So you would really like to understand just what the hell happened to the global economy?

Just thought I would take a moment to line up the two most helpful resources I have found on the topic of the Great Depression II.

The first is an award winning radio documentary by PRI {Public Radio International} called "Giant Pools of Money". You can download the MP3 file or you can listen to it on the web here. This one is just tremendous. I hardly have a critical word to say about it. This is the critical foundation of your understanding of the financial market that was prior to the collapse, and how it came to be.

To understand how the house of cards collapse, you need to have a look at a video documentary by PBS Frontline called Inside the Meltdown. You can view the entire documentary here. The quality of the video stream is very good. This one is very dramatic and powerful, but not as expository and educational as the first. The great difficulty is the bias of the authors. They scarcely deal with the nationalization of Fannie and Freddy. Why? A sharp focus on quasi-public agencies established by a famed Democrat for progressive purposes might be damaging to the authors interests. The focus is sharply on Bear Sterns and Lehman Brothers. This is generally good. These two malefactors are close to the core of the meltdown. In truth, this documentary should have been 3 or 4 hours long. They just didn't have enough time to document this incredible sequence of events that comprised the Meltdown.

Nevertheless, Inside the Meltdown is a powerful history of just what happened in 2008. I strongly recommend it.

This just in: Warren Buffett discovers that the economy fell off a cliff

Evidently, Warren Buffett just went public with his discovery that the economy fell off a cliff recently. NO SHIT!?!?! You don't say? Is this just your finding, Warren, or will anyone step up to corroborate this conclusion?

I am a big fan of the Fast Money show on CNBC. Those guys have only two ironclad rules:

1. Have a serious take on the market
2. Don't state the obvious

These guys really hate it when you state the obvious. Why? Because you are being uncooperative and wasting everybody's time. We want to hear something we don't know. We want real material insights. We don't want to endlessly rehash meaningless talking points as worthless politicians do. If you make the mistake of stating the obvious on Fast Money, everybody will scream like hell at you.

When I read that headline grabbing statement by Warren Buffett I had just four thoughts:

1. I wish you had said that on Fast Money. They would have beaten the hell out of you for stating the obvious.
2. Buffett must be trying to push the market to the bottom so he can go bottom fishing. Everybody wants to catch the bottom of this market.
3. If Joe Schmoe says the economy fell of a cliff, nobody will report a thing, and they will yell at him for stating the obvious. Only the world's richest man can get away with this and make it headline grabbing news.
4. Why don't you tell us what you plan to do at the bottom--in explicit detail--Warren?
   

One last thought about Watchmen

Yesterday afternoon Bloomberg TV began running a crawler declaring that Time Warner had the best box office opening weekend of the year. Watchmen earned $56 million at the box office. The Hollywood reported adjusted that figure down to $55.7 Million. That is the figure currently reported by RottenTomatoes.com and IMDB.com.

This is good news and bad news for Warner. Watchmen is #1 at the box office by a long shot. The next closest competitor is Madea Goes to Jail with just $8.8 million. So they ran about 6.5 laps around their closest competition at the box office. However, this figure is substantially lower than the $70+ figure they were quoting originally. You might even say that they were as much as $21 million off the bullseye. These are the North American figures only. I am told you can take the North American figure and multiply by 2 and this is your International + North American box office estimate. This is a good rule of thumb. Real dollars will vary by title. This means Watchmen should have scored $111.4 million at the box office. So where does that put them?

MSN Video Report

According to this video source, Watchmen cost $150 million to make, $20 million to distribute & promote. Ergo they need to go to $170 to make their capital back. They might have $111 million in the bag right now. The box office may drop as much as 85% next week to just $8.35 domestic, $16.7 internationally. Then the money has to be split between Warners and Fox. The blunt point: They are not on pace to make their money back at this rate. DVD sales and Blu-ray will put them over the top, but they won't do it at the theater.

I expect Fox/Warner to be humiliated as they come in #3 below Miss March and Race to Witch Mountain next week. I am told that the Mann and other theater chains are going to start removing screenings this Thursday night. This will give Warner fewer scheduled times for this 2:43 minute magnum opus, and cut revenues accordingly.

After sleeping on it for 48 hours, I can tell you that Watchmen seems like a curious collection of 1960's hippie predilections and obsessions. You have the JFK assassination conspiracy, Vietnam, Nixon, Henry Kissinger, the doomsday clock, atomic war with the Soviets, the Stonewall rebellion, etc. The audience obsessed with these subjects in now much older (like 60+) and unlikely to be receptive to such an adolescent comic-book musing on the topic of "what if history had been different?" Those cats are listening to NPR for their entertainment these days, and NPR is saying little about the Watchmen. I cannot imagine 20 something kids in South America or Asia getting turned on by this movie. There is no handle on this movie that they might grasp. This is the core reason for the financial failure here.

The Watchmen: They are who I thought they were.

Well, I saw the Watchmen yesterday morning at 10:15 AM at the AMC 16 theater in Woodland Hills. What is my first impression? Do you remember the big fit Dennis Green threw after his Phoenix Cardinals lost a 24-7 lead to the (then) undefeated Chicago Bears a couple of years back? He screamed: "They are who we thought they were!" He knew the Bears were not a Juggernaut. He knew they had weaknesses. He knew he could expose them. He did precisely that. Unfortunately, his team let them off the hook. I am not going to let these fuckers off the hook.

This movie is tanking at the Box Office

First of all, let's recognize one thing: This movie is not doing well at the box office. I have a substantial facts to back this claim up.

1. On Friday night, around 11:00pm, I went to the Magic Johnson 24 Hour Fitness in Sherman Oaks. The Archlight, one of our finest theaters in Los Angeles, is right there beside and on-top of the gym. I heard not a single peep from the upstairs balcony. That is a far cry from the din of conversation I heard for "Sex and the City" and several other big money makers. I decided to check it out. There was no one up there waiting on line for the movie. Nobody lined up for the midnight showing. There were probably some people waiting inside, but this was not a visible crowd.
2. On Saturday morning, our theater was perhaps 30% to 35% full. I didn't make too much of this at the time, as Woodland Hills is not a great place for morning showings. People party pretty hard around here on Friday nights. They don't often get up early for a 10:15 showing of a movie.
3. At around 9:00pm, my Dad called me. He saw the 6:30pm showing of Watchmen in Fresno California at the Edwards 21. This is the finest theater in Fresno, and one of the best in the world. It is an IMax. He said his theater was perhaps 20% full. Make no mistake: This is not because Fresno is bad movie town. Fresno hog-wild for movies. Just about all types of movies routinely outperform national averages in Fresno.
4. Around midnight, I called my buddy Colin. He is becoming senior leadership in one of the large theater chains down here in SoCal. I asked him how the box office for Watchmen was doing? He replied "What's that? Do I hear the sound of toilets flushing? They told us all along that this movie was tracking well and we could expect big crowds. I came out here to $&^%%&* to monitor, and we've sold only 700 tickets for the movie all day long. Worse, we opened it on three screens capable of seating 400 people per showing. The people aren't buying tickets for this turkey."
5. Let's see 3 x 400 x 5 = 6,000. 700/6000 = 11.667% full. Oh shit...! That sucks...
   

We don't yet have official boxoffice results from IMDB.com or RottentTomatoes.com. These will be made public in about 10 hours. I still think Watchmen will be #1, but the money figure will not be anything like the original $70 million I was expecting. This movie will under perform expectations by substantial measures.

The Cult of Alan Moore

There is a cult of Alan Moore out there which hyper-hypes everything he does. He is not what they say he is. He is nothing like what they say he is. He is not a visionary artist. He is not a genius. He is not a great story teller. He is not an insightful psychologist. He is not a great thinker on the subject of power. All of this talk is rubbish, poppycock and blarney. He is a hippy drug user who has experienced a great deal of brain damage due to LSD use. That is all. Only this and nothing more. His work is bizarre for this reason.

I am well aware of the fact that Time Magazine picked Watchmen as one of their Top 50 or Top 100 Novels of the 20th Century. This choice is absolute bullshit, and reflects very poorly on Time Magazine, even to the point of discrediting the entire list. The critical staff discredited themselves by making this choice.

God only knows why Cults get started. I have no idea why weak minded fools follow people like Madonna or Brittaney Spears. Likewise, I have no idea why perfect idiots would lineup behind a guy like Alan Moore. Like Madonna and Spears, he has no merit, and yet he is a pop phenomenon. The bastard isn't even good looking... but then again Madonna wasn't either.

Not Snyder's Fault

The Cult of Alan Moore will certainly try to blame this financial failure upon Zach Snyder. Some will say that this is a D- class implementation of A+ material. Let me make it perfectly clear: That argument is absolute and complete bullshit. I am talking about 100% pure bullshit. Snyder did everything possible to make a great movie. This is an A- implementation of C- or D+ material. Snyder is just working with bad, inferior material here, and that is all. While this movie is not a perfect implementation of the material, even if you came up with a perfect implementation, it would still be the same overblown LSD brain-damaged rubbish Alan Moore wrote in the first place. A perfect implementation of Watchmen would still be a poor movie.

Why would I say such a thing? Well, let me just tell you...

Spoiler Alert

There are some noteworthy issues in this implementation, almost all of which trace back to the graphic novel, but I will lay a few of them out for you. I have already declared that I felt the character design, names, and powers were utterly weak and stupid, so I will not repeat that line. Instead I will focus on the main elements of the story.

1. As many have observed, this is a piece of Cold War nuclear hysteria. The notion of immanent atomic war with the Soviets now seems totally laughable, and the subject of ridicule today.
2. The notion that Nixon took over as dictator of the country also seems preposterous
3. The notion that the CIA used the Comedian to hit JFK from the Grassy Nole in Dealey Plaza is so funny it brought a big laugh in my theater.
4. What gives with all the strange ass usage of classic rock tunes? I know there were lyrical references in the book. I remember this well, but Synder decides to turn these into Donnie Darrko style mini-music videos. The effect is bizarre.
   
5. What gives with Dr. Manhattan's cock and balls hanging out all over the joint? Of course, Moore let it all hang loose in the comic book also. Synder could have made a correction here, but he allowed the LSD brain damage to flow through to the final cut of the movie.
   
6. Snyder decides to shoot "a really hot" sex scene between Silk Spectre and Night Owl aboard his nice revolutionary aircraft. I do believe Snyder thought he was pushing the envelope, inserting a red-hot smoker in a super hero movie for the first time. I regret to tell him that the audience was laughing in my showing. My brother and I nearly fell out of our seats laughing at this scene. I got an abdominal cramp I laughed so hard. Make no mistake: This was bad laughter. I am sure Synder did not intend this scene as comedy. Perhaps 14 or 15 year old boys will think it is hot, but frankly, they may not dig it either. They have the internet these days, and there is much hotter material out there.
   
7. And then we come to the ending, a concept so bad that I must deal with it in its own section.

The End

Shakespeare says alls well that ends well. Does this mean alls bad that ends bad? If so Watchmen is pretty fucking bad. So what is driving this endless epic tragedy? Well Veidt has decided to unite the world (thus saving us from atomic war) by giving everybody a common enemy to fight.

In the comic, Veidt cooks up a giant octo-squid monster straight out of Godzilla. This thing attacks New York, and destroys the place. This is supposed to signifythat an alien power is prepared to invade the Earth. The U.S. and the U.S.S.R. unite against this Godzilla-ish foe, and we live in perfect human unity & harmony thereafter.

In movie, Synder decided to change this ending. Smart idea. Moore's end was as excruciatingly stupid an idea as I have ever read anywhere at any time. Corn-cheese-whack in the extreme. So what does Snyder give us? Veidt has cloned Dr. Manhattan's power signatures. He destroys 15 major cities around the world, and makes it look like Dr. Manhattan did it. The world unites against Dr. Manhattan. We all live in perfect human unity & harmony thereafter.

So how does Dr. Manhattan feel about all this. Well... he didn't know about the plan ahead of time, but after the fact he thinks it will work. He doesn't approve or condemn, but he goes along with it. He even kills Rorschach to prevent him from telling the world. I would call that an endorsement of Veidt's plan. He decides to go off to some other galaxies and make some life there. Good idea... LSD burnout.

So what do I think?

So what do I think about it personally? The movie is not as bad as I had thought it would be. Because of Snyder's extreme efforts, it is more watchable than I thought. However, this is still a stupid story full of stupid characters and it has a very stupid ending.

The effect is a bizarre trip through 2:31 minutes (if you don't stay for the credits) which results in a big WTF? The audiance I saw the movie with felt the same way I did. Nobody was enthusiastically praising this film on the way out. Most people were shaking there heads saying "What the fuck was that?"

We should note in passing that Terry Gilliam, of Monty Python fame, was originally contracted to direct this movie years ago. He backed out of the deal, declaring that this graphic novel was unfathomable, unfilmable and a non-movie candidate. I think he was extremely wise. That is why I am a fan of Gilliam.

Nothing should be done to support high housing prices

I felt the need to sit down and scribble this out, early this Friday evening, before going to see Watchmen, because there is a gigantic fundamental error circulating in the think-tanks in Washington D.C. Many authorities within the Obama Cabinet are openly declaring that everything that can be done to stabilize housing prices must be done. The free-fall in the value of housing must stop. The reason why the average home owner should buy into the mortgage rescue plan is that it will prevent foreclosures from lowering the value of your home.

Hehehehe...

Well, this would all be very nice political bullshit if it were a mere excuse for rolling out some aid to stricken families. Unfortunately, of late, I have gotten the impression that Obama's boys and girls are serious about this notion. I think the really want to stop the free fall in the price of housing.

Let me make this absolutely and completely clear so that nobody can misunderstand what I am saying: Nothing should be done to stabilize house prices. Nothing could be more dastardly, more terrible or fundamentally wrong for the American people than stabilizing housing prices at current levels and attempting to get them to rise again.

In all this goddamn hoopla about banking collapse, you are forgetting the absolute fundamental reason for this crisis. Hot leverage dollars bid up the prices of real estate to insane levels. We have reached the point where just about every common house is totally unaffordable to every common American worker. Because housing prices are unaffordable, we are seeing a massive amount of defaults on mortgages. It is not just happening because speculators are abandoning ship. It is not just happening because of predatory loans. It is happening because Joe the plumber can't afford his $550,000USD 1,200 SQFT townhome in Receda California. Any loan of this amount to Joe seems both predatory and foolhardy.

Call me foolish. Call me irresponsible. Call me a dreamer. However, I believe that when every common ordinary home is unaffordable to every common ordinary worker, you have a very serious structural flaw in your economy and society. People can't buy houses when they need shelter. They can't sell when they need to move. They can't build when more housing is needed, because there is no hope of finding buyers.

When wage growth is 0.0% after inflation, year after year, housing cannot continue to appreciate at 7.7% year after year. There are no new dollars in the American wallet to cover this massive increase in cost. Banks like Bear Sterns and Lehman might favor the system of life-long debt peonage, but we common citizens do not. Most of us refused to sign off on this system, and that was when the housing market bubble burst.

To get out of this crisis, the price housing must correct. The market is self correcting right now. Housing values are dropping. This is good. It must continue for some time. Townhouses in L.A. need to go down to the $200k range, not the $500K range. Even at this price they are onerous cost items indeed.

If the Obama administration is serious about stabilizing prices they will

1. At best, waste trillions of dollars and barely retard the correction process.
2. At worst, waste trillions of dollars and fuck the very same little people they claim to represent.

The source of all this economic chaos

After carefully considering most of the key elements of the present economic crisis, I think the origins of the problem are incredibly clear; so clear that several things must be said.

• The formerly fabulous ersatz New York investment banks are at the very heart of this crisis
• The iBanks were up to no good
• The Subprime mortgage movement can be interpreted as an attempt to bring back the days of feudal debt peonage, where serfs are vassals of their patrons for life.
• Selling subprime mortgage backed securities can only be understood as an investor rip-off scheme.

In this piece I am going to state my mind as clearly as I possibly can, so that what I am saying cannot be be mis-interpreted in anyway. I will not soft-pedal.

Richard S. Fuld Jr and his boys at Lehman Brothers were running a confidence game that dwarfs the Enron case in magnitude. It is clear that the damages stemming from the collapse of Lehman Brothers far and away outstrip the damages of the Enron scandal/collapse/bankruptcy. I expect several key players from Lehman to be up on securities fraud charges soon, just as surely as Ken Lay, Jeff Skilling and Andy Fastow were. Just you wait for the FBI to conclude its investigations.

Those are some mighty tall words there, Dave! You got anything to back that up? How else am I supposed to interpret that data? What other conclusion can you draw on careful consideration?

It is already well understood that the subprime market was full of shenanigans. 3rd party mortgage vendors lied about borrower income and forged income documentation. Loan officers with the power to say yes or no performed no due diligence to confirm employment, income levels, residential status or citizenship. Gross sums, totally unaffordable to borrowers, were loaned out on the assumption that the value of the house would increase; a fact which has nothing to do with whether a customer can pay off the loan month to month. Explosive ARM loans were issued with teaser interest rates, sold at high closing costs, and then massive increases in interest were encounters 90, 180 or 360 days later. These interest rate adjustments often turned onerous loan payments into completely unpayable payments. Then you find the "interest only ARM", a super-toxic loan for speculators in which you never pay the principle, only an adjustable rate of interest on the debt. By very nature of the legal structure of the deal, the loan can never be paid off over time. Only a lump sum or bankruptcy ends the loan; all or nothing. Then you have 40 and even 50 year terms for fixed-rate loans. The quantity of interest you would pay on such a long loan is truly astronomical, often making the final cost of the house 3 times the base sales price.

It is clear that groups like Lehman brothers and Bear Sterns kept pushing the envelope regarding just what constituted acceptible loan terms. The terms for the buyers kept getting worse and worse. What can you say about a loan structured in such a way that it cannot be paid off? What can you say about a loan that would make a plumber pay $1.5 million over the course of a 50 year loan on a small rat-infested townhouse in Queens? What do you say about a HELOC? A Home Equity Line of Credit essentially issues a borrower a credit card equal to the perceived amount of potential equity in the house, and then encourages them to go buy groceries, gas and HDTVs, all of which jack up the mortgage balance. This is nothing more than an attempt to re-institute the system of debt-peonage and feudal serfdom; a situation where their homes and land are perpetually owned by the feudal lord. This is an attempt to make every man a financial slave.

The only problem is that the U.S. Federal government has limits regarding how far you can pursue a guy in bankruptcy. I should mention in passing that the financial industry tried to modify our Bankruptcy law many times in the run up to the crisis. They had some ugly successes. Ultimately, they weren't able to clamp people in irons, inside debtor's prisons, in an attempt to force repayment. Thank God for that much.

Worse, groups like Lehman Brothers and Bear Stearns clearly understood that these loans were hot potatoes. The second act of their business was to chop up these mortgages into little 'security instruments' or bonds, and sell this right to be repaid to ordinary rank-in-file investors (including guys like you and me). These were high risk instruments, designed to off-load the risk from Investment Bankers to others. Open up these bonds and you would find a motley collection of bad subprime loans. Good security for the bad bankers. Bad security for the gulible investors. Bake a hot potato in the Microwave and then toss it to an unwary investor. You charge him for the hot potato and you burn his hands also.

I still have no idea why Standard & Poors would give these shit-bonds Tipple-A ratings. Perhaps it had something to do with the Mortgage Default swaps issued by Bear Stearns and AIG... But this is a story for another day.

What should I conclude when I see an organization like Lehman Brothers borrows billions from Citigroup et al to issue subprime loans, only to turn around and sell these rubbish loans as shit-bonds to benighted investors? The scheme is clear:

1. Don't risk any of your own money
2. Borrow from groups like Citigroup
3. Pocket large fees from originating mortgages to people who can't get them any other way.
4. Give those subprime borrowers money from institutions like Citigroup
5. Don't hold the hot-potato. Chop it up with other hot-potatoes and sell it as a security to benigted investors.
6. Get Standard & Poors to rate your bonds as Tripple-A when they are not.
7. Get AIG to ensure the bonds.

What I see is a group of bandits inside Lehman Brothers and Bear Stearns orchestrating a disaster, and largely taking personal fortunes away from the deal. Richard S. Fuld Jr is not a poor man today, despite the fact that Lehman is bankrupt, and the world burns.

So have you heard the economic news of the day?

The news just doesn't get any better. It keeps getting worse. The markets are crashing again.

1. The European Markets lost 3% over night.
2. The IRS & Treasury revised their GDP figures this weekend. The U.S. economy shrank 6.2% in the 4th quarter of last year and is expected to shrink another 6% this first quarter of 2009.
3. The Dow, Nasdaq and S&P 500 fell through the frickin' floor quickly this morning. The Dow, in particular, is now trading below 7000 which is going to set off a wave of panic.
4. Nourial Rabini, the only economist to correctly call this recession, said we would finish 2009 at DJIA=6400. Rabini clearly declares that this will be an adverse market reaction to the Government taking control of the banking system, and forcing them to eat all their losses. This could produce 3 years of zero dividends and famine.
5. As I write this we are approximately 14 minutes shy of the close on 3/2/2009. The Dow currently sits at 6,763.29. That is down 299.64 points or 4.24%. The Euros lost 3% last night. We beat that by one and a quarter. We are now at a low we haven't seen in 12 years, since April of 1997.
6. This sudden plunge is largely a consequence of AIG's latest loss figures: 61.7 Billion USD in the 4th Quarter of 2008. This is the largest corporate quarterly loss in history.
   
7. GM, AIG, and Citibank seem to be in a perpetual vegetative state.
8. The U.S Government is the defacto owner of Citigroup right now, and won't admit it. Also the Government is refusing to assume control of it's new holding and reorganize the house.
   
9. I heard former labor secretary Robert Riche on the Radio yesterday, retracting his condemnations of the D word. That is, Depression. He formerly said that no economist should use the D word related to this present recession, as there was no chance of us hitting 25% unemployment. He is now saying that those were hasty words, and he may have to eat crow for saying that. He still says that we are at only 8.9% unemployment vis-a-vis 25%. Unfortunately, the technical charts are forecasting 15% unemployment soon. That is downright nasty.

The latest most interesting analysis says the following: Every recession since the Depression has been caused by the Fed jacking up interest rates in an attempt to cut off inflation. This is the first time since the Great Depression that a major down turn has been caused by out-and-out banking collapse. Of course, the banking collapse was triggered by the explosion of a massive speculative bubble in Real Estate.

I thank God I never bought a house during that time, and that I just had my employee review meeting, and I scored all 90s and 80s, and they are going to give me a 3% cost of living increase in pay. I'm a damn lucky guy.