Bipartisan corruption

This film should be seen by everyone.

You should be equally outraged no matter what side of the political spectrum you harken from.

The film is full length, but worth the time. It is a bit sensationalized, but the core points are very well made and couldn't be of greater importance.

(h/t Romunov)

Flu Vaccine Subsidy

I was at the doctor's office today and I noticed some people getting flu shots. I remembered that last year the docotor's offices were flooded with people wanting flu shots for fear of getting bird flu. I suddenly realized that I hadn't seen a single thing about bird flu in months....until just now.

This is a typical panic piece that the media love to run at the right time. I guess some higher-up at Reuter's had the same thing cross his mind when he was getting his flu shot and said, "Hey! Get me something on bird flu! Make sure it looks current and instils fear!"

H5N1 strain could start wave of bird flu outbreaks

The article goes on to say that..."Scientists in Hong Kong and the United States have detected a new strain of H5N1 bird flu virus in China..." (emphasis added). This "new" strain was discovered in March of 2005. It has been seen increasingly since October 2005.

Doesn't this seem like pretty dated information especially if we are talking about a "new" strain.

This is typical fearmongering, with the possibility that someone is sittling on a hell of a lot of extra flu vaccine and needs a little help unloading it.

Sorry Reuters, I don't put it past you.

Freedom

A couple of weeks ago I got involved in a discussion on a milblog surrounding how out of place American soldiers seemed in Iraq. The thought of typical American 18-25 year-olds interacting with people in a Muslim country had always rubbed me the wrong way. I knew what I was like at that age. I could see clearly the potential for problems cropping up. Someone challenged me to essentially leave the country so I could appreciate the freedom I enjoyed in the States. I responded that I had left the country, some eight years ago, largely as a result of the lack of freedom in the United States. (No one ever checks profiles anymore). Of course then someone else really layed the challenge on...

"I'm also really curious about the'freedoms' you enjoy in the Czech Republic that you wouldn't enjoy here. Besides smoking in restaurants, I can only imagine you're referring to being free from people that vote for Bush. Seriously, I'd like to know."

and within a few more hours....

"I'm still quite dubious about your claim to be enjoying greater freedoms there but I anxiously await your reply."

Well, I guess he didn't like my reply, because I never got anything back. Everyone knows how these blog arguments go. They are always good for a few healthy exchanges before they fizzle out. But this time, after his double challenge, I answered and never got anything back. I figured, "hey, I must really have something here."

You see, when I was in high school, I was convinced that I lived in the country that enjoyed the greatest level of freedom of all the countries in the world. At the time, that may have been almost true. However, since the fall of communism, many eastern European countries have evolved into countires that enjoy even greater levels of freedom. Perhaps no greater example of this trend can be found but here in the Czech Republic. Certainly, many of the freedoms exist here in a de factor manner: lack of enforcement provides many people with the freedom to pillage large sums of money, for example. But here I am looking at freedoms that people enjoy within the confines of the law. Specifically, things that are against the law in the United States.

1. Alcohol

In the Czech Republic, there is no open container law. The most hillarious thing to a Czech person is the concept of drinking out of a paper bag so the police can't see what you are drinking. When I first spent time here in 1997, we used to sit out on the Charles Bridge all night drinking wine. One night we must have broken 3 bottles of wine on the cobblestones. At about 6am, when the guys come out to sweep up the mess from the night before, I really had to relieve myself. We were way out on the middle of the bridge, and nothing in town would be open, so I decided the best thing to do would be to climb out on the back of one of the statues to get a clear shot at the river below. The clean-up crew was not really thrilled with the idea, but they weren't going to stop me. We comprimised on letting them hold my shirt for safety. In hindsight, it was a good deal for me all the way around.

I've certainly enjoyed being able to drink in public. Whether it be hot wine at Christmas in the Old Town Square, cold beer in the summer at the park, or champagne on the street at New Year's (although I guess they make an exception for that in some places), the lack of public prohibition adds to one's overall sense of freedom.

There is no statute regarding public drunkeness. You can be arrested for causing a disturbance, but whether or not you were drunk when you did would have no bearing whatsoever. Falling down in the street is not considered causing a disturbance unless you are actually falling on people. There is a beer culture here, and almost everyone here has "had one too many" at some point. As a result, there is less stigma on drunkeness. I remember seeing a guy passed out at a bus stop, laying on his back on a big slab of concrete that was considered art by the communists. The sun was blaring down and his face was getting a wicked sunburn. No one seemed to notice much, but when they did, they just sort of chuckled to themselves and then quickly returned to their business. No one stared wide-eyed, or pointed or laughed out loud. Well, I was staring, but I'm an American.

There is also nothing that says people in a car can't drink. However, drivers are given no tolerance. I know people who have been convicted of DUI the next day after a big night of drinking. It seems sensible enough: the other people in the car can do whatever they want, but the driver can't have a sip.

There is no closing time for bars or for the sale of Alcohol. Having said that, the number of places with a 24 hour license is restricted. I'd say there are probably as many of these places in Prague as there are bars in some cities of equal size.

There is no law against distilling your own spirits. The local alcohol is called "slivovice" (sleeve-o-vitz-e). It is made from plumbs which are plentiful here. People set up cooperatives where the amount of plums that one brings in allows a person to buy a certain amount of the slivovice at cost. There are no taxes involved and it is legal to the best of my knowledge.

2. Gambling

Gambling is legal in the Czech Republic. This is kind of sad actually, because they have these machines in the 24 hour bars that make slot machines seem like your friend. I've watched guys dump so much money into these things, it is insane. I mean, it isn't that much money, but these are guys who you know are on a small salary. It is really sad. There is no regulation like in Vegas. If you are dumb enough to put your money into a machine that has a 20% payout rate, well, you will lose your money than the others. There are plenty of casinos complete with blackjack and all the rest. Nothing like the big gambling centers in Monte Carlo, or Vegas, but they do bring in quite a lot of tourist money. Vegas and Atlantic City are exceptions to this law in the States, but here you can gamble wherever you want. Sports bookies are in every town of any decent size.

3. Prostitution

Prostitution is also legal. This is an area of some concern as it is unregulated and untaxed when done by individuals. They don't allow "pimping" but you can run a house, and there are plenty of them. I say it should be regulated and taxed like any other business. Perhaps a little too much freedom here.

4. Nudity

I don't think there is a public nudity law on the books. It would be strange if there was since there are naked people on the state run television stations all the time, not to mention at the beach. I remember seeing a scene in a movie once where this guy was having his way with his wife in the kitchen up against a china cabinet. It was getting pretty intense and the china sounded like it was going to break, and I realized it was two in the afternoon on a Sunday. I asked my wife if she thought that was strange and she didn't seem to think so at all.

As a corellated point, public urination seems to be legal. I've seen plenty of old guys just whip it out on a city street by a tree or just strait into the gutter. Also, parents usually help their kids urinate in public shamelessly. I've seen a five year old boy with his pants around his ankles pissing into the street at a tramstop with his Mom holding his penis for him. I mean, I'm sure you could get arested for that in the states!

But the prevailing logic here seems to be "if you gotta go, you gotta go." Therefore, children, the elderly, and drunks get a lot of leeway.

5. Liability

There are very few legal liability laws on the books. If you get hurt in an accident you are not entitled to pain and suffering. You could try to sue the company for negligence, but it is an uphill battle: precident is not on your side. This allows for a much greater level of general freedom when attending events and visiting public places as the need for ridiculous safety regulations is eliminated. Of course, normal safety regulations are in place, but only McDonalds prints "contents hot" on their to go coffee (in like 10 languages).

6. Freeways

Speed limits inside the city seem too low to me, but that is for the safety of the people who are not driving: the pedestrians. I figure that is fair. Why should pedestrians have to take a risk for an activity they are not even participating in? In the city, things are set up for pedestrians, and the cars just have to make due. But one you leave the city, you are free.Tthe speed limit on the freeway is about 80 mph. However, anything under 100 is about 99% safe, from the police that is. I usually cruise about 90 and I have never had a problem or even a close call. Plenty of people pass me even when I'm doing 100.

I've always thought it was so strange how strictly speeding laws are enforced in the States. I used to drive up to Mammoth Lakes from Los Angeles. You have to go through the Mojave Desert, and that is the interesting part. Then as you skirt the foothills of the Sierras, nothing changes for hours. There is a huge, beautiful freeway ahead of you, not another car in sight, but if you do 80, sooner or later you are going to get popped. I was pulled over on my motorcycle once doing over 100 mph. I was held at gun point, cuffed, and made to kneel on the highway for about 30 minutes. Then I spent the afternoon in jail before they released me with a speeding ticket. I was on an open road, flat and strait for miles without anyone in sight. I wasn't hurting anyone.

In short, the Czech Republic allows a person to do what they want so long as they don't hurt anyone. Having said that, there is a level of personal responsbility required. You can essentially do what you want, but don't expect that every sidewalk, every door entry, every thing you put in your mount or between your legs is going to be safe. You had better watch what the hell you are doing, because no one is going around in front of you making sure for you.

Freedom can be dangerous. It can be messy. Sometimes freedom brings out the worst in people, and most certainly it allows people to destroy themselves. Freedom comes in many forms, but essentially freedom is being able to do what you want to do. It is not a complicated concept. Generally we agree that the freedom to swing one's fist abrubtly ends at the end of the next person's nose. Freedom is not absolute, nor should it be. But freedom should be about doing what you want without fear of reprisal so long as you don't hurt anyone else.

Having been raised in what was nearly the freest country in the world, I place an elevated premium on freedom. More than anywhere else that I have found, the Czech Republic represents the spirit of freedom that I was raised to cherish.

Housing Stabilizes... Sort of

New home sales surprised to the upside registering a better than expected 1.075 million units sold at an annual rate. The word on the street is that this means a soft landing for the housing sector, and the economy as a whole. They gloss over the fact that homebuilders lowered prices drastically to acheive this, September representing the largest year on year decrease in new home prices in 35 years.

"It is hard to say but it looks like we are in for the soft (economic) landing," said Steven Gallagher, chief U.S. economist at Society Generale in New York. "It is telling me that the worst is over for housing."

Alan Greenspan even came out of nowhere as if he had never left saying...

"Most of the negatives in housing are probably behind us,"

...and

"The fourth quarter should be reasonably good, certainly better than the third quarter."

So after some early morning jitters on Wall Street, markets are up on the day, the Dow looking to set yet another record on the news of a soft landing.

I sense that Greenspan's notable presence is a bit of posturing. When shorting building companies starts to look like a sure thing, the momentum created can be devestating for the industry which would be devestating for the economy. Right now, they are loosing about 10% of their desired revenue which for now, they can handle. The question will become how much do they have to continue to lower prices to keep sales up, or do they have to?

At the end of the day, this is a huge industry, a $250 billion dollar a year industry. That is about the size of the GDP of Sweeden, and only about 35 countries have GDPs in excess of that.

A 10% reduction in prices means about $25 billion dollars off the table. It isn't the end of the world, but it hurts a little.

Iraq: The more things change...

Almost a year ago I set out blogging because I thought I had something to say about important matters (I got over it). My first post of any substance was about Iraq. In that post I argued that the complexion of the conflict might change and that people would disagree if we were losing or winning. I argued that these eventualities were irrelevant because in the end the result would be the same: continued instability in much of the country and the death of about 2 United States soliders per day.

I think it was a pretty slam dunk call. In trading it is called the the double no-touch option: the trader bets there will be no major change in either direction.

The complextion of the hostilities is definately changing. Sectarian murder has become the main killer for Iraqis, and it is has proven to be just as deadly as the car bombings, the carpet bombings, or the regime of Saddam Hussein (all on a per day basis of course) that preceded this wave of killing. The military has made a major shift in sending the Stryker brigades such as the 172nd into Baghdad on what has so far been a largely futile effort. As neighborhoods are cleared and left behind, the tend to raplidly decend into violence. Meanwhile places like Ramadi and Mosul are experiencing major upsuges in violence.
Military deaths are up this month, but no more so than they have been at the past during times of relatively high activity.

Yet as the location of the conflict changes, and the players change form, the end result for the viewers back home is roughly the same:

A lack of stability for much of the population, and about 2 military deaths per day suffered by U.S. forces.

America's attention span patience must be running thin.

Dow Hits 12,000

To my utter disbelief, the Dow Jones Industrial Average hit it's highest level ever before dropping back under 12,000. Better than expected housing numbers and inflation readings in line with expectations are cited as the impetus. Once again, I have underestimated the resilliance of the US economy.

The CPI headline number was -.5% which is actually deflation, but of course this is almost entirely due to the drop in fuel prices. The core number was .2% leaving the year on year average at 2.9%. Although these numbers are in line with expectaions, the inflation risk remains. No one is pricing in a rate hike at this point, but projections for when the Fed might lower rates are now largely centered around Q2 in 2007.

Lower oil and gas prices will help fend off the inflation monster, but at 2.9% core y/y, the Fed is still walking a fine line. I'm sure Bernanke is breathing new sighs of relief with each drop in oil prices. Crude inventories came in above expectations as well sending gas futures even lower.

New housing starts came in a bit above consensus, but this is very significant as the numbers have been exceptionally bad all year. One dark cloud is that new housing permits came in lower than expected indicating that market is still in decline. If starts can hold here at about 1.7 million per year on average, then the soft landing theory could pan out.

One last thought: could there be an election correction? If the Democrats take one or both Houses in the election, could Wall Street panic?

I have a feeling we are going to find out.

Imagine if Rove was Dolezal

Last week arrests started being made in the premire corruption scandal in the Czech Republic.

Zdenek Dolezal, former cheif of staff for the last two Prime Ministers, was arrested in connection with the abuse of EU subsidies.

The outgoing Prime Minister, is being pressured to resign over this, but hasn't and I'm guessing he probably won't. He is attempting to deflect the blame on to Stalisav Gross, the previous Priime Minister, as Dolezal simply stayed on after Paroubek took over. Gross is still acting as his party's security commisioner.

The juiciest part of this scandal is not the swindling of EU money, but rather the plot to kill the leader of the police organized crime squad, Jan Kubice, when they learned that he was hot on their tracks. Dolezal may yet be indicted for attempted murder of Kubice before this is all over.

I'll say it again: y'all have some corruption to deal with over there in the States, but hey, it could be worse.

Markets

We are at another crucial junction for the markets. Bad news has been largely shrugged off but the Dow was unable to clear the crucial 12,000 mark. Today's retail sales disappointed, but if you take energy out of the equation, sales are up .8%. The dollar has been gaining momentum on this news and the bottom of the range we have seen over the last few months is being tested. EUR/USD trades at $1.2480. If the $1.2460 level is broken there is downside risk to $1.21. The Dow is down slightly on the disappointing retail sales figures, but a positive Michigan consumer sentiment number is underpinning equities, limiting the downside for the time being.

If the dollar continues to strengthen, I would expect the Dow to fall. However, with the Dow hovering around the top of the bollinger band, a breakout to the upside is still possible.

Inflation data next week will likely indicate the direction of the markets in the near term. Since the markets are expecting the Fed to be finished hiking rates with many expecting rate cuts to start next year, any surprise to the upside on inflation could cause a knee-jerk reaction to the downside as traders realize another hike could be in the cards. The 10 year yield is back up to 4.8% from it's low at 4.5%. So the bond traders are starting to price in a reduced possiblity for Fed cuts next year.

The housing market continues to weigh on markets and I expect that effect to accelerate over the next few months.

CA 25: A Lost Cause

The race for California's Congressional District 25 is an interesting clash of personalities, but not much of a race.

California's Congressional District 25 has a strange shape stretching from just north of Mono Lake along the Nevada border for several hundred miles and then making a westerly turn to encompass the mountains north of Los Angeles and the high Tehatchapi desert. Its most wester numb covers Santa Clarita which is a distant cheap-gas suburb of Los Angeles. When I was young, it was no such thing.

As you might guess, lacking urban areas and being mostly desert land, this area is a Republican strong-hold. Since 1992 Buck McKeon has held the seat, winning in 2004 by nearly a two-to-one margin.

McKeon is a Morman, having matriculated at Bingham Young University. He votes almost a strait party-line. Planned Parenthood gives him a zero rating. If you look at that last link you can see that the Advocacy groups he scores highest on are Christian groups. He gets mediocre marks from the fiscally conservative groups and slighly higher marks with the more blanket conservative groups that focus on the family. He participated in an abomination of a House vote which opened at 3am and lasted 3 hours. (the longest in history). This led his opponent to decide to try to take him on.

Robert Rodriguez is a young, principled blue-collar Mexican-American. He calls for a tax-cut for the middle class but obviously the details have not been worked out. Nevertheless, he represents a more populist side of the Democratic party that I think will resonate pretty well. Now, have a look at him speak...



This may be a futile campaign for Rodriguez. Mono County liberals would "love to get rid of Buck." Mr. Rodriguez, however, is probably not going to make that happen. Perhaps at least he will make a better showing than Buck's last opponent.

Communists Regain Control of Parliament

Well, sort of...

Neither CSSD nor ODS can form cabinet without Communists

Isn't it ironic that nearly 18 years after the revolution, the communists are still in a position of power? Democracy is like taking what is behind curtain number 3: you never know what you're going to get.

Color me Blue

A growing trend in today's marketplace is socially responsible investing. From fair trade coffee to alternative energy, investors are looking for resposible companies to invest in. Some investors argue that it is more important to feel good about what they invest in than how much profit they make. Sure, everyone can make profit investing in Exxon, but how good does that make you feel? Conversely, one could invest in a company that will compete with Starbucks using only fair trade coffee, but that wouldn't be too smart.

However, today's news proves that social responsibility and profit earning are not mutually exclusive. According to a new report stocks of socially responsible companies that also give more money to the Democrats than the Republicans (so called "blue stocks") have outperfomed stocks of companies that do not meet such criterea and give more to Republicans (so called "red stocks").

Repulicans get about twice as much money from the corporate sector than do the the Democrats. A cynical view is that this money is used in an effort to keep the status quo and to allow businesses to continue to do business as usual. It may be cynical to see it that way, but I don't think it is far from the truth.

But a new age is upon us. As consumers become more conscious of what they buy and the effects of their purchasing power on the environment and on working conditions for employees, socially responsible companies are taking the lead. The Democrats would be smart to ride this wave and continue to work with companies to become more responsible for the good of all: investors, management, consumers, and employees.

From the article....

Companies in the Blue funds will stress five qualities that the research paper attributes to the outperformance of blue companies: innovation, flexibility, concern for employee welfare, cooperation with progressive causes and long-term business perspective.

Indeed, it is not an either/or situation as the old corporate gaurd would have us believe. You don't have to invest in oil companies or weapons manufacturers to cut a profit. In actuality, investing in socially responsible companies will make you feel better about your investment, and it will fatten your wallet at the same time!

Iron Curtain Smoothed to the Ground

The first major freeway between east and west.

Prague has officially been linked.

Thought For the Day

You're not supposed to be so blind with patriotism that you can't face reality. Wrong is wrong no matter who does it or who says it.

– Malcolm X

Are they at it Again ?

Mlada Fronta Dnes reports
that "Extremists planned mass Prague murders."

According to the story, Islamic terrorists planned to kidnap large numbers of Jews at the local synagogue. They made it sound like all the tourist who go there were Jewish and thus there would be plenty of people for the taking. The level of detail about the plan that was released makes it seem pretty unbelievable. It was a clear suicide mission.

If you have been there, as I have, you would know that it is a tourist area flooded with people from all over the world. There is no visable Jewish Orthodox contigent that I have seen. Basically, just normal people everywhere having a look at a very historically significant sight. But let's assume for a minute it was real.

First of all, the way the government denies the report from an unknown source leads you to believe that it is true. They will not respond out of policy and the PM had this to say..

"Concurrent with the government decision, I only continue to insist that the measures and the extent of information supplied to the public were, and are in proportion to the information obtained (by intelligence officials) and to the threat."

So basically, yea, something like what was in the paper. Let's also remember that these are the same intelligence officers who placed Mohammad Atta in a meeting with a former Iraqi Inteligence officer in front of Radio Free Europe and have never opened up their official information despite a 9/11 inquiry into their outrageous claim.

Here is what we actually do know. Princ Dobrosi, an Albanian ex-drug kingpin from Kosovo met this summer with Arfan Qaeder Bhatti. As reported in the Prague Monitor, Bhatti is a Pakistani with a Norwegian passport who was arrested last week engaging in an act of terrorism.... in Oslo. So at the exact same time, Prague goes on alert and Dobrosi is brought in for questioning.

Dobrosi and Bhatti did time together up in Norway. Dobrosi escaped, got caught in Prauge, and was eventually released from Norwegian prison. He admits to meeting Bhatti. He even admitts that he thought Bhatti wanted to get in on his cigarette scheme. He says he was surprised at the visit because there was no criminal behavior on the mind. He said he just wanted to see how he lived.

This I don't buy either. I figured he tried to talk Dobrosi into doing something, but Dobrosi has a wife and kids, he is an ex-gangster. Now he is just a common criminal. He lives here, which tells you a little about him. He is the smiling type, even when he is getting arrested (great footage on the TV). At the end of the interview he said, "look I'm no saint but a terrorist, come on, that is a little much."

He had invited the camera crew into his house, and they went to Kosovo to see where his house used to be. He said it was a big villa. All the other houses around were in tact modest homes that clearly predated the bombing. Then there was a hole where his house used to be. (Precision bombing) He shrugged and said, "So now, I have nothing."

But he does have a wife and two kids and a modest home outside of Prague. Let me tell you, for someone who has lived the life he has, he doesn't want to mess it up. This is not a young idealist, this is a guy trying to enjoy what he has left of his life.

He is not under arrest.

Prague is still on alert.

Whipsaw

I'm glad I stayed out of the markets today.

Today's headline jobs report showed 51,000 new jobs added in September, less than fifty percent of the 115K to 120K predicted. The dollar was sharpley down accross the board on the headline, but within seconds the August number was revised up from 128K to 188k. This, in effect, negated the effect of the headline number. The dollar gained all it's ground back and just kept going right through important resistance levels. The dollar is now poised for a bull run.

This is a classic whipsaw where most traders loose because if they are correct on the first leg they end up loosing it all and more when it whipsaws back against them. Those that were actually "right" about where the market was going get stopped out on the initial false alarm. Hurt, they are afraid to get back in when things start going their way.

There will be some sad folks walking around South Manhattan this evening.

But what the job report tells us is that the economy is still growing, albiet slower. This hits the sweet spot for bulls who want to see growth but see inflation under control. Hourly earnings are up only .2% although .3% was predicted underpinning low inflation expectations. But the stock market is so overstretched, what with the Dow setting new highs 4 days in a row. As a result, questions are being asked as to how long this run can be sustained. Dollar stregth has usually meant market weakness. Record levels in the Dow and the dollar is gaining momentum. The Dow is down 25 points two hours into trading.

This market could use a good correction right about now.

Two Cents

A big day for the Dow

Blue-chip indicator manages highest close ever, taking out a 6-1/2-year-old record; falling oil is the catalyst.



Job cuts top 100,000 in September

Survey shows planned layoffs driven by softness in automotive, housing sectors.

Same day.

Happy New Fiscal Year

The Public Debt at the US Treasury is public information. Out of all the numbers you can get to measure the buget deficit, I find this to be the most reliable. At the end of the day, this is what we owe. Simple. I know this isn't the "budget deficit" as such, but to me, this is the only number that actually means anything.

The reason I'm bringing this up is that back in July of 2003, President Bush promised to cut the budget deficit in half by 2006. Bush also promised in Feburary to cut the budget deficit in half by 2009. How clever of him to simply flip the six into a nine and roll out more empty promises.

So, let's have a look at the numbers and dispell two myths at once. First is the Clinton surplus. There never was any surplus. Clinton had promised to balance the budget, a daunting task, but he had a plan. It may have not been a perfect plan, but he certainly had one, and he darn near got the thing balanced. When it looked like it was going to turn into a surplus, there was some heady talk of paying down the public debt, but that was largely fantasy in my view.

The second myth we will dispell is that Bush is in any way even remotely close to keeping his 2003 promise. They rolled out numbers that showed record tax revenues due to growth. If we are increasing our debt at this rate while setting revenue records contigent on growth, what happens if there is a recession?

Total Public Debt as of the last business day in September for the year given in billions of USD (rounding down):

(1997) Total Debt: 5,413
(1998) Total Debt: 5,526 (Increase 113)
(1999) Total Debt: 5,656 (Increase 130)
(2000) Total Debt: 5,674 (Increase 18) Last Clinton full fiscal year
(2001) Total Debt: 5,807 (Increase 133) Half Clinton, half Bush
(2002) Total Debt: 6,228 (Increase 421) Bush's first full fiscal year
(2003) Total Debt: 6,783 (Increase 555)
(2004) Total Debt: 7,379 (Increase 597)
(2005) Total Debt: 7,932 (Increase 553)
(2006) Total Debt: 8,506 (Increase 574)

That's right! We have cleared the 8.5 trillion mark! Congratulations, you've won absolutely nothing!

Quite simply, in 2003, Bush promised to cut the deficit in half by 2006, but there was no plan. Very few are surprised, but isn't it strange that the president can promise to do something, do absolutely nothing to that aim, promise to do the exact same thing three years later and his supporters just clap and tell us about the Laffer curve? I really feel like I'm in the twilight zone.

Are they even on the same planet? I went to find out and Tony Snow, thankfully, set the record strait.

The title of the release is "Setting the Record Straight: The President's Policies Are Increasing Tax Revenues and Growing Our Economy."

Ok, that much is true, so far, but there is something missing in the assesment: expenditures. You see, you can grow revenue all you want, but if you keep increasing expenditures, you are going to have problems. And let's face it, the reason they are setting revenue records is that revenue was so bad since the tax cut. Now, almost 5 years later, revenue is more than in was in about 2000 when it peaked. The economy is growing at 5% a year. Revenue SHOULD be up. Look, revenue is not the problem. You have the largest economy in the world. You should be able to extract a pretty penny out of it without crushing the economy. The trick is being fair in who you take it from and spending what you take wisely. On both counts, I believe the Bush administration gets an F.

So now, here come the cuts in the social programs that far left has been fearing. The axe will fall this time, and now the poor will get to pay for the mistakes of this very, very fiscally irresponsible and incompetent administration.

Interm-Interm Czech PM considered

The Czech politicians are at it again.

Now the parliament wants Topolanek (the interm PM) to resign. That's right, they are calling for the resignation of the INTERM PM. Who would replace him? That is anyone's guess, but hey, at least the parliament actually made a decision!

Essentially, Topalanek has accussed the former PM, Jiri Paroubek, of wiretapping individuals in reaction to a leak of the "Kubice" report which allegedly ties Paroubek with organized crime. There is no question that the wiretaps were initiated, but the question of exactly why they were initiated is still unresolved. Paroubek claims they were legal, intitiated by the justice department (with no prodding). Topolanek claims that Paroubek ordered the wiretapping to defend himself against his political enemies.

If true, this would be a case of politically motived wiretapping reminiscent of the Nixon era. However, as Topolanek has failed to substantiate his accusations (which were quite severe in that he actually compared Paroubek to the old communist regime who spied on, well, everyone) he is now left to face the music. For Paroubek's part, it looks as though he may well be linked to organized crime before this is all over.

Meanwhile former president and leader of the '89 revolution, Vaclav Havel has called for a new constitution to be written. He was also quoted in the morning paper as saying "it has taken an unreasonably long period of time. Within three days it should be done." He blames the delay on the complicated and overly ammended constitution. He says, "The constitution should be short, structured, and understandable so that it can be tought to kids in school." He thinks that the constitution should have clear deadlines, for instance, in the case of naming a new prime minister so that this type of delay could not have occured in the first place.

I couldn't agree more with the ex-president. But what good is a constitution, if the politicians in charge of it's defense are little more than common criminals?


Czech Wiretapping

Third Time is Not a Charm

As everyone has heard, the Dow is nearly setting new highs. Essentially, it has topped the previous closing high, briefly. It has failed at nearly that level three days in a row, closing down on Friday nearly 40 points. Quietly, the market is showing a measured reaction to Friday's consumption and spending reports. The CPE core deflator is derived by comparing these figures. Some say the Fed focuses on this index more than the to the tradional CPI and PPI data.

The Fed doesn't really like to tell people how they make their decisions other than to say they look at broad measures of the economy. And let's face it, if anyone knows how Greespan sorted all that out, they have yet to go public.

Getting to the CPE data released on Friday, I noticed that the year-on-year number is up to 2.5% which is up from the 2.1 and 2.2 levels it has been bouncing around in over the last four months. I don't know how significant this is, but it may mean that the high headline numbers we have been seeing are starting to filter down into the core numbers.

I just read a piece that suggests that core numbers are a fallacy because they remove "volatile" food and energy costs. He makes some good points, but I like the core number because it shows a later stage of inflation: where the knock-on effects of higher energy prices start filtering into the larger economy, or the whole economy as it were.

The ISM index comes out on Monday. This is the broadest measure of industrial output available. There was a scare earlier in the month because of a surprisingly low headline number out of the Philly Fed. Yesterday's Chigago's Fed alleviated some of those fears, but I'll wait until the ISM data hits tomorrow, and I won't be alone.

A particularly bad ISM number could trigger a sharp drop in equities, but this unlikely to happen. I trust the Chicago number much more than the Philly's. The Chicago index has a 91% correspondance rate with the ISM. (These two smaller district indexes are considered the most important early indicators for the broader ISM index).

But risk exists. The market is probably over extended, and it shows signs of fatigue failing to set the new closing high three days in a row.

Now, getting to the big question... why isn't the market paying attention to the housing sector? The more I look at this, it is clear that it is a time bomb if inflation kicks in. Despite all the warnings, apparently negative-amortization loans went on unchecked. Really, read the aritcle, it is a good one from an unbiased source. I didn't realize that California has been issuing nearly 30% negative-amortization loans in 2006. In that market? That is insane!

So the fear is that the Fed will be stuck in a tight spot where they will be facing high inflation numbers (which hasn't happend yet) and pressure from the banking sector not to raise rates (in full swing).

If inflation forces the Fed's hands, they will be in a position of creating a banking crisis as raising interest rates will force so many loans into foreclosure that the banks would have a problem with solvency.

So for now, everyone is hiding their heads under their pillows and hoping for the best, because it is clear that even a 6% rate would have disasterous effect. We should be hoping for an economic slowdown, because if the corporate secortor keeps barging ahead at break-neck speed, it is our necks that get broken when the crash comes.

I'll leave my reader with a couple of quotes from European analysts/fund managers who I find more sensible than their American counterparts... (sorry, no names I just heard them in the backgroud in passing and they cought my ear).

"We are seeing texbook preliminary signs of an economic slowdown. It has begun in the housing sector and it will move it's way through the normal path with the corportate sector being the last to feel the effects."

"We have been riding a tiger, and when you ride a tiger, you have to know when to get off."

It might be just about that time.

(h/t Reality-based Educator for the motivation)