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Thursday, October 18, 2007

The Street Cries Hosanna!

The Street will be relieved today over news that initial unemployment claims popped up 28,000 to 337,000. Things were going south pretty rapidly yesterday until the Beige Book was released, and the tepid rhetoric there gave the Street hope for another rate cut. This initial claims report will boost that hope. Thus, for the good of the Street and leaky SIVs, the masses must start reporting to the unemployment office.

It is likely that the masses are not so thrilled about the matter. The adjustment for SS was released, and it is 2.3%. Since most Social Security beneficiaries draw under $1,100 in benefits a month, they will not exactly be flocking to the stores to spend that extra six bucks a week. Article:
"Retirees are going to feel a disconnect this year between the COLA increase and the reality of the inflation they face," said Mark Zandi, chief economist at Moody's Economy.com. "If this calculation were done in another three months, it would be measurably higher."

Advocates for the elderly said the small increase highlighted the need to revamp the cost-of-living adjustment to better reflect prices paid by retired people, including the money they spend on health care.

The Senior Citizens League said a study it has done showed that in eight spending areas, people over age 65 have lost 40 percent of their purchasing power since 2000. This finding reflects factors such as big increases for gasoline, home heating oil and prescription drugs.
My own figures show about 36%, but their figures could be more accurate. It is an unpleasant fact of life that many older people were forced to remortgage their homes in order to keep paying the taxes on them plus eating, and unfortunately quite a few of them got toxic loans. Retirees are also going to be paying higher Medicare premiums, and the new income-adjusted premiums are phasing in over the next few years which will ding the wealthier recipients substantially.

It is true that inflation has been hitting lower income persons, whether retired or not, far harder than CPI displays. We're in a global pattern of regressive inflation in which discretionary purchase costs keep dropping, but basic needs costs are rising quite rapidly. Eventually this inflation will break loose in the domestic economy, because the domestic economy needs the truck drivers, health aides, grocery store employees and the like. You can only hold their wages down so far until they depart from areas in which they cannot make a go of it.

Actual Street news continues quite bad. The outlier was poor Thornburg Mortgage, which lost $8.83 a share. E-Trade moved its lovely AB securities to a for sale account and wrote them down about 50%. The regional banks are reporting disappointing results, and treasury yields dropped yesterday, reversing their Super SIV trajectory, plus reflecting the rising expectations of another rate cut.

Large banks are hurting too. BofA has been offering very attractive rates on a 4 month CD, and now I guess we know why. BofA is relatively far more conservative than Citibank, but BofA took a nasty hit:
In the third quarter, profit at the corporate and investment-banking division plummeted 93 percent to $100 million from $1.43 billion a year earlier. The unit marked down the value of financing for LBOs and other lending by $247 million. Analysts at Citigroup had predicted a writedown of as much as $700 million. The bank also reported a $607 million trading revenue loss on credit products, and a $527 million loss in its structured products unit, which includes mortgage-backed securities.

Consumer Unit

Earnings at Bank of America's consumer and small-business banking unit fell 16 percent to $2.45 billion.

Interest income rose 1 percent as the year-over-year decline in long-term rates and a move of customer deposits into higher- yielding accounts made lending less profitable.
Regional banks such as WaMu are reporting sorrow and general grimness as well.

In general, most companies selling to consumers are reporting a tighter profit environment. IMF joined the joy yesterday by cutting GDP projections for various regions and countries throughout the day. It will be difficult for the bulls to haul this week out of the trash bin.

Update: the major mortgage insurance companies are in, and grim is the word. This will punch more holes in the MBS sieves. When you start reporting losses, buying back shares is not an option to make things look better.

There are a lot of folks hoping that between Social Security and something along the lines of a Walmart Greeter job, they can make ends meet.

It has been a while since I checked on this, but for a while, the folks between say 50 and getting social security were encouraged to get Social Security Disability as a stop gap measure. That will be affected.

I expect that this will be a bigger issue as the baby boomer contingent is affected.
Good point, Vader. It's amazing the amount of older people one sees working in jobs like that lately. Hotels, convenience stores, grocery stores, WalMart, Target, etc. Tons of them. Starting to see them in fast food restaurants too.
That is because corporations don't like to hire folks older than mid 40s.

Just so you know, about a month before my corporate layoff, they had the managers go around and find out who was over 40. Really. If folks lose their job at late 50s or 60s, they will find jobs only at the place you mentioned and at whatever call centers are left.
Absolutely true.
Don't worry folk's! Be HAPPY! Not only is GW a COMPASSIONATE Conservative,he has an MBA from Harvard!! and Pat Robertson assured us all that GW was Appointed by GOD HIMSELF!!! So just have faith that the good ole USA will be runnin' as smooth as Iraq in NO TIME AT ALL!!!! GW has NEVER made a mistake,and not even the POPE hisself can say that anymore!!!!!So wash a few Xanax down with the stoly and relax.

I'm 57 and UE. I don't bother applying with corps or head hunters.

Unless there is a real shortage, the Over 50s are basically out of luck once they lose a job.

This is why a mediocre job recover is so bad. Anyone with any kind of deficient, like age, is SOL.

One other occupation is sitting for folks in worst shape. I am in the unenviable position of probably firing my dad's sitter and taking their place to survive. Setting gets about 10-11 an hour.

In any case, adding $1000 a month from a retail position plus SS of $1000 is a possibly livable income.

Again using my condition as an example, at 57 and an expected life span of 87, how the heck I will survive for 30 more years in today's environment is beyond me.
Tom - if you look at what is going on here, a lot of it can be traced back to changes in bank regulation that originated in the 1990s. Now that does not mean that the Dems are to blame. Instead, I would say that this has been bipartisan stupidity on the order of the bipartisan stupidity of both parties in refusing to build up a reserve to take care of the Medicare and SS benefits for the big bulge of retirees that is starting now. That one dates from the 1983 bill.

Correctly, IMO, the President does not have all that much influence over the Fed nor banking regulation. I just don't think we should give presidents that much power. Congress passes the laws which the regulators interpret and enforce.

Please read about the two Glass Steagal acts of 1932 and 1933, and the second's repeal in 1999 under Clinton. I think you will find this 1989 article about Citibank interesting as well.

I believe it is fair to say that Greenspan really was the architect of the 1999 law. His prestige among both parties was immense. Also try this article about the passing of GLB.

I believe that Bush's appointment of Paulson was a bad mistake. But the Clinton administration, from the moment it came into office, had strong backing from the Street and was heavily influenced by it. It was under appointees who were powerful in the Clinton administration that FNMA cooked its books. FNMA also got heavily into rather innovative and much riskier mortgage products. The lax SEC enforcement that spawned a range of corporate scandals was what generated Enron, Tyco and Waste Management, among others.

It constantly amazes me that people don't understand that putting another Clinton back into office perpetuates the regime that:
1) Changed CPI to its current form.
2) Was completely allied with the interests of powerful Wall Street firms,
3) Blocked all reform of Medicare and SS,
4) and is backed by quite a few of the hedge fund biggies.

The admirably cynical is a great read that tells the true story.

The bottom line is that no one cares about the people but the people, and the people had better wake up and realize that.
Vader - the other alternative is to go into business for yourself. I think most older people manage to do well financially in business for themselves except for the problem of medical insurance. That is the real killer.

There's no question that so much SS is started at 62 because older people are routinely fired. It's almost impossible for older people to get hired in actual jobs with benefits, especially at smaller companies. At the same time, the experience of the older set is what most smaller companies really need.

What would genuinely help would be the restoration of the equal playing field for trade association medical insurance plans and large corporation medical plans. The Bush administration tried to get that through, but it was blocked by lobbying from a lot of insurance organizations.

So, for example, an engineer or programmer could get insurance from IEEE. That would be great. The smaller groups get their insurance hiked if one person has a problem, and it's almost immediate.
I am not sure that going into business for oneself is an answer for the masses. It used to be that a retiree could start a small store or small farm, but the Walmarts and big Agriculture has killed that.

Then there is the issue of ownership skill sets to make a successful business. For the sole practitioner, he has to learn salesmanship, time management and a host of skills. For the guy that has employees, he has to learn human relations, business law, doing a business plan and more.

Figuring that 9 of 10 business fail in the first 5 years, gambling say 100 grand to start a business from the 401K does not seem be a good option.

Besides the first and most important thing for a successful business is to be in a business that he knows. So a potential store owner would have had to work in retail 5-10 years or so in increasing areas of responsibility say to store manager before striking out on his own. But a 55 YO would first have to get hired and then promoted to do this.

Yea I am on the outlook for my own business and I have attended a class on how to start one from the local college and Small Business Admin. Also both have mentors on starting businesses. First you have to have a plan and then have experience in what you do. Finally you have to have 100K in capital or so.

I submit starting your own business is not a viable option in most cases. There are 2 solutions for the general case. Either pension them off with livable pensions or have livable jobs.
Starting your own business at 57 is largely going to be doing contracting work. There is no way that most individuals, even if they have $100,000, will get substantial returns from that investment at 57/58 given their expected remaining work life.

In order to get more jobs for older workers the US must address the health insurance problem for small businesses, and the idea about equalizing the playing floor between trade associations and large corporations is by far and away the best proposal I have seen. There are lots of younger people in small businesses, and true large group-rated insurance is not currently available to most of them.
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