Spoke Eric Dash, NYT, about the layoffs and cutbacks at the banks too big to fail; and learned the that there have been 10,000 banking workers laid off in New York City  over the last months, canceling all the gains made in the first half of the year. The shrinkage will continue. The bank profits are down and will decline the more. The go-go years of mortgage cocaine are not coming back. Also, the regulations from Washington are strangling the game-playing; and the Basel III stuff is a threat to come. What underlies all this blame-shifting is that TARP failed.  Also, the none-too-secret doubt about bank profits of the future is that Bank of America has long since failed and cannot be fixed.  That is why Buffet threw $5 billion of other people's money into it, like burning dollars; that is why BofA is boasting about selling its portion of China in a rush to raise cash; that is why POTUS Obama will make a pitch for more help to underwater mortgages -- many of which are in the BofA portfolio.  Am told that the BofA pitch for another bailout is that it did the patriotic thing in 2008 when it bought the black hole of Countrywide.  Am told that the BofA sale of the Chinese bonds (CCB) is an act of desperation.  There is also the reasoning that Buffet doesn't put his money on the table unless he has an inside edge on a pay-off; and perhaps there is loud whispering from the White House that BofA is going to get another Treasury check of taxpayer cash?

The spectacle of Mayor Mike Bloomberg pitching repeatedly the ordinary Hurricane Irene as a cataclysm from Hades makes this correspondent crabby. What foolishness. Eighty-mile-per-hour winds from North Carolina to New Jersey. Lots of wind-blown rain. For this, New York City is shut down from noon Saturday; the airports are closed; the subway and buses are offline, and the only cabs are cruising with "Off-Duty" so you get to pay a cash fare of the driver's choosing if you are lucky to find one.   Spoke Michael Vlahos, Naval War College, of the loss of confidence in the nation that makes us hesitant, fidgety, brittle, risk-averse, gloomy.  We speculated that it was the financial rot (including a rumored failure of Bank of America); we guessed it was the ten-year-long war against trite shadows called Al Q; we supposed it was cynical pols who claw for TV time by announcing disaster management 101.  The result is that the Redeemer Nation has become another Europe waiting to be rescued by no one?  As if we are Europe with the twist that we know there is no American Exceptionalism coming to rescue us.  We have become fearful of fear itself.  Spoke Thaddeus McCotter, of the Arsenal of Democracy that was once Detroit, of American exceptionalism that is now regarded as a ploy; of the rot of the banks too big to fail.  Hurricane Irene passes over a defeatist culture.  Doubt is the currency; and it's worth just a little less than the crushed dollar.  In the devastating New England Hurricane of 1938, a Category 3 that struck Long Island on September 21 with little warning, New Yorkers quickly went to work to rebuild and recover, and that was in the grip of a global collapse.  Today, we blame-shift and wait for the disaster relief check in the so-called "state of emergency" that is declared by a cowed, arrogant, cynical political class.

NYC Rent-a-Mayor Mike Bloomberg leads the parade toward a slow-motion fear of weather that grips New York City and most of the urban East from Richmond, VA, to Boston, Mass. Nothing in Hurricane Irene warrants much attention outside of the usual suspects, the Outer Banks of North Carolina and the geniuses who build houses below the flood tide line from Virginia to Long Island.  "Somebody's gonna lose a trailer," is the punchline of an old joke about the similarity of hurricanes and North Carolina divorces.  Irene has no weight.  It soon showed it was an ordinary hurricane by aiming its toweringly ordinary winds of Category 2 (100 mph) into the part of the East that can most endure a big wind, the North Carolina coast.  In New York City, the mayor and Gov Andrew Cuomo have teamed up in competitive uebercaution to order the subways and MTA shut on noon Saturday, a full 12 hours before the rain starts in Manhattan.  This is cynical PR posturing that is undeserving of comment.  My task on Saturday night is to talk to other crabby, middle-aged people such as Michael Vlahos, Naval War College,  about how our once-upon-time sturdy and bold culture has turned into left-out-after-Thanksgiving mint jelly.  Is it the deflationary cycle and the New Normal of drift, debts, cynicism and back-scratching?  Is it ten years of a war with dully self-destructive alien children who come from oil-soaked despotisms that pass from tyranny to anarchy within weeks of the Arab Spring?  Is it that America is an aged, ninny state?  There will be rain; has that become too much for the population of the East Coast to endure?  Is Irene our version of a disaster?  Do we suffer catastrophe envy with the Japanese and the Londoners?  Or it is what Larry Johnson, No Quarter blog, writes: the lazy media bookers on a slow weekend in late August before school starts, searching for a story to run on loop without much expense?  Roll the visuals of a palm tree whipping around in the Bahamas.  Show Mom and Dad packing the SUV with camping supplies for the apocalypse.  Pop the popcorn, it's gonna blow real wet wind; gee.  (NASA and NOAA images below, respectively). 

   

The crash of the Progress freighter module, because of the failure of the Soyuz-U launcher (investigation under way) means that Planet Earth is momentarily cut off from the one and only ISS. This is the same launcher that must carry humans to the ISS for the next ten to twenty years unless the US finds and certifies a launch vehicle built by private adventurers, such as the SpaceQ Falcon 9. This is not wise planning, and spoke to Tom Jones, of the Association of Space Explorers (astronaut corps), re the failure by Congress since 2005 and the Obama administration in particular to prepare for the day when we are cut off from ISS. The crew onboard ISS does have an escape Soyuz capsule docked with the crew module now.  The concern here is that the collective dunderheadedness of the US and ESA and Russians will leave us with a manned exploration marvel that cannot be maintained.  This is where we are as a nation just now: ill-planned, accident-prone, inarticulate, blame-shifting, unrepentant, crass, deluded, discouraged.  The next years will be the challenge, as we are just warming to the idea that the bottom is below us.  The housing market in the US is a lie: the major threat remains the prime loans and the banks too big to fail that are now growing bigger in order to survive.  Tomorrow the Bernanke non-solution that will make the markets jolt down (buy the rumor, sell the fact) and push us into a sad sack Irene weekend of sticky denials and shrill evacuation of Manhattan talk (and speculation if the First Family will weather a blow on the plush Vineyard, golfing in the rain).  A rocket crash after an earthquake that cracks the Washington Monument after the US downgrade all make good sense - if this were a thriller about a plot against the US.  Instead, it is the US vs the US, and China is winning by being brutal and false.  Game on. Chapter 1: Suppose they burned down the White House, and no one cared?

The 5.8 earthquake that surprised the East Coast from North Carolina to Ontario is a pitiful jolt compared to the prospect of Ben Bernanke (arriving in jeans) announcing a QE3 Quake at the Jackson Hole annual gathering of Easy Money Boys. Once upon a time, we called this lot of Populist beggars the "Free Silver" rascals, and the GOP under McKinley fought for hard money and the gold standard.  But that was 1897, the last time an earthquake rocked Virginia at the magnitude of 5.8.  Now, with no prospect of strength anywhere in the Fed regions, with many states slipping back into the Red (see below, from the Philly Fed; and not long ago, all the states were Green), with J P Morgan's estimate of 1% GDP for Christmas, a feeble 1.5% for Q1 of 2012, and a crushing 9.5 jobless rate for Q3 2012, the Fed's printing press is the only source of feel-good energy for the markets.  We are all condemned to be Free Silver rascals now.  As the dollar sinks, the markets bob along at a defeated level if not at a cracked level.  We are in a  deep funk, perhaps a deflationary cycle for the decade.  Calculated Risk identified the fact that the major problem of housing loans today is prime, not subprime.  The banks too big to fail are still failing, and the Europeans are covering up their rotten loans with Fed-like games until and if the Germans bail out the Italians and the Spaniards.  There is no one answer; there are only process and patience.  All deflationary cycles end with a series of boomlets.  How soon? - 2014?  2018? Impossible to call a bottom.  What follows is said to be an inflationary express train.  President Andrew Cuomo?  (Note below that the weak states are dominantly Red States from the Tea Party election of 2010: the IL and MI exceptions also went Tea Party; this is not a sprightly trend for Team Obama: can he even count on VT, with Bernie Sanders leaving the reservation?)

Tripoli is a tragic opera that illustrates how little we have learned since the catastrophes of Kabul and Baghdad.  My information is that NATO and the Transitional National Council at Benghazi have been negotiating with the Qadhafi family for some weeks about en exit with dignity and assurances.  Mustafa Jalil heads the TNC.  Since the assassination of the rebel war chief Younes at the direction of the TNC some weeks ago, Jalil has not provided answers about why and how and who.  Now he double-crosses Q and launches the jihadist cells in Tripoli.  They behave as expected: hysteria, gun-shooting, boasting, pointing weapons they'd just grabbed as if they were playing video games; no fire discipline, no organization at all, marauding enthusiasts.  They even claimed that they had captured Q's number-one thug son, Saif al-Islam.  For twenty-four hours, the speculation in US media was that this is "the end of Q" and that POTUS Obama's peculiar "leading from behind" was a surprise victor.  Now Saif al-Islam dashes into the camera at the hotel where the journalists are crowded and under siege -- and he makes a zesty argument that the rebel cells were lured into attacking in order to identify the turncoats.  Laughter.  Am told that Qadhafi will now fight to martyrdom -- whether in Tripoli or to the South.  The Obama administration's "leading from behind" will now stand a test: how long can it explain anarchy and call it progress toward democracy?  Colin Powell's dictum: "You break it, you own it."

Here comes the tenth anniversary of 9/11, and the Truthers in their permutations are out again, promoting more doubts about aspects of the day like no other in American history. The Building 7 meme, as I understand it, is that someone or enterprise, likely related to security such as the SEC, or the Secret Service, and so forth, directed a controlled explosion to collapse Building 7 in order to destroy critical files that were not backed up about a major investigation under way. Such as Citigroup's relationship to the fraudulent Worldcom, and so forth.  The opportunities for logical explanations about who wanted Building 7 destroyed are rich with detail and mystery.  My approach to 9/11 is that it will be ten years since I launched my daily show on WABC in New York, and I will broadcast my Sunday, September 11, 2011, show from the Ground Zero site.  I was asked to start speaking the day after the attack, at 10 PM Eastern, replacing the unusually inappropriate Dr. Laura Schlesinger syndicated show that was in re-feed in New York.  It was a temporary enterprise; and, as temporary employment goes, I have been on air ever since.  The first ten years, I was reminded that I had said, right away, that I would stay on air till Bin Laden was killed or taken.  The Bin Laden raid show on May 1, from Krakow, was my last show.  Since then, I am a ghost of a broadcaster telling the story, "How We Live Now," one can't-make-this-up episode at a time, interleaved, as would the novelist I used to be.  What's off-key and unbelievable about the Building 7 meme?  (See diagram below for the engineering remarks on why the building collapsed because of the uncontrolled fire.)  It's not as impossible to believe as the history we know to report.

The CBC sponsored Jobs Fair in Atlanta drew thousands, some of whom waited overnight in the heat.  The WSJ reports that seniors cannot and will not retire.  The late report in the week report from JP Morgan points to 3Q of 2012 jobless rate climbing to 9.5%.  POTUA aims to pitch a jobs program to Congress after Labor Day -- an empty gesture for the campaign trail, as Congress is unready to spend money it does not have.  The summary of this news is that the nation is slowing again to a defensive pattern of cash-hoarding and productivity-boosting without hiring.  Long winer.  What can Bernanke do for his August 26  speech at Jackson Hole, Wyoming?  More wizardry.  Are we Japan?  The deflationary decade is hardest on the aged who cannot relax and the young who cannot start a career.  POTUS must answer all these cross-currents in the 2012 campaign.  It is not only about jobs: it is about growth and stable banks too big to fail, which must be reformed, and must be pointed to consolidate if that it what is needed to recapitalize.  Meanwhile, the jobs fair in Atlanta, the grandfather on minimum wage at the truck stop or at Home Depot; the frustrated college grad seeking a start in Chicago and finding only part-time work, all this continues like a storm cloud over the economic future. 

  

The schoolboy mayhem between Georgetown and the PRC -- started by some ill-timed rough stuff by the frustrated Chinese team -- is a reminder that Chinese nationalism may be overheated; and that the Beijing bullies are overpampered by the West. VPOTUS Biden stopped by to meet and greet with the new regime in waiting, an apparatchik named Xi Jin-ping, and the contrast with the scrappy Georgetown kids is sharp.  Spoke Lobsang Sangay, PM of Tibet in Exile; to Nury Turkel of Uyghur-American Association; to Rick Fisher, IAS Center, in re the Obama administration's canceling the F-16 deal the Taiwanese need; to Toshi Yoshihara, Naval War College, and to other voices in protest of the ChiCom bullies.  The Middle Kingdom is low on consent of the governed, and it is absent a sense of history or proportion: Hu and Wen and Xi all believe their supremacy is inevitable; and so the ChiComs cheat and whine and preen in order to get their way.  The Obama administration has wrecked the relations with appeasement first and passivity second; and the Obama administration's indifference to the dissenters and resistance in Tibet, Xinjiang, Taiwan, and the South China Sea. The last three years of failed policy anent the East China Sea are a permanent disgrace.  What Beijing understands is a sock in the jaw; what Beijing fears is the US fleet pushing back in the South China Sea. Hooray Hoyas.

Rick Perry continues the perfect week, making news by responding to POTUS, "the president's actions are killing jobs in America..." Not that Rick PErry has surged in tot he lead in some early polling without appearing on FNC as a guest anywhere. Perry is avoiding sit down interviews, is keeping moving between Iowa and New Hamsphire, is on a blitz into the GOP primary electorate. Am told by Jay Root that Perry is high energy and relentless on the campaign trail -- reminding of the robo-candidate reputation of Bill Clinton, never flagging, never off camera.  (Perry reported trying to tone down the cheap thrills of his attacks; but this is not what the GOP wants to see: the party is eager for showmanship.)  Expecing Perry to leap ahead of POTUS Obama in match ups by next week, certainly by Labor Day, as POTUS will be off-camera on Martha's Vineyard until Labor Day.   Larry Kudlow reports that Romney is preparing a measured counter to Perry, with policy papers and speeches, and there will be a string of debates in September and October where the two will match up.  For now, Bachmann is a sideshow, and the center ring awaits Perry and Romney.  There is promise here that this campaign could go well into the Spring of 2012, a fact that should favor POTUS.  However, if the reports of week jobs numbers into Spring 2012 are correct, POTUS will need more than a blood-nosed GOP contest to boost his own approval rating.  No longer is it enough for POTUS to taunt and bash the GOP Congress, as the rivals are two governors who have never served in Congress.

This is immediately a movie trailer for a thriller that must have a walloping third act. Mr. Slumpy is "the One"? Deep puzzlement about how the production crowd pitched this to the Rand Paul crowd that backs up the Ron Paul adoration society? "The One"?  Isn't that the punchline for a joke that's two years out of date for POTUS Obama? Gosh. And the Paulites are claiming in tweets that this silliness takes on Romney and Perry and Obama? Because it shows their faces? Because Ron Paul votes "no" on Uncle Sugar and sugar substitute in his coffee?  Because the tie "the One" wore when sitting with Ronald Reagan once upon a time deserves an eBay auction?  Jon Stewart is kvetching (emptily) that the media is not paying mind to Ron Paul's second-place finish in Ames.  The movie trailer for "the One" is an explanation why it is impossible to take Ron Paul as more than an artifact of Galveston cronyism and Texan iconoclasm.

 

"If this guy prints more money between now and the election . . . I don't know what y'all would do to him in Iowa, but we, we could treat him pretty ugly down in Texas . . ."  Rick Perry the champion campaigner, whom Jay Root, Texas Tribune, tells us is relentless on the trail, nearly tireless, and a gifted candidate who knows how to work a room, makes an unforced error in Iowa by speaking loosely of tarrring and feathering Ben Bernanke if not outright riding him out of town on a rail or much worse. Yes, it is in jest; and yes, the governor draws titters; however, the difference between campaigning in West Texas or the Panhandle and running for the White House, with a Federal Reserve Board entirely independent and untouchable, may be momentarily lost on Rick Perry. The presidency is not a governor with powers of intimidation on the separate but equal branches. Does Rick Perry know that threatening violence against a Federal official who is also the US central banker is not a good start to an economic message for the general election campaign? Unknown.  Early days, but it is wise for the cowboy who just rode into town to clean it up to keep in mind that heroes don't use cheap talk to make Iowans titter; and that we Back East dudes know something about standing up to drawling bullies.

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The wags can count after the quick Tim Pawlenty fail. The goal is to win the young Catholic male vote in the Rust Belt - PA, OH, IN, MI, WI, IA - and to hold on to enough of the young female Catholic vote in NC, VA and WV to keep the always-strong Democratic default lead in female voters closer than a 14% gap. The advantage points to a young Catholic candidate out of the Rust Belt, and that describes Rick Santorum and Thaddeus McCotter. What advantage does Romney enjoy in this measure? Romney is an older, non-Catholic plutocrat with a fortune of at least $250 million and a long record of hedging policy issues that are fundamental to the GOP in the 21st century,such as taxes, healthcare, and growth. Rick Perry of Texas is also older, a fervent Evangelical in an all but exclusivist fashion (see Prayerpalooza at Houston), a candidate who has romanced with the secessionist chorus of the League of the South and the Sons of Confederate Veterans, and a former Democrat with no record of going north into the Rust Belt.  Michelle Bachmann, in addition to the unanswered questions of her anti-Catholic Church affiliations, does not represent a credible policy path: she rejected the debt deal inarticulately; she advocates obstructionism willy-nilly; and her success in IA is largely explained by her IA heritage. Gingrich is older and not much interested in more than preening. Paul is older and not much engaged in more than Libertarian fussiness. Cain is older and at best a dabbler in GOP policy, much the talk-show provocateur in his element with a hot mic before a certain crowd.  Gary Johnson is another Libertarian who offers little to debate or ponder; and who has no standing in the Rust Belt. Finally, Huntsman is much a mini-me of Romney with the distinction that his father is the stealthy plutocrat who seems to act through his son like a puppeteer.  Romney and Perry will now knock each other about in order to attract Wall Street money.  Bachmann will chase Tea Party dollars and dodge the usual provocative questions from the court media (and she will make news each time she departs from her victim's script of "titanium spine" and says something not about herself).  Long campaign until January and the IA/NH/SC/FL shakeout -- none of which has a sizable young, Catholic, male vote, and so none of which will answer the Electoral College challenge.  The prexy nomination game is survival; and I remind that John McCain finished tenth in the 2008 IA straw poll, while Fox host Mike Huckabee finished first.  (Perhaps FNC won both the 2008 and 2012 IA straw polls?) 

DNC constructs the bank shot off of the Tea Party smear (Tea Party in Obamaspeak is the "New Rightwing Extremists") to clunk Mitt Romney for his goofy "Corprations are people, my friend." Team Obama is eager to use Romney's glibness as a counter-narrative to Candidate Obama's rhetorical aspirations ("We can do better! We can come together!"). Romney is not part of the straw poll in Iowa for good cause: he scores poorly whenever anyone focuses on something besides name recognition. Romney is a house-sitter for the GOP nominee; and does the party want to nominate the house-sitter instead of the candidate who can march through the Obama rainstorms? Perhaps. Now comes Rick Perry, a candidate who is entirely in the Texas-is-what-I-am school of campaigning.  The energy of the campaign will flow to Perry for the next weeks as Romney and Perry dance apart, and the Bachmann phase quiets for the back-to-school weeks.  Perry absorbs much of the evangelical and Tea Party energy that attaches to Bachmann, Pawlenty, Santorum, Cain; and Perry also attracts New York and California donors who want something big and noisy on the top of the ticket.  Perry satisfies big and noisy (see below, from an Alabama speech the day before the South Carolina announcement).  And Team Obama will struggle with how to counter the passionate praying and the country boy story-telling.  Team Romney will also struggle with the Perry message, which is so simple it creates a smile for the obvious: "It's time to get America working again."   Then there is Sarah Palin at the Iowa State Fair (which she would dominate if she were a candidate), who never disappoints with wit or knife-wielding:

POTUS Obama's message is that he is not the Tea Party; and he will aim to mind-meld the Mitt-Rick-Sarah creature with the Tea Party.  It is a tougher sell than, "I am not Hillary Clinton" followed by "I am not George Bush"; yet it does vaguely resemble the Obama style of running on the basis of what he is not and what he won't do as compared to what he is and what he has done.  The three years of the Obama administration are a strange summary of over-reach, under-performance, Bushian status quo and blame-shifting.  The GDP is the message: POTUS Obama must defeat the GDP.  Estimates for Q2 still coming in now point to a revision below 1%; and the Q3 is a sloppy start with the market sell-off and the layoffs; and then there is the Verizon strike.

The candidate who rallies the GDP someday (2013?  2017?) will enjoy a springtide flood of cash pouring into investment vehicles, as the smart guys are now fleeing the markets and storing up their treasures in Treasurys, gold and mattress covers.  Spoke Paul Vigna of DowJones, Aaron Task of Yahoo, John Bussey of WSJ, re the market turmoil, and there is no prospect of a calm market soon.  There is rotation into defensive stocks as well as cash; and there is no more preferred place to hide than US Treasurys (which is why the smart guys laugh at the downgrade: US double A+ is the New US triple A+ + +).  (Who will the be the president who recaptures Triple A??)  Small business start-ups slowed in 2010 more than at any time since 1994, when they started tracking.  Risk aversion is the new black.  The consumer confidence number for July is the lowest since 1980.  Surprise!  Jimmy Carter is a theme of constant sorrow for the Obama administration.  Anecdotes abound that the White House is a shop of horrors these days, with POTUS speaking sharply, with the staff ducking and covering, with no plans other than oppo and negative and blame-shifting for the campaign.  Time to cut firewood, insulate the dream house, prepare for a long winter coming on in Utopia U.S.A. (below, the Camden, Maine, subset).

 

Leading uncomfortably in the polls, Romney makes the sort of unforced error that defines a campaign phase. "Corporations are people, my friend," is the correct remark for another question and another day. Explicating the Fourteenth Amendment is the tone, topic and direction for the Iowa County Fair just hours before the GOP candidate debate. This mistake was so fundamental that Katrina vanden Heuvel, The Nation, tweeted immediately on the event -- thinking with an editorial brain.  (See DNC Rapid Response below.)  Romney does not have a feel for the campaign trail, after all these years of running and pontificating and performing.  Late news that Rick Perry will announce his candidacy on Saturday in South Carolina may have exhausted Romney.  The patronizing tone to the remark is a warning sign that he has been too long on coasting speed.  Romney needs a theme to talk about other than defending corporations from hecklers.  Healthcare?  Nope.  Taxes?  Nope.  How about the stock market?  Nope. 

 

Tom Keene's Midday Surveillance at Bloomberg TV is a blend of very smart veterans' making gruff verdicts on the momentary direction of the markets. No one is much happy; no one is much worried; we have been here before in both directions.  What is not in the faces or the tones is that the US market is lurching toward yet another slowdown through the fall.  The Federal Reserve is hinting loudly that it will stimulate yet again, a third round of what will be called QE3, asset buying or rate targeting or some such wizardry.  Easy money.  POTUS's remarks on Monday 8 are quickly regarded as the low point of the presidency; however, it may be too soon to name this a bottom for Obama confidence.  I was quick to chirp in the old prober, that you can't catch a falling knife.  The debt deal fail; the partisan noise; the overspending and underperforming by the White House and the Congress, the jobless curse, the foreclosure shadow inventory, the unstable banks, and the likelihood of worse surprise ahead, all add up to a lack of confidence in the political apparatus.  The market traders can make money in either direction.  $7 trillion up, $7 trillion down.  Reported this eve on the Verizon strike of 45,000 workers (and just as many families: so a huge number) from Massachusetts to Virginia.  The combat is over give-backs and pension payments vs the old days of the company handling he benefits.  The New Normal is hardscrabble malcontents vs Wall Street bloodlessness.  Then again, this resembles the Old Normal: Free Silver vs Hard Money, or Farmer vs Capitalists; or Poor vs Rich.   POTUS Obama is caught out of time, leaning toward the Farmer and the Poor, when the story has changed: the global market is deaf to sentiment.  Either make it work in competition with Asia, or go wanting.  POTUS Obama may not understand that the adversaries to his policy persuasion are not in the US.  The adversaries are machines running the FOREX and the commodity exchanges and the bond markets.

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Asia falling, Europe under heavy weather of selling, ECB lurching into the bond market to buy Itaian and Spanish debt, and the US opening looks weak and unstable. Am told there are two bank in Europe, an Iralian and a French (SocGen), that were unable to get overnight loans form any other bank on Friday and that are likely insolvent. One of them broke the buck in their money market account. The ECB intervenes to keep Spanish and Italian bond from crashing through 7% rate, at which point everyone is in trouble. Trichet of ECB acts now, because the European parliaments are on holiday and unlikely to act with a TARP-like program until September. Add this European stew to the American weakness, and the credit rating mad-hatter (all background noise), and there is expectation of the old volatility. The markets will aim to stabilize early in week, but the weakness theme is established through the remainder of the year. The recession talk makes the equity strategy one of rotation into safe stocks like food and beverages and away from railroads and banks. China will not ride to the global rescue this time, because it is fighting inflation rom the last $1Trillion stimulus package. Futures down big, could press the limit of down 450. Sky is falling. There will be Euro blood.  What does this mean for the US pols?  More disdain.  POTUS is scheduled for two high profile fund-raisers at the St. Regis and elsewhere in DC, to shake hands with the millionaires and billionaires he aims to tax when he's reelected.  

 

Spoke Thaddeus McCotter on the road in IA re the downgrade, and he is unhappy with the presumption of S&P to question the sturdiness of he partisan squabble over debt reduction.  We are not the PRC, is the message; and the downgrade, while technically astute (not excepting what the White House calls a $2 trillion error), does not do itself favors for credibility when it harasses Congress as part of the problem.  In a democracy, strong minds disagree and tongues wag. In The PRC, strong minds control tongues or else or they are soon wag less.  

Spoke Dan Henninger, WSJ, who writes that the global rout in markets, the sudden loss of confidence in the ECB solution for the Euro, the US Treasury solution for the economy, the White House politics of campaigning while Rome burns (both in Rome and in New York), are all measures of the same phenomenon, the twilight of the welfare state.  In Europe (with the Euro fail and the scrambling to save the banks, HSBC, SocGen, DeutscheBank, BNP Paribas) and here, in Obama's Mini-Me Europe Dream.  Dan speculates that the single achievement of the Obama presidency is that as a candidate, he cracked the Clinton machine and welcomed the progressives back into power after a thirty-year-long hiatus since Jimmy Carter's rout and Ted Kennedy's eclipse. Obama beat Hillary Clinton, and was rewarded with the White House as a door prize. In office, POTUS hired a Progressive economic team, stood back with Nancy Pelosi and Harry Reid went to work on the Hundred Days of Progressivism, and ignored or just sort of looked past the problems that show dup right away. 10% unemployment. That is the pattern ever since. POTUS answers all problems with Progressive dogma and the occasional outburst of deeply sincere class-warfre. It ddin't work, and the midterm Election was the End to All That. Now POTUS is facing a panicky market that finds him irrelevant and more than a little shopworn. Perhaps POTUS will give a speech about how we are all in this lifeboat together. That this is true doesn't mean that POTUS has a way forward out of the ice field, our captain of the lifeboat.  There will be Euro blood. But the Obama administration will end in tears, not fire.

The market sell-off of 2008 generated a cool blog that was called Pictures of Face-Touching, or something similar.  Loved it.  It is a peculiar trait of humans to touch the face when under duress or otherwise spooked.  Am starting the collection again.  Bumpy ride.  Seat belt.  Fasten.  Face touch.

 

The anecdotes of slowdown and lowered expectations are routine; however, there is another narrative: that the Japanese crisis and the oil/gasoline spike were one-offs and fading, and so the Q3 will show a rebound. The report above from Paul Vigna and Justin Lahart, WSJ.com MarketsHub, points to a warning in the rate of unemployment growth. Lahart says that a 9.3 in July (Friday 5 August) and another 9 plus in August will signal that a recession may be under way. That downward revision of Q1 from a paltry 1.9% to a scary 0.4% has rocked the projections for the Q3 and Q4. The weak real spending number from June that was reported today warns the markets that the economy is indifferent to the debt deal and the promises of tax hikes. The slide is sideways at best, and the projections of 2.0% GDP for 2012 warn that there is no recovery.  (Mention that worries about a recession can trigger a recession: the power of suggestion and the word of mouth are powerful inhibitors from spending: my show is part of the word of mouth, and I would not be speaking of a recession unless I was hearing the whispering from the pros whose job it is to get out front of the worst case.) POTUS speaks today of the next phase, including cuts, tax revenue and extended unemployment benefits.  POTUS knows that the 99-weekers are finished at Christmas, and he knows that he has no answer for his reelection.  Worse, am told that the whispering is starting for QE3 -- not for next week's Fed meeting, not that soon.  However, the chatter is the intention, and the promise of easy money and more paper-buying by the Fed means that the dollar will not strengthen and the price of gold will continue its lunar trajectory.  The good news from today is that the Senate is on holiday until after Labor Day.  We are safe for a month.  But not from the Fed, and not from the grinding slowdown of the business cycle.  Savings rate up to 5.4%.  Everyone knows to hoard acorns (and peanuts) for winter.

Next roll call vote will be Tues., Sep. 6 at 5:30 PM. http://bit.ly/SFloors

Capitol Economics of Toronto sends a note that the debt deal negotiations do not change the intention of the ratings agencies to downgrade the US credit rating from AAA to AA.  What might have avoid the downgrade was a $6 trillion reduction over ten years, and the deal offered by POTUS and the Congressional leaders is far short.  The downgrade will come this week or next, but it will come.  The economy remains too weak to pay for the government needs without increasing the debt.  There is some palaver about offset debt with cuts, but that is Washington talk, not sincere.  The joint committee is charged with reporting by Thanksgiving, and the Congress is charged with acting by Christmas -- or else other triggers, other cuts.  By year-end, we will be discussing the minimal growth expectations for 2012, which at best is projected at 2.0%.  The puzzle is: Have we cut government spending just as we start to roll over into more slowdown?  And what will revive an economy in which enterprises and citizens do not trust the government to stop the random and inarticulate interventions?  Gloomy?  Yes.  A sidebar is that the Democrats are not surprised that POTUS rolled over and gave the GOP what it demanded, no tax hikes.  Lara Brown of Villanova tells me that in order to get re-elected, a president must have either the country or his party.  POTUS Obama has neither just now; long march ahead.  POTUS remains the favorite for 2012 because of historical odds, not because of performance.