naked capitalism

This post is by Jim Fitch of Some Assembly Required.

Cheer up, this may be the last crisis of the oil age.

Does This Dress Make Me Look Fat? The Fed needs to raise rates to combat inflation… while lowering rates to encourage economic growth. Congress needs to exercise fiscal responsibility… while bolstering the economy. Peak Oil means we must conserve energy and expoloit alternatives… while drilling for more crude. Why does anyone want to be president?

On the Trail: Obamma seems to have no idea, or far too many ideas, as to what the US response should be to the Russia/Georgia contest. McCain has but one answer, aggression everywhere. Both are wrong. The problem is that the US has no credible way to threaten Russia or support Georgia without making matters much, much worse.

Dominoes: Ever cheerful Nouriel Roubini sees a serous and protracted global recession, enveloping not just the US and the G7, but the entire Eurozone, the BRIC’s and everyone else.

Au Contraire: The markets seem to think the drop in crude oil prices is proof that there is lots of supply and that the peak oilers have been disproven. Not so, wild gyrations in price at the time of peak oil has been expected and predicted. The trouble is that whether this price gyration is a proof or disproof of peak oil will not be known until we can see today clearly in the rear view mirror.

Sad Fact: A toxic combination of $4 gasoline, voter anxiety and presidential ambition is making it impossible for this country to have the grown-up conversation it needs about energy.

Something to Chew On: Pilgrim’s Pride, the largest chicken producer in the US is losing money on every chicken it processes and will stop production at two plants, cutting employees by 2,300 while cutting production 11.5% this year.

Takes One To Know: Nobu Su, who owns 20 Very Large Crude Carriers, predicts that rental rates for oil tankers will triple by the first quarter of 2009, driven by a renewed jump in energy prices on increased demand and political instability.

Some Assembly Required reflects my somewhat cynical view of the world on a daily basis. Think of it as having coffee with a curmudgeon. I want to thank Yves for the opportunity to come over and play. I’m going home now. Come visit; bring your own coffee.

This post is by Jim Fitch of Some Assembly Required.

When someone tells you the current crisis is
“near the end”, ask them which end.

Resiliency : Proving once again their resourcefulness, American consumers ran up twice as much credit card debt in June as economists thought possible, increasing their total Visa bill to $2.59 trillion. And even with that, retailers continue to fail.

Participation: Some have pointed out that we are participating in spirit, if not in fact, in the oil miss-adventure in the Caucasus. And that’s The Truth, or at least Pravda.

Clues: A 200:1 return. Pretty good for a ‘put’ with a nine day shelf-life. Too good, according to options experts, who suggest that the only way such a wager (against Bear Stearns) makes sense is if whoever put up the $1.7 million engaged in a very concerted effort to drive Bear Stearns out of business. They did – within 4 days – and gained over $200 million. Bears looking into.

You Can’t Get There From Here : Wachovia, fourth largest US bank, is getting out of the mortgage origination business in 19 states. The action is related to Wachovia’s struggle to swallow the bad debt it got when it spent $24 billion to buy doomed mortgage lender Golden West Financial. The bank is eliminating over 10,000 jobs. Wachovia stock closed up on Friday.

A Run Walk on the Bank: UBS reports that its private-banking clients withdrew about $5 billion from the bank in the second quarter, the first net withdrawal in eight years.

Click Your Heels: In another triumph of hope over experience, by holding overnight rates steady at 2% this week, the Fed once again put forth its belief that despite a cascade of horrific financial data, the US economy is bulletproof.

Spinning Top: The Russians are referring to the the troops that invaded Georgian South Ossetia as ‘peace-keepers’; the US holds the copyright on ‘liberators’.

Change for a the Dollar: The sudden run-up in the dollar suggests everything has changed. It hasn’t. The US is still massively in the red, and there is no prospect of its breaking even in the near future or paying back its debts in the longer term.

Click Your Heels: Most Americans believe that their consumerist way of life is going to last forever, that nothing can derail their economy, that the economists or the financiers or the government or god or somebody has decreed that collapse cannot and will not happen in the US. Wrong.

Years of Living Dangerously: Rules to live invest by; simple, basic, and apparently very hard to apply.

Some Assembly Required reflects my somewhat cynical view of the world on a daily basis. Think of it as having coffee with a curmudgeon. Come visit; bring your own coffee.

A post by Jim Fitch of Some Assembly Required.

The real purposes of a democratic society cannot
be achieved by violence and destruction. George Kennan.

Balance Sheet: The housing market continues to deteriorate. Unemployment is rising. National retailers are seeking Chapter 11. The economy is slowing, if not in recession. Auto sales are non-existent. Americans have drastically cut their leisure travel. Based on this declining demand, the price of petroleum has fallen. Yet “Stocks Soar as Oil Plunges“

Housing Plan: When I bought my first house, the rule was 20% down and not more than 2.5 times primary income. Of course those ratios were based on years of experience, not modern economic theory.

Everything’s Connected: The fighting between Georgia, Russia and South Ossetia doesn’t have anything to do with the Baku-Tiblisi-Ceyhan pipeline, does it? Can’t have an oil war and not invite the US. An all-out war between Russian and Georgia would be about as helpful to the world economy as the planned US/Iran conflict.

Pick A Number: How many investment houses will buy-back dubious paper, now that Citibank and Merrill Lynch have shown the way? (a) less than 5 (b) more than 9 (c) how many are there?

Nail, Horseshoe… Credit’s crumble is starting to squash US consumer credit. If American plastic dissolves, there’ll be nothing left but actual cash. No mortgages, no credit, no consumption. Imagine a world where people buy necessities for cash and save for everything else. ‘Save’ – it’s an old timey word; look it up.

Identity Crisis: Wal-Mart: anti-union, biggest of big business, doggedly anti workers-rights, champion of healthcare-less cheap labor is now one of the largest givers to the Democratic Party. Wonder what they expect in return? Worse, what have they been promised?

Kill Yourself After Reading : The Bush administration drew up a response to Congress’ questions about a new cybersecurity program, then redacted everything including what the program was designed to do, the names of the contractors who may or may not be working on whatever the program may be, and how much all this was going to cost. It did state, however, that the privacy of US citizens will be protected.

Prior Restraint: Displaying the courage that has become common in the US since 9/11, Random House has ‘postponed indefinitely’ publication of a novel about the Prophet Mohammed’s child bride, fearing it could “incite acts of violence”.

Bigger than a Breadbox: The US military is housing prisoners in cute little boxes, three feet deep six feet long and six feet high. The prisoners are checked frequently and revived when necessary.

Some Assembly Required reflects my somewhat cynical view of the world on a daily basis. Think of it as having coffee with a curmudgeon. Come visit; bring your own coffee.

This post is by Jim Fitch of Some Assembly Required.

Americans want cheap fuel, no matter what it costs.

Sign Here: JPMorgan, Citigroup, Morgan Stanley. The Usual Suspects. Now they want to take over all the pension funds. With Uncle Sam’s help, blessing, and taxpayer backing. Sort of a consolation prize for not getting their hands on Social Security yet.

Another Shoe: AmeriCredit announced a net loss of $150 million for the quarter. The interesting part is that AmeriCredit’s business is financing new car purchases, and loan originations were down 70% this year over last. Not so much the less lending, but the less buying.

The Road to Perdition: A group of wizards called the Counterparty Risk Management Policy Group III has unfolded the map to the future, where the financial collapse we’re drowning in today will never be repeated. One little problem: the wizards are from Goldman Sachs, HSCB, JP Morgan Chase, Merrill Lynch, Morgan Stanley, Bank of America – everyone but Mozilo and he probably submitted a brief. If these guys can lead us to the promised land, just who was it that lead us into the desert?

Preferences : Pimco’s Bill Gross says that by September Fannie and Freddie will issue preferred stock and the US Treasury will buy it. Mussolini said: “Fascism should more properly be called corporatism because it is the merger of state and corporate power.”

Midnight Sun Oil: Norway, the most conservative producer in the North Sea oilfields, will likely end petroleum exports by 2030. Its larger fields are declining at 13% a year. This announcement is in line with predictions made by the Export Land Model. Recall that the UK went from their peak production to importer in less than 8 years.

Mauled: The retailers got beaten up wholesale in July; 60% have reported disappointing results and missed analysts (lowered) expectations. From Wal-Mart and JCPenny to Target, Kohls, A&F, and The Gap. And that’s with the stimulus checks…

Some Assembly Required reflects my somewhat cynical view of the world on a daily basis. Think of it as having coffee with a curmudgeon. Come visit; bring your own coffee.

This post is by Jim Fitch of Some Assembly Required.

Examination of public debate in the US
reveals little but childishness.

The New Sub-Prime: FirstFed, 4th largest LA based bank, reports that 40% of its mortgages are at least 30 day delinquent, after ARM mortgages reset. These are mainly ‘payment option mortgages’ and the debtors are opting not to pay. Don’t worry, Bernanke and Paulson will soon explain that the problem is confined to the middle class market and won’t affect the real economy.

Fiscal Innovation: Morgan Stanley is pioneering a new form of home-equity lines of credit, which involves determining the amount of equity a homeowner has accumulated and not letting them borrow against it.

Joker Jack of Diamonds Turns out Saddam’s Intelligence Chief, Tahir Jalil Habbush, was working for the US all along. Before the war he told the US there were no WMD. The US paid him $5 million and put him in the ‘Knows Too Much’ protection program.

Down And Out: Market analysts breathlessly reported that the Fed didn’t raise interest rates. Unemployment is climbing past 5.5%, mortgage rates are climbing towards 7% and folks were worried about an increase in Fed Funds rates? Hello? Anybody home?

Speechless: The Treasury Department hired Morgan Stanley to advise it on Fannie and Freddie’s capitalization and ways to support their financial operations. Really. You can’t make this stuff up.

Batting Order: Twenty-nine states have entered the budget shortfall contest. Currently leading the pack are: CA with a 21% budget shortfall, followed by AZ at 18%, NV 13%, RI 12%, FL 11% and NY 9% It is expected that there will eventually be 50 entrants in the contest, many having constitutional prohibitions against unballanced budgets.

Belt & Suspenders: The Fed is not worried about inflation; the rest of us better be.

More Math: If a train leaves Detroit with $10 million in GM debt, how much will the total cost be for a five year credit-default swap? (a) $7.2 million – $4.7 up front and half a million a year for five years – or (b) Less than $5 million – because the CDS will pay off before the half-million annual fee kicks in.

Some Assembly Required reflects my somewhat cynical view of the world on a daily basis. Think of it as having coffee with a curmudgeon. Come visit.

This post is by Jim Fitch of Some Assembly Required.

Things could have turned out otherwise.

Pot / Kettle: Headline: Bush: China Must End Detentions, Ensure Freedoms.

Optimism: Why all the cheering for oil at under $120 a barrel? The price is falling not because some new supply has been found, but because the economies of the world are expected to crash and thus destroy some of the demand oil-based energy.

Either / Or: Stopping catastrophic climate change depends almost completely on stopping carbon dioxide emissions from coal before they trigger melting of the Arctic permafrost. The more coal we burn, the less chance our children have of a future. The industrial revolution is about to eat its children.

Quoted: “If the hard truth is that the federal government can’t do much to lower gas prices, the really hard truth is that it shouldn’t try.” Elizabeth Kolbert.

All The Tea In China: At the 95% confidence level, the Arctic holds about 3 billion barrels of oil. Another 12 billion barrels have a 50-50 chance of actually existing. The USGS reports a “mean” estimate of about 30 billion barrels – less than a one year supply for the world and a rather deceptive presentation of the facts. If this is our last, best hope, there is no hope.

Win – Win: Climate changeniks say coal-fired power plants are the bane of our existence. Energy experts and investors say that coal-fired power plants are the only viable solution to our energy problems. Both groups are right.

Public Debate: Proper tire inflation can improve gas mileage 3%, regular tuneups can add another 4%. The current Administration estimates that offshore drilling may meet 1% of our demand, 20 years from now. One one hand, reason. On the other, magic. We’ll vote for magic.

Scale: Osama Bin Laden knocked down a couple of buildings and killed some 3,000 US citizens. We launched two wars, destroyed the Constitution and created Homemade Security. Global warming will kill hundreds of thousands, destroy cities and farmland and forests and oceans and Bin Laden is still at large.

Some Assembly Required reflects my somewhat cynical view of the world on a daily basis. Think of it as having coffee with a curmudgeon. Come visit.

This a post by Jim Fitch of
Some Assembly Required.

Ever wonder where the adults have gone?

Coal Mine: Citigroup reports a $176 million 2Q08 loss on credit-card secutization. A pittance, but perhaps the canary for a business that previously generated over $3 billion in revenues.

Company’s Here: For the first time since the 70′s, inflation is rapidly rising around the world. Morgan Stanley reports double-digit inflation in over 50 countries. Seems globalism’s downside spreads faster than its upside ever did.

Tough Times: The wealthy have taken to telling their personal shoppers to look for bargains.

Tourist of Duty: Italy is deploying the Carabinieri, a paramilitary police force, in cities to help cut down on “the thieves, the rapists, the criminals.” Action is pending on the overpriced meals in Venice.

Catch The Wave: The crest of the next wave of mortgage defaults will either be (a) a larger number of foreclosures or (b) a smaller number of more expensive foreclosures.

Export Land Model: OPEC internal oil consumption is increasing at 8% a year and in ten years will match Saudi Arabian production. Since they cannot sell what they use at home, world net exports will fall 20% from their 2005 peak. That oil fell on world markets today tells us about the time horizon of world markets.

Pillow Talk: Jet Blue is charging customers $7 to use a pillow and blanket, $4 each if sharing the blanket… US Airways, charging $2 for water and but $1 for coffee is “vigorously moving towards more a la carte options.” And truth in pricing.

Some Assembly Required reflects my somewhat cynical view of the world on a daily basis. Think of it as having coffee with a curmudgeon. Come visit.

This a posting by Jim Fitch of
Some Assembly Required.

Some futures need throwing away.
William Gibson, Spook Country

Buy The Numbers: GM sold 2.29 million vehicles in the most recent quarter, loosing $6,756 a vehicle.

A Word From Our Sponsor: In the yelling match discussion over drilling in the Arctic and in the magical kingdom of ‘off-shore’, keep in mind that the oil being fought over may not exist. Estimates are based on USGS surveys that base ‘undiscovered oil’ on geologic suggestion. But the USGS previously thought there were immense supplies in the off-shore Baltimore Canyon, too, but $3 billion in dry holes convinced the majors that the were none. Carry on.

Passing In Review: James Quinn at Seeking Alpha ends a long and thorough and highly recommended review of the banking/financial situation with this: “When you see a bank CEO or a top government official tell you that everything is alright, run for the hills. They are lying. They didn’t see this coming and they have no idea how it will end.” Amen.

Millennium: Peace and Brotherhood are not about to break out in Iraq. The Kurds want to control Kirkuk and the northern oil fields, and the Arabs aren’t dumb enough to let them. In Anbar Province and the rest of western Iraq, the Awakening movement is wresting power from the Sunni Iraqi Islamic Party. The Islamic Supreme Council of Iraq (Iran’s horse in this race) has – with US blessing – made gains under Maliki that Muqtada al-Sadr’s Mahdi Army will reverse as soon as the US Army heads home. And any oil deal Bush has forced on Our Gang will be reversed as soon as Iraq actually becomes run by Iraqis. They all want the US to leave, and leave the spoils behind for them to divvy up among the survivors.

You Didn’t Hear It Here: Some view Meredith Whitney’s prediction that US house prices will fall 33% from 2007 highs as conservative; 50%, 60% and even 80% estimates have surfaced. S&P predicts a further 17% fall in the next 8 months…

The Bigger They Come: The Royal Bank of Scotland is expected to report the biggest loss in UK banking history, taking a hit of almost £6 billion from the credit crisis.

Some Assembly Required reflects my somewhat cynical view of the world on a daily basis. Think of it as having coffee with a curmudgeon. Come visit.

This a submission by Jim Fitch of
Some Assembly Required.

2007 was the year of subprime.
2008 seems to be the year of everything else

One Size: Pundits worry that Freddie, Fanny, GM, Citibank, and such are teetering on the edge, but are relieved that they are too big to fail and that Uncle Sam will (somehow) save the day. Why isn’t the concern that they, and the US, are simply too big to save?

Essay Question: In 500 words or less, describe Obama’s proposed $1,000 tax rebate based on a windfall energy profits tax without using the words ‘pandering’ and ‘ridiculous’. Usual prize.

Waiting Room: By 2011 the VA be able to accurately track every veteran who died for lack of care while the VA spent $11 billion improving its record keeping.

Dear Diary: Economist Paul Krugman says “I don’t think there’s any fundamental inflation problem, just a one-time hit on food and energy.” Just for the record, the hit was by a 32 ton cement mixer falling from a great height.

Indecent Proposal: Interesting that oil at $140 or, more accurately, gasoline at $4, can change core beliefs. In California and Florida, a majority of voters now support drilling off the coast.

Peak Travel: Even with higher fares, airlines are charging for suitcases, coffee, water. And going broke. Air travel is perhaps the poster child for what the End of Oil will mean. Not the end of travel; the rich and politically prominent will still travel, but the rest of us will slowly lapse into a 15th century parochialism, seldom traveling more than 25 miles from home.

Third Degree: Researchers say that examination of 30 billion ‘instant messages’ sent during July 2006 showed that we are all Kevin Bacon. Results of NSA’s examination of the same 30 billion messages have not been released.

Some Assembly Required reflects my somewhat cynical view of the world on a daily basis. Think of it as having coffee with a curmudgeon. Come visit.

The economic principles justifying free market
globalization have the complexity and accuracy
of an armillary sphere.

Translation: “We expect the second half of 2008 will be more challenging than the first half as economic and credit conditions weaken,” said Ford marketing executive Jim Farley. The term ‘more challenging’ means ‘we’ll probably double our losses.’ Goldman Sachs agrees.

A Name You Can Trust: In 8 months in 2007, while subprime mortgages were heading for foreclosure and subprime lenders were heading for bankruptcy, Merrill Lynch happily bundled up and sold $30 billion in CDOs that, like rotten offspring, are likely to come home.

Headline Only: China Manufacturing Shrinks for First Time on Record.

Qualifications: Some are saying that Obama cannot be elected because he’s too slim, while the electorate is mostly overweight. He’s also too intelligent and too handsome. We like Bush, he’s like us. So much for the concept of the informed electorate and the virtue of popular democracy.

Orwell Meets The Red Queen: The Bush administration has redefined abortion to include everything up to and including condoms, then says it wants to make sure that religious nuts have the right to impose their beliefs on everyone else. About 200 more days, if you’re counting.

First We’ll Feed the Lawyers: Citigroup faces a formal SEC probe into misrepresentations in the sale of auction-rate securities. So far Massachusetts, New York and Texas have piled on.

Messing-Up Accomplished: The Taliban is regaining control of large areas of Afganistan. Bin Laden remains at large. Sadly, “there has been a surge in the number of civilian casualties caused by all sides.”

A Little Sleaze, Pleaze: Ken Wilson, the Goldman Sachs banker who is joining the US Treasury to help the country through the financial crisis, is expected to take a temporary post that will subject him to less stringent ethics rules than many other high-level officials.

Some Assembly Required reflects my somewhat cynical view of the world. Think of it as having coffee with a curmudgeon. Come visit.

“Milton Friedman’s misfortune is that his economic policies
have been tried.” – John Kenneth Galbraith

Oracle: Oppenheimer’s Meredith Whitney – whose credibility exceeds most Wall Street CEOs – has a litany fit for a Cathedral door: The crisis is less than half over, bank assets are still marked at unworldly levels, capital to rescue brokers is like hen’s teeth, there is no quick fix and probably no slow fix, banks are seeking band-aids, not money to lend, at least 25 large investment firms will need cash infusions soon, Fannie and Freddie are simply larger versions of all the rest. And more… or less.

Watching Wait : A study by Johns Hopkins predicts that “most adults in the U.S. will be overweight or obese by 2030,” which is a definite improvement over the ratios I saw at Wal-Mart today.

Not Certified: As long as Bush and Bernanke can keep labor from asking for more, they can pretend that inflation is ‘under control’. But the dreaded COLA’s are making their way back from 1980′s exile and bringing with them 6% and better inflation.

Under The Bed: Sub-prime defaults seem to be declining, just in time for Pay Option ARMs to crawl out and continue the nightmare. Elsewhere, MBAA reports mortgage apps dropping to a five year low.

Ethanol, explained: “There are 21 farm states, and that’s 42 senators.” Bob Dole.

Wrong Question: A lot of time and blather is being spent trying to figure out what the car of the future will run on. It would be much better spent if we’d admit there isn’t a future car and that our basic assumptions about society and economics need examination.

Paranoia: Since Reagan’s first election, government economic policies have brought us an unbroken string of terrible economic events. Is it possible that they have not been trying to save us, but are intentionally liquidating the country? If so, this is not failure, but an unparalleled success.

Some Assembly Required reflects my somewhat cynical view of the world. Think of it as having coffee with a curmudgeon. Come visit.