"Jobless Claims Rise on Snow-Related Layoffs"
This is not a joke, this is actually the headline on Yahoo Finance today to spin the "worse than expected" initial jobless claims. As a former business owner, I can fully attest that it is commonplace to lay people off when the weather is bad...not.
While it is commonplace for ignorant and lazy journalists to be "precisely inaccurate" to quote Nassim Taleb. I've noticed over the last several months that we have jumped the shark and these type of headlines and articles can no longer be attributed to stupidity, laziness, or hacks masquerading as journalists. The ministry of propaganda is in full swing trying it's best to keep the serfs from connecting the dots that things are not only not getting better, they are getting exponentially worse.
My question is this: are Americans buying this bs or is there a rage simmering under the surface that is ultimately going to explode? As I've never been good at suffering fools, those that I speak with regularly are bearish, so I personally know of no one who is buying the propaganda.
Are those that I interact with the minority with the sheep believing what they want to believe? Or, are we on the verge of social outrage that results in regeneration of our republic?
Would love to hear other's input/experience as to the social mood they find in their circle of influence.
Thursday, February 25, 2010
Thursday, February 11, 2010
A New Credit Crisis Brewing
For some time I've been searching for a comprehensive account of how much carnage the Private Equity or Leverage Buy Out (LBO) "industry" has caused America. On occasion I would find an article identifying a particular instance where a company was destroyed after being purchased via a LBO but wanted to learn more.
I finally found the closest thing to what I was looking for in Josh Kosman's book, "The Buyout of America: How Private Equity Will Cause the Next Great Credit Crisis". While the writing and editing aren't the greatest, the gist of the book is both interesting and saddening.
For those who might not be familiar with how Private Equity/LBO firms operate I'll provide a simple 10,000 foot view. Basically these firms raise money from investors, primarily pension funds and other institutional investors, along with wealthy individuals. They use this money to effectively make a down payment to purchase existing, generally successful, businesses. They then saddle the company they are acquiring with massive debt to fund the lion's share of the purchase. They skim money for managing the process, initiating the buyout, overseeing operations and so on. The MO is to take over the company, do whatever it takes to increase earnings in the short term, including firing employees, reducing research and development expenses, lowering the quality of products produced, raising prices, etc. With a short term increase in earnings they will saddle the company with more debt. This debt will go directly to the LBO firm that initiated the transaction via a distribution or dividend. If they can sell the company to someone else (generally another LBO firm, the greater fool theory at its finest) great, if not who cares? As the partners risk nothing between raising investment funds and debt they still make money even when the company ends up in bankruptcy.
Now to cut to the chase. The loose money that has been unleashed on the market by central banks the world over for the past 10 years or so found it's way into LBO deals as one would expect. Currently there is approximately $1 trillion in debt owed by companies owned by LBO firms. The bulk of this debt will be due in 2011-2012. Nearly 3200 companies were purchased via LBO transactions between 2000-2008 in the U.S. These companies employ 7.5 million Americans. That's equivalent to 10% of the U.S. workforce.
Will this trillion dollars in debt be able to be rolled over in 2012? I have no crystal ball to speculate. However, it does shed light why the official policy of the fed and Barry O's administration is to attempt to reflate the bubble rather than let the deflation of it, that is natural, necessary, and arguably inevitable take place. Currently real unemployment is nearly 20% with more job losses to come. What will happen if these debts can't be rolled over? They certainly can't be paid off and the LBO shops that own these companies don't care if they go bankrupt.
To add insult to injury, both former president Bushes, former president Clinton, former House majority leader Dick Gephart, former Republican National Committee chairman Kenneth Mehlman, former Senate majority leader Tom Daschle, former Treasury Secretaries James Baker, Nicholas Brady, Paul O'Neil, and John Snow, (yes 4 former Treasury Secretaries) all have been or are currently on the payrolls of Private Equity firms. Both sides of the political establishment love the idea of destroying American companies and eliminating American jobs, as long as they continue to get rich in the process.
I finally found the closest thing to what I was looking for in Josh Kosman's book, "The Buyout of America: How Private Equity Will Cause the Next Great Credit Crisis". While the writing and editing aren't the greatest, the gist of the book is both interesting and saddening.
For those who might not be familiar with how Private Equity/LBO firms operate I'll provide a simple 10,000 foot view. Basically these firms raise money from investors, primarily pension funds and other institutional investors, along with wealthy individuals. They use this money to effectively make a down payment to purchase existing, generally successful, businesses. They then saddle the company they are acquiring with massive debt to fund the lion's share of the purchase. They skim money for managing the process, initiating the buyout, overseeing operations and so on. The MO is to take over the company, do whatever it takes to increase earnings in the short term, including firing employees, reducing research and development expenses, lowering the quality of products produced, raising prices, etc. With a short term increase in earnings they will saddle the company with more debt. This debt will go directly to the LBO firm that initiated the transaction via a distribution or dividend. If they can sell the company to someone else (generally another LBO firm, the greater fool theory at its finest) great, if not who cares? As the partners risk nothing between raising investment funds and debt they still make money even when the company ends up in bankruptcy.
Now to cut to the chase. The loose money that has been unleashed on the market by central banks the world over for the past 10 years or so found it's way into LBO deals as one would expect. Currently there is approximately $1 trillion in debt owed by companies owned by LBO firms. The bulk of this debt will be due in 2011-2012. Nearly 3200 companies were purchased via LBO transactions between 2000-2008 in the U.S. These companies employ 7.5 million Americans. That's equivalent to 10% of the U.S. workforce.
Will this trillion dollars in debt be able to be rolled over in 2012? I have no crystal ball to speculate. However, it does shed light why the official policy of the fed and Barry O's administration is to attempt to reflate the bubble rather than let the deflation of it, that is natural, necessary, and arguably inevitable take place. Currently real unemployment is nearly 20% with more job losses to come. What will happen if these debts can't be rolled over? They certainly can't be paid off and the LBO shops that own these companies don't care if they go bankrupt.
To add insult to injury, both former president Bushes, former president Clinton, former House majority leader Dick Gephart, former Republican National Committee chairman Kenneth Mehlman, former Senate majority leader Tom Daschle, former Treasury Secretaries James Baker, Nicholas Brady, Paul O'Neil, and John Snow, (yes 4 former Treasury Secretaries) all have been or are currently on the payrolls of Private Equity firms. Both sides of the political establishment love the idea of destroying American companies and eliminating American jobs, as long as they continue to get rich in the process.
Tuesday, February 9, 2010
Fictionalized Account of the Economic Crisis
In enjoying my lunch today I was lucky enough to catch Warren Buffet and Hank Paulson discussing Hank's fictionalized account of the raping of America that took place under his watch as Secretary of the Treasury. Before you ask yourself, "why does this guy keep ruining his lunch by catching these ridiculous acts of kabuki theater on the tube", trust me, you develop bad habits when you are unemployed...one of mine is having lunch while alternating between CNBC, Bloomberg, and Fox Business. Can't explain it other than morbid curiosity...but I digress.
So Grandpa Warren was asking questions to Hank and then agreeing at every turn how everyone involved saved the world. They would occasionally throw the peasants some bone like, "as terrible as this is now, if we hadn't acted in the manner we did our financial system would have collapsed.". Several things went through my mind as I suffered through the bs. First was, how disgusted I am that the state of America is such that when the aristocracy discusses how it stole from the middle class and future generations of middle class Americans to make sure that their own establishments were not seen to be insolvent, that a room full of idiots show up to listen and television crews broadcast it. There was a time when the aristocracy would be risking their lives if they tried to gather the citizens of America and tell them how stealing their wealth, and the wealth of their children and grandchildren was better than the alternative of the aristocrats casino being shut down. Now, with a straight face, they claim to have saved the world by making sure that their wealth was preserved at all costs.
It is this point that I suppose angers and frustrates me the most. People are so dumbed down, apathetic, naive, dimwitted, selfish, and morally bankrupt that they line up to get autographs from those who have robbed them blind and virtually insured the coming bankruptcy of America.
The other thought I did have was that when Hankies book is adapted to a movie about how he and the other aristocrats saved the world by selling out the middle class there will be a disclaimer run at the end of the movie. When you watch a Western you'll read a disclaimer that says something like, "No horses were injured in the making of this movie". Hankies book/movie will have to have the disclaimer, "No actual billionaires were harmed in the looting of America".
So Grandpa Warren was asking questions to Hank and then agreeing at every turn how everyone involved saved the world. They would occasionally throw the peasants some bone like, "as terrible as this is now, if we hadn't acted in the manner we did our financial system would have collapsed.". Several things went through my mind as I suffered through the bs. First was, how disgusted I am that the state of America is such that when the aristocracy discusses how it stole from the middle class and future generations of middle class Americans to make sure that their own establishments were not seen to be insolvent, that a room full of idiots show up to listen and television crews broadcast it. There was a time when the aristocracy would be risking their lives if they tried to gather the citizens of America and tell them how stealing their wealth, and the wealth of their children and grandchildren was better than the alternative of the aristocrats casino being shut down. Now, with a straight face, they claim to have saved the world by making sure that their wealth was preserved at all costs.
It is this point that I suppose angers and frustrates me the most. People are so dumbed down, apathetic, naive, dimwitted, selfish, and morally bankrupt that they line up to get autographs from those who have robbed them blind and virtually insured the coming bankruptcy of America.
The other thought I did have was that when Hankies book is adapted to a movie about how he and the other aristocrats saved the world by selling out the middle class there will be a disclaimer run at the end of the movie. When you watch a Western you'll read a disclaimer that says something like, "No horses were injured in the making of this movie". Hankies book/movie will have to have the disclaimer, "No actual billionaires were harmed in the looting of America".
Friday, February 5, 2010
Meltdown
Just finished a book that I can't recommend highly enough. The book is "Meltdown" by Thomas E. Woods Jr. The book is a very easy read and identifies with great clarity the causes of the current economic meltdown we are living through along with a proposed remedy.
You will find no partisan nonsense and for those who have never been exposed to the Austrian school of economics it will provide a great introduction.
Take a day of your life and read this book. I think you'll be glad you did and desire to pass it on to others.
You will find no partisan nonsense and for those who have never been exposed to the Austrian school of economics it will provide a great introduction.
Take a day of your life and read this book. I think you'll be glad you did and desire to pass it on to others.
Thursday, February 4, 2010
Intelligence Lost
Being gainfully unemployed and what feels like terminally unemployable has provided me ample time to read, think, and ponder the state of America and the world. Lately I've been struck by how common sense formerly was common among political and cultural leaders in centuries past in America. I've posted some quotes from Thomas Jefferson, whom most already knew was an exceptional character in American history. I've also posted a little bit on Andrew Jackson as well. However, the more I read the more I'm confronted with the fact that a conscious recognition of the danger of banking, particular central banking, and it's effects on the economy was commonplace in our history.
Today, we continue to be told that the banking industry must be propped up at all costs. Intuitively I believe most Americans don't agree but the propaganda is so overwhelming that it is hard for most to put their finger on what about this message doesn't seem right. I suppose that 100 years of obfuscation, propaganda, and control of the study of economics in the academic community on behalf of the Federal Reserve has worked marvelously to keep the average citizen from being able to identify what is wrong with the message specifically.
I'm posting a few more quotes for consideration along this theme: that economic common sense was indeed common among cultural, intellectual, and political leaders in America prior to the 20th Century. Sadly, our leaders today are either too corrupt, too lazy, too complacent, or too stupid to understand either the cause of the situation we are now in, or the solution.
"For three hundred years our history has been marked by the alternations of 'prosperity' and 'distress' which are produced by the booms and their collapse. When the collapse comes, the people who are left long on goods and land [and stocks] always make a great outcry and start a political agitation. Their favorite device always is to try to inflate the currency and raise prices again until they can unload...No scheme has ever been devised by them has ever made a collapsed boom go up again."
William Graham Sumner, Yale Professor, 1896
Ponder Mr. Sumner's comment in light of the reality that insider selling verses insider buying in publicly traded stocks in December of 2009 was 82 to 1. Or in light of the famous threat by then Secretary of Treasury Hank Paulson that if Congress did not provide $700 million of taxpayer money to be used to prop the banking sector up our entire economy would grind to a halt. Or in light of the increase of the U.S. monetary base by the Federal Reserve by 250% in less than 18 months...I could go on but you get the point.
In 1857 America faced a stock market bust and bank-run crisis with those left holding the bag calling on President James Buchanan to intervene. Unlike Bush or Barry O his response was to allow the market to determine who survived and who failed and wrote in his first annual address, "It is apparent that our existing misfortunes have proceeded solely from our extravagant and vicious system of paper currency and bank credits." For the next six months the money supply shrunk , government did not intervene, banks and other bad actors failed, and the economy recovered in less than 1 year.
I have a hunch that the "Dow 10,000" hats will be donned many times over the next 10 years. The only time I'll be excited is when it is on the way up from Dow 3500.
Today, we continue to be told that the banking industry must be propped up at all costs. Intuitively I believe most Americans don't agree but the propaganda is so overwhelming that it is hard for most to put their finger on what about this message doesn't seem right. I suppose that 100 years of obfuscation, propaganda, and control of the study of economics in the academic community on behalf of the Federal Reserve has worked marvelously to keep the average citizen from being able to identify what is wrong with the message specifically.
I'm posting a few more quotes for consideration along this theme: that economic common sense was indeed common among cultural, intellectual, and political leaders in America prior to the 20th Century. Sadly, our leaders today are either too corrupt, too lazy, too complacent, or too stupid to understand either the cause of the situation we are now in, or the solution.
"For three hundred years our history has been marked by the alternations of 'prosperity' and 'distress' which are produced by the booms and their collapse. When the collapse comes, the people who are left long on goods and land [and stocks] always make a great outcry and start a political agitation. Their favorite device always is to try to inflate the currency and raise prices again until they can unload...No scheme has ever been devised by them has ever made a collapsed boom go up again."
William Graham Sumner, Yale Professor, 1896
Ponder Mr. Sumner's comment in light of the reality that insider selling verses insider buying in publicly traded stocks in December of 2009 was 82 to 1. Or in light of the famous threat by then Secretary of Treasury Hank Paulson that if Congress did not provide $700 million of taxpayer money to be used to prop the banking sector up our entire economy would grind to a halt. Or in light of the increase of the U.S. monetary base by the Federal Reserve by 250% in less than 18 months...I could go on but you get the point.
In 1857 America faced a stock market bust and bank-run crisis with those left holding the bag calling on President James Buchanan to intervene. Unlike Bush or Barry O his response was to allow the market to determine who survived and who failed and wrote in his first annual address, "It is apparent that our existing misfortunes have proceeded solely from our extravagant and vicious system of paper currency and bank credits." For the next six months the money supply shrunk , government did not intervene, banks and other bad actors failed, and the economy recovered in less than 1 year.
I have a hunch that the "Dow 10,000" hats will be donned many times over the next 10 years. The only time I'll be excited is when it is on the way up from Dow 3500.
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