Three terrific charts, from Ron Griess of The Chart Store tells the tale of the current banking sectors:
I suspect this writer is not referring to ALL comments, just some of the less thoughtful ones:
“I basically like “comments,” though they can seem a little jarring: spit-flecked rants that are appended to a product that at least tries for a measure of objectivity and dignity. It’s as though when you order a sirloin steak, it comes with a side of maggots.”
- Gene Weingarten, columnist for the Washington Post, on how the Internet is changing print journalism.
The problem is the people that vitriol is directed at won’t recognize themselves as the maggots . . .
Floyd Norris digs up the dirt on US income, via the SOI Tax Stats of the IRS:
- In 2008, Americans reported $8.4 trillion in total income, down 4.6% 2007.
- Inflation adjusted, that is down 8.4% — the sharpest decline in total income since 1990.
- Biggest source of decline: Falls in Investment Income and sharp drops in Capital Gains.
- total wage and salary income was +1.9%; adjusted for inflation, it was -1.9%.
- Tax returns of $1 million plus fell by 22% to 321,294.
- 13,480 tax returns that reported income of more than $10 million — 36% smaller than the prior year.
- In the above $10m+ group, of the $400 billion in income was reported, only 19% came from wages and salaries, much less than cap gains (despite bad stock market).
- Tax returns with negative income (realized losses > than total income) leaped 31% to 2.5 million.
- 462 returns that reported some income from gambling, totaling 2.6 billion, or $5.6 million per return (average).
Fascinating stuff . . .
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Source:
In ’08 Downturn, Some Managed to Eke Out Millions
FLOYD NORRIS
NYT, July 23, 2010
http://www.nytimes.com/2010/07/24/business/economy/24charts.html
During the final days studying abroad, Alex Silver took 7,757 individual photographs and created this time lapse-video as a tribute to London.
You’ve Got to Love London from Alex Silver on Vimeo.
Music: You’ve Got the Love by Florence and the Machine
Some Thoughts on Deflation
July 24, 2010
By John Mauldin
The debate over whether we are in for inflation or deflation was alive and well at the Agora Symposium in Vancouver this this week. It seems that not everyone is ready to join the deflation-first, then-inflation camp I am currently resident in. So in this week’s letter we look at some of the causes of deflation, the elements of deflation, if you will, and see if they are in ascendancy. For equity investors, this is an important question because, historically, periods of deflation have not been kind to stock markets. Let’s come at this week’s letter from the side, and see if we can sneak up on some answers.
Even on the road (and maybe especially on the road, as I get more free time on airplanes) I keep up with my rather large reading habit. This week, the theme in various publications was the lack of available credit for small businesses, with plenty of anecdotal evidence. This goes along with the surveys by the National Federation of Independent Businesses, which continue to show a difficult credit market.
Businesses are being forced to scramble for needed investments, generally having to make do with cash flow and working out of profits. This is an interesting quandary for government policy makers, as 75% of the “rich” that will see the Bush tax cuts go away are small businesses.
There was a great graphic (that I now cannot find) showing that all net new jobs of the past two decades have come from small businesses and start-ups. And yet as of now, when structural employment is over 10% (if you count those who were considered to be in the work force just a few months ago), we want to reduce the availability of revenues to the very people we want to be hiring new workers, and who are cash-starved as it is.
It is not just that taxes will go from 35% to just under 40%. It is the increase in Medicare taxes coming down the pike, too. We are taking money from private hands, where it has the potential to increase productivity, and putting it into government hands, where it will do nothing for growth of the economy. There is no multiplier for government spending. And tax increases reduce potential GDP by a multiplier of at least 1 and maybe 3, depending on which study you want to cite.
I understand that taxes have to go up. I get it. But we would be better off having a discussion of where we want to tax dollars to come from before we risk hurting an economy that will barely be growing at 2% in the 4 quarter, and may be well below that. It is the increase in taxes that has me concerned about a double-dip recession.
That being said, the announcement by several prominent Democratic senators that they think we should extend the Bush tax cuts is significant. As I said a few weeks ago, we should not experience a double-dip recession absent policy mistakes. A slow-growth world, yes. But an actual double dip is rare.
If Congress were to extend the Bush tax cuts for at least a year, until the presidential commission on taxes is done with its work and THEN have the debate, it would make me far more optimistic. And it would be quite bullish for stocks, I think. Businesses would know how to plan, at least, for a year, and the economy would be given more time to actually recover. I am not ready to channel my inner Larry Kudlow, but from what we see this summer it would make me more optimistic and reduce the chances of a double-dip recession significantly.
Inflation in the US is now just below 1%, whether you look at the CPI, the Cleveland Fed’s measure, or the Dallas Trimmed Mean CPI. The Fed’s favorite, the PCE, is also approaching 1%. The Dallas numbers are a little behind, but they are at all-time lows.
The classic definition of deflation is an economic environment that is characterized by inadequate or deficient aggregate demand. Prices in general fall, and normal economic relationships start to fall apart.
I have no idea what is going on with these horrific blog advertisements, but I will have them straightened out when I return Monday.
This inludes those pushdown ads which are so annoying, the auto-run audio/video ads, and the parade of 4th grade level silliness.
As a long time Apple fanboy going back to my 1990 Mac Classic, I find this brilliant:
1. a creation myth highlighting the counter-cultural origin and emergence of the Apple Mac as a transformative moment;
2. a hero myth presenting the Mac and its founder Jobs as saving its users from the corporate domination of the PC world;
3. a satanic myth that presents Bill Gates as the enemy of Mac loyalists;
and, finally,4. a resurrection myth of Jobs returning to save the failing company…
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Source:
The Varieties of Religious Experience: How Apple Stays Divine
Alexis Madrigal
The Atlantic, JUL 23 2010
http://www.theatlantic.com/science/archive/2010/07/the-varieties-of-religious-experience-how-apple-stays-divine/60271/
Did you know that the FDIC is about to start issuing securitized mortgages as an investment instrument?
Neither did I.
But thanks to Barron’s, we now know that the SEC has approved a “pilot program” for securitization. The reason for this is of course cash. So far, the FDIC has closed over 300 failed banks, draining its cash reserves. For their troubles, the FDIC now owns over $37 billion of bad-bank assets, worth, well, whatever someone else is willing to buy ‘em for. Best guess is from 10 to 50 cents on the dollar.
Hence, the new Securitization Pilot Program. According to Barron’s, the FDIC will be able “to push much of the losses off its books, thanks to the U.S. guarantee of principal and interest.” When the program officially launches, the first issue will be a $500 million in paper. These notes are backed by loans that are bundled into agency-administered pools.
The legality of this action is confirmed by Westlaw, which notes the SEC “confirmed the registration exempt status of senior certificates issued by a mortgage trust established by the Federal Deposit Insurance Corp.’s (FDIC) pilot securitization program. The senior certificates are exempt from registration because they will be considered guaranteed by an instrumentality of the United States.”
If you want to get even more granular, then the Bank Digest has the specifics:
The SEC responded to a Federal Deposit Insurance Corp. letter seeking an interpretation of Section 3(a)(2) of the Securities Act of 1933, as it relates to the exempt status of certain senior certificates to be issued by a mortgage trust established pursuant to the FDIC’s pilot securitization program, the SEC has concurred that the senior certificates will be considered guaranteed by an instrumentality of the United States for purposes of Section 3(a)(2).
No word on whether Moody’s or S&P will be rating these . . .
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Sources:
Uncle Sam Rides Again: Banking on a Bailout?
JACK WILLOUGHBY
Barron’s, JULY 24, 2010
http://online.barrons.com/article/SB50001424052970204078204575377281587827838.html
Federal Deposit Insurance Corporation Pilot Securitization-Guaranteed Senior Certificates
FDIC Legal Division, July 12,2010
http://www.sec.gov/divisions/corpfin/cf-noaction/2010/fdic071210-3a2-incoming.pdf
Response of the Office of Chief Counsel
Division of Corporation Finance
Securities Act of 1933 Section 3(a)(2)
July 12, 2010
http://www.sec.gov/divisions/corpfin/cf-noaction/2010/fdic071210-3a2.htm
"I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." -Thomas Jefferson (letter to John Taylor in 1816)
After 3 quarters in a row that averaged just 1.2%, Q4 GDP grew 2.8%, a touch below expectations of 3.0% BUT Nominal GDP grew well below forecasts. Because the price deflator was up just .4% vs the estimate of 1.9%, Nominal GDP was up 3.2% vs the estimate of 4.9%. Personal Consumption rose 2.0% vs the forecast of 2.4%. Fixed Investment rose 3.3% helped by a 5.2% increase in equipment and software spending and residential construction rose by 10.9%. Trade was a slight drag on GDP growth and government spending was as well led by a 12.5% decline on national...
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