Credit markets still dicey

Money market funds today generally yield nothing, one basis point, five basis points, maybe ten, while short term bank CD's pay only 30 basis points. Today the Schwab and Fidelity New York Muni money market funds yield that one basis point, a ludicrous tax efficient investment. Schwab pays 10 basis points on its money market fund for high net worth clients and E-Trade pays five basis points. Fidelity is now paying 40 basis points on its advantaged money market fund.

There is no yield out there at the moment for retail investors, and it's a little puzzling. E-Trade unequivocally wants to force all clients into its bank charter, and a yield that can be much higher, while building its deposit base, a necessity given its troubled situation. Schwab, Barron's recent high profile of Charles Schwab aside, is positioning itself for a sale to fund his charities and his family. Schwab is milking its franchise and using more advertising than any other broker to build its client base, an important measure in any sale. HSFB here we come. Morgan Stanley Smith Barney has a three basis point yield on its core bank deposit program, but will at least discuss a DBScudder fund that will yield 30 basis point, an extra few sandwiches during the year.

The fact is that I do not understand this well at all, and it is a little unnerving. It's good news for the stock market, commodities markets, and corporate bond markets because anyone awake must go elsewhere to put money to work. It's not good news for anyone looking to preserve a nest egg and avoid risk after the debacle we have just experienced in the financial markets. Is it possible to go to negative yields in money market funds, that's a strange thought, as in paying for the right to get your money back safely.

Meanwhile, banks are in a resurgance, paying 75 basis points for FDIC insured money at Chase and paying 95 basis points at BofA for a hybrid CD/market fund. Creating as many different deposit titles at banks is now worth the effort.

Calibrating and Crafting and Utilizing, with Traction

Some years ago in the corporate world there was an outbreak of corporate-speak that was viewed as intelligence by the heads of some major corporations. It is disturbing to the nth degree to see this language now showing up in the Obama administration. The President said that he did not properly "calibrate" his remarks on the Harvard Professor issue with police, "crafting" remarks is now part of the administration's dialogue, and the word use is no longer long enough, "utilize" please. Fancy words get "traction".

This may seem meaningless, then again words have meaning.

What to worry about with Obama's ambitious plans

It is reasonable to support the Obama administration intentions and be completely frightened by the possible results.

We know that about one third of Americans pay no tax, with the exception of the large,strange, and completely antiquated social security tax on any income. We know that including social security more than one third of Americans receive some form of transfer payments from the government.

Obama plans and local government plans to increase tax revenues are a mite bit troubling. They focus on what might be called the upper middle class, not rich but done well. There has been a massive amount of wealth created in this country for lucky or smart individuals that will, practically speaking, be unaffected by what Obama does. If you have 20 million dollars in liquid securities or a family legacy bound up in pre-90's law trusts, there's little to worry about as always. Some extra costs may hurt the pride but not the day to day.

What Obama is proposing will not hurt the rich in any material way, but may go some distance to destroying the great pride of America, a vibrant middle class.

This is hypothetical. Take a look a the New York city area. While the numbers may stagger those elsewhere, with a family of four an income of $250,000 with both parent's working is just about necessary to have a middle class existence in a safe area with decent schools. On that income Obama is now proposing federal taxes in the mid to high-30% area, New York State is now raising state income taxes to over 9%, and the sales tax is around 8.5%. On top of that property taxes are off the charts, probably on average over $15,000 for the hypothetical family mentioned, and the federal benefit of these property taxes on Schedule A of the tax return are almost completely eliminated by the AMT(Alternative Minimum Tax). Add this all up and you get an effective tax rate at around 55% to 60%.

Try getting need based scholarships to offset $45,000 of annual college tuition costs per child on this supposed income---not possible, this hypothetical familiy is deemed wealthy.

The strength of the USA was built on a growing middle class in the 1950's, much of which was based on an industrial economy. With that industrial economy now less than 15% of GDP, and diminished by health benefit reductions and the demise of defined benefit plans, the service economy middle class needs attention and respect. The Obama proposals are laudable in their intention, but could or will bring further destruction to a pressured middle class. That, of course, would lead to an overwhelming Democratic bias of transfer payment receivers in the electorate, a cynical observation. His politics are Chicago bred. His intentions are just great. There are so many people living with hardly subsistence income that his programs are designed to help. This is a tough equation to deal with, however, and balancing the economy in the most effective way is not easy.

It's so sad that most opposition to some of the Democratic tax plans is so Fox news based, focused on fake "values" issues and on preserving every tax break and benefit for the extraordinarily rich people that this country's productive system has produced.

Equity market arithmatic

Talk of an equity resurgance, "record month, record quarter, etc.", rings hollow. Here's a simple reason.

If Janey owned a basket of $50,000 in equities in January 2008, it is likely that she owned only $25000 of equities in February 2009. That's assuming that her basket did not include hugely owned stocks like Citicorp, AIG, or Las Vegas Sands that went to almost zero, in which case her basket might be worth $20,000 or less. So all in all that's a 50% loss in the value of her equity savings, or more if she had some of the widely held bellweathers of the past. Now what does it take to dig out of the hole

Arithmetic says a %50 gain recoups just half of her losses, you know, a %50 loss requires double that percentage to regain the former value. So when the chair sitting grinners on CNBC say, at various intervals, that equities had a record quarter, or a record string of days of gains, it's irrelevant.

The market has been through a remarkably stressed and loss producing period. Any comparison now to normal "rebounds" is as meaningless as a comparison to most previous downturns. It will take a, or would I like to say there is much more room for, much more meaningful advance in equities to signal any real recovery.

"Jericho's Fall", by Stephen L. Carter

This is perhaps the worst book that I have ever tried to read.

Here's the story. Handed a 15% discount coupon for Barnes and Noble that needed to be used immediately, I hustled off to the local store to browse. In the new fiction section there was "Jericho's Fall" an attractive looking hardcover with a 20% discount that could be combined with our 10% members discount and the additional mentioned 15%. The back cover had unequivocal and reasonably intelligent sounding praise from the Washington Post, the New York Times Book Review, and the Wall Street Journal, among others, for the author's previous three works of fiction. Inside the jacket cover I see that he's some sort of distinguished Yale Law School professor with a bunch of legal books published as well. On the cover some dingleberry writer named Lincoln Child is quoted in bold type saying "the best espionage novel I've come across in twenty years". I'm in, hook, line, and sinker, buying into this marketing hoax.

Back at home, just a few pages into the book, I began to feel as if I'd chosen to go to a movie because Pete Hammond of Maxim or Peter Travers of Rolling Stone is quoted in the blurbs as saying something like "the best thrill ride of the summer" or "you won't be able to catch your breath". That's how stupid I felt, really dumb.

Perhaps Professor Carter's other books are much better. Or perhaps with his Yale connections he just has an inside track for poor and hopelessly cliched writing. Perhaps this is an effort to hit the big time, a stab at the big money by designing a book that might be dumbed down enough to get best seller status, attract buyer's of film rights, off to screenplay land and out of staid New Haven finally. No sin in that but just don't pull a total head fake in the sales process. In fact, I don't know what's going on here.

What I do know is that this book is almost impossible to read. After the immediate disgust post purchase, it was my decision to keep the damn thing, give it a fair chance, and try to understand what was going on, why such an accomplished individual would come up with such drek. I did my best but after forcing myself to read it for several days, today on page 246 of a 351 page book I closed it, done. I could not care less about what happens, how it resolves. It was as if an outline had been created for a story and then it was a labor of labors to fill in the blanks. This book was so disjointed and the opposite of seamless that after reading several chapters in an evening the next morning I would need to skim those same pages in order to remember what was going on.

The awkward writing and unlikely plot have interspersed within them occasional ubiquitous literary references designed to reward those who wish to think that the book is worthwhile. There are reliably sown "pearls of wisdom" from the protagonist, little hard core sayings about life that are cliched and meaningless but again are by design, to simulate of book of merit.

As to this Lincoln Child, where has he been. Has he not seen Alan Furst's fascinating 1990's work or Charles McCarry's work from the 70's to the 90's. He is either a complete fraud or he has been locked in a closet reading comics.

It has been said here before that reviews of books are only meant to be positive, that writing a book is an accomplishment that should not be taken lightly, that criticism should reflect what has been achieved or not be here at all. Obviously an exception has been made here. The advertising, the marketing, for this book just triggered a reaction. If some of Carter's previous fiction is in the local library I guess I'm now obligated to take a peek and see if this really is an aberration.

Buying the book ultimately was my choice, a gullible enthusiasm overcame common sense, and Knopf and Stephen L. Carter did a real gotcha on me.

Politicians plague firms that received federal funds

Members of Congress are participating in a free-for-all of requests,demands, and not so subtle coercion of the more than 600 companies that have received "bail-out" money. As unabashedly stated to Bloomberg by California Representative Brad Sherman, a Democrat on the House Financial Services Committee, "It's natural for elected officials to make demands on corporate officers, and the money the government lent gives lawmakers new rights."

Representative Sherman may be correct in the cases of GM, AIG, and Chrysler, but otherwise he is not. The government is a lender with a guaranteed return but not a managing shareholder. Nevertheless some firms are reporting a ten fold increase in requests from various politicians. Detailed in a Bloomberg article is Senator Charles Schumer's call to Vikram Pandit, CEO of Citigroup, to intercede on behalf of a mall developer seeking a loan in declining upstate Syracuse, New York. Pandit eventually stood firm, to his credit, but given his precarious situation it is likely at his peril.

Even with the few firms that have more or less ceded ownership to the government, the congressional demands should be organized, and managed through some central oversight group rather than be a feeding frenzy for the friends of members of Congress.

This seems all so obvious, but the behavior of Congress that we are seeing is just an extension of an ingrained pattern of arrogance by some portion of our elected officials.

In Manhattan today

Rainy but perfect Manhattan day.

---The pedestrian tunnel between the main subway station at 42nd/Time Square and the west side subways is something that should be on every Michelin guide. Being a walker, it was new to me after almost 30 years here, but rain made underground the choice. Rainy and rush hour, almost a half mile walk packed with people of every nationality going both ways, with African American, Korean, and Trinidadian Indian preachers shouting about Jesus into the crowd every hundred paces, thousands of people marching in either direction, some crippled, some too overweight to move at any normal pace, some just not mentally there, but everyone trying to get from one side to the other, from the 1, 2, or 3, to the A, C, or E. It was just amazing and in my mind could perhaps have been in any major world city, maybe only in New York, a walk that should be on every tourist map, one that would be remembered, that no postcard could capture. Bruegel New York Live.

---Went to New French, a restaurant in the West Village that gestaltwise is our kind of place. Reviews are spotty because the service is so casual for a place with such good food. All you need to do is speak up. Where else could a slinky hipster waitress chunk your spouse on the shoulder in agreement about a comment on the artist whose painting covers one wall. Great window seat on Hudson, just a wonderful meal, and dripping wet in the most casual clothes you're at home.

---Lucked upon busker Mush Hosotani in Penn Station, it's been a long time, and the hard core Japanese blues guitarist with the "boogie shoes" was hitting his stride. With the steel tipped heels and toes on his boots he is a complete rhythm section pounding away, a cultural mystery maybe, a complete joy.

And then the trek home.

Train leaving the station...

Is it another illusion or is the equity market train just beginning to pull out of the station. That's the feeling at least for the last day or two. "All you need is faith" because "there's a train a-coming", well that may be inappropriate, so we will just wait. There is something going on here...

A positive credit market sign

Under a POA, a brokerage portfolio that has almost 3/4 of its assets in mortgage backed securities is managed here. Why a broker at Smith Barney in North Carolina built this type of portfolio for an elderly client is a mystery, or an outrage, or maybe a crime(three years ago the portfolio was almost 90% MBS). No matter at this point, it's done.

The mortgage backed securities in this portfolio all have prepayment mechanisms such that while they are all on their face 30 year instruments, in good times they would prepay in full within five to seven years, increments at a time. In bad times it would be slower, in horrendous times they would for the most part freeze. From January 2008 until April 2009 these securities were in deep freeze. The quarterly prepayment flow on, as an example, a $30,000 security would at times come in at less than $10. What is very interesting is that over the last three months the prepayments have begun again. These complex securities are beginning to behave, at least in this respect, as intended and as promised to retail investors who really had no idea what they were getting into.

From this perspective these cash flows are not only good news for the portfolio but also an extremely positive sign for the credit markets. There is activity! This most damaged sector of the credit markets is beginning to function! Much more improvement is needed but how can this not be a good sign.

It should be noted that these securities in a retail portfolio are still for the most part completely illiquid unless they are Fannie, Freddie, or Federal Home Loan Bank, all of which will move but only at material discounts. Everything else can hardly be given away, which is all the more reason that the beginning of prepayments is important. A handful of the securities managed seem to be dying and, while current on interest today, will likely go to zero at some point. Throwing them at the market today with a 20% effective yield finds no takers. Thank you Smith Barney.

U.S. is the engine, but Asia will lead

Whatever level of recovery develops in the next 12 months, and may that concept be so, the U.S. market is essential to rebuilding global confidence. A sense that the U.S. consumer in the aggregate has stabilized will be positive home and abroad. This evening Apple and Starbucks results reflected, at a minimum, that life has not stopped, that capacity exists for the right products and concepts.

As any recovery develops it is likely that despite the immense importance of a U.S. recovery, Asia will ride that to a faster pace of growth with better long term prospects. Why? In 1997 the Asia currency crisis had a significant impact on the global markets, really frightening, but on the ground in Asia it was terrifying. They did not forget that experience and Asian corporates in general came into the current crisis with good balance sheets, solid capital positions, meaning less debt. Most Asian governments have since avoided irrational and unexpected market interventions, Thailand being the exception, and there has been a slow expansion of the middle class, or maybe in parts of some countries it has just been a general advance from abject poverty to subsistance living. The point is that there has been economic progress.

In this current crisis, and before, government spending has been directed at major infrastructure development broadly in non-Japan Asia. In China, in particular, the reaction to current stressed global economic conditions has been a ramped up investment in infrastructure spending, more efficient power plants, power grids, roads, water systems, sewage plants, you got it, infrastructure for the future. Sure, there will certainly be see-through office towers in Beijing as they overbuilt for now, and hotels that are too advanced and big for the current economy, and all of that will retrench. The majority of the investment, however, has been made in the basics that will build growth for the future. The other aspect of this is that with a one party political system, unattractive as that is to most of us, they were able to adjust and invest rapidly as the economic crisis unfolded.

Asia will not come out of the economic downturn quickly without the U.S. leading the way. With their more conservative balance sheets, growing consumer base, and driven infrastructure development, however, the growth there may finally "decouple" from the U.S. as recovery begins to be apparent in 2010. When it eventually becomes based on real economic value-added productivity and not just cheap labor, their equity markets will blast off.

Possible CIT deal with bondholders

CIT's prospective $3 billion two and a half year loan from bondholders would keep it afloat for now, be wonderful news to many retailers and their vendors, and buy time and hope for a better solution. At three month LIBOR plus 10% the loan will drain all returns the company can muster, if any, into the fixed income market. The 100% rise in CIT stock today to $1.40 is simply a trader's relief rally given the view that bankruptcy was imminent late last week. It is not a wise bet on any return to shareholders any time soon, if ever, if the details of this rescue are correct.

Why would bondholders throw good money after bad in a case where the business model of CIT is no longer viable and the existing credit risk is huge. It's a play to save value in existing positions that could be decimated and to give time to find a buyer with a deposit system that can support the company's business long term. Two and a half years is a reasonable window within which that could happen, and investment bankers will be all over the opportunity. Bondholders could come out whole with interest on the $3 billion rescue and many more cents on the dollar on the legacy bondholdings. Dream of dreams, they could come out whole and even shareholders would participate in a deal.

Those possibilites are all an elusive recovery away, and for now the probable salvaging of CIT adds some stabilization to a segment of the economy, small commercial retail vendors, that could hardly stand another hit.

Paul Christopher books by Charles McCarry

Several weeks ago here a post on summer reading discussed crime books, a genre that's not for everybody but one that is a entertaining and occasionally enlightening fallback here. As an aside at the end of the post, Charles McCarry was mentioned as a recommended writer of political intrigue genre novels. McCarry had until recently been falling out of print but is having a resurgence now based on a publisher's new commitment to his books and his two revivals of the Paul Chrisopher series in the last few years.

Taking my own advice I have since read "The Last Supper" --- published in 1983 and more or less the centerpiece, or epic, of the Paul Christopher series, and compelling in many ways --- "Christopher's Ghosts" --- published in 2007 and interesting, but not up to his McCarry's earlier work --- and "Tears of Autumn" --- from 1974 and a fascinating fictional investigation into who was behind the assassination of President Kennedy.

Given McCarry's experience in the CIA, his knowledge of politics and history, and his credibility in both fiction and non-fiction, "Tears of Autumn" is a hypothesis that he clearly thought was somewhere near the target of fact. The specificity of the tale as it develops is either a result of great imagination or informed intuition, or more than that?

As an aside, again, to close, it now seems that I will pull out "Legacy of Ashes, the History of the CIA" by New York Times reporter Tim Weiner. This book was published in 2007 and, despite being exhaustively researched and written with talent, it was put on the bookshelf after being halfway through. The problem was his profound bias against everything that the CIA had done, which led to a counter-reaction on my part. It started early in the book with Weiner's description of the Marshall Plan, and his not disguised disdain for the discovered fact that some Marshall Plan funds were funneled to pro-democracy political parties in post-WWII Europe. Remember the history. There were openly far left political groups in many European countries outside of England, some even openly Bolshevick and Stalinist, and they could be supported by funds from the newly established Soviet Union. With a huge amount of new territory to exploit, rape, and pillage and little or no concern about the sustenance of his own people, Stalin the tyrant could access funds and people to support European communists at that time despite the huge losses to and significant destruction of Russia during the war. That the CIA and the U.S. government found a way to counteract his influence seemed laudable to me. Thank goodness, and who cares if the Marshall Plan wasn't all aid for basic supplies and redevelopment.

This observation led to a jaundiced view of the book that could not be shaken, so the book was shelved. Now it occurs that McCarry's novels could be a useful supplement to what Weiner writes. The McCarry books do not glorify the CIA other than to make it seem interesting, which is what all those generations of Yale graduates always thought. It all seems rather amoral and inefficient, with both good people and incompents taking part. With that thought digested, now it's time to go back to the Kennedy assassination period and see if any of Weiner's discoveries even indirectly point in the direction of McCarry's "Tears of Autumn" fiction.

A good week for equity markets

After the rally of completely oversold equity markets from early March into early June, recent weeks have been so lackluster that they have inspired the thought "why bother". Low volumes, uninspiring economic news, and a clouded consumer outlook sapped the energy of market participants.

This week was a relief. The overall economic and market news has not significantly improved but the earnings news from many corporates turned up only a few big disappointments. Most companies were meeting analyst's targets or modestly exceeding them, with GE a notable exception. This is likely to continue in the second half as analysts are totally gunshy about being seen as too optimistic about anything and for the most part there are no "axes" left on Wall Street who can take a stand and move the market, at least not up. The comparisons to third, fourth, and first quarter earnings to come are going to have headlines like XYC Corp. reports earnings up 50% because their year ago comparisons were so miserable.

There is no vibrant recovery in sight. Credit markets are functioning better, that's good, and equities are functioning too well, meaning too much dilutive issuance. Stimulus is still mostly just a plan, and government spending and taxation plans are too uncertain to be confidence builders. Shoppers are careful and savings are up. There are lots of moving parts to watch, but equities will rise again and make another dramatic move at some point and at least this week was a reminder of that.

"Whatever Works"

It was difficult to find a good review of this Woody Allen film starring Larry David, but in a mood with time on my hands I strolled down the hill to town and bought my ticket. What's not to like. It was terrific.

DiNapoli, Comptroller, 2010 ??

Saw this bumper sticker, minus the question marks, in a grocery parking lot today. This is a campaign for a job in New York State that is responsible for the New York State Pension Fund, one of the largest institutional investors in the world. This is a campaign, as always, for sole trustee of that fund. Comptroller of New York oversees all pension rules as well.

This may be the most corrupt job in America. DiNapoli, like the convicted Hevesi before him, and still investigated McCall before him, has no experience in investment mangagement, no possible idea of what he's doing other than being a politician with power over money. This job also has control over the so obviously and massively corrupt system of pensions which allows pay over the last three years of work to be the gauge of life long pension benefits. Hence the pervasive overtime of short timers, a trick so obvious that it is just blatant corruption. The Comptroller overseas such things as disability payments, as in the exposed but ignored fact that 97% of Long Island Railroad union employees retire on disability, despite working for one of the highest rated safety systems in the country. Photos of the disabled on the golf course are ignored, and these pensions are large, $100,000 per year plus and amazingly comprehensive health benefits for picking up tickets for 20 years.

No one in state power seems to want to downsize the powers of the comptroller, a significant lightweight politico. It's not personal. This system has been wrong forever. New York is an extremely corrupt state. The legal system is run completely by the lawyers, everything, on any issue, requires fault, meaning litigation. Every encounter with any state rule requires counsel, that means competing counsel to demand controversy and encourage judicial discretion, often meaning coercion and bribery. Something as simple as guardianship for someone with completely obvious dementia takes at least a year with attorneys on every issue, four in the case being experienced, plus financial advisors on the tab as well. In Virginia this takes at most six weeks, at less than 10% of the cost.

A starting point in the Comptroller issue must be a resolution to remove the pension funds from political control. Nothing is possible under the completely and bizarrely incompetent David Patterson but if he could be impeached... not possible I know, black, blind, and retarded is just too many covered classes, Spitzer was massively insecure... but in the future this seriously corrupt place needs change, or will the whole state just default to the New York City area, which has become an international city of wealth where the power of money and avarice competes to overrule the power of art and creativity, until catastrophe hits again.

Obama urges patience, Republicans respond with histrionics

Yesterday in his radio address President Obama stated that the stimulus plan was working as intended and that patience is required to see real economic recovery. The Republicans responded with politically charged misstatements and exaggerations.

As described here on Wednesday, there is effectively no "stimulus" plan underway, if "stimulus" is intended to mean new growth and opportunity as opposed to stopgap measures. The reasons for this are many, but one thing for sure is that it's by no means Obama or his administration that gets full responsibility for this. Dysfunction, acrimony, and incompetence have taken years to build up within our system and Obama's totally right in saying that patience will be required. He is, however, not at all forthright about addressing the status of "stimulus". He would rather, it seems, move on to health care, the environment, and other admittedly important issues than discuss what is required for economic recovery, what will work and importantly what will not work no matter how much people want to believe that Humpty Dumpty can be put back together again.

Representative Eric Cantor, the Republican spokesperson who responded, said that the stimulus plan was "full of pork barrel spending" --- $7 billion our of $787 billion is not bad and it's on the record that Republican's got a faceful from this trough as well --- "full of government waste" --- just as catch-slogan from the years of Bush incompetents running all major facets of our government --- "and massive borrowing cleverly called stimulus" --- Fed borrowing is part of their mandate as managers of the monetary system and these short term liquidity injections have been vital to getting world capital markets functioning again, albeit still not as smoothly as one could hope for. This has never been part of the stimulus plan nor has it been disguised as such. Cantor went on to say that the Obama administration's "economic decisions have not worked". What school of economic thought does this "rising star" among Republicans subscribe to, what economic plan of any type could work in the world's largest economy in four months.

Obama may not be completely straightforward or focused enough, but the segment of Republicans that Cantor represents are obstructionist. A strong reaction would suggest that they are shameless liars while a more moderate one would be that they are just old style politicos who refuse to join any coalition of sentiment or action to get this economy going again. It almost seems that they want failure,no matter the consequence.

They are informative in the sense that they are emblematic of the dysfunction within our system with their political mantra of keeping the message "simplistic, hostile, and personal".

Many Dems do the same dance but on corporate America.

Palin exits for now, Boehner ascendant

Sarah Palin's resignation as Governor of Alaska was unexpected. By God she is independent, so there you have it. She can make money with a book and on television or radio, or she can run a grass roots campaign for the 2012 Republican nomination, or she can really get back at the Republican establishment and run as an independent, or threaten to do so. Who knows. She's an action person, a vindictive wild person, an attractive charmer, and an Alaskan family person with all that apparently entails, and she is not a policy or process or information based person. She's made her statement and it's believable when she says that she "does not know what's next". What's next is something that would not have been remotely possible without John McCain's decision in September 2008.

That she could have been a leader of the Republican party was unlikely. There's been much media speculation about who the leaders of the Republicans really are, a default to Rush Limbaugh or Newt Gringrich?, but that's absurd. The real leader at the moment is John Boehner, the House Minority Leader, who opposes everything the Obama administration proposes and brings the votes to back it up. He comes across as tough, stubborn, unyielding, and highly political, but he does not come off as a resentful whiner like Mitch McConnell, the Senate Minority Leader. Boehner seems to be driven equally by Republican principles, someone define please, and an intense hatred for Nancy Pelosi, favor of course returned.

A lifelong native of southwest Ohio, otherwise known as the buttoned-down conservative Cincinnati area, Boehner has not historically been a favorite of the religious conservatives or xenophobes of his party. He has tended to favor business over orthodoxy. Now he is completely and totally ruled by an anti-anything-Obama approach. He does represent the fading Republican party in a way that could work with their transition from exploiting "values" fears over religion, abortion, guns, immigration, and gays, to being a resurgent party that bizarrely wants to recast itself as populist, standing up for the little guy against Wall Street and exploitive big business as well as against big government.

At the moment he's smart enough to not seek the role of Republican leader or do anything to suggest an interest. He's too intense, however, to be unaware of his potential within his party.

Equity markets reflect pervasive lack of conviction

Technology, financials, materials, energy, transportation, and equipment stocks are reeling. Basically anything having to do with growth is leaking, while fast foods and discount retailers are resiliant. This is a direct reflection of the market's growing loss of confidence in the effectiveness of any government stimulus initiatives.

Stimulus money to date has been spent to supplement state budgets for education and social services, to enhance federal transfer payments, and to prevent cataclysmic break-downs of AIG, Citigroup, Merrill Lynch, GM, and Chrysler. Most of this is necessary, but it is not stimulus. It allows already existing businesses, programs, and supplements to stay in place and survive the economic crisis. Stimulus in the sense of new spending for infrastructure development, green projects, small business development, rural and inner city entrepreneurial initiatives, or any other new growth development is for the most part all talk, all plans, no spending, no stimulus. As the world's largest consumer economy flounders amid dysfunctional execution of its stimulus plan, the world markets follow, and now we are again in a low volume equity market globally that lacks any enthusiasm.

Why the dysfunction. Why can't anything get done. How can administration officials and some Democrats in Congress possibly be calling for a second stimulus package when there has yet to be any "stimulus" from the one passed in March?

Is it simply the result of dysfunctional bureacracies built up at the federal, state, and local levels over many years, bureacracies in which delegation is limited, red tape is ubiquitous, and initiative is a path of much more risk than reward. Or can this culture have seized up in a way that's deeper than that, one reflected in the television shows that are watched, the reality show fixation, the lowest common denominator news programs that focus on entertainment rather than analysis, or the fiction best seller lists that are dominated by books written generally at a sixth grade level, entertainment for many but radically different from the middle of the last century.

Maybe that's a stretch and the key is the polarization of politics, the inability of Republicans and Democrats, liberals and conservatives, libertarians and fundamentalists, or whatever groups one chooses, to seek any common ground, and to hold not just differing views from each other but to be stridently hostile in supporting positions, positions that are more intuitively based resentment in one case, entitlement in another, than ones based on any thought process.

If the U.S. can pull out of this summer malaise, the world will follow. If the autumn just brings more talk and more delay, with stimulus efforts forecast to take hold by mid-2010, the market will not discount future cash flows in which it has no confidence. Stocks will languish.

Network news now officially dead, fittingly CBS leads the way

CBS evening news tonight began with 11 minutes on Michael Jackson. The network of Edward R. Murrow, Eric Sevareid, and Walter Cronkite chose this extensive lead above the Obama visit to and negotiations with Russia, the huge civil unrest in western China, and the upheaval in Central America with the ousting of Honduras's elected leader by the military. We have known that Katie Couric of CBS, Brian Williams of NBC, and Charles Gibson of ABC are each in their own way seriously limited in their knowledge and insight, news readers who don't seem to even know how impaired they are. CBS tonight, however, lived up to its trendsetter role of old and extended Entertainment Tonight by a half hour, and soon no doubt Ryan Seacrest will be the anchor.

"Gran Torino" and "Le fils de l'épicier"

These two films may seem to have nothing in common. They do, however, because they were both watched here this weekend.

"Gran Turino" has been the # 1 selling DVD since it came out, with #2 far behind. Being in the Netflix queue is hopeless. An infrequent visit now to Hollywood Video was the only way to see it. What a painful and contorted throwback of a film. Walt, the upright, disaffected, and grim man of principle who is the main character, is a caricature of a person that in real life does not exist, the sort of play on Marvel Comics that Harry Callahan represented. His overt but shucks it don't mean nothing racism is pablum for some Eastwood fans. That said, the movie's realism when it comes to the lives of immigrants and their joined at the hip requirement to deal with gangs spawned within their own ethnic group is unsparing and toughly, almost too toughly to be entertainment, realistic. It's a film that needed to be seen, and it's so distinctly American that why not on the Fourth of July. The allegorical resolution is open to interpretation by all, we get the classic Eastwood style as well, and a few great takes on the old Harry. Sell those DVD's.

Now why would this French film, translated "The Grocer's Son", be discussed here as well, other than same weekend viewing. There's a reason. Both have as one of the central characters an early old age man who has lived his life working hard, not expecting to be entertained or be happy or to find any answers, just wanting to be a vital part of some community of like minded stubborn folks. Both are alienated from their adult children and have a not completely irrational inability to relate to 21'st century social values.

"The Grocer's Son" is a small film, pleasant, slow on the uptake but with an easy evolution into a charmer. Cut down by a stroke, the hardworking father stays bitter, stays almost to the point of death by depression, until the acceptance of defeat, or it should be called love, pulls him through.

These are two completely different films. You will only once read anything that discusses them together. The cultural difference in the exaggerated resolutions, however, is something to think about, one so harsh, the other so humane.

"Secret, Profane, & Sugarcane", Elvis Costello

Picked this CD up at Starbucks a month or so ago and now realize that I really like it. At first there just seemed to be an overall good sound and a few catchy tunes but as a major house cleaning was underway today, set to music, it was obvious that this observation was an underestimation.

With most songs written by Elvis Costello and with the album produced by T Bone Burnett it's a winner. Burnett's productions have a distinct sound and he always adds a little writing and some occasional guitar work. His last major production was the Robert Plant and Alison Krauss collaboration, one in which he was leader of their touring band, and there were riffs there that are evoked on "Secret, Profane, & Sugarcane". Same for T Bone"s own albums as far back as ten years ago, a distinct sound, which is unusual for a producer these days.

Costello's voice works with Burnett's production and musicians, and some of the lyrics are perfect. There's even humor, so how about that.

"The women in Poughkeepsie...the girls in Ypsilanti..."

Closing was troubling, Obama's comments did not help

Following up on the prior post, the closing did not play out as expected here, and the result was "troubling". If the equity market had a chance of a late day salvage, it definitely could not happen after President Obama's 2:30pm comments.

Obama addressed the press corps and acknowledged his disappointment and surprise at the employment numbers. He stated the obvious in saying that a problem created over a number of years could not be solved in a few months and that while the day's numbers were poor, the 2nd quarter overall was an improvement on the first quarter. Switching gears quickly he then proceeded to discuss environmental policy and green initiatives, touting energy solutions businesses as an area that will be hiring many more people into jobs that will be long term and stay in America. With a group of executives whose companies are investing in green solutions surrounding him, he stressed their role in creating employment opportunities to address the problem so evident in today's employment numbers.

There were a number of reasons for investors to be befuddled by this performance. First, even many ardent supporters of significant changes in environmental practices admit that a transition of any consequence to wind, solar, and other power alternatives is a long term process, more dream than employment bonanza today. Why was this three quarters of the President's presentation today. Second, he did not make any substantive comment at all about the employment numbers, even dice and slice the numbers in the most general way to give the public a sense of perspective. And third, he did not address any of the initiatives underway through the economic recovery programs and how they had the potential to ease employment pressures in the next two to three quarters. He did not address the gorilla in the room. He talked about his environmental initiatives.

As to the recovery program's progress, it was politically astute to keep quiet. Of the $750 billion approved by Congress in March, the most quoted figure suggests that only $170 billion of that has been allocated to projects and relief thus far(could this possibly be true), and the word is "allocated", not necessarily spent. Concerning the $100 billion of distressed securities buying through the public/private plan announced by Geithner in February to relieve credit market stresses, it was announced today that a $20 billion program would soon be underway, five months later and $80 billion short of projections(this is definitely true). Both the administration and Congress poisoned the atmosphere for such a plan with their anti-banking and anti-investor comments. "Politically astute to keep quiet", but every one who pays attention notices, and the market pays attention.

One administration official, when asked, said today that it was too early to say whether more government relief would be necessary, but that all options were open. The obvious response to the administration and Congress that should be "do the work and act constructively enough to deliver on your commitments and invest the money that's already been approved".

It's 1pm --- do you know where your money is and what it is doing

In the early afternoon of this last trading session of a holiday shortened week the equity markets are off significantly. Finding a stock that is up at all today is almost impossible at the moment, so broad based is this sell-off in light of the various employment statistics reported this morning. While the unemployment rate at 9.5% came in slightly better than the 9.6% consensus forecast, so-called payroll numbers were much worse than expected by analysts.

The question here is not why the market is reacting negatively, that's to be expected, but why there is such alarmist commentary from every source in the media, from politicians, and from economists. Doesn't everyone know that employment statistics lag the beginning of a recovery by perhaps six months. On top of that it's the summer when slower activity in many businesses gives the opportunity for layoffs. On top of that the auto industry and all of its economic beneficiaries, not only parts suppliers but also food and retail businesses in affected areas, is seeing a totally predictable decline. And for one more on top of that, until the recovery is absolutely clear all businesses will pare back staff and risk going too far with the cuts, knowing that hiring back enough workers will be absolutely no problem this time around given the depth of recent economic stress.

The most troubling number was the average workweek, down to 33 hours, the lowest since statistics on this metric started in 1964. That basically means that the existing employment levels have plenty of room to expand productivity with no new hiring anytime soon, even as we're stuck with 9.5% unemployment and rising.

These employment statistics should not be expected to improve in the next two months as the rolling restructuring of the auto industry continues and as the pace of momentum from the government stimulus plans only slowly builds. We know that but isn't the market supposed to look at future cash flows. The autumn months always bring improved retail activity as families gear up for school and winter, and as those many people who choose to move in the summer address household needs.

The danger now is that investors will overeact to the summer's employment stats and create a negative momentum in the market, and that the government and politicians will think that more programs and more stimulus and more mandates on businesses will have any impact at all on the painful but needed process that the economy is going through. There might, of course, be an impact, but it could just be one that prolongs the problems.

With the long weekend coming it would be normal for the market, Dow down 177 now, to come back somewhat in the afternoon as shorts cover, take some gains, and then be able to relax out in the Hamptons over the weekend, not worrying about being caught in a Monday morning rally. No recovery in the afternoon would be troubling.