Financial Review

Dead Cat Bounce

Sinclair Noe — June 28, 2016

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

Subscribe: iTunes | Android | RSS

DOW + 269 = 17,409
SPX + 35 = 2036
NAS + 97 = 4691
10 Y un = 1.46%
OIL + 1.78 = 48.11
GOLD – 12.60 = 1312.50

Stocks bounced back across the globe after a record $3 trillion in market cap was wiped off the board in just two trading days and sterling fell to its lowest level in over 30 years. Hopes of a more coordinated central bank response to support the financial markets and firmer oil prices are helping stocks claw back some of their losses following the Brexit battering.

And after two days of brutal selling, traders are taking a breath and trying to figure out the best strategy moving forward. Even with the gains today, the Dow is down year to date, but the Dow did not take out the lows for the year, set back in February.

Same story with the S&P 500, which found some support yesterday at the 2000 level, after breaching major support around 2040 and then clawing its way above 200-day moving average resistance at 2021. And if you want to get clever, consider the Russell 2000 index of small cap stocks is also down year to date, did not take out the February lows, but did find some support at the May lows.

Now, you can easily understand that big, multi-national companies are affected by what happens in Europe, but why did the small caps take a hit? Do you buy the dips or sell the rallies?

Heads of government of the EU’s member countries are gathered for a two-day meeting of the European Council in Brussels. No country has ever left the bloc, so they are in uncharted territory as they try to figure out how to make Britain’s separation proceed as smoothly as possible. Pressure is also expected to be applied on the U.K. to trigger Article 50, which would actually start a 2 year exit process. The UK might opt for a much faster exit, or they might drag things out. Several Euro leaders have expressed the idea that the UK needs to explain what they are going to do because the uncertainty is not good.

German Chancellor Angela Merkel warned the U.K. to have no illusions about life outside the European Union. Merkel, in her toughest response yet to last week’s British vote, said that the U.K. can’t expect favored treatment once it leaves and that there will be no informal talks on a new relationship before the government in London files Article 50.

The Brits were hoping they could renegotiate trade treaties and just sort of cherry pick the best deal, while not paying into the EU or abiding by rules and regulations they don’t like. Yea, that’s not gonna happen. One of the leading campaigners for the exit side, Nigel Farage from the UK Independence Party, spoke before the European parliament; he was booed. EU Commission President Jean-Claude Juncker called Farage a liar. This is not going to be an amicable divorce.

The British government has abandoned plans to sell down its shareholdings in RBS and Lloyds in light of the Brexit referendum, leaving a multi-billion-pound hole in its finances. The Treasury had planned to cut its exposure to the domestic banks, raising £9-billion-pounds through stock sales, but the date has now been pushed back until at least 2017 given market volatility.

Moody’s will revise the outlook of “a number of big U.K. lenders” to negative from stable due to fallout from last week’s EU referendum. The plan comes just hours after rival Standard & Poor’s stripped the U.K. of its coveted triple-A rating and Fitch downgraded the sovereign debt.

The first bank casualties might be in Italy. Italy is preparing a €40-billion-euro rescue of its financial system as bank shares collapse on the Milan bourse. Italian officials are studying a direct state recapitalization of the banks, to be funded by a special bond issue. Unlike the Eurozone debt crisis in 2011-2012, there is no serious trouble yet in the sovereign debt markets. The ECB is effectively capping yields under quantitative easing. The Euro STOXX index of bank stocks has collapsed by half since last July. And Italian banks are the Achilles Heel of the Eurozone financial system. Non-performing loans have ratcheted up to 18% of total balance sheets.

The stock market sell-off did shake thing up; of course some stocks were hit harder than others.  Apple still has the largest market capitalization among US stocks, but here are some of the leadership changes. Verizon is now bigger than Walmart. Proctor and Gamble is bigger than JPMorgan. Coca-Cola and PepsiCo beat Chevron and Intel, respectively. And Home Depot is now bigger than Disney.

U.S. economic growth slowed in the first quarter but not as sharply as previously estimated. Gross domestic product was revised higher to show a 1.1 percent annual rate, rather than the 0.8 percent pace reported last month. Federal Reserve Chair Janet Yellen told lawmakers last week that data pointed to “a noticeable step-up” in GDP growth in the second quarter. The Atlanta Federal Reserve is currently estimating second-quarter GDP rising at a 2.6 percent rate. But uncertainty stoked by the Brexit vote poses a risk to growth for the rest of year.

U.S. house prices rose 1.1% in April. The S&P/Case-Shiller 20-City Index showed a stronger pace of growth in the three months ending in April. March’s reading was 0.9% higher. Compared to the same period a year ago, prices rose 5.4%, down from 5.5% in March. But there was a stark divide between cities, as usual. Super-hot metros like Portland, Seattle and Denver continue to see double-digit annual price gains, while home prices in older cities like New York and Washington rose only about 2% on an annual basis. Phoenix existing home prices rose 0.7% for April; up 5.5% for the past year.

U.S. consumer confidence moved higher in June. The Conference Board said its consumer confidence index rose to 98 from 92.4 in May. The present situations index rose to 118.3 from 113.2, while the expectations index rose to 84.5 from 78.5. However, the cutoff date was June 16, a week before the British referendum that has roiled financial markets.

Oil prices bounced about 2% today. Still, regular unleaded gasoline fell to $2.30 Monday (the nationwide average price), the cheapest price for this time of year since 2005, according to data from AAA. Consumers are reaping the benefits to the tune of $20 billion. That’s how much AAA estimates drivers have saved at the pump so far this year compared to the same period in 2015; with $5 billion of those savings were in the one-month period since Memorial Day alone.

And we are spending the savings at the pump. Americans spent 12.8 percent more on hotels and motels in the first quarter of 2016 than in the same period in 2014, while food and drink spending rose 16 percent, according to data from the U.S. Bureau of Economic Analysis. Consumers are also fueling their vices, including by spending more money on cigarettes. Not all of those gas savings are going up in smoke, however: Americans are also saving some of it for a rainy day. The average personal saving rate in the first four months of the year rose to 5.6 percent, up from 5.2 percent in the same period in 2015 and 5 percent in 2014.

Volkswagen’s price tag to settle lawsuits in the U.S. over its rigging of diesel emissions tests has jumped to more than $15 billion – $5 billion more than previously reported – with a settlement filed in a San Francisco court. VW’s deal includes $10 billion for buybacks of 475,000 polluting vehicles and nearly $5 billion for fines and funds to boost clean-emissions technology. If you own a VW affected by the emissions scandal you may be entitled to cash compensation plus a buyback of the vehicle, or you could wait for a modification to fix the problem. And if you leased an affected car you might also be entitled to cash compensation.

The U.S. Senate is set to launch a debate for establishing a federal oversight board that would be in charge of restructuring Puerto Rico’s debt where one out of every three dollars it earns in revenue is used to pay creditors. The measure is identical to the plan passed by the House earlier this month, as Congress tries to get something done by July 1, when $2 billion in debt payments come due.

A large “Four Points by Sheraton” sign has gone up outside the Havana hotel that this week becomes the first in Cuba to operate under an American brand since the 1959 revolution. The military-owned Gaviota 5th Avenue Hotel, close to the Caribbean seafront, is one of two hotels that Starwood Hotels & Resorts agreed to manage in a multi-million-dollar deal in March.

Airbnb sued San Francisco. The holiday-rental platform wants to block a law that would force it to remove listings from unregistered hosts or face hundreds of thousands of dollars in fines. It complained that the city is violating federal law by holding it accountable for unregistered apartments.

Biotech news roundup: Endo International has held discussions with Private Equity firms about potential asset sales to reduce its more than $8 billion debt pile. Pfizer is investing $350 million to build its first biotech center in China. Horizon Pharma has hired Bank of America to help it explore selling a significant equity stake that would bolster its balance sheet.

The EU is taking steps that could lead to a third antitrust complaint against Google, this time over its dominance in advertising.  Antitrust charges have been filed against Google for allegedly skewing its search results to favor its own shopping service, and more recently in April, over Google’s conduct with its Android mobile-operating system.

Financial Review

Off to the Races

Sinclair Noe — January 4, 2016

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

Subscribe: iTunes | Android | RSS

DOW – 276 = 17,148
SPX – 31 = 2012
NAS – 104 = 4903
10 YR – .02 = 2.25%
OIL – .11 = 36.93
GOLD + 13.50 = 1075.50

The Dow started the morning with a 467-point decline. An inauspicious start to trading in 2016 kicked off, or more accurately fell down, this morning in China. Traders in Shanghai reacted to growing tensions in the Middle East and a drop in one of China’s manufacturing gauges. Fresh manufacturing surveys revived concerns about Beijing’s economic slowdown.

China’s manufacturing activity contracted for the 10th straight month in December – the official manufacturing PMI stood at 49.7 in December. The yuan, which began new extended trading hours today, also hit its lowest point in more than four years in both onshore and offshore trade.

The China CSI 300 Index dropped 5% and that triggered circuit breakers that resulted in a 30-minute halt in trading of all stocks. When trading resumed, the traders were scared and they rushed to exit their positions. In a matter of about 7 minutes the Index dropped to a loss of 7%, and the next round of circuit breakers triggered a halt to trading for the remainder of the day.

The benchmark Shanghai Composite index closed the shortened session down 6.85% while the broader CSI 300 index, encompassing the largest listed firms by market capitalization in Shanghai and Shenzhen, slid by 6.98%. The small cap CSI 500 index fared even worse, finishing the day down 8.27%.

From there, the bad vibes in the market spread; the Nikkei in Japan dropped 3.1% even as the yen rallied on a safe haven play; the Hong Kong Hang Seng China Enterprises Index dropped 3.7%%. The Stoxx Europe 600 Index fell 2.6%, capping its worst start of the year ever as almost 580 of its companies fell. The MSCI Emerging Markets Index lost 3.5%, its worst day since August, when China devalued its currency. Benchmark gauges in South Korea, Taiwan, Malaysia, South Africa and Poland lost more than 2%.

The first trading day of the year does not seem to have any predictive capacity to tell us the direction of trading for the rest of the year. It’s about a 50-50 chance that the market follows the first day of trading in the year. Still, today was a big drop and it makes us look at historic data.

For example, in 1932, the market started the year trading down 6.9%; in 2001 the markets lost 2.8% on the first day of trading. We can include first day trading losses of under 2% in the 5 worst first days of trade including 1949, 1980, and 1983. Of the 5 worst, 2 came at the start of down years, and 3 came at the start of up years for the market.

Still you could be forgiven if you are concerned that today portends a theme in the markets. For global investors, China is a critical piece of the growth puzzle. As the second-largest economy, China drives demand around the world in commodities, consumer goods and other sectors.

The government has been trying to increase growth through stimulus measures and it has moved aggressively to prop up the stock market with a series of policy actions. The latest economic data and the big drop in their stock markets cast doubts about whether those measures are working. We don’t know and we will only know in time, but if today is any indication we may be in for a boatload of volatility.

Two Fed chiefs came out today to say they’re not worried about China. Federal Reserve Bank presidents, Loretta Mester of Cleveland and John Williams of San Francisco, basically said a weakening economy in China had already been built into the outlook for 2016 by Fed officials. Mester said, “There’s going to be volatility in the markets, that’s kind of the nature of financial markets.” Williams said the Fed would have to continue with “significant monetary accommodation” to keep growth above 2%.

Saudi Arabia cut off diplomatic relations with Iran on Sunday, giving diplomats 48 hours to leave the country, after protesters on Saturday stormed and torched the Saudi Arabian Embassy in Tehran. The move was in response to Saudi Arabia’s execution of 47 prisoners, including a prominent Shiite cleric. Bahrain and Sudan joined Saudi Arabia in severing diplomatic relations with Iran. Bahrain is home to the US Navy’s 5th Fleet.

The United Arab Emirates, meanwhile, recalled its ambassador from Tehran. So this is breaking down along religious lines between Sunni and Shia, but you might also suspect the timing involves Iran’s re-emergence as a major player in oil production.

Meanwhile, the first oil tanker of freely traded American crude oil launched Thursday from the Port of Corpus Christi, marking the end of a long-standing U.S. ban put in place in the 1970s. ConocoPhillips and NuStar Energy loaded the tanker with crude pumped from Eagle Ford.

AAA is projecting that gas prices will stay lower in 2016, estimating an average cost of $2.25-$2.45 per gallon. In 2015, the average price per gallon was $2.40 (Americans saved $540 on average). AAA also forecast that the national average would stay steady or drop another $0.10 in the coming weeks, and would not go above $3/gallon this year. Oil prices moved higher in early trade but closed slightly lower for the day.

Economic news today shows weakness in the manufacturing sector. The ISM manufacturing index slipped to 48.2% last month from 48.6% in November. Readings under 50% indicate more companies are shrinking instead of expanding. The ISM index has posted sub-50% readings for two straight months for the first time since an economic recovery that began in July 2009. An interview with ISM chair Brad Holcomb has been posted on this site. Meanwhile, Markit’s US manufacturing PMI fell to a 3-year low.

The Commerce Department reports construction spending sank 0.4% in November to a seasonally adjusted annual rate of $1.12 trillion. The October increase, originally reported as 1.0%, was revised down to 0.3%. In November, spending was 10.5% higher compared to a year ago. Private construction was down 0.2% during the month, but 12.1% higher for the year.

As a side note, the Commerce Department is revising how it counts construction spending to include private residential improvement spending. That sounds innocuous, but the improvements category account for about one-third of private residential spending, or 13% of the overall total. In November, improvements amounted to a seasonally adjusted annual rate of $144 billion. And these revisions go back 10 years, so there could be adjustments to GDP numbers as well.

The Atlanta Federal Reserve cut its forecast for fourth-quarter growth for the fourth time in the past three weeks. The Atlanta’ Fed’s closely watched forecast model now suggests that gross domestic product grew a scant 0.7% from October through December. In mid-December, the Atlanta Fed was predicting a 2% increase in GDP. It’s since lowered its forecast after disappointing reports on manufacturing, exports, construction spending and consumer spending.

This Friday’s jobs report for December, the highlight of the economic data due in the first full week of January, is expected to show nonfarm payrolls expanded by about 205,000. Even with weakness seen during the summer, job gains in 2015 will top 2.5 million, making it the second-best calendar year for U.S. job growth in this millennium, after last year’s 3.1 million. The last time more jobs were created in a two-year period was at the height of the dot-com boom, in 1998-1999.

After a disappointing 2015 for stocks, it appears the upcoming earnings season will not provide relief. Once again weighed down by the energy and materials sectors, the S&P 500 is expected to see a decline in earnings of 4.7% from the year-ago period, according to estimates from FactSet.

The only sectors expected to see any gain in fourth-quarter earnings are telecom, financials, consumer discretionary and health care. If fourth quarter earnings decline, it will mark the first time the index has seen three consecutive quarters of year- over-year declines in earnings since the first 3 quarters of 2009. The ongoing hope is that this will be one of those stock-market-earnings recessions that are able to avoid US economic recessions.

Nokia has officially gained control of French rival Alcatel-Lucent through a €15.6 billion-euro all-share deal after the French stock market authority declared the offer successful. The first day as an operationally combined group will be January 14.

Shire is in advanced talks to acquire Baxalta for $46.50-$48 per share, or about $32 billion in cash and stock, excluding debt. Final details of the transaction are still being negotiated, but the two drug makers are likely to announce a deal this week. Baxalta would benefit from a lower tax rate if taken over by Shire, and the enlarged company would generate $20 billion in sales by 2020, with as many as 30 new drugs to launch over five years.

Meanwhile, Baxalta agreed to pay Symphogen A/S of Denmark as much as $1.6 billion for the rights to develop and sell a handful of experimental cancer products that work by harnessing the power of a patient’s own immune system.

The Justice Department and the Environmental Protection Agency have filed a civil lawsuit against Volkswagen, Porsche, and Audi alleging Europe’s largest automaker knowingly sold nearly 600,000 diesel vehicles with “illegal defeat devices,” which allowed the cars to cheat state and federal emissions tests.

The suit alleges violation of the Clean Air Act and could face up to $18 billion in fines. The Justice Department is also investigating VW for possible criminal conduct related to the devices; plus, as many as 12,000 VW, Audi and Porsche owners have signed onto a class action lawsuit.

Tuesday, July 01, 2014 - The Good, the Bad, and the Depressing

Financial Review with Sinclair Noe

DOW + 129 = 16,956
SPX + 13 = 1973
NAS + 50 = 4458
10 YR YLD + .05 = 2.56%
OIL - .13 = 105.24
GOLD - .80 = 1327.10
SILV + .02 = 21.08

 

Record high closes for the Dow and the S&P.

The record setting bull market run refuses to stumble. The S&P 500 has not seen a correction, a drop of 10%, for 1,002 days, and counting. This marks the fifth longest stretch without a correction since 1928. The average time between corrections is about 18 months; we’ve now gone 33 months without a 10% pullback.  

The Institute for Supply Management said its manufacturing index registered 55.3% in June, down slightly from May’s reading of 55.4%. Any number above 50% signals expansion. Separately, the research firm Markit said its final reading of US manufacturing conditions in June totaled 57.3, compared with a preliminary reading of 57.5; still the highest reading since May 2010. So the manufacturing sector has expanded for 13 consecutive months, but it wasn’t a month over month increase, and we have to remember that manufacturing was expanding in the first quarter as the broader economy was contracting by 2.9%. Today’s reports were decent news for manufacturing, but hardly great.

The Commerce Department reports construction spending increased 0.1% in May, following a 0.8% increase in April. Construction activity totaled $958 billion at a seasonally adjusted annual rate in May, up 6.6% from a year ago. Single-family home construction was down 1.4% while apartment construction dropped 0.6%. The hotspot for construction was a 4.3% rise in construction of power generating facilities.

The upshot is that the economy is continuing to improve from the deep freeze of old man winter, even if the recovery is tepid. Most economists and analysts had called for 3% growth in the first quarter, not a 2.9% contraction. Now that the weather and the economy have thawed, we’re hearing talk of 3% growth going forward.

The strongest S&P 500 sector this year has been Utilities, up 17%. The S&P 500 Energy sector is up 13%, with the following subsectors: Oil & Gas Equipment and Services rising 28%, Oil & Gas Storage and Transportation up 25% and Oil & Gas Exploration up 22%.The weakest S&P 500 sector so far this year has been Retailing.

June auto sales beat expectations with Chrysler, Nissan, Toyota and Hyundai all posting healthy gains compared with the same month a year earlier. General Motors had a small increase and Ford’s sales declined. June new car sales approached 1.4 million, about the same as a year earlier. Most analysts were forecasting a 2% to 3% decline for the month. GM recalled an additional 8.5 million cars yesterday, which means that GM has now recalled 29 million cars since the start of the year, more than the total number of vehicles it sold in 2011, 2012, and 2013 combined. It’s also more than the 22 million vehicles recalled by all automakers last year.

AAA predicts that nearly 35 million Americans will take a road trip of 50 miles or more on the Independence Day weekend. The current national average price for a gallon of regular gasoline is $3.68, compared with $3.48 a year ago. According to AAA, gasoline prices are 20 cents a gallon higher due to “market fear about Iraq”.

Sunnis and Kurds walked out of the first session of Iraq's new parliament after Shi'ites failed to name a prime minister to replace Nuri al-Maliki; so, the prospects are poor for a new unity government that might prevent Iraq from collapsing. Meanwhile, the ISIS rebels continue fighting; they control suburbs  just west of Baghdad; they have been waging fierce battles in Tikrit, north of Baghdad, and there have been clashes to the south of the capital, leaving the city surrounded on three sides. The United Nations says more than 2,400 Iraqis had been killed in June alone, making the month by far the deadliest since the US "surge" offensive in 2007.

Geopoltical hotspots continue to flare up. Ukrainian forces struck pro-Russian separatists bases in eastern Ukraine with air and artillery strikes. The ceasefire came and went, and won’t be renewed. Russian president Putin accused the Ukrainian prime minister of shunning the road to peace; while Russian foreign minister Lavrov warned of a “new round of bloodshed”.

 A follow-up on yesterday’s Supreme Court ruling in the Hobby Lobby case, which dealt with a closely held corporation’s objection to paying for contraceptives in employees’ health care under the Affordable Care Act mandate. The Supremes said corporations are people, my friend, and they have religious beliefs, and so they are exempt from the mandate. There had already been exemptions for churches and non-profit organizations; in those situations the government determined that contraceptives would be paid by the government. This was the solution put forth in 2012, and revised in 2013, whereby taxpayers could pick up the tab for contraceptive coverage, instead of religious employers, as a solution to the First Amendment issues in question.

Writing for the majority in the Hobby Lobby case, Justice Alito wrote: “[the White House] could extend the accommodation that HHS has already established for religious nonprofit organizations to non-profit employers with religious objections to the contraceptive mandate. That accommodation does not impinge on the plaintiffs’ religious beliefs that providing insurance coverage for the contraceptives at issue here violates their religion and it still serves HHS’s stated interests.”

In other words, while the government can’t compel Hobby Lobby to finance contraceptives, it can compel taxpayers to do so. Another name for taxpayer funded healthcare is “single payer”. I’m not sure if the Supremes intended this, but they just justified the government to establish a single payer health plan, at least for contraceptives.

There was a time when a majority of Americans were confident in the Supreme Court, but according to a new Gallup poll just 30% say they are confident in the highest court. That’s the good news; people have more confidence in the Supremes than in any other arm of government, but that may not be saying that much when confidence in the presidency stands at 29% and in the Congress at 7%. Which means Congress is even less popular than head lice, or T-Mobile, or Facebook.

The Federal Trade Commission says T-Mobile made money the old fashioned way, by charging customers hundreds of millions of dollars in bogus charges. The practice is often referred to as "cramming"; businesses stuff a customer's bill with bogus charges associated with a third party. In its complaint filed in federal court, the Federal Trade Commission claimed that T-Mobile billed consumers for subscriptions to premium text services such as $10-per-month horoscopes that were never authorized by the account holder. The FTC alleges that T-Mobile collected as much as 40% of the charges, even after being alerted by other customers that the subscriptions were scams.

Facebook has its own little scam. It modified hundreds of thousands of users' accounts by prioritizing 'positive emotional content' to see if it could make them happier or sadder, without telling them what it was doing.

Researchers from Cornell University and the University of California filtered information going into the news feeds of 689,000 users; that includes the constant flow of links, videos, pictures, and comments by friends. When positive emotional content from friends was reduced, users would post more negative content themselves, essentially becoming unhappier. The opposite happened when negative emotional content was reduced. The process has been dubbed “emotional contagion”.

The study, published in the journal “Proceedings of the National Academy of Sciences of the USA”, concluded: “Emotions expressed by friends, via online social networks, influence our own moods, constituting, to our knowledge, the first experimental evidence for massive-scale emotional contagion via social networks.”

A spokesman for Facebook said the research was conducted over a single week and none of the data was associated with a specific person's account. Instead, they said the site wanted to make its content more “relevant and engaging”.

Just to be clear, another name for emotional contagion is empathy, something that is in short supply at Facebook. What we really learned from this experiment is that the people at Facebook have spent so much time staring at a computer screen that they have become disconnected from emotional reality, and have to rely on scientists to run secret experiments on hundreds of thousands of lab rats, I mean customers, to discover that people get upset when their friends are unhappy. Even worse, the experiment confirms that social networks now have the power to change the emotional well-being of millions of lab rats, I mean customers, on a whim; just to see what happens; devoid of empathy.

Now that’s depressing.

The Unavoidable Big Payback: America’s AA Credit Rating

Bill Gross on Bloomberg TV yesterday predicted the inevitability of the US losing its AAA credit rating.  Running deficits at 10% of GDP for many, many years, and projected growth rates of 1% to 2% in the future, this will push debt as a percentage of GDP from current levels of 50% toward 100%.  An inflection point for country credit downgrades.  In addition, a protracted monetary policy of quantitative easing and deficit spending will cause an unhealthy re-inflation and effect interest rates and the value of the dollar.

This comes the day after that Britain’s AAA rating was threaten by Standard and Poor’s lowered outlook from stable to negative.  After listening to Bill Gross, the last scene in Paramount Pictures 1972 classic, The Godfather, written by Mario Puzo, between Marlon Brando’s Don Vito Corleone and Al Pacino’s Michael, then flashed before my eyes:

 Don Corleone: I never wanted this for you.  I work my whole life - I don't apologize - to take care of my family, and I refused to be a fool, dancing on the string held by all those bigshots. I don't apologize - that's my life - but I thought that, that when it was your time, that you would be the one to hold the string. Senator Corleone; Governor Corleone. Well, it wasn't enough time, Michael. It wasn't enough time. 

Michael: We'll get there, pop. We'll get there.

In this economic translation, Don Vito represents Thatcherism and supply-side economics is Michael.  Deregulation and lower taxes were supposed to free capitalism from the straightjacket of Keynesian economics and deliver all to a financial utopia.  After a generation of less government, our stock market value is half its worth from as recently as 2007.  Our banking industry and credit markets are broken; propped up by taxpayer’s dollars.  The economy is fighting off depression – and losing.  Moreover, the accumulated wealth of baby boomers, earmarked for retirement, along with their dreams, is truncated.

The US automobile industry, once the envy of the world, now laid dismantled awaiting auction to the highest bidder for pennies on the dollar; 500,000 jobs are disappearing monthly, and the end game is the lost of our credit rating.  Cities and states have run out of cash just like many of its citizens.  Corporations continue to lower earnings estimates, quarter after quarter, because a de-levered future means a smaller pie.  Therefore, government will continue to print money. 

Treasury Secretary Timothy Geithner stated yesterday that the rise in treasury interest rates is proof the economy is getting stronger.  Perhaps.  Another theory is the world is adjusting the risk premium for holding US debt.  There was no comment on the slumping dollar.  At this point, the godfather, a shrewd businessman, would short the dollar, buy gold, and look for emerging markets to invest in.

However, just as Don Vito deluded himself into believing his actions, a lifetime of criminality, could escape into the non-criminal world, for future generations of Corleones, we deluded ourselves, too.  We believed it was possible to consume reckless leveraging, loose credit, cheap money, zero personal savings, obscene amounts of personal, corporate, municipal, and federal debt, and low taxes, without any cost to our brand of capitalism, jeopardy to our economic system, or any real personal pain.

Francis Ford Coppola subtle metaphor in the final scene employing Don Vito as a fanged monster to frighten his grandson is the 12 trillion dollars in debt that awaits our grandchildren.  Be very afraid, children.  The beloved monster suddenly dies unfulfilled in his garden. I hope there is enough time for us to redeem our gluttonous spending ways, avoiding sure financial cardiac arrest, so that we can “get there”, like pop wanted us to do.