Dumpty Humpty

By David Glenn Cox

　

Since the big crash last year, I’ve been keeping a close eye on the stock market. Not that I have any money to invest, but I like reading the financial news because sometimes they tell more of the truth than they intend to. It is kind of like reading the right wing playbook before they get out on the field.

The funny thing is, these button-down, crisp-collar folks find themselves in a mess of trouble. Once burned, twice shy has become the motto for many of their customers, and no customers means no commissions. Or in the words of Mel Brooks, "We’re going to lose our phony baloney jobs."

So, the land of spreadsheets and presentations has taken on an air of the Brady Bunch. The three favorite words on the Bloomberg website are maybe, probably and might.

"Greg, how was school today?"

"Gee, Dad, I’m probably going to be the captain of the football team next year, and I think I got a B on my history test."

"Now, Greg, do you think you got a B, or do you know that you got a B?"

"I’m not sure, Dad, but I might have!"

Sept. 28 (Bloomberg) -- Holiday retail sales in the U.S. may rise 1 percent this year as consumer confidence improves.

Sept. 25 (Bloomberg) -- Orders for durable goods probably rose in August for the fourth time in the last five months, a sign companies are gaining confidence the U.S. is emerging from the worst recession since the 1930s.

Sept. 25 (Bloomberg) -- Demand for U.S durable unexpectedly fell in August and sales of new homes rose less than forecast, restraining the pace of the economic recovery.

Sept. 24 (Bloomberg) -- Sales of existing U.S. homes probably climbed in August to the highest level in two years, another sign the real-estate collapse that triggered the global recession is abating, economists said before a report today.

Sept. 24 (Bloomberg) -- Sales of existing U.S. homes unexpectedly fell last month for the first time since March, signaling the housing recovery will be slow to gain speed.

They close their eyes and wish, wish, wish, but it just won’t get better. So, let's play a little game called the Jelly Bean game. Say you worked as a checker at Wal-Mart, and now that you’ve reached age eighty you’ve decided to retire and enter the market and invest your life savings. You’ve heard that there are big returns to be earned in the Jelly Bean market. So you tell your broker to go ahead and invest your whole ten bucks in Jelly Beans. Jelly Beans are selling at ten for a dollar, so you are now the proud owner of one hundred Jelly Beans.

A year goes by and you decide that you want to cash in your Jelly Beans and find a warmer overpass down south to spend your retirement years under. You call your broker. "Good news," he says. "The Jelly Bean market is up 10%; you’re now worth one hundred and ten Jelly Beans!" After taxes and commissions you end up with a hundred and six Jelly Beans.

You get settled into a cozy box under an overpass in Miami and you decide, "You know, that Jelly Bean market was pretty sweet. I’m going to try that again."

This time the broker says, "You can only buy nine Jelly Beans for a dollar now."

"Wow, the Jelly Bean market is going crazy!"

"No," he answers matter of factly, "the value of the dollar has declined; the value of the Jelly Bean is the same."

"But just last year," you explain, "I made six Beans in the Jelly Bean market."

"What you made a profit on was fear, not Jelly Beans. Investors were dumping the dollar for anything not likely to lose as much value as the dollar. So Jelly Beans were a safer investment; this year you’d need $11.11 to buy a hundred Jelly Beans. How much did you say you made last year?"

"Well, I made ten Beans, but after taxes and commissions, only six."

So then, you invested $10.00, you got back $11.00, and then paid tax and commission to earn .60 cents. Actually, you really lost money there because the Jelly Beans are worth more today than the dollars they paid you in.

You see, it is becoming difficult to find suckers er, customers for the stock market. All the Feds' horses and all the Treasurys' men can’t put Dumpty Humpty back together again. Two years ago you could purchase, with one US dollar, 119 Japanese yen. Today that dollar will only buy you 89.5 Japanese yen. So, in dollar-denominated stocks breaking even or small increases won’t cut it for foreign investors.

The price of gasoline has risen while demand has fallen, but how could that be? The price of a barrel of oil is sold on world markets in dollars. As the dollar declines in value, the price goes up. But it isn’t that the oil is worth more, it's that the dollar is worth less.

They trumpet good news and mumble bad. For example, "Sales of existing U.S. homes probably climbed in August to the highest level in two years," except that the real estate home market is off more than 30% from two years ago. Almost half of these home sales are foreclosure sales. If you factor those in, the market is off by two thirds and yet the headline reads, "highest level in two years."

Sept. 30 (Bloomberg) – Best Buy the world’s largest electronics retailer, plans to hire more seasonal holiday workers this year to help meet demand for Internet-connected flat-panel televisions and mobile phones.

Now, remember that last Christmas was the worst on record since World War II. Best Buy is saying in effect, "This year when we fly the Hindenburg to Lakehurst, it’s going to be 1% better than last time!" How many workers does Best Buy intend to hire? They won’t say, but it will probably be more than last year. It might be a lot more! It may be just a few more and probably not a lot more.

The billions spent to bail out the banks were supposed to quickly be returned so that what is happening wouldn’t happen. Your home is worth less, your paycheck is worth less, and prices are rising. That’s why the Treasury Secretary recommends that you save more money, trying to bleed the money out of the economy and back into the banks so the banks can give it back to the Fed to support the dollar.

There was a time when America had a trade surplus. Most goods were manufactured in the United States and it was easier to control the value of the dollar. But now with a trade deficit we must pay those bills to creditors overseas with our currency. So we send more money out of our economy than we take back in. This means that we must print more money to cover what was lost and what was sent overseas, plus two wars and the bank bailouts and the interest on the deficit.

These things combine to make foreign investors wary of the American markets. It is fair to say that most of this is not Barack Obama’s fault. Most of this, but trusting in Wall Street to save itself is to believe that they can put Dumpty Humpty back together again.

Sept. 30 (Bloomberg) – Kenneth R. Feinberg, the Treasury Department’s special master on compensation, said he is reluctant to impose "clawbacks" to recoup pay from executives when their company’s financial performance falters.

"I have an assumption in my mind that it’s not a great idea to recover money already paid and maybe already spent and already taxed," Feinberg said today via video conference at a meeting of the Chicago Bar Association. "I’m wary of exercising that authority in too many cases."

So, the tax cuts stay in place and they won’t use clawbacks. Only 10% of homeowners in trouble are being helped as unemployment continues to rise. Kroger reported that second quarter net income dropped 8%. It might be because people are spending money on things other than food. Maybe it’s just people being more frugal shoppers, but it’s probably because they are running out of money!