06/01/11 Baltimore, Maryland – First, let’s look at what Mr. Market is doing to see if he will give us a hint of what is going on. He’s supposed to know everything. And he’s supposed to look ahead and tell us what is coming.
So already, Mr. Smarty-Pants, what’s up? Alas, Mr. Market seems as confused as we are.
Stocks rose yesterday…for no apparent reason. Oil went up a little too. Gold stood still.
Interestingly, bond yields continue to fall. The 10-year note yields only 5 basis points over 3%. Since the government’s own calculation of inflation over the last three months puts it over 5%, this leaves the real yield negative by more than 200 basis points. What are bond buyers thinking? Beats us.
We only know what we’re thinking. And we’re thinking that anyone who buys bonds with a negative yield…while the Fed shows every intention of raising inflation rates further…is a moron.
Of course, he could turn out to be a very clever moron…or a lucky moron. Yields could continue to sink as the Great Correction does its work. The Fed could buy even more bonds – driving prices up (and yields down) further. But count us out. We’re not that clever. Nor that lucky.
Meanwhile, the housing slump has now wiped out 8 years of price increases.
Bloomberg is on the story:
Home prices in 20 US cities dropped in March to the lowest level since 2003, showing housing remains mired in a slump almost two years into the economic recovery.
The S&P/Case-Shiller index of property values in 20 cities fell 3.6 percent from March 2010, the biggest year-over-year decline since November 2009, the group said today in New York. At 138.16, the gauge was the weakest since March 2003.
Other reports today showed consumer confidence unexpectedly declined in May to a six-month low, and business activity in the US cooled more than forecast.
Nineteen of the 20 cities in the index showed a year-over-year decline, led by a 10 percent slump in Minneapolis. The exception was Washington, where values climbed 4.3 percent.
Prices in 12 markets dropped to fresh lows in March from their 2006, 2007 peaks: Atlanta, Charlotte, Chicago, Cleveland, Detroit, Las Vegas, Miami, Minneapolis, New York, Phoenix, Portland, Oregon, and Tampa.
Builders are gloomy and project demand will remain depressed into next year, Bill Wheat, chief financial officer of D.R. Horton Inc., told a housing conference in New York on May 11.
“We still see housing demand at very weak levels,” Wheat said. “It could still be a struggle in 2012.”
Did you notice? Only the zombies’ houses are rising in value. Alone among major metropolitan centers, Washington, DC posts real estate gains.
How is that possible? Oh don’t pretend to be so naïve. You know what the zombies are doing. Almost all GDP growth in the past 10 years has come from government spending. And the majority of household income growth since the beginning of the crisis in ‘07 has come from government transfer payments.
The zombies are flourishing, prospering…gorging themselves on the blood of the nation. Your editor sees it first hand. He lives among them. He watches them coming and going. He has learned their zombie language and studied their zombie ways. From a distance, they look like normal people. But up close, you see that they are imposters. Only their lowest-ranking members do any real work – picking up garbage or teaching kindergarten. As you move up the zombie hierarchy you find managers with no real responsibility and intellectuals with no real ideas.
Just read Jeffrey Sachs in yesterday’s Financial Times. Mr. Sachs is a member of the zombie intelligentsia: “The world economy is rife with lawlessness and recklessness,” he laments, “with tax havens and regulation-free zones catering to the avarice of globally mobile capital. [The new head of the IMF] should be given the task of systematically shutting these venues down…”
That’s right – hire more zombie regulators, tax collectors, and enforcers!
Why are zombies so rich? Here’s part of the answer, from The Washington Post:
It’s no secret that members of Congress qualify as political insiders, but a new report strongly suggests that they also may be insiders when it comes to trading stocks.
An extensive study released Wednesday in the journal Business and Politics found that the investments of members of the House of Representatives outperformed those of the average investor by 55 basis points per month, or 6 percent annually, suggesting that lawmakers are taking advantage of inside information to fatten their stock portfolios.
“We find strong evidence that members of the House have some type of non-public information which they use for personal gain,” according to four academics who authored the study, “Abnormal Returns From the Common Stock Investments of Members of the US House of Representatives.”
The professors reviewed more than 16,000 common stock transactions carried out by about 300 House members as revealed in the members’ financial-disclosure forms from 1985 to 2001.
In a 2004 study, the same professors found that US senators also enjoy a “substantial information advantage” over the average investor – and even corporate bigwigs – when it comes to picking stocks. The latest study shows that members of the Senate outperform their House colleagues by an average of 30 points per month.
Despite the GOP’s reputation as the party of the rich, House Republicans fared worse than their Democratic colleagues when it comes to investing, according to the study. The Democratic subsample of lawmakers beat the market by 73 basis points per month, or 9 percent annually, versus 18 basis points per month, or 2 percent annually, for the Republican sample.
Surely, the SEC is on the case! Demanding to see trading records of Members of Congress…probing into when…how…and why…the politicos made their trades, right? Nah… You really were born yesterday, weren’t you, dear reader? Zombies rarely pose a threat to each other. Congress exempted itself from the SEC.
Our old friend Doug Casey adds a comment:
…the SEC, which should really be called the Swindlers Encouragement Commission, [is] telling people it’s making sure everything’s fair, thus luring the lambs to the slaughter. The investment world is full of sharks, and it always will be – all the SEC does is lower the average guy’s defenses, which really does encourage swindlers. Just look at Bernie Madoff, a perfect example. The SEC has never prevented a fraud, to my knowledge. Rather, by making everyone think they’re protected, it makes a fraud much easier to perpetrate. Lambs to the slaughter.
It gets worse: adding insult to injury, the SEC costs business billions of dollars annually – probably scores of billions, if you take all the secondary and trickle-down costs into account: direct fees, legal fees, printing, mailing, and other costs of compliance. They have a direct budget cost of something over a billion dollars per year, but that’s trivial relative to the indirect costs they impose on the economy. They ought to be ashamed, diverting a significant fraction of GDP from productive use into the pockets of parasites, in the name of protecting business and investors, when they do the opposite. The SEC is like a Pied Piper who attracts ravening hordes of rats with his flute instead of getting rid of them – and then charges people tenfold for the “service.”
This is one agency I would abolish, immediately and completely. Not a single one of its functions should even be handed off to other agencies. The SEC serves absolutely no useful purpose whatsoever – just the opposite. It’s not a question of getting it under control, or paring it back. It should be eliminated in toto.
Regards,
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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~ In extreme circumstances, the assailants can be stopped by removing the head or destroying the brain. I will repeat that: by removing the head or destroying the brain.~ Shaun of the Dead (2004)
Yep, it’s a world of Zombies in so many ways… The population says, feed us. regulate them. Protect us. Pass a law for this that and the other thing. Have the government pay for this that and the other thing.
Pretty soon most personal initiative withers.
It’s a wonder we produce anything at all.
It’s time to tear it all down and start over with a new constitution and a ton less laws and regulations. But that will never happen.
Did anyone benefit from the destruction of the Securities and Exchange Commission offices at WTC 7, and the resultant crippling of hundreds of fraud investigations?
You remember WTC 7, right? That’s the tower that wasn’t hit by a plane in 9/11, yet it came down just like the others. Explain that.
And by the way, the SEC had thousands of original documents in there, destroyed forever. Check http://www.911truth.org and get informed.
Or even better, check http://patriotsquestion911.com/ and read the 200+ high ranking officers and intelligence veterans that considered the 911 report “a joke” or “a cover up”.
I suggest watching “They Live”. An interesting little Canadian movie from 1988 that does a lot to explain the whole problem. Actually done back then to hammmer the Reagan administration, but much more relevant now.
Thank you Mr. Bonner for the great article. If there is a positive side to this, it is that the corrupt gov agencies, leaky inside info and featherbedding has been very successful for those few.
Proliferation and greed must continue until the hosts, that’s you and I, can no longer function. Should be interesting when the toilet gets flushed.
The difference between the current depression and the Great Depression will end up being how the run unfolds. The Great Depression had runs on banks. This depression will be defined as a run on the dollar.
It won’t necessarily be triggered in this country. As the Euro and dollar race to the bottom. The run will probably start in Europe, one of the PIIGS will eventually default as they cannot individually print Euros. The ensuing run will be to a safe haven, gold, silver, commodities. I do not believe they will buy dollars, the US dollar holders will have to protect their own value by also buying hard assets.
Our government will print and the general population will have their toilet paper dollars in hand with no buying power.
This is how it will go down. Nothing the Fed or our clowns in Washington can do about it now.
The Daily Reck comes up with some great word combinations as “the unified zombie theory”.This should be probably printed on all US dollar bills since QE3 starts up.There should also be a devise to eliminate office of chief zombie should be discovered before it is too late. also to replace the bald eagle emblem on presidents desk.