Wednesday, October 15, 2008

Sales Down, Costs Up, Uh Oh....

What turned what would've normally been simply a dreadful day into one of the worst days in stock market history, among other things, were the horrible retail sales numbers to go along with an unexpected rise in inflation. But since the Fed has stopped worrying about inflation, that shouldn't be a problem. We need to focus on growth, not the fact that pumping trillions of world dollars into the system will have massive inflationary effects and prolong this mess.

I was amused this morning listening to former Secretary of Labor Robert Reich excusing the excesses of the middle class over the last 8 years by blaming increased credit use on the declining wages of the middle class. He said it's not like these people were buying yachts and expensive cars, they just needed more money to support the same standard of living. Uh, as a matter of fact, it was exactly like that. Expensive cars, multiple homes, nothing is too good for me. I've been impressed a few times with Reich as he has set Kudlow straight from his permabull path, but this statement was ridiculous.

Scary article from the Washinton Post detailing how Robert Rubin and Greenspan repeatedly fought derivatives reform during the late 1990s. Brooksley Born, head of the Commodity Futures Trading Commission, had pushed to regulate in some way these obscure contracts only months before LTCM imploded in 1998. Even after this vindication, she was silenced and "deregulation" remained in vogue much to the joy of now defunct investment banks and hedge funds everywhere.

So many bad things are happening it's hard to spell them all out. Barack Obama has proposed a foreclosure moratorium for 90 days. As I've written here and to his campaign, maybe I would self impose a moratorium on my own mortgage payment. It would take a real ding to my credit score to even get noticed. Try missing at least 2 payments to put yourself on the map. Jack Guttentag of Yahoo Finance writes, "If I were a borrower with reduced income but with good prospects of recovery, I would make the payment out of savings, avoiding the hit to my credit. If I considered the prospects of recovery to be poor, however, I would stop paying and husband my savings. This would move me up on the servicer's priority list for special treatment. While it also moves up the hit to my credit, that is something that would happen anyway as soon as my savings were exhausted."

Anybody know where gold has been during this upheaval? Market down 700 and not even a small flight to gold? We'll see. I'm not naive enough to say the markets have nothing left as they change the rules daily, but these tactics can't go on forever without seriously damaging currency value. "Commodities will benefit the most from the coordinated bailouts because the plans are sowing the seeds of future poverty, fuelling an already raging inflationary fire, analyst Puru Saxena, CEO at Puru Saxena told CNBC on Tuesday." I agree.

With companies like Pepsi laying 3,300 people off, what comes next? Let's ask our government officials. California has gone broke and had to issue bonds this week after being denied funds from the U.S. government. Phoenix now has an unexpected $200 million shortfall because sales receipts are much lower than expected. Programs will get cut first, then jobs will follow. Once the grossly overinflated job creation numbers of local governments stop negating job losses and add to them, unemployment will go through the roof without wages to follow.

I attempted to add Daimler and Ryland to our shorts the last 2 days, but failed to chase higher prices. The opportunity on Daimler may be lost as it hit $40 briefly again yesterday. VNO has taken a $9 hit each of the last 2 days. But I'm not giving up on Ryland, would love to see it go near $20 again so we can watch its last breaths....

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