Cash For Clunkers

Birds are singing, the sun is shining and life is beautiful again. On the surface, the vital signs of our economy are improving with every economic report. In some areas, like unemployment, the rate of decline is decelerating; in others, like GDP, decline is turning into growth. The stock market is behaving as if the history of the last twenty years is about to repeat itself: recession will turn into a robust expansion.

And you thought the government was not out to screw you. According to a research report released by the Treasury Department's Inspector General for Tax Administration, over 15 million people may own $250 (and in same cases more than $400) on the tax "credit" received earlier in the year, purely as a function of how the tax break was set up by the IRS. The payment will come as either a smaller tax refund or larger tax bill. As a reminder, Obama's tax break earlier in 2009 (first of many) provided individuals up to $400 and couples up to $800 in one-time benefits. It turns out that money may now have to be repaid. And as the credit impacted 95% of all wage earners, the number of people impacted is estimated at about 15.4 million. But at least it got these 15.4 million soon to be angry taxpayers to consumer a little more than they otherwise would in Q2. And now, it is time for another "one-time" jolt to the system.

So many future bailouts to look forward to, so little time. So many cans do kick down the road via accounting adjustments, so few feet do keep doing the kicking. While I read this piece I was struck by my own reaction... not even $30 billion in deficit? This is peanuts! We've become so numb to bailouts that anything less than hundreds of billions seems like a normal part of Bailout Nation. Yet just over a decade ago the world was in a panic over hedge fund Long Term Capital and its gaping hole of $3.6 billion. How quickly we've adjusted to brushing off our shoulders handouts and bailouts 10 times that size. The cost for one of the smallest handouts, Cash for Clunkers was more than the bailout of LTCM in 1998. Need to manipulate housing prices higher? It's worth it! Only costs $16 billion; or with Cash for Cul de Sacs v 2.0 - $30B+. Peanuts.

The foreign exchange value of the dollar has moved over a wide range during the past year or so. When financial stresses were most pronounced, a flight to the deepest and most liquid capital markets resulted in a marked increase in the dollar. More recently, as financial market functioning has improved and global economic activity has stabilized, these safe haven flows have abated, and the dollar has accordingly retraced its gains. The Federal Reserve will continue to monitor these developments closely. We are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability. Our commitment to our dual objectives, together with the underlying strengths of the U.S. economy, will help ensure that the dollar is strong and a source of global financial stability.

No mention of Gold

Cash for Clunkers hangover is permeating everywhere, with the latest casualty being the Empire States Manufacturing Index General Business Conditions, which tumbled from 34.6 to 24.5 in October. Never one to leave on a sour note, the NY Fed's survey indicated that respondents are even more optimistic even as coincident data trends turn negative, curiously on expectations of deteriorating margins, and a hope that no additional cash will have to be spent as the "new normal" is attained.

Wherever his spirit rests, Benjamin Franklin must be livid. When the hardearned savings of ordinary people are looted to enrich greedy bankers, and when they are told that this process is necessary to make America prosperous again, no wonder so many citizens have displayed so much anger at “Tea Parties.” - Coxe Report

The one must read report this weekend.

Economic observations courtesy of Fed Fund futures, and the Taylor Rule, imply that not only is the economy now worse than it was before the Fed embarked on the colossal monetization ploy that is QE, but that rampant deflation courtesy of a much worse economic picture than presented by the government, will force the Fed to launch QE 2.0 imminently. The probability of a Fed Fund increase for a long, long time is zero.

Total consumer credit has dropped for the 8th straight month as consumers refuse to buy stocks while maxing out their credit cards, contrary to what GE, Bernstein and Bernanke want them to do. 4 more months and the US consumer will have given the administration the reflation finger for one straight year. Excess reserves to hit $2 trillion shortly.

Total credit came in at $2.456 trillion, consisting of $889 billion ($10 billion lower than August) and $1,5667billion ($5 billion lower than August). The later category is primarily related to auto purchases thus so much for the Cash for Clunkers attempt at releveraging.

The Obama Administration knows it didn't "create or save" 640,000 jobs but they use the Big Lie to justify the huge waste of taxpayer dollars through the $787 billion American Reinvestment and Recovery Act of 2009. They are desperate to justify the huge expenditure of taxpayer money. A day before they announced the 640,000 report, two AP reporters looked into the data of a previous report and found massive errors in reporting "created or saved" jobs.

Check out this report on the Obama Administration's latest gift: free golf cart! This is from the Wall Street Journal. I really can't add much to this. Other than: Get one!

"How much of the rebound in real GDP was due to the fiscal stimulus, and where do we stand in terms of the effects of stimulus thus far? Although precise answers are impossible at this juncture, several aspects of the report are consistent with our estimates that the fiscal package enacted in mid-February as the American Recovery and Reinvestment Act (ARRA) would have accounted for virtually all of the growth reported for the third quarter." - Goldman Sachs

I'll admit it to everyone, I am absolutely disgusted with my investment performance over the past two quarters. I came into the second quarter up nearly 500% for the two years running thanks to top notch research across myriad sectors and loss about half of that profit fighting the bull rally that I easily saw coming but severely underestimated the length, depth and breadth of.

The GDP results for Q3 are a triumph of government stimulus, which is to say they are a mirage, destined to vanish when the money runs out. There is really very little good news from the BEA report when you consider most of the economic activity was the result of Cash for Clunkers, the $8,000 housing tax credit, and federal spending. But like everything else in life, it's a bit more complicated than that.

The real source of America's angst is a sense that something is terribly wrong.

• Sticking to the tar baby that is AIG (Bloomberg)
• Reversal of Fortune for AIG? Fingerprint evidence on insulin bottles appears to have smudged. (WSJ)
• Shocked, shocked to learn that zombies don't lend (NY Times)...
• ...perhaps the addition of 535 new board members may explain the lethargy? (WSJ)