The economy is not dead yet! The Commerce Department
reported that the U.S. glowed under the warm light created
by 3.3 percent real economic growth in the second quarter.
This new reading almost doubles the original tally of 1.9
percent- which provided barely enough wattage needed
to read the fine print on mortgage, credit card and auto
loan statements.

According to Marketwatch.com, the jolt to the economy’s vital
signs stemmed from robust exports and hefty inventory
accumulation. (Uncle Sam’s stimulus package- complements of
China and various oil exporting autocracies- helped as well.)

The American economy, once the object of envy and grudging
admiration, has been struggling since the fourth quarter of 2007.
Real economic growth over the past year reads an anemic,
European-style 2.2 percent. This marks a drastic slowdown from
the credit-fueled growth in the second and third quarters of last
year (the website Data360 has a nice graph of recent
GDP activity).

Marketwatch also surveyed practitioners of the dismal science
(a.k.a. economists). It seems that they underestimated the
strength of the U.S. economy in the second quarter, but they
are still very pessimistic about the second half of this year.
They expect growth to skid toward 2 percent for the current
quarter and to practically vanish (0.3 percent is the latest
estimate) as the year comes to a close.

I find that I agree with this dour assessment. The easy
money that created the fire to keep American growth sizzling
is now a pile of smoldering embers. The banks are not through
confessing their misdeeds, consumers are beyond tapped out,
and the housing market is limping toward the valley of shame
(where it will rent a modest dwelling). The recent rise in the
dollar will hit exports in the current quarter and, last but
certainly not least, Uncle Sammy will not be borrowing
money to send his spoiled nieces and nephews to the mall
anytime soon.

©Greg Strid 2008

The market giveth on Friday and taketh away on Monday.
It seems that panic was in vogue today as more bad news
surfaced concerning the lousy state of the nation’s financial
institutions.

The Dow Jones forfeited just over 240 points, and the
broader Standard & Poor’s 500 index sank a hair more than
25 points. The Nasdaq felt the pain as well, shedding almost
50 points. In percentage terms, each index lost approximately
2 percent to start the week on a less than glorious note.

Before the open, the Financial Times ran a story concerning
a South Korean bank regulator’s hesitation toward the Korea
Development Bank’s idea of purchasing Lehman Brothers,
the highly distressed U.S. brokerage company. The regulator
was critical of using state money to buy such a heavily
burdened institution. (He recommended the use of private
funds instead.) This helped send the shares of Lehman Brothers
down by 4 percent.

Then, an hour after gambling began, Marketwatch reported that
Credit Suisse Group analysts took a swipe at American International
Group when they raised the possibility that the struggling
insurance giant could take a cold third quarter earnings bath due to
large write-downs of their deteriorating derivatives portfolio.
AIG shares swooned by 5.5 percent as a result.

Funny how manic this market is these days. Just Friday
investors were rushing out of the gates, sopping up the
soothing remarks of Fed chairman Bernanke, and bidding up
the shares of financial stocks as if happy days were really, truly
here again. With Monday’s unpleasant news, the very same
investors are blue once more.

It seems that until all of the red ink is reported, the share
prices of America’s financial companies will be riding the
headlines up and down. I, for one, counsel patience- and
if you register a nice gain punting on these stocks, cash it
in for a good night’s sleep.

©Greg Strid 2008

According to a recent article in the New York Times, Mayor
Bloomberg announced a bold plan that would seek to
harness the wind power that races through New York City’s
canyons of skyscrapers and over its many bridges and miles
of open water.

His goal, mentioned in the article, is to reduce the city’s
dependence on country’s rickety power grid. The Mayor’s
announcement was made at an alternative energy
conference in Las Vegas just a few days ago. It was sweeping
in scope and light on details. But, how can one lay out the fine
print on such a grand plan that will take at least a decade to
implement? As for possible wind power projects, he mentioned
the possibility of constructing giant wind farms many miles out
in the depths of the Atlantic.

The Times also interviewed Rohit Aggarwala, who is director of
the Office of Long-Term Planning and Sustainability. According
to Aggarwala, the turbines for the city’s buildings would be
smaller and less noticeable. The Times said the city is asking
for help in this daunting task. A formal, nation-wide request
was made Tuesday asking for proposals to create renewable
power (wind-, solar- and water-based) sources in New York City.

I believe that concerning the wind power, small, less intrusive
devices are the best solution to providing a meaningful source
of renewable energy for New York City. Large wind farms, like
the ones being built with reckless abandon in upstate New York,
require years of legal battles, mountains of permits and they
cost upwards of a million dollars each to construct. Smaller
turbines can be installed at a lower cost and with less hassle.
Although they produce less electricity, many more can be
installed to compensate for this shortfall in power creation.

There are several companies that build efficient, affordable
and ascetically pleasing wind turbines. Aerotecture of Chicago,
AeroVironment of Monrovia, California and Mariah Power,
located in Reno, Nevada all have wind power turbines that
could probably suit the city’s needs right now. Wind power
is taking off in Chicago, and there is no reason that New
York City cannot make up for lost ground.

The best wind-based renewable power solution lies in placing
large numbers of smaller turbines on the city’s hundreds of
skyscrapers and numerous bridges, not in building expensive
boondoggles twenty miles out to sea.

©Greg Strid 2008

Oh Vladimir, why are you causing such confusion and
panic in the halls of western capitals- especially
Washington D.C.? His show of force against the tiny
nation of Georgia is ruining the vacations of many
presidents and prime ministers. “How rude of him,
what a nasty former spy he is!”, they are saying from
the South of France to the brush fields of Texas.

Mr. Putin is still ruling Russia. His new position as prime
minister was merely a lateral move to circumvent a
constitution that prohibits him from serving more than
two terms as president. (He will undoubtedly amend
this nuisance of a document, which will allow him to
become “Godfather of Russia” for all eternity.)

Yesterday’s New York Times featured an excellent article
called “U.S. Sees Much to Fear in a Hostile Russia”,
written by Peter Baker. He starts out by reporting that
Bashar al-Assad, the swanky bad-boy who heads Syria’s
largest criminal gang (some refer to it as their government),
is on a high-end weapons shopping spree in Russia.

The Syrian president’s arms procurement trip to Russia
highlights the many ways in which Putin’s gang can
cause problems for western nations- especially the U.S.
Russia already sells fancy weapons systems to a host of
countries that are on Washington’s crap list- Venezuala
(another resource rich land ruled by a thug), is one that
is a gold customer and is right in our neighborhood.

Russia can also veto U.N. Security Council resolutions,
and stall progress on halting Iran and North Korea’s
quest for nuclear weapons- actually, the North Korean
crime family already has a starter arsenal. And, to top
off the list of menacing activities, they can disrupt the
flow of oil and gas to Western Europe.

I encourage you to read this piece. With all of the idiotic
shouts and paranoid posturing going on, it is good to take
in a reasoned and fairly comprehensive piece on this subject
before deciding to head off to the bomb shelter. (You may
decide to go after all, but at least you will feel more
comfortable with the decision.)

©Greg Strid 2008

“What’s in your wallet?”, the fierce looking Viking
asks at the end of the Capital One commercial. Now,
Wall Street investors are asking the same question
of the creator of this amusing advertising spot.

As the headlines scream about the collapse of the
subprime mortgage market and the relentless
meltdown of real estate prices, far too little attention
is being paid to the other shoe that is about to hit
the floor- which sports the consumer debt fashion
label in bold type on its side.

Credit card delinquencies (the percentage of accounts
that are unpaid after the due date) are increasing for
serial issuers such as Capital One. But, theses outfits
are actually stepping up their lending activity. They
are following in the footsteps of their inbred cousins
in the mortgage lending arena, which means that they
are sowing the seeds of their own demise.

Just like mortgage issuers, Capital One and other large
publicly traded peddlers of credit card debt have
depended on the securitization of loans (packaging them
as asset-backed securities that are sold to investors) in
order to keep them off their own balance sheets, allowing
for the continuing issuance of consumer credit.

This charade is what allowed mountains of debt to be
created, from housing to credit cards to auto loans.
The problem is that given rising credit card delinquency
rates, investors are becoming much less enthusiastic
about purchasing securities that are backed by such
questionable assets. This will eventually force credit
card issuers such as Capital One to curb their lending
to consumers.

This will rain heavily on their earnings parade, reducing
the revenue streams derived from charging criminally
high interest rates and siphoning sleazy fees from their
docile customer base.

Rising delinquencies also means that credit card issuers
have to increase loan-loss reserves to cover the looming
stain of red ink from customers who are no longer paying
their bills. This has already reduced profits for Capital
One in the second quarter of this year.

The combination of a growing pot of delinquent
consumers and an increasingly hostile asset-backed
market will continue to squeeze Capital One and
other big issuers of credit card debt. And, as their
profits dive, so to will their lending activity, which
will dampen overall consumer spending.

The picture perfect conditions that brought eager
borrowers and gullible investors together is unraveling
into a nightmare that will feature the Capital One Viking
turning on its creator.
© Greg Strid 2008

I am completely and utterly addicted to coffee.
Starting the day without an English pint-sized
glass of iced coffee (with beyond generous amounts
of cream and sugar) would be unwise to say the
least, and a crime against the natural order of the
universe, if I am allowed to exaggerate a touch.

I have glanced at many hideous sounding reports
concerning the dire health effects of coffee over the
years. After each scary study describes what the deadly
toxins swirling in my morning vat of joe will do to my
good Christian soul, I reduce my intake by a few
gallons a month. (Right now I ingest about 3 cups per
day- down from a peak of about 7-10 cups six months
ago.)

The Personal Health section of the New York Times
yesterday featured an article that will make caffeine addicts
rejoice. The piece, called “Sorting Out Coffee’s Contradictions”,
was penned by Jane E. Brody. I suggest that you click and
read this very useful summary of what the Center for
Science in the Public Interest had to say on the matter.

It turns out that moderate coffee consumption can have
some health benefits. An Iowa Women’s Health Study
found that women who drank three cups a day reduced
the risk of cardiovascular disease by 24 percent. Another
report suggested that coffee drinkers are less likely to
develop liver cancer than those who avoid the stuff
altogether. There are several other significant health
benefits tied to moderate coffee consumption as well.

I read it while working my way toward the bottom of
my morning pint of iced java juice, and I felt good
enough to follow it up with another, which was more
sane in size- I didn’t want to get too carried away
with the best news I’ve heard about coffee in years.

© Greg Strid 2008

Less than swell news came from the bowels of
government bureaucracy this morning. The
Commerce Department reported that the US
economy grew at an annual rate of 1.9 percent
in the second quarter, which was less than
predicted by economists, and it actually
contracted by 0.2 percent in the final three
months of 2007.

It appears that the sources of growth in America’s
sputtering economy are fueled by this country’s
lack of political will and our flagging currency.
Stimulus checks totaling $100 billion were doled
out in April and May, making mall cash registers
ring in June, and the terminally ill dollar helped
boost exports during the quarter.

Consumption (of goods, not thoughts or ideas) is
what drives this nation’s economy, accounting for
close to 70 percent of gross domestic product. The
government’s largess provided temporary life
support to this vital economic cog, but new
handouts are not expected for quite some time.
This means that the next quarter will undoubtedly
disappoint Wall Street as it pummels Main Street.

Exports are swell, but they cannot be expected to
keep America afloat on their own. (Just ask the
Japanese, their economy never races ahead because
they rely too much on exports while domestic
demand limps along.) Tourists from around the
globe come in droves to scavenge cheap consumables
in America’s glittering retail districts- which, by the
way, usually feature goods made elsewhere. And the
few companies left that actually make things are
successful selling them overseas. But those Americans
not peddling to tourists or overseas markets are left
to swelter in the sun.

This year has seen job losses each and every month,
and tomorrow’s numbers from the Labor Department
will most likely show more of the same. The American
economy cannot survive on government handouts and
exports alone. The bursting of the housing and credit
bubbles is taking a serious toll on jobs and overall
economic activity. Instead of handouts, the government
should fund programs that rebuild our crumbling
infrastructure and help establish energy independence.

I am NOT a socialist- nor do I wish to play one on TV-
but if our worthless political class is determined to
spend their way out of this mess, why not focus on
productivity enhancing investments instead of merely
funding pointless trips to the mall?

© Greg Strid 2008

Banks shares are back in style again. Even after
staggering losses were announced by the likes of
Wachovia, which registered a $8.9 billion loss in the
second quarter, and Washington Mutual, which
posted a $3.3 billion stain of red ink in the same
period, their shares traded up by 27 percent and
6 percent, respectively.

The share prices of other banking industry invalids
also rose smartly on crappy results- Fifth Third Bank,
KeyCorp and SunTrust all witnessed miraculous
increases in their market values since late last week
after reporting major losses during the past
quarter.

What do all of these banks have in common? The
answer is that they are all suffering the dire
consequences of souring real estate loans.
Washington Mutual admitted that a record number
of customers were falling behind on their mortgage
payments. And Wachovia is experiencing a scary
rise in defaults on its big basket of pay-option
mortgages- which are among the most reckless
loan products created during the giddy years of
the now late real estate bubble.

The real problem for banks is that the bad loan
contagion is spreading well beyond dubious
subprime mortgages. As the economy slows (due
in large part to the downward tug on home prices
and the subsequent drag on spending), consumers
and businesses alike are struggling to service more
conventional types of loans. Once happy
consumers are rapidly falling behind on auto and
credit card loans, and big banks are beginning to
write off larger numbers of small business loans.

After the stomach-turning sell-off in financial shares
that started early this summer, the sector was due
for a bounce. But, many investors are waving the
“all-clear” signs too soon by bidding up bank share
prices just because the earnings news was not biblically
bad, and they are clinging to the belief that the worst
news has been reported.

As the bursting of the housing bubble and the resulting
credit crunch ripples through the economy, more
consumers and businesses will be caught in the undertow.
This means that more conventional loans will continue
their descent into the non-performing category. As for
banks, business will get worse in the months ahead.
If you are an investor interested in plucking some cheap
banking shares, please tread carefully.

©Greg Strid 2008

Poof! That was the sound of approximately 62,000
jobs vanishing from the U.S. economy last month.
June marks the sixth straight month of payroll declines.
As for the month of May’s half percentage point spike in
the unemployment rate to 5.5 percent- it stayed the
same for June as well. It appears that the huge
percentage jump in unemployment was due to a lousy
economy and was not just a statistical fluke.

May and April’s job destruction number’s were revised
as well- it turns out that companies shed 52,000 more
jobs than the government originally estimated. The total
number of jobs lost for the first half of 2008 stands at
438,000.

The construction, manufacturing and temporary-help
sectors took the heaviest losses. Payrolls in the construction
trade declined by 33,000, factory employment fell by
43,000 and temporary employment agencies shed 30,000
jobs. The retail and financial sectors reduced staff as well.

Those with jobs brought in less money in June than they
did a year ago. Hourly earnings rose a paltry 6 cents, or
0.3 percent- the slowest pace of growth since September
of 2005. Over the past year, wages have increased 3.4
percent while consumer prices have risen 4.2 percent.

The economy has yet to experience a quarter of negative
growth. It seems that economic growth is being supported
by exports and government stimulus checks. That is really
quite sad. The American economy will not survive on exports,
and the boost provided by the stimulus checks has already
come and gone.

This pathetic report should lay waste to the idea that the
worst is behind us, and that brighter days are ahead. The
bursting of the housing and credit bubbles is now sending
shock waves through the real economy. Over the past several
years, America was living the good life on borrowed money-
it supported consumption and therefore economic growth
and job creation. We are now experiencing the hangover
from a wild and reckless orgy of debt accumulation- and
this one will not fade quickly.

© Greg Strid 2008

Maybe, instead of letting all of the useless hot air
generated in Senate hearings on the evils of speculation
with regard to record high energy prices, it should be
harnessed to power Washington DC. This would be real
action that could actually drive down prices, whereas
pointing fat fingers at speculators only makes headlines
and does nothing to address the real causes of the energy
price explosion.

The nasty combination of rising demand from emerging
economies and the downward spiral of the US dollar is
driving prices increasingly higher- speculators are merely
acting on current market conditions. ( Physical “barrels”
or “bushels” of commodities do not even change hands,
and the overall dollar value of futures contracts traded
is dwarfed by the value of goods actually consumed.)

A few weeks ago, Senator Joseph “Droopy Dog” Leiberman,
-Independent in name only- was slaving away on a
ridiculous proposal to ban large institutional investors
from participating in commodity markets altogether.
Bravo, a-hole. Droopy’s behavior seems to fit a long,
boring and destructive pattern. God forbid blame was
assigned where it actually belongs- this would cost
votes and create even longer and sadder faces in the halls
of government.

The silliness in DC is just another instance of shallow
politicians seeking scapegoats to appease a restive and
angry public- a public that has helped create the massive
rise in energy prices.

The American consumer has also fueled the growth in
emerging economies by blindly purchasing all that hums
and whirs- and to top it off, the money spent was borrowed
equity from over-inflated home prices- which is also helping
to drive the dollar lower. (Most of those nasty subprime
loans doled out like crack candy over the past few years
are souring, making US dollar denominated assets all the
more unappealing to global investors, which has helped
fuel the dollar’s decline.)

Pointing fingers solves nothing. Americans, and their
idiot representatives in Washington, will be forced to
clean up the mess they together have made. It will be
painful. It will take a long time. But, it is inevitable.

© Greg Strid 2008