Objective Reality vs. Subjective Reality

# 031                                                                                                        May 26, 2009

By: Allen Wells

U.S consumer confidence has increased to the highest level since September.  According to Bloomberg.com, “Confidence among U.S. consumers jumped this month to the highest level since September, reflecting growing perceptions that the job market will improve… The Conference Board’s sentiment index surged to 54.9, higher than forecast and the biggest gain since April 2003.

U.S. Home prices fell a record 19.1% in the first quarter, compared with a year earlier, according to the national Case-Schiller home price index released today. David Blitzer, chairman of the index committee for Standard and Poor’s (compiler of the Case-Schiller index) stated, “we see no evidence that the recovery in home prices has begun.”

It appears to me the American people are confused (at least the ones being polled), unable to differentiate between subjective information and objective information. 

Subjective information is information based upon our opinions or “biased” information. Subjective information does not have to be grounded in fact, only in what we think or feel. Objective information is fact based information with factual and tangible references. We may not agree with the results of an objective statement, but the information is verifiable and grounded in fact.

For the record:

Objective information (fact based, tangible, able to be verified)

Home prices continue to fall, housing starts are now at an annualized 460,000 (+ -), down from an annualized 2.26 million in 2006.

Unemployment is at 8.5% (a government approved percentage), while “unapproved” estimates put the number of unemployed or underemployed at 15% (+). This is an average of at least 1 in 10 wage earning Americans’ out of work.

Payrolls fell by 539,000 in April, the fewest in six months.

The economy has lost 5.7 million jobs since December 2007.

Subjective information (opinions, biased, slanted, one-sided)

“We expect to have positive economic growth in the third quarter. The job declines will fade.” As stated by James O’Sullivan, as senior economist at UBS Securities, LLC.

“The share of consumers who said more jobs will be available in the next six months climbed to 20 percent, the most in more than five years.”

“The proportion of people who said jobs are currently hard to get fell to 44.7 percent from 46.6 percent.”

Do you see the difference between objective and subjective?

Where am I going with this? Those of you that know me personally know I am not a negative person. In fact, I have often been accused of being overly positive (ok, maybe not that often, but at least once or twice). I believe in a positive mental attitude, and I believe that you must be optimistic and focus on the good, rather than the bad. However, I am also somewhat of a pragmatist.

In the real world, you can be as positive as you want, but you must also be ready to face the facts and anticipate the results of the negative things happening around you and how they will affect you, your family and your livelihood. Trillions of dollars have been lost in the real estate crash and the stock market crash. Yes, the stock market is rising very rapidly. We all know many, many people that lost their life savings or retirement savings in the real estate and stock market crash.

The stock market is gaining back its losses; with this in mind – how many of those that lost in the market are now gaining back their equity just as fast? Who’s winning in this new Bull market?  Who do you know that has made back half their losses since the first of the year?

Those that lost the value in their real estate and personal residences will not likely see a return to the original equity for many years, if ever.  Where has the money gone? It is lost.

Consumer confidence is up… pundits, MSNBC and the others are telling us things are bottoming out and the economy is about to be on an upswing. I hope so, for my sake and yours.

It’s just that I keep seeing these nagging issues, like, no more equity in real estate… a national deficit at 13 percent of our GDP… government bailouts and nationalizations (de facto) of banks and industries… more than 10% of the nation out of work… huge increases in federal spending… health care costs through the roof…

Yes I am positive we can (and will) get through this time of turmoil. Are we going to get through it with larger government, more re-distribution of wealth and a heavier hand of taxation and regulation? Or, will we come to our senses, drop our subjective concepts and look at the real facts facing our nation?

Objective facts like these:

The recent sub-prime mortgage meltdown:  a direct result of federal government pressure to lend to lower income, less credit worthy borrowers in less than optimal neighborhoods? The markets were required to conform to the pressure from Barney Frank and the congressional gang to make more risky loans to less credit worthy borrowers. The market did what the market does – it spread the risks with new products and derivatives.

1% of earners in this country pay over 39% of the federal taxes and this same 1% have had their tax bill increase by 3% in the last two years.

32% of Americans pay no federal tax at all!

A President that ran on a platform of change – stating emphatically that if elected, “earmarks and partisanship will be a thing of the past” [paraphrased by me] – only to pass a “landmark” stimulus bill with over 9,000 earmarks!

Folks, these are objective statements, easily verified. I’m not arguing if these facts are good facts, bad facts or in the middle. I’m just stating these are facts. Consumer confidence may be a concept in someone’s mind with no bearing on any fact, just feelings. We cannot run a country, a business or our life based just on “feelings”. At some point facts must play a hard and fast part of any intelligent decision.

Please, Mr. & Mrs. Congress, please Mr. President – let’s look at the facts. Let’s stop the ridiculous arguments about the CIA and who lied and who didn’t lie. Let’s get rid of the red herrings.  Let us work together to take an honest look at where we are and how we got here. Let’s consider the results of our actions.

Let’s look objectively at the facts, let’s set our opinions aside for the moment and OBJECTIVELY review the situations at hand.

Our country and our lives may very well depend upon it.

With warmth and regards (as always),

Allen

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Has Anyone Found the Recovery?

# 030                                                                             May 20, 2009

By: Allen Wells

Aside from the stock markets inexplicable rise, has anyone seen any other signs of the pending recovery?  I keep reading about how the recession has bottomed and things are “looking up”. The problem is that the facts don’t uphold the previous statement. 

For example, Lowe’s home improvement stores are the darling of the stock market this week, with an 8.1% jump in the value of their shares. Why the increase? Lowe’s announced a modest rise in first quarter gross margins mostly based upon sales of small ticket items such as paint and other do it yourself products and outdoor gardening items. In reality, sales of items over $500 are weak, and Lowe’s forecasts a sales drop of 4% to 8% in the second quarter over last year. 

Lowe’s modest sales increase has been hearkened as the bellwether of the beginning of the recovery in the housing market. My question is, how can a home improvement chain that had a modest increase in small ticket item sales be a sign that the housing market is coming back? Excuse me, but how is paint and flowers sales an indicator of an increase in new home sales? 

The conventional wisdom is that the housing market will lead the country out of this recession.  I agree, but I do not agree it will be happening anytime soon. The Case-Schiller Index of 20 U.S. cities shows the residential real estate market is down 31% since its peak in 2006. The last time housing declined over 30% was  1930 – 33 (in a 3 year period).  Understand, housing is not the stock market. It will take far longer for the housing market to make up the losses suffered over the last three years. Many people are “underwater” with their mortgages. It’s like Hurricane Katrina (without the high winds and Kanye West) hit the entire housing market and flooded the homes! Home values are down anywhere from 11% (as a low in Dallas) to 50% in Phoenix. Notice, I said values, not prices. Price is what you are trying to sell your home for… value is how much you can sell your home for.   

Regardless of how the Bureau of Labor Statistics manipulates employment data, real unemployment and underemployment is rising. Foreclosures are increasing monthly, health care costs are rising daily. All these do not bode well for a quick housing market recovery or an end to the recession. As housing goes, so goes many industries – furniture, electronics, appliances, trucking, truck sales, equipment sales and on and on. 

The bottom line is this – Lowe’s profits are down. Lowe’s sales are down. This is not a sign that the market is recovering. This is a sign that people are staying put – they do not have the money to buy new homes. Drop new home interest rates to 1% - you still need 20% cash equity and an 800 credit score. Americans are out of work, out of money and out of optimism.  

President Obama was elected  with a mandate for change… here’s the change: UAW ownership of GM, Fedzilla ownership (by proxy) of the major banks, a giveaway of Chrysler to the UAW and a foreign company… but  it’s ok, we’re going to make it back with “green” technology. I do not blame the current administration for the woes with the automakers. I do not blame the current administration for the problems with the banks and insurance companies. I do, however take issue with the same old concept of raise taxes on the “rich”, cut services to the have’s (you know the ones still paying taxes), give more and better to the “have nots” and turn everything else over to the unions. 

Folks, the only recovery right now is with the rising stock market and that probably will not last very long. Very few companies are making money – including financial companies. How long can stock prices continue to exuberantly increase with quarterly results continuing to show losses and cutbacks?  Smells somewhat like the tech boom of the late ‘90’s to me. Won’t they ever learn?

The problem is that people have forgotten that it takes time to make money and we must save for a rainy day. The bubble economies of the last 15 years (tech boom, dot.com, housing, etc.) have influenced a generation to believe millions can be made overnight. That certainly does happen, but as a general rule money is made over years, not months.

I think most Americans, at least the average American, not the high flying financiers and market players, are beginning to understand this. Saks, Bloomingdales and Nordstrom’s sales are down, Wal-Mart sales are up. Starbucks sales are down, McDonalds sales are up. Why buy $3 coffee when you can get it for $1.50?

The recent Fed “stress tests” of banks showed us nothing – who doesn’t believe the reports weren’t rigged? Now we are told, don’t worry about the big banks, it’s the smaller local and regional banks that face big losses, due to the commercial real estate loans. These loans could generate up to $600 Billion in losses within the next year. How convenient – hmmm… do you think when this happens, the USG will step in with more money - not for the smaller local and regional banks, but for the major banking institutions (you know, the ones too big to fail). Then these banks will come in and rescue the smaller banks, buying them and placing them under their control.

How convenient; we will have the major (too big to fail) banks, controlled by the USG with the TARP funds and stock ownership, now controlling the local and regional banks. I’m no conspiracy theorist (so to speak) but what a convenient way to nationalize and consolidate the entire U.S. banking sector, slowly, a bite at the time with not a peep out of the U.S citizens. Kind of like boiling a live frog!

The USG and 16 states are suing the pharmaceutical giant Wyeth for fraud for giving discounts to hospitals that it did not offer to Medicaid – gotta love government insurance. You see, Medicaid is a government controlled monopoly, and when you make the laws and control the distribution system anyone that does not play by your rules is immediately a criminal. Wyeth is a criminal organization because they did not offer the USG the same deal they offered others… so much for a free market. I cannot wait for our national health care plan.

Oil prices are up, gasoline is projected to stabilize at about $2.50 per gallon (more or less) this year.  Housing starts for April were estimated at 525,000 (annualized) but came in at 458,000 (annualized). This was a 12.8% decrease. Where’s the headlines? This does not sound like we’ve hit bottom. Just so you can compare, January 2006 housing starts were an annualized 2.27 million…  All this adds up to – THE RECESSION (DEPRESSION?) ISN”T OVER!

Like I said – we need to get our heads out of the sand and realize, the recession is still here, in our face and it is not going away anytime soon. As I wrote the other day, we must take a stand against Fedzilla and its unmitigated grab for power. Given the current Federal spending and increase in deficit, we are headed for trouble far worse than the recession we are now facing.

We cannot let this economic downturn be a catalyst for more Federal control and spending.  The individual States need to band together and make a stand against Fedzilla now, before all rights are lost and the concept of statehood becomes only a geographical term denoting the area of the country you live in. 

With warmth and regards (as always),

Allen

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Has The Revolt Begun?

# 029                                                                                          May 18, 2009

By: Allen Wells

The taxpayer revolt may be starting. California (the state that brags if it was an independent country it would have the 10^th largest GDP in the world) is on the verge of bankruptcy.  On May 19^th   (tomorrow) the citizens of California will vote on 6 propositions, 5 of which deal with raising taxes, one deals with freezing legislatures salaries. The only proposition projected to pass is the one freezing legislatures salaries… hmmm … imagine that! California has one major benefit (for taxpayers) that most states do not have – any tax increase must be approved by the voters. 

Most likely, the 5 propositions will fail and California will be left with an operating deficit of $42 Billion! This shortfall, in effect will produce a bankrupt California. Something will have to be done – most likely a request from the Governator for a federal bailout.  You can be certain legislators from other states will be watching this vote closely. Nancy Pelosi better start polishing her debating skills and pulling in favors. My guess is Congress is in no mood to bailout California, but then again… Maybe Ms. Pelosi should spend more time trying to help her home state instead of trying to put former President Bush on trial with her truth commission… me thinks Ms. Pelosi may not be able to handle the truth (and it’s political repercussions for her career). 

Perhaps (hopefully) this refusal to approve more taxes will be a trend that will sweep the nation. Taxes are too high. They are onerous, one sided and literally suck the life out of productive individuals and businesses.  If the Constitution still had a place in our federal laws, state taxes would be higher than federal taxes, and federal taxes would be a minimal expense for the average American. Instead we have massive federal taxes, sucked from the productivity of the states. 

In reality California will probably head to Congress, hat in hand, requesting a bailout. I mean, if CitiFinancial, Countrywide and the others were too big to fail… where does that leave California? 

Hey, I have an idea, maybe all the [very] liberal multi-million dollar actors and actresses could get together and have a fundraiser for the state – what’s a few billion dollars among the ultra wealthy? They could kill two birds with one stone – first, they could prove they are willing to voluntarily dig deep to help others (like they seem to think everyone else should do under government compulsion), and second (since they think the government is the answer to making everything better) they can give more to the government and let them “take care” of California’s financial woes. What a great and shining example they would be… 

Fedzilla is encroaching more and more each day on the rights of states and forcing rules, laws and regulations down our throats. In the fight against Fedzilla’s encroachment, Montana is fighting back working to maintain some semblance of their own sovereignty.  In the battle over gun control, Montana has fired the first shot (so to speak) against Fedzilla. The Montana Legislature has passed a bill (and signed by the Governor) stating that any gun, ammunition or affiliated weaponry manufactured in Montana, sold in Montana, and intended to be kept in Montana will be exempt from federal gun registration, background checks and dealer licensing laws. Usually Fedzilla enforces these types of laws by invoking the commerce clause of the Constitution. Montana maintains the commerce clause does not have jurisdiction because no state lines will be crossed. You can bet the ATF will soon be knocking on Montana’s door. 

Ultimately enforcement of this bill will go to the courts for a decision. Alaska and Texas are preparing to enact similar laws.  I foresee more and more states fighting to throw off the yoke of Fedzilla’s heavy handed control. The showdown will come as Fedzilla withholds federal funds from states that refuse their bidding… at that point, we may very well have a revolt on our hands at the state level. I think this is the only level that may work. 

Things won’t change with smaller groups of individuals and independent organizations trying to garner support against Fedzilla. The media is well versed and capable of making grass roots movements out to be fringe, lunatics and zealots. Look at how they undermined Ron Paul’s presidential campaign. You don’t have to be a fan of the Ron Paul rEVOLution to see how the media portrayed him as out of touch and unrealistic. When that did not turn people away from him, they ignored him entirely. 

This cannot be done if states pass laws pre-empting federal control in areas Fedzilla has no constitutional right to be meddling. The media can ridicule one state, but when multiple states jump on the bandwagon – they will be a force to be reckoned with. Watch closely – the states that will be willing to take on Fedzilla will be the states that are not bankrupt (i.e. Texas, Montana, etal). The bankrupt states (California, New Jersey, etal) will continue to allow (and request) Fedzilla’s control in order to suck up more federal dollars to fund their own welfare states. States that have practiced fiscal responsibility (at some point) will say no more to Fedzilla sucking money from the citizens of those states and giving it to the welfare states. I think I do hear a giant sucking sound, and it’s not coming from Mexico… I’m pretty sure it is coming from Washington D.C. (and California, and New Jersey, and Michigan…)! 

Let’s look at Congress and their percs. Are you aware, [that] in addition to their salaries and benefits (which include excellent health and dental insurance, and a pension plan that far exceeds the Social Security plan we are forced to fund), members of the House of Representatives get an allowance of $1.3 million to $1.9 million a year and Senators get an allowance of $2.3 million to $3.7 million a year for “expenses” which include official costs, staff salaries, office expenses and “business” travel. In addition they receive free gym memberships for themselves and staff members, and up to $400,000 to furnish their state offices. 

If you aware of the huge uproar in Great Britain as a result of the ridiculous usage of expense allowances for Members of Parliament, don’t worry, it cannot happen here. You see, U.S. Congressional expenses are not subject to freedom-of-information requirements, and receipts are only available for inspection if the member consents.  Isn’t that interesting coming from the same Congress that wants to control financial institution pay and expenses…. I guess what’s good enough for the goose isn’t good enough for the gander! 

Hey, last time I checked, Congress was funded by the U.S. Taxpayer also… how about a little oversight for the millions we’re paying to support Congress… whatever happened to taxation with representation?  I’ll be honest, I’m not very happy with any of the representation I’m receiving! 

I say it’s time to hold Congress responsible for unrestrained spending and just say no, we’ve had enough. 

With warmth and regards (as always),

Allen

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Idiocy as an Art

# 028                                                                             May 14, 2009

By: Allen Wells 

Editors Note: I’m sorry it’s been a while since I’ve written, I know many of you can’t have your morning coffee or start your day off right without my introspective, intelligent words of wisdom (humor). I’ve been very busy lately (that’s a good thing, gotta make the doughnuts). Thank you for your inquiries and your interest in the blog. I promise I will do better.

 

Here we go, more idiocy from Washington and everywhere else in the world… is it my perspective, or is the multi-national business world and the political world going stark raving mad? In actuality, I believe normal, everyday people and businesses are working diligently and honestly to get by, make things work and to make clear, appropriate decisions in this time of [near] economic chaos. 

The problem, as I see it, is a dearth of truth from government and quasi-government organizations. Fedzilla is spoon feeding us lies with help and collusion from the “main stream” media. Here are a few examples (I could give you more, but it might end up being a ten chapter book!): 

Foreclosures and the Housing Market

The Story: Major news services and mainstream television news are replete with stories as how the housing market is making a comeback and that new home sales are up.

The Truth: Foreclosures jumped 32% last month. This is in the residential market and U.S. median house prices are down 14% from the first quarter last year. If you recall, our government overseers have been telling us that first quarter last year (2008) was the “bottom” and things are looking up… but let’s not mention the debacle that awaits us with the option arm resets due in 2010.

“In the last three years, housing starts have plunged from 1,823,000 to 358,000, or 80.4%. At the February sales rate, it will take 12.2 months to clear the inventory of new homes for sale, versus 5 months in a healthy market. In the past year, the median price of a new home has fallen from $251,000 to $200,900, a drop of 20%.” This information from John Mauldin’s Investor Insight Newsletter.

Unemployment

The Story: The Bureau of Labor Statistics reported last week that the economy added 226,000 jobs last month from  (get this) “business creation”. I’m not sure about this… I’ve taken a look around, maybe I’m looking in the wrong areas – has anyone out there noticed a surge in new businesses? Hello, this is a recession, I’ve seen a lot of businesses close and not many open! Truth is, Fedzilla needed some good news so they made up a way to report some good news.

The Truth: April job losses were reported at around 600,000 with Fedzilla creating about 72,000 of those jobs. Folks, if Fedzilla is creating jobs by hiring more government employees, we are paying for it… either through higher taxes or higher inflation – there is no other way around it.

Here is what is really going on with the unemployment figures, from John Mauldin’s Weekly E-Letter:

“First, there are actually two surveys done by the BLS (Bureau of Labor Statistics). One is the household survey, where they call up a fixed number of homes each month and ask about the employment situation in the household and then take that data and extrapolate it for the economy as a whole. So, while the number of employed rose, the number of unemployed rose a lot faster, by 563,000 to 13.7 million. In addition, there are 2.1 million who are "marginally attached" to the workforce. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

According to the survey, headline unemployment rose 0.4% to 8.9%, the highest level since 1983. But if you count those who are working part-time but want full-time work, as well as the "marginally attached," the unemployment rate (called the U-6 rate) is an ugly 15.8%.

For whatever reason, the markets were happy that the headline number of the other BLS survey, the establishment survey of lost jobs, was "only" 539,000, down from a negatively revised 699,000 in March. At least, the thinking was, the numbers were not getting worse, though it is hard for me to be encouraged by half a million lost jobs. That may not be the worst of it, however, since 66,000 jobs were temporary workers hired for the 2010 census, and the BLS estimated that the birth-death ratio added 226,000 jobs as a result of new business creation. Really? This will mean that there will likely be a major revision downward at some future point. The number will likely be well over 600,000 in the final analysis.

Further, it is likely that we will see at least another 1.0-1.5 million lost jobs over the rest of the year, taking unemployment very close to 10%. As an aside, the Treasury used an unemployment rate of 9.5% in their stress test of the banks, which suggests the test was not all that stressful. And, showing further weakness, there were 66,000 fewer temporary jobs. If there was really a nascent recovery, you would see a rise in temporary workers.

Average wages rose by a mere 3.2% on an annual basis, and by just 0.1% for the month, and the average work week was at an all-time record low of 33.2 hours. In nearly any inflation scenario, rising wages play an important part. This suggests that inflation is not in our near future.”

“The economy needs to create 125,000 jobs each month, just to absorb the number of new entrants into the labor market. If job growth were to average 325,000 per month in coming years, it would still take four years to replace all the jobs lost in this recession. With so much excess labor capacity, wage growth will be weak for the next few years, which will make it harder for consumers to increase savings and spending. The combination of less credit availability, weaker business investment and consumer spending will be headwinds whenever the economy emerges from this recession.”

Government Intervention into Business

The Story: Fedzilla is here to help, bailing out and “assisting” those “too big to fail”.

The Truth: The Fed, the Treasury Department and the Obama Administration are trampling the U.S. Constitution and the rule of law, becoming more bold and more blatant as each day passes. Consider these examples:

The Chrysler bankruptcy – bankruptcies are never fast, never streamlined and never easy. Article V of the Constitution prohibits States from interfering with the obligation to pay debts. Chrysler bondholders (holding a secured interest in Chrysler) have been browbeat and bullied by the Obama administration into accepting 30 cents on the dollar for their interests.  Secured bondholders hold a secured interest in the business, this is why these bonds are more popular and pay a lower return than unsecured bonds. Fedzilla has manipulated and cajoled these bondholders in violation of the “absolute priority” rule – only to [plan to] turn around and give the company to Fiat with no money down, no recourse and government backed loan guarantees. As a side note, the Auto Workers Union will receive 50 cents on the dollar for their “junior creditor claims”… where is the outrage?

The Nationalization of Banks

The Story: Fedzilla does not want to own banks and does not want to “nationalize” our banking system. All they want is to restore the stability and confidence in the U.S. banking system.

The Truth: The recent “stress tests” were a farce, manipulated by the Fed to give a semblance of respectability back to the major “too big to fail” financial institutions (most of which have contributed greatly to Democratic campaign funds). TARP was a grab for power that has succeeded far beyond any expectations. Americans have complacently agreed to allow the USG to take over our banks through the back door, loaning billions of dollars and then refusing to allow the banks to pay the money back.

Just announced the “administration is in early talks on ways to curb compensation across finance.” This bank pay overhaul will included banks that received TARP and other federal bailout funds, and banks that did not receive TARP and other federal bailout funds!

I’m curious, if a private business person (let’s call him Guido) loaned money to multiple businesses in his neighborhood, then refused to allow them to pay him back and instead required ownership in the business, continued payments and a say in how to run the business including dictating how much the owners and employees can be paid… wouldn’t we call this extortion? Or perhaps racketeering? Isn’t there a statute under federal law (known as the RICO statute) that is already used by the federal government on a regular basis to trample citizens rights?

Let’s take it a step further, once our enterprising businessman Guido get’s the businesses he’s loaned money to under his control, then he (as a result of the power he wields over the biggest businesses in the neighborhood) goes to the smaller businesses and makes them this offer (with a smile and a wink), “I now control all the major businesses in the neighborhood. If I choose to let them fail or go out of business, you will go out of business also because you need them to fund your business and supply products and services. From this point forward, I am going to dictate how much you can pay your employees and what your owners can be paid. I am doing this because I do not want your business to be able to hire personnel from the businesses I control. If you do not go along with this plan, I will bring in my “regulators” and shut your business down.”

I’m just asking, isn’t this extortion? Isn’t this racketeering? Why is Fedzilla allowed to do this? Where is the outrage? This is idiocy and Americans are going along with this blatant takeover of the entire country without so much as a whimper!

“There are only two truly infinite things: the universe and stupidity. And I am not so sure about the universe.” Albert Einstein

With warmth and regards (as always),

Allen

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