• So I see that Larry Kudlow is trumpeting "Home Sales Up!" in one of his 15 second mid-day promos on CNBC. Once again proving that he is nothing but an lying sack of shit scumbag shill for the Bush Administration who would have been fired long ago by any news organization that respected itself. If you haven't seen the real numbers, here they are courtesy of Barry Ritholtz at The Big Picture:
  • Resales increased 2% to a 4.99 million annual rate (4.89 million pace in April) [note, this is month-over-month, and May is always higher than April, so big whoopee...]
  • Median existing house price dropped 6.3% from May 2007
  • Sales were down 16% versus May 2007.
  • About one-third of total sales last month were “short sales'' that reflected foreclosures or distressed properties;
  • Banks repossessed twice as many homes in May as in the same month last year;
  • Inventory of unsold homes at the end of May fell 1.4% to 4.49 million; [again, month over month, so big deal....]
  • Mortgage Bankers Association's index of loan applications to purchase homes fell last week to the lowest level in more than five years...
  Yet from all this, Larry manages to conclude that "sales are up." Guess it just shows that if you have an agenda and are willing to pick the weakest and most irrelevant numbers, you can always find something to justify your pre-ordained point of view.
• Of course, any self-respecting news organization would have fired Jim Cramer long ago too, especially after proving himself to be a scumball liar once again, as documented in the attached video. Jim, all those "critics" out there aren't "missing the point," "failing to understand how to watch the show," or anything else of the sort. They're merely noting that on Friday June 13, you told your viewers that your oscilator said the bottom was in and that the trade was to buy all the weak stuff -- financials, tech, etc. -- while getting out of everything that had been strong -- energy and commodities -- then exactly one week later you told them they were idiots and weren't paying attention to the show if they hadn't done the exact opposite. Guess what Jim, I have been paying attention and there's only one conclusion: You are nothing but lying scum.
• With all due respect to my buddies Toddo and Cody, Fox Business News isn't much better. Too much fluff, too many half-truths, maniuplated numbers and failures to note stuff that should be obvious to anybody who looks even halfway behind the numbers. But I guess you don't get free rides on the Citi jet if you actually think for yourself and report accordingly.
• All of which explains why on your typical day I don't do much other than running the TV with the sound off so I can see the ticker and maybe some of the scrolling headlines. Increasingly I don't even do that. It's all virtually worthless and in many cases has actual negative value.

- George Carlin

• 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.

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.

• 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 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.

Here's something four-year-olds know: A screen that ships without a mouse ships broken. Here's something four-year-olds know: Media that's targeted at you but doesn't include you may not be worth sitting still for. Those are things that make me believe that this is a one-way change. Because four year olds, the people who are soaking most deeply in the current environment, who won't have to go through the trauma that I have to go through of trying to unlearn a childhood spent watching Gilligan's Island, they just assume that media includes consuming, producing and sharing.

• During Howard Stern's winter hiatus, I switched my Sirius clock radio to CNBC and kind of stopped listening to him for a while, going straight from bed to CNBC or one of the other financial channels on TV. I recently swtiched back and have noticed that my trading has improved markedly. I'm making less trades but also making much better ones. I think losing the financial TV noise has been good for me. I'm now back to Stern through the morning, only occasionally dropping the muting on TV for something that looks particularly interesting.
• It's yet another example of the fact that the central theme of Blink really works. Our minds tend to respond better when confronted with the key pieces of information and less extraneous noise that merely clutters our thoughts.
• I got a pretty crazy email the other day, apparently taken from a messageboard somewhere. The essence of this email is that a guy with equity in his house and good credit was thinking that it made sense to take out a home equity loan for the full amount of available credit, and put it into a CD that he had available to him at a similar interest rate. His rationale was that if the bottom really fell out, he could then walk away from the house and retain most of the equity that had been "taken out." This struck me as completely nuts. First, he failed to note that in California (where I believe he was), a home equity loan taken out after purchase is considered a "recourse" loan, meaning you can't necessarily walk away and mail in the keys. The lender can come after you. Historically they haven't, but I suspect that as conditions get worse, they will start doing this to people who walk away from their homes out of convenience rather than financial hardship. Second, he fails to note that Fannie and Freddie have noticed this. Fannie has published new guidelines saying -- in effect -- no new mortgages to anybody who has defaulted in the past five years, unless there were extenuating circumstances, in which case the rule is three years. (Thanks to Mish for several of these tidbits). In either case, our "smart" investor is likely to miss out on a buying opportunity a couple of years out if he executes this strategy. Third, the debt forgiveness is taxable unless you are insolvent at the time. Since this guy would have the cash in the bank, he won't be able to take advantage of the break the IRS gives to truly insolvent individuals. He'll owe regular income tax on any amount foregiven if he walks away. Fourth, part of the rationale is that he has an investment vehicle that will provide returns that match his interest cost on the loan. But for how long? Most home equity loans reset pretty frequently. And I know of few investment vehicles that will guarantee sufficient returns to make this work once rates reset. Finally, he's really unlikely to follow through. There are some people who truly treat their homes as mere financial assets. Most don't though. It's nice to plan and to think of everything as being financialized these days, but most people don't actually follow through. Putting together a plan that he's unlikely to follow through on seems silly. If he is really so unattached to his house, and really thinks the market is likely to decline in the coming years, then why doesn't he just sell now instead of going for all the financial engineering? I think this is another example of the kind of thinking that is going to disappear really quickly as real risk re-enters the system.
• While I'm on the topic of financial TV, it's nice to see that Cody's doing well at FBN. I can't claim to be a real fan of the show (nothing personal, I don't like most finance TV shows), but he's definitely making his mark, often in interesting ways. Must say, this is still one of my favorites.
• And it's too bad that Herb is moving on, though I understand his desire to do something different and he assures me that he will still occasionally be appearing on CNBC. Might actually have to put the volume up for that one, and catch Howard on the repeats. Best of luck in your new adventure Herb!

The MBA Indicator