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Economy

Yipe! BofA as Tarnished Goods

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So you thought Bank of America was a blue-chip stock? Seems to have downgraded itself to brown chip. This e-mail arrived, from my elite financial managers:

While we had intended to remain invested in Bank of America (BAC) through the turnaround, we sold that position today.  Mortgage delinquencies have eased, but banks are now facing repurchase requests on loans they originated from buyers of those loans and loan guarantors. Leading the charge to make originators repurchase their loans are Fannie Mae and Freddie Mac, the two government-owned finance agencies that guaranteed many mortgages. Freddie and Fannie are sorting through delinquent loans for signs of any violations in the representations and warranties, known as “reps and warranties.” In essence, they are looking for documented misrepresentations by borrowers or lenders on the loan applications. Bank of America is reportedly facing approximately $11 billion of unresolved repurchase demands (up 46% in six months).  Just too many clouds on the horizon for U.S.-based banks when compared to other opportunities held in your portfolio.

We will use the proceeds to invest in your other holdings that we believe have a better opportunity for appreciation in the future.

Well. That’s bracing. And of course, BofA isn’t alone.

Are You in the Middle Class?

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The other day I took the opportunity to enter a comment, at a business blog, that alluded in passing to my favorite conspiracy theory; to wit: over the past two or three decades, we have been watching the deliberate erosion of the American middle class.

Don’t believe it? Well, skepticism is healthy.

But consider…

• If you can’t get access to affordable medical care (exorbitant insurance premiums do not qualify as “affordable”), you’re not in the middle class, certainly not by the standards of any other developed country.

• If your access to health-care services and to a health care provider of  your choice is limited, you’re not in the middle class.

• If the quality of education in your local public schools is so poor that you have seriously entertained the possibility of homeschooling—not for religious reasons but because you’re concerned for your kids’ literacy, their safety, or both and you can’t afford private school—you’re not in the middle class.

• If you counsel your children to get a vocational diploma in college instead of a full education that will inform them of the history and significance of their culture because you’re afraid their bachelor’s degree will qualify them to stock the shelves at Borders, you and they are not in the middle class.

• If you’re not on track or ahead of schedule to accumulate enough savings to live on through your old age without benefit of Social Security, you are not in the middle class.

• If your house is worth less than you’re paying for it, you’re not in the middle class.

• If you’re driving a clunk because you can’t afford to buy a newer car now, you’re not in the middle class.

• If you buy your clothes at Goodwill less for the entertainment value than because you feel you shouldn’t spend the money on new clothing, you’re not in the middle class.

• If you were to lose your job tomorrow and you know the likelihood of replacing it with a job that pays about the same is low to nil, you’re barely clinging to the middle class.

• If jobs in your industry are increasingly being outsourced to Indonesia and waypoints, you won’t be in the middle class much longer.

• If the real reason you wear your hair down around your shoulders is less because that you like it that way than because you feel you can’t afford to go to a stylist once every four to eight weeks, you’re not in the middle class.

• If you would rather use department-store cosmetics but you get your makeup at the drugstore because you cringe at paying department-store prices (though you happen to know there’s no real difference), you’re not in the middle class.

• If what you do for a living is a dying vocation (and there’s more!), you’re not long for the middle class.

• If you live in a big coastal city and you don’t earn a six-figure income, you’re not in the middle class.

• If you live anywhere else and earn less than $40,000 or $50,000 (depending on the region), you’re not in the middle class.

• If you are the breadwinner in your house and you earn what a typical teacher earns, you’re not in the middle class.

• If you and your spouse or partner depend on both your incomes to maintain a middle-class standard of living for your household, you as individuals are not in the middle class (check out the book from which this article was spun).

• If your spouse or partner earns enough to maintain your household in middle-class splendor while you earn pocket money, your companion is in the middle class and you’re not.

Still think you’re living in the middle class? Or even in Kansas, Toto?

It’s hard to deny that our country is polarizing economically as radically as it has polarized politically. I personally don’t think it’s an accident. We could argue over conspiracy theory and over the reasons and the fixes until we’re all carted off from the poorhouse and delivered to the nursing home. But there it is. IMHO it has little to do with technology and nothing to do with the recession. There’s been more to this than has met the eye…for quite a long time.

Where the jobs are…and aren’t

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Tina, editor par excellence, sends along this interesting (not to say alarming) article from NPR’s Planet Money. Even though the recession is officially over, as NPR’s Jacob Goldstein points out, that means rather little for the suffering quotient. Eight million jobs have disappeared from our economy since December 2007, most of them in manufacturing and construction.

Many of those jobs will never come back. It’s hard to believe sectors like retail, real estate and finance, and transportation can absorb eight million workers, many of whom are tradesmen and not white-collar workers. The feds are hiring, but only because the federal government is spending itself blind trying to beat back a full-out depression. Compared to the number of jobs lost, the number of jobs gained in federal employment is a drop in the bucket.

Something called “private education” is growing, possibly, Goldstein speculates, because during hard times people go back to school in hopes of retooling for different occupations. But let’s consider what “private education” is: presumably it means proprietary schools. These outfits, as we’ve seen, will give you a degree without much education, and pick your pocket in the process. What they’re turning out would be hundreds of thousands of graduates with no better hopes of landing a job than they had before they started. The quality of such training aside, if eight million jobs are gone, where are those newly trained workers supposed to get hired?

The only sector that appears to show genuine growth is health care. We’re told this is because of the graying (and increasingly doddering) of America. As the baby boom ages and boomers’ health fails, demand soars for nurses, doctors, medical technicians, and the entire vast infrastructure that supports them.

Think of that.

We’ve gone from a nation that produces things to a nation that takes care of sick old folks.

Not that there’s anything wrong with taking care of sick old folks. Just that…well. It’s ominous.

Image: Men standing in a soup line. Franklin D. Roosevelt Library. Public Domain.

Gold Bugs, Burglars, and a Way to Pay off Your Credit Cards…

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This morning while we were out estate-saling, La Maya reported on a recent burglary in which the thieves made off with the neighbors’ jewelry, and only their jewelry. Other valuables, including an iPhone left sitting on a nightstand, Mac and PC laptops, and a large-screen TV were untouched. But a lifetime’s collection of jewelry was lifted, apparently for the gold.

A chat with the police revealed that gold is now selling for $1,300 an ounce. The vic, on advice from friends, paid a visit to a nearby pawn shop, claiming to be looking for a gift for a sister who desired rubies set in gold (exactly the description of a set the couple had picked up on a trip to Spain).

They were advised not to tell a pawn dealer that they were looking for stolen goods, because of course it’s wildly illegal to accept stolen property. And as we all know, no pawn dealer would ever do any such thing, eh? Word has it that if you say you’re looking for something that was taken, the pawnshop people will freeze you right out. Instead, claim you’re shopping for a purchase that resembles the stolen jewelry and hope they bring it forth.

Anyway, when she went into this nearby pawn shop, the dealer remarked that people are flocking to sell their gold. (Yeah! And presumably everyone else’s! :-))

Prices, he said, are high and unstable—just that morning the price of gold had risen $120. He pointed out that at the current prices, you could bring in an earring that’s lost its mate or an out-dated bauble and come away with a nice pocketful of cash.

Dealers weigh your jewelry and pay by the gram or by the troy ounce. Today a gram of gold was selling for $41.66. One gram equals .035 ounce.At the end of trading today, gold was selling for $41.66 a gram, or $1,295.83 an ounce. He said even a thin piece of gold of the sort that decorates an earring could be worth a couple hundred bucks.

La Maya said she’s going to dig out the orphaned earrings she’s tossed in the drawer in the forlorn hope of someday finding their lost mates, and she’s going to schlep them to the nearest pawn shop. I’ve got a couple of orphaned earrings myself, plus a pair of old 1970s hoop earrings, massively out of style (14k, as I recall) and a gold ring that no longer will slide over a knuckle.

At those prices, you could turn your discards into enough cash to pay off a credit-card balance or take yourself out to a very nice dinner or two or thee.

Think of that. Gives new meaning to “decluttering,” doesn’t it?

Images:
220kg gold brick, Chinkuashi Gold Museum, on loan from the Republic of China. Texcoco. Public domain.
Golden earring rendered using 3D software. Aldzine. Creative Commons Attribution 3.0 Unported license.

Small but Alarming Indicator

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Yesterday I trotted out to Scottsdale to meet, over breakfast, with the small business owners’ group I first visited just six months ago. At the time, I considered taking them up on their invitation to join, but then never got around to it, mostly because my editing business has been quiescent and I ended up spending every living, breathing moment of the summer working on this fall’s classes and increasing FaM’s visibility. So, I wasn’t doing much editorial work. The current visit was to hit them up to buy ad space in the Bach Festival program.

This group, which at one point had 24 members, appears to be down to about a half-dozen.

Think of that: three-quarters of the members have fallen away, either because their businesses have folded (a common fate of small enterprises) or because they can’t afford the $50/month dues. Since even I could afford the dues on the piddling amount my S-corporation has earned this year, that is one scary figure.

Then, an even more striking bit of news: about two months ago, my old friend, the one who originally invited me to the group’s meetings, took a full-time job.

This guy is one of the most prominent graphic artists in the Southwest. A designer and illustrator for print and Web media, he’s run his own business, quite successfully, for as long as I’ve known him: at least 25 years. His prices have always been well outside my range. His clients have included monthly city magazines and large corporations nationwide. For him, to take a full-time job must have been a wrenching decision. It would mean the income from his formerly thriving business must no longer have been supporting him and his wife. That he also is teaching a community college course on the side suggests he must need the extra coins.

One of the other members owns an office building. His largest tenant failed to renew its lease. “Life,” he remarked laconically, “sucks.”

If the group represents the larger economy in microcosm, its direction suggests something very scary. At least in the Southwest, small businesses and the larger companies upon which they depend are suffering badly. Many have not survived, and those that have survived may not continue to operate much longer. In June 2009, the large credit bureau Equifax issued a report showing that small business bankruptcies rose 81 percent. A more recent report suggests that despite some improvement in the overall economy, things are still about the same in specific regions, not all of them concentrated in the Southwest. Last month the American Bankruptcy Institute found that in 2009 almost 61,000 businesses declared bankruptcy, the highest number since 1993.

And that, my friends, explains why the nation’s de facto unemployment rate is hovering at around 27 percent…not counting those in prison and in the military.

The last high rate of business bankruptcy occurred in the aftermath George I’s administration. Numbers began to fall sharply the year after Clinton took office, dropping by 10,000 in 1994. Interestingly, NAFTA was ratified in 1993, and that year the Omnibus Budget Reconciliation was signed into law, cutting taxes for 90 percent of small businesses and raising taxes on the wealthiest 1.2 percent of Americans. And it was in 1993 that Clinton said, “Our democracy must be not only the envy of the world but the engine of our own renewal. There is nothing wrong with America that cannot be cured by what is right with America.”

What do you think we, as a nation, can do about this? Does America still have enough right with it to recover again? Can our elected leaders do anything to turn the economy around? If so, what?

Shave and a Haircut…

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…six bits! Anyone remember that little ditty?

Okay. Can anyone remember when a shave and a haircut actually cost six bits? That would be 75 cents, for those of you born in the latter third of the twentieth century.

Well, the new version is “Shave and a haircut…forty-five bucks!”

No joke, gents. Saturday, in search of a Sur la Table store, M’hijito and I paid a visit to the über-tony Kierland Commons, a fixture serving the ever-more-upscale hordes of north Scottsdale. We parked the car in front of a barber shop—barber salon may be better—whose window proudly advertised a shave and a haircut for $45.

Well, it’s a bargain, I guess: less than I paid, a few hours later, for a haircut alone.

Amazing, isn’t it, what inflation does to a currency? My father told me that when he was a young man delivering milk on a horse-drawn wagon, he earned ten dollars a month. I must have looked startled—at the time this conversation took place, ten dollars would buy a bag of groceries—because he hastened to assure me that $10 a month was a living wage then. He not only lived on it, he said, he lived decently on it.

When he retired, he figured his hard-earned life savings of $100,000 would make him set for life. Then came the double-digit inflation of the 1970s, which reduced its value by…what? two thirds? Today a nest egg of a million dollars feels a little skimpy, considering that most of us can expect to live well into our eighties and some will live into our nineties. I don’t know if the prospect of accruing $100,000 felt as daunting to my parents as a million-dollar target does to me. It never was enough to set them up in affluence, even when he first retired.

I do know that if I still had a job, I’d still be working toward a million-dollar retirement fund. And I wonder if it would be enough to allow me to run the heat in the winter and to cool the house into the comfortable range in the summer.

“Six bits,” by the way, represents inflation, too. The original ditty went

Shave and a haircut, two bits!