Tuesday, March 30, 2010

Barker's Newsbites: Tuesday, March 30, 2010


Well, folks, we've had some spirited debate over the past couple of days.

Paying attention is the first step towards working for change!

Keep reading, folks... keep reading...
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4 comments:

William R. Barker said...

http://www.realclearmarkets.com/articles/2010/03/30/christie_moves_boldly_to_fix_jerseys_budget_98398.html

Here's some good news for New Jersey residents, who pay more in state and local taxes than people anywhere else in the United States: earlier this month, New Jersey Governor Chris Christie released a budget proposal that contains no tax increases. He would even sunset, on schedule, a one-year "temporary" increase in the state's income tax.

This is a refreshing shift for the Garden State, where thirty years of governance by Republicans and Democrats has pushed state and local taxes ever higher, from the 10th-most taxed state in 1980 to #1 today, according to the Tax Foundation.

* TRENDS, MY FRIENDS - REVERSING THE TREND TOWARDS BIGGER AND BIGGER GOVERNMENT; THAT'S THE KEY! GOD BLESS CHRIS CHRISTIE!

The best thing about Christie's approach is its comprehensiveness. He's not just saying "cut spending" -- though of course, he is saying that, in all areas of the state's budget. He also recognizes that state and local spending are interrelated issues, so he's proposed a property tax cap to make sure that state spending cuts don't just drive up local property taxes. And he's proposing institutional reforms that will enable localities to cope with aid cuts by reducing spending.

(*JUMPING FOR JOY*)

Governor Christie is proposing a significant reduction in state education aid as part of his effort to close the $10.7 billion budget gap. But he also wants to put before voters this November a constitutional amendment that would cap the growth of local tax levies at 2.5 percent per year, unless voters approve larger increases. This would allow school districts to offset the aid cuts with higher taxes - but only if voters approve that decision.

(*THUMBS UP*)

Since taking office, and in his budget address, Christie has repeated - almost as a mantra - that fixing New Jersey's budget will involve "shared sacrifices." The good news, though, is that the state starts from an extremely high spending baseline, which is how the tax burden got so out of control. Those "sacrifices" will involve dropping to a spending level that is merely above-average.

* IF CHRISTIE CAN STAY THE COURSE FOR THE LONG HAUL... (*FINGERS CROSSED*)

March 30, 2010 at 11:31 AM
William R. Barker said...

TWO-PARTER... ESPECIALLY WELL WORTH READING... (Part 1 of 2)

http://www.nypost.com/p/news/business/seasonal_job_growth_stokes_inflation_klllxEzaDHkKQUlY7PEFiM

Ben Bernanke and the Federal Reserve say they want interest rates to stay low. But borrowing costs will really be determined by the worldwide demand for money.

Even during the worst of the recession, there was a big demand for borrowing, which came mainly from governments. With countries like the US and most states still running huge budget deficits that need to be financed, any additional demand for loans - as happens during an economic expansion - would cause borrowing costs to rise by more than normal. That's why the US is not only in a recession, its economy is also broken.

Interest rates shot up last week when the US Treasury had to pay higher-than-expected rates to sell its securities. And borrowing costs have been climbing for weeks now, as bond investors anticipate what is going to happen next.

In the upside-down world of Wall Street, the next "problem" could come with good news delivered this Friday. That's when the Labor Department is expected to announce the first monthly expansion in jobs since December 2007, not counting last December's job loss that was later turned into a revised, modest gain. The experts are expecting that March's growth could have been as much as 180,000 jobs. But they also think the unemployment rate will rise modestly to 9.8% percent.

(*HEADACHE*)

* PUTTING ASIDE FOR THE MOMENT WHAT PERCENTAGE OF THESE "AS MUCH AS 180,000 JOB" ARE GOVERNMENT JOBS, NOTICE THE DISCONNECT BETWEEN SUPPOSEDLY RISING EMPLOYMENT WITH A SIMULTANEOUSLY RISING UNEMPLOYMENT RATE...???

But before you get too excited, this is mostly the result of more than 1 million people being hired to conduct the 2010 US Census, as well as statistical tricks.

* AS I WAS SAYING! (ONLY NOT "JUST" GOVERNMENT JOBS, BUT *TEMPORARY* AND MAINLY *PART TIME* GOVERNMENT JOBS...)

* BTW... JUST TO KEEP TRACK... LAST PARAGRAGH NOTES 180,000 JOBS... THIS LAST SENTENCE SPEAKS OF 1,000,000 PEOPLE BEING HIRED...

(*SIGH*)

The statistical razzmatazz is most interesting, because it created a huge error in 2009 figures that is likely to be repeated this year.

In March 2009, for instance, this assumption - for what the Labor Department calls the Birth/Death Model - added 114,000 jobs to the overall count. And these assumptions get more optimistic as the spring continues.

The jobs that the government assumed existed last year really didn't. And the Labor Department will probably be wrong about its guesses this year as well.

(*SIGH*) (*GRITTING MY TEETH*)

But there's a bigger problem than just errors produced by Washington and the politicians who will try to use them to their advantage.

While the job growth that'll likely be reported on Friday may not be trustworthy, any resulting rise in interest rates will be all too real.

* PAY ATTENTION, PEOPLE... PAY FRIGG'N ATTENTION...

It's not only the employment figures that look hokey. Try figuring this out:

The Commerce Department yesterday announced that personal income in the US rose by a very modest 0.1% in February compared with the prior month.

But it also contends that real personal consumption expenditures increased 0.3% in February.

So how did expenditures increase by 0.3% when income only rose by 0.1%? Did people go more into debt, or tap their savings in order to buy things?

It's a real mystery because the Commerce Department - beyond all logic - also believes Americans are still able to save 3.1% of their disposable income. How, how, how?

(*SLOWLY LIFTING THE BARREL OF THE PISTOL TO MY HEAD*)

* KIDDING, FOLKS! JUST KIDDING... (I'M HOMICIDAL, NOT SUICIDAL!) (*WINK*)

March 30, 2010 at 1:23 PM
William R. Barker said...

* CONCLUDING... (Part 2 of 2)

Does the Federal Reserve help goose the stock market during options-expiration weeks?

My friend Bill King, of Ramsey King Securities in Illinois, noticed a few years ago that the stock market tended to rise nicely on weeks in which stock options and futures contracts expire.

I wrote about this a few years ago, and if you followed the trend you could have made some money trading just a few days a week.

But lately Bill has noticed another thing -- the Fed suspiciously seems to add more liquidity to the banking system mainly during options-expiration weeks, and drains money from the system during the three other weeks each month.

When professional investors notice the Fed being accommodative like this they tend to rush into the market. Bottom line: Is the Fed trying to juice the markets during weeks when stocks tended to rise anyway?

A rising stock market, after all, makes people happy - until it starts to fall.

March 30, 2010 at 1:24 PM
William R. Barker said...

http://www.nypost.com/p/news/opinion/opedcolumnists/fannie_freddie_the_biggest_bailout_rAyIYVNxCGXc4UrUntXkCK

Fannie Mae and Freddie Mac recently announced fresh losses, bringing their total since the fall of 2008 to $126 billion.

It barely registered as news - although taxpayers are completely on the line for the bad debt of these government-sponsored enterprises.

[C]hances are slim to none that Fannie or Freddie will be able to pay back the funds. It is highly likely that taxpayers will lose well over $200 billion - and it may well pass $300 billion. When the history of the crisis is all written, these two institutions will turn out to be the most costly of the financial sector - worse than AIG, Citigroup or Bank of America/Merrill Lynch.

So where is the outrage?

It's not the pay packages: Compensation at Fannie and Freddie was right up there with other financial firms. For example, in 2006 and 2007, as housing conditions were weakening and the crisis started, the CEO salaries of Fannie were $14.4 and $12.2 million, and Freddie were $15.5 million and $19.8 million.

* AND REGULAR READERS OF BARKER'S NEWSBITES KNOW FULL WELL THESE PLUTOCRATS WERE MAINLY PERSONALLY AFFILIATED WITH THE DEMOCRATIC PARTY. (*SHRUG*) FRANKLIN DELANO "FRANK" RAINES...??? (*SNORT*)

[C]onservative think tanks argue that Fannie and Freddie were ground zero of the subprime crisis, having been arms of the Clinton-Bush era push toward affordable housing for all.

* AND THEY'RE RIGHT!

Fannie Mae and Freddie Mac are where they are because they were run as the largest hedge funds on the planet.

Here's a deal: We'll put in $1, you lend us $25. We'll invest this $26 in bank-originated pools of mortgages that are not easy to sell and face significant long-term risks. We'll try to hedge that risk, but our models have such large error and uncertainty that our hedges might not work. One more thing: We'll put 15% of the funds in subprime mortgages whose borrowers won't be able to pay if we hit a recession or a severe housing downturn. Plus, just to make it interesting, we'll become the largest financial institution in terms of assets related to mortgages, making us truly too-big-to-fail.

For this type of risk, we know you'll expect a big return. But we're only going to pay you the yield on government bonds plus a little extra.

You'd think our investment pitch was crazy and reject the deal outright. But if we came along and whispered to you that we have a wealthy relative - our dear old Uncle Sam - who'll make you good on what you lend us, no matter what happens, you might well stop caring about the risk.

This, of course, is a description of the $1.5 trillion hedge-fund business model of Fannie Mae and Freddie Mac.

March 30, 2010 at 3:18 PM

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