Logrolling In Our Time

Go give my friend Jim Yeager (Mimus Pauly) some love and kisses on the launch of his new novel, "Ward of the Earth, Prisoner of the Sun."

To Market, To Market

Eerie thing about the stock market: you almost feel like it's a repetitve cycle, and that you've been here before at some point:

NEW YORK (Reuters) -Caterpillar Inc.'s warning that the housing slump was infecting the wider economy sent U.S. stocks tumbling by the most in more than two months on Friday, in a drop that was made more unnerving as it marked the 20th anniversary of the 1987 market crash.

It was twenty years ago yesterday that the biggest market crash in American history occurred, kicking off nearly fifteen years of economic instability and multiple recessions, saved only by the miracle of Bill Clinton's tax hikes and economic policies.

But that's a different story. Let's read tea leaves today:

Leading up to the "Black Monday" rout on Wall Street, a massive budget shortfall, falling dollar and burgeoning trade deficit clouded the horizon for the U.S. economy, even as the Dow hit a string of record highs.

Sound familiar?

Since the start of this decade, the U.S. budget has swung from surplus to deficit, the dollar has slid to record lows and a huge hole remains in the trade balance -- only now it's nearly twice as big compared to the overall economy.

Transcripts from the Federal Reserve's meeting a month before the 1987 crash show similar issues were on the minds of policy makers.

Investors were also concerned, particularly after a bond market rout in the wake of a precipitous drop in the dollar during the two years leading up to the October 19, 1987, crash.

"Eventually the dollar broke and that crushed the bond market," said William O'Donnell, head of U.S. interest rate strategy and research with UBS in Stamford, Connecticut.

Yikes.

So you have the issues of timing (mid-October) and the economic preface in place. You also have a Bush in the White House (Reagan, at least, listened to his economic advisers, rather than decide things for them). This might not be very pretty to watch, to put it diplomatically.

That's not to say that this is a slam dunk certainty that the markets are poised to tank. By some measures, the stock market is actually undervalued, which means there's plenty of upside left, if you buy that scenario.

I think differently, however, and believe that using 20 year old measures when so much has changed in the marketplace is silly. For example, investors now have access to much more immediate trading based on much more immediate information, and since earnings reports this quarter have been pretty ugly (look at what Catepillar's report did yesterday), to say the market is "undervalued" is likely wrong, especially if people don't "feel" that it is.

And feel counts for so much in stock trading. In a perfect market, people would make rational decisions based on perfect information that they felt they could trust.

We have neither of those, and it's a self-reinforcing cycle of mistrust and irrationality.

The most eerie similarity between this week (and upcoming week) and Black Monday is this: In 1986, the United States economy began shifting from a rapidly growing recovery to a slower growing expansion, which resulted in a "soft landing" as the economy slowed and inflation dropped. The stock market advanced significantly, with the Dow peaking in August 1987 at 2722 points, or 44% over the 1986 closing of 1985 points. On October 14, the DJIA dropped 95.46 points (a then record) to 2412.70, and fell another 58 points the next day, down over 12% from the August 25 all-time high. On Friday, October 16, the DJIA closed down another 108.35 points to close at 2246.74 on record volume.

If you look at the American economy and in particular, the New York Stock Exchange over the past two years, you'll see that you can pretty much fit the curve into the above paragraph with little error.

In 1987, in one day, a billion dollars was lost in the American economy. A drop of similar proportion today would result in the loss of tens of billions, perhaps more.

That's going to hurt, because while the markets have grown five-fold, the US economy has barely doubled in the past twenty years, after accounting for inflation.

The law of gravity applies here, and while I don't expect a 14,000 point drop in the Dow, I also don't rule it out over the long haul. It is only human hubris that makes us think we can suspend the laws of physics and finance.

A Brief Announcement

I feel it incumbent upon me to fulfill my duty as a blogger and primp my reputation a bit:

Today saw my 150,000th reader.

That is all.

Friday Music Blogging

Power Station - Some Like It Hot

I post this in solidarity with the penguins in my too-air-conditioned office who are striking with frozen flippers holding iced herring in the air...

Friday Kitten Blogging

Sister come home from collidge today! YAY!

Nobody Asked Me, But...

YOUR WEEKLY WHIP AROUND OF NEWS

1) Now, let us bow our heads and pray to the Ceiling Cat.

2) I'll gladly accept any submissions for that particular Wiki, by the way. Deposit them in comments here.

3) Remember, you heard it here first, when it happens: either Monday or Tuesday, I anticipate an enormous melt-down in global stock markets, probably triggered by some catastrophic news from America or American markets.

4) Why is it that these things always seem to happen in the middle of October? Black Monday, Black Tuesday...

5) It never ceases to amaze me, speaking of markets, how bad news piles up on top of bad news. Any ideas why that is?

6) Hope they paid the mortgage. They got off easier than this shnook.

7) Note to self: use an inconspicuous car.

8) Maybe he didn't steal it?

9) Note to Bush: Next time, use a better metaphor.

10) Yea, we're fighting them there so we don't have to fight them here. But I don't think they're reading from the same script. How stupid is a policy that sees thousands more die each year in more and more terror attacks, yet claims to be a terror-suppression mechanism?

11) I have SO had it with Ellen Degeneres' dog story! I miss the societal relevance of Britney's pink wig already!

12) Couldn't the fucking adoption agency just vetted the family she gave the dog to, and get this the hell off my TV screen, fercrissake!? "Under fourteen," my ass!

13) The easiest job in the world just became available. Starting salary in the $5MM range. Tums not provided.

14) Seriously, everyone touts the magnificent job Joe Torre did as Yankees manager. Bull-fucking-shit! A chimpanzee could have walked to the playoffs with the teams that were provided Torre, particularly early on in his stint.

15) And I say that as a big fan of Joe Torre as a player, but when he managed the Mets, he wasn't precisely a dazzling strategian.

16) Odd timing on this story, as well as this one and a few others: Last Sunday and Monday, I had been seeing a general warning about MRSA, which I chalked up to a new TV season and news shows trying to pump ratings. Now all of a sudden, there's a frikkin' epidemic?

17) Finally, the old adage "never be photographed with someone prettier than you" applies here. And Donatella Versace is a FASHION DESIGNER!

Shall We Play A Game?

Idiot! Fucking idiot!:

WASHINGTON (Reuters) - U.S. President George W. Bush warned on Wednesday a nuclear-armed Iran could lead to World War III as he tried to shore up international opposition to Tehran amid Russian skepticism over its nuclear ambitions.

Bush was speaking a day after Russian President Vladimir Putin, who has resisted Western pressure to toughen his stance over Iran's nuclear program, made clear on a visit to Tehran that Russia would not accept any military action against Iran.

Here's the really scary part:

"We've got a leader in Iran who has announced that he wants to destroy Israel," he said. "So I've told people that, if you're interested in avoiding World War III, it seems like you ought to be interested in preventing them from having the knowledge necessary to make a nuclear weapon."

(emphases added)

Oh good lord! Rachel Maddow of Air America Radio said it better than I ever could on the Today show this morning. Bush isn't threatening war with Iran over nuclear weapons, he's threatening war over the "knowledge necessary" to make nukes, meanwhile, you have an unstable regime in the region that already has nukes, has tested them, and is passing on the "knowledge necessary" to anyone who pays enough (Pakistan).

Against this backdrop comes this curious little news item:

TEHRAN (Reuters) - Russian President Vladimir Putin gave Iran a "special message" on its disputed atomic program and other issues, Iran's chief nuclear negotiator was quoted as saying on Wednesday, without giving details.

Somehow, I'm guessing it wasn't a long distance dedication on American Top 40 with Casey Kasem....more likely, it was "We'll stand by and stop any UN sanctions, but you have to stop picking fights with Bush. Wait until the next administration and maybe we can all sit down and let saner heads prevail."

Speaking of "saner", one of the talking points on the right wing has been about Bush's "tough talk" with Iran (and Russia and China), openly talking about World War III. Apparently, none of them could recall the last time a President said those magic words.

Um, hullo? IT'S BECAUSE THIS PRESIDENT IS AN INSANE FUCKING LOON!, whereas every other President, including Ronald Reagan, was at least close to sane.

One of the more bizarre aspects of this posturing on Bush's part (one can only hope that he's secretly playing "good cop, bad cop" with Putin's assistance...but I doubt it) is the flimsy evidence that Iran has developed anything close to the capability to even develop the "knowledge necessary," beyond what a college freshman might learn in a physics class.

After all, we invaded Iraq on "evidence" that, at least on its face, was far stronger for Saddam Hussein having WMDs (after all, we had the receipts to prove that) which turned out in fact to be bogus, setting aside even the question of weapons inspectors for a moment.

Who figured Hussein was more truthful than Bush? It was easy to believe Bush, frankly because we wanted to and the nation was itching for a fight.

This time, however, the sense I get is that the rhetoric has been ratcheted up, which tells me that the evidence is even more flimsy and even more bogus (Iraq, at least at one time, had WMDs).

The Bush brinkmanship doctrine doesn't even have a clear offsetting nuclear power to keep it in check at this time.

Russia would of course stand up to us. It would have to, but it would do so reluctantly, and it's not clear that it would do it in a sufficiently timely fashion in order to avoid a nuclear exchange. China might get involved, but then again, it might see an opportunity to let the world go to hell in a handbasket, then pick up the pieces and pluck the ripe fruit. With that much land to hide in, there's really no reason for it to get involved unless forced to.

Which brings us back to the sanity clause...

Presidential Foot Stomping

A defensive President Bush insisted that he was still relevant this morning in a news conference dominated by his bitter complaints about the Democratic Congress.

Asked how he found himself vetoing a children's health insurance bill that had passed Congress with bipartisan support, Bush insisted that using a veto is "one way to ensure I am relevant."

Shorter Bush: "I am relevant! I am! I am! I am! Mommmmmmmeeeeeeeeeeeeeeee!"

Just. Go. Away!

Hump Day Comedy Blogging

Harry Potter and The Dark Lord Wal(de)mart

Hey, Some Of The Boys Are Coming Home!

If only it was for the right reasons....:

Commanders in Iraq have decided to begin the draw down of US forces in volatile Diyala province, marking a turning point in the US military mission.

Instead of replacing the third Brigade of the first Cavalry Division soldiers from another brigade in Salahuddin province will expand into Diyala.

In this way, the number of US Army ground combat brigades in Iraq will fall from 20 to 19.

It will also mark the start of what President George W Bush has billed as a shift in the American military mission.

The December move, not yet announced by the Pentagon, was described by Col Stephen Twitty, commander of the fourth Brigade, first Cavalry, in a telephonic interview.

Two clues tell you what's really going on here:

1) The area, Diyala, is hardly what one might term "settled", the way that Bush has touted the Anbar province as "settled".

2) Rather than have Iraqi forces stand up, we're merely spreading out our remaining forces to secure what is a hotly contested region.

Meaning, basically, we're throwing our troops DEEPER into harm's way.

Thanks a lot, jackass!

The Hardcore Quarter

WASHINGTON (Reuters) - Deepening unhappiness with President George W. Bush and the U.S. Congress soured the mood of Americans and sent Bush's approval rating to another record low this month, according to a Reuters/Zogby poll released on Wednesday.

The Reuters/Zogby Index, which measures the mood of the country, also fell from 98.8 to 96 -- the second consecutive month it has dropped. The number of Americans who believe the country is on the wrong track jumped four points to 66 percent.

Bush's job approval rating fell to 24 percent from last month's record low for a Zogby poll of 29 percent. A paltry 11 percent gave Congress a positive grade, tying last month's record low.

Well, that's good news for Congress...apparently, as many people who are going to blame Congress for the nation's problems have already blamed them *snark*

Bush's approval drop seems to be tied to the veto of S-CHIP legislation, which explains why the Republican right wing attempts to smear a twelve year old (and now a TWO year old! I thought Republicans were against killing fetuses?) failed so miserably.

With Bush's depature a known quantity, and the overwhelming "throw the bums" out mentality in the nation, can we truly expect to see a Democratic Congress AND President?

Short answer, yes. Long answer, yer damned right!

While a third party effort (sorry, folks, Gore has said no. Again.) for the Presidency could conceivably gain some traction this time around, just as it did after the last Bush presidency, it's highly unlikely a rabble effort like that would do anything except solidify the Presidency for Hillary Clinton, which is pretty much a foregone conclusion as it stands.

Further, a grass roots movement to install third party candidates in Congress might garner a few maverick districts (much like Bernie Sanders in Vermont), but these mavericks would likely end up caucusing with Democrats anyway, so what's the point?

Duverger's Law is intact, for at least one more election cycle.

I can forsee no scenario which unfolds where anybody BUT a Democrat (and frankly, anybody but Hillary Clinton) ends up as President and any party BUT the Democrats control a (now-unnecessary) veto-proof Congress. The forces of history are stacked high against Republicans (which is likely why some half dozen have announced their retirement from Congress with next year's election), and even higher against an insurgent candidacy.

24% is hardly a base anymore, it's more of a foolish consistency, a shadow of cognitive dissonance. Sadly, that 24% who still support Bush, even at this late date, is still a bigger number than currently support any Republican candidate to replace him.

That, among all the numbers and wonkitude I've thrown out here, may be the saddest commentary of all on the 2008 Presidential Elections.

Putting The Other Foot Into It

"What say we burn down some Bush?"
As Larry Craig's travails and reclamation effort dominates the national news scene, little noticed on the mainstream media was America's attempts this weekend to create an "us v. them" handicap tag team match in the global wrestling ring:

BEIJING (Reuters) - China expressed fury on Tuesday that the United States is to honor the Dalai Lama with an award and warned that the activities of his supporters were increasing in Chinese-controlled Tibet.

The Dalai Lama, who has lived in exile in India since staging a failed uprising against Chinese rule in 1959, is to receive the U.S. Congressional Gold Medal on Wednesday after being hosted at the White House by President George W. Bush.

"We are furious," Tibet's Communist Party boss, Zhang Qingli, told reporters. "If the Dalai Lama can receive such an award, there must be no justice or good people in the world."

Now, say what you will in admiration of the Dalai Lama-- and I do-- the timing on this award is suspect, to say the least.

First off, you have Secretary of State Condi Rice (no full names here, she hasn't earned that distinction) picking a fight with the Russians. That little masterful piece of idiocy came hard on the heels of Vladimir Putin treating Condi and Secretary of Defense Robert Gates like unruly schoolchildren the day before, making them cool their heels for 40 minutes outside his office before scolding them for the new missile defense program.

I think we know whom he really wanted to scold, the Boy King in the White House, but he settled.

And now this dust-up with China. The Chinese issue with the Dalai Lama is simple: they can't harm him directly, since he lives in exile in India.

Think of the Dalai Lama as China's Castro, and you have an inkling of the difficult position China has found itself in. Now add to that the fact that the Dalai Lama is the spiritual leader of nearly a billion Chinese (despite the official atheist stance of the government), Tibetans and Mongolians.

It's as if Castro was a high Israeli Rabbi. The Dalai Lama has enormous influence in China by not being there.

Talk about a moment of Zen!

The only legitimate reason I can think of (bear with me, I'm thinking as I type this) for pissing off BOTH Russia and China in the same week is to create a three-way dynamic of mistrust.

China and Russia have improved relations in the past twenty years in a way that China and America have not, and in opposition to the way America and Russia have frosted their relationship during the current administrations (Bush and Putin's, I mean). To drive some sort of wedge in between them woudl probably limit any concerted efforts on their part to foment opposition to any moves we might make in the Middle East, including invading Iran, if indeed that is on the table.

But to be sure, not only is this a stupid strategy in terms of accomplishing its goal ("the enemy of my enemy is not my enemy"), it's flat out dangerous for America.

So, in the past four days, the United States President has embarked on a mission of antagonistes, taking direct aim at human rights violations by our two biggest rivals, and sticking their noses in them.

Hmmmmmmmmmmmmmmmmmmmmmmm...I don't see a whole lot of upside to this, do you?

Why This Might Matter To You

You might consider this payback for our arrogance over the past seven years, and undoubtedly there's a bit of that in there.

You might consider this a bitof "get even" for our economic hegemony that sees Wal-Mart in China and Hooters in Saudi Arabia.

Or you might consider this the natural progression of economic evolution:

Investors would like to believe that a portfolio which is diversified across both developed and emerging markets would continue to perform well, even during a U.S. recession, because Chinese economic growth is creating insatiable demand for raw materials in particular.

The U.S. accounts for about 25 percent of world output and in past business cycles investors have suffered as world stockmarkets have weakened when U.S. economic growth has slowed, as it has this year, or slipped into recession.

"A lot of my colleagues are arguing that it is different this time around," said Andrew Milligan, head of global strategy at the investment arm of UK insurer Standard Life Plc

It's true.

It used to be that, when the US sneezed, the world caught the flu. We only need look within our lifetimes to see that, after the 1987 market crash and the (chronologically, not causitively) subsequent economic depression in the US, the world suffered as well (after a bubble in the Japanese markets which caused them to have to shovel money into assets overseas...but that's another story).

A curious thing happened in this past Bush recession: other markets strengthened. Led by China and India, Asian markets absorbed our economic hits in 2001 and 2002 (and a mini-hit in 2003), and took advantage of them by expanding their trade with the US (our trade deficit went from $400 billion to $700 billion.)

There are probably many reasons for this, of course. The one that occurs to me most quickly is the fact that, in the 1990s, the global economic playing field levelled.

No longer was it necessary for a country to have access to vast resources in order to grow economically. Information was the engine of growth now, and information had no borders. The Internet saw to that.

Which is why when you call Verizon to fix your DSL service (don't get me started!), you now either speak to someone in Mumbai or Mexico City, depending on the operating system you use: there's no need for a physical presence inside our borders, because the cost of the call is nominal when you factor in wage differentials, and the same database of information is available to Ricardo or Sajni as it is to Joe or Claire.

Too, the ability to digest data and churn out information no longer meant being physically on Wall Street to cop tips while out at a luncheon: it was there, out in the public, which is why London, with its easier banking and stock regulations is now the financial capital of the world, despite the New York Stock Exchange being the single largest exchange in the world.

In other words, the new economic model rewards efficiency over resources. Do it faster, cheaper, with less waste, and you're going to make money.

The Europeans and Asians have been working in that mode for centuries now. Ever been in a British shower?

Ever wonder why a British shower is as unfulfilling as it is? Maybe it's because the world has recently undergone the kind of transformation that the US will now have to undergo: a contraction of expectations.

Bill Clinton, during his administration, foresaw this. Like him or not, he was correct when he stressed the need to retrain and re-educate American workers as their jobs went overseas, thanks in part to NAFTA but overwhelmingly because of this economic trend of rewarding efficiency.

In a land where it used to make sense to drive an hour in each direction to a job, it makes less sense: companies can't compete when they have to take an economic hit every morning there's a traffic jam.

In a land where it used to make sense to drive lumber across country to build a house, it no longer makes sense: the price of fuel is way too high, and the inefficiencies of wood construction are magnified when that fuel cost is added in.

In a land where Playskool used to manufacture toys in Milwaukee and ship them worldwide, it no longer makes sense when China can do it far cheaper (and far more dangerously!), and still keep retail prices affordable.

Do you see how ridiculous that is? A toy is designed here in the States, and it's still cheaper to have a factory in China (buying substantially all its raw materials from the greatest resource store in the world, America) build that toy and ship it here to sell in a Tyos R Us in Paramus, NJ, a round trip of some 15,000 miles, give or take.

What does this mean to us?

It means that we'll be shipping more and more raw materials overseas. It means that, as China and other Asian and European countries see their citizens becoming wealthier, American retail markets will have to fight harder (meaning higher prices) for things we take for granted. Like toys. Like cars. Like clothing.

It means, in short, a forced move to the progressive agenda of doing more with less, of conservation, and of progressive tax codes.

Will that happen? Yes.:

Large new sources of demand have emerged in China, India and elsewhere, and may be sufficient to counter the impact of a U.S. recession, argued Milligan, who directs investment strategy at Standard Life Investments which has about $280 billion in assets under management.

In addition, in the event of a U.S. recession, the Chinese government could increase its spending to ensure China's annual economic growth does not slip below its recent average of around 10 percent before the 2008 Beijing Summer Olympics, he said.

World stockmarkets have recovered since a global credit and liquidity crisis in mid-summer, and in some countries stocks have rallied to new highs, partly because of the belief that Chinese economic growth is offsetting the impact of a weak housing sector on the U.S. economy.

Will we still have impact? Yes. As noted, the US is the single largest economic bloc in the world, roughly 25% of the global economy. Together, China and the other Asian countries make up nearly that much.

But China's economy alone is growing at an annual 10.5% rate, while the US can barely muster 2.5-3% under the failed policies of the Bush administration (thank the tax cuts!). China is poised within the next two years to become the world's third largest economy, surpassing Germany and lagging only England and the US.

Then all hell breaks loose. While the US could wage an economic "Cold War" with China, ultimately, the momentum is in China's hands: to our 300 million people, China can mobilize over 1.3 billion: that's the United States, PLUS one billion more folks.

It's a war we cannot win, and thanks to the loss of prestige engendered by this ridiculous invasion of Iraq and the utter insolence and hubris demonstrated by the Bush administration (most recently in Russia), we can't even be assured that we can steal a chunk of it away from China now.