Corporate profits in the US are up significantly, consumers spent a bunch of money in May, this stock market really wants to go up for a while. However, uncertainty in Europe is changing from "will they bail out Greece" to "will they survive this crisis." If Greece repudiates their debt it will almost certainly cause a bigger banking crisis on both sides of the Atlantic than the collapse of Lehman Brothers did. Don't think this isn't our problem, US banks have issued a bit over $90B of CDSs guaranteeing Greek bonds. And if Greece goes, Spain, Portugal and Ireland won't be far behind: why would their voters agree to 10 years of indentured servitude to German and French banks, when Greeks just blew a hole in their jail cell and walked out the back way?
The GAO has some new projections of the national debt. In the baseline scenario, politicians literally sit on their hands. They let the Bush tax cuts expire, the Alternative Minimum Tax keeps indexing higher, and they don't raise Medicare payments to doctors. All of that will happen automatically if politicians do nothing. Unfortunately from a debt perspective, it's the alternative scenario that's more likely. The Bush tax cuts probably won't be killed, and Medicare payments will be raised to satisfy doctors.
On 9 June James Verone left his North Carolina home, took a ride to a bank and carried out a robbery. Well, sort of. What he did was hand the clerk a note that said: "This is a bank robbery, please only give me one dollar." Then he calmly told the clerk: "I'll be sitting right over there in the chair waiting for the police." Before his peculiarly modest robbery, Verone, 59, sent a letter to the Gaston Gazette. "When you receive this a bank robbery will have been committed by me for one dollar. I am of sound mind but not so much sound body." He invited the paper to send a reporter to interview him in Gaston county jail, where he is now in custody facing charges of stealing from a person (for just $1 the prosecutors didn't think they could hold up a bank robbery charge). He told the paper he had lost his job after 17 years as a Coca-Cola delivery man, and with it his health insurance. He was in increasing pain from slipped discs, arthritic joints, a gammy foot and a growth on his chest. Since being in the jail he has attained his goal: he has been seen by nurses and an appointment with a doctor is booked. As a alleged felon he gets the same health care as illegal aliens and convicted rapists, far better than he gets as an unemployed casuality of the sub-prime mortgage crisis.
On Thursday, New York’s highest court ruled that a woman could keep proceeds from a divorce agreement, even if those proceeds were the ill-gotten gains of a financial fraud perpetrated by her former husband. The ruling involves Janet Schaberg, the former wife of Stephen Walsh. In February 2009, federal authorities arrested Mr. Walsh on charges that he had defrauded investors of more than $550 million in a 13-year Ponzi scheme. "Ex-spouses have a reasonable expectation that, once their marriage has been dissolved and their property divided, they will be free to move on with their lives," said Judge Victoria A. Graffeo, writing for the New York State Court of Appeals. Personally I find this decision stunning, but I'm sure that Berney Madoff's wife finds it deeply reassuring.
The European Central Bank has a new president, Italian ex-Goldman Sachs executive Mario Draghi. These Goldman Sachs guys are like ants at a picnic: getting in everyone's food, crawling up everyone's legs, ruining the day, and there's no end to them.
On Jun 28 Greece is going to be holding an austerity vote while the country goes on a gigantic strike. One week later there's another big event in Germany. The German Constitutional Court’s formal hearing on July 5 will judge if the first Greek package of May 2010 was in line with the German and European Constitution. The German government must prove that its actions did not violate the ‘non-bailout’ clause. The bailout clearly does violate German law, I think this decision is easy to predict.
The latest battle in the War on Men: On June 15th, Thomas Ball, divorced father, set himself on fire in front of the New Hampshire family court building. He had been charged 10 years earlier with domestic violence, tried, and found not guilty. In spite of that he had not been allowed any custody of his daughters for 10 years. He lost his job in 2009, and was about $2,500 in arrears on child support over that two year period. His ex-wife had just filed a motion to have Thomas thrown in jail for contempt of court until he paid up. Those of you who think there's no such thing in the US as debtor's prison have never seen the inside of a family court. Just before he died, Thomas mailed a 15 page statement to the local newspaper; among other things he said, "I have 21 years of Army service going back to the Vietnam War. My loyalty to the government should be a given. It is gone. I am certain it will never return regardless of how long I might have lived." You can read his entire statement here. I sent an email to his ex-wife's attorney, William J Phillips saying, "Well, you hounded a man to death. You must be so proud. Enjoy your karma." My children, who have been through a similarly acrimonious divorce, responded to this news by saying "her kids will never forgive her." May God have mercy on Mr.Ball's soul. I decline to state my thoughts and feelings about his ex-wife and her attorney.
Some years ago Apple poached Ron Johnson from Target stores to build their retail outlets, the Apple Stores. He was fantastically successful for Apple. Now J.C.Penney has poached Johnson from Apple to rebuild their brand. Will it work? Not a chance. 1) At Apple, Johnson had unlimited money. He spent up to $8,000 per square foot making Apple stores fabulous. Penney's has no such war chest. 2) At Apple, Johnson had unique products that everyone wants - iPhone, iPad, iPod, Mac, heck they probably make money selling their iTrash. At Penneys he's selling the same junk everyone else is selling, nothing proprietary, nothing new, nothing sexy. 3) At Apple, he had customers with money who wanted to buy the latest newest thing. At Penneys he has the vanishing middle class to whom he hopes to sell more, I dunno, cheap cashmere sweaters, "designer" jeans and knock-off Italian pumps. I don't believe it. Penneys and Sears and KMart are dying and no one will miss them. He can help them build the kewlest web page in the world, but in the end you need customers with money to spend, or you need to be Walmart (owns the Hispanic and minority crowd) or Target (owns the declining white middle class with delusions of self-respect), with their crushingly low distribution costs and thin margins.
Summer movies are out and so far I'm disappointed, along with much of the public. 85% of the viewers of 2009's Avatar saw that movie in 3-D, paying a premium of about $5 per ticket to do so. It was well worth it, as Cameron used 3-D for immersion in the environment, not to throw things at your face. Since then 3-D ticket sales have plummeted, as recession-aware moms decline to pay an extra $20 to take their kids to a 3-D Saturday matinee. Transformers 3, a movie that could have never been made and somehow Western Civilization would have staggered on, is seen as the last great hope for 3-D. Meanwhile, attempting to continue with the success of Batman, Spider-Man and Iron Man, we're getting 2nd rate movie versions of 2nd rate comic heroes like Thor and Green Lantern. The great hope to salvage the summer? Harry Potter #8, a remake of Planet of the Apes, and "Cowboys and Aliens," where an amnesiac James Bond protects the Gunsmoke crowd from the Independence Day invaders. Who says creativity and originality in Hollywood is dead?
Demonstrations, one might even in some cases call them riots, continue to increase across Greece and Spain. Hundreds of thousands of people, largely 20-somethings, are marching daily in protest to their government policies. Here's a few quotes that I think show their state of mind rather clearly:
"I finished school more than a year ago," says Spaniard Oleguer Sagarra. "There were more than 50 of us who graduated with degrees in physics here in Barcelona. Only one person found a job. One out of more than 50. I speak Spanish, English and French, and I'm a physicist, and I'm living in the room where I lived as a kid. We are not against the system. The system is against us."
Like many Portuguese, Paula Gil, 27, feels that her country is not being rescued but taken over. By a foreign power. By Europe. "We aren't getting any aid. We're getting loans," she says quietly. "But does one fight debt by going even more deeply into debt?" People she has never voted for can now influence her country and her future, says Gil. People like IMF executives, ratings agency analysts and Angela Merkel, the chancellor of far-away Germany. Gil says she is afraid she will end up like her mother, who is 47 and unemployed. "At first, you get part-time jobs in Portugal because you're young. Then, when you hit your mid-40s, you don't get any jobs at all because you're old." She finds it absurd that the only way to succeed is to look for work outside Portugal. "You can't expect an entire generation to emigrate. The country has invested a lot in education, and we are better educated than any generation before us. And then they send us away? Is this Europe?"
Frenchman Julien Boyer says today's Europe is the opposite of direct democracy, a place where decisions are made by impenetrable committees no one voted for and that are almost impossible to influence.
Greek Kostas Dekoumes knows that there is really no solution for Greece. His country's debts are already so high that he can't even comprehend the number. Bankruptcy will come, but when it does, he says, he still wants to be a proud Greek, not someone who is dependent on the government, "on the assholes I didn't vote for." Streetlights are plastered with signs that read "Óxi!" or "No!" -- a reference to the Greek sellout. "We own nothing. We are selling nothing. We pay nothing!" is a popular slogan of the Greek protestors.
The real paradox is that it is precisely those young Europeans in Lisbon, Barcelona, Lyon, Dublin and Athens who need a strong European Union. They need a union that redistributes work in Europe; that monitors the banks and speculators in different ways than national governments can; that regulates the handling of nuclear power, nuclear waste and energy policies on a European level; and that coordinates climate protection for the countries. In short, they need a union that exists not because political romantics from the postwar generation want to keep it alive. They need a union that exists because the Europeans of tomorrow see it as their greatest opportunity. But young educated Europeans are without jobs, without hope for a future, and have lost all sense of being Europeans. It appears to them that their country is being bankrupted to pay for the political future of Angela Merkel, chancellor of Germany, absentee landlord of Greece, de-nuclear engineer, occasional professor of economic nonsense and recent recipient of the US Medal of Freedom, our highest award to non-citizens. Obama gets a Nobel Peace Prize for not being Bush, Merkel gets the US Medal of Freedom for foreclosing on the Greeks, Spanish, Portuguese, and Irish.
It's easy to look at the people in the PIIGS and blame them for over spending, for passing unfunded retirement plans, for building thousands of houses in which no one will ever live (any of that sound familiar?) It's also easy to blame American minorities for signing up for liar's loans to buy a house that they never believed they could afford, a house that the realtors and bankers assured them would go up in value forever. I see the truth as more complex. Bankers made a lot of money writing loans to the PIIGS, loans that they believed were implicitly backed by France and Germany. Goldman Sachs made a lot of money showing Greeks how to hide their deficits. Germans made a lot of money selling washers and cars to Greeks and Spaniards. And now that the house of cards is collapsing, at a time when there's, in my opinion, plenty of blame to spread around, now we're told the entire blame falls on Greek hairdressers who accepted government retirement at age 51, on Spanish builders who were offered huge low-interest loans to build housing tracts that will never sell, on Irish workers who agreed to tax breaks for Intel, Cisco, Hewlett-Packard to lure them into Ireland with their jobs.
I see no possible future for the Euro. The PIIGS are simply being asked to pay too high a price to stay in a union where only Germany prospers. The only question in my mind is how it will break up. Suppose you make $240,000 per year, $20,000 per month, and you want to buy a $400,000 house. You need $35,000 to close escrow, but you don't have the cash. You have a liquidity problem, a loan for a few months will get you over it. Now suppose you own the $400,000 house with a $2,500 monthly payment for interest, principle, taxes and insurance, and you lose your job. Now you have a solvency problem, you're going to lose your house. Loaning you a year of house payments won't get you a job in this economy, it just means you owe even more money. The PIIGS have a solvency problem, they're not making any money. But the EU is treating this as a liquidity problem, throw them a few euros and the problem will go away for a year or so, by then maybe it will be better. If the politicians were gutsy enough to face their constituents with the truth, they would admit this and start on the painful job of restructuring and forgiving much of the PIIGS debt. Since they aren't going to do that, the only question remaining is will a government like Greece simply refuse to play along, or will there be an Egyptian-style revolution. I can't predict exactly how or when this will end, but it's now clear to me the end won't be pretty. There are simply too many people in the PIIGS who are fed up, and they aren't going to take any more punishment from Angela and her medal. Their governments will sense the prevailing winds and change course, or the people will change the governments.