Euromoney, Myomoney, We Have No Money

From the Eurozone, which they may start calling "The Twilight Zone," Hamish McRae from The Independent in London, writes:

There will be sovereign defaults in the eurozone, with a default by Greece now inevitable. Ultimately the thing that underpins any country's debts is its ability to raise enough tax to service and eventually repay them. Greece cannot hope to do that. Ireland will be pushed to do so but probably can. I would, however, worry about the long-term credit-worthiness of Portugal, Spain and Italy.

Hamish McRae is the principal economic commentator for The Independent newspaper, but he is also a visiting professor at Lancaster University and a council member of the Royal Economic Society (notice how there's no relation to Harvard University or Goldman Sachs).

McRae has been a financial and business editor for major national newspapers, and has won several awards for his journalistic work. His most recent award was Business and Finance Journalist of the Year in the 2006 British Press Awards.

I just mentioned McRae's biography to let you know this is a very credible source who just said that GREECE WILL GO INTO DEFAULT. That's not in question. Ireland will likely need to take a bailout and, if they do not, will have a problem increasing corporate taxes meaning multi-national corporations will exit and destroy their economy anyway. Portugal, Spain and Italy are all in trouble.

Some analysts say this is nothing new, but that's only because European financial ministers and U.S. leaders realize that everyone is more interested in Bristol Palin going to the finals in "Dancing with the Stars" than anything that has to do with a global economic crisis. For starters, they can understand a person who can't dance can go to the finals, whereas they can't understand that there are other countries in this world other than the U.S.

However, in today's global economy, we are all tied to together and a default in Greece for the U.S. may be analogous to a hangover the next morning. Some brain cells are dead, but we can still function. Only, a European contagion, which is likely to happen if one country goes into default and other PIIGS follow, becomes like a minor stroke. Even though part of the brain no longer functions because of all the dead brain cells, we can still go about our everyday lives with some medication.

The next and final step in a European contagion--London, France, Germany--once those countries have no backstop other than the United States, it's a major stroke and the U.S. cannot function. Finally, with all the Quantitative Easing and spending, we find no money left in our pockets to bail out the Eurozone. The U.S. either goes into default or raises yield on bonds to pay back creditors. Either scenario is bad--like a coma after a major stroke is bad. Like turning off the machines because the patient will have no brain function is bad. At best, interest rates go sky high, few people decide to buy homes, everybody saves money and we move into a recession at least as bad as this one if not worse.

That's how important the Eurozone is to the global financial equation. Let's get something straight--the Fed prints money by purchasing bonds and mortgages, not from the Treasury department but from Goldman Sachs. That money makes Goldman Sachs a profit because they and other banks can purchase mortgages and a lower price and sell them to the Fed at a higher price because THE FED IS BAILING OUT THE BANKS. It's not just TARP. If I could have a penny for every time I've heard "the banks paid back their TARP money," I'd be Goldman Sachs. No, not every bank has paid back TARP but, yes, most have.

Have banks paid back the Temporary Guarantee Liquidity Program that gives them free money? Will the Fed/U.S. ever have those mortgages they bought worth the same amount they paid for them. Probably not unless foreclosed assets can be worth the ridiculously overpriced amount they were worth from 2005 to 2007. Nevertheless, the Fed prints $600 billion after $1.25 trillion to help generate employment; low interest rates to spur the housing market; credit for creditworthy individuals to spend money and other economic events that are not happening.

My guess is that Quantitative Easing II developed when the Fed realized they would need about $600 billion channeled to Goldman Sachs to give to the IMF to bail out Ireland and the rest of the European countries that need bailing. It's in this manner that the Fed channels money to Goldman Sachs and other investment banks to push up stock prices; propel securities markets like the Commercial Mortgage-Backed Securities market and continue to help large banks hold enough capital reserves for all the crappy loans they have.

But, how long can one throw money at a problem and expect it to go away? And, how long can we live in a nation of "Haves" and "Have-Nots" before we funnel the money to create an equitable society based on a normally functioning economic process--not one based on financial engineering from the many graduates of Harvard Business School.

How long will the people of the world be able to cope with a system that calls for long-term unemployment and sluggish economic growth before the next panic sends the stock market plunging towards a proper price/earnings ratio.

The excuse for Ireland to take the bailout was that they may do it to curb panic in the market. Really? You're that confident in the fiscal soundness of your country, but you'll take the bailout just so the markets don't panic. Believe me. They have a reason to panic, and that excuse for taking a bailout is one of the main reasons for their panic.

It's time to come clean. It's not just about insolvency of U.S. banks or Irish banks or state governments or some European countries. This is global insolvency and the more money printed, the less valuable it becomes for all of us.
Only

Throw Money from the (Gravy) Train: An 11-Year History of the Washington Redskins

So, here I am watching Bloomberg Television today and they're talking about how the Washington Redskins were destroyed by the Philadelphia Eagles 59-21 at home on Monday Night Football after Donovan McNabb signed a $78 million, $40 million guaranteed. That makes it a business story and earns its way onto FIN TRUTH.

What I did not find out until later, from Lindsay Czarniak of local news WRC-TV4, is that the Redskins can release McNabb at the end of the season at a cost of $3.75 million. Brandon Lloyd, who did nothing for the Redskins but catch 8 passes in 2 years for $8 million and maybe one touchdown....earned $4 million a year for 4 catches (on average). So, signing McNabb to $3.75 million, a contract already on the table, and "putting to bed" the controversial benching in Detroit, was another great way of throwing money at a problem. Right? Wrong.

As usual, Snyder's idea was the typical businessman solution. Only, football is a game and throwing money at a problem will not solve the actual problem, which is that the Redskins no longer want Donovan McNabb and McNabb probably doesn't want to play for the Redskins after this season. This leaves the Redskins with no decent quarterback prospects for next season. They are basically in the dark on the quarterback position...except for this year. It's definitely Donovan this year.

So, what happened? Well, some coach--Kyle or Mike Shanahan, or both--decided to bench TEAM LEADER and a very good two-minute drill quarterback with 2 minutes left in Detroit and the Redskins down by 6 points. Everybody thinks it's stupid and those who are not sure realize it is when backup Rex Grossman fumbles the ball and it's returned by the Detroit Lions for a touchdown to lose the game. The Redskins might have lost anyway, but it would not have been because of a stupid, emotional decision.

Before, the locker room was not divided at all. Now it's clear the coaching staff was arrogant and/or egotistical in taking out McNabb and humiliating him--the TEAM LEADER. So, it's still not really divided. Right? Wrong.

Bring in Albert Haynesworth, the antagonist who is not a leader but a troublemaker. Sure, everyone was behind Donovan but, now that the coaches acted like the jerks Haynesworth accused them of being, Haynesworth might have some players wondering...players like DeAngelo Hall for starters. "Hey, maybe Albert's right...maybe these guys are just jerks. Look how they treated Donovan." So, during the Bye week, players start wondering if the coaches can be trusted--Is Donovan going to stay with the Redskins beyond this year? If not, what does that mean about next year? Do I have to play for this coach next year? Who will be the quarterback? Some players may stick with the coaches...like Chris Cooley. Others might be in the Haynesworth camp. Then, there's the Donovan camp--he's still the team leader, right?

The point is, there's a game coming up against the Philadelphia Eagles. They just beat the Indianapolis Colts in an authoritative fashion. This is a division game and the Eagles are playing for first place. The Redskins, however, are playing for a second place tie, one game behind first place, a 3-0 division record and a huge step toward a playoff birth--at home on Monday Night Football. They're all competitors; they know what's at stake.

Enter Redskins owner Daniel Snyder, marketing "guru" who has never played a down of real football in his life but whose philosophy, again, is to throw money at a problem to fix it. What Snyder doesn't really understand, because he's a sports fan and not a wise man, is that Winning the Game cures the problem.

If Snyder wants to throw money at Donovan McNabb, take him and his wife out to an elaborate dinner and some ridiculously overpriced steak house; talk about what's going on one-on-one; and, if Donovan wants to leave at the end of the year, that's okay, too. Just let him know he's appreciated and respected as a player and a person.

But, that's not the way Snyder does it. For the past 11 years, Daniel Snyder has thrown money at a problem, just certain he knows the answer. As Michael Wilbon wrote Tuesday in the Washington Post, names like Deion Sanders, Adam Archuleta, Dana Stubblefield (actuall, I think he was before Snyder's time), Bruce Smith (who could barely make a sack before he earned the overall sack record), Brandon Lloyd (now the top NFL receiver with Denver), Antwaan Randle-El, Albert "malcontent" Haynesworth, Jeff George (who pissed off future Super Bowl quarterback Brad Johnson) and the list goes on with Mark Brunell, etc., etc.

Will guys like Snyder ever learn that these athletes who are worth their weight don't care about money--they care about championships. They have plenty of money. Those who don't care about championships but care about money come to the Redskins.

Take, for example, LeBron James. Cleveland Cavaliers owner Daniel Gilbert, who made a fortune with Quicken Loans, wanted to become an NBA owner and bring the Cleveland Cavaliers to a championship. He got LeBron James and, in the NBA, that can just about do it. Only, even LeBron still needed one or two players more to complete the goal. So, when his contract was up and Gilbert threw all the money in the world at LeBron, he chose the Miami Heat. Why? Because he knew he could win a championship with the Miami Heat. Why do you think everyone wants to play for Phil Jackson, Kobe Bryant and the Los Angeles Lakers? Then, the question is: Is this player good enough to play for us? Not, how much can we give this guy to play for us.

LeBron James chose a potential NBA Championship ring over money, and that's the right choice. That's the noble choice. It showed character. What does Gilbert do? He tries to disgrace James by saying James turned against the city of Cleveland. Gilbert, of course, was acting like a spoiled loser, showed no character at all and just could not understand that throwing money at LeBron could not actually keep him in Cleveland.

Gilbert and Snyder are cut from the same cloth. Money will get them anything they want...until it doesn't. And, how do they react?

Well, back to the McNabb soap opera. After two weeks of waiting to see how Donovan and the Washington Redskins respond following the McNabb benching, the Redskins announce--unexpectedly--that Donovan McNabb has extended his contract for 5 years, $78 million, really $40 million, blah, blah, blah...and we walk into the stadium under the assumption that this contract means he's our quarterback ("we" meaning the fans).

Only, the team shows up as if they just don't want to be there. The first quarter, this fired up Philadelphia team walks onto the field and pounds another team that gave almost no effort, no fight, no physical football that we saw in first eight games. This was a team that did not feel like playing on Monday Night Football against a division opponent. Would they have been ready to play without this huge contract announcement? Perhaps.

But one thing we must now assume is that the players knew the entire contract announcement was all bullshit. They mush have known that all this means is that McNabb will play in Washington for at least the remainder of this season. That's it. For all we know, Snyder and McNabb agreed to this in an effort to put everything behind them. So now, the team must wonder--Is this the last season here for Donovan? Is Albert right about this organization? Is this the same old crap we've seen here for 11 years? Am I just playing for lousy organization with a horrible owner who tries to buy players and market it for his own "sport" rather than focusing solely on winning championships? And, all this time, a game is about to start against an extremely talented and physical division opponent.

The Redskins were not ready. The team gave a lackluster effort. The season looks over.

And, all this, because Snyder just can't help but interfere in the only way he knows how to interfere--money and marketing. Only, the fans want a championship; the players want a championship--except for Haynesworth who wants off of this team and the same is probably true of TEAM LEADER Donovan McNabb.

So, the season is probably over. As I said before, WINNING is what cures team chemistry problems in the NFL and not money. In fact, money causes team chemistry problems if it does anything at all. Ever see New England overpay players based on getting benched or in the hopes they will perform.

If the Redskins beat Tennessee this weekend, then perhaps all is not lost for the season. If they lose a close one, at least they have a shot. However, another blowout loss and this team has stopped playing for Mike Shanahan and, as usual, for marketing "guru" Dan Snyder.

Tight Credit Blocks Holiday Season Kick Off

Yesterday’s unemployment figures reflect today’s consumer sentiment and tomorrow's announcement will not likely help matters.

The monthly RBC Consumer Outlook Index showed 46 percent of Americans plan to spend less this year than last year on holiday shopping, while 8 percent plan to spend nothing at all. What does this mean for retailers and retail property?

Half of families with children at home plan to spend less, with an additional 6 percent of these families planning to spend nothing at all, RBC reported. Meanwhile, 7 percent of Americans and 9 percent of families with children expect to spend more this holiday season.

Before this week’s midterm elections, consumers who believe the country is headed in the right direction slipped to 35 percent, down from 37 percent in October, and the number who believe the country is on the wrong track edged up two points, to 65 percent.

Nearly 70 percent of Americans think the U.S. economy and their own financial situation will stay the same or worsen over the coming year, RBC reported

"Even in the face of soft consumer confidence, spending accelerated in the third quarter. This disconnect will have to be resolved, and the first real test is upon us with the beginning of the holiday shopping season," said Marc Harris, co-head of global research at RBC Capital Markets. "If it turns out that the spending last quarter was simply the result of pent-up demand and consumers are returning to frugality just in time for the holidays, this will not come as good news for retailers."

Let’s face it, millions of Americans don’t have a job and millions more only have part-time work. There were not many raises or bonuses this year except on Wall Street (see the 7 percent/9 percent of consumers who plan to spend more).

The holiday season, primarily Christmas and Hanukkah, reflects the most important time of year for retailers. It represents nearly 75 percent of all revenue during the year. Without that revenue—and unemployment stagnant for the next 18 to 36 months—retailers will have greater difficulty holding up from 2011 to 2014, much less have any hopes of paying their leases.

The good news, if you want to call it that, is that Fed “fun” money can cycle through the stock market, boost values and make it look like these companies are actually worth something. A higher stock for Radio Shack means it might be able to cash some money out and pay the rent for another year.

Now, just imagine you’re the Fed buying $600 billion in bonds, you spend $1.25 trillion to purchase Fannie/Freddie mortgage-backed securities and overall debt is in the double-digit trillions of dollars. That’s like someone who earns $50,000 a year in debt for $1 million. And, don't forget the ongoing Temporary Guarantee Liquidity Program.

How, exactly, do you pay that back in your lifetime without going bankrupt—or at least in default? And, what happens to the creditors that lent the money and get nothing in return? This is the future we face as a globally connected financial system.

But this is only one part—consumer spending in the United States and its impact on retail. Let’s not forget consumer spending and how it affects industrial properties, warehouses, shipments and storage. What happens to UPS, Fedex and the postal system?

Meanwhile, consumers spend on the necessities—food, shelter (mortgage or rent) and clothing. For that reason, Walmart, Target and Kohl’s remain best bets for retail. Also, since nobody can live without a cell phone in this world or a television for that matter, the Best Buy will always survive at a certain level. I would also give Macy’s a pass.

But, say goodbye to specialty retailers in any city other than Washington, D.C.; New York City and, perhaps, Chicago, Los Angeles and Dallas.

Gateway cities survive, but insolvency continues to spread throughout regions of the country where consumers plan to rein in spending.

Robert Michaels