Wednesday, July 31, 2013


As much as we all like to believe we are independent, that our thoughts are our own, we invariably are influenced dramatically by our environment, culture and society far more than we may realize.

Getting out from your usual comfort zone has all sorts of surprising benefits. Let's explore this concept a just bit more; 

B. F. Skinner famously said "Free Will Is an Illusion."

Skinner is for the most part, correct, and our concept of free will is a cognitive illusion. However, I want to add a corollary to his observation, noting that we can move a little closer to Free Will by understanding our own minds. 

It is not impossible to develop an awareness of our own inherent illusory tendencies, via knowledge of how our wetware influences our thoughts and behaviors. With knowledge, self-awareness, context, and understanding, we can in some small way, partially overcome that illusion.

In other words, you are not born with Free Will, it is something you must earn. Call it self-enlightenment through study and thought.  PEOPLE THAT DO NOT FIND GOD, WILL NEVER FIND WISDOM.......REAL WISDOM SEEMS LIKE FOOLISHNESS TO THEM. THIS IS EXACTLY WHY WE FIND OURSELVES IN OUR CURRENT PREDICAMENT.

Its called "Independent Thought" for a reason. I assure you this will not be the path most people take. 

The vast majority of television watching, corn syrup anesthetized, self-medicated, endlessly entertained masses only confirm Skinner's claim. They are spoon fed empty headed nonsense, even saying "thank you" for it. Most are poorly educated, taught to rote memorize instead of being taught to think critically.

We  need more people who can think rationally, critically and have analytical skills.

I am not holding my breath waiting for this to occur . . .



Systems engineering is a methodical, disciplined approach for the design, realization, technical management, operations, and retirement of a system. A "system" is a construct or collection of different elements that together produce results not obtainable by the elements alone. Te elements, or parts, can include people, hard-ware, software, facilities, policies, and documents; that is,all things required to produce system-level results. The results include system-level qualities, properties, characteristics, functions, behavior, and performance. The value added by the system as a whole, beyond that contributed independently by the parts, is primarily created by the relationship among the parts; that is, how they are interconnected.

It is a way of looking at the "big picture" when making technical decisions. It is a way of achieving stakeholder functional, physical, and operational performance requirements in the intended use environment over the planned life of the systems. In other words, systems engineering is a logical way of thinking.  FACTS AND TRUTH MATTER!


The more I learn, the more I know I don't know. 

"It took me four years to paint like Raphael, but a lifetime to paint like a child."
                                                                                                                                   Pablo Picasso


Having free will does not guarantee freedom from bad thought processes, it only allows us to recognize errors and attempt to recover from them, and hopefully not repeat them in the future, and optimally, to try to correct the errant thought processes that led us into the errors. That part is difficult.

Those who lack free will wind up being trapped in their delusions and errors by prejudice, biases, and whatever thought-leaders they happen to worship. That is the difference between having free will and not.


Big Government and Central Banks: The Real Criminals...............

Big Government and Central Banks: The Real Criminals

The British government has announced that it will be proposing legislation to have senior bankers face prison for "reckless" risk taking. This news item underscores two dangerous trends.

The first is the largely unremarked upon phenomenon of modern democratic governments criminalizing more and more activities. In the U.S., for example, numerous prosecutions have been successfully pursued against corporate managers for the activities of subordinates that the managers didn't order or even know about. Isn't it a basic tenet of law that you can't be charged with a crime you didn't commit?.

A corollary to this is penalizing people for offenses they didn't know they had committed. Yes, there has always been the axiom that ignorance of the law is no excuse. But that is for basic crimes like thievery, which you should know is illegal. In recent years, however, governments–especially regulators such as the EPA–have issued voluminous rules that can easily catch the unwary. The federal tax code is notorious for this. The frightening truth is that if the federal government wants to "get" you or your business, it can. There's no way for law-abiding citizens not to get ensnared in the regulatory maw.

Noted social observer and author Charles Murray is writing a book on what he rightfully describes as the increasing lawlessness of the U.S. government. The blizzard of new rules, many of them vaguely worded, undermines the basic foundation of the rule of law: simplicity and predictability. Murray finds the phenomenon far more widespread than most people realize. The recent Inspector General's report on extensive, deliberate IRS abuses is but the tip of the iceberg.

Another disturbing thing about the British news report is its reflection of the naive belief that more regulation means a safer, less risky financial system and economy. Big Government here and in Europe has perpetrated the astonishing myth that the recent financial crisis was caused by reckless and greedy private-sector bankers. No wonder the public howls for bankers' heads. 

The real villains here were governments, particularly central banks.

Experience has demonstrated time and again that when a country undermines the value of its currency, bad things happen. Both in the 1970s and in the early part of the last decade the Federal Reserve continually devalued the dollar, and other central banks followed suit with their monies to varying degrees. The result, predictably, was a commodities boom, a surge in prices for houses and farmland, a binge in government spending and a drought in productive investments.

Just as a virus corrupts information in a computer, an unstable currency distorts markets. Take housing. People really believed that housing prices could only go up and up. No wonder lending standards went down. If a buyer defaulted, so what? The always appreciating asset would easily cover the mortgage. Under those circumstances purchasing a house with debt and little or no down payment looked like a sure, easy way to get rich. And weren't brilliant financial engineers, like alchemists, designing securities that were turning packages of subprime mortgages, or at least parts of them, into gilt-edged securities?

So the government that distorted the markets now wants to jail bankers for responding rationally to those distortions. The U.K. says it's "cracking down" hard because banking is so important to its economy. This would be like Washington deciding to smother high tech with regulations and threats of jail if a venture failed because high tech is so critical to the U.S. economy. London's moves will only drive capable talent away, causing its financial sector to wither.

For the record, let's note that we're not condoning genuine wrong-doing, such as rigging markets or stealing depositors' money. But the vague term "reckless" invites Big Government abuse of the first order. IF ANYONE KNOW'S RECKLESS IT IS OUR GOVERNMENT AND THE FED.

One point cannot be emphasized enough: If the Federal Reserve, with the connivance of the U.S. Treasury Department, had not debased the dollar, the "reckless" and egregious excesses could not have happened.  AMEN!

Jail bankers? Let's start with the real villains–central bankers and their political masters.

Rising Interest Rates Will Soon Make Needed Infrastructure Repairs More Costly............ WHILE AMERICAN NERO's FIDDLE!

Rising Interest Rates Will Soon Make Needed Infrastructure Repairs More Costly

Thanks to the Federal Reserve's zero interest rates and quantitative easing policies, borrowing costs are near generational lows. The costs of funding the repair and renovation of America's decaying infrastructure are as cheap as they have been since World War II.

But the era of cheap credit is nearing its end. 

And thanks to a dysfunctional Washington, D.C., we are on the verge of missing a once-in-a-lifetime opportunity.

Back in an October 2011 we discussed the many ways repairing our fraying infrastructure could help the United States' economy. Our transportation grid has gotten old and out of shape. The interstate highway system is in disrepair. Bridges are rusting away, with some collapsing now and then. The electrical grid is a patchwork of jury-rigged fixes, vulnerable to blackouts and foreign cyber attacks. The cellular network of the United States is a laughingstock versus Asia's or Europe's coverage. Two years later, none of that has really changed.

The argument then was that a major infrastructure repair program would create jobs, keep us competitive with China and improve the security of our ports, energy facilities and electrical grid. And as a fantastic bonus, borrowing costs for funding these repairs were at the lowest levels in a century. Imagine the least costly way to improve and repair our infrastructure imaginable, and that was what was available to us: the deal of the century.

All of the above remains true — except the bit about ultra-low rates. They have begun to move higher as markets anticipate the end of the Fed's quantitative easing. The most widely held U.S. Treasury, the 10-year bond, was yielding about 2.6 percent late last week — a full percentage point higher than in early May. The 30-year bond, which we tend to think of as the cost of funding infrastructure that will last for decades, has risen almost as fast.

As a nation, we still have a window to take advantage of these historically low rates. However, that window is beginning to close, and we need to act sooner rather than later. WE WON'T ACT IN TIME BECAUSE WE ARE LED BY IDIOTS.

As D.C. dithers, the rest of the economy has already jumped at the chance to put this cheap credit to work. The corporate sector has taken advantage of low rates to refinance its debt. Today, publicly traded U.S. companies have the cleanest balance sheets seen in decades. It is in no small part a driver of the stock market rally that began in March 2009.  CORPORATIONS STILL HAVE TONS OF DEBT!

Households have also taken advantage of low rates. Families with a reasonable income and a half-decent credit rating should be refinancing their consumer debt, especially home mortgages. And the data show that many of them have been. NOT ENOUGH OF THEM CAN!

That leaves Uncle Sam, along with the states and municipalities, as the odd men out of the debt refinancing boom. Rather than waiting for bridges to collapse to do expensive emergency repairs, we should proactively be upgrading and improving the rest of our infrastructure. We should be refinancing whatever debt we can while rates are still low.

What can we do as a nation to take advantage of these interest rates before they return to normal? Choose your favorite part of America that can be upgraded:

Our electrical grid consists mostly of wires strung between wooden poles, which may have been innovative in 1850 but is somewhat past its sell-by date today. After Hurricane Sandy, much of New Jersey, Long Island and Connecticut lost electrical service for two weeks. The entire grid needs to be hardened, upgraded against cyberattack — and buried underground.

● We can make our road system "intelligent" by using sensors and software to move traffic more quickly and efficiently than the current "dumb" system does. The productivity boost and fuel savings make this a big return on investment.

Bridges that are well past their life expectancy should not simply wait to fail. We should be actively replacing these. The alternative is waiting for random events — like the truck crash that caused the Washington state Skagit River bridge collapse — to cause a disaster.

● The United States' cellular network is a decade behind Europe's and Asia's coverage and reliability. Mandate better minimum service requirements and make available cheap financing to wireless providers to do so. We can do the same with broadband as well.

The interstate highway system has been one of the lasting legacies of the Eisenhower administration. It is time for a full upgrade of this economic multiplier.

The United States once enjoyed what venture capitalists like to call "first mover advantage." We innovated in these areas and were often the first to deploy these infrastructures and technologies. By virtue of being first, our systems tend to be older and in greater need of repair than in most of the world. Not bringing them up to date leaves us at an economic disadvantage vs. the rest of the world.

We do not want to miss the historic opportunity to finance projects at unusually inexpensive rates. 

Indeed, dysfunction in D.C. has already impacted state and municipal financing vehicles like the Build America Bonds. Sequestration has eliminated most of their special tax credits, and their usage as a financing vehicle has slowed significantly. It is not surprising that the public works projects that these were funding have fallen off dramatically.

If we fail to take advantage of this once-in-a-century opportunity, future generations will look back at us with a mix of disgust and anger. They will wonder how we let such a golden opportunity slip by and will think of us as "the idiot generation."

And you know what? They will be right.

European Earnings: Bad And Getting Worse............. MORE FACTS!

European Earnings: Bad And Getting Worse

We have extensively covered the evolution of Q2 earnings in the US where so far nearly half or 240 of firms have reported (and 136 on deck this week): from the revenue recession (2nd consecutive decline), to the overreliance on financial firms as the sole driver of EPS upside, to the fact that the only reason banks are beating is to FAS115, the unaccounting of AFS swings and the suspension of MTM. In other words, no top-line growth and bottom-line upside solely due to financial balance sheet gimmicks. 

But what about, Europe where accounting magic is not nearly as advanced a science as it is in the US?

Not surprisingly, we find that of the 120 DJStoxx600 companies reporting so far, the revenue picture is about the same as in the US, with 58% of companies beating the topline and 42% missing, a carbon copy of the US' 58%/43%. But it is the EPS where the difference truly shines: while in the US some 73% of firms have "beat", in Europe this number is only 48%. The flipside, or misses? In the US it is 26%. In Europe: a majority of companies, or 51%. In brief, anyone expecting a quick and easy turnaround in Europe's corporate earnings picture will have to wait.

Tuesday, July 30, 2013

The Central Bank manipulation of the last five years appears to finally be ending.........A MUST READ!

The Central Bank manipulation of the last five years appears to finally be ending

Since the Great Crisis erupted in 2007-2008, Central Banks around the world have resorted to two primary tools in their efforts to reflate the system:

1)   Lowering interest rates

2)   Quantitative Easing or QE

Regarding #1, since 2007, Central Banks worldwide have cut interest rates an incredible 511 times. One could write a multi-volume book on the consequences of this, however, painting in broad strokes, lower rates do the following:

1)   Punish savers and others whom depend on fixed income for retirement.

2)   Concentrate asset ownership in the hands of the elite who can leverage up at near zero rates to acquire more.

3)   Continue to encourage poor investment in unproductive assets.

4)   Results in the mispricing of assets across the board as rates no longer reflect true market risk/reward.

In the US, the Fed has now kept interest rates at or near zero since late 2008. The end result is that housing is once again in a bubble (home prices relative to disposable income are in fact higher than in 2007) while economic growth remains anemic (GDP has not expanded at 3%+ for a single year since 2007) and employment continues to fall (the employment ratio or percentage of Americans of working age who are gainfully employed remains at levels last seen in the early '80s… 

Indeed, looking at the employment ratio (as opposed to the official unemployment number which is massaged to the point of no longer resembling reality), I find it very difficult to argue that we're in any kind of meaningful "recovery".

The second most popular monetary tool employed by the world's Central Banks is Quantitative Easing or QE.

If you're unfamiliar with this concept, it works as follows:

1)   Central Banks create money

2)   They use this money to buy assets (usually sovereign bonds or mortgage backed securities)

Doing this provides liquidity to those financial institutions that own the assets the Central Bank buys. QE also allows the Government to run a massive deficit as the Central Bank becomes the de facto buyer of sovereign debt.

The entire concept of QE is based on the idea that the best means of fighting an economic contraction is monetary easing. Historically, the Fed has done this to attempt to minimize the economic troughs during contractions.

The only problem is that QE doesn't work. You cannot find a single instance in history in which it has.

Over the last five years, the UK has announced QE plans equal to an amount greater than 20% of UK GDP and has not seen any meaningful job or GDP growth.

However, Japan has outdone even the UK in terms of monetary madness. Over the last 20 years the Bank of Japan (BoJ) has announced nine rounds of QE for a combined effort equal to 20% of Japan's GDP. During that period Japan's GDP growth has actually slowed while unemployment has failed to fall.

Convinced that the answer to its problems is more QE, Japan just launched a $1.4 trillion QE effort last month.

To put this amount into perspective, Japan's entire GDP is $5.8 trillion. So the country effectively launched a QE program equal to 24% of its GDP in a SINGLE PROGRAM.

The end result is that by the time this program is completed, Japan will have spent QE equal to well over 40% of its GDP.

That is assuming that Japan can finish this program without blowing up its bond market… which is looking increasingly unlikely.

The only way QE "works" on any level is if the bond markets continue to believe that the country/ Central Bank engaging in it will be able to pay back its debts.

Put another way, the minute the bond markets begin to believe that a country will not be able to pay its debts back, its bonds collapse, and QE blows up in the Central Banks face.

At this point the Central Bank has one of two options:

1)   Monetize everything.

2)   Let the bond market fall to where it deems rates are appropriate given the new default risk.

Both of these options end up in default. Option #1 leads to hyperinflation, which is default by another name as the underlying currency becomes worthless.

Option #2 usually results in default too because once bonds begin to fall due to a loss of credibility in the underlying country's finances, there's usually a selling panic which results in the bonds losing 50% of their value if not more.

Collapse is the final outcome of the path that global Central Banks are pursuing. 

The Current Situation Is A Bear Market Waiting To Happen...........AN ABSOLUTE MUST READ!

The Current Situation Is A Bear Market Waiting To Happen

While many draw comparisons to 1994's Fed actions, rate rises, and the subsequent economic and market performance, UBS examines the five main drivers of that mid-90s disinflationary boom and how (or if) they are applicable in the US' current new normal. 

Their findings "this may be a 1994 redux, but it ain't no 1995 replay," as they note, in fact, it's a bear market waiting to happen. Every one of these processes is deflationary, not disinflationary. And they are self reinforcing. And deflation, in direct contrast to disinflation, is very bad for asset prices (with a serious equity and credit bear-market). So just as we have noted previously any taper will likely eventually lead to an 'un-taper' reflation effort (which will see gold once again strengthen) along with the exposure of the fallacy that the Fed really has become.

Via UBS,

We suspect that the US economy cannot hold up in the face of a higher cost of capital. That means we will likely see a serious equity and credit bear-market. We expect gold will base out and then start rallying. And then we will see a new attempt at Fed reflation.

In the past we explored the rising cost of capital that comes with Fed normalisation after years of easy money and building leverage. We highlighted how the current environment was similar to 1994 - a period that was very messy for bond markets, for emerging markets with current account deficits and for any crowded trades. But 1994 morphed into a US growth stock boom, and an emerging market bust over the mid- late 1990s. 

This note argues that the future will be very different from 1995-1998.

We work most of our analysis off mental models - flow diagrams that describe the key forces that drive sustainable and self-reinforcing trends in global macro.

The first chart shows the five principal forces that drove the mid-90s disinflationary boom.



The first element was globalisation. In 1989, 60% of the world's countries were under free democracy. By 1998 that had risen to 90%. The fall of the Berlin Wall in 1989, combined with reform and democratisation in Asia was central to a 25% increase in the world's workforce available to participate in global trade. The price of exports to the US fell in every year of the decade, raising US consumer spending power.

The second element is monetary policy. In the mid-1990s US monetary policy under Greenspan was both highly conservative in its anti-inflation approach, but incredibly loose in its attitude to credit growth. The relatively high cost of capital following the 1994 anti-inflation push set off a debilitating vicious circle in emerging markets, highlighted in the second chart - it shows how the higher cost of capital in the US triggered capital outflows, tighter EM liquidity, deteriorating domestic lending, disinflation, rising real rates, more outflows and currency crises. All added to the falling price of commodities and goods exported to the US.

The second aspect of monetary policy combines with the third driver - financial liberalisation - to effect a complete disregard for the implications of powerful credit growth. We talk later about the fallout from that. But in the 1990s it meant that corporates and consumers could gear up, and spend and invest faster than the increase in their incomes and cash flows would warrant. And it meant assets - from houses to stocks - appreciated, further spurring consumer and corporate leveraging. Banks raised and broadened lending and increased their leverage.

The fourth driver was disinflation. The combined effect of anti-inflation policy, globalisation and emerging market inflation lowered nominal rates, and with it, it raised the discounted fair value of all assets; from land and housing, to cash flow from operations. And when a disparity showed up, an equity value not reflecting the low cost of debt to release it, the asset arbitrageurs would step in and accelerate the process. Assets rose in value. Consumers felt more confident.

The fifth driver was the social contract. All the benefits of rising assets, rising bank leverage, and rising confidence meant that governments came under minimal scrutiny as they began an unsustainable push to grow wealth and income transfers. A significant portion of those income transfers came to the officers of the court themselves.

The interconnecting arrows show that each element that contributed to the '90s disinflationary boom reinforced each other element. It was one of the great self-reinforcing cycles. The circuit breaker was the combined Russian debt default and LTCM credit default. That was sufficient to break the US market, induce the Fed into an emergency 75 bp cut, and trigger an unwinding of short yen and anti- inflation positioning.

In the 18th and 19th centuries, it used to take 60 years for macro cycles to play out. It was the classic Kondratief wave. But with the rise of leverage, what took sixty years back then, now takes six.

So it's worth revisiting the 90s boom... ask whether the key drivers are getting ready to play out again.

First, globalisation. No. Globalisation appears complete. Barring North Korea, almost every country that can export and import goods and credit is doing exactly that. As a result, domestic wages in China have risen faster than productivity over recent years. Export prices from EM are no longer falling.

Second. Monetary policy is no longer anti-inflation. It is anti-deflation. The advantage of a clear anti-inflation policy is that, during a strong recovery, the rise in the cost of capital usually knocks out excessive speculation and companies that have too thin a return on the cost of capital. The result; Schumpeter's creative destruction which leaves the economy in a more robust sustainable position. However, all that an anti-deflationary policy does is shuffle debt between holders and it leaves weak companies on a lifeline. It encourages more people and institutions to take on debt and to chase assets, rather than building self-sustaining cashflow businesses. The problem, then, is that antideflation policy, by promoting the accumulation of debt in weak hands and in businesses that struggle to make a return on the cost of capital, raises the likelihood of deflation in the future.

Third, financial liberalisation has turned 180 degrees. All new legislation we have seen over the past five years has created direct and indirect incentives to banks to delever. We suspect that proposed legislation to regulate the world's largest insurance companies has the potential to cause a notable deleveraging of high yield credit.

Fourth, wealth gains from disinflation have ended. When debt levels are sufficiently high, growth rates fall (yes, we think Reinhardt and Rogoff were dead right in principal, even if their sums weren't). Inflation turns to disinflation then deflation. And when rates start to exceed potential nominal growth, debt spirals kick off. More on that later - the key point. We believe wealth from disinflation has maxed out.

Finally, the social contract has broken. A combination of demographics and excess debt leaves no scope for either promises of future income in transfer payments or public wages, or the continued provision of current services.

So this may be a 1994 redux, but it ain't no 1995 replay.

So what is it?

In our view, it's a bear market waiting to happen. Every one of these processes is deflationary, not disinflationary. And they are self reinforcing. And deflation, in direct contrast to disinflation, is very bad for asset prices. A MASSIVE CRISIS IS ON DECK, WAITING TO SWING AWAY!

Monthly Home Payment Soars 40% To 2008 Levels Because Rates are Rising ..............

Monthly Home Payment Soars 40% To 2008 Levels Because Rates are Rising

The following chart from Credit Suisse fully explains why the US housing "recovery" has just ground to a halt: in a few short weeks, US housing affordability (a topic we first covered a month ago) has collapsed as a result of the monthly payment on the median home sold soaring by nearly 40% from under $800 to just shy of $1100, a level not seen since 2008. Now if only US personal incomes would keep pace, instead of doing this...

Is This The Recovery Obama Is Talking About?................

Is This The Recovery Obama Is Talking About?

Monday, July 29, 2013

Now That Detroit’s Gone Bust, Is A City Near You Next?.............

Now That Detroit's Gone Bust, Is A City Near You Next?

Detroit's bankruptcy filing is one depressing read. Poverty, crime, blight – you name the malady and there's plenty of data to back it up. And unfortunately, Detroit's not alone. You may be wondering which city hits the wall next.

One indicator that may offer some clues: population loss.

As any good Ponzi Schemer will tell you, your future looks much better when there are more people moving in than moving out. Once the population change turns negative, a vicious circle can take hold, and that's exactly what we saw in Detroit.

In addition to spending excesses and mismanagement, the city's financial problems stem from the challenges of downsizing infrastructure as quickly as the tax base contracts. 

Here are a few lowlights from the bankruptcy declaration:

  • The average cost to demolish an abandoned building – of which Detroit has about 78,000, or 20% of the housing stock – is approximately $8500.
  • Of about 11,000 to 12,000 fires each year, approximately 60% occur in abandoned buildings.
  • The city closed 210 parks in fiscal year 2009 and recently announced that 50 of the remaining 107 parks were slated for closure.
  • The city's Public Lighting Department is able to keep only about 60% of the approximately 88,000 street lamps in operation.
  • The Detroit courts' case clearance rates have been running at only 18.6% for violent crimes and 8.7% for all crimes.
  • Only 10 to 14 of the city's 36 ambulances were in service in the first quarter of 2013.

And now for a look at other cities that are battling severe population loss. Here are the top 15, ranked by the decline from each city's population peak, according to the decennial U.S. census:


And here are the top 15 ranked by the percentage decline (for this list, I required a population of at least 125,000 in or before 1960):


Nine cities have the dubious distinction of making both "top 15" lists. For these cities, I've added charts showing population histories using all of the data I could find. There's one chart each for the Midwest, Northeast and South :




The rate of population decline in most of these cities was at least slower from 1980 to 2010 than it was from 1950 to 1980 (Detroit was one of the exceptions). Nonetheless, they'll need to manage the exodus more carefully than Detroit did to avoid the same fate.

The Coming Retirement Crisis That Will Shake America...........AN ABSOLUTE MUST READ!

The Coming Retirement Crisis That Will Shake America

The pension nightmare that is at the heart of the horrific financial crisis in Detroit is just the tip of the iceberg of the coming retirement crisis that will shake America to the core.  Right now, more than 10,000 Baby Boomers are hitting the age of 65 every single day, and this will continue to happen every single day until the year 2030.  

As a society, we have made trillions of dollars of financial promises to these Baby Boomers, and there is no way that we are going to be able to keep those promises.  

The money simply is not there. Yes, I suppose that we could eventually see a "super devaluation" of the U.S. dollar and keep our promises to the Baby Boomers using currency that is not worth much more than Monopoly money, but as it stands right now we simply do not have the resources to do what we said that we were going to do.  The number of senior citizens in the United States is projected to more than double by the middle of the century, and it would have been nearly impossible to support them all even if we weren't in the midst of a long-term economic decline.  

Tens of millions of Americans that are eagerly looking forward to retirement are going to be in for a very rude awakening in the years ahead.  There is going to be a lot of heartache and a lot of broken promises.

What is going on in Detroit right now is a perfect example of what will soon be happening all over the nation.  Many city workers stuck with their jobs for decades because of the promise of a nice pension at the end of the rainbow.  But now those promises are going up in smoke.  There has even been talk that retirees will only end up getting about 10 cents for every dollar that they were promised.

Needless to say, many pensioners are extremely angry that the promises that were made to them are not going to be kept.  

The following is from a recent article in the New York Times…

Many retirees see the plan to cut their pensions as a betrayal, saying that they kept their end of a deal but that the city is now reneging. Retired city workers, police officers and 911 operators said in interviews that the promise of reliable retirement income had helped draw them to work for the City of Detroit in the first place, even if they sometimes had to accept smaller salaries or work nights or weekends.

"Does Detroit have a problem?" asked William Shine, 76, a retired police sergeant. "Absolutely. Did I create it? I don't think so. They made me some promises, and I made them some promises. I kept my promises. They're not going to keep theirs."

But Detroit is far from an isolated case.  As Detroit Mayor Dave Bing said the other day, many other cities are heading down the exact same path…

"We may be one of the first. We are the largest. But we absolutely will not be the last."

Yes, Detroit's financial problems are immense.  But other major U.S. cities are facing unfunded pension liabilities that are even worse.

For example, here are the unfunded pension liabilities for four financially-troubled large U.S. cities…

Detroit: $3.5 billion

Baltimore: $680 million

Los Angeles: $9.4 billion

Chicago: $19 billion

When you break it down on a per citizen basis, Detroit is actually in better shape than the others…

Detroit: $7,145

Baltimore: $7,247

Los Angeles: $8,437

Chicago: $13,355

And many state governments are in similar shape.  Right now, the state of Illinois has unfunded pension liabilities that total approximately $100 billion.

Sticking our heads in the sand is not going to make any of this go away.

According to Northwestern University Professor John Rauh, the total amount of unfunded pension and healthcare obligations for retirees that state and local governments across the United States have accumulated is 4.4 trillion dollars.

So where are they going to get that money?

They are going to raise your taxes of course.

Just check out what is happening right now in Scranton, Pennsylvania…

Scranton taxpayers could face a 117 percent increase in taxes next year as the city's finances continue to spiral out of control.

A new analysis by the Pennsylvania Economy League projects an $18 million deficit for 2014, an amount so massive it outpaces the approximate $17 million the struggling city collects annually

A 117 percent tax increase?

Perhaps you are reading this and you are assuming that your retirement is secure because you work in the private sector.

Well, just remember what happened to your 401k during the financial crisis of 2008.  During the next major stock market crash, your 401k will likely get absolutely shredded.  Many Americans will probably see the value of their 401k accounts go down by 50 percent or more.

And if you have stashed your retirement funds with the wrong firm, you could end up losing everything.  Just ask anyone that had their nest eggs invested with MF Global.

But of course most Americans are woefully behind on saving for retirement anyway.  A study conducted by Boston College's Center for Retirement Research found that American workers are $6.6 trillion short of what they need to retire comfortably.

That certainly isn't good news.

On top of everything else, the federal government has been recklessly irresponsible as far as planning for the retirement of the Baby Boomers is concerned.

As I noted yesterday, the U.S. government is facing a total of 222 trillion dollars in unfunded liabilities.  Social Security and Medicare make up the bulk of that.

At this point, the number of Americans on Medicare is projected to grow from a little bit more than 50 million today to 73.2 million in 2025.

The number of Americans collecting Social Security benefits is projected to grow from about 56 million today to 91 million in 2035.

How is a society with a steadily declining economy going to care for them all adequately?

Yes, we truly are careening toward disaster.

If you are not convinced yet, here are some more numbers.  

1. Right now, there are somewhere around 40 million senior citizens in the United States.  By 2050 that number is projected to skyrocket to 89 million.

2. According to one recent poll, 25 percent of all Americans in the 46 to 64-year-old age bracket have no retirement savings at all.

3. 26 percent of all Americans in the 46 to 64-year-old age bracket have no personal savings whatsoever.

4. One survey that covered all American workers found that 46 percentof them have less than $10,000 saved for retirement.

5. According to a survey conducted by the Employee Benefit Research Institute, "60 percent of American workers said the total value of their savings and investments is less than $25,000″.

6. A Pew Research survey found that half of all Baby Boomers say that their household financial situations have deteriorated over the past year.

7. 67 percent of all American workers believe that they "are a little or a lot behind schedule on saving for retirement".

8. Today, one out of every six elderly Americans lives below the federal poverty line.

9. More elderly Americans than ever are finding that they must continue working once they reach their retirement years.  Between 1985 and 2010, the percentage of Americans in the 65 to 69-year-old age bracket that were still working increased from 18 percent to 32 percent.

10. Back in 1991, half of all American workers planned to retire before they reached the age of 65.  Today, that number has declined to 23 percent.

11. According to one recent survey, 70 percent of all American workers expect to continue working once they are "retired".

12. According to a poll conducted by AARP, 40 percent of all Baby Boomers plan to work "until they drop".

13. A poll conducted by CESI Debt Solutions found that 56 percent of American retirees still had outstanding debts when they retired.

14. Elderly Americans tend to carry much higher balances on their credit cards than younger Americans do.  The following is from a recent CNBC article…

New research from the AARP also shows that those ages 50 and over are carrying higher balances on their credit cards — $8,278 in 2012 compared to $6,258 for the under-50 population.

15. A study by a law professor at the University of Michigan found that Americans that are 55 years of age or older now account for 20 percent of all bankruptcies in the United States.  Back in 2001, they only accounted for 12 percent of all bankruptcies.

16. Between 1991 and 2007 the number of Americans between the ages of 65 and 74 that filed for bankruptcy rose by a staggering 178 percent.

17. What is causing most of these bankruptcies among the elderly?  The number one cause is medical bills.  According to a report published in The American Journal of Medicine, medical bills are a major factor in more than 60 percent of the personal bankruptcies in the United States.  Of those bankruptcies that were caused by medical bills, approximately 75 percent of them involved individuals that actually did have health insurance.

18. In 1945, there were 42 workers for every retiree receiving Social Security benefits.  Today, that number has fallen to 2.5 workers, and if you eliminate all government workers, that leaves only 1.6 private sector workers for every retiree receiving Social Security benefits.

19. Millions of elderly Americans these days are finding it very difficult to survive on just a Social Security check.  The truth is that most Social Security checks simply are not that large.  The following comes directly from the Social Security Administration website…

The average monthly Social Security benefit for a retired worker was about $1,230 at the beginning of 2012. This amount changes monthly based upon the total amount of all benefits paid and the total number of people receiving benefits.

Sadly, most Americans are not aware of these things.

The mainstream media keeps most of the population entertained with distractions.  Last week it was the birth of the royal baby, and next week it will be something else.

Meanwhile, our problems just continue to get worse and worse.

There is no way in the world that we are going to be able to keep all of the financial promises that we have made to the Baby Boomers.  A lot of them are going to end up bitterly disappointed and very angry.

All of this could have been avoided if we would have planned ahead as a society.

But that did not happen, and now we are all going to pay the price for it.

Sunday, July 28, 2013



We should not ask, "What is wrong with the world?" for that diagnosis has already been given. Rather, we should ask, "What has happened to the salt and light?"

The modern world detests authority but worships relevance. Our Christian conviction is that the Bible has both authority and relevance, and that the secret of both is Jesus Christ.


Prayer is the very way God Himself has chosen for us to express our conscious need of Him and our humble dependence on Him.


Faith's only function is to receive what grace offers.

Trust God's hold on you more than your hold on God.

Faith is a reasoning trust, a trust which reckons thoughtfully and confidently upon the trustworthiness of God.


The Gospel is good news of mercy to the undeserving. The symbol of the religion of Jesus is the cross, not the scales.

We must allow the Word of God to confront us, to disturb our security, to undermine our complacency and to overthrow our patterns of thought and behavior.

God must speak to us before we have any liberty to speak to him. He must disclose to us who he is before we can offer him what we are in acceptable worship. The worship of God is always a response to the Word of God. Scripture wonderfully directs and enriches our worship.


See to it that no one misses the grace of God.

To accept grace is to accept the vow to give it.

Grace is God loving, God stooping, God coming to the rescue. God giving himself generously in and through Jesus Christ.

Grace is the gift of feeling sure that our future, even our dying, is going to turn out more splendidly than we dare imagine.   

Lord, I crawled across the barrenness to you with my empty cup uncertain in asking any small drop of refreshment. If only I had known you better, I'd have come running with a bucket.

God's grace has a drenching about it. A wildness about it. A white water, riptide. Turn-you-upside-downness about it. God's unquenchable grace comes after you. 


Christ lives in me.

A man whose hands are full of parcels can't receive a gift.

Jesus Christ is what God does, and the cross is where God did it.

Christianity is not the sacrifice we make, but the sacrifice we trust.

The feeble gospel preaches, "God is ready to forgive"; the mighty gospel preaches, "God has redeemed."

Before we can begin to see the cross as something done for us, we have to see it as something done by us.

Good works are indispensable to salvation - not as its ground or means, however, but as its consequence and evidence.

His authority on earth allows us to dare to go to all the nations. His authority in heaven gives us our only hope of success. And His presence with us leaves us no other choice.

Nobody is free who is unforgiven. Instead of being able to look God in the face or to look one another in the face, we want to run away and hide when our conscience troubles us.

To evangelize is to spread the good news that Jesus Christ died for our sins and was raised from the dead according to the Scriptures, and that as the reigning Lord he now offers the forgiveness of sins and the liberating gift of the Spirit to all who repent and believe.

We must never think of salvation as a kind of transaction between God and us in which He contributes grace and we contribute faith. For we were dead and had to be quickened before we could believe. No, Christ's apostles clearly teach elsewhere that saving faith too is God's gracious gift.

To encounter Christ is to touch reality and experience transcendence. He gives us a sense of self-worth or personal significance, because He assures us of God's love for us. He sets us free from guilt because He died for us and from paralyzing fear because He reigns. He gives meaning to marriage and home, work and leisure, personhood and citizenship.


Greatness in the kingdom of God is measured in terms of obedience.


Apathy is the acceptance of the unacceptable.

Every Christian should be both conservative and radical; conservative in preserving the faith and radical in applying it.


Unbelief is not a misfortune to be pitied; it is a sin to be deplored. This sinfulness lies in the fact that it contradicts the word of the one true God and thus attributes falsehood to Him.


Knowledge is indispensable to Christian life and service. If we do not use the mind that God has given us, we condemn ourselves to spiritual superficiality and cut ourselves off from many of the riches of God's grace.


It is impossible to pray for someone without loving him, and impossible to go on praying for him without discovering that our love for him grows and matures.


If you do not transform your pain, you will surely transmit it.

Persecution is simply the clash between two irreconcilable value-systems.

In the presence of God, in defiance of satan, Jesus Christ rises to your defense. 

A Christian's freedom from anxiety is not due to some guaranteed freedom from trouble, but to the folly of worry and especially to the confidence that God is our Father, that even permitted suffering is within the orbit of His care.

How did Jesus expect His disciples to react under persecution? (In Matthew 5:12 He said), "Rejoice and be glad!" We are not to retaliate like an unbeliever, nor sulk like a child, nor lick our wound in self-pity like a dog, nor just grin a bear it like a Stoic, still less pretend we enjoy it like a masochist. What then? We are to rejoice as a Christian should and even "leap for joy" (Lk. 6:23).


The chief occupational hazard of leadership is pride.

Indignation and compassion form a powerful combination. They are indispensable to vision, and therefore to leadership.

The authority by which the Christian leader leads is not power but love, not force but example, not coercion but reasoned persuasion. Leaders have power, but power is safe only in the hands of those who humble themselves to serve.


The incentive to peacemaking is love, but it degenerates into appeasement whenever justice and truth are ignored. To forgive and to ask for forgiveness are both costly exercises. All authentic Christian peacemaking exhibits the love and justice - and so the pain - of the cross.

Tolerance is not a spiritual gift; it is the distinguishing mark of postmodernism; and sadly, it has permeated the very fiber of Christianity. Why is it that those who have no biblical convictions or theology to govern and direct their actions are tolerated and the standard or truth of God's Word rightly divided and applied is dismissed as extreme opinion or legalism?

Universalism, fashionable as it is today, is incompatible with the teaching of Christ and His apostles, and is a deadly enemy of evangelism. The true universalism of the Bible is the call to universal evangelism in obedience to Christ's universal commission. It is the conviction that not all men will be saved in the end, but that all men must hear the gospel of salvation before the end.


Personal vanity still lies at the root of most dissensions in every local church today.

All around us we see Christians and churches relaxing their grasp on the gospel, fumbling it, and in danger of letting it drop from their hands altogether.

These then are the marks of the ideal Church - love, suffering, holiness, sound doctrine, genuineness, evangelism and humility. They are what Christ desires to find in His churches as He walks among them.

Theology is a serious quest for the true knowledge of God, undertaken in response to His self-revelation, illumined by Christian tradition, manifesting a rational inner coherence, issuing in ethical conduct, resonating with the contemporary world and concerned for the greater glory of God.

The very first thing which needs to be said about Christian ministers of all kinds is that they are "under" people as their servants rather than "over" them (as their leaders, let alone their lords). Jesus made this absolutely plain.The chief characteristic of Christian leaders, he insisted, is humility not authority, and gentleness not power.

Word and worship belong indissolubly to each other. All worship is an intelligent and loving response to the revelation of God, because it is the adoration of His name. Therefore, acceptable worship is impossible without good preaching. For preaching is making known the name of the Lord, and worship is praising the name of the Lord made known.


God wants to bless each of us............. but blessings only come through obedience

God wants to bless each of us, but blessings only come through obedience (Deuteronomy 11:26-29). When you finally make the decision you know is right, then accept what the Lord has shown you and do what is right in the situation. It may be something difficult to do, but the promise is that as you obey the Lord, you will have blessings in your life.

When it comes down to choosing between two good choices and God does not give any clear direction, then the final step indicates that you can choose the one you most desire. 

Then trust God to bring it to pass. Even if doing right is not easy, we know that the proper decision is to do the right thing.

Walking by faith means believing God. Even when contrary voices call or scream
we put them aside and listen to God.


Trust in the Lord with all your heart, and lean not on your own understanding; In all your ways acknowledge Him, and He shall direct your paths.

                                                                                   Proverbs 3:5-6

It was Elijah the prophet who asked of his people, 

How long will you waver between two opinions?  

If the Lord is God, follow Him....
                                                                          I Kings 18:21

Rely on His promises, and proceed with confidence in all the decisions of life that you face!

1 Peter 4:7-11 (New King James Version)

Serving for God's Glory

But the end of all things is at hand; 

therefore be serious and watchful in your prayers. 8 And above all things have fervent love for one another, for "love will cover a multitude of sins."[a] 9 Be hospitable to one another without grumbling. 10 As each one has received a gift, minister it to one another, as good stewards of the manifold grace of God. 11 If anyone speaks, let him speak as the oracles of God. If anyone ministers, let him do it as with the ability which God supplies, that in all things God may be glorified through Jesus Christ, to whom belong the glory and the dominion forever and ever. Amen.



Saturday, July 27, 2013



It was once the most prosperous manufacturing city in the nation.

Detroit , once our fourth largest city, now 11th and slipping rapidly.

Detroit has plummeted from 1.8 million citizens to 912,000 today.

Unemployment hit 28.9 percent in 2009 as the auto industry vacated the city.

Detroit 's treasury is $300 million short of the funds needed to provide the barest municipal services.

High school flunk-out rates reached 76 percent last June according to NBC. The city features a 50 percent illiteracy rate and growing.

The murder rate is soaring, and 7 out of 10 remain unsolved.

The story of Detroit is not simply one of a great city's collapse, it's also about the erosion of the industries that helped build the country we know today. The ultimate fate of Detroit will reveal much about the character of America in the 21st century.

If drought and carelessness had spread brush fires across the city, we'd see it on the evening news every night."  Earthquake, tornadoes, you name it, if natural disaster had devastated the city that was once the living proof of American prosperity, the rest of the country might take notice.



Now, Consider The following:

There are more people on Welfare in Illinois than there are people working.

Chicago pays the highest wages to teachers than anywhere else in the U.S. averaging $110,000/year. 

Their pensions average 80-90% of their income. 

You can't blame any of that on republicans because there aren't any.


Body count: 

In the last six months 292 killed (murdered) in Chicago. Only 221 killed in Iraq during this same period AND Chicago has some of the strictest gun laws in the entire US.

. Here's the Chicago chain of command:
. President: Barack Hussein Obama
. Senator: Dick Durbin
. House Representative: Jesse Jackson Jr.
. Governor: Pat Quinn 
. House leader: Mike Madigan
. Atty. Gen.: Lisa Madigan (daughter of Mike)
. Mayor: Rohm Emanuel
. The leadership in Illinois - all Democrats.
. Thank you for the combat zone in Chicago .

. Of course, they're all blaming each other.

. Can't blame Republicans; there aren't any!

. Chicago school system rated one of the worst in the country. Can't blame Republicans; there aren't any!

. State pension fund $78 Billion in debt, worst in country. Can't blame Republicans; there aren't any!

. Cook County ( Chicago ) sales tax 10.25% highest in country. Can't blame Republicans; there aren't any!

. This is the political culture that Obama comes from in Illinois . And he is going to 'fix' Washington politics for us???

. George Ryan is no longer Governor, he is in the big house.

. Of course he was replaced by Rob Blajegovitch who is...that's right, also in the big house.

. And Representative Jesse Jackson Jr. resigned a while ago. That is because he is fighting being sent to...that's right, the big house.

. The Land of Lincoln , where our governors make our license plates.

But you know what? 

As long as they keep providing entitlements to the population of Chicago , nothing is going to change, except the state will go broke before the country does. INTELLIGENT PEOPLE THAT THINK FOR THEMSELVES UNDERSTAND THIS!  SADLY THEY ARE THE MINORITY IN ILLINOIS AND EVERY OTHER STATE. THAT IS EXACTLY HOW THE BUMS KEEP GETTING ELECTED AND REELECTED.

"Any man who thinks he can be happy and prosperous by letting the Government take care of him; better take a closer look at how that worked out for the American Indian."

7 Dead In Florida After Negotiations With Gunman 'Just Fell Apart'................

NO GOD, NO PEACE........


7 Dead In Florida After Negotiations With Gunman 'Just Fell Apart'

HIALEAH, Fla. (AP) — A gunman holding hostages inside a South Florida apartment complex killed six people before being shot to death by a SWAT team that stormed the building early Saturday following an hours-long standoff, police said.

Sgt. Eddie Rodriguez told The Associated Press that police got a call around 6:30 p.m. EDT Friday that shots had been fired in a building with dozens of apartments in Hialeah, just a few miles north of Miami.

Although a crisis team was able to briefly establish communication with the man, Rodriguez said talks eventually "just fell apart" with the gunman, who was holding two hostages on the fifth floor. Both of them survived when officers stormed the building, fatally shooting the gunman during an exchange of gunfire.

"They made the decision to go in there and save and rescue the hostages," he said.

The dead bodies of three women and two men were found at two different apartment units inside the building, which Rodriguez said was in a "very quiet neighborhood." Another man who was walking his children into an apartment across the street also was killed. Rodriguez said it wasn't immediately clear whether the gunman took aim at him from an upper-level balcony or if he was hit by a stray bullet.

"From up there, he was able to shoot at people across the street, catching this one man who was just walking into his apartment," Rodriguez said.

Rodriguez said police were still investigating the motive and identifying the gunman and victims.

"Investigators are talking with families of the victims, neighbors, people that were present when all this began," he said. "That way we can start to piece together this huge puzzle that we're working with."

Historians will certainly consider the 2008 crisis as a warning shot before that of 2013............

Historians will certainly consider the 2008 crisis as a warning shot before that of 2013.

Friday, July 26, 2013

Just How Bad Is The US Economy?...........SEE FOR YOURSELF

Just How Bad Is The US Economy?

There appears to be a level of optimism priced into every macro-economic forecast. 

Whether this is simply mean-reverting models or a systematic need to justify an ever-increasing equity market is unclear but over the past few years the consensus GDP growth forecast has fallen by around 0.7 percentage points over the year before its final release (as hope turns to reality). 

So just how bad is the current environment? 

With the latest update of Q2 2013's GDP consensus forecast now at 1.0%, the last year has seen the consensus drop a stunning 2.0 percentage points (almost triple the average loss of hope). Of course, as we noted here, we'll make it all up in H2 2013 (even as CEO after CEO adjust down their outlooks). 

With the distribution of idiots quite concentrated at the hopeful end of the scale...

Sadly,there are still plenty of idiots out there...