The Market Ticker - Consumer

So Much For Universal Default Disappearing

nospam@example.com (Karl Denninger) — Thu, 04 Mar 2010 11:31:00 -0500

Gee, how do you like the rape job that the banks just served up on you?

(Click to enlarge)

Read that white part carefully, and then make sure you read the inverted part.

If you:

Exceed your credit line.
Do not pay on time (even once)
The bank believes you will be either unwilling or unable to pay because of "information they receive" (like, for instance, because your credit report discloses you didn't pay someone else?)

The bank can immediately close your account without notice AND DEMAND YOU PAY THE ENTIRE BALANCE ON THE ACCOUNT IMMEDIATELY.

Oh, and when you can't (because you thought you had time to pay) you are then in default again for not paying "on time" and they can sue and add attorneys fees and costs.

I thought this crap was going away?

This, by the way, is from Chase, I have the entire section of the statement (all pages), and is claimed to be effective on 22 February.

So much for the CARD act banning practices like this, eh?

This is effectively a "CALL" option on your credit card. This "feature" is why when I ran MCSNet I refused to ever accept a bank credit line for any purpose whatsoever for the company - they all had this sort of tricky crap in them somewhere. Every one. In each and every case such a clause gives the bank the right to force you into bankruptcy if you ever actually use the credit for anything other than as a cash-management tool (that is, as a means to pay for something over time), as they can declare the line in default any time they'd like and accelerate repayment, demanding the full balance. You either have it (in which case you didn't really need the credit, right?) or you're bankrupt - at their sole discretion.

TELL THE BANKSTERS TO SHOVE THIS CRAP UP THEIR BUTTS - WITHDRAW YOUR MONEY AND REMOVE YOUR BUSINESS FROM ANY LENDER WHO HAS SOMETHING LIKE THIS IN THEIR AGREEMENTS - ALL OF IT.

I warned people a year ago to get out of debt, especially revolving debt or any other sort of credit where the terms could be changed on you, in my "Ten Things" Ticker of June 8th of 2009.

This sort of trick is why.

Consumer Credit: What Good News?

nospam@example.com (Karl Denninger) — Sat, 06 Feb 2010 10:59:33 -0500

Bloomberg said:

Feb. 5 (Bloomberg) -- U.S. stocks rose, rebounding from the biggest losses since March, as investors speculated the European Union may come up with a solution for budget deficits in Greece and Spain and consumer credit dropped less than forecast.

Bah.

Here's the shorter-term outstanding credit picture...

And the rate of change....

Yes, there was a small uptick in non-revolving debt taken on (cars?) but the credit card rate-of-change continued to blow and during the Christmas month it declined by a net $8.5 billion.

Let me also point out that last December, which allegedly was the "depths of Hell" when it came to consumer behavior, revolving credit declined by $6.6 billion.

This December revolving debt declined by 29% more than it did last Christmas season!

Now perhaps you can square that with the claims of a "good" Christmas season that had increased consumer sales, and perhaps you can claim that this somehow represents that the de-leveraging is coming to an end in the consumer space, but I cannot.

First, from a "big-picture" perspective, here's the consumer credit outstanding graph going back to the late 1960s:

The so-called "consumer revolution" happened through "increased earnings" eh? Uh, no. It happened due to increasing leverage, and this report, may I remind you, does not include mortgages - that's in the Z1, which comes out quarterly.

Here's reality folks: people are paying down their credit cards and keeping their car loans current by ignoring their mortgage notes!

The percentage of consumers delinquent on mortgages, but current on credit cards rose to 6.6 percent in the third quarter of 2009 from 6.3 percent in the previous quarter and 4.9 percent in the same quarter a year earlier, a new study developed by TransUnion showed.

The trend first emerged in the first quarter of 2008 when it was at 4.3 percent, Chicago-based TransUnion said.

So in reality we have people who are maintaining their spending by living free in their homes, producing this sort of credit report snippet, as I reported on yesterday:

That's more than a year of "120 days+ late" reported, sequentially, with no foreclosure to close the file.

We have here a mexican standoff. The American People have increasingly figured out that the banks are lying about their asset quality and in fact are lying about their profitability by marking their "assets" to myth - that is, ignoring bad loans. They are doing this by refusing to foreclose on defaulted mortgages, as that action would force them to recognize the loss.

Therefore, the logical thing for a consumer who is strapped for money to do is to erect their middle finger toward the bank that holds their mortgage, and instead pay their credit card and live on the money they would otherwise send in for the mortgage, thereby pumping their lifestyle beyond what they could otherwise afford. Some people are undoubtedly doing this even if they could pay the mortgage.

This is what happens when the government countenances, embraces and even promotes false accounting and bogus financial activities - the people figure out the game and come along for the ride as well.

This is "touted" by mainstream media and the government as "economic improvement" when it is no such thing. The underlying quality of the assets behind those loans continues to deteriorate as the payments are not being made. The deficiency continues to grow, eroding the capital base behind the book of alleged "assets." Eventually this rot of the foundation will cause the all-on catastrophic collapse of these banking "empires", and since we have refused to cage the credit-default swap monster and in fact empowered him by legalizing bogus "mark to model" accounting fictions the deficiency has been allowed to grow to the point that, if we allow this to continue much longer, not even governments are likely to be able to stop it when it begins to topple.

Do not be fooled by false Gods. The fact of the matter is that consumers have hit the wall. We continue to believe that consumer credit loads are "reasonably serviceable" yet the percentage of the civilian workforce that is employed is back to where it was before "women in the workforce" became a serious component of working America, and near the peak levels of the years prior to that time.

In summary we have solved nothing, credit outstanding deteriorated in the revolving space at a rate 29% faster than it did during the last Christmas season, and there is no good news to be found in the employment coverage ratio - the critical factor for the government being able to raise coverage for its debts via taxation.

PS: You think the big bad central bankers don't know this? If they truly believe everything is ok, China really doesn't have trillions of Yuan in bad debts in their banks that are being hidden, and we're not going to see lots of Portugese-style auction failures along with Greece, Spain, and eventually the UK and America follow it down the bowl, why is there a secret meeting of central bankers taking place in Australia this weekend?

Banksters Fight Back: Deficiency Judgments

nospam@example.com (Karl Denninger) — Fri, 29 Jan 2010 09:11:00 -0500

Remember my repeated warnings about consulting with both a lawyer and CPA before defaulting on your debts - including mortgages - on purpose?

Well, here's why doing so is a good idea:

King is among a rising number of borrowers who are learning that they can be on the hook for years after losing their homes. Amid a crisis that stripped $6.4 trillion, or 28 percent, from the value of U.S. residential real estate since the 2006 peak, lenders are exercising their rights to pursue unpaid mortgage balances. To get their money, they can seize wages, tap bank accounts and put liens on other assets held by debtors.

In some cases they can seize wages, tap bank account and lay liens.

This is very situational and state-specific.

Oh, and don't think that a short sale protects you from this. It doesn't necessarily, and some banks are slithering snakes in their short sale agreements...

“Banks are being very careful to preserve their rights, either outright in the short sale agreement or by using vague language that leaves that door open,” Hillard said. About 90 percent of people who do a short sale think they are “off the hook.”

Again, let me reiterate:

GET COMPETENT LEGAL AND TAX ADVICE THAT YOU PAY FOR SEPARATELY FROM PEOPLE YOU INDEPENDENTLY SELECT BEFORE YOU CONSIDER ANY SORT OF CHANGE THAT ALLEGEDLY WILL "FREE" YOU FROM DEBT, IRRESPECTIVE OF HOW.

THE FINANCIAL INDUSTRY DOES NOT PLAY "FAIR." THEY HAVE ROBBED THE PEOPLE ON THE WAY UP AND IF THEY CAN GET THEIR CLAWS INTO YOU THEY WILL ROB YOU AGAIN ON THE WAY DOWN.

STATE LAW MAY OR MAY NOT PROTECT YOU AND YOU NEED TO UNDERSTAND EXACTLY WHAT THE CONSEQUENCES ARE OF ANY STEP YOU TAKE, EVEN WHAT LOOKS LIKE A "CLEAN" WAY OUT SUCH A SHORT SALE AGREEMENT!

PAY A COMPETENT LAWYER AND CPA!

Money Market Funds: No Longer Safe

nospam@example.com (Karl Denninger) — Thu, 28 Jan 2010 08:23:00 -0500

Here's something you won't see talked about much - unless you dig for it.

Zerohedge covered it - the fact that money markets are no longer guaranteed liquid. But look at what The Wall Street Journal had to say:

Money-market funds could be forced to pay out less interest under new federal rules designed to make them sturdier.

With memories still raw from the 2008 meltdown of Reserve Primary Fund, the Securities and Exchange Commission released rules on Wednesday that require funds to hold more liquid and higher-quality assets and disclose the value of their assets per share more frequently.

This makes it sound as though the funds will be safer - and more liquid - right? That is, there will be less risk of what happened when Reserve broke the buck and then threw up gates.

Bloomberg said:

Funds must be able to sell 10 percent of their assets in one day and 30 percent within a week under rules approved today by the Securities and Exchange Commission. The SEC’s 4-1 vote also imposed new restrictions on buying lower-rated securities and required more disclosure on declines in funds’ share prices.

“These rules will take important initial steps toward making money-market funds less vulnerable to runs,” SEC Chairman Mary Schapiro said at a meeting in Washington. “The new rules will have substantial benefits for investors.”

Less vulnerable to runs, eh? That's a rather nuanced statement that at first sounds like "less likely for you to get stuck without access to your money", right?

Well, don't be so sure. Buried in there is this:

Suspension of Redemptions: The new rules permit a money market fund's board of directors to suspend redemptions if the fund is about to break the buck and decides to liquidate the fund (currently the board must request an order from the SEC to suspend redemptions). In the event of a threatened run on the fund, this allows for an orderly liquidation of the portfolio. The fund is now required to notify the Commission prior to relying on this rule.

Formerly the fund had to seek permission to suspend redemptions.

Not any more. Now the fund's board is empowered to do so unilaterally and advise the SEC, as opposed to asking the SEC for permission to toss up the gates.

This is not a small difference folks. Indeed, it is a major problem. You could easily find your so-called "safe" money market fund gated and you unable to get to your money until the fund liquidates - without warning.

So yeah, the funds are now "less vulnerable to runs" as if there's a problem they can immediately bar the door and keep you from leaving with your cash!

That's not quite what you thought that paragraph said, is it?

Many people treat these funds as if they were equivalent to a checking account. Some of the funds will even send you a book of checks!

Investors no longer can reasonably rely on daily liquidity for these funds as a consequence of this change. While under normal conditions daily liquidity remains available it is precisely under abnormal conditions that an investor is likely to most need access to this money instantly, for example to meet a margin call or for other emergency funding requirements.

The inversion of the former rules in this regard means you can no longer treat these as cash equivalents with a higher yield. Indeed, there is damn little reason for anyone to buy these at all now - you're really not any better (or worse) off if you simply deposit the money in Treasury Direct and then buy a ladder of short-term bills - say, 4 or 13-week instruments.

Yes, you'll earn jack doing this. But you're going to earn jack anyway in a money market fund, you won't pay a management fee with a Treasury Direct account, and at least thus far there is no material threat of the US Federal Government throwing up gates.

Inexorably the noose tightens around your neck. Beware.

Consumer Anger Rising Fast: Chargebacks

nospam@example.com (Karl Denninger) — Mon, 18 Jan 2010 13:59:00 -0500

Anecdotal report thus far....

On the forum there is a report of a number of merchants dropping credit card processing entirely due to rampant (and bogus) chargebacks.

Does anyone remember my Tickers on "Is The Government a Felon or a Cop" posts?

Go read 'em again.

One of the more recent had this to say:

If the people cannot find justice within the government's apparatus, are they to sit quietly and ask "Please Sir, may I have another (beating, rape, robbery, take your pick)?"

Or should we expect that at some point - perhaps not now, but perhaps not far down the road either, the people will have had enough. They will rise and take care of these matters in their own way - and there won't be much in the way of a "fair trial." I've yet to see boiled rope or guillotine blade futures listed by the CME, but is this sort of redress for grievances really that far in our future?

It appears that the breakdown of the implied social agreement is beginning to accelerate.

We have people who have lived in their homes for two years now without making a mortgage payment. Banks are refusing to foreclose because it would force them to write off their losses - they are thus lying about their credit quality by enabling people to live in the house literally for free - claiming to be "well-capitalized" while at the same time hiding huge losses in the form of loans they're refusing to foreclose on.

We have banksters and lobbyists who claimed that the world would end if they had to "mark to the market" - in other words, they demanded legislative permission to lie. They got it, then used their so-called "healthy balance sheets" to pay enormous bonuses to the very same people who peddled these trash-ridden securities to the masses.

The people have had it. They're fighting back with the same tools the banksters use:

They're refusing to pay their mortgages, knowing full well that the banks cannot foreclose on all of the loans without recognizing the losses and rendering themselves insolvent.
They are filing chargebacks against merchants, whether valid or not, as a means of playing 'extend and pretend' on a personal level. Even if they lose, for a while they don't have to pay (but the merchant does, and has to contest the refused payment.)

I'm sure there's more coming.

Listen up Washington. You knew back in 2004 that these "mortgage products" were fraudulent. The FBI told you so. In 2006 and 2007 you had studies by private credit analysts and HUD that found that only one "ALT-A" loan in ten had an accurately-stated income.

None of this was disclosed to the buyers of these securities and as a consequence they took monstrous losses - losses that are not done with being taken.

Instead of forcing those who made the bad loans to eat them and prosecuting the wrongdoing involved the government has done the exact opposite - it has rewarded the wrong-doing by bailing out the firms involved instead of forcing them through bankruptcy and closing them down. The people who got hosed by buying securities without disclosure that the loans in them were rife with fraud have been given no effective means of recourse.

The people of this nation have watched millions of jobs evaporate before their eyes while their fraudulently-overinflated house price deflates back toward a reasonable level. The government has tried to stop that too, but not by compensating those robbed for the pervasive fraud (or even by locking up those who did the deeds) but rather by slight-of-hand "tax credits" that amount to stealing money out of your wallet only to give it back to you and call it "assistance"!

The people have discerned that if the banksters cannot foreclose lest they be forced to recognize their losses (especially on second liens such as HELOCs that are worth nothing when behind an underwater first) they literally have a gun to the bank's head and thus have no need to pay their mortgage - the bank can't kick them out and foreclose, as to do so forces both price discovery on the house and a mark to the market on the (now-extinguished) loan - neither of which the bank can afford.

Citizens are apparently are also figuring out that if it was perfectly ok for banks to lie about their financial condition and sell securities without being honest then it's perfectly ok for them to be dishonest too and screw everyone they can manage to in any way they're able - such as by filing chargebacks against merchants.

This is precisely the sort of risk I warned about, and it appears that we are indeed rapidly running out of time for Washington DC to do the right thing.

President Obama, Attorney General Holder and The FBI: You must start empaneling Grand Juries NOW and begin to bring cases before them regarding the rampant fraud in our securities and lending markets over the last twenty years, along with demanding answers - and accountability - from people like Sheila Bair who had the ability to force corrective action at the big banks or even break them up.

There is a critical point beyond which no loan will be "money good" and that time, in the consumer space, appears to be fast approaching.

While I cannot and will not countenance anyone filing a bogus chargeback as a means of evading (even temporarily) payment for various charges, I do understand why citizens are doing this, I do believe it will rapidly increase in severity and popularity, and the only thing that can or will stop the acceleration of the citizens doing the same things that the banksters did for the same reasons (their own personal profit irrespective of who gets harmed) is when those who committed all this massive fraud in the previous two decades are brought to justice.

Those inquiries and prosecutions must be en-masse, not just one or two symbolic "show trials" like Madoff.

If this does not happen sooner rather than later you may as well write off the concept of any form of consumer debt being "money good" - everywhere.

Go ask your "economic adviser" Summers what will happen to the American Economy if the citizens decide they have had enough and do exactly that Mr. President, because there isn't jack you or anyone else can do about it if the people decide to take matters into their own hands in this fashion.

Retail Sales Blow (December)

nospam@example.com (Karl Denninger) — Thu, 14 Jan 2010 09:04:00 -0500

Interesting report....

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for December, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $353.0 billion, a decrease of 0.3 percent (±0.5%)* from the previous month, but 5.4 percent (±0.5%) above December 2008. Total sales for the 12 months of 2009 were down 6.2 percent (±0.2%) from 2008. Total sales for the October through December 2009 period were up 1.9 percent (±0.3%) from the same period a year ago.

Now remember, Census has some funny methodology in that they don't count sales unless both the prior and current month is returned by the same store. This means they overstate sales during declines in the economy, and understate them during expansions.

Looking inside the report we see a number of surprises in the year-over-year numbers.

Electronics were down - so much for the so-called "strong Christmas sales" in that category that everyone on ToutTV has been crowing about.

Food and beverage purchases were up - price inflation?

Gasoline was up huge, accounting for a huge percentage of the year/over/year increase all on its own. Gee, that happens when the gas price goes up a lot, right?

Indeed, while there were positive changes in other categories (online was up 10%, as just one example) gasoline sales increased in dollar volume by thirty-four percent and accounted for a stunning $8.7 billion of the total $17.9 billion increase - roughly half.

What's there to like in here? I say "little or nothing" - gas sale increases are not positive, they're negative as most gasoline demand is inelastic (you need it to get to work) as is food.

The bright lights, such as they were, had clothing up 5% and general merchandise up 2%, both annualized.

Rather uninspiring when one considers that the inelastic components were the big movers on the positive side and that's not good for discretionary spending capacity.

Consumer Non-Confidence

nospam@example.com (Karl Denninger) — Wed, 13 Jan 2010 08:37:00 -0500

This is a horrible print, to be blunt.

Consumer confidence this week sustained one of its steepest one-week drops in the last quarter century, following last week's troubling jobs report with an all-hands retreat from what had been a tentative positive trend in consumer attitudes.

(Full PDF link here)

There's no good news embedded in here. Personal finances and the buying climate dropped by amounts matching their largest one-week change ever, possibly spurred by people getting their credit-card statements from Christmas (or simply reflecting on what they spent - and determining it was too much.)

Only nine percent rate the economy positively.

Partisan political differences have also disappeared. This is an extremely bad omen for President Obama and the Democrats in Congress - they were given a pass (with an 18 point gap at the start of last year) but no longer.

As I wrote yesterday, President Obama is faced with a stark choice: he can either turn on the bankers - his most-favored class, even more so than organized labor and other groups that people have seen as his "pets", or his party is very likely to be run out of town on a rail come November, and in 2012 he will be departing The White House.

The anger being displayed isn't misplaced. The banksters are in fact the ones who caused the mess. They're the ones who made loans to people who had no money to pay, they're the ones who intentionally sold trash to anyone and everyone with the only qualification for a huge bonus being "sell more!" and the regulatory environment not only looked the other way when these acts were committed they egged Wall Street on!

If you're going to say "this can't be allowed to happen again" (and everyone agrees on that point) you must then identify those who did the evil and outrageous things to our citizens and economy and lock them up!

This isn't in fact about "forward regulation" - there were and are already plenty of laws on the books that make misrepresentation illegal. These laws were not and are not, to this day, being enforced.

You must limit leverage - and enforce a "no loophole will be tolerated and if you try, you'll be jailed" policy.

And finally, you must separate credit-granters (banks) who are inherently able to trade on the sovereign credit of the United States through fractional reserves from the capital markets and place an absolute bar on them trading - for their own accounts or otherwise. This means Glass-Steagall must be re-imposed and all of the big banks that perform these functions along with lending must be broken up.

Finally, I have reluctantly come to the opinion, through multiple examples through the last decade and more, that brokerages and research organizations must be absolutely restrained from trading for their own account. Goldman's "trading ideas" are just the latest example; yesterday, for example, MGM was put on their "conviction buy list" and took off on huge volume. Given the stock's movement over the last few days, the huge volume pattern yesterday and the disclosure of their "client best practice" document does anyone believe that their prop desk wasn't given that information first? While there are allegedly "chinese walls" between research and trading arms of these firms the disclosure recently made calls into question whether they still exist in any meaningful form, or whether the lawyer-types have found away around that regulation too. If you want to trade for your own account, be a hedge fund. If you want to perform brokerage services for other people then you must be forced as a matter of law into fiduciary responsibility toward your clients, which means you can't both execute trades for other people and trade your own book - period.

If Consumer Spending Is Improving, Where Is It?

nospam@example.com (Karl Denninger) — Mon, 11 Jan 2010 10:21:00 -0500

I know, I know, "the consumer is stabilizing" remember? Let's look at personal income and spending.

Here's the latest, archived on The Ticker so it doesn't get overwritten (click for a full page):

Note that July, August and September are all third quarter. The numbers are +0.2%, +1.3% and -0.6%, for a net of +1.1%.

Perhaps you can square this with the following, because I cannot:

Income tax receipts square with employment (or rather the lack thereof), and despite the claims of the media that we have "10% unemployment" the fact is that the labor participation rate is back to where it was in the early 1980s. Worse, during the 2000 decade we did not return one net person to the labor force on an annualized basis but we did add 25 million more Americans to the nation!

We didn't lose 9 million jobs, we have a colossal THIRTY FOUR MILLION unemployed that weren't in 2000 - nine million who lost their job and another twenty-five million who came to (or were born into and reached working age in) the country but never got a job!

This is instantly visible in the labor participation rate:

The BEA's numbers are a fantasy and as such so are claims of "economic recovery." The facts are found in the sales tax receipts and labor participation rate.

The labor force problems are structural - we have exported our goods-producing jobs to China, India and Vietnam, leaving us with Wall Street banksters and Starbucks Baristas - two extremes that have produced a "barbell" economy that is incapable of sustaining the middle-class standard of living given the consumer's debt load - a ratio that on a per-dollar-of-income basis is roughly twice what it was in the early 1980s. In an attempt to sustain this charade beyond 2000 (when it should have collapsed and forced a nasty recession, including the bankruptcy of those banks who had imprudently granted consumer and mortgage loans) the banksters instead extended "all you can eat" credit to anyone who could fog a mirror despite the fact that they were either Starbucks Baristas or, in many cases, weren't even legal US residents and had no lawful right to earn an income in this country with which to pay the debt!

This "worked" for nearly a decade and was responsible for the so-called "economic recovery" and "prosperity" from 2001 - 2007. But like all fantasies that are powered by fraud and deception the math eventually catches up with you.

Now it has and while so-called "investors" on Wall Street have yet to recognize the facts they are found in the sales tax and state budget reports, both of which show the inescapable truth: we have exhausted the gap between credit-carrying capacity and actual personal income, and despite the outright falsehoods promulgated by the Goebbels Economic Analysis Bureau state sales tax receipts do not lie.

The moment of recognition in the market will come, and when it does, it is likely to come hard and fast, just as it did with the Nasdaq in the spring of 2000.

Be prepared.

There Is NO Economic Recovery Happening

nospam@example.com (Karl Denninger) — Fri, 08 Jan 2010 15:35:00 -0500

Look folks, this is really quite simple.

Economic Stability and Recovery = Credit Expansion.

We cannot recover until we purge the excess debt from the system, and the longer we take to do that, the longer the pain will last and the worse it will be.

President Obama and Tim Geithner know this - that's why they are constantly harping on banks to "lend more."

Well, they may want banks to lend more but the people are fed up with being debt slaves and are borrowing less.

Today, we got the latest from The Fed on this subject:

Consumer credit decreased at an annual rate of 8-1/2 percent in November. Revolving credit decreased at an annual rate of 18-1/2 percent, and nonrevolving credit decreased at an annual rate of 3 percent.

I have updated the charts, and this is where we are as of November:

Non-revolving debt (basically auto loans) has pretty much stabilized since mid-year. But consumer revolving debt - credit cards - continues to accelerate in its rate of decline.

The longer-term view looks like this:

These rates of decline are unprecedented and they are not slowing down.

The drop in credit card debt outstanding is on the largest on record since The Fed started keeping those records in 1943!

Consumer recovery?

There is none!

It is axiomatic that you can pump yourself full of speedballs (e.g. government spending) and stay up for days at a time. It is also true that if you do too many speedballs you will have a heart attack and die, and there is no way to know precisely which is the "one too many" until you shoot it - at which point it's too late to change your mind!

The so-called "recovery" has been driven by pump-priming, which has had at its root one primary intent - to drive citizens into herd behavior and get them to spend more and more (that they don't have!)

But at the same time this has been the message credit card rates have been ramped and lines slashed. So now Joe Six Pack is faced with a 30% interest rate on his credit card - if he has any open line left!

There is no possible way for this program to work, since the entire problem originally - what began this recession - was people that were unable to make their debt payments in the first place!

Small business will not hire until their debt load comes down to a reasonable level. This will take literal years if we don't quit trying to prevent the contraction of both asset prices and credit levels. In the mean time millions of Americans will remain in destitution!

There is no way to avoid the bankruptcy of those firms and individuals who are over-levered. The best solution (take the pain now!) will not prevent the bankruptcies, but it will get them over with and let the nation begin to emerge from the morass within 12-18 months. For every month we keep trying to prevent the liquidation of insoluble debt we add months of additional time to that required to resolve the bust and deepen the amount of pain that must be suffered, since all we are doing is adding more debt upon existing debt.

It is time for Washington DC, including The Fed and Congress along with President Obama to embrace the facts - we must finish the de-leveraging that is necessary to return the citizens and corporations of this nation to fiscal health. At the same time the government must stop spending twice what it takes in in taxes.

We have consumed too many speedballs, our heart rate is now 160, and if we don't cut it out the bond market is telling us that we are about to have a fatal heart attack.

Yet Another Consumer Hosing: 3DTV

nospam@example.com (Karl Denninger) — Mon, 04 Jan 2010 12:53:00 -0500

Let me guess - you were one of the fools who bought a HD TV this Christmas.

Well, I didn't, even though I have a couple of older sets around the house that I might want to upgrade.

Why not?

Just bought a new flat-panel HDTV for Christmas? Enjoying that new Blu-ray disc player? Guess what? They're already obsolete. Everything may be going 3D.

That's why.

This article, by the way, is full of misinformation, such as this:

The glasses aren't like the cardboard goggles that cost less than a dollar and are used in most theaters. That approach lowers the picture resolution of a home movie, and thus reduces the image sharpness.

No it doesn't - that's a bald-face piece of bovine excrement. The "Real-3D" technology used for most modern 3D movies relies on the polarization of the light to work. The theater's projector (DLP only here!) projects two images at "double frame rate" and a polarization filter is placed in front of the DLP array. That filter can switch to emit either right or left circular-polarized light.

The lens in your 3D glasses contain one lens that blocks right-circular polarization light, and other one blocks left.

The polarization filter at the projector is synchronized to the DLP and thus the system emits a "left" and then a "right" frame for each frame in sequence. The entire active portion of the system is at the projector and thus the required "glasses" are $1 items, containing only a passive and inexpensive plastic circular polarization filter. This scheme causes a minor amount of visible light output drop (since light that "scatters" improperly from the screen is blocked) which is compensated for by cranking up the light source's output a bit.

Now you know how the theater system works.

Here's the ugly:

This technology will only work with something that can polarize the light output, which in the consumer space means a DLP or LCD projection set - that is, something that is effectively similar to what is in the "digital theater" in terms of how it works. You need an image source that projects a beam of light into which you can insert the polarization filter, and the DLP or LCD system has to have a high enough frame rate for it to be able to emit two frames in the time that formerly emitted one (e.g. 240hz)

Flat-panel displays of any sort are incapable of producing light with the requisite polarization. (While you could probably put a filter of the necessary size in front of a flat panel the cost and damage to light output that it would produce makes such an approach prohibitive.)

Therefore the TV makers are trying to "agree" on a standard that requires active shutters in the lenses. But those things are expensive (~$50/pair), will be somewhat fragile (which they love of course since they will be able to sell you more of them when you break one!) and will require batteries, as they must pick up on a synchronization signal in the picture to be able to time the shutter action to the display.

Notice that this article was published today - and not on Thanksgiving.

Gee, I wonder why? There's nothing like screwing the consumer, right? Get him to buy a nice expensive TV set and/or Blu-Ray player for the holidays and then "oops - you have to buy it again if you want this fancy content."

I smelled this one coming..... it is just another in a long line of "information manipulation" in terms of what "industry" bothers to tell you, the consumer - and when.

Say thanks to all the consumer products makers as you bend over (again) for their bit of misdirection, never mind the adoption of a technical standard that is designed to favor certain manufacturing techniques at your expense, when the alternative - a polarizing filter exactly as is used in the theaters - is just as viable and puts the expense of the system in one place - in the TV - rather than in a forced purchase for everyone who wants to be in the room when the damn set is on!

If you're smart you will "reward" this little bit of intentional withholding of information from you until after Christmas by refusing to buy products from these companies.

All of them.

Consumer Confidence - Better?

nospam@example.com (Karl Denninger) — Tue, 29 Dec 2009 10:44:00 -0500

I love the headline from Bloomberg:

Dec. 29 (Bloomberg) -- Confidence among U.S. consumers rose in December for a second month as pessimism over the outlook for jobs diminished.

It did?

The share of consumers who said jobs are plentiful fell to 2.9 percent from 3.1 percent, according to the Conference Board. The proportion of people who said jobs are hard to get decreased to 48.6 percent from 49.2 percent.

Ok, so jobs are less "plentiful" but are "less hard to get"? That's improvement.... how? (By the way, 3% of people believing that jobs are "plentiful" is pretty-much indistinguishable from zero, no?)

The gauge of expectations for the next six months climbed to 75.6, the highest since the recession began two years ago, from 70.3 the prior month.

WHAT expectations? Oh, general expectations. Yes, yes, we know that the incessant media pumping makes people "feel" better. But...

The proportion of people who expect their incomes to rise over the next six months decreased to 10.3 percent from 10.9 percent. The share expecting more jobs improved to 16.2 percent from 15.8 percent.

So we expect more jobs (by a bit) but less income (by a bit.)

Hmmm... can you remind me again what drives consumer spending? It was home equity withdrawal but you can't do that any more. It was then (late 2007 and into 2008) credit cards, but those are being closed down and pared back too.

So let's see... that would be.... current income, right?

The FOMC has said:

“Deterioration in the labor market is abating,” the FOMC said in a statement Dec. 16 after meeting in Washington. “Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit.”

Modest income growth eh? Uh huh. Is that "income growth" all handouts from the government? That's pretty much a function of the government being able to continue to borrow and spend like a drunken sailor, yes?

How exactly is that going to work out with the bond market saying "bite me!" This is what the measured move off the current pattern in the TNX is saying lies in our reasonably-near-term future:

That in turn completes this pattern, which targets ~6.1% on the ten year bond:

That ought to be quite interesting - a roughly 60% increase in 10 year bond rates eh? Since the 10yr is the best proxy for mortgage rates (they tend to run about 100-150bps over 10s) this squares with the 30-year bond projection that would put mortgages up in the 7s.

Good luck on that "expected improvement" with that sort of move in the bond market, say much less what this will do to government borrowing costs and the government's ideas about borrowing another $1.7 trillion this fiscal year.

November Retail Sales...

nospam@example.com (Karl Denninger) — Fri, 11 Dec 2009 09:45:00 -0500

Here's the headline argument made by the media...

Dec. 11 (Bloomberg) -- Sales at U.S. retailers rose more than forecast in November, a sign consumer spending is gathering speed heading into 2010.

Really?

Gallup says otherwise, actual POS data says otherwise, at least with regard to Black Friday.

So what's going on here?

Well we could start with this, that Bloomberg, by the way, didn't report...

Special Notice - The advance estimates in this report are the first estimates from a new sample. The new sample for the Advance Monthly Retail Trade Survey is selected about once every two and a half years.

Oh, so the sampling has changed? Uh, doesn't that make for a somewhat-difficult argument that we're measuring apples to apples?

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for November, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes,

What's more expensive this year than last (since y/o/y is the more accurate measurement in general, as it nulls errors in seasonal adjustments.)

Gasoline: 33,303 .vs. 31,411. Big change - that's roughly six percent in one month! Annualized it is a roughly 10% change - gas was more expensive, basically, and most gasoline demand is inelastic (gotta get to work!)

There are some other problems evident in the data. Non-store retailers were up significantly, but there is no current-month data for online broken out, and somehow there's a bunch "missing" for the last month where the monthly breakout IS present.

On its face it looks like a good report. However, the sampling change along with some of the missing internal sub-sets for the current month make it nearly impossible for me to evaluate whether we're seeing broad-based strength on an actual basis or whether gasoline and sampling revisions are responsible for most of it.

I'm deeply skeptical of these numbers, mostly because the other data available that I've cited in recent days - the Gallup Survey, the actual POS data stream analysis, and ShopperTrack's latest - all say that Black Friday was down modestly (or worse.)

Was the front of the month that much better on "hope and change" only to get blown to bits over the Thanksgiving Holiday? I don't buy it and thus far the preponderance of the evidence does not point toward a broad-based consumption recovery.

Another Real Black Friday Number....

nospam@example.com (Karl Denninger) — Wed, 09 Dec 2009 15:38:00 -0500

... and it sucked.

The NPD Group’s Weekly Tracking Service**, the industry source for actual point-of-sale data (POS) from Black Friday. Total revenue for the week of Black Friday*** was slightly more than $2.7 billion, down 1.2 percent from 2008, but an improvement over the 3.4 percent decline noted last year.

Now there's a real number - an actual count out of POS terminals.

That's cash registers for those who would prefer "Joe Six Pack" language.

Better, here are the actual price changes from 2008 to 2009 (and 2007 to 2008) based on actual items sold: (click for the full report at the source's web site)

Do not believe the pumpers on CNBS and elsewhere.

Black Friday sucked rocks though a hose for "big ticket" consumer electronics dealers with double-digit price declines in all categories of consumer electronics save one, and with total revenue at the cash register for Black Friday was down 1.2% from the dismal, near-collapse numbers put up in 2008.

More Bankster Consumer Scams (C-Checks)

nospam@example.com (Karl Denninger) — Wed, 09 Dec 2009 14:52:00 -0500

It would be nice if the media covered the actual scam in these stories..... but they don't:

Dec. 9 (Bloomberg) -- Andrea Allan used a convenience check she received in the mail from JPMorgan Chase & Co. for Home Depot purchases. The check cost her almost $700 in interest and fees when the bank cut her credit limit and wouldn’t honor it.

“Why during this economy would Chase put out checks to people to entice them?” said Allan, a 50-year-old aesthetician in North Hollywood, California, whose credit limit was cut to $1,100 from $3,500 after she received the checks in September. “It feels predatory, not convenient.”

Well yes, that's inconvenient. What's worse is that there is no requirement for card issuers to notify you (other than on your statement) when they cut your line back, which can (and sometimes does) lead to this sort of problem.

But that's not the real scam in these "convenience" checks.

Oh no.

The real scam is found in the typical pitch enclosed with them, like the one I got from Discover a couple weeks ago.

"0% if paid off by March 31st 2010."

Sounds good, right?

Well, no, it's not, and it's not 0% either.

From the date I received the checks there was roughly four months of "zero interest." So far so good.

But in the fine print was disclosed that there was an immediate 5% "convenience fee" added to the balance when I wrote the check!

Let's see - there are 12 months in a year, and I got four months for 5% right up front, and if I don't pay it off, I start getting charged interest.

So what was the actual interest rate on that loan again?

If I wrote the check and then paid it off in one month, I'd pay 5% for holding the money for one month. If I did this 12 times I'd pay 5% 12 times, or an annualized 60% interest rate!

The longer I hold the money, of course, the lower the effective rate - which is why they cut that off after March. If I hold it for the full four months then I pay "only" an effective 15% interest rate. That's not awful (unless you consider that Discover can borrow from The Fed at zero!) but it is not "zero interest."

But of course when I get the check I might not cash it instantly. Let's say I spent it a month later on Christmas presents.

Well then my "effective interest rate", since the zero period expires in March, would be 20%.

See how these clowns get you?

What's missing is a clear, one-page description along with some simple examples, such as the person who holds the money for only one month, for two, for three, and for the maximum possible four before their ordinary interest rate kicks in.

That's a very nice scam boys and girls, but I won't be biting on it, you shouldn't bite on it, and if we had anything approaching an honest regulator in this country this sort of "trick 'em and screw 'em with fancy games" practice would be absolutely banned.

OUCH: ShopperTrak Reports November

nospam@example.com (Karl Denninger) — Wed, 09 Dec 2009 11:20:53 -0500

So much for "Black Friday was reasonably good." Like hell:

CHICAGO, IL, December 9, 2009 – ShopperTrak RCT Corporation’s Retail Traffic Index (SRTI) today reported that total U.S. foot traffic for the month of November fell 6.1 percent while the company’s National Retail Sales Estimate (NRSE) reported retail sales slipped a very slight 0.1 percent for the same period.

Now that's gonna leave a mark.

Don't believe the pumpers folks - as I reported earlier, Gallup says that per-person spending is down huge - more than 20% year/over/year - and last year sucked.

Grinchmas II cometh, and it appears it will be worse than last year.

This makes one look at this particular chart in a rather curious light:

That's the "Retail Holders" ETF, covering (roughly) the retail universe.

The "optimism" you see reflected in that chart is due to the crooners all calling an imminent recovery in consumer spending for the last six months.

Now we're being presented evidence that it has not occurred and the excuses are starting - "consumers are waiting until the last minute for better deals" and similar.

Come January when actual results have to be reported as earnings and revenues the truth will be much harder to hide. Some retailers are already reporting honest numbers - like Neiman-Marcus:

Sales at its namesake Neiman Marcus and Bergdorf Goodman stores open for at least a year, or same-store sales, continued to fall, dropping 14.9 percent during the quarter. Overall comparable sales, including its direct marketing segment, declined 13.7 percent.

Oh yeah, that portends a recovering economy and consumer spending, considering that the comps were from last year when the entire world was one big financial fireball following Lehman, AIG and the stock market's collapse.

NOT!