We contine to watch economic deterioration, and continue to see people looking to solve the problems created by excessive risk in the system by introducing more and new types of risk:

On the deterioration front:

• The strawberry guy at my local farmers market has backed off last week's 25% price increase. The justification of that increase (from $12 a 3-pack to $15) was increased transportation and fertilizer costs, combined with tight supply due to a couple of dry months. Now he's backed off to $13 and is still not selling out his produce by the end of the day. It seems that even in this rarified neighborhood in West LA, freshly-picked strawberries are a luxury good for which prices can only be raised so much. And the guy growing them is most certainly getting squeezed between increased costs of doing business and consumer's willingness to do without.
• A lot less recruiters seem to be showing up to some of my regular networking events than in the past. Part of this is seasonal, as the meetings tend to attract fewer people overall this time of year. But part seems to be due to fewer openings. Also, quite anecdotally, the falloff in attendance appears to be at least partly influenced by the price of gas.
• I spoke with an old neighbor of mine yesterday afternoon. Among other things this individual "entertains gentlemen," to borrow her euphemism. Since I met her almost a decade ago, she's been one of my best economic indicators. Her business, also a luxury, is sharply down the past few months. She'll be the first to admit that she's not quite as young as she used to be, but doesn't think that's driven such a sharp dropoff. It's the economy, she says.
• While rents over the past three years are up in my little complex, my latest round of new neighbors have been able to negotiate rents downward. That hasn't ever happened, as far as I know.

Now for the new risks:

• We've got a new type of option available to retail investors today. These are designed to be easier for retail investors to understand, as they tend to replicate sports betting. Note that these provide little or no benefit for anybody who is legitimately using options for hedging or adjusting risk. They are purely a gambling vehicle.
• The House and Senate are busy passing bills that will allow the various government agencies to issue and insure even more questionable mortgages. Adding risk to the system seems preferable to letting the system work things out by allowing prices to fall. For better or worse, it won't help.
• AIG (NYSE:AIG) clearly shows us that all the risk isn't priced in.
• Citi (NYSE:C) still has no clue what they should do with their business, and still seem focused on raising capital. Why they would do this if they didn't see the risk of further writedowns is beyond me.

I think we are in the early stages of a process of reducing risk in the system, which will include taking a lot of flaky investments of all sorts out of the public markets, and forcing a lot of others to reduce their own embedded risk. More on this later.

And for the record, I was into Citi for a trade on some short-term calls, thinking they might be able to do a bit better. Out of that trade at a small loss. Now believe you can't touch these guys because they absolutely have their heads in the sand. The Sandy Weill model has been failing for a decade, it's still failing, and somebody needs to finally kill it.

-btc

No big developments today.

• Well, more and more evidence that nobody trusts government. We all know that the Fed's machinations are designed to bail out multimillionaire bankers while destroying our purchasing power, and we don't trust them. Now there's plenty of evidence that we don't trust politically motivated pandering like the Clinton/McCain "gas tax holiday" which would only make more money for gas companies while not benefitting consumers at all.

  This, I think, is a positive development. We need to be thoroughly disgusted with all these guys before we toss them out. Sadly, we'll all be hurt by waiting so long.

  As I've noted before, I think it'll be the next generation -- the generation raised on interactivity rather than passive TV watching -- that will finally take control from the people in the middle who forget who they work for.

• One story I haven't seen mentioned in may places is the upcoming leadership transition in Saudi Arabia. (Thanks to Stratfor for pointing this one out.) If Crown Prince Mishal, the most powerful member of the royal family who is currently in Geneva for "medical tests" were to die, a lot of uncertainty would enter the system even though the nominal king still lives. That situation could make oil at $150 a barrel a reality very quickly even if the new and untested Saudi succession planning actually works. I would not be short oil right here. Not long it either, but this is just another reason you can't short.
• So, Warner Music Group (NYSE:WMG) is losing money and has to cut its dividend? I guess that says a lot about the strategy of suing your customers while simultaneously screwing virtually all the artists that you sign. I continue to be amazed at how self-serving the managements of these companies are. They will destroy their businesses rather than concede that their personal ego-gratifying empires are no longer sustainable.
• Does anybody still believe government numbers? If so, could somebody please let me know why?
• And more government lies. But a note at the end that I ultimately believe is positive, for the reasons specified above. A time is coming rapidly when people will be less inclined to believe any number that they can't touch, manipulate, react to and comment on. Imagine when the goverment has to simply publish the raw data in a framework that allows you to easily pull it apart yourself. Today the government can lie with impunity because the overall attitude is of the TV viewer: passive. But passivity is dying. By the time today's four year-olds can vote, it'll be dead completely. And so will the government's ability to lie to us.

-btc

Part of my reason for the Utah trip this past week was to attend the latest budget meeting for my property's homeowners association board. There are always some interesting tidbits in this one, as it allows me to look at the details of what's going on in an area far away from where I live most of the time. This year was no different.

• I was surprised that the maintenance increase was kept to under 5% this year. Given the costs I am seeing elsewhere, I expected it to be closer to 10%. Part of this is due to the fact that some large improvements and upgrades have been completed and won't need to be repeated for some time, and much of it due to good managament.
• Everything going to/from our property needs to be transported up a winding mountain road. Trucking and transportation is definitely getting squeezed. The increases are far smaller than one would expect given the price changes in fuel. The answer to this seems to be that on a national basis, demand is down somewhat, so fuel cost increases can't be passed on in their entirety.
• The local market though is booming. We have a tough time keeping employees and salaries are going up even at the low end. We have had to hire new supervisory personnel because the inexperienced people we are able to hire for some basic cleanup and maintenance jobs just aren't experienced enough.

  I spoke this over with my friend Nigel later and he agreed that it's an issue in Salt Lake these days. He also believes it's at the core of the problem I had at Walgreens (NYSE:WAG). In his opinion low end retail help in Salt Lake is currently a disaster because of the difficulty in hiring and retaining anybody who is any good, even part-time high-schoolers.

• All of which has me wondering whether maybe buying a small condo or other property in the Salt Lake Valley might be a good idea. I'd use it from time to time, and I suspect that the market won't get hit much from here. Besides, downtown Salt Lake has had a very nice resurgence, less of a Mormon influence than the rest of the state, and could make a nice temporary escape from the California economy if things end up as bad as they might over the next couple of years.

  Nigel thinks that's a good idea too.

Interesting opinion piece in today's LA Times called The Godfather Doctrine. Here's my comment, which may or may not actually be published:

There's no denying that Hulsman and Mitchell's advocacy of a "realist" position for the US in the world makes sense, as the centers of global power and influence have shifted, and nimble super-national or decidedly anti-national groups have risen to confront us. But they fail to sufficiently hammer home the key point: Proceeding realistically means abandoning most of the structures and rules of international operation that have governed our conduct since World War Two, including those which the US has been most instrumental in building.

Are we willing to reconsider who we can kill and when? Michael Corleone decided that maybe the previous "mobster rule" prohibiting killing a police officer could be broken in some cases. Are we willing to consider that targeted assasination is preferable to outright war? Michael Corleone did. Are we willing to consider that the existing power structures and institutions -- the ones designed by Eleanor Roosevelt and members of her generation -- may be completely obsolete and no longer worthy of support or reverance in their current form? Michael Corleone certainly did this too.

A realistic policy will force us to recognize and abandon long-held beliefs about everything from the usefulness of the United Nations, to the legality of killing foreign leaders pre-emptively, to the reality that in many places and at many times the distinction between "civilian" and "military" is no longer a meaningful one. Our adversaries have already either discarded these beliefs or never shared them in the first place.

Michael Corleone discarded many of the rules that had governed his father's life when a changed reality turned them into liabilities rather than assets. The question for the next decade is whether we are willing to be similarly cold and ruthless about the realities of our world.

-btc

It was a really nice end to the ski season, a great Sunday for the last tram at Snowbird. Now the tram is down for 40 days of major maintenance, a few chairs remain running on the weekends and my knees are ready to move on to something less damaging. It was the first time in many years that conditions were good enough for me to stick around until the last tram day and forgot the fun involved: Gaming the last tram boarding, the ride up, the "reception committee" with snowballs on the peak, the peak party, the party on "The Beach" above Lone Pine with Mt. Superior in the background, and the follow-on parties in the valley after finally making our way to the bottom.

The last tram of the season was received with a traditional fusillade of snowballs on the top of Hidden Peak at Snowbird

After everybody was kicked off the peak, the party continued out on "The Beach" at the end of the traverse. At least until the ski patrol kicked us out of there too. And somehow I missed my flight home

Now it's truly back to reality.

• I did get a call from the manager of the Walgreens (NYSE:WAG) store that I complained to on Sunday. She said the problem had been related to training and she went over things with the employee. Good enough for me, and a pretty good indication that this company does still care about their reputation. For better or worse, the labor market in Salt Lake is such that she probably doesn't have the greatest material to work with. More on that later
• I just got an invitation to the Anderson School's John Wooden Global Leadership Award ceremony (formerly known as the Exemplary Leadership in Management Award). I've commented on this one in the past, suggesting that this award tends to be really good at picking guys who are either peaking or past their peak. So it's no great surprise that this year's award goes to Howard Schultz of Starbucks (NasdaqGS:SBUX). His getting this award certainly would not give me the warm and fuzzies about owning the stock.

I don't often get pissed off enough to actually send a complaint, but maybe I should more often.

Here's what I told Walgreens (NYSE:WAG) about their store at 9400 S. 2000 East, Sandy, UT:

I entered your store on Saturday afternoon, May 3, in order to purchase three small items. I easily located all three items and proceeded to the front checkout, which was unstaffed at the time. An employee approached me and immediately informed me that he could not check me out at the main cash register because I had a "costmetic item" which could only be purchased at the cosmetics counter.

The item? A tube of sunscreen.

I have purchased this same off-the-shelf item at dozens of Walgreens stores around the country, and nowhere have I ever been told that it needed to be handled by a special department.

But at your store, I was forced to wait for about 5-10 minutes behind two other people, also waiting at the cosmetics counter, also purchasing non-cosmetic items. Using the cosmetics counter offered me no additional benefit, and none was desired.

All the while, the employee who had refused to check me out at the main cash register continued milling around at the front of the store doing -- as far as I could tell -- absolutely nothing!

I can only hope that the issue was one employee's misunderstanding of your store policies, and not an unusual and inconsistent policy in this one store. There should be no reason that an off-the-shelf item cannot be purchased at any cash register I choose.

Next time I happen to be in this area, I will surely go to the supermarket across the street where I expect that a tube of sunscreen will be handled quickly and efficiently at the express checkout.

For now, if you happen to be in this area, I'd avoid that particular store. As noted there is a Smith's, aka Kroger (NYSE:KR) store with a fully pharmacy section right across the street.

-btc