Dumpty Humpty

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by David Glenn Cox

Since the big crash last year, I’ve been keeping a close eye on the
stock market. Not that I have any money to invest, but I like reading
the financial news because sometimes they tell more of the truth than
they intend to. It is kind of like reading the right wing playbook
before they get out on the field.

The funny thing is, these button-down, crisp-collar folks find
themselves in a mess of trouble. Once burned, twice shy has become the
motto for many of their customers, and no customers means no
commissions. Or in the words of Mel Brooks, "We’re going to lose our
phony baloney jobs."

So, the land of spreadsheets and presentations has taken on an air
of the Brady Bunch. The three favorite words on the Bloomberg website
are maybe, probably and might.

"Greg, how was school today?"

"Gee, Dad, I’m probably going to be the captain of the football team next year, and I think I got a B on my history test."

"Now, Greg, do you think you got a B, or do you know that you got a B?"

"I’m not sure, Dad, but I might have!"

Sept. 28 (Bloomberg) -- Holiday retail sales in the U.S. may rise 1 percent this year as consumer confidence improves.

Sept. 25 (Bloomberg) -- Orders for durable goods probably rose in
August for the fourth time in the last five months, a sign companies
are gaining confidence the U.S. is emerging from the worst recession
since the 1930s.

Sept. 25 (Bloomberg) -- Demand for U.S durable unexpectedly fell in
August and sales of new homes rose less than forecast, restraining the
pace of the economic recovery.

Sept. 24 (Bloomberg) -- Sales of existing U.S. homes probably
climbed in August to the highest level in two years, another sign the
real-estate collapse that triggered the global recession is abating,
economists said before a report today.

Sept. 24 (Bloomberg) -- Sales of existing U.S. homes unexpectedly
fell last month for the first time since March, signaling the housing
recovery will be slow to gain speed.

They close their eyes and wish, wish, wish, but it just won’t get
better. So, let's play a little game called the Jelly Bean game. Say
you worked as a checker at Wal-Mart, and now that you’ve reached age
eighty you’ve decided to retire and enter the market and invest your
life savings. You’ve heard that there are big returns to be earned in
the Jelly Bean market. So you tell your broker to go ahead and invest
your whole ten bucks in Jelly Beans. Jelly Beans are selling at ten for
a dollar, so you are now the proud owner of one hundred Jelly Beans.

A year goes by and you decide that you want to cash in your Jelly
Beans and find a warmer overpass down south to spend your retirement
years under. You call your broker. "Good news," he says. "The Jelly
Bean market is up 10%; you’re now worth one hundred and ten Jelly
Beans!" After taxes and commissions you end up with a hundred and six
Jelly Beans.

You get settled into a cozy box under an overpass in Miami and you
decide, "You know, that Jelly Bean market was pretty sweet. I’m going
to try that again."

This time the broker says, "You can only buy nine Jelly Beans for a dollar now."

"Wow, the Jelly Bean market is going crazy!"

"No," he answers matter of factly, "the value of the dollar has declined; the value of the Jelly Bean is the same."

"But just last year," you explain, "I made six Beans in the Jelly Bean market."

"What you made a profit on was fear, not Jelly Beans. Investors were
dumping the dollar for anything not likely to lose as much value as the
dollar. So Jelly Beans were a safer investment; this year you’d need
$11.11 to buy a hundred Jelly Beans. How much did you say you made last
year?"

"Well, I made ten Beans, but after taxes and commissions, only six."

So then, you invested $10.00, you got back $11.00, and then paid tax
and commission to earn .60 cents. Actually, you really lost money there
because the Jelly Beans are worth more today than the dollars they paid
you in.

You see, it is becoming difficult to find suckers er, customers for
the stock market. All the Feds' horses and all the Treasurys' men can’t
put Dumpty Humpty back together again. Two years ago you could
purchase, with one US dollar, 119 Japanese yen. Today that dollar will
only buy you 89.5 Japanese yen. So, in dollar-denominated stocks
breaking even or small increases won’t cut it for foreign investors.

The price of gasoline has risen while demand has fallen, but how
could that be? The price of a barrel of oil is sold on world markets in
dollars. As the dollar declines in value, the price goes up. But it
isn’t that the oil is worth more, it's that the dollar is worth less.

They trumpet good news and mumble bad. For example, "Sales of
existing U.S. homes probably climbed in August to the highest level in
two years," except that the real estate home market is off more than
30% from two years ago. Almost half of these home sales are foreclosure
sales. If you factor those in, the market is off by two thirds and yet
the headline reads, "highest level in two years."

Sept. 30 (Bloomberg) – Best Buy the world’s largest electronics
retailer, plans to hire more seasonal holiday workers this year to help
meet demand for Internet-connected flat-panel televisions and mobile
phones.

Now, remember that last Christmas was the worst on record since
World War II. Best Buy is saying in effect, "This year when we fly the
Hindenburg to Lakehurst, it’s going to be 1% better than last time!"
How many workers does Best Buy intend to hire? They won’t say, but it
will probably be more than last year. It might be a lot more! It may be
just a few more and probably not a lot more.

The billions spent to bail out the banks were supposed to quickly be
returned so that what is happening wouldn’t happen. Your home is worth
less, your paycheck is worth less, and prices are rising. That’s why
the Treasury Secretary recommends that you save more money, trying to
bleed the money out of the economy and back into the banks so the banks
can give it back to the Fed to support the dollar.

There was a time when America had a trade surplus. Most goods were
manufactured in the United States and it was easier to control the
value of the dollar. But now with a trade deficit we must pay those
bills to creditors overseas with our currency. So we send more money
out of our economy than we take back in. This means that we must print
more money to cover what was lost and what was sent overseas, plus two
wars and the bank bailouts and the interest on the deficit.

These things combine to make foreign investors wary of the American
markets. It is fair to say that most of this is not Barack Obama’s
fault. Most of this, but trusting in Wall Street to save itself is to
believe that they can put Dumpty Humpty back together again.

Sept. 30 (Bloomberg) – Kenneth R. Feinberg, the Treasury
Department’s special master on compensation, said he is reluctant to
impose "clawbacks" to recoup pay from executives when their company’s
financial performance falters.

"I have an assumption in my mind that it’s not a great idea to
recover money already paid and maybe already spent and already taxed,"
Feinberg said today via video conference at a meeting of the Chicago
Bar Association. "I’m wary of exercising that authority in too many
cases."

So, the tax cuts stay in place and they won’t use clawbacks. Only
10% of homeowners in trouble are being helped as unemployment continues
to rise. Kroger reported that second quarter net income dropped 8%. It
might be because people are spending money on things other than food.
Maybe it’s just people being more frugal shoppers, but it’s probably
because they are running out of money!