Chicago Area Foreclosures On Record Pace

Crain's Chicago Business is reporting Cook County foreclosures on pace to smash last year's record.

After the number of failed home loans hit a record in 2007, foreclosure filings in Cook County are on pace to top last year’s total by another 35%, based on the first two months of the year.

Some 7,361 foreclosure cases were filed in Cook County Circuit Court in January and February, up 58% from 4,668 during the year-ago period, reports Dorothy K. Kinnaird, presiding judge of the court’s Chancery Division, which handles foreclosures.

Projecting the level of filings out for a full year would yield more than 44,000 foreclosure filings in Cook County in 2008, up about 35% from last year, she said.

Cook County’s 2007 number was a record for the county, representing a 47% increase from 2006 when the county’s court system processed 22,248 foreclosure filings — also a higher-than-normal total.

Inflation Adjusted Housing Index

Chicago is one of the cities that Calculated Risk plots. Let's take at his latest chart from Real Case-Shiller House Price Index.



click on chart for larger image

For those in Cook County it would seem that prices did not get nearly as far out of line as San Diego or even the top 10 and top 20 composites.

Wikipedia notes on Cook County: "Chicago makes up about 54% of the population of the county, the rest being provided by various suburbs. Cook County is the 19th largest government in the United States."

Calculated Risk writes: "Looking at this graph, I'd guess prices have fallen somewhat less than half way (in real terms) to the eventual bottom. Also look at the length of the housing bust in the early '90s. It took over six years from peak to trough in some cities. If this bust takes the same amount of time, prices will not bottom in some cities until 2012 (or there about)."

I arrived at the same year via a different methodology. Please see Housing - The Worst Is Yet To Come and When Will Housing Bottom? for details.

For an updated look at Florida, ground zero of the housing bubble bust, please read Grown Men Are Crying In Florida. It's a pretty shocking composite. Chicago is a cake walk in comparison.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Implosion In High Yield Bond Funds

The San Francisco Chronicle is reporting Higher-yield bond funds run into trouble.

In one of the more spectacular meltdowns in mutual fund history, Schwab YieldPlus - marketed as a higher-yielding alternative to money market funds - has plummeted to just $2.5 billion in assets from more than $13 billion in May.

The shrinkage reflects both a decline in the fund's asset value and a mass exodus by investors.

Year to date through Thursday, Schwab YieldPlus has lost 13.4 percent of its value, ranking dead last among ultra-short bond funds, according to Morningstar. The average fund in that category is down 1.5 percent this year.

A decline of that magnitude would not be unusual for a stock fund but is rare for a fixed-income fund, especially one that invests in short-term securities.

Schwab won't discuss the fund in any detail, in part because it is the subject of two class-action lawsuits.

It's not entirely clear what happened, but experts say that when the fund started to lose value last year, investors who thought they owned something resembling a money market fund started pulling out their money.

To meet redemptions, the fund had to sell assets into a declining market, which caused more losses, which sparked more redemptions in a wicked downward spiral.

Ultra-short bond funds get a slightly higher yield than money funds by investing in slightly longer-term, slightly lower-quality securities.

Schwab advertised the fund on its Web site as "a smart alternative for your cash." Schwab made it clear that YieldPlus is not a money market fund, is not insured and could lose value.

But it also said the fund's share price had fluctuated by no more than 4 cents over the year ending Jan. 31, 2007, "giving it the relative stability necessary in today's market."

A look at some ultra-short bond funds that have struggled, compared with the category average. Returns through Thursday.

Anyone chasing high yield junk seeking extra income needs to think twice.

SWYSX Daily Chart



click on chart for sharper image

Words To Avoid

• High Yield
• Yield Plus
• Structured
• SIV
• VIE
• Enhanced
• "Almost" Like Cash
• Toggle
• Junk
• Vehicle
• Leveraged

Those in or thinking about getting into any product that uses those words may wish to reconsider.

Furthermore, when it comes to funds or products that use the word "Government", make sure the fund invests in genuine government backed securities such as US treasuries or Ginnie Mae securities not agency debt like Fannie Mae or Freddie Mac.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Questions Linger Over Lehman's Balance Sheet

Conde Naste is writing about Lehman's Debt Shuffle.

Investors were thrilled when Lehman topped earnings expectations on Tuesday—as the firm took pains to reassure the markets that it has plenty of cash to ride out the turbulence. Yet aside from a smattering of attention here and there, investors and the media mostly overlooked the balance sheet. In other words, they forgot what happened mere hours earlier with Bear Stearns. Wall Street’s short-term memory is notoriously lousy, but this must set a record.

What actually happened to Lehman’s balance sheet in the first quarter? Assets rose. Leverage rose. Write-downs were suspiciously minuscule. And the company fiddled with the way it defines a key measure of the firm’s net worth. Let’s look at the cautionary flags:

Lehman’s balance sheet isn’t shrinking.

Lehman finished the first quarter was total assets of $786 billion, up almost 14 percent from the previous quarter and 40 percent from a year earlier.

Lehman got more leveraged, not less.

The investment banks “gross” leverage hit 31.7 times equity, up from the fourth quarter and way up from last year’s 28.1. According to Brad Hintz, an analyst with Bernstein Research, Lehman’s leverage reached its highest point since 2000.

Lehman reaped substantial earnings gains because investors thought it is more likely to go bankrupt.

For several quarters, all the investment banks have been taking gains on their liabilities. Say you owe $100 to your friend. But you run into severe problems and your friend starts to figure you can only afford to pay back $95. If you were an investment bank, the magic of fair value accounting dictates that you could get to reduce your liability. What’s more, that $5 gain gets added to earnings. Because investors thought Lehman was more likely to default, its liabilities fell in value and Lehman garnered earnings from this. How much did Lehman win through losing? $600 million in the quarter. How much was its net income? $489 million.

Lehman’s write-downs seem tiny.

Lehman finished the quarter with $87.3 billion of real estate assets. These include residential mortgages and commercial real estate paper. The bank only wrote these assets down by 3 percent. And its Level III assets —the hardest to value portion of these instruments—were written down by only the same percentage.

Lehman remains exposed to lots of dodgy mortgages, including a group labeled: “Prime and Alt-A.” Prime mortgages represent loans to good quality borrowers; Alt-A loans go to borrowers a mere step up from subprime, and represent an area with almost as many problem loans as subprime. The total amount of such mortgages on Lehman’s balance sheet was $14.6 billion in the first quarter and it actually rose from $12.7 billion in the previous quarter. Is this the time to be increasing exposure to questionable mortgages? More ominously, only $1 billion of that figure is prime and the rest is Alt-A, according to Hintz’s estimate.

The picture emerging is that of an investment bank that is dancing as fast as it can.

Great Moments In Accounting

Back in September 2007 the Wall Street Journal wrote about Great Moments In Accounting.

Thanks to a relatively new accounting rule, firms like Morgan Stanley, Lehman Brothers and Goldman Sachs last quarter booked hundreds of millions of dollars in gains based on worsening perceptions of their own creditworthiness.

How does that work? If the market decides a company is a bigger credit risk and starts demanding fatter risk premiums to buy its debt, the value of its existing debt falls. Under a rule being phased in throughout corporate America known as Financial Accounting Statement No. 159, that same logic applies to a company’s own debt. Companies that mark their liabilities to a market price, as Wall Street usually does, thus record as revenue a drop in the value of their own debt obligations.
Accounting experts said the exercise is perfectly legitimate, particularly if firms that mark liabilities to market do the same with their assets. At the same time, it highlights one of the ironies of so-called fair value accounting. “If you have a liability that declines in value because your credit worsens, you have a gain,” said Stephen Ryan, associate professor of accounting at New York University’s Stern School of Business.

FAS 159, which brokers are adopting earlier than most companies, couldn’t have come at a better time for Wall Street. The firms are taking writedowns of billions of dollars to reflect the lower value of leveraged buyout loans and securities backed by mortgages and other assets that are stuck on their books.

The Balance Sheet Is The Future

Let's now review Minyan Peter's post on Bank Earnings 102 also from September 2007.

[Here is] one simple rule for financial services firms: The income statement is the past. The balance sheet is the future.

Let me repeat it again. The income statement is the past and the balance sheet is the future, especially now.

At the top of a credit cycle, the income statement for a financial institution shows “the best of times”, but buried in the balance sheet is “the worst of times” to come.

Judging from what's happening to its balance sheet, Lehman's future looks bleak.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Staying Flexible

I have been anticipating a bounce in the US dollar index even while expecting the US dollar to trade lower vs. the Yen.

Many have asked why. The answer centers around a dislike of the Euro and British Pound. So before proceeding with thoughts about flexibility, let's stop for a moment and take a look at a few of my reasons to dislike the Euro and the Pound vs. the US dollar.

• German banks are arguably as bad off if not worse than US banks.
• Property bubbles in parts of the Eurozone are worse than in the US, Spain being the primary example.
• The property bubble in the UK is as bad if not worse than the US.
• Anti-dollar sentiment is extreme.
• The Euro has benefited from a huge diversification out of dollars especially from oil producing states. At some point diversification will end.
• There is still a prevailing attitude that the US will enter recession and somehow the Eurozone and UK will avoid that recession. I do not support that view.
• There is a prevailing attitude that Bernanke will keep slashing rates to zero while the ECB will hold the line. I suspect the ECB will start cutting rates and at some point the Fed will pause to consider.
  

However, opinions are opinions and facts are facts. The fact is the Euro rocketed higher, and the fact is I have been surprised by the resolve of Trichet in holding the line at the ECB. Indeed, the willingness of the ECB to hold the line may account for that last blast higher on the Euro. Can the ECB hold out forever? I do not think so, but that is an opinion not fact.

As for Bernanke, here is the key question: Will he pause for more data or will he continue nonstop on a path to ZIRP? Perhaps we have a clue in two dissenting votes at the last FOMC.

Viewpoints vs. Trading Positions

It's one thing to have a viewpoint and it's a second thing to actually trade that viewpoint. Can one have a viewpoint and not trade it? Of course.

I have had no personal stake in currencies for a long time. I seldom trade currencies even though I frequently have a viewpoint about them.

Sitka Pacific Capital Management, the firm I represent, does trade currencies (in a small portion of one particular strategy). Recently we were long the Yen vs. the US dollar and did very well with the trade. But that position was closed and as of March 19 we went long the US dollar index via UUP. Here is a chart of the US$ index to consider.

US Dollar Daily Chart



click on chart for sharper image

Inquiring minds may be asking "Was there any reason to buy that second circled area above vs. the first?" The answer is yes, there was a reason. The reason has to do with intermarket analysis of gold, the Euro, and the dollar. Let's start with a chart of the Euro.

$XEU Euro Daily



click on chart for sharper image

Given that the Euro is by far the largest component of the US$ index at 57.6% it does not make a lot of sense to go long the US$ index until it looks like the Euro is headed lower vs. the dollar.

I circled a trendline break above, but there were three prior trendline breaks in the channel drawn, so what makes this the correct one?

Gold Confirmation Context



click on chart for sharper image

Heading into the end of 2007, the triangle continuation pattern in the above chart suggested gold would break up, and if it did, the Euro channel would likely resolve to the upside.

In contrast, Sitka Pacific's long US$ trade was initiated on a break in the Euro confirmed by a break in gold.

However, we anticipated the break in gold first, and in fact exited gold (GLD) positions near $980 on the way up, not on the way down..

Why?

• Sentiment in gold seemed to be hitting extremes.
• Seasonality
  

The latter was a key factor. Gold tends to peak in a January-February timeframe. The seasonal peak season is usually August through January or February. In this case it ran through mid-March. However, with gold at or near $1000, and with favorable seasonality expected to end anytime, the risk-reward scenario simply did not look good to us, and the Euro looked extended.

If there was further upside in gold, we figured a retest would let us back in at this level. And on the break of the Euro, with gold confirming, we went long the US dollar thankful of not having to do two things at once.

Bear in mind that Sitka has four trading strategies we offer to clients and although none of our strategies holds a position in physical gold or silver (or gold or silver ETFs), one strategy still remains with a long position in mining stocks. The strategy with a position in miners is a commodities related strategy. Clients in that strategy are aware it is for long term positioning and/or part of an overall asset management strategy.

Within our commodities strategy, our physical gold and silver positions were eliminated and we may (or may not) lighten miner positions as well.

As far as energy goes, many of our strategies lightened up or eliminated energy plays in the same timeframe we went exited gold and went long the dollar. For now, it is important to note these plays are likely to be intermediate corrective positions as opposed to long term positions.

Reader Questions On Gold And Silver

On a daily basis I receive many emails on gold and silver. The influx of such emails inevitably increases after a big pullback like we have just seen. The typical email is something like this: "Should I exit now?"

I usually respond with my position that gold is likely to do well in extremes (deflation or hyperinflation), that gold is money, that gold may experience a significant correction, that perhaps we are in that correction now, and perhaps that correction will go on longer than most think.

To answer the question properly however, one needs to know and understand additional factors such as: A person's timeframe (short, intermediate, long), an individual's tolerance for risk, the person's rationale for the trade, when one got in the trade, how big one got in the trade, leverage if any, whether or not that investment in gold was part of an overall strategy, whether that overall strategy was carefully thought out, and whether or not one has the mental fortitude to stay with a long term thesis even if the individual's timeframe is long.

Seemingly simple questions can thus be complex and working with clients on those factors is part of our overall service at Sitka Pacific.

A Time To Go Long Equities?

To everything, turn turn turn, there is a season...

After being market neutral in our "Hedged Growth" strategy and extremely high in cash in our "Absolute Return Strategy" since last summer (click here for strategy details), we have now gone net long. This positioning may or may not last.

Did we dive off the deep end?

No, not really. We are not long mortgages, junk bonds, credit swaps, derivatives, or the typical momentum plays. Furthermore, should the S&P double bottom break, we will may change our tune quickly, without notice. In the meantime here is the type of value play we are increasing exposure on. Are you ready?

Wal-Mart (WMT) Weekly Chart



click on chart for sharper image

WMT’s 9-year technical consolidation may be ending. Sitka Pacific went long on the trendline break. Fundamentally, Wal-Mart is at 1999 prices even though earnings are substantially higher and international growth is picking up. A negative factor is Wal-Mart has plenty of debt, but that debt seems serviceable based on cash flow. We like Wal-Mart (for the time being anyway) as a value play.

What's In and What's Out?

• Gold and Silver are out.
• Energy is out.
• A bounce in equities with a concentration on value plays is in.
• A bounce in the US dollar is in.

That is how Sitka Pacific is playing the current setup as of mid to late last week.

We are willing to change our mind quickly if wrong, and without notice. Flexibility is now more crucial than ever.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Debate Over Bear Stearns: Hussman vs. Mauldin

Let's take a look at both sides of the Bear Stearns debate. On March 17 John Mauldin wrote Let's Get Real About Bear.

I already have a slew of emails from people upset about what they see as a bailout of a big bank, decrying the lack of "moral hazard." And I can understand the sentiment, as it appears that tax-payer money may have been used to bail out a big Wall Street bank that acted recklessly in the subprime mortgage markets.

But that is not what has happened. This is not a bailout. The shareholders at Bear have been essentially wiped out. Note that a third of the shares of Bear were owned by Bear employees. Many of them have seen a lifetime of work and savings wiped out, and their jobs may be at risk, even if they had no connection with the actual events which caused the crisis at Bear. Don't tell them there was no moral hazard.

For all intents and purposes, Bear would have been bankrupt this morning. The $2 a share offer is simply to keep Bear from having to declare bankruptcy which would mean a long, drawn out process and would have precipitated a crisis of unimaginable proportions. Cue the lawyers.

If it was 2005, Bear would have been allowed to collapse, as the system back then could deal with it, as it did with REFCO. But it is not 2005. We are in a credit crisis, a perfect storm, which is of unprecedented proportions. If Bear had not been put into sounds hands and provided solvency and liquidity, the credit markets would simply have frozen this morning. As in ground to a halt. Hit the wall. The end of the world, impossible to fathom how to get out of it type of event.

The stock market would have crashed by 20% or more, maybe a lot more. It would have made Black Monday in 1987 look like a picnic. We would have seen tens of trillions of dollars wiped out in equity holdings all over the world.

As I have been writing, the Fed gets it. Their action today is actually re-assuring. .... Allowing the boat to sink is not an option. And get this. You are in the boat, whether you realize it or not. You and your friends and neighbors and families. Whether you are in Europe or in Asia, you would have been hurt by a failure to act by the Fed. Everything is connected in a globalized world. Without the actions taken by the Fed, the soft depression that many have thought would be the eventual outcome of the huge build-up of debt would in fact become a reality. And more quickly than you could imagine.

On March 24, John Hussman took the other side of this debate in Why is Bear Stearns Trading at $6 Instead of $2?

Bear Stearns is trading at $6 instead of $2 because unelected bureaucrats went beyond their legal mandates, delivered a windfall to a single private company at public expense, entered agreements that violate the public trust, and created a situation where even if the bureaucratic malfeasance stands, the shareholders of Bear Stearns will either reject the deal or be deprived of their right to determine the fate of the company they own. Very simply, Bear Stearns is still in play. Still, when all is said and done, my own impression is that the ultimate value of the stock will not be $2, but exactly zero.

In effect, the Federal Reserve decided last week to overstep its legal boundaries – going beyond providing liquidity to the banking system and attempting to ensure the solvency of a non-bank entity. Specifically, the Fed agreed to provide a $30 billion “non-recourse loan” to J.P. Morgan, secured only by the worst tranche of Bear Stearns' mortgage debt. But the bank – J.P. Morgan – was in no financial trouble. Instead, it was effectively offered a subsidy by the Fed at public expense. Rick Santelli of CNBC is exactly right. If this is how the U.S. government is going to operate in a democratic, free-market society, “we might as well put a hammer and sickle on the flag.”

The Fed did not act to save a bank, but to enrich one. Congress has the power to appropriate resources for such a deal by the representative will of the people – the Fed does not, even under Depression era banking laws. The “loan” falls outside of Section 13-3 of the Federal Reserve Act, because it is not in fact a loan to either Bear Stearns or J.P. Morgan. Bear Stearns is no longer a business entity under this agreement. And if the fiction that this is a “loan” to J.P. Morgan was true, J.P. Morgan would be obligated to pay it back, period. The only point at which the value of the “collateral” would become an issue would be in the event that J.P. Morgan itself was to fail. No, this is not a loan. It is a put option granted by the Fed to J.P. Morgan on a basket of toxic securities. And it is not legal.

The Fed overstepped and the Treasury overstepped. At the point where unelected bureaucrats pick and choose who to subsidize – who prospers and who perishes – in a free capital market, and use public funds to do it, more is at risk than just $30 billion. Instead, we cross a line, and stumble off a very clear edge down an interminably slippery slope. We speak up now, or forever hold our peace.

This morning JPMorgan Raises Bear Stearns Bid to Woo Shareholders.

JPMorgan Chase & Co. agreed to quadruple its offer for Bear Stearns Cos. in an effort to overcome opposition from shareholders of the crippled securities firm. Bear Stearns stock almost doubled.

The original bid, more than 90 percent lower than the securities firm's market value at the start of the month, drew opposition from shareholders led by U.K. billionaire Joseph Lewis. Dimon met with Bear Stearns employees to seek their support last week.

"Finding a counterbidder is attractive but a lot more difficult," the Sunday Telegraph cited Lewis as saying in a report yesterday. "There are two ways to block the deal: first by a shareholder no vote and second by litigation. We should be able to block the deal by one of these ways."

The Fed adjusted its financial support today, the two firms said. JPMorgan will now be responsible for the first $1 billion of potential losses from the sale of Bear Stearns assets, while the Fed will fund the remaining $29 billion.

How To Get The Needed Votes

There are no ways to block the sale. The above article goes on to say "Bear Stearns will issue 95 million new shares without seeking shareholder approval. Dimon will need only an additional 10 percent of shareholders to approve the takeover."

If management wants to do a deal, it seems there is very little anyone can do to block it. And the key fact remains that this deal still stinks to high heavens whether or not the transaction price is $2 or $10. Not only were existing shareholders deprived of rights to reject the deal, JP Morgan and the bondholders should be the ones taking risk, not the Fed and not taxpayers.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Open Letter To All Truckers

Trucker Dan is proposing a National Trucking Shutdown as follows:

April 1, 2008 is when My trucking Co & thousands of others are shutting down at 8 AM on that date. From that time on we will no longer accept any loads at ANY price until such time as our FED Gov admits & puts into action a plan that will give all O/Os some help.

Here is what I would like to see happen,
1# suspend ALL Fed & State fuel taxes until such time that this economy is back on its feet
2# Fed create a FED Oversight Committee to oversee Ins Premiums Charged for Class 8 trucks Insurance
3# Stop allowing Large Trucking Fleets to self Insure, this would make a more level playing field for all trucking Cos
4# Fed Regulations for Brokers & Shippers that are enforced, with set max amounts they can charge.
5# Standardized Fines from Coast to Coast for safety violations. In other words if a log ticket cost $50.00 in Missouri then a log ticket in California should only cost $50.00

I will not return to hauling until our Gov. the people we put into office gets off their butts an does something to help this Industry my email address is dlittle@uscattlehaulers.com
Send me an email if you plan on shutting down on April 1, 2008

Mish note: I corrected numerous typos, spelling errors, and grammatical errors in the above clip for ease in reading. The text one would see if clicking on the link is slightly different than posted above. This statement is not intended to be a criticism of the literary skills of "Trucker Dan". His intent after all was not to write a piece for the New York Times, or even a blog.

On TruckerToTruckerCom, Trucker Dan Little posted this Open Letter To All Truckers.

Some are asking what date is the shutdown & what will happen ?

Here's the what, why, & when of it.

The reason for this shutdown is not to hurt this country in any way shape or form. But is in fact a peaceful method of sending a message to Washington, D.C. That we do indeed need help & our industry is the backbone of life in America as we know it.

The why of it covers issues that you & I as truckers, both O/Os & Co. drivers face on a daily basis. These problems range from excessive Regulations ie., Fuel, Federal & State Fuel tax's, excessive DOT regulations on NON-SAFETY related items, Excessive Insurance Pre., The list goes on & on.

The when of it, is APRIL 1st, 2008 {see www.uscattlehaulers.com } I & several others picked that date for a reason. April 1,2008 is Aprils Fools Day, that being said, we as an industry are going to send a Strong message to the otherwise FOOLS in Washington, D.C. that "enough is enough"

We Will Be Heard.

I & Thousands of You have been telling people for Years now, that a change needed to take place.

Well, here's your chance to Stand Up for Yourself & let The World know We will Stand Strong. "one for all and all for one"

Thank You & God Bless each & Everyone of you,
Dan Little
Little & Little Trucking LLC

My reply to "Trucker Dan"

Upfront Note: Please read the entire piece. It ends dramatically different than it starts out.

Trucker Dan, you are barking up the wrong tree. No one owes you a living. For that matter no one owes anyone a living. If you stop delivering, someone else will. All you will accomplish by halting deliveries is to put yourself, your business and your family at further risk.

You are asking for a handout you do not deserve. The problem is that everyone is asking for undeserved handouts: bankers, farmers, homebuilders, teachers, bus drivers, Realtors, etc etc etc etc.

On the other hand you have a legitimate gripe, and here it is: Although no one owes you a living, the country owes you a fair chance. On that score, the deck has been stacked against you and it has been stacked against you badly for one hell of a long time.

One can look at the greed, fraud, manipulation and bailouts in housing, structure finance, and banking to see where priorities lie. But it goes far beyond greed and misplaced priorities to the literal destruction of the US dollar itself.

You are upset about the rising price of diesel. You have every right to be. But you are wrong in what to do about it. You are asking for more of the bailouts that everyone else is asking for. Instead what needs to happen is for all subsidies and bailouts to end and for the country to return to sound economic policies.

The US military is the world's largest user of fuel. Imagine what would happen to fuel prices if the US stopped flying all these needless missions in Iraq. Imagine what would happen if the US stopped stationing troops and silos in Germany, Japan, South Korea, Saudi Arabia, Turkey, etc etc etc. Imagine what would happen if troops were deployed in the US protecting our borders rather than spending money in Germany and Japan.

Imagine what would happen to the price of diesel if the US eliminated tariffs and subsidies on ethanol and instead allowed imports of sugar cane based ethanol from Brazil. Here's a hint on the latter: fuel prices would drop and food prices would drop.

The sad irony here is that truckers are bearing a huge brunt of misguided military and agricultural policies. The mistake you, "Trucker Dan" are making is that instead of correcting the fundamental flaws you are asking for more bailouts.

Sadly, such bailouts only further serve to weaken the US dollar for everyone, truckers included. Here is the deal "Trucker Dan": Look in the mirror. If you voted for Bush, you can partially blame yourself.

There is only one candidate that knows exactly what to do. That candidate is Ron Paul. Unfortunately he does not have a snowball's chance in hell. McCain has vowed to spend another 100 years in Iraq. Sadly, I do not believe Hillary will exit Iraq either.

I am not a rabid Obama fan by any means (except in the context of Obama vs. McCain), but you do the math. The very best thing we can do for the US economically is to stop blowing trillions in Iraq. My position is simple and here it is: First things first, it's time to get the H out of Iraq an it's time to stop being the world's policeman. We can no longer afford either.

Those who disagree can look in the mirror and blame themselves for what's happening. Forget, the trucker strike, instead vote to eliminate existing ethanol policies and to get out of Iraq.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

A New Phenomenon: Haggling Over Prices

A new phenomenon is hitting megastores: Hagglers Find Prices Are Flexible.

A bargaining culture once confined largely to car showrooms and jewelry stores is taking root in major stores like Best Buy, Circuit City and Home Depot, as well as mom-and-pop operations.

The change is not particularly overt, and most store policies on bargaining are informal. Some major retailers, however, are quietly telling their salespeople that negotiating is acceptable. “We want to work with the customer, and if that happens to mean negotiating a price, then we’re willing to look at that,” said Kathryn Gallagher, a spokeswoman for Home Depot.

In the last year, she said, the store has adopted an “entrepreneurial spirit” campaign to give salespeople and managers more latitude on prices in order to retain customers.

Priya Raghubir, a marketing professor at the Haas School of Business at the University of California, Berkeley, said that retailers willing to haggle were making a calculated gamble that acceding to lower prices means establishing customer loyalty. The retail mantra is “customer lifetime value,” meaning any single sale might not be that profitable, but an enduring relationship with a shopper would be.

There is just one problem with the theory, Ms. Raghubir said. It does not prove true over time.

Home Depot, among others, begs to differ. Ms. Gallagher, the company spokeswoman, said that by allowing salespeople and store managers to make some pricing decisions, the company was creating a friendly environment that feels more like a local store than a monolithic corporate superstore. (She declined to say how much leeway individual salespeople or managers have.)

Ms. Raghubir says that retailers are realizing that customers are going to keep pressing them on price, because whatever reticence customers had about bargaining has evaporated.

“In the past, when you tried to get yourself a deal and it was an embarrassing thing — the kind of thing you did if you couldn’t afford to pay,” she said. “Now it’s about being a smart shopper.”

Smart Shopping Means Three Things

• Buying only what you need
• Buying only what does not go on revolving credit
• Buying items on sale

I am not quite ready to put haggling over the price of a pair of jeans on the list. Besides, getting $20 off on a $100 pair of designer jeans is not "smart shopping", not buying designer jeans at all is smart shopping.

Haggling on big ticket items, however, may be worth the hassle. I am willing to give it a try in a few months on a snow blower. Ours just went kaput. But I'm not buying a new one now (we had a major snow storm on Friday) that I cleared mostly by hand. Instead I will wait for Home Depot or Lowes to do a clearance sale in May or June then try my own hand at haggling.

The thing is, most do not really need the big ticket items they are buying, and many cannot afford them regardless of what discount is negotiated.

Nonetheless, the haggling taking place at Home Depot (HD), Lowes (LOW), Best Buy (BBY), and Circuit City(CC), shows you just how overbuilt retail is relative to demand. And even though the recession is just a few months old, this haggling is further proof of no pricing power on much of anything besides food and energy.

CPI As A Lagging Indicator



click on chart for sharper image

CPI chart courtesy of St. Louis Fed

In 7 out of the last 8 recessions, CPI peaked as the recession started or a few months later. Evidence continues to mount that the CPI (a lagging indicator) has peaked or will soon peak. Frugality, haggling, and deep discounts are evidence this time will not be different.

Both consumer attitudes towards spending, and now business attitudes towards shoppers have changed in a major way. Frugality and haggling are in, status symbols are out. Better deals are coming for those who haggle, and still better deals yet for those who wait.

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