Reader Disgust Series

Commentary: Each week I try to pull a Reader Disgust series of articles. I pull these to read not to make any point, or to hone in, but to provide focus on reality. More and more our world lives in a sense of unreality. These articles are an important part of our commentary. As each Monday we send a more lengthy alert and commentary for the week the articles we pick are not filler, or just there to fill space. They are part of what I write.

THE RICH GET RICHER
http://www.huffingtonpost.com/2011/08/04/irs-incomes_n_918458.html

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Even though 7 trillion in wealth has vanished because of the housing collapse, we see further declines ahead. The Bernanke Bubble, as we used to call it, began around 1997; thusly prices could fall to 1997 records, another 30 or 40%.

If we examine the demographic situation, we can clearly see that the baby boomers, born between 1037 and 1961, have moved beyond their peak spending years of 46 to 50. They are no longer buying big cars, furniture, and exuberant Chinese drywall McMansions. And because of a birth rate from 1961-1981, the human beings who normally would be the buyers of the McMansions simply do not exist.

Not until 2023 should we truly see a low in U.S. real estate, as real estate seems to follow a clear 17 year old cycle. 2006+17=2023

What we are witnessing is nothing more than a generational shift in spending. The credit collapse will continue, as less spending by baby boomers means less demand and less demand means deflation.

I take this even further thinking the DEBT debacle merely exposed what has been going on nation by nation, all over the world, over the past 50 years; Keynesian economics is simple. Make more than you spend and you can borrow up to your ass. And it's what has been done.

He's also right: "stop revenue so that it exceeds projected debt and earnings" and debt will begin a cyclical decline that will only be righted by either "write off" or increase in earnings.

Why this country does not put WPA programs in, and who is stopping it (assuredly it is being leveraged out) astounds me. Simply use the government dollars to create jobs, "fix America", help us feel like a team and produce enough revenue to allow no debt ceiling.

Double whopper please, extra cheese.

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99% of all analysts, traders, quantitative projections and stock technicians did not "catch" that the knife was gong to fall.
Many of us for months have said things about needs for change or improvement, but it was while Buffet was actually speaking and sharing the equity market was safe, and a bargain (and he's right) that the market fell another 500 points.

You don't need the history. More of our blood was spilled buying and selling stocks and bonds than ever before

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You also do not need the facts of how fast, how deep, and ugly it was, but here's a few more pieces of Reader's Disgust to help you fathom:

1. There is a reason that Congress is paralyzed. You'll read my opinions later
Bernanke Seizes Day to Lower Bond Yields as Congress Shirks

Aug. 12 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke’s flattening of bond yields may be just the push investors and companies need to take risks with their cash.

The Fed’s decision this week to keep its benchmark interest rate near zero through mid-2013 sent five-year Treasury yields as low as 0.82 percent, below the 2.21 percent two-year rate before the collapse of Lehman Brothers Holdings Inc. in 2008. Lower returns on the safest investments will spur equities purchases, said David Kelly of JPMorgan Funds.

“The Fed’s making it extremely painful not to take on some risk,” said Kelly, who helps oversee $408 billion as chief market strategist for the New York-based firm. “People will tend to push money into equities.”

Bernanke and his colleagues acted days after a deal to raise the debt ceiling and reduce federal budget deficits failed to avert a cut to the nation’s AAA credit rating by Standard & Poor’s. The central bank’s decision, and a signal it’s willing to take further action, helped spur a rally in U.S. stocks from an 11-month low.

“This is aimed at encouraging people to leverage up, with the knowledge that their borrowing costs will likely be very low for a long period of time,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey.

The Standard & Poor’s 500 Index rose 0.5 percent to 1,178.81 in New York today, extending yesterday’s 4.6 percent gain.

Declining returns on savings accounts and certificates of deposit may encourage consumers and corporations that have been hoarding cash to start investing it, JPMorgan’s Kelly said.

Buying Back Stock

“The lower yields are, the more these companies are going to have an incentive to either invest directly in the stock market or even simpler, just buy back their own stock,” he said. “The incentive for a clear-thinking CEO must be huge.”

Companies stockpiled a record $1.9 trillion in cash in the first three months of 2011, according to the Fed data from June. Bank of New York Mellon, the world’s largest custodial bank, said Aug. 4 it will begin to charge institutional clients for “extraordinarily high” cash deposits to stem a flight of capital into the safety of bank deposits.

Americans saved 5.4 percent of their disposable income in June, the Commerce Department said this month. That’s up from a 5 percent rate in May and is the highest since September 2010. It was 1.5 percent in 2005, the lowest since at least 1959, amid the housing boom and 3.1 percent economic growth.

Certificates of Deposit

Savers are getting average interest rates on 6-month certificates of deposit this week of 0.58 percent nationwide, down from 0.60 percent last week, according to Bankrate.com. Rates on one-year CDs fell this week to 0.86 percent, while 5- year CDs fetched 2.04 percent.

The Fed said it would keep its target for overnight loans among banks at a record low for at least two years to support a recovery that’s “considerably slower” than anticipated.

Two-year Treasury yields have become the equivalent of short-term bills, with rates declining to 0.187 percent, about the same as the average yield on three-month bills over the past three years.

“The Fed has vindicated its power over the term structure of interest rates by being clear about the expected path of short-term rates,” said Peter Fisher, head of fixed income at BlackRock Inc., the world’s biggest asset management firm, who was markets chief at the Federal Reserve Bank of New York from 1994 to 2001. “It does encourage those looking for returns to look in credit assets and then further out the yield curve.”

Yields on investment-grade corporate debt average 2.01 percentage points higher than comparable Treasuries, according to data from Bank of America Merrill Lynch.

Operation Twist

The Fed’s action is reminiscent of a joint action with the Treasury Department known as Operation Twist intended to pull the nation out of a recession in 1960-1961. The Fed purchased longer-dated Treasury bonds and sold short-term bills in a bid to flatten the yield curve.

One difference, according to Fisher: Bernanke is trying to create very low short-term rates, while Operation Twist was focused on reducing longer-term borrowing costs.

The Fed’s action this week may also have another purpose, said Marvin Goodfriend, an economics professor at Carnegie Mellon University in Pittsburgh.

“It is mainly a signal that the Fed will do more, including buying government bonds, if the Fed believes the economy needs it,” said Goodfriend, a former research director at the Richmond Fed. The Fed in June ended a $600 billion bond- purchase program.

2. The swings took place for hedge and money market makers and was part of a conspiracy to prove the Democrats are incapable. We believe it was manipulated.
U.S. Stocks Slide for Third Week on Concern Over Europe, Economy

Aug. 13 (Bloomberg) -- U.S. stocks fell for a third straight week, including the biggest one-day drop since 2008, as Standard & Poor’s reduction of the nation’s credit rating and Europe’s debt crisis fueled concern the economy will falter.

The S&P 500 pared its slump in the last two days of the week as government data showed jobless claims unexpectedly decreased and retail sales improved. Bank of America Corp. plunged 12 percent, the worst performing stock in the Dow Jones Industrial Average. Walt Disney Co. sank 5.9 percent after posting disappointing third-quarter studio revenue. For-profit educator DeVry Inc. lost 23 percent, the largest drop in the S&P 500, after it said new undergraduate enrollment fell.

The S&P 500 lost 1.7 percent to 1,178.81 in the five days ended Aug. 12, capping a week of record swings. The Dow fell 175.59 points, or 1.5 percent, to 11,269.02. Both gauges have fallen for three straight weeks.

“Investors are going to have to get accustomed to above- normal volatility,” Leo Grohowski, chief investment officer for BNY Mellon Wealth Management in Boston, said in a telephone interview. The firm oversees $171 billion. “Economic uncertainty is going to continue to outweigh the good news from company fundamentals. We’re all hostage to the news flow out.”

About $6.8 trillion was wiped off the value of global equity markets from July 26 through Aug. 11 as Europe’s debt crisis deepened and investors speculated the economy may contract. The swings in U.S. equities this week were unprecedented in the history of the American stock market, according to data compiled by Birinyi Associates Inc., Bloomberg and Howard Silverblatt, senior index analyst at S&P.

Record Swings

The S&P 500 plunged 6.7 percent on Aug. 8, its biggest slump since December 2008, in the first trading session after the U.S. was stripped of its AAA credit rating at S&P. The index rebounded 4.7 percent the next day after the Federal Reserve said it will leave its benchmark interest rate at a record low through at least the middle of 2013. The gauge then fell 4.4 percent on Aug. 10 and rebounded 4.6 percent the next day.

Never before has the S&P 500 reversed moves that large in each session over a four-day period, the data show. This week’s trading also marked the first time the Dow moved more than 400 points either up or down for four days in a row.

“This week was unnerving,” said Channing Smith, a money manager at Capital Advisors in Tulsa, Oklahoma. The firm manages $920 million. “The large price swings are indicative of uncertainty in the markets, but we haven’t panicked. Our clients haven’t panicked. We used the market sell-off to go in and buy high-quality stocks. The economy is very sluggish and growth is below-trend but it’s still positive.”

Losses Pared

The S&P 500 rallied 5.2 percent in the final two days of the week, its biggest back-to-back gain since March 2009, as economic reports showed first-time applications for jobless benefits decreased 7,000 in the week ended Aug. 6 and retail sales increased the most in fourth months.

The Chicago Board Options Exchange Volatility Index, which is known as the VIX and measures the cost of using options as insurance against declines in the S&P 500, climbed 14 percent to 36.36 this week. The index surged 50 percent on Aug. 8, its biggest one-day gain since February 2007.

The rout in global markets spurred some Wall Street strategists and investors to revise their outlooks on equities and the economic recovery. Goldman Sachs Group Inc. cut its 2011 target for the S&P 500 on Aug. 5, while Laszlo Birinyi, one of the first investors to recommend buying when the bull market began in 2009, said his forecast for the benchmark equity index was “shaky.”

‘Uncertainty and Fear’

David Kostin, the New York-based equity strategist at Goldman, lowered his estimate for the S&P 500 to 1,400 at year end from 1,450. “Uncertainty and fear trump fundamentals and valuations,” Kostin wrote in a note. He said a recession is not “the most probable outcome in 2012.”

Birinyi, of Westport, Connecticut-based research firm Birinyi Associates Inc., wrote in an Aug. 9 note, “The bull market is intact, and while our ‘target’ of 1,450 in mid-2012 is admittedly a bit shaky, our more important conclusion that a rational, disciplined portfolio can attain a 10 percent plus return in 2011 is not.”

Birinyi also said financial companies are unlikely to outperform as the rally continues. Bank shares declined the most out of 24 groups in the S&P 500 this week, losing 1.6 percent, amid concern the European sovereign-debt crisis will threaten profits.

Banks Slump

Bank of America sank 12 percent to $7.19. American International Group Inc. disclosed plans this week to sue the Charlotte, North Carolina-based bank over allegedly faulty mortgages. The firm’s plunge in share prices over the past week stoked concern it may need to raise capital. Chief Executive Officer Brian T. Moynihan said on a conference call hosted by mutual fund manager Bruce Berkowitz that the biggest U.S. lender is being buoyed by conditions that are better than they’ve been since the credit crisis.

Citigroup Inc. retreated 11 percent to $29.85. JPMorgan Chase & Co. slumped 4.5 percent to $35.91. American Express Co. lost 4.9 percent to $44.89. Comerica Inc. decreased 16 percent to $24.41, the second-biggest decline in the S&P 500 this week.

Disney, the world’s largest theme-park company, slid 5.9 percent to $33.09 amid concern that slowing consumer spending and rising costs at the ESPN sports network may crimp profit growth. The Burbank, California-based company posted third- quarter studio revenue of $1.62 billion, compared with the average analyst estimate of $1.83 billion.

DeVry, AOL

DeVry Inc. fell 23 percent to $44.49. New summer enrollment dropped 26 percent to 15,566 from 20,935 a year earlier, the Downers Grove, Illinois-based company said.

AOL Inc. tumbled 27 percent, the most since it was spun off from Time Warner Inc. in November 2009, to $11.78. The Internet company reported on Aug. 9 a second-quarter loss and an 8.4 percent drop in sales. The New York-based company trimmed its weekly loss two days later, rising 12 percent, after announcing it authorized a $250 million stock buyback.

Speculation the economic slowdown will worsen has overshadowed better-than-estimated profit by companies. Per- share earnings increased 17 percent among the S&P 500 companies that have released quarterly results since July 11, according to data compiled by Bloomberg. About three-quarters of the companies have topped the average analyst profit forecast, the data show.

Cisco Systems Inc. rallied 7 percent to $15.99, the biggest jump in the Dow. The world’s biggest maker of networking equipment reported profit was 40 cents a share in the fiscal fourth quarter, beating the 38-cent average estimate by analysts, according to Bloomberg data.

“This is an exceptional buying opportunity for U.S. equities,” Barry Knapp, the New York-based head of U.S. equity strategy at Barclays Plc, said on a conference call this week. “The incoming data is going to be better, which is going to serve to stabilize the macroeconomic outlook and set the stage for a reversal in equity markets.”

3. S & P lowers our rating, others don't, and now is analyzing their analysis. This was purposed histrionics and pandemonium.
SEC Said to Scrutinize S&P Math, Possible Leaks of U.S. Rating

Aug. 13 (Bloomberg) -- The Securities and Exchange Commission is reviewing the method Standard & Poor’s used to cut the U.S.’s credit rating and whether the firm properly protected the confidential decision, according to a person with direct knowledge of the matter.

SEC inspectors are examining S&P’s policies for conducting such analyses and whether those procedures were followed when the New York-based firm downgraded the U.S.’s credit rating Aug. 5, said the person, who declined to be identified because the inquiry isn’t public.

S&P’s downgrade of the U.S. for the first time triggered an equity rout that wiped about $6.8 trillion from the value of global stocks from July 26 to Aug. 11. U.S. officials have said the downgrade was based on a flawed analysis which overstated U.S. debt by about $2 trillion, while S&P said the discrepancy doesn’t change projections that the U.S. debt-to-gross domestic product ratio will probably continue to rise in the next decade.

The rating company lowered the nation’s AAA grade to AA+ after warning on July 14 that it would reduce the ranking in the absence of a credible plan to decrease deficits even if the nation’s $14.3 trillion debt limit were lifted.

The decision was at odds with the other two main ratings companies, Moody’s Investors Service and Fitch Ratings, which both said the U.S. continues to deserve the top credit rating.

Possible Leaks

SEC staff are also looking into whether certain market participants learned of the downgrade before its announcement. The inquiry, which is in preliminary stages, may not result in a referral to the SEC’s enforcement division, the person said.

Ed Sweeney, an S&P spokesman, said the firm doesn’t discuss specific interactions it has with regulators.

“S&P takes its confidential information and securities trading policies, and the related securities regulation, very seriously,” Sweeney said in a statement. “Our policies prohibit analysts or rating committee members from trading and holding securities or options of the companies or governments they rate.”

Sweeney said the firm has “long-standing policies and procedures in place” to protect confidential information. Sweeney also said the firm had previously indicated in a July statement that there was a chance of a downgrade.

S&P “published several reports and broadly communicated our views regarding the potential impact on other fixed-income securities,” the statement said.

‘Market Turmoil’

The rating downgrade added to concern about prospects for the global economy as Europe’s debt crisis deepened. U.S. stocks fell for a third straight week, with the S&P 500 losing 1.7 percent to 1,178.81 in the five days ended Aug. 12, capping a week of record swings.

Treasuries rose, with ten-year yields falling as much as 52 basis points this week, the most since December 2008, and signaling the lower rating hasn’t reduced confidence in the nation’s creditworthiness. The yield declined nine basis points to 2.26 percent as of 5:02 p.m. yesterday in New York, according to Bloomberg Bond Trader prices.

The downgrade followed an Aug. 2 agreement among U.S. lawmakers to raise the nation’s debt ceiling and put in place a plan to enforce $2.4 trillion in spending reductions over the next 10 years, less than the $4 trillion that S&P had said it preferred. The political wrangling that preceded the debt pact was also a concern, S&P said.

The “debate this year has highlighted a degree of uncertainty over the political policymaking process which we think is incompatible with the AAA rating,” S&P analyst David Beers said on an Aug. 6 conference call with reporters.

‘Quadruple A’

Former Treasury Secretary Henry Paulson said he would invest in U.S. government securities before other sovereign debt even though the nation’s political process isn’t working as well as it could be.

“Our political process, our government, hasn’t been working at a AAA level,” Paulson, 65, said on Aug. 11. “I would take U.S. Treasuries over other sovereign debt, other AAA sovereign debt, any day of the week. That’s not to say we don’t have important issues to deal with in this country.”

Warren Buffett also criticized the rating company’s decision, saying the U.S. merits a “quadruple A” rating, in an interview with Betty Liu of Bloomberg Television.

‘Some Spine’

Bill Gross, manager of the world’s biggest bond mutual fund, said on Aug. 7 that S&P “demonstrated some spine.” The manager of Pimco Total Return Fund has said that Treasuries are unattractive because yields don’t offer enough compensation for the risk of inflation.

Still, U.S. bonds remain in demand at a time when Europe’s sovereign debt crisis threatens to spread to Italy and Spain from Greece, Ireland and Portugal. The Treasury’s Aug. 9 auction of $32 billion in three-year notes attracted $3.29 in bids for each dollar of debt sold. Indirect bidders, the class that includes foreign central banks, bought 47.9 percent of the issue, the most since May 2010.

4. The European debt crisis, and the devaluing of currencies, has the pee partiers thinking our "sovereign debt" is some big deal (it is only if use it against ourselves), yet we buy Gold and Silver and worry about our own USD.
It makes it worse:

European Bank Troubles Demonstrate Cost of Uncertainty: View

Aug. 12 (Bloomberg) -- Financial markets’ growing concern about the state of European banks exposes a reality that the political theater in the U.S. had obscured: The euro area’s debt troubles are probably the single largest threat to the global economy.

The share prices of European banks, and in particular France’s Societe Generale SA, have plunged in recent days as investors speculate that the banks could be facing investment losses and difficulties borrowing money. SocGen has denied the rumors, but the nature and veracity of the specific concerns is almost secondary.

European leaders have created a fertile ground for panic by failing to dispel the main uncertainty: How they will resolve the financial troubles of strapped euro-area governments, how much banks holding the governments’ bonds stand to lose as a result, and whether the banks can be bailed out.

Investors’ dark view demonstrates how costly uncertainty can be. Consider, for example, the market value of bank equity compared with how much the banks say they’re worth in their financial statements.

As of Thursday, SocGen’s market value stood at only 52 percent of tangible common equity, suggesting that investors think it will need about 16 billion euros ($22.8 billion) in fresh capital to cover losses, according to data compiled by Bloomberg. For a group of 31 European banks, the market-to- tangible-equity ratio was just under 70 percent, implying they collectively face losses that would require some 137 billion euros ($195.1 billion) in capital to offset.

Money-Market Funds

European bank troubles matter for the U.S. and the rest of the world, in part because the money-market funds in which millions of U.S. households keep their savings have invested heavily in European bank debt. Trouble at money-market funds would disrupt the short-term lending markets on which U.S. companies depend to pay suppliers and their own workers. Much as after the Lehman Brothers Holdings Inc. bankruptcy, the resulting credit freeze could force companies to slash production and fire workers, triggering a sharp recession in the world’s largest economy.

Ideally, Europe would conduct stress tests showing exactly how much banks can lose and immediately announce how they will raise the necessary capital, much as the U.S. did in 2009. But no stress test can be credible until European leaders own up to the fact that some governments can’t pay all their debts, define the losses investors will take and put a system in place to guarantee the debts that can be paid.

As Bloomberg View has advocated, the best route to clarity -- and stability -- would be for all the governments of the euro area to issue new bonds guaranteed by a unified finance ministry with taxation power. Investors would exchange the debt of individual governments for the euro bonds, probably at discount rates that would erase some of the debt at the investors’ expense. The remaining sovereign debt would be sustainable. Banks and investors would know the extent of their losses.

It won’t be pretty, but ultimately the bloodletting will have to happen.

You have read enough to now let Floyd up on his soapbox to share with you how we continue to try to destroy our own world:

1. As Roubini stated, "nothing was fundamentally different than three months before. It appeared we would hit a boundary and massive lots were sold, to later be bought, by less than 10 hedge funds." "This appeared to be a "massive short" with a falsified upside to rape anyone near by trying to trade".

2. As Nenner stated" The market is certainly not good, but it is not this bad. We are seeing political turmoil in the U.S., and manipulated games, control the price of assets.

3. As Floyd believes: The Republican Party, since the day Obama was elected, have worked for four years to do nothing but make sure he is not re-elected and that the massive changes he has tried to lead through are all stymied.
Republicans do not want to tax the rich, but tax the middle class more. The goal is to eliminate the middle class so they can quit wasting time fighting and explaining. The poor are under their control.

I stand aghast while I see sold social (not socialistic) programs be attempted. The entire FDR/Truman WPA program now being pushed by some Republicans is right yet fully ignored and destroyed as a bill year 1.

We have a small group of men and mean women that lead this party, and thusly even the party is so stupid they aren't guilty trying hard to create a world council for oligarchs.

This I believe

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I also have faith at some point the American people have enough smarts to throw the pee partiers out (originally hired by the Pubsters and now backing up and messing up some of the Republican fascists plans. I name call was purpose. These people do not want to allow a majority in control and they can actually make people believe that the Democrats want to take money from the rich and give it to the poor, NOT what is being proposed.

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