SPY Gains of the XXX Olympiad

The stock market has given us over the past six weeks all the thrills of a summertime Six Flag amusement park ride. This serrated performance of risk on/risk off greed and fear rests upon the painful to watch unraveling of the European Monetary Union (EMU).

Now headlining the limited engagement of sovereign surrender of the old country to Germany is Spain. From CNBC, Wednesday night, Moody's Investors Service cut its rating on Spanish government debt by three notches on Wednesday from A-3 to Baa-3. Moody's rating puts it one notch above junk status. Standard & Poor's rates Spain two notches higher at BBB-plus with a negative outlook.

Egan-Jones also cut Spain's sovereign rating to "CCC+" from "B," pushing the country's debt deep into speculative territory.  The rating cut, Egan-Jones's fifth for Spain this year, carries a "negative" outlook.

Fitch Ratings cut Spain's rating by three notches on June 7 to BBB, one notch above Moody's, and put a negative outlook on the credit

The current bearish market metronome to Europe’s impotence and incompetence, Spain’s insolvency and other countries soon to follow, is neither surprising, or, heretofore, improbable. Yet, angst-filled investors remain invested.

Still, a summertime rally will climb this particular wall-of-worry, albeit in a saw tooth pattern, if only because so few people believe that it can or should. Only a fortnight ago, we stared into the abyss having received freshly humbling economic reports on real estate and non-farm payroll. This doom and gloom was sandwiched in-between periods of misplaced optimism about the outcome of Europe’s banking crisis and future global growth.

Treasury rates made their final approach and landed into the history books, June 1,  reaching 1.45% on the 10-year and 2.51% on the 30-year, exceeding all-time lows reached in the fourth quarter of 2008.

Gold and silver has finally awaken from their $1,500 range-bound sleep with explosive upside moves, also June 1, coinciding with revisions of two previous months’ worth of punk GDP growth and a terrible realization that a new Fed punchbowl is nearby while the Presidential hopeful, former Massachusetts governor Mitt Romney chances for capturing the White house in November are brighter than ever.

Only in these perverted times will bad news make the stock market happy. Although in testimony before congress, Fed Chairman Ben Bernanke downplayed any urgency in enacting Quantitative Easing III (QE III), and was instructed by a member of congress to take the punchbowl away; you can be sure that it will remain. Since, without QE III, many politicians and many portfolio managers alike fear for their careers; and the economy, too.

The remaining June milestones to watch include the Greece’s Parliamentary (Snap) election to elect parties that the (EMU) will approve of and vice versa; keeping the dream of higher asset prices and no bank loses alive. It’s being reported that $1 billion dollars daily is being withdrawn from Greek banks prior to Sunday, June 17^th election.

France’s Legislative Second Round election will to determine if the Socialists will take control of their government. Both countries’ elections occur on the same day.

On June 19th, the Federal Open Market Committee (FOMC) two-day meeting begins. Opinion is split as to whether or not an announcement regarding QE III will be made. The usual monthly data sets throughout the rest of June should experience an elevated sensitivity because the current atmosphere of presidential politics supercharges all things economic.

So, why will there be a summer stock market rally? Be patience, we’re getting there.

Over the past two years, knowledgeable talking heads informed us that Greek and Portugal fiscal catastrophes are manageable, however, if the banking crisis infects Spain, then, its economy is just too large to save and the ballgame for developed nations and emerging markets is over. Well, that time has come. Spain officially asked for a €100 billion bailout.

I’m sure you have heard that the rescue structure is the Ireland model. The double quote below, the first from Gluskin Sheff of David Rosenberg, and the second from the blog site Zerohedge commenting on Rosenberg’s comment succinctly summarizes the folly of rescue:

Rosenberg - When you realize that of the potential $100 billion to spend, 22% of that has to be provided by Italy and their lending to Spain is at 3% but Italy has to borrow at 6%. They have to lend to Spain $22bn at 3% - it is just madness. Everybody is getting worried again. The solution that they seem to have come up with seems to be worse than the problem in the first place.

Zerohedge - As we have pointed out vociferously over the past few days, even though the assistance is being earmarked for the banks, the Spanish government assumes the responsibility and so this once 'low national debt' sovereign is following in Ireland's footsteps as its debt/GDP takes a 10pt jump to 89% (based on the government's data) and much higher in reality (when guarantees and contingencies are accounted for).

If the too big to contain (TBTC) outstanding bad debt equation about the EMU was true two years ago, it’s no lees true, today.

Taken all together, this is a continuation of the crisis and fallout from 2008. Greece is in a depression. Europe will soon enter a depression. Eventually, the entire world will sink into an economic depression; another economic depression in a long line of collapses throughout history. But, somehow, we will survive. We always do. There will be new winners and new losers in the 21st century.

Back to this summers’ rally. The S&P 500 Index 52 week range is 1,074.77 - 1,422.38. The close on June 13^th was 1,314.88. Its 6-month high was 1419.04 and low was 1205.535, a ten handle move on the index before Labor Day is not unreasonable. The stock market is as much a psychological and emotional occurrence as any endeavor imaginable.

On a technical basis, the market is near the middle of its 180-day trading range. The market is nearer to an oversold condition than an overbought one. The market can ignore reality (bad news) for weeks, sometimes months, at a time. This summer’s rally may take out the year’s highs but will be the last opportunity for money managers to enhance long returns in 2012.

When the stars and stripes are waived this summer in London at the Games of the XXX Olympiad, beginning July, 27^th, lasting thru August 12^th, and gold, silver, and bronze medals for individual effort and achievement are collected by young men and women on behalf of our republic, we will lay down our various political blood sports, for a brief moment, and swell with national pride.

Is a summer rally guaranteed because the nations of the world are watching their fellow countrymen represent and excel in their sport of passion, as a payoff for years of dedication through their blood, sweat, and tears, while also inspiring the next generation to compete and succeed? No.

But, show me anything that makes sense in a de-levering world of microscopic interest rates, austerity programs that allegedly spurs economic growth, notional derivative contract values several times over of total global wealth today, an insolvent global banking system that extends and pretends the day of reckoning, or a financial world that believes somehow, someway, helicopter Ben will save the day.

We all need to believe in something.

The Market Is Just Not Into Main Street Anymore

August Commentary: The Market is Just Not into Us, Anymore

I’m reminded of the story about the recently deceased arriving at the gates of Heaven and being told that he has freedom of choice he may visit both Heaven and Hell before making his eternal decision. After visiting Heaven for the day he journeys down to Hell.

The most incredible party witnessed in history is going on. The most beautiful people he had ever seen were there. The finest food and drink from the four corners of the planet was being served. The greatest band he had ever heard played every one of his favorite songs and sounding never better, from each stage of his life.

The next morning he returned to Heaven, rendered his decision and apologized for choosing Hell, along with conveying his thanks for the heavenly hospitality.

Upon returning below, the music was gone; so too were the beautiful people and the fabulous food and drink. All that remained in the dark cave was coal, fire, shovels, and heat. When he demanded to know where everyone and everything went; Lucifer winked and replied:

“Yesterday, you were a prospect. Today, sir, you are my client.”

Throughout 2010, and for the last decade, equity returns have produced practically nothing for all its troubles. Then, why do investors continue tolerating an insane amount volatility and risk of principal, for punk rewards - we are holding on to a once profitable relationship that no longer exists.

There; it had to be said.

This 30-year affair between the American middle class and financial markets has been counterproductive over the previous decade. Analysts and money managers are like your mate’s best friend who looks straight into your eyes and lie to your face. “The relationship is fine.” “You are imagining things.” “Every relationship has its highs and lows; you two are experiencing a temporary low period, that’s all.” “You think you could do better without her?”

These examples mirrors a few mindless talking points investors hear bantered about each day on business channels, describing investors’ net worth reduction and why any concern, on your part, is totally unnecessary. Let’s recall how this relationship started by returning to the beginning of this latest chapter.

Wall Street was a rich man’s playground - until the inflationary 1970‘s. At that point, the rich stop buying stocks. P/Es on stocks fell to hat size levels. Prior to the stagflation and inflationary 1970’s, it mattered little that commissions were fixed and burley. The last secular bill market ran from 1950 to 1965. Potential brokers were invited and groomed, by white shoe firms, to introduce themselves to and to form relationships, with the affluent.

In 1962, self-employed individuals or unincorporated businesses became eligible to self-direct retirement accounts through Congressional legislation with the establishment of (Eugene) Keogh or HR (10) plans. Twenty years later, employers asked the same question, differently: Why shouldn’t employees have the same freedom to self-direct their retirement account (thereby, removing corporate responsibility for employees’ retirement).

The private sector, as late as the early 1980’s, offered new workers employer-sponsored defined benefit (DB) retirement plans. Investment risk and portfolio management are entirely controlled by the company. Payouts are calculated on factors such as salary and duration of employment. If there is a short-fall on investment returns, companies are obligated to dip into earnings to cover the difference.

Luckily, for corporations, bottom line margins and much of today’s $1.6 trillion in cash, sitting on the balance sheets of corporations, is safe from being encumbered by DB plans and their retirees.

DB plans are still owned by many public sector workers. Currently, these plans are routinely vilified in the press as parasitic in nature. Defined Contribution (DC) retirement plans, enthusiastically launched in the 1980’s as DB plan’s chief competitive product, and were sold primarily by ridiculing DB plans as being inferior to self-directed accounts. DC plans’ major weakness, an unknown future payout to retirees, became its major marketing strength.

Men with ambition, real men, theoretically, could make untold millions playing the stock market. Accepting a DB plan’s corset over unlimited retirement income potential was the providence of the dull-witted or the lazy, lacking in motivation, vision and imagination.

The tiny requirements for raking in bushels of filthy lucre, for your golden years, as the pitch went, were reading Peter Lynch books and by faithfully watching Louis Rukeyser’s Wall Street Week; “as you know, over time, all stocks increase in value.”

Because of the internal logic of DC plans’ supposition from 1980’s Wall Street, it was antithetical for Human Resource departments and mutual fund companies to argue, at the beginning of a secular bull market, in favor of capping pedestrian, formulaic, DB plan payouts. Unrestricted, free market-based, DC plans were vastly superior on every count.

Beside, where did DB plans’ returns really come from? They came from the stock market! Eliminate the middle man; keep for yourself all the returns your hard earned dollars generate in the stock market. Mr. Hare, meet Mr. Tortoise.

The accelerants fomenting this new mindset, when stocks such as Boeing, Walt Disney, Mattel, and many others, sold for $5 dollars a share or less, were de-regulated commissions, Merrill Lynch’s new Money Market Account, and Sears acquisition of Dean, Witter, Reynolds (now Morgan Stanley). Additionally, declining inflation and interest rates, tax cuts, and deficit spending, helped deliver to Wall Street the middle class aspiration of champagne wishes and caviar dreams.

Over the next 20 years it was a world wind affair with unbridled infatuation. Mutual fund sales loads were cut from 8.5% to 4.5%. Exchange privileges inside mutual fund complexes were established. Letters of Intent, reducing sales fees further, became standard. Investors began choosing stock investment over precious metals, over real estate, over all other asset classes.

Stock market DC plans, became the preferred method of saving for retirement. Dividend Reinvestment Plans (DRIP) and stock purchase plans, compounding returns, also became more popular, adding fuel to the roaring stock market fire. Owning equities were touted by every financial services company. Consequently, more workers chose DB plans, year after year, playing at the big boys table.

Fictional character Gordon Gecko became the Pontiff of American financial idolatry and fictional prosperity. In the late 1980’s, banks begin selling mutual funds and insurance; and vice versa. Charles Schwab introduce the no load mutual funds Fund companies created A, B, C, and D shares, offering various sales load configurations.

In the 1990’s, everyone made money playing the stock market. The beginning of online trading even made it easy to do. The WSJ ran a recurring article featuring a chimp throwing darts, selecting stocks, and comparing his returns with professional money managers. That’s when you know when you are in a secular bull market.

The 14-member investment club from Beardstown, IL, the Beardstown Ladies became national celebrities for reporting earning compound annual average returns of 23.4%, over 10 years, thru 1993 - until they were audited.

Their actual return was 9.1%. By 1997, the Ladies had upped their stock picking skills and annual average returns over 10-years increased to 15.3%, yet, they still lagged the S&P 500’s 10-year return, during this period, of 17.2%.

Yes, we were so in love with each other. Then, dark clouds appeared and forever changed the future – Glass-Steagall was repealed.

Early in the next decade, Wall Street’s wandering eyes caught a glimpse of augmented proprietary trading and underwriting fees. Enhanced leverage, donning smaller and more provocative capital reserves, heretofore, disapproved of among prudent men, became desirable and lusted after by all. Scandalous risk was in vogue.

Investors’ trading commissions and management fees were a competent and faithful, if somewhat, plain way for firms to earn revenue. It was like home cooking five nights a week and backyard grilling on the weekends – safe, predictable, fulfilling, and bland.

Conversely, trading the firm’s capital and collecting securitization fees was the long-legged, redheaded, man-eating, gorgeous knockout, swinging from your arm each night, walking into your favorite hangouts.

Are you still dollar-cost averaging into your funds? Maximizing 401k and IRA contributions? Sporadically purchasing round lots of a few hundred or a few thousand shares of stocks, at discounted prices? This was no longer enough for descendants of the Buttonwood Agreement.

Once Wall Street felt the rush from mainlining mortgage-backed securities, the relationship with John and Jane Q. Public was doomed.

Any hope of salvaging this fraying union ended in 2008. We were unsuccessful in getting American finance off the narcotic of toxic assets; kicking this addiction to fast money, infinite fees and profits, and nympholeptic bonuses. A clean and sober banking system, facing tough new regulations, would function properly, yet again.

Regrettably, the wrong crowd appeared to offer help – Buffett, Paulson, Geithner, Blankfein, Bernanke, and Geithner – peddling TARP, Quantitative Easing, credit facilities, and government guarantees.

Immediately, overnight loan orgies were being held at the Feds’ discount window. The decency of mark-to-market accounting was scoffed at and ignored. Banking hedonism ran amuck on the streets of Manhattan and through the halls of Congress. Someone had shot the sheriff and the deputy, too.

It’s over. In a world of globalization, high frequency trading, melt-ups, flash-crashes, and algorithms, Wall Street doesn’t need the American middle class anymore; Need proof? Here is a snapshot from the internet of an Investment Company Institute chart displaying flows into LT Mutual Funds thru 07/21/2010:

The stock market was up 7% in July despite the fact that equity mutual funds experienced outflows in each of the last 12 weeks.

Wall Street borrows pure, uncut, scratch – at 0% - directly from Mr. Big; Washington DC. Treasury auctions are co-dependent enablers of this bankrupt practice. There is no turning back. Investors will make the wrong choice during a flash crash or flash bounce and will lose.

Somehow, that someone is always John and Jane Q. Public.

A Brief Weekly Review and Outlook

Last week was a continuation of an exuberant market during earnings season and a flailing economy complete with bad housing data and seven additional FDIC bank closings. The bulls argue corporate balance sheets while bears focus on the economic data. So, which is safer; driving looking into the rear view mirror or the windshield?

There is near unanimous agreement in the market that deflation has defeated inflation. Unanimous consensus always makes me nervous. Looking around the US, deflation is prominent, with all things real estate. However, US real estate is losing its impact, month by month, on the global economy.

What cannot be timed is when global growth, and the inflation that comes with it, overrides the drag of American real estate.

The amazing Treasury bond market is like sleeping with a very large snake; hopefully, you wake up first. The bond market is pricing in a near depression, perhaps, while the stock market is celebrating business as usual. Or, the rest of the world is madly purchasing US debt, thereby, driving down yields, as there is no safe alternative to treasuries, at the moment. The wild card is government intervention – or the lack of it – from an economic perspective.

On the other hand, the municipal bond market continues to offer a much better yield, although, 41 out of 50 states are insolvent, and all five Gulf States are exposed to loss of revenue and clean up expenses from the BP oil spill.

Gold was up $1 buck last week. Gold is still outperforming stocks for the year.

The week ahead offers more corporate earnings reports and several important economic reports.

The Lazarus Rally in 2010

This week marks the one-year anniversary of the market bottom for stocks following the 2008 collapse of the supply-side themed western financial system. A deceased stock market, the second week in March 2009; the major averages resurrected themselves, like Lazarus, on a holy-water flood of liquidity, more than any other cyclical bull market bounce in history.

The Dow Jones Industrial Average advanced March 9, 2009 to March 9, 2010, from a gut-wrenching 6,547.05 to 10,564.38. Likewise, the Standard & Poor’s 500 Index moved from 676.53 to 1140.45. The NASDAQ 100 climbed from 1043.87 to 1,901.38, over the same 365 days. These returns equal a decade’s worth of historical gains.

To those investors, who grew feathers, and ran to the sidelines, take heart; in investing, there are lies, damn lies, statistics, and market returns. At the beginning of 2009, the DJIA started at 8,801.72, the S&P 500 Index at 902.99, and NASDAQ at 1,212.24. Only the luckiest of people and your typical liar coolly strolled into the market that second week in March last year, aggressively bought stocks, and are still holding those positions.

Closer to the truth, an experienced bull investor last March probably started taking profits off the table in early summer. Or, they screwed up their courage in April or May and bailed in September, or year end. Anyone capturing these once in a lifetime returns should be running full page ads of their trade confirms announcing the opening of their new hedge fund. And why not, they could afford the advertising rates. Unfortunately, 2009’s trend will be swapped for market fluctuation in 2010.

So, where do we go from here? The answer for the stock market is quite different from the answer about the economy. Let’s first look at the stock market.

Stocks will not repeat the performance of the last 12 months. The last 12 months was fueled on liquidity and promised future growth. The future is here but the growth is not. Wall Street Cardinals assigned to Washington DC, Ben Bernanke and Timothy Geithner, will be less helpful to stocks over the next 12 months.

U.S. Quantitative Easing has an expiration date on its existence. Some central banks have already begun raising rates because their economies are moving forward, unlike ours. The retail customer has yet to return to the market, either through their company’s retirement account (which is hard to do when you no longer work for a company), or taxable investment accounts; when your 1%-2% bearing CDs and T-Bills, and falling home values no longer contributes to your positive cash flow.

Also, investors are going through Post Traumatic Stress Syndrome (PTSD). The dot.com bubble, the Enron era of scandals, the real estate depression, and 2008, has left baby boomers dazed and confused. They are reluctant to hop into the barrel one more time before retirement.

Despite paraphilic dispatches by CNBC anchors, reporters, and guests of an aroused recovery, to the contrary, the U.S. economy is impotent based on low tax receipts, high unemployment, and contracting housing prices and available credit. This is what occurs during a period of deleveraging.

Disposable income from the safest fixed income investments has all but disappeared. That retired couple that spent their 5%-6% interest from their fixed income portfolio to shop, to travel, and to dine has temporality lost over 70% of their purchasing power. Fewer transactions equals fewer sales taxes, in turn, equals less state and federal revenue. Becoming smaller becomes a vicious cycle.

In October and November of 2008, when extraordinary unilateral decisions were made to save the economy, two additional smaller adjustments would have made a huge difference; temporarily change the tax laws for five years, permitting individuals to write off all interest payments for credit cards, automobiles, etc. on their taxes, and to suspend for five years the provision in the Monetary Control Act of 1980 eliminating usury laws. Individuals would have extra cash inside their annual tax return and smaller monthly finance payments. How could banks complain since the Federal Funds target Rate was set December 16, 2008, at 0.00% -0.25%? Their return on borrowed capital is infinity.

Cities and states across the nation will become the biggest drag on the economy in 2010. Dramatic budget cuts to reduce a currently projected $180 billion shortfall are being debated for the 2010-2011 budgets, at this moment, thereby, violently truncating personnel and services.

Banks are still failing. The FEDS feel that they dare not raise interest rates without a very good reason. But, with banks not lending, or reducing credit lines to businesses, and credit cards rates were hiked before new banking credit cards laws were changed, I’m unsure who might be hurt by an increase. Top-down stimulus programs are inefficient and growing more unpopular. Both commercial and residential real estate are not improving And, the November elections will drive sagacity from public conversation.

Internationally, what we can see are sovereign debt problems and a suspect economy in Europe. Tensions growing in the Far East over; military bases, and now Toyota, with Japan; trade disputes and sanctions and political disagreements over Taiwan, Tibet, and Iran, with China. Plus, we have an amorphous exit strategy in Iraq and Afghanistan.

Adding up tapped out consumers, the continuation of deleveraging, near insolvent municipalities, and a gradual reduction of liquidity, what you have is a somber national economy with too few pockets of strength.

Traders relying on volatility and stock pickers that can hunt for appreciation will have several opportunities to feast, however, investors hoping for an expanding economy will soon wish for 2010 to be over with nothing but apples (AAPL) and chips (PEP) and cokes (KO) to snack on in the interim.

Weekly Review and Outlook: Deleveraging's Not Just for I-Banks

Like a wild jungle creature forced into a confrontation, but unsuccessful, this past week's stock market limped into the weekend, stunned, pensive, and little changed with Dow Jones Industrial Average [DJIA] closing at 11370.69, the Standard & Poor's 500 ending at 1256.76, and NASDAQ finishing its week at 2310.53. The Dow lost 125.88 for the week. Likewise, the S&P 500 dropped 2.92 and NASDAQ subtracted 27.75, respectively.

The CNBC midday rowdies strained themselves lifting a Hubble sized telescope looking for positive data points in the housing numbers. Existing home sales came out Thursday; they were down 2.4 percent in June, at a seasonally adjusted annual rate of 4.86 million units. New home sales for June, appearing Friday, was lower by .06 percent, on a seasonally adjusted annual rate of 530,000, from a revised upward May figure of 533,000.

I can imagine the rowdies on an express elevator to hell remarking that our destination has dry heat, that it's a gated community, and that it's a Christian neighborhood with few trespassers.

In the second quarter, 739,714 foreclosure filings were recorded. Also, 220,000 homes were lost to bank repossession, according to RealtyTrac. That is up 14 percent from the first quarter and up 121 percent from the same quarter in 2007.

A report published on Friday, by an International Monetary Fund economist, concluded U.S. housing prices were still overvalued, in the first quarter this year, perhaps, 14 percent, within a range of 8 percent to 20 percent. According to Reuters, IMF economist Vladimir Klyuev's report "What goes up must come down? House price dynamics in the United States", examined the inventory-to-sales ratio, foreclosure rates, market inertia, and other data points, formulating this opinion. That would mean at least an additional $1 trillion in lost asset value. The government debt market is still comatose.

The 2 year and 10 year US Treasury Notes, as well as the 30 year US Treasury Bond ended the week with higher yields, paying 2.71%, 4.10%, and 4.68%, versus 2.64%, 4.85%, and 4.65, respectively. August is a major refunding month with auctions scheduled for the Two, Five, Ten, and Thirty Year Treasury obligations, in addition to the weekly T-Bill The brightest spot in the market was the Nymex Light Sweet Crude Oil September contract; it closed Friday at $123.26 per barrel, extending its reprieve to cash strapped motorists from its recent high of $147.20.

Online retail analysts are reporting double digit growth in sales among several retailers because of consumers passively boycotting higher gasoline prices. Who would have thought that one day we would be happy seeing oil prices heading towards $100 a barrel?

Late Friday afternoon, the Office of the Comptroller of the Currency closed First National Bank and the FDIC was named receiver of another two banks, one California-based and the other Nevada based, First National Bank of Nevada with $3.4 billion in assets, and First Heritage with $254 million in assets. Both were owned by undercapitalized First National Bank Holding Co., of Scottsdale, Arizona. First National lost $140 million in the first quarter. They reported $4.6 billion in assets and $4.3 billion in liabilities. Nine point four percent of it $3.7 billion in loans were non-current, ending March 31. Mutual of Omaha Bank acquired the deposits of the two banks from the FDIC for a 4.41 percent premium. The new Mutual of Omaha Bank branches will open Monday morning.

There are currently 8,494 institutions holding $13.4 trillion assets insured by the FDIC. The FDIC said the failures would cost its deposit insurance fund roughly $862 million. This brings the total number of bank failures in 2008 to seven. You can learn more about the status of a particular bank here

Game Changer : The really, really, big news this week came from Chrysler LLC. It announced Friday afternoon that its financing arm would discontinue offering leasing deals to its U.S. customers beginning August 1; the same date when their $30 billion credit facility is up for renewal. The rising cost of capital is making leasing terms less attractive to consumers. This is another aftershock resulting from stifling energy prices and an economy that's deleveraging.

Declining SUV and lease values forced Ford to take a $2.1 billion charge at its finance division last week. Although, third party banks and credit unions will step in to fill the void, expect some slippage in the approval rates for leasing transactions. The same market pressures compelling Ford (F) to exit this market will certainly continue to present as a business factor for any entity looking to make a profit leasing vehicles. The cost of capital is important, however, the residual value of the underlying asset is monumental. The percentage of Chrysler sales attributed to leasing is greater than 20 percent.

It will be very interesting to see if this extemporaneous admission becomes evolutionary inside America's automobile industry. Americans divine right to drive automobiles has been an unconditional assumption since the end of WWII. In 2008, it's a fair question to ask given this extraordinary economic environment of failing banks, growing home foreclosures, stagnant incomes, evaporating jobs, personal and business credit contraction, a runaway federal budget, an aging infrastructure, an expensive endless foreign war, a fractured financial system, rising worldwide demand for limited resources, and a demonstrable shifting of global wealth. Plus, the third generation of Americans, exposed growing up around an enlightenment concerning the ecology and global environmental issues, is being handed the task of running our economy. They will shape and modify our society's habits in the future.

The U.S. Senate actually gaveled a rare Saturday session passing landmark legislation to triage a metastasizing bankrupted residential real estate market. Highlights of the bill include; a new regulator for Fannie Mae (FNM) and Freddie Mac (FRE) and up to $300 billion to insure refinanced mortgages for the next 18 months; $4 billion to states to buy and rehabilitate foreclosed properties, a 10 percent tax credit up to $7,500 dollars for first time home buyers purchasing a home between April of this year and June of next year; increase the federal debt limit to $10.6 trillion, and more.

We now have a de facto nationalized residential real estate market. The reversal by the White House to withdraw a veto threat and sign a passed bill into law would create tears of joy on the face of Scottish economist John Law and Louis the XIV of France. Welcome to the new depression. France has succumbed to capitalism. In between fist bumping with the Democratic presumptive nominee Barack Obama and checking out his Italian-born former model turned pop star wife's, Carla Bruni-Sarkozy's new music album, "Comme si de rien n'etait"(As if nothing had happened), President Nicolas Sarkozy of France bullied his National Assembly into radically reforming their 1958 Constitution. Passage of the reform package includes limiting Presidential terms, strengthening the power of the legislature, weakening the position of Prime Minister, and repealing the 35 hour per week cap for workers.

It is an indication that the global downturn will affect everyone. The French are now more aware than ever of prioritizing work and leisure to enhance income and productivity. Calling national strikes on idealistic principles was an industrial age luxury. Cash flow is paramount in the beginning of the 21st century. Welcome to the club.

The year 2008 will record the resignation of Fidel Castro of Cuba, as its President, and the abandonment of immense leisure time by the average French worker; two aging symbols of 20th Century socialism. I wonder if Hank Paulson and Ben Bernanke are erecting the first 21st century's symbol of socialism. Tonight, I shall pour a very, very, nice XO Cognac and contemplate the upcoming Consumer Confidence figure on the 29th; the Employment and Crude Inventories figures on the 30th; the GDP-Advanced, Initial Claims, and Chicago PMI, on the 31st; and August 1st, Auto and Truck Sales, Average Workweek, Hourly Earnings, Nonfarm Payrolls, Unemployment Rate, Construction Spending, and the ISM Index. Maybe two drinks, au revoir!