Pittsburgh Debt Is Cut To Junk Status by S&P- WSJ

First Pittsburgh, what next? Today's WSJ reports that, "Standard & Poor's dropped its credit rating of Pittsburgh's municipal debt by five notches to junk status...The decision by S&P, announced Wednesday, affects about $879 million of Pittsburgh debt outstanding, all of which is insured, meaning any losses from a possible default would be born by insurance firms instead of investors." The article added that, "the action nevertheless made investors nervous as it was one of the sharpest downgrades of tax-exempt municipal debt since California's Orange County filed for bankruptcy protection in 1994." Nervous is just the beginning. Down right scared comes soon after. Of course there's a big difference between Pittsburgh and the United States government. But the dynamics of debt default are simple: if you borrow too much, sooner or later you're going to pay the price in either higher borrowing costs...or the downgrading of your outstanding debt. The article quoted Tom Metzold, a portfolio manager for Eaton Vance Corp., "We're talking about a major city going below investment grade." Yes indeed we are.

Too Big to Feel

Someone at the New York Times has Paul Krugman writing about economics again...and truth be told...he's doing a pretty good job. Krugman makes a point in his piece yesterday that I've made in SI over the last six months: if you don't' reduce spending and keep running larger deficits, sooner or later the market will see you for what you are: a very bad credit risk. You can read the whole thing here (registration required), or check out the excerpt below. American are investors are complacent that when it comes to credit, size matters...that Treasuries would never be downgraded because...well, the U.S. bond market is just too important. I'd size (of the deficit) is exactly the weakness...not the strength. Picture the Treasury market as a giant dinosaur whose brain is so small it can't feel the ground giving way underneath its massively bloated body (there is probably a better metaphor, but you get the picture.) From Krugman: "...a third world country with America's recent numbers — its huge budget and trade deficits, its growing reliance on short-term borrowing from the rest of the world — would definitely be on the watch list. "I'm not the only one thinking that. Lehman Brothers has a mathematical model known as Damocles that it calls "an early warning system to identify the likelihood of countries entering into financial crises." Developing nations are looking pretty safe these days. But applying the same model to some advanced countries "would set Damocles' alarm bells ringing." Lehman's press release adds, "Most conspicuous of these threats is the United States. "The crisis won't come immediately. For a few years, America will still be able to borrow freely, simply because lenders assume that things will somehow work out. "But at a certain point we'll have a Wile E. Coyote moment. For those not familiar with the Road Runner cartoons, Mr. Coyote had a habit of running off cliffs and taking several steps on thin air before noticing that there was nothing underneath his feet. Only then would he plunge. "What will that plunge look like? It will certainly involve a sharp fall in the dollar and a sharp rise in interest rates. In the worst-case scenario, the government's access to borrowing will be cut off, creating a cash crisis that throws the nation into chaos." I'll show you what a plunge will look like. It will look like what happened when Brazil devalued its currency in 1999, rather than defaulting on its bonds (as both Russia and Argentina did more recently.) A disorderly devaluation or a default...take your pick...neither is good for stock prices. Free-Falling on Devaluation

BED Spread Fixing to Narrow Again...

Tomorrow I update the BED spread numbers for the weekly edition of SI, but I'm guessing it will have narrowed again on this kind of news. Brazil's debt getting upgraded at the same time that long-term mortgage rates are rising in the U.S. is exactly the kind of convergence I expected to see when I debuted the BED spread. Of course, rising bond yields in the U.S. might also be explained by investors dumping bonds and moving into stocks to ride the wealth reflation wave. Rising yields aren't strictly a function of the rate of return the market demands to loan money to risky borrowers. But in this case, you can take your pick when it comes to explaining falling bond prices. As I mentioned a few weeks ago, the best way to play rising yields is to buy calls on TNX (up 1.6% today) which is a multiple of the current yield on the 10-year treasury, or to buy puts on bond prices via IEF, the Lehman basket of bonds that imitates ten-year bond prices (down 3% since October 1st). Bloomberg.com: Latin America: "Brazil Bonds, Stocks, Currency Rise on Credit Rating Outlook Oct. 14 (Bloomberg) -- Brazil's benchmark bond climbed to a record and stocks and the currency rose on speculation an upgrade of the nation's credit rating is imminent. Brazil's 8 percent bond due 2014, the most-traded emerging- market security, gained 1 cent on the dollar to an offer price 94.69, cutting the yield to 9.34 percent, according to J.P. Morgan Chase & Co. at 4:18 p.m. in New York. The real climbed to its strongest level against the dollar in three months and the Bovespa stock index rose to a three-year high. The gains, a year after the nation's bonds and currency tumbled on investors concerns Brazil might default on its debts, underscore President Luiz Inacio Lula da Silva's ability to restore confidence by cutting spending and reining in inflation. Speculation that Brazil's B2 credit rating will be lifted increased after Moody's Investors Service's decision last week to raise Russia's rating to investment grade. "

Not So Stealth Financial Gets Shot Down

GM has paid for its financial sins already, as the stock chart shows. This is the downside of an automobile company moonlighting as a financial company. It makes you wonder how many companies who've gone into the business of issuing credit cards to boost sales are similarly exposed. More on that when I can dig into it. It the meantime, don't expect the market to forgive GM for reporting news like this. From Bloomberg: Excluding its Hughes satellite unit and one-time charges, GM's operating profit fell 36 percent, to $448 million, or 80 cents a share. Analysts, on average, had forecast GM's earnings at 67 cents a share according to Reuters Research, a unit of Reuters Group Plc. GMAC, GM's finance arm, earned $630 million, a 32 percent gain over a year ago. As with the first half of the year, much of the increase came from GMAC's mortgage business, which boosted earnings by $100 million. Earnings from GM's global automotive business fell 91 percent to $34 million. Its North American auto business earned $128 million, a 76 percent decline, as production fell 5 percent and consumer incentives rose. The results would have been worse had GM not reduced its reserves for vehicle recalls by $55 million. Pray For Us Sinners Now and at the Hour of our Death...

Rates Rise, Mortgage Aps Fall, Nothing to See Here

Yes...I've been wrong early and often about refinancing activity....But I do have a truism on my side. Historically low rates can't stay historically low for all of history. Rates will rise--if only to reflect the fact that the additional buyers required to keep sales of new and existing homes at record levels are just plain bad credit risks. Who knows what the lag time is between rising rates and slower purchases. It all comes down to affordability--a function of home prices and incomes. On the income side of the ledger, the situation isn't getting appreciably better. And on the price side of the ledger, falling home prices wipes out the chief reason the housing boom has lasted as long as it has: the belief that you can buy at any price and sell shortly thereafter for a profit, or refinance at 115%-125% and cash out the difference to live in the manner to which you've grown accustomed. Note of caution: never underestimate the masochism hidden within the financial character of the modern American consumer. A recent article on cardweb.com reported that the average American household owns 16 credit cards with an average total balance of around $8,500--and that's just credit card debt. It doesn't include unpaid car loans, the mortgage (at historically low rates), or the M.B.A. loans that were supposed to lead to a raise at work. US mortgage applications fall: "THE MORTGAGE BANKERS Association of America said its index of applications for mortgages to buy homes fell 18.6 percent, to 359.0, its lowest level since the week ended April 25. Even if the decline in applications signals that home sales are likely to fall later this year, few economists expect sales to plummet, because rates are still low by historical standards. Applications for mortgages to buy homes last week were just 8.3 percent below their average for the year. Home sales, which have provided crucial support to the economy, are so far on track to set a record this year. Existing home sales hit a record in August, the last month for which figures are available, and new home sales approached a record. "

End of the Worldism

Up for some eschatology? ("The doctrine of the last or final things, as death, judgment, and the events therewith connected," according to Webster's). Mark November 25th on your calendar. The 25th marks the disappearance of the 12th Imam in Islamic theology. In Shiite theology, from what I can gather, the return of the 12th Imam from hiding will precede by one day the Day of Judgement. I suppose now that Bonner's book is out, the timing is good for this sort of thing. More seriously, it's a date terrorists are well aware of. And it doesn't come too far after the date the Iranians have scheduled to test their first nuclear bomb (November 4th or 5th, according to Michael Ledeen at National Review) Will the Israeli's send warplanes to Iran like they did to Iraq's Osirik reactor in June of 1981? They've been buzzing Damascus. And it's not like there's anyone in the Arab world left for them to alienate. And politically, taking out an Iranian reactor is something Sharon can do that Bush probably can't. The Israelis take the public blame, and in private, while most of the rest of the world sighs in relief, the Americans signal that there had better not be any retaliation against Israel. It's all just hypothesizing, of course. But it does touch on one crucial question...where ARE the terrorists and when are they going to strike again? Have we been so successful against them in the part of the war that doesn't make the headlines that we've limited their capacity to strike us anywhere but in Iraq? Remember back in February of this year, bin Laden promised he would be martyered within one year, "in the Eagle's belly." Time's running short. Where is the eagle's belly? Is bin Laden hiding in Iran, as Ledeen has long suspected...and will he martyr himself with the help of mullahs in Iran who are now under the spotlight of the world community (not that IAEA is, aone, going to compel the mullahs to come clean on their nuclear program.) Lots of questions. No answers. To be honest, I don't know much about it, or how much to take serioulsy. I'm not an expert on Islam. I did find this link, which seems useful. Here's the money graph: Unlike Sunni Caliphs, who also lead the Islamic world in secular matters, Shi'ite Imams are spiritual leaders, and their followers believe they transmit the mystical aspects of God to humanity. The Shi'ite belief in the eventual return of the 12th Imam, called the Mahdi, is also a central feature of this form of Islam. The belief that the Mahdi will return to lead the forces of good against evil in an apocalyptic battle before the Day of Judgement is so important to Shi'ites that it overshadows life in the human world, which is seen as a corrupt and immoral place. Although Shi'ites are a minority of Muslims, they are a majority in modern Iran. The belief in the Imamate is so strong that during the Iranian Revolution in 1979 many Shi'ites believed that the Ayatollah Khomeini was the 12th Imam returning.

Separation Anxiety

Seeing this chart reminded me of two movie scenes. The first, from Aliens. After Ripley torches all the eggs of the mother alien in her lair, and then turns tail and leaves, the big momma decides to chase her. But in order to chase Ripley, the alien has to rip its body in half, separating its main torso from the hideous egg-laying portion of her anatomy. Second, in the last Terminator movie. After the Governator crashes a helicopter on his modern terminator nemesis...the machine rips itself in half from the waist down to free itself from being pinned. It then crawls after its prey. (I won't give the rest away if you plan on seeing it.) So what does the dollar index decoupling from stocks mean? One word, hyphenated: asset-inflation. Sooner or later, a weaker dollar will lead to dis-investment in dollar denominated assets. But between now and sooner, all that generous liquidity Mr. Greenspan, the tax cuts, and mortgage refinancing have made available is going straight into stocks. Only increasing rates of liquidity will keep prices going up. And where will the new money come from? From rising incomes? Negative. From more tax cuts? Negative. From economic growth and earnings (making stocks more affordable?) Negative. Any positives out there? Only one that I can think of...the mother of all put buying opportunities. The Stock Market as Icarus

Managed Floating Exchange Rate: Once Complicated, Now Simple

This started out as a small post of a reader comment and turned into a much more ambitious one about domestic savings in China (typically Tuesday afternoon fair). First, some comments on RMB devaluation from China's central bank, next a possible dollar-bullish implication on revaluation of the RMB (bear with my madness), and last, the aforementioned reader comment. First, it IS true that the Remnibi floats within a "band" and that it IS possible to have a "managed floating exchange rate." According to a February analysis by the Bank of China group which you can find here, "The trading band has been set at 8.2760-8.2800 or a wafer-thin 0.02% up or down since April 2000." Thus, in theory, China could gradually widen the band...and revalue the RMB slowly. Practically speaking, I'd expect that each time the band is widened, traders will push the currency to the lower end (a stronger currency). This is sort of like managed free fall. Instead of allowing the elevator to plummet from the 8th floor to the first, it patiently stops at each floor in between. But even that may not completely happen, if you listen to Chinese bankers. They make the quite obvious point that internally, allowing the RMB to float doesn't make sense. They add these few choice statements: "A country's foreign exchange policy is designed to serve its own interest...The free convertibility of the RMB and the complete opening of the capital account are the ultimate prize of China's reform. Although an RMB revaluation is favorable to reducing import cost, facilitating overseas expansion and reducing foreign debt, it may not benefit the overall economy. Besides, it is not the most urgent task for China to undertake and China should stay clear from fighting on different fronts. Instead, China should concentrate its resources to tackle the urgent problems facing the economy, namely maintaining high growth while forestalling any bubbles, further stimulating domestic demand to combat deflation, and expediting and deepening financial reforms." In other words, kiss off John Snow (even though these comments were made in February.) The interesting question is what the report means by "deepening financial reforms." More on that in a moment. It's obvious the Chinese know what the Americans know. They are on to the ruse that a weaker dollar improves American competitiveness. It surely does not. American exports to China may get relatively cheaper thanks to a weaker currency. But for the most part, for nearly any industry, the largest single contributor to the total cost of production is labor. I'm sure I could verify this with a little more research. But this is blogging, so you'll have to content yourself with a straw poll from the Paris office. We could only come up with two businesses, maybe three, where labor was the not the largest factor in the cost of production. Bill figured that in jewelry, the cost of the raw materials (gold are precious gems) was probably larger than the cost of labor. And Fanny and Francoise figured that in a French restaurant, you're paying as much in taxes as you are for labor. In a very unscientific example, we figured that on a check of 10 euros, you paid 2 in VAT, 2 for good, and 6 for the server. But because the server is taxed at a high rate, he only takes home roughly 4 of the euros you pay him. The other two are tax. So in the end, you're paying 4 euros in tax, four for the server, and 2 for the food. If you can think of other exceptions, by all means let me know. But it's quite obvious that when it comes to manufactured goods, the Chinese advantage on labor costs cannot be nullified through a lower dollar. Just take a look at the chart below, which shows hourly labor costs in manufacturing for Asian nations and the U.S. (interesting question how much U.S. manufacturing wages are influenced by collective bargaining...and certainly, I'm not arguing that Americans would be better off making Chinese wages...only that American manufacturing, all things remaining equal, can't compete.) The revaluation argument doesn't hold water with respect to improving American exports to China. But IT does have huge implications for China's pool of domestic savings and how capital is allocated within the country. And this gets to the heart of exactly what impact a revaluation would have on the dollar. The chart below shows domestic savings rates in Asia. What's notable about China's figure is not that it's high, like figures for other Asian countries. What's notable about it is that China's high domestic savings rate makes a large pool of capital available to the government for investment. In fact, until foreign direct investment began to grow, the pool of domestic savings is how the Chinese financed the huge growth in production capacity. What Will the Chinese do With Their Savings? A critical question for the value of the Chinese currency after it "floats" is whether or not there will be any change to existing restrictions on domestic capital. In other words, if floating the currency is accompanied by a broad liberalizing of capital restrictions in China...what will happen? Will Chinese savers decide to spend more? Will they covert their RMB savings to gold? Or will they, gasp, choose dollars? It's possible that liberated from the forced confiscation of their savings by the government...your average Chinese saver will move into dollars. This is really a question I can't answer from my desk in Paris. I have no idea if your average Chinese saver would convert is savings into gold or dollars, if given the chance. We do know, generally, a preference for gold in Asia. What we don't have, at least I don't have, is local knowledge. Do Chinese savers know something about the overall health of their economy...something we don't know...and something that would cause them to get outside of their currency post haste? That's a possibility. The same way Asian central banks have shown a propensity for owning dollar-denominated U.S. bonds...perhaps rank and file Asian savers want to own pretty new $20 bills backed by the U.S. government. Stranger things have happened. And now...the reader comment... Technically,China doesn't rigidly peg the renmimbi to the us dollar. There is actually a very tight 40-pip band - 8.2760 - 8.2800 within which China keeps the currency trading versus the dollar. Now I realize it's a bit of a niggle to even bring such a thing up, but I do believe it explains the comment by Wen, which really said nothing at all. When China does something about the CNY, it will take the form of 'widening the band', say to 2.5%, which would alter the band from 8.2760 - 8.2800 to 8.0710 - 8.4850. At which point conventional wisdom suggests the market will force CNY to 8.0710, and there it will sit. Recently, a prominent Chinese bureaucrat suggested the CNY may actually DEvalue upon widening the band, based on pent-up domestic demand for dollar savings. He (I don't recall the name) cited Taiwan and Hong Kong, where about half of savings are denominated in dollars, as examples that Asians have a cultural preference for hard savings (whether the dollar represents hard savings any more is yet another issue entirely). Given that it was a contrarian argument, and I am a contrarian, it interested me... yet I can't buy it. If the Chinese government believed that hogwash, they would have floated the currency, or at least widened the band by now. What I expect is a near term widening of the band - something Goldman Sachs has been calling for for quite some time - by something between 2 and 5% (the NDF market is pricing close to 5%). Why? The recent G7 meeting has thus far resulted in a 5+% revaluation of other Asian currencies. The main reason China resists revaluation is a desire to maintain competitive supremacy over its Asian counterparts in the battle for the American consumer. With all other Asian currencies strengthened, China can now act the hero. My bet is there was a backdoor agreement between the G7, China, and other-Asia that Asian currencies would be marked up in an orderly fashion, and that China, once satisfied that this policy was a success, would then revalue the CNY ON ITS OWN TERMS. It's very important - a cultural requirement, even - to the Chinese government that China not be seen to bow to Western pressures. This is why we've seen the pressure diverted almost entirely to Japan in the political rhetoric emanating from Washington since the G7 meeting. It's been accepted that China will not act while there is visible pressure to do so. They will act of their own accord, or at least only when the case can be made that the move is not in response to pressure.

Stocks on a Roll, Employment on the Rocks

The story below from Reuters tells one half the story: stocks on a roll in anticipation of a jobless recovery. NEW YORK (Reuters) - U.S. stocks surged to fresh 16-month highs on Monday after mobile phone maker Motorola Inc. MOT.N delivered better-than-expected results and an upbeat sales forecast, reinforcing investors' faith that corporate America will deliver strong earnings reports this week. "The fail-safe for this market is to recognize that the economic recovery is continuing and it is especially beneficial to profits," said Milton Ezrati, senior economic strategist at money manager Lord Abbett & Co. "Absent other news, or something to worry about, it rises." The blue-chip Dow Jones industrial average .DJI was up 92.89 points, or 0.96 percent, at 9,767.57 at midday. The broader Standard & Poor's 500 Index .SPX added 8.93 points, or 0.86 percent, at 1,046.99. The technology-laced Nasdaq Composite Index .IXIC was up 18.12 points, or 0.95 percent, at 1,933.43. That marked fresh 16-month highs for the Dow and S&P 500, and a 19-month high for the Nasdaq. And then there's this back-page story from Fed governor Moscow on what it's going to take to get the economy going. No mention of how this will happen....unless the structural change that's caused the loss of so many American jobs suddenly reverses and American labor gets dramatically cheaper (which isn't exactly good for income.) NEW YORK (Reuters) - The U.S. economy needs to grow quickly for an extended period of time to make inroads into the unemployment rate, Federal Reserve Bank of Chicago President Michael Moskow said on Monday. "We have got to grow above potential for a significant period of time ... so we can continue on that long-term sustainable trend and reduce the unemployment rate," Moskow said in a television interview with CNBC. He said trend growth was around 3.25 percent, and noted the economy has been growing below that pace for three years now. Let's see, three years of below-average growth. Either this is a trend due for a reversal, or a trend that's just getting started. This is a replay of the same thing I followed last week: asset inflation vs. income deflation. Income growth stagnates while the job market tanks. Stocks respond by reaching new highs. Something has to give, and eventually it will be stocks. Which ones first? Tomorrow I'll take a look under the hood and debut some new trading ideas. Incidentallyl, yes...I've been a bit jocular lately. But it's not because this isn't a serious investment moment. It is. And it will be important to get your money lined up in a position where you can avoid the big dangers and benefit if we're right about our big themes. But Sea Biscuit is an excellent movie, I started another Chesterton book (Everlasting Man), the Cote du Rhone was especially good at lunch, along with the chicken and spinach.

Under Pressure

Maybe Elliot Spitzer is fixing to run for Hillary Clinton's Senate seat (when she vacates). But I think a good question for him if and when he should run for office is why investigations always start with a bang and end with a fine. If it really is criminal conduct, how come so many firms get by with ponying up some cash and then getting back to business as usual? Will it be different this time? I can't reproduce all of it since it's copyrighted. But here's this bi from today's FT: "The widening inquiry has already led to criminal charges against two people: Theodore Sihpol, a broker at Bank of America, and Steve Markovitz, a former trader at the hedge fund Mill ennium Partners. But it has also implicated at least eight companies, with subpoenas being issued to several dozen more, and has spawned more than 20 lawsuits. Mr Spitzer's office is examining the transactions that took place between hedge funds engaged in improper mutual fund trading and their broker-dealers, including the use of complex derivatives. It is still not clear how these were used or whether they were illegal." If it turns out the transactions were legal--but just really stink--it's still bad news for the mutual fund industry. By now, most investors are suspicious of funds. Yet until recently, you just didn't have a lot of options if you wanted to do things differently. Even if you KNEW you were getting screwed on management fees and so-called diversification (not to mention the things you didn't know you were getting screwed on) what else could you do? They aren't perfect either. But I'm convinced that ETFs are a much tax-friendlier, more specified way of investing in particular ideas--and making money if you're right.

Some jobs gone for good

This article shows that the change in the economy is starting to sink in with folks. It is not a garden variety recession. It's an inexorable change in the economic fortunes of Americans. The gravy train is running off the rails. And anyone who's just along for the ride is in trouble. Unfortunately for the folks in the industries which are no longer competitive, the same jobs aren't coming back. There may be new ones, in new industries. But the old ones are most likely, as the article says, gone for good. "My dad used to preach to me to find a decent job and marry it, don't move around and around like he did,' said Peavler, whose husband, Roy, also worked at the plant before it closed in April. 'So I took his advice . . . but it didn't do me any good.' More workers like Peavler are finding themselves in similar straits in a labor market that is behaving differently in this economic cycle. In past downturns, employers cut large numbers of jobs in temporary layoffs, then called workers back once a recovery began. Although the economy continues to rebound, most of the 2.7 million jobs lost since early 2001 won't be coming back, analysts say. In many cases, companies are cutting jobs and limiting hiring because of structural changes in their businesses and the broader economy"

I'm from the government. I'm here to help you.

This needs no comment: "Michael Fredrickson, general counsel to the Massachusetts state agency in charge of prosecuting lawyers for legal wrongdoing, spent 'substantial time' at work writing and preparing his novels over the course of several years, the State Ethics Commission said on Thursday."

In Praise of the Middle Brow Culture

NOTE: This is just a quick post on a couple of movies I saw this weekend. Nothing financial in it. The obnoxious opinions expressed here are purely my own. This post from Terry Teachout (author of a book on Mencken which is sitting on my desk at home), on middle brow culture in America is worth a patient read. The point that struck me most: the middlebrow culture on which I was raised was a common culture, based on the existence of widely shared values, and it is now splintered beyond hope of repair. Under the middlebrow regime, ordinary Americans were exposed to a wide range of cultural options from which they could pick and choose at will. They still do so, but without the preliminary exposure to the unfamiliar that once made their choices potentially more adventurous. He's right. Today, we're getting movies which represent radically different sets of values. Take two movies I saw this weekend, Ken Park and Seabiscuit. They couldn't be more different. I wonder which one is a more accurate description of today's America. In terms of "values," the films have little in common (though not nothing.) Ken Park's director, Larry Clark is fixated on teenage sexuality. His movie is about a group of teenage friends growing up in Visalia, California. All the kids' parents have faults that end up hurting the kids. Sexual abuse. Substance abuse. Emotional abuse (even when it's disguised as affection.) The kids do the best they can to cope. And in the end the director seems to say that even though the world is mostly hopeless, you can find companionship (and sex) with your friends and, maybe, just maybe, prevent tragedy. That would be a generous interpretation. I don't mind movies made to shock. There's a certain value to it And sometimes, an audience needs it. But showing teenage sex doesn't really shock. It's just kind of creepy. And you get the feeling that the director is really more interested in teenage bodies than teenage hearts and minds, or souls. In the end, I think the movie is about how about an adult interested in the sex life of kids thinks those kids see the world. And I hope he's wrong. But the kids do find ways to "fix" each other (even though the director suggests the world itself is hopelessly broken.) And in that sense, Ken Park and Seabiscuit have something in common, the "fixing" that friendship can do. But there the similarities end. Seabiscuit is about how in the face of universal bad times, people can find ways to help each other and not lose faith in the world either. Maybe I'm a soft touch, but I prefer the Seabiscuit take on life. that life is a gift, not a burden to be endured (as the last line in Ken Park suggests). Life is not a sexually transmitted disease. And without giving too much away of the movie, I'd say Seabiscuit is far more representative of America than Ken Park. Of course, Larry Clark probably wants us to believe that "Seabiscuit" is the comfortable myth...but the world is much more like "Ken Park" than any of us would care to admit it. Maybe. The world is what it is. Sometimes we're astounded and disheartened with how cruel and meaningless it seems. And sometimes, we're incredibly grateful we have people to share it with...people who don't just comfort us in our desolation...but help "fix" that part of the world that we occupy. Maybe. By the way, you probably won't find Ken Park playing anywhere in the States. It was banned in Australia. It's extremely graphic sexually...not in a gratuitous way, I don't think. But it's not going to be at Bockbuster anytime soon either. It got a feature review, of course, in the weekly movie guide I pick up each Wednesday. And that's an interesting question to think about when you read Terry Teachout's article. High-culture has gone from paintings that exalt the divine to movies that gawk at teenage sex. Are the French simply more tolerant for distributing the movie (it's off limits unless you're over 16), or can you pass off a lot of unseemly behavior by claiming to be a disinterested intellectual or "artist?" Maybe this is the logical conclusion of intellectual (and atheistic) elitism...disparaging anything with "meaning" as bourgeois. What you're left with is a heartless propensity to leer at life's tragedies and celebrate them precisely because they're so discouraging. Go see Sea Biscuit instead. (ironically, the French translation for the title is "Pur Sang," or pure blood.