We're Heading to a Cliff - 2007 déjà vu

Carl Icahn has been in the news and has made a fifteen minute video where he warns the markets, the economy and investors are heading to a cliff.

His message: "It's 2007 all over again."

Less than 15 minutes in length, pay close attention at the 11 minute mark.

Icahn describes how investors buy investments that pay "high yields" because they can't get income.  High Yield Bonds used to be called Junk bonds.

But what Icahn describes about investors is highly accurate and the problems he predicts are very real.

Icahn takes swipes at Wall Street, politicians, the Fed, and specifically names Black Rock, the largest provider of Exchange Traded Funds.

The most serious claim that investors must consider is that the markets can turn into a disaster when everyone runs for the exits like a panic inside a movie theater.

You want to get out - but you can't.  Chaos ensues and most people get stuck because they can't get out.

With investments the markets get locked and no one will buy what you want to sell.  The best price you can find is next to nothing.

This is called loss of liquidity.   Icahn says the money management guys act as if there is liquidity.  At least that's what they convince you to believe.

But, again, what happens when everyone wants to sell at the same time?

The party bus goes over the cliff.

  See www.carlicahn.com

Patrick Broderick

WSJ: The Middle-Class Squeeze

Essay by British author Charles Moore writing in the Wall Street Journal online:

If Western countries want to disprove the dire forecasts of Karl Marx, we must think creatively about how to make the middle class more prosperous and secure

...in 1982, only seven U.K. financial executives were receiving six-figure salaries.  Today, tens of thousands are (an enormous increase, even allowing for inflation).

The situation is very different for the middle-ranking civil servant, attorney, doctor, teacher or small-business owner.   

Many middle-class families now depend absolutely on the income of both parents in a way that was unusual even as late as the 1980s.

In Britain and the U.S., we are learning all over again that it is not the natural condition of the human race for children to be better off than their parents.

Such a regression, in societies that assume constant progress, is striking.

Imagine the panic if the same thing happened to life expectancy.

When things go backward in nations accustomed to middle-class stability, people start to ask questions.

What is the use of capitalism if its rewards go to the few and its risks are dumped on the many?

The rights of property do not seem so enticing if the value of what you own collapses or if that property is trapped by debt.

What is so great about globalization if ...

  ...it means that the products and services you offer are undercut by foreign competition and that millions of new people can come to your country, take your jobs and enjoy your welfare benefits?

...Marx did have an insight about the disproportionate power of the ownership of capital.

The owner of capital decides where money goes, whereas the people who sell only their labor lack that power.

This makes it hard for society to be shaped in their interests.

In recent years, that disproportion has reached destructive levels, so if we don’t want to be a Marxist society, we need to put it right.
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Link: http://www.wsj.com/articles/the-middle-class-squeeze-1443194736

Voters Fed Up with George W. Obama

Voters Are Rejecting the Last Seven Years

From Michael Barone at RealClearPolitics.com:

In this presidential cycle, voters in both parties, to the surprise of the punditocracy, are rejecting experienced political leaders.

They're willfully suspending disbelief in challengers who would have been considered laughable in earlier years.

Polls show more Republicans preferring three candidates who have never held elective office over 14 candidates who have served a combined total of 150 years as governors or in Congress.

Most Democrats are declining to favor a candidate who spent eight years in the White House and the Senate and four as secretary of state...

In polls, Democratic voters have stayed loyal to the president.

But to listen to their candidates (and maybe-candidate Joe Biden) you would think we are in our seventh year of oppression by a right-wing administration.

You don't hear much about the virtues of Obamacare or the Iran deal -- or "choice."

Most Americans hoped the first black president would improve race relations.

Now most Americans believe they have gotten worse.

And so a president who came to office with relatively little experience has managed to tarnish experience, incumbency and institutions: a fundamental transformation indeed.
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Link: http://www.realclearpolitics.com/articles/2015/09/15/voters_are_rejecting_the_last_seven_years_128091.html

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Voters Turn To Trump Because They Have No Confidence In Government

From the Federalist.com:

As we pick apart the candidates’ performances Wednesday night in the GOP primary debate, at least some Republicans must be wondering why, with so many experienced officeholders in the race, they cannot rid their party of Donald Trump.

The answer has less to do with Trump than with Americans’ trust in government, which has been on a half-century-long slide and has reached its nadir in the Obama administration.

Support for outsider GOP candidates like Trump or Ben Carson, who now polls in second place behind Trump, or the rise of Vermont Sen. Bernie Sanders among Democrats disillusioned with Hillary Clinton, is less of an endorsement of a particular candidate than a general rejection of—even rage against—the political establishment...

The end of the Bush era brought what many considered to be one major government failure after another—the subprime mortgage crisis, the financial crisis, the great recession.

The government’s failure to prevent these things, combined with responses that hampered a full economic recovery, damaged government credibility among Republicans and Democrats alike.

It’s one of the reasons Obama got elected.

But the failures, and the perception of dishonesty, continued under Obama.

In its efforts to sell the Affordable Care Act, the Obama White House made promises that simply weren’t true—if you like your plan you can keep it, families will save $2,500 a year on premiums, and so on.

Five years later, the healthcare law is still deeply unpopular with most Americans.

On foreign policy, Obama has prized a nuclear deal with Iran above all else, leaving his administration with no viable response to the Syrian civil war, ISIS, the disintegration of Iraq, and the refugee crisis now enveloping Europe.

The Iran deal, like Obamacare, is being rammed through Congress on strict party lines...
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http://thefederalist.com/2015/09/18/voters-turn-to-trump-because-they-have-no-confidence-in-government/

Savers Fed Up with 0% interest

That's 'Fed Up' with both zero level interest rates and 'Fed Up' with the Fed - the Federal Reserve whose hands control the spigots of money flow.  PB
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From Money.CNN.com:

"When you have a bank account with $10,000 to $15,000 and it gets 0% interest, it rubs you the wrong way," says [Dennis] Johnson, who is an accountant living in the Miami-Ft. Lauderdale area.

America's central bank -- the Federal Reserve -- has basically kept rates at 0% since the depths of the financial crisis in 2008.

Hopes that the Fed would raise rates ever so slightly on Thursday were dashed again.

It really upsets savers like Ric Fiano of Savannah, Georgia.

"I look at these banks recording record profits -- billions every quarter -- and they are so miserly they can't even pay 0.5% on a high yield account," says Fiano, 61, who runs a psychology practice.

Fiano and Johnson think it's time the Fed raised interest rates so people who save can earn some money too.

The average return on a savings account in the United States is a mere 0.1%, according to Bankrate.com.

That's a big change from 2006 when savers could get up to a 5% return at the bank...
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Link: http://money.cnn.com/2015/09/18/investing/savings-interest-rate-federal-reserve/index.html

Gas Prices: 2 Buck Chuck level

From Detroitgasprices.com:

Gas at the pump has broken $2 again.   There is one station at $3.09 - all others reported on the website are under three dollars.

Here's a screen shot from a few moments ago:

 

Link: http://www.detroitgasprices.com/

U.S. Catholic Church faces financial strain

How can this be?

All those smart Catholic social justice members with college degrees can certainly figure out how to solve financial problems for a 2,000 year old institution.

What's the problem? 

They know how to get Democrats elected.

Even more, the church now has a Jesuit for a Pope.

So, with all these smart people in the pews and at the pulpits and on the throne, why isn't this fixed already?    PB
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From Reuters.com:

When Pope Francis makes his first visit to the United States this month he will face a national Catholic Church whose finances are staggering under a shrinking membership and huge payouts to sex-abuse victims, threatening to undermine its social influence.

With the Church still absorbing the roughly $3 billion cost of a clergy sex abuse scandal, another financial crisis is looming -- a potentially crippling shortfall in funding the pensions of its ageing priests.

A Reuters review of U.S. Catholic financial disclosures shows the pension funding shortfall in 2014 likely approached $2 billion, with much of that coming due in the next five years as thousands of priests retire...

The financial woes and the destabilizing effect they could have on the Church's social and educational work will be a constant backdrop to the pope's Sept 22-27 visit to Washington, New York and Philadelphia...
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Link: http://www.reuters.com/article/2015/09/08/us-pope-usa-finances-insight-idUSKCN0R80B020150908

PIMCO Bleeding Without Bill Gross

From Fox Business:

Officials at mutual fund giant  Pacific Investment Management Co., are discussing layoffs amid a sharp decline in assets over the past year that followed the ouster of co-founder Bill Gross, the FOX Business Network has learned.

Pimco, based in Newport Beach CA., has lost nearly 25% of its total assets since March of 2014, and investor withdrawals continued following the September 2014 departure of Gross, who also ran the firm’s vaunted Total Return Fund (PTTRX)—known for its massive size and a history of outsized returns that abated during Gross’s last year at the firm...

...as of August 31, the total return fund reported assets under management of $98.1 billion—the first time the fund has fallen below $100 billion in assets since 2007.

Since Gross left the company, overall assets have fallen nearly 21% to $1.5 trillion...
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Link: http://www.foxbusiness.com/investing/2015/09/08/pimco-bleeding-without-bill-gross-layoffs-loom/