The Morning After: Jon Stewart Sticks Up for Invisible Man Ron Paul

Media Ignores Ron Paul So Blatantly, Even Time Magazine Recognizes It; "Why?" is Easy to Explain

The mainstream media continues to ignore Republican candidate Ron Paul to the point of absurdity, favoring candidates that no one has even heard of, such as John Huntman.

For an incredibly humorous take, please watch Jon Stewart give a well-deserved slap in the face to Fox News, and media in general.



Link if above video does not play: http://www.thedailyshow.com/watch/mon-august-15-2011/indecision-2012---corn-polled-edition---ron-paul---the-top-tier

Time Magazine Chimes In

Time Magazine chimes in with their take in The Morning After: Jon Stewart Sticks Up for Invisible Man Ron Paul

In a way, criticizing the political media for imbalanced coverage of the Iowa Straw Poll is like criticizing the sports media for imbalanced coverage of the Lingerie Bowl. It's a nonbinding, festival-like event in which candidates essentially buy votes (or at least buy entrance, food and entertainment for their voters), so arguably the most misleading thing the media does in covering it is, well, covering it at all. Still, if one is going to pay rapt attention to an unpredictive electoral stunt, shouldn't you at least pay attention to the leading candidates whose success the stunt unpredicts?

That didn't happen for Ron Paul​, who came within a percentage point of beating Michele Bachmann in Iowa, and yet, as this Daily Show segment lays out, was ignored even after the fact in listings of "top-tier candidates," being put behind peers who he beat or who didn't compete.

The sheer, smug dismissiveness with which the political press treat the libertarian Congressman in these clips is really something. And it's yet another example of political media winnowing the pack in advance by deciding who is a "serious" candidate and who isn't—in this case, seemingly, by deciding that Paul's beliefs are too far out there or, maybe more likely, simply don't easily fit the left-right narrative.

I'm not, by the way, making the argument that Paul would have a serious shot at the GOP nomination in any case. That hardly matters, though; a candidate with obvious significant support can still have a serious effect on the race, and its ideas, and that's news. Or it should be, if the horserace handicappers didn't insist on deciding their news angles in advance.

Time Magazine missed one critical aspect in its coverage of the straw poll: It was Michele Bachmann who bought her way to the top, not Ron Paul.

Paul a Significant Factor

Regardless of what one thinks of Ron Paul's chances, Time Magazine hits the nail on the head with analysis worth repeating: "A candidate with obvious significant support can still have a serious effect on the race, and its ideas, and that's news. Or it should be, if the horserace handicappers didn't insist on deciding their news angles in advance."

The media, especially Fox News is biased against Ron Paul.

Why?

Fox news like warmongers. Ron Paul wants to end wars and cut the defense budget. Republican hypocrites want military spending far in excess of what is needed, and they don't want to raise taxes for it.

Yes, we need to cut entitlements. We also need to cut military spending, not by a little, by a lot. Finally, we need structural Republicans should be sounding the horn on, but mysteriously are not.

Simple Facts of the Matter

1. The US can no longer afford to be the world's policeman.
2. US military spending equals the next 9 countries combined.
3. US military spending nearly equals the whole rest of the world combined.

Those numbers do not include military spending hidden in other buckets.

Blast of New York Times and Liberal Media

I took on the "Liberal Media" discussing needed structural reforms in a blast at the New York Times called Growing Gloom for States and Cities; Who is to Blame? What About Solutions?

I propose 4 badly-needed reforms as follows

Proposed Reforms

1. Scrap Davis-Bacon and all prevailing wages laws that force up costs of construction and other projects at the city, county, state and federal level.


2. End Collective Bargaining of public unions. Governor Scott Walker in Wisconsin shows the dramatic results that can happen if this is done. School districts that had budget deficits hugely in the read, saw them immediately go into the green, and not even for reasons that one might think. I wrote about it in Union-Busting is a "Godsend"; Elimination of Collective Bargaining is the Single Best Thing one Can do for School Kids


3. Pass national right-to-work laws. Again this will help cash-strapped cities, counties, and states that have to deal with union-mandated pricing instead of competitive pricing. The goal of government should be to provide the most benefit for the least cost. The goal of unions is to provide as little work as possible for the most cost. It's time we end that model.


4. Immediately kill defined benefit plans for government workers and accept the idea that promised benefits will be reduced voluntarily or via bankruptcy.
   

Why Republicans failed to hammer home those issues when they had a chance in budgets negotiations is a mystery (except of course for number 4 which would reduce their own benefits).

Why Fox News ignores Ron Paul is not a mystery. Fox News supports warmongers and is purposely attempting to ignore, if not outright discredit those with other viewpoints. Anyone who plays the video can come to no other logical conclusion.

I support Paul's effort to reduce military spending substantially. Please see Defense Industry Bribes and Legislative Whores for reasons we overspend.

I failed to mention in that article that Union Bribes and Legislative Whores is equally applicable. The result is the worst-of-both-worlds compromise. The US spends too much on defense and too much on entitlements.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Finland and Greece agree on loan guarantees

Amazingly Absurd Loan "Guarantee" Arrangement Between Finland and Greece

The idiocy of the day comes from Finnish Finance Minister Jutta Urpilainen regarding loan guarantees for the bailout of Greece.

Please consider Finland and Greece agree on loan guarantees

Finance Minister Jutta Urpilainen said in a Tuesday press conference that Finland and Greece have reached common ground on loan guarantees demanded by Finland for its participation in the Greek bailout package. The agreement still requires approval from other eurozone states.

The Finnish and Greek Finance Ministries have agreed that the Greek state will transfer a sum to the Finnish state, which, together with interest on that sum, will serve to guarantee Finland's share in the bailout loan to the troubled southern state.

The guarantee sum would, however, be only a fraction of the money that Finland is contributing to the rescue package.

Urpilainen has not divulged a concrete sum, because that is still being negotiated.

Got That?

If not, let me explain by an two-point analogy.

• You agree to give a homeless drug addict on skid row $10.
• In return, he immediately hands back to you $1 as a "guarantee" he will pay back the other $9, with interest, at an agreed upon rate.

Clearly there is no guarantee of anything. Rather the initial effective loan amount is reduced by the amount of the alleged guarantee.

Urpilainen is looking for approval of her nonsensical proposal from the rest of Eurozone states. I hope they have enough sense to laugh in her face. However, the proposal is so stupid, EU officials just might seriously debate it

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Miami Declares Financial State of Emergency

Miami Declares Financial State of Emergency, Gives Unions Two Weeks to Agree to Cuts; California Revenue $541 Million Below July Forecast

The "good news" keeps right on rolling. As such, I keep wondering which major US city will be the first to declare bankruptcy. Please consider candidate Miami.

Miami Declares Financial State of Emergency

Bloomberg reports Miami Declares ‘Financial Urgency’ as It Moves to Cut Worker Pay, Benefits

Miami, facing a $61 million fiscal 2012 deficit, declared a state of “financial urgency” for a second straight year, moving toward wage and benefit cuts.

The declaration gives unions for municipal workers two weeks to agree to contracts for the year that starts in October or be subject to actions imposed by the City Commission. Workers including police and firefighters absorbed about $80 million in reduced pay, health insurance and pensions in fiscal 2011.

“In order to balance the budget, sacrifices have to be made by everyone,” Pat Santangelo, a spokesman for Mayor Tomas Regalado, said today by telephone. The city is the state’s second-largest by population, after Jacksonville.

Miami joins at least two Florida cities that also have invoked the fiscal statute, including one that may force reductions on union workers. Hollywood, which made a declaration in May, is set to cut salaries, including for police and firefighters, as much as 12.5 percent. State law gives cities special powers when they declare financial urgency.

Standard & Poor’s cut Miami’s general-obligation bond rating two steps to BBB, the second-lowest investment grade, on June 28 and gave it a negative outlook, partly because of lawsuits from city unions stemming from cuts imposed in August 2010. The legal actions “expose the city to significant liabilities at a time when its available reserves and liquidity are low,” S&P said in a report.

Bankruptcy the Best Solution for Miami

It is time to end these piecemeal negotiations that should not even be happening in the first place. A bankruptcy agreement could dissolve the unions and all their agreements.

Miami is dire straits because of unions, and unions, not taxpayers should suffer the consequences. Bankruptcy is the best solution for Miami.

California Revenue $541 Million Below July Forecast

More budget cuts are coming to California where Revenue Fell $541 Million Below July Forecast.

California revenue fell short of budget estimates by $541 million or 9.2 percent in July, the first month of the 2012 fiscal year, the state Finance Department reported.

The data was similar to figures from Controller John Chiang, who said Aug. 9 that cash receipts for the month missed the forecast by $538.8 million. Chiang said the shortfall may mean further budget cuts are needed.

The next round of budget cuts will be as contentious as the last round, only the amounts will be smaller. Once again I suggest cutting union wages and benefits, ending defined benefit pension plans, scrapping prevailing wage laws, ending collective bargaining arrangements, and making California a right-to-work state. Those things will all do wonders for containing costs.

Note that just a few months ago the state was bragging about beating revenue estimates.

What happened?

Recession, that's what. The global economy is headed straight for one, if not in one already. Republicans in California need to get some real concessions before agreeing to tax hikes. I suggest an end to collective bargaining and passage of right-to-work laws.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Merkel, Sarkozy Shun Euro Bonds

Merkel, Sarkozy Reject Euro Bonds and Expansion of Rescue Fund; What Does it Mean? Middle of the End for Merkel

After all the debate and hype, with many clamoring for a European nanny state complete with common bonds, it has come down to this, at least for now: Merkel, Sarkozy Shun Euro Bonds

German Chancellor Angela Merkel and French President Nicolas Sarkozy rejected an expansion of the 440 billion-euro ($633 billion) rescue fund and rebuffed calls for joint euro borrowing to end the debt crisis, saying greater economic integration was needed first.

The leaders of Europe’s two biggest economies agreed to press for closer euro-area cooperation, tougher deficit rules and a harmonization of their corporate tax rates. A plan to resubmit a financial-transaction tax, which the European Union rejected in 2010, sent stocks lower in New York trading.

What Does it Mean?

For starters it means Angela Merkel no longer has capability to ram her ideas through the German Bundestag, the national parliament of Germany.

It also means that even if she could have, the measure would have failed.

The Dutch prime minister essentially rejected Eurobonds, and it is likely Finland would have as well.

More importantly, Germany's Finance Minister Wolfgang Schäuble emphatically stated "I rule out eurobonds for as long as member states conduct their own financial policies and we need different rates of interest in order that there are possible incentives and sanctions to enforce fiscal solidity."

Given that it takes a unanimous approval from all Eurozone nations to enact Eurobonds, Merkel and Sarkozy both realized political support was simply not present.

Middle of the End for Merkel

This is the "middle of the end" for Merkel. She has exhausted all of her political capital fighting a battle that is far bigger than she is. Merkel will not survive this mess.

Sadly, Merkel had it correct in the beginning, initially insisting on haircuts on bondholders. She gave in to the "no haircuts" fantasy under pressure from ECB president Jean-Claude-Trichet and French president Nicolas Sarkozy.

I said at the time it was a fatal Merkel mistake. Since then, Greece defaulted anyway and there are haircuts on bonds. More haircuts are coming.

Rescue Fund Insufficient

A "rescue fund of $633 billion is insufficient. All it takes to exhaust that fund are renewed problems in Italy or Spain, or increasing problems in France. All are likely. Expect more talks of EuroBonds in the not too distant future.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Value Traps and Road to Ruin

Earnings Collapse Coming Up; Don't Worry Companies Will Still "Beat the Street"; Value Traps and Road to Ruin

Of all the inept reasons to be bullish about equities, "beat the street" hype is near the top of the list. The fact is, in aggregate, ever since Reg-FD (full disclosure) companies always beat the street.

In Surprising Optimism in Face of Weekly Global Equity Carnage; Foolish Comments of the Day; "Beat the Street" Bullsweet I noted nearly every quarter, even in 2008 and 2009 the majority of firms beat estimates. Here is the way the process works:

• Corporations give analysts "tips" regarding profit expectations.
• Those profit expectations are purposely low.
• Wall Street analysts lower estimates, if necessary, as the quarter progresses such that corporations can "beat the street".
• If corporations are going to miss and need an extra penny, they change tax assumption or make other "one time" adjustments as necessary.
  
• Corporations beat the street by a penny with "pro-forma" (after adjustment) reporting.

Understandings Earnings Estimates

A couple of readers asked for a historic chart of "beat the street" metrics

I just happen to have one, with thanks to Understandings Earnings Estimates by James Bianco on the Big Picture Blog.

Aggregate S&P 500 earnings have beaten expectations for 50 straight quarters, including the current quarter. As we explained last July:

The chart below highlights the inception of SEC regulation “FD” (aka, Fair Disclosure). Before FD roughly 50% of companies beat expectations, as would be the case if analysts were trying to get it right. Now that companies have to disclose to all at the same time, we believe their investor relations departments are masters at “guiding” analysts just below actual earnings.

This way the companies “beat” expectations and get the positive press and accolades that come with it. Further, it seems that everyone is happy with this apparent gaming of the system. This is why we believe the percentage of companies that beat expectations is a meaningless statistic. The game is designed for this to happen, even when earnings are collapsing (during 2008′s epic collapse in earnings more than 50% of companies still beat expectations).

Percentage of Companies that "Beat the Street"



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The last time companies failed to "beat the street" was third quarter of 1998. At the earnings trough in third quarter of 2008, 58% of companies in the S&P 500 still managed to "beat the street".

Sentiment, Not Earnings Key to Returns

If this "beat the street" talk was not pathetic enough in and of itself, the fact remains that sentiment, not earnings, is the key to stock market performance.

I discussed this concept at length in a pair of posts earlier this year.

• Negative Annualized Stock Market Returns for the Next 10 Years or Longer? It's Far More Likely Than You Think


• Anatomy of Bubbles; Negative Returns for a Decade Revisited; Is Gold in a Bubble?

Please read those posts if you have not yet had a chance to do so.

Value Traps

On June 20, in Value Traps Galore (Including Financials and Berkshire); Dead Money for a Decade I noted Berkshire, Citigroup, and Bank of America were "value traps".

At that time Citigroup had a price-to-book valuation of .64, and Bank of America a price-to-book valuation of .50.

Citigroup Price-to-Book valuation is now .52 and Bank of America Price-to-Book Valuation has fallen to .38.

Those who thought Bank of America was cheap at book value, now find themselves 62% in the hole. I suspect they may still be in the hole 10 years from now.

Stocks that look cheap can always look cheaper.

Road to Ruin

John Hussman repeats his recession and valuation warnings in Two One-Way Lanes on the Road to Ruin

It is important to recognize that the S&P 500 is presently only about 13% below its April peak, and the word "only" deserves emphasis. Our valuation impressions align fairly well with those of Jeremy Grantham at GMO, who puts fair value for the S&P 500 "no higher than 950" - a level that we would still associate with prospective 10-year total returns of only about 8% annually. I would consider investors to be very fortunate if the market does not substantially breach that level in the coming 12-18 months.

Wall Street continues its servile attachment to forward operating earnings, seemingly unconscious that the perceived "norms" for the resulting P/E are artifacts of a bubble period. The fact is that historical periods of overvaluation and poor subsequent long-term returns correspond to forward operating P/E multiples anywhere above 12, while secular buying opportunities such as 1950, 1974 and 1982 map to forward operating multiples of only 5 or 6 (based on the strong correlation but downward-biased level of forward operating P/E ratios, when compared with multiples based on normalized earnings - see Chutes and Ladders for a graphic).

Without question, one of the notions buoying Wall Street optimism here is the hope that the Fed will pull another rabbit out of its hat by initiating QE3. That's a nice sentiment, but it does overlook one minor detail. QE2 didn't work.

Actually, that's not quite fair. The Federal Reserve was indeed successful at provoking a speculative frenzy in the financial markets, which has now been completely wiped out. The Fed was also successful in leveraging its balance sheet by more than 55-to-1 (more than Bear Stearns, Lehman, Fannie Mae, Freddie Mac, or even Long-Term Capital Management ever achieved), and driving the monetary base to more than 18 cents for every dollar of GDP. The Fed was indeed successful in provoking a wave of commodity hoarding that affected global supplies and injured the poorest of the poor - particularly in developing countries. The Fed was successful in setting off a very predictable decline in the value of the U.S. dollar. The Fed was successful in punishing savers and the risk averse, and driving investors to reach for yield in risky investments that they would normally avoid were it not for the absence of yield. The Fed was successful in provoking those with strong balance sheets to pay down existing higher interest-rate debt, and in creating an incentive for those with weak balance sheets to issue more of it at low rates, resulting in a simultaneous deterioration of credit quality and compensation for risk in the financial system.

Hussman's article is well worth a read in entirety.

In terms of expected annualized returns, I think Hussman is a bit too optimistic over the long-term even though I endorse his intermediate-term philosophy "I would consider investors to be very fortunate if the market does not substantially breach [S&P 950] in the coming 12-18 months."

Speaking of optimistic, way too optimistic ...

Strategists Stick With 17% S&P 500 Gains Based on Earnings

I am amused at the amazing year-end projections of strategists as noted in Strategists Sticking With 17% S&P 500 Gain on Higher Profit

Wall Street has never been more sure that the Standard & Poor’s 500 Index will rally in 2011, even after speculation the U.S. economy is heading for a recession prompted the biggest plunge since the bull market began.

Strategists say earnings growth will fuel gains. S&P 500 profit will rise 18 percent in 2011 and 14 percent in 2012, according to the average per-share analyst estimates in a Bloomberg survey. More than 75 percent of corporations in the index have exceeded earnings estimates for the second quarter, with total income topping projections by 5.2 percent.

Year-End Estimates

• Tobias Levkovich, Citigroup Inc. (C)’s chief U.S. equity strategist in New York, forecasts the S&P 500 will end the year at 1,400.
• Brian Belski, the New York-based chief investment strategist at Oppenheimer & Co., estimates the S&P 500 will reach 1,325.
• Barry Knapp, the New York-based chief U.S. equity strategist at Barclays year-end projection is 1,450.
• Credit Suisse Group AG (CSGN) and HSBC Holdings Plc (HSBA) advised investors to buy equities today. Andrew Garthwaite, a London- based strategist at Credit Suisse, reiterated an “overweight” recommendation on stocks even as he cut his year-end forecast for the S&P 500 to 1,350.

Corporate Earnings Set to Plunge

Nearly anything is conceivable, but I think fiscal and monetary stimulus has run its course and earnings will plunge.

The Eurozone is heading for a recession or in one. China is slowing. The UK is in recession or headed for one, Australia and Canada, same story.

In spite of denial by analysts, the US is on a recession track if not in one.

Moreover, judging from the unemployment rate, corporations are running pretty lean here. If profits plunge, it will be tough to cut a lot of employees to make up for revenue shortfalls.

Implications are severe either way. One affects job, the other earnings. The US can easily take a hit both ways.

Telling Action in Bank Shares

Take a look at the action in bank shares. They tell the story of excess leverage and capital shortfalls. On July 18, 2011 Bank of America Clobbered on $50 Billion Capital Shortfall Related to Mortgage Losses

Capital shortfalls are not unique to Bank of America. For the current sorry state of affairs of the banking system, please see BNP Paribas leveraged 27:1; Société Générale Leveraged 50:1; Global Financial System is Bankrupt.

With this backdrop, I fail to see how earnings can't plunge. But hey, look on the bright side: companies will still "beat the street". They always do.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Congressional Job Approval Ties Historic Low of 13%

Congressional Approval 13%;Theory of Elections and Overcoming Huge Political Bureaucracies; What the Hell Does it take to Get Real Change?

The most recent Gallup poll shows Congressional Job Approval Ties Historic Low of 13%

Americans' evaluation of the job Congress is doing is the worst Gallup has ever measured, with 13% approving, tying the all-time low measured in December 2010. Disapproval of Congress is at 84%, a percentage point higher than last December's previous high rating.



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These results are based on an Aug. 11-14 Gallup poll, which includes the first update on Congress' job approval rating since the government reached agreement on a deal to raise the debt ceiling after contentious and protracted negotiations between President Obama and congressional leaders

Implications

Americans have usually not held Congress in high regard, but currently they have a more negative view of the institution than any other time Gallup has measured. Although Congress agreed to raise the debt ceiling, the issue is far from settled, as a special committee of 12 House and Senate members will work toward an agreement to make significant cuts in federal spending over the next few months to avoid mandatory cuts in defense and entitlement programs.

Though the results of that committee's work are not likely to dramatically transform the way Americans view Congress, they could determine whether the institution's ratings remain in this new lower range or show some improvement.

If Congress' ratings do not improve much before the November 2012 elections, its membership could be in line for another shake-up.

Obama's Approval Rating at 39%

Gallup also reports President Obama's Job Approval Rating has declined in recent days, reaching a low of 39% in Aug. 11-13 Gallup Daily tracking.



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What the Hell Does it take to Get Real Change?

In response to Amazingly Absurd Loan "Guarantee" Arrangement Between Finland and Greece my friend "Fedwatcher" commented ...

"Looks like the Finns need another election. As it was in Iceland, it took two elections to beat the banker politicians over the head with a two by four. The bigger the nation state, the more elections are required. I think Finland needs two more elections. We need four to eight."

Theory of Elections and Overcoming Huge Political Bureaucracies

Adding to Fedwatcher's observation, I propose: “The bigger the nation state, the more elections or global forces it takes to change direction, no matter how misguided current direction is.”

A bond market revolt, global currency crisis, or another major world war might suffice as well.

If the bond market or global currency crisis does not force change in misguided and unsustainable US spending and warmongering (actually I think it will - timing is unknown - but faster than 4 elections), then eventually US citizens may act on their own to stop fighting World War II, to end the US' role as world's policeman and pandering to various special interest groups (only to be replaced by pandering to different special interests of course).

Eventually boomers and those still fighting World War II will be swept under the rug by increasing numbers of Generation X, Y, and Millennials who will have had enough of the "pampered generation", bank bailouts, public unions, wars, global police actions, and other monstrosities.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Gold market is a ‘bubble poised to burst'

Wells Fargo Says "Gold Bubble Poised to Burst", Mish Says "Wells Fargo Bubble Poised to Burst"

Wells Fargo analysts proclaim Gold market is a ‘bubble poised to burst'.

Speculative demand from investors has pushed the gold market into a “bubble that is poised to burst” after prices surged to a record this year, Wells Fargo & Co. said.

“We have seen the economic damage” of past bubbles and “feel compelled to ring the warning bells,” Wells Fargo analysts led by Dean Junkans said in a report dated yesterday and e-mailed today.

Economic Damage Nonsense Regarding Gold

If gold fell to $1000 in the next 12 months, pray tell what economic damage would it cause? The answer is none.

The irony is that gold is rising on account of economic damage, currency debasement, and the simple fact that gold is the only currency with no liabilities. The second irony is if gold fell that much, it would likely be an indication that some of the global financial problems were finally fixed.

Those looking for bubbles would be advised to consider shares of Wells Fargo.

WFC - Wells Fargo Weekly Chart



I suspect there will be a retest of that March 2009 low if and when Wells Fargo has to mark-to-market its balance sheet chock full of piss-poor real estate loans and other assets. Then again, the market may take things into its own hands first.

Furthermore, were it not for taxpayer bailouts and extraordinary support from the Fed and Congress, Wells Fargo may have gone to zero in 2009.

Regardless, Wells Fargo is a far better short than gold given the US economic backdrop, weakening global economy, and the competitive currency debasement practices of central bankers throughout the world.

By the way, that is an opinion, not a recommendation.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com