Sunday July 25, 2010
Socionomics and Anecdotal Observations
The 1930s saw the end of the custom coach builders. Builders would utilize a chassis from Dusenberg and build a one off car body for the customer. Ferrari will only sell 599 of the new Ferrari 599 which Arthur St. Antoine says in Motor Trend is the best car he has ever driven. At $459,000 a copy, one would hope that is the case. The entire model run is of course sold out. Elsewhere this issue of the magazine tests $500,000 of Mercedes, Porsche, and Audi supercars as well as a trio of super rich sedans, Bentley, Rolls,etc.. Auburn Cord Duesenberg did not survive the Depression of the 1930s. The mere appearance of the Duesenberg was such that it spawned the saying, She’s a Duesy, indicating an object of popular desire. The point is that one does not see such articles at market bottoms. Such automobiles are both status symbols and art objects. It is typical of a market still topping that such extravagance is featured in a popular magazine. We will not see such articles at the next market bottom.
Recall that the Wall Street Journal, a newspaper ostensibly about intangible financial instruments, had over a dozen pages of ‘Distinctive Properties’ in its last section at the market top in 2007. Today there is one page of such listings beside the auction notices The condos that were not destroyed in Hurricane Ike at Galveston will begin bidding at $140,000, well down from the original high triple digit price.
A reporter roaming New York City reports that he is surprised an apartment building at $3-4 M a unit has rented so quickly, all but three of the 125 units are sold. And the doorman reports that these are ‘working people.’
Bell, CA has discharged three city officials making (I will pass on using the verb earning) a collective $1.6 million annually. This is a town of 38,000, primarily Hispanic. A photo in the WSJ illustrates citizens demonstrating in the streets. Observation, the backlash has begun against overpaid city workers. Expect more, much more backlash as we have reports of cities firing entire departments and contracting services out to other governments or private business. The Mayor of Newark, NJ has eliminated toilet paper from the city budget. Expect outright ridicule from citizens over ignoring the obvious, overpaid employees. The upcoming September investigation of Charlie Rangel, chief tax writer at Ways and Means, offers another chance for citizen revolt, his party is seeking a settlement to avoid such display so close to the election.
And incredibly, 241 teachers were actually fired in Washington DC, perhaps the worst and certainly the most expensive per student school district in America. We say incredibly because only now has Washington DC put an independent superintendent in charge to do something about the situation. Market Perspectives, as well as Mish, has written that the next financial crisis, probably this fall, will spring from cities and states that are bankrupt due to union contracts. So far change has only happened in the very small cities. Our point is that we are only seeing incremental changes in the face of massive promises that simply cannot be kept. The Tipping Point when the citizens rejects these impossible promises is likely to be violent and deflationary. Public employee unions are still expecting their generous pay and retirement benefits. Homeowners will choose their own security over that of the unions. With an Administration tilting in favor of unions, we have the makings of an incendiary situation.As we have stated, this is the New CIvil War, the unionized North and California, in bankruptcy due to the promises versus the south, now economically wounded by the oil leak.
No doubt California, New York, Illinois believe that the Federal Government will backstop and guarantee these promises. But will the rest of the country readily agree to sign a check in the face of national double digit unemployment?
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