The sudden death last month of American landscape artist Thomas Kinkade, at age 54, left the art world perplexed at the loss of one of its most ridiculed yet successful practitioners. A coroner’s report released yesterday showed that Kinkade died of an accidental overdose of alcohol and the anti-anxiety drug Valium. His brother’s response to this report indicated that Kinkade suffered from alcoholism, and depression over his divorce, substantial financial problems, and the incessant criticism of his art by professionals.

This last point is rather surprising, since throughout his career Kinkade showed scorn for the critics, and claimed to be crying all the way to the bank. Apparently all those millions of dollars he made mass-producing his art didn’t really assuage his inner need for critical approbation. Or, to put this another way, maybe it really was about the art after all. His art did have an immediate emotional pull, and had he chosen just to do oil paintings without all the reproductions and marketing hype, the emotional pull would still be there. The fact that critics didn’t like the nature of that emotional connection to the viewer – that it was too coy, too 19th century, too deliberate – apparently offended Thomas Kinkade. After all, he said, he was only giving the public what it wanted.

The US economy is on the road to recovery, right? That’s what all the economists and financial analysts say. Unemployment has dropped down to 8.3%, unemployment claims are now at a level last seen in 2008 before the economy fell off a cliff, almost all the TBTF banks have just passed the recent Fed stress tests and are now allowed to use their excess capital to pay dividends and buy back their stocks, inflation is tame if you go by official government statistics (especially core inflation that the Fed loves to look at because it removes the effects of food and oil price increases), and finally all major economic indicators are flashing green lights.

Here was Rush Limbaugh at the opening of his radio show yesterday, commenting on the controversy that arose over his describing a young woman who testified before a Congressional committee a "slut" and a "prostitute".

Oh, yeah, I'm gonna deal with this. I'm gonna deal with it. I think this is hilarious. Absolutely hilarious. The left has been thrown into an outright conniption fit!... The reaction that they are having to what I said yesterday about Susan Fluke -- or Sandra Fluke, whatever her name is -- the Georgetown student who went before a congressional committee and said she's having so much sex, she's going broke buying contraceptives and wants us to buy them. I said, "Well, what would you call someone who wants us to pay for her to have sex? What would you call that woman? You'd call 'em a slut, a prostitute or whatever."

The time-honored advice brokers have always given their investment clients is to “diversify, diversify, diversify!” It’s the basic law of investment – Investment 101 you might say – never put all your eggs in one basket. Which is why it is so odd to see the CEO of one of the largest investment funds in the world –BlackRock – insist that his customers ignore this basic rule and invest everything they have in equities.

CEO Laurence D. Fink says that we are living in a “New World” where it is impossible to earn a decent return on traditional bonds or other conservative investments. He’s right about that; Fed Chairman Ben Bernanke has made it clear he intends to keep interest rates at zero percent through at least the end of 2014. Maybe this New World is a welcome relief for borrowers, many of whom are desperate to reduce their debts, or at least the interest cost on their debts if they can refinance at lower rates.

I came across this highly informative interview with Dr. Lacy Hunt of Hoisington Investment Management on Mish's blog: Global Economic Trend Analysis. He found it on another blog: johnmauldin.com, and the interviewer is financial journalist Kate Welling. A sample quote:

Kate Welling: I suppose all this means you expect a recession this year?

Dr. Lacy Hunt Well, consumer spending will slow this year very dramatically from a very weak
base. We had a decline in real disposable income in 2011. GDP rose, but GDP
measures spending, not prosperity. In 2011, as is often the case, when inflation rises,
households initially try to maintain their standard of living. So in the face of rising
inflation and trailing wages, which was the story in 2011, families resorted to
increased credit card usage or to drawing down their saving. But in addition to a
decline in real disposable income in 2011, we also saw a net decline in net worth
[lower chart below]. And a year-over-year decline in net worth has been associated
with the start of all the recessions since 1969.

We touch on many of the topics discussed in this interview, including in our recent conversations about Greece. It is well worth the time to go through all 29 pages of the interview.

http://www.johnmauldin.com/images/uploads/pdf/mwo021312.pdf

Traders in New York this morning were greeted with this happy headline from The Wall Street Journal:

US stock futures higher; buoyed by Greece

Yes indeed, the Dow Jones index is set to open at least 70 points higher because the Greek parliament approved the additional austerity measures demanded by the European Union, the European Central Bank, and the International Monetary Fund. In exchange for €130 billion in a second bailout by the “Troika”, as the three lending institutions are called, Greece will have to cut its minimum wage by 22% and the government will have to lay off an additional 150,000 workers. This is in a country that is in its fifth year of recession, with an official unemployment rate of 21%. Business has virtually collapsed, with many private sector companies on the verge of bankruptcy. The health system is so starved for funds that a bacteria resistant to all medicines is raging through hospitals, forcing the chronically ill to decide whether to even risk seeking professional care. Poverty is reaching extreme levels and is well-entrenched among what used to be the middle class. Children are sent to school so hungry that they are fainting in the classrooms. As of last night, the crowds that were storming through Athens and other large cities no longer were content to throw rocks at the police; Molotov cocktails were used to set at least forty buildings in Athens on fire. The police in Athens, facing crowds estimated from 80,000 to 100,000 people, were forced off Syntagma Square, and appeared to have run out of tear gas. Journalists described the business center of Athens as a war zone. The country is slipping into social disorder, if not anarchy. But stock markets in Europe were up today on the happy news that the Greek parliament approved the additional austerity measures.

The headline number from the Unemployment Report this morning showed 243,000 jobs were created, more than the highest estimated increase by any of the economists surveyed before the report was released (the average expected increase from the economist survey was 120,00 jobs). The unemployment rate fell to 8.3%, again lower than predicted, and certainly good news for President Obama. Job growth was nearly across the board – in retail, construction, manufacturing, business services, and the hotel and restaurant industry. You can believe all this if you want, or you can go into the details in the report for some interesting context.

Marianne Gingrich, the 2nd wife of Republican presidential aspirant Newt Gingrich, has claimed in an interview with ABC News that her former husband undertook a six year clandestine affair with a Congressional aide 23 years his junior, at the same time he was conducting impeachment hearings against President William Clinton for lying regarding a sexual affair with White House aide Monica Lewinsky. Gingrich later married the Congressional aide – Callista Bisek – only after his wife rejected his proposal that they enjoy an open marriage, with Ms. Bisek playing the role of mistress.

Marianne Gingrich should not have been surprised that Gingrich proposed to Callista Bisek before he even announced to his wife he was seeking a divorce. This is exactly how he dumped his first wife in favor of Marianne, saying to an aide at the time that his first wife was too ugly to be a First Lady, and that her future was uncertain anyway because she had cancer. Marianne Gingrich had previously described the former House Speaker as a man whose hypocrisy is such that he does not think he is bound by the rules he provides the voters for living a moral life. "He believes that what he says in public and how he lives don't have to be connected”, said Marianne Gingrich.

Newt Gingrich provided a brief statement to the press in response to the upcoming interview by his 2nd wife. “While Marianne and I no longer have a relationship, it is gratifying to see that she has put aside her bitterness and endorsed my competence to lead the Republican Party in the 2012 general election. Ever since Ronald Reagan ran on a family values platform, while in private being barely able to speak to his children from his first marriage, I have done my utmost to live up to his standards of hypocrisy and disgraceful personal behavior. I believe no other candidate for the Republican presidential nomination comes close to my cynical attempts at deflecting criticism of my actions by blaming the media, blaming my political enemies, and blaming my misguided, if not outright dishonest, former wife.”

re-upping this, originally posted January 13. ~eds

I was telling someone earlier this week about my good friend Newt Gingrich. You didn’t know he was one of my friends? Neither did I, until I saw his television commercial attacking Mitt Romney for being a vulture capitalist. For at least five years, a lot of us in Leftist Blogoland have been decrying the equity extraction and asset stripping practices of people like Mitt Romney, the former CEO of Bain Capital. We’ve been joined in this crusade by writers with libertarian beliefs, and some of them, like Karl Denninger, are far more direct than we have ever been in calling a crime a crime, and demanding prison terms for the people who helped destroy America’s productive manufacturing base.

The world is running out of money. If money is credit, and credit relies on confidence, there is not enough confidence in the financial system to supply the world with the money it needs. Since the initial credit crisis struck in 2008, credit and money have been withdrawn from the system in such staggering amounts that international trade can no longer grow. The world’s central banks are playing a rear guard action by acting as lender of last resort to banks that no longer trust each other and have stopped lending in the interbank market. As liquidity flows out from the system, the rottenness that has corrupted the foundations of global finance is now exposed for all to see.

I was nine years old at the time. We were in school one morning when our teacher was called away. This was a very unusual occurrence. We sat quietly waiting, and when teacher returned, she was crying and shaking uncontrollably. All of us were worried and confused – teacher had never acted this way before. In fact we had never seen any emotion from her at all. “What has happened, teacher?”, someone called out. Sobbing, she replied – “Children, Great Teacher has died!”

It was as if you pushed a button in the room. Instantaneously all of us burst into tears, with many of us wailing “What is going to happen to us? Who is going to take care of us? How will we live?” It never occurred to any of us that our parents or some responsible adult would take care of us. From the moment we were aware of the outer world, we understood that all that was good, beautiful and intelligent in the world came from Great Teacher.

Financial markets rise and fall based on the perceived value of the products being sold. But there are occasions when market value is affected by the condition of the marketplace itself, and whether the infrastructure that supports the market is structurally sound. This is the situation investors are now facing. There is rottenness apparent in even the largest and most trusted markets, like the US Treasury market, and investors are beginning to question how safe their funds are, or whether the protection being bought is worth anything. Private money is nervous, or it is fleeing the markets altogether. When so many different markets are afflicted by the same creeping structural weakness, it is no surprise that the average investor begins to ask whether Financial Armageddon may be upon us.

There is a story that appeared this week in The New York Times that would have been worth reading if it had been published five years ago. In the article, the reporter, Edward Wyatt, analyzes the propensity of the largest financial institutions to violate securities laws despite having previously violated these same laws and made promises to the Securities and Exchange Commission never to violate them again.

The New York Times has a portentous way of writing such stories, as if the information they have uncovered is revelatory if not earthshattering. Case after case is presented, experts are interviewed and asked to provide analysis, and some weighty conclusions are reached. Readers should be left with at least a slight feeling of outrage that such things have been going on in high finance.

Stock markets around the world reacted with horror this week to the news that Greek Prime Minister George Papandreou has ordered that the terms of a proposed EU rescue package worth €130 billion should be voted on by the Greek people in a national referendum. The Nikkei, the German DAX index, the French CAC-40, and the Dow Jones Industrial index all ended the day down 2% or more. The euro took a pummeling on the foreign exchange markets.

Global leaders involved in the Greek rescue talks expressed shock and disappointment that the Greek government would throw into jeopardy the carefully-constructed rescue plans that required approval from all 17 EU governments. The White House press secretary, speaking on behalf of the President, urged Greece to accept the bailout terms as soon as possible. It was US Treasury Secretary Timothy Geithner who first recommended to the EU leadership that it significantly expand its bailout fund from €440 billion to as much as €2 trillion in order to calm global financial markets.

Now let’s step back a minute and consider how ludicrous this all is. The Greek Prime Minister proposes that the Greek people, who have borne the burden of one austerity package after another each time Greece has approached the EU for help, at long last get to have a say in these discussions. Politicians everywhere express dismay and surprise that any politician, especially one on the receiving end of the bailout talks, would even consider allowing the people to at long last have a vote in these decisions. Financial markets plummet on the news. Since when did democracy become the enemy of good governance in democratic countries?

You didn’t have to buy Apple products to be indebted to Steve Jobs. Millions of people resented the man – the figure in a black turtle neck sweater and blue jeans who obsessed over corporate secrecy, who built up a cult following of Apple aficionados, who staged product introductions as if they were a manifestation of the Second Coming. Millions of people resented all this about Steve Jobs, but quietly, day by day, they paid homage to him nonetheless.

Do you use a personal computer? That product owes its existence to Steve Jobs more than anybody else. What about a smart phone? A touch screen computer? A new tablet? All of these products came from his imagination, or better said – from the collective imagination of the teams of people working for him. These people were creative, but it takes a special form of genius to inspire creative people to work towards a common goal.

Members of the Federal Reserve’s Open Market Committee woke up earlier this week to find a dead fish placed on the steps of the Marriner Eccles building in Washington. Everyone knows this is a traditional Mafioso warning to the recipient that they are soon to be “sleeping with the fishes”. But who would have the audacity to so-crudely threaten the distinguished and eminent governors and presidents of the Federal Reserve System? How about those masters of intimidation and economic terrorism, the Republican Leadership in Congress.

Yes, the warning came collectively from Mitch McConnell, Jon Kyl, John Boehner, and Eric Cantor, in the form of a letter to Fed Chairman Ben Bernanke ordering him not to institute any more monetary easing. The timing was exquisitely deliberate: a day before the FOMC was due to meet to discuss monetary policy and – according to many insider reports – vote to approve some new form of Quantitative Easing.

The Pirate Party surprised pollsters as well as the general public by procuring 15 seats in the Berlin parliament, following yesterday’s election. To win any seats, a political party has to obtain at least 5% of the vote in the election; the Pirate Party surpassed this total easily, reaching nearly 9% of the vote. To put this in perspective, Angela Merkel’s coalition partners, the Free Democrats, received only 2% of the vote and will not be allowed representation in the Berlin parliament. Despite its name, the Pirate Party is not simply a protest group. It is a serious political movement focused on individual rights to communication, particularly when it comes to the internet. The party does not identify itself as right or left, liberal or conservative. It is, however, anti-corporatist, and is especially opposed to corporations that seek monopolies in public communication.

The US mortgage crisis has crept upon the judicial and political scene in bits and pieces. One lawsuit will concentrate on robo-signing by the big banks. Another will look at errors in the securitization process. A third will probe the way mortgages were originated. None of these lawsuits really puts the whole picture together – until now. Catherine Cortez Masto, the Attorney General for the state of Nevada, has filed a complaint against Bank of America that takes you from the origination of mortgages to their foreclosure, showing you exactly how Nevada thinks Bank of America defrauded consumers in that state. It is a well-written legal complaint, but it is not easy reading. It will be hard for you to believe that one bank could be so deceitful and so reckless with the law. It will be even harder for you to understand how Bank of America is still allowed to call itself a bank.

If you are a Republican running for president, what should be your opening line of attack – the one thing the voters should remember as your biggest concern? The lousy economy? The lack of jobs? The federal deficit? The war in Afghanistan?

If you’re Rick Perry, Governor of Texas, how about leading off with the Federal Reserve and Quantitative Easing? In fact, why not go right after Ben Bernanke, and accuse him of treason, suggesting he might want to avoid large crowds milling around lampposts. Either Rick Perry is naïve and hopelessly out of his league in the big game of national politics, or he’s on to something. His gambit did work in one respect: it got him a lot of publicity, and it wasn’t entirely bad because so far he has refused to back down on his statement.

From World War I until Gulf War II – these are the bookmarks that define the American Century. All through this period the United States enjoyed economic, military, and political ascendance, and by the time Germany surrendered in 1945, the United States was the preeminent global power in so many dimensions that it truly “owned” the 20th century. In the realm of finance, American supremacy was symbolized by the AAA rating accorded its government securities, a rating the United States has enjoyed since 1917.

Now the United States has lost its AAA rating, and deservedly so. It has shown itself incapable of dealing with many serious financial and economic problems, One of its two major political parties has deliberately – yes deliberately – attempted to force a default on US Treasury securities, so that it can engineer its vision of a fiscally prudent America, one in which it is forbidden ever to raise taxes on wealthy people. This despite the fact that, other than corporations, wealthy people are the only source of incremental tax revenue for a government desperately in need of cash flow.

Hey, John! John Bull! How you doing? It’s been a while – I don’t get many visitors these days you know. You’re looking great! I gotta say – I loved that wedding. Loved it! I saw all of it from the very beginning to that balcony scene at the end. I saw it live too – at 3:00 a.m. – right here in the hospital room. I was up anyway; I don’t sleep too well these days. I have to say, you guys really do that pageantry stuff better than anybody. The Pope could take some lessons from you, and those guys at the Vatican have a few millennia of practice at that sort of thing. And that Kate and William! What a lovely couple. Do you know they came to visit me right after the honeymoon? Very thoughtful, they were.

Hey, you wouldn’t mind putting on one of those white face masks, would you? These hospitals are just full of germs and you shouldn’t take any chances.

You heard about my illness, didn’t you? Something to do with my debt ceiling. My blood count was too high – reaching the limit – I couldn’t follow it all. They had all these specialists in Washington running around shouting at each other. It was all over the television channels. A real embarrassment, I tell you! Half of them were saying I needed even more blood transfusions, and the other half were saying maybe I should slow down a bit or even reduce my intake. I’m all in favor of that; I’d like to get back to where I was ten years ago, when I wasn’t stuck in a hospital bed.

Was it just a week ago that President Obama was hanging tough, insisting he would never accept a debt ceiling package that excluded tax increases? In rejecting a six month extension of the debt ceiling, Obama said last week:

But there’s an even greater danger to this approach. Based on what we’ve seen these past few weeks, we know what to expect six months from now. The House of Representatives will once again refuse to prevent default unless the rest of us accept their cuts-only approach. Again, they will refuse to ask the wealthiest Americans to give up their tax cuts or deductions. Again, they will demand harsh cuts to programs like Medicare. And once again, the economy will be held captive unless they get their way.

It’s hard to say if the Tea Party has an acknowledged leader, but someone who professes to be just that has chosen a very opportune moment to trash Speaker John Boehner’s attempts to craft legislation that would allow an increase in the debt ceiling. Judson Phillips, the CEO of Tea Party Nation, is the self-acknowledged head of the Tea Party, and in an editorial this morning in The Washington Post, he attacks Boehner’s legislation for providing “almost non-existent budget cuts.”

Phillips says:

As the founder of Tea Party Nation, I feel confident in saying that the Tea Party understands what so many in Washington seem to have forgotten: We do not have a debt crisis. We have a spending crisis. There is only one way you get to a debt crisis — you spend too much money.

Here is what is fundamentally wrong and dangerous with the core assumption of the Tea Party: There are two ways to get to a debt crisis – you either spend too much money or you don’t take in enough revenue. Anyone who has done a family budget or a business budget understands there are two sides to every discussion of cash flow: cash flow in, and cash flow out. In government terms, this equates to taxes received and expenditures made.

By taking one half of this equation out of the discussion, the Tea Party is dragging the nation along on a fantasy ride in which only spending cuts are allowed as a solution to the government’s debt problem. The danger in an approach which demands enormous budget cuts - $4 trillion is the number mentioned by the Tea Party – is that you expose the economy to a depressionary shock, especially since the Tea Party wants the cuts immediately. Immediate cuts of that size would be the equivalent of removing 25% of all cash flow out of the economy, throwing tens of millions of middle class Americans into acute financial stress. For many poor people, it would be an existential crisis, in which starvation becomes a real prospect.

If political functionality were a means test for a country’s credit-worthiness, the US would have lost its AAA rating a long time ago. The country which prides itself as the “World’s Greatest Democracy” has puts its dysfunctional political system on display for months now, in a struggle to get the debt ceiling increased. The resulting spectacle has nauseated even the ever-complacent American public: both Democrats and Republicans are now given losing grades by the voters for their performance in this farce. If the country had a legitimate third party to vote for, the Democrats and Republicans would be in serious trouble. Of course, the political system is geared to prevent third parties from emerging, so the country flounders about, looking for leadership from pusillanimous Democrats or ideological Republicans who consider raising taxes a mortal sin. The voters are probably a few steps away from concluding what is meant to be hidden but by now should be obvious: American democracy doesn’t exist, and the political system in Washington is beyond repair. What is worse: there are people and organizations who like things just the way they are and will fight any attempts at reform.

As we enter another round of quarterly earnings “surprises” on the upside for American corporations, one company continues to stand out from the crowd – Wal-Mart. The distinction is not one that Sam Walton would ever have wanted or expected: Wal-Mart has endured eight straight quarters of declining sales in stores opened for at least one year. This is the most important measure of success in retailing, because it strips out the distortions in revenue that come from adding new stores. Consider in particular how difficult it is for a retailer like Wal-Mart to achieve even one quarter of declining same-store sales; Wal-Mart’s two high-volume products are gasoline and food, both of which have experienced percentage price increases in the double digits. It should be easy for the company to achieve substantial revenue growth just on inflation alone, which means something has gone seriously wrong with the business model of the company that is a poster child for globalization.