

Seventh Inning Stretch

This past World Series battle between the Yankees and Phillies was an entertaining match up as far as baseball goes. Because I just don't have the patience to sit and watch a complete baseball game I'm a couple years removed from the pomp that accompanies a Major League baseball game.

What is the deal with the 7th inning stretch? I remember going to Memorial Stadium in Baltimore back in the '80's and being serenaded to "Thank God I'm a Country Boy" by John Denver as the game moved into the bottom of the seventh inning. It was fun and light-hearted.

What a different scenario now. As the Yankees left the field at the end of the top of the seventh inning the PA announcer asked all"to rise, take off your hat, and join in the singing of God Bless America." It was presented as a spiritual event. I guess there is nothing inherently wrong, but it reminds me of an experience I had while visiting the Soviet Union during the summer of '81. One evening our group attended a performance by the Moscow Circus and smack in the middle of the program was a PA announcement followed by a group of soldiers goose-stepping into the circus ring carrying various flags and banners to commemorate the heroes of the Great War ( which had been fought 35 years before). We as a group of Americans were struck with how out of place and strange the demonstration seemed. I got the same feeling last week as I watched this quasi-religious ceremony between innings. God Bless America was a song the Flyers used to dust off before must win playoff games as a good luck charm. If they really needed the game they would bring Kate Smith in to sing the song live. We've gone from that to an almost Leni Riefenstahl moment.

Very strange.

No Fever LIke Gold Fever!!!!

So, the yellow metal hit a new all-time nominal high in $US terms--over $1040 an ounce. All in all there really wasn't much hoopla in the MSM and for a long-term gold bull like myself, that is good news. I don't know whether this breakout is the result of future inflation fears, the alleged secret meetings of the Gulf States to create an alternative reserve currency to the dollar or just a further decline in confidence in "paper", but what I do know is that this action does not bode well for our economy and I would go so far as to say our society. Jim Sinclair, Mr Gold offers his assessment,
"The reason why I suggest that today’s market should scare you, and not be a cause for high five because of the implication of the event.

Hyper-inflation has always been a currency event, not an economic event. The currency event has always been, for whatever reason it occurred, a loss of confidence phenomenon. Clearly confidence in the US dollar and its management is slipping. Historically when this currency event comes about the transition is extremely fast.

We have been doing a countdown to the beginning of the end, or that process acceleration. The are 33 days to go.

Gold is then off to $1224, $1650 and then on to Alf’s numbers."


I have heard a few commercials on various radio stations advertising gold coins, but for the most part I'm hearing more stories about people selling their gold for cash now instead of actually going long. I know it's not scientific but it's enough to keep me long for the time being. I believe the yellow metal has a long way to go on the upside.

Not Change--More of the same

I was an early and vocal supporter of Barrack Obama's Presidential run ( to be exact I had two candidates, one in each Party--Obama on the Dem side and Ron Paul on the Repub side). I have also been a vocal critic of many of George W Bush's policies. One particular practice I find particularly odious is the so-called Signing Statement, whereby the President essentially says that he doesn't plan on adhering to the very law he is in the process of signing.

I found this recent article in the NYTimes disturbing.

President Obama has issued signing statements claiming the authority to bypass dozens of provisions of bills enacted into law since he took office, provoking mounting criticism by lawmakers from both parties.

President George W. Bush, citing expansive theories about his constitutional powers, set off a national debate in 2006 over the propriety of signing statements — instructions to executive officials about how to interpret and put in place new laws — after he used them to assert that he could authorize officials to bypass laws like a torture ban and oversight provisions of the USA Patriot Act.

I believe these Signing Statements were wrong when Bush did them and I believe they are equally wrong now that Obama does them. What has happened to the US Constitution?

GE -The Emporor Has No Clothes

The alleged magic of jack Welch looks now to be a lot of smoke and mirrors with the news out today that the company settled for $50 million with the SEC over accounting fraud in 2002 and 2003. The stories of quarter end shenanigans to "make a number" at Welch's GE are legendary. Typical of the way things work, now Jack's on the golf course and at big dollar corporate events while others are left to deal with the problems and soiled reputation that remains. This paragraph from the Financial Times report tells it all:

But the settlement reinforces the notion that GE’s focus on “making the numbers” every quarter – and investors’ penchant for rewarding the company for doing so – was a bull market phenomenon that was unsustainable over the long term

In my business world, I still see way too much emphasis on "making numbers" in the short-run rather than focusing on building long-term sustainability -- I hope this GE experience is a lesson to corporate America. It doesn't work in the long-run. The" make the numbers" mentality is another example of the delusional world we find ourselves circa 2009 America. Fast buck, no money down, bailout nation short cuts aren't going to get the job done and are likely to end in disappointment and disgrace.