Let me ask you a question.
Are you surprised? Banks are learning from their public beating that they took from congress after knowingly lending money to people who want to purchase a home but would have difficulty paying the loan back. Now, after being raked over the coals why are we surprised when those same banks are struggling to lend money to companies and people who look like they will have difficulty paying back the loan i.e. auto companies? Is it because congress is challenged when is comes to learning? Or is it because congress is two faced?
The solution to our problem is not another credit bubble but they are trying, they are trying.
From the banana republic formerly known as the U.S.A.
Daniel Plainview
Thursday, April 23, 2009
Wednesday, April 22, 2009
TALF Killer?
Can you say the Devil? At least acting like Beelzbud. I mean giving someone a means at life but not telling them the cost of their survival until after they are saved. It is interesting using fear to motivate a less than fully thought out response to a problem? Hmm. Sounds like Bush.
I was talking to a person at one of those auto companies and they were basically asked to sign blank agreement allowing the government to change or impose any restrictions regarding compensation the administration or the treasury wanted without any fear of being sued? Isn't like, rule number one in business "don't sign any blank forms?" or at least don't sign anything you do not fully understand? WTF!
Welcome to the backwards "USAR" the banana republic, did I miss the coup d'état?
Here is the Washington Post story.
Have a nice day.
Daniel Plainview
I was talking to a person at one of those auto companies and they were basically asked to sign blank agreement allowing the government to change or impose any restrictions regarding compensation the administration or the treasury wanted without any fear of being sued? Isn't like, rule number one in business "don't sign any blank forms?" or at least don't sign anything you do not fully understand? WTF!
Welcome to the backwards "USAR" the banana republic, did I miss the coup d'état?
Here is the Washington Post story.
Have a nice day.
Daniel Plainview
Monday, April 20, 2009
Are you Wealthy?
Why are the people who work 7 days a week to support their family in the sights of the Democrats? What was rich is no longer rich, but they can hope for deflation.
Wealth-Less Effect: Earning Well, Feeling Otherwise
Sponsored by by Gary Fields
Monday, April 20, 2009
provided by
Proposed Tax Increases on Six-Figure Earners Highlight Mounting Costs of Living -- and the Relativity of Prosperity
Ellen Parnell and her husband, Donald Parnell Jr., seem like the kind of well-off couple President Barack Obama has in mind when he suggests raising taxes on families earning more than $250,000 a year. A surgeon at Fort Sanders Sevier Medical Center in Sevierville, Tenn., he drives an Infiniti. They vacation at a beach resort every year.
More from WSJ.com:
• How Much Can a Garden Save You?
• Ditch the Jet. Flying Commercial Is Cool
• Tax the Super-Rich More Than the Rich?
Yet, right now he is working seven days a week. The car is more than a decade old, the vacation home in Sandestin, Fla., comes at a moderate weekly rate because members of Ms. Parnell's extended family own it. Her family of five would like more room than they have in their 2,500-square-foot home, yet they can't afford anything larger. The downturn has them skittish about paying for renovations.
"I'm not complaining, but the reality is Obama may call me wealthy, but I thought we were just good old middle class," says Ms. Parnell. "Our needs are being met, but we don't have a load of cash to cover wants."
It is a tricky situation in which some Americans find themselves after a long boom: They are by no means struggling, compared with the 98% of Americans who make far less, but depending on where they live and the lifestyle choices they have made, they don't necessarily feel rich, either. Worse, in their view, they are facing the same tax rates as those making millions. Some of the expenses are self-inflicted -- like private-school costs and conspicuous consumption. Others, though, are unavoidable, like child-care costs, larger health-care deductibles and education expenses, especially college.
Under Mr. Obama's budget proposal, two of the highest tax brackets would see rates rise, and deductions would be reduced for households earning more than $250,000 annually. President Obama said Wednesday, "We've made a clear promise that families that earn less than $250,000 will not see their taxes increase by a single dime."
By any statistical measure, that income level is at the top of the bracket. But for those closest to the line, the money might be less a sign of affluence than it is of the industry of dual-income couples. It is possible, say observers, that veteran civil servants could fall into the higher tax bracket.
The political calculation is dicey. The White House needs the additional revenue to cover some of its ambitious policy agenda, especially a health-care revamp. But some polling data suggest households that earn above $200,000 went heavily for Mr. Obama in November.
Until more details of the tax changes are disclosed, it is unclear whether people making big six-figure sums will be affected at all. They may, for example, be able to avoid tax increases if any number of deductions pull them below the threshold. But that isn't stopping those who earn near the threshold from worrying about it.
Already, many members of Congress are seeking to scale back some of the proposed tax increases, which call for raising the top federal tax rates to 36% from 33% on households earning $250,000 or above.
Wealth and comfort "depends on where you're coming from," said Lois Avitt, a sociologist and founding director of the Institute for Socio-Financial Studies in Charlottesville, Va. To a family earning $50,000, $250,000 is well off, but for the family earning $250,000, rising college and medical costs and dropping home values make the perception debatable.
The reasons for the insecurity are that net worth is declining at the same time that expenses like education and health care, two of the biggest concerns cited by members of that income group, are going up faster than wages and income, says Heidi Shierholz, an economist at the Economic Policy Institute in Washington. "Those are the biggies. They are huge parts of the set of middle-class aspirations, and the prices of those have increased way faster than income." The bursting of the housing bubble makes that more stark.
Mark Zandi, chief economist at Moody's Economy.com, says data show that over the last 10 years, education costs have risen 5.91% annually, and health- care expenses have gone up 4.16% annually, while wages and income have risen only 3.7% over the same time span. That means many families are seeing a greater percentage of their income going toward those two areas.
Education costs, which are far outstripping wages and income, are especially worrisome for this income bracket because upper-income earners are much less likely to receive the kind of financial aid that lower income levels can expect.
The drop in net worth has been staggering. The Federal Reserve, in a recent report, found that U.S. households' net worth dropped by $11 trillion, a decline of nearly 18%, during 2008. That wealth includes everything from home values to mutual funds and life insurance, college and pension funds. The decline equaled the combined output of Germany, Japan and the U.K.
Changes to the tax code don't generally make adjustments for high costs of living in particular areas of the country.
San Jose, Calif., Mayor Chuck Reed calls a family living in Silicon Valley earning $250,000 "upper working class." That is about what two engineers working at a technology firm can expect to make, but "a family earning $250,000 a year can't buy a home in Silicon Valley," he said.
James Duran owns a human-resources company in Silicon Valley and is president of the Hispanic Chamber of Commerce in California. He supported Mr. Obama, but is worried about the tax proposals. He has laid off some employees in recent months and has been wondering how he can fund an extension of those workers' health-care benefits.
Mr. Duran said he and his wife earn about $400,000 annually, but "I'm barely getting by." They have high property and state taxes, as well as college tuition and savings to cover. "I'm an Obama man, but this side of him is a difficult pill for me," he said.
Van Moore, an optometrist in Sevierville, makes just enough in his practice that he worries he might qualify for the tax increase. Mr. Moore said he was contemplating adding two staff workers and another doctor to his practice, but then the economy went soft. In the years after he finished optometry school, his first job brought in less than $20,000 a year. Then he made $50,000 for several years, all the while dealing with his $150,000 student-loan debt, which he still has. Now he is making just above $250,000.
"I'm not in a mobile home with no utilities or running water and holes in the floor," he said. "I'm not poor, but I'm not rich."
For the Parnells, their perception of themselves is based on the math. The value of their house is down $60,000. Ms. Parnell says the couple's gross income last year was about $260,000. Taxes, premiums for medical care and deductions for Social Security and their 401(k) contributions cut the gross to about $12,000 per month. The family tithes $1,300 a month at their church. Their mortgage, second mortgage and payment on land they bought is nearly $4,000 a month. Other expenses, including their family car payment, insurance and college funds, as well as basics like food, utilities and donations to charities, leave them with about $1,200 left over each month.
"I'm not after sympathy. We are blessed. What I want is a reality check on what rich means," Ms. Parnell says. "I can pay my mortgage and I can buy some clothes. I'm not going without, but I'm not living a life of luxury."
Write to Gary Fields at gary.fields@wsj.com
Copyrighted, Dow Jones & Company, Inc. All rights reserved.
Like most politicians they do not live in reality just some made up version.
This Market is killing me getting stopped out all over the place today. Built up cash last week but not enough or I am getting whipsawed right now we will see. Got to trade. Many stocks finding resistance at their 50 moving averages.
Have a Nice Freak'en Day? Why is the "F" word so vilified?
Daniel Plainview
Wealth-Less Effect: Earning Well, Feeling Otherwise
Sponsored by by Gary Fields
Monday, April 20, 2009
provided by
Proposed Tax Increases on Six-Figure Earners Highlight Mounting Costs of Living -- and the Relativity of Prosperity
Ellen Parnell and her husband, Donald Parnell Jr., seem like the kind of well-off couple President Barack Obama has in mind when he suggests raising taxes on families earning more than $250,000 a year. A surgeon at Fort Sanders Sevier Medical Center in Sevierville, Tenn., he drives an Infiniti. They vacation at a beach resort every year.
More from WSJ.com:
• How Much Can a Garden Save You?
• Ditch the Jet. Flying Commercial Is Cool
• Tax the Super-Rich More Than the Rich?
Yet, right now he is working seven days a week. The car is more than a decade old, the vacation home in Sandestin, Fla., comes at a moderate weekly rate because members of Ms. Parnell's extended family own it. Her family of five would like more room than they have in their 2,500-square-foot home, yet they can't afford anything larger. The downturn has them skittish about paying for renovations.
"I'm not complaining, but the reality is Obama may call me wealthy, but I thought we were just good old middle class," says Ms. Parnell. "Our needs are being met, but we don't have a load of cash to cover wants."
It is a tricky situation in which some Americans find themselves after a long boom: They are by no means struggling, compared with the 98% of Americans who make far less, but depending on where they live and the lifestyle choices they have made, they don't necessarily feel rich, either. Worse, in their view, they are facing the same tax rates as those making millions. Some of the expenses are self-inflicted -- like private-school costs and conspicuous consumption. Others, though, are unavoidable, like child-care costs, larger health-care deductibles and education expenses, especially college.
Under Mr. Obama's budget proposal, two of the highest tax brackets would see rates rise, and deductions would be reduced for households earning more than $250,000 annually. President Obama said Wednesday, "We've made a clear promise that families that earn less than $250,000 will not see their taxes increase by a single dime."
By any statistical measure, that income level is at the top of the bracket. But for those closest to the line, the money might be less a sign of affluence than it is of the industry of dual-income couples. It is possible, say observers, that veteran civil servants could fall into the higher tax bracket.
The political calculation is dicey. The White House needs the additional revenue to cover some of its ambitious policy agenda, especially a health-care revamp. But some polling data suggest households that earn above $200,000 went heavily for Mr. Obama in November.
Until more details of the tax changes are disclosed, it is unclear whether people making big six-figure sums will be affected at all. They may, for example, be able to avoid tax increases if any number of deductions pull them below the threshold. But that isn't stopping those who earn near the threshold from worrying about it.
Already, many members of Congress are seeking to scale back some of the proposed tax increases, which call for raising the top federal tax rates to 36% from 33% on households earning $250,000 or above.
Wealth and comfort "depends on where you're coming from," said Lois Avitt, a sociologist and founding director of the Institute for Socio-Financial Studies in Charlottesville, Va. To a family earning $50,000, $250,000 is well off, but for the family earning $250,000, rising college and medical costs and dropping home values make the perception debatable.
The reasons for the insecurity are that net worth is declining at the same time that expenses like education and health care, two of the biggest concerns cited by members of that income group, are going up faster than wages and income, says Heidi Shierholz, an economist at the Economic Policy Institute in Washington. "Those are the biggies. They are huge parts of the set of middle-class aspirations, and the prices of those have increased way faster than income." The bursting of the housing bubble makes that more stark.
Mark Zandi, chief economist at Moody's Economy.com, says data show that over the last 10 years, education costs have risen 5.91% annually, and health- care expenses have gone up 4.16% annually, while wages and income have risen only 3.7% over the same time span. That means many families are seeing a greater percentage of their income going toward those two areas.
Education costs, which are far outstripping wages and income, are especially worrisome for this income bracket because upper-income earners are much less likely to receive the kind of financial aid that lower income levels can expect.
The drop in net worth has been staggering. The Federal Reserve, in a recent report, found that U.S. households' net worth dropped by $11 trillion, a decline of nearly 18%, during 2008. That wealth includes everything from home values to mutual funds and life insurance, college and pension funds. The decline equaled the combined output of Germany, Japan and the U.K.
Changes to the tax code don't generally make adjustments for high costs of living in particular areas of the country.
San Jose, Calif., Mayor Chuck Reed calls a family living in Silicon Valley earning $250,000 "upper working class." That is about what two engineers working at a technology firm can expect to make, but "a family earning $250,000 a year can't buy a home in Silicon Valley," he said.
James Duran owns a human-resources company in Silicon Valley and is president of the Hispanic Chamber of Commerce in California. He supported Mr. Obama, but is worried about the tax proposals. He has laid off some employees in recent months and has been wondering how he can fund an extension of those workers' health-care benefits.
Mr. Duran said he and his wife earn about $400,000 annually, but "I'm barely getting by." They have high property and state taxes, as well as college tuition and savings to cover. "I'm an Obama man, but this side of him is a difficult pill for me," he said.
Van Moore, an optometrist in Sevierville, makes just enough in his practice that he worries he might qualify for the tax increase. Mr. Moore said he was contemplating adding two staff workers and another doctor to his practice, but then the economy went soft. In the years after he finished optometry school, his first job brought in less than $20,000 a year. Then he made $50,000 for several years, all the while dealing with his $150,000 student-loan debt, which he still has. Now he is making just above $250,000.
"I'm not in a mobile home with no utilities or running water and holes in the floor," he said. "I'm not poor, but I'm not rich."
For the Parnells, their perception of themselves is based on the math. The value of their house is down $60,000. Ms. Parnell says the couple's gross income last year was about $260,000. Taxes, premiums for medical care and deductions for Social Security and their 401(k) contributions cut the gross to about $12,000 per month. The family tithes $1,300 a month at their church. Their mortgage, second mortgage and payment on land they bought is nearly $4,000 a month. Other expenses, including their family car payment, insurance and college funds, as well as basics like food, utilities and donations to charities, leave them with about $1,200 left over each month.
"I'm not after sympathy. We are blessed. What I want is a reality check on what rich means," Ms. Parnell says. "I can pay my mortgage and I can buy some clothes. I'm not going without, but I'm not living a life of luxury."
Write to Gary Fields at gary.fields@wsj.com
Copyrighted, Dow Jones & Company, Inc. All rights reserved.
Like most politicians they do not live in reality just some made up version.
This Market is killing me getting stopped out all over the place today. Built up cash last week but not enough or I am getting whipsawed right now we will see. Got to trade. Many stocks finding resistance at their 50 moving averages.
Have a Nice Freak'en Day? Why is the "F" word so vilified?
Daniel Plainview
Friday, April 17, 2009
Did They Do Enough To Stir The Pot?
The Tea Parties seem to be causing a stir with the media, as the article below explicitly says this was a right wing event, I am not so sure it was a right wing event, true the right wing wants to be part of it but in reality they are part of the problem, this was directed at big, wasteful Government, wasteful spending, bridges to nowhere. Many people are getting tired of watching. They normally watch because they have jobs and families they choose to support instead of missing a day of work to strike or protest. They appreciate what they have and know it is not an entitlement so they hold in the frustration and battle through the daily grind. This current crises and the ensuing actions of our government is motivating the commonly silent workers in our society to take a stand, it shows me that the level of frustration currently is the highest it has ever been in my life time. People want liberty, the right to choose how to spend their own money. We do not want to be a collective or a commune, where everyone is special, no one is motivated to excel, be creative or have the opportunity to set ones self apart from the crowd. We want to be the United States of America the way the founding fathers intended it to be. This is not Nineteen eighty-four, I hope.
Remember Big brother is watching.
Full story here
April 16, 2009
Schakowsky: Tea parties 'despicable'
@ 1:23 pm by Eric Zimmermann
Rep. Jan Schakowsky (D-Ill.) blasted "tea party" protests yesterday, labeling the activities "despicable" and shameful."
"The �tea parties� being held today by groups of right-wing activists, and fueled by FOX News Channel, are an effort to mislead the public about the Obama economic plan that cuts taxes for 95 percent of Americans and creates 3.5 million jobs," Schakowsky said in a statement.
"It�s despicable that right-wing Republicans would attempt to cheapen a significant, honorable moment of American history with a shameful political stunt," she added. "Not a single American household or business will be taxed at a higher rate this year. Made to look like a grassroots uprising, this is an Obama bashing party promoted by corporate interests, as well as Republican lobbyists and politicians.�
This is the strongest language to date opposing the protesters, which, according to some estimates, topped 250,000 across the country.
Also on The Hill: GOP contemplates embracing tea-partiers
Have a great weekend
Daniel Plainview
Remember Big brother is watching.
Full story here
April 16, 2009
Schakowsky: Tea parties 'despicable'
@ 1:23 pm by Eric Zimmermann
Rep. Jan Schakowsky (D-Ill.) blasted "tea party" protests yesterday, labeling the activities "despicable" and shameful."
"The �tea parties� being held today by groups of right-wing activists, and fueled by FOX News Channel, are an effort to mislead the public about the Obama economic plan that cuts taxes for 95 percent of Americans and creates 3.5 million jobs," Schakowsky said in a statement.
"It�s despicable that right-wing Republicans would attempt to cheapen a significant, honorable moment of American history with a shameful political stunt," she added. "Not a single American household or business will be taxed at a higher rate this year. Made to look like a grassroots uprising, this is an Obama bashing party promoted by corporate interests, as well as Republican lobbyists and politicians.�
This is the strongest language to date opposing the protesters, which, according to some estimates, topped 250,000 across the country.
Also on The Hill: GOP contemplates embracing tea-partiers
Have a great weekend
Daniel Plainview
Wednesday, April 15, 2009
A New Parties Birth?
Tax Day Becomes Protest Day
By GLENN HARLAN REYNOLDS
Today American taxpayers in more than 300 locations in all 50 states will hold rallies -- dubbed "tea parties" -- to protest higher taxes and out-of-control government spending. There is no political party behind these rallies, no grand right-wing conspiracy, not even a 501(c) group like MoveOn.org.
Reuters
A rally and march in protest of higher taxes in Santa Barbara, Calif., April 4.
So who's behind the Tax Day tea parties? Ordinary folks who are using the power of the Internet to organize. For a number of years, techno-geeks have been organizing "flash crowds" -- groups of people, coordinated by text or cellphone, who converge on a particular location and then do something silly, like the pillow fights that popped up in 50 cities earlier this month. This is part of a general phenomenon dubbed "Smart Mobs" by Howard Rheingold, author of a book by the same title, in which modern communications and social-networking technologies allow quick coordination among large numbers of people who don't know each other.
In the old days, organizing large groups of people required, well, an organization: a political party, a labor union, a church or some other sort of structure. Now people can coordinate themselves.
We saw a bit of this in the 2004 and 2008 presidential campaigns, with things like Howard Dean's use of Meetup, and Barack Obama's use of Facebook. But this was still social-networking in support of an existing organization or campaign. The tea-party protest movement is organizing itself, on its own behalf. Some existing organizations, like Newt Gingrich's American Solutions and FreedomWorks, have gotten involved. But they're involved as followers and facilitators, not leaders. The leaders are appearing on their own, and reaching out to others through blogs, Facebook, chat boards and alternative media.
Read the rest of the Story at the WSJ here.
Daniel Planview
By GLENN HARLAN REYNOLDS
Today American taxpayers in more than 300 locations in all 50 states will hold rallies -- dubbed "tea parties" -- to protest higher taxes and out-of-control government spending. There is no political party behind these rallies, no grand right-wing conspiracy, not even a 501(c) group like MoveOn.org.
Reuters
A rally and march in protest of higher taxes in Santa Barbara, Calif., April 4.
So who's behind the Tax Day tea parties? Ordinary folks who are using the power of the Internet to organize. For a number of years, techno-geeks have been organizing "flash crowds" -- groups of people, coordinated by text or cellphone, who converge on a particular location and then do something silly, like the pillow fights that popped up in 50 cities earlier this month. This is part of a general phenomenon dubbed "Smart Mobs" by Howard Rheingold, author of a book by the same title, in which modern communications and social-networking technologies allow quick coordination among large numbers of people who don't know each other.
In the old days, organizing large groups of people required, well, an organization: a political party, a labor union, a church or some other sort of structure. Now people can coordinate themselves.
We saw a bit of this in the 2004 and 2008 presidential campaigns, with things like Howard Dean's use of Meetup, and Barack Obama's use of Facebook. But this was still social-networking in support of an existing organization or campaign. The tea-party protest movement is organizing itself, on its own behalf. Some existing organizations, like Newt Gingrich's American Solutions and FreedomWorks, have gotten involved. But they're involved as followers and facilitators, not leaders. The leaders are appearing on their own, and reaching out to others through blogs, Facebook, chat boards and alternative media.
Read the rest of the Story at the WSJ here.
Daniel Planview
Tuesday, April 14, 2009
The Trillion Dollar Question
Inflation or Deflation that is the question I ask of the?
Any Thoughts, Feedback ?
Any Thoughts, Feedback ?
Happy tax day eve.
Are there any statesmen or leaders to be found in the United States or are we left with only lying, two faced, back stabbing politicians? I despise all politicians. Sorry about my despair but scope of the wasteful and incessant spending of both parties in an attempt to advance an agenda of ever expanding government has brought me down today. The debt burden we are creating today will handicap future generations of Americans. Something has to be allowed to fail but it should not be the dream of capitalism and an independent democracy. We’re not the country of France, or the United Kingdom or Canada, Hugo Chavez should not be right, but our actions lead us down a dangerous path.
"When the people fear their government, there is tyranny; when the government fears the people, there is liberty."
Thomas Jefferson
Video's that started the rant, along with being one of the 49% of american who are paying taxes put a burr under my saddle.
What short memories do they have Waters
All of congress is repsonsible some one step up
I wish I lived in Texas.
Daniel Plainiview
"When the people fear their government, there is tyranny; when the government fears the people, there is liberty."
Thomas Jefferson
Video's that started the rant, along with being one of the 49% of american who are paying taxes put a burr under my saddle.
What short memories do they have Waters
All of congress is repsonsible some one step up
I wish I lived in Texas.
Daniel Plainiview
Wednesday, April 8, 2009
Recap of the last 15 years
This was taken from the Alleghany Corporation 2008 annual report, from the "To Our Stock Holders Section"
http://www.alleghany.com/Documents/2008annualreport.pdf
Thoughts on the big picture
The imbalances that are evident today in the global economy trace their origins to August of 1994,when China embarked upon a course of a managed, nominal currency peg of the renminbi (RMB)against the U.S. dollar. Few remember today that as recently as 1981, the RMB/USD exchange rate was as strong as 1.53 yuan per dollar; by 1994 it had weakened to as low as 8.76 yuan per dollar, and was pegged at 8.28 until 2005. Over the following decade and a half, this currency policy contributed to stagnant U.S. household incomes (real median U.S. household income is lower today than it was in 1998), as U.S. labor could not compete with a massive, artificially priced Chinese labor pool due to the currency devaluation. The mechanism with which China (and other countries with pegged currencies) kept its currency artificially depressed was to recycle dollars into U.S. treasury securities and agency securities, thereby keeping U.S. interest rates artificially low, exporting deflation, and importing inflation. The prime beneficiary of this policy in the United States and other OECD (Organization for Economic Cooperation and Development) countries was the financial services industry, which took advantage of excessively easy money and low interest rates to fund credit expansion to middle class households, who sought to improve their standard of living despite stagnant
incomes by borrowing to fund consumption.
With perfect hindsight, it is now clear that 2007 probably marked the end of a 25-year credit binge in the United States. By the third quarter of 2008, total debt in the United States—government, corporate, financial, and household—exceeded 350% of GDP, a higher level than was the case in 1929. Over the past ten years, each incremental dollar of debt in the U.S. economy produced less and less growth in nominal GDP, with the marginal productivity of debt headed toward zero by 2013. The global economy, increasingly unbalanced and held together by a highly unstable and complex financial system, began to teeter in 2007 and collapsed in 2008. Inflationary pressures, which were significant in the first half of last year, turned to a deflationary collapse in the second half of the year.
The epicenter of the credit collapse was the investment banking industry and other capital providers,including private equity firms, hedge funds, and a variety of securitization vehicles. This system—referred to by some as “the shadow banking system”1—became the dominant provider of credit to households to fund consumption through the creation of structured securities that linked global savers to, primarily, U.S. consumers. Household debt began to expand at a very rapid rate, doubling from $7 trillion in 2000 to $14 trillion by the third quarter of 2008. A casual review of the Federal Reserve’s Flow of Funds report makes clear that at least $3.6 trillion of this debt may never be repaid as growth in personal income was far slower than growth in household debt. The majority of these assets appear
to be held by the largest financial institutions in the world, placing their solvency at risk.
Like a finely-engineered Swiss watch, the global economy depends on the proper functioning of all of its pieces for the mechanism to work. As the weakest borrowers in the system began to collapse, the global economy came under increasing stress in 2008 and, following the collapse of several major
financial institutions, the system virtually shut down in late 2008.
Most economists view the world through a profit-maximization model. The assumption is that given stimulus—either tax cuts or cheaper money—consumers will consume, and businesses will invest. However, another model—the survival model—suggests that liquidity and debt reduction become the overriding factors in economic motivation following a long period of easy credit, inflated asset values, and ultimately an asset collapse.2 Moreover, it seems to us that we are likely in for a long economic
winter, as households attempt to reduce leverage and businesses fight for survival in deteriorating economic conditions. In such an environment, an abundance of caution is in order.
Governments and policy makers continue to attempt to address the problem of inadequate aggregate demand in the OECD economies by trying to increase demand for credit. Unfortunately, a reasonable case can be made that there is no demand for credit because borrowers are either insolvent or
financially impaired. The dramatic expansion of the money supply in response to collapsing velocity has not yet produced inflationary pressure, but this eventuality cannot be dismissed. A reasonable scenario, in our opinion, would be for a prolonged (3-5 years) period of negligible economic growth, continued credit problems, and rising inflationary pressure.
Any thoughts ?
http://www.alleghany.com/Documents/2008annualreport.pdf
Thoughts on the big picture
The imbalances that are evident today in the global economy trace their origins to August of 1994,when China embarked upon a course of a managed, nominal currency peg of the renminbi (RMB)against the U.S. dollar. Few remember today that as recently as 1981, the RMB/USD exchange rate was as strong as 1.53 yuan per dollar; by 1994 it had weakened to as low as 8.76 yuan per dollar, and was pegged at 8.28 until 2005. Over the following decade and a half, this currency policy contributed to stagnant U.S. household incomes (real median U.S. household income is lower today than it was in 1998), as U.S. labor could not compete with a massive, artificially priced Chinese labor pool due to the currency devaluation. The mechanism with which China (and other countries with pegged currencies) kept its currency artificially depressed was to recycle dollars into U.S. treasury securities and agency securities, thereby keeping U.S. interest rates artificially low, exporting deflation, and importing inflation. The prime beneficiary of this policy in the United States and other OECD (Organization for Economic Cooperation and Development) countries was the financial services industry, which took advantage of excessively easy money and low interest rates to fund credit expansion to middle class households, who sought to improve their standard of living despite stagnant
incomes by borrowing to fund consumption.
With perfect hindsight, it is now clear that 2007 probably marked the end of a 25-year credit binge in the United States. By the third quarter of 2008, total debt in the United States—government, corporate, financial, and household—exceeded 350% of GDP, a higher level than was the case in 1929. Over the past ten years, each incremental dollar of debt in the U.S. economy produced less and less growth in nominal GDP, with the marginal productivity of debt headed toward zero by 2013. The global economy, increasingly unbalanced and held together by a highly unstable and complex financial system, began to teeter in 2007 and collapsed in 2008. Inflationary pressures, which were significant in the first half of last year, turned to a deflationary collapse in the second half of the year.
The epicenter of the credit collapse was the investment banking industry and other capital providers,including private equity firms, hedge funds, and a variety of securitization vehicles. This system—referred to by some as “the shadow banking system”1—became the dominant provider of credit to households to fund consumption through the creation of structured securities that linked global savers to, primarily, U.S. consumers. Household debt began to expand at a very rapid rate, doubling from $7 trillion in 2000 to $14 trillion by the third quarter of 2008. A casual review of the Federal Reserve’s Flow of Funds report makes clear that at least $3.6 trillion of this debt may never be repaid as growth in personal income was far slower than growth in household debt. The majority of these assets appear
to be held by the largest financial institutions in the world, placing their solvency at risk.
Like a finely-engineered Swiss watch, the global economy depends on the proper functioning of all of its pieces for the mechanism to work. As the weakest borrowers in the system began to collapse, the global economy came under increasing stress in 2008 and, following the collapse of several major
financial institutions, the system virtually shut down in late 2008.
Most economists view the world through a profit-maximization model. The assumption is that given stimulus—either tax cuts or cheaper money—consumers will consume, and businesses will invest. However, another model—the survival model—suggests that liquidity and debt reduction become the overriding factors in economic motivation following a long period of easy credit, inflated asset values, and ultimately an asset collapse.2 Moreover, it seems to us that we are likely in for a long economic
winter, as households attempt to reduce leverage and businesses fight for survival in deteriorating economic conditions. In such an environment, an abundance of caution is in order.
Governments and policy makers continue to attempt to address the problem of inadequate aggregate demand in the OECD economies by trying to increase demand for credit. Unfortunately, a reasonable case can be made that there is no demand for credit because borrowers are either insolvent or
financially impaired. The dramatic expansion of the money supply in response to collapsing velocity has not yet produced inflationary pressure, but this eventuality cannot be dismissed. A reasonable scenario, in our opinion, would be for a prolonged (3-5 years) period of negligible economic growth, continued credit problems, and rising inflationary pressure.
Any thoughts ?
Monday, April 6, 2009
Macro Man's New Financial World
Macro man has some interesting thoughts on a NEW Financial world.
Read the complete post at: http://macro-man.blogspot.com/2009/04/make-new-world.html
Today, however, he wishes to offer a few small suggestions as to how he would make a new financial world. The list is by no means meant to be comprehensive. nor indeed is every item on the list replete with detail. Still, you gotta start somewhere:
* Change the regulation and/or incentive structure of the ratings agencies. One of the fundamental flaws in the current (or is that prior) economic system is that the ratings agencies were paid by the sellers, rather than the buyers, of bonds and structured credit. They were therefore incentivized to help those sellers game the models to win the most favourable ratings. If, however, they were compensated by the buyers of bonds and structured credit, they should be incentivized to, you know, get things right.
* Migrate the CDS market to exchanges with position limits and heavy margining. This has obviously been suggested elsewhere, but bears repeating. In its worst form, the CDS market has a) added untold leverage into the system, and b) represented little more than Mr. Smith buying fire insurance on the houses of Mr. Jones and Mr. Wesson. If a fire (whether natural or via arson) consumes the entire street, the neighbourhood as a whole loses out, but Mr. Smith is quids in. What sort of incentive structure does this give Smith, and what is the impact on society at large?
Read the complete post at: http://macro-man.blogspot.com/2009/04/make-new-world.html
Today, however, he wishes to offer a few small suggestions as to how he would make a new financial world. The list is by no means meant to be comprehensive. nor indeed is every item on the list replete with detail. Still, you gotta start somewhere:
* Change the regulation and/or incentive structure of the ratings agencies. One of the fundamental flaws in the current (or is that prior) economic system is that the ratings agencies were paid by the sellers, rather than the buyers, of bonds and structured credit. They were therefore incentivized to help those sellers game the models to win the most favourable ratings. If, however, they were compensated by the buyers of bonds and structured credit, they should be incentivized to, you know, get things right.
* Migrate the CDS market to exchanges with position limits and heavy margining. This has obviously been suggested elsewhere, but bears repeating. In its worst form, the CDS market has a) added untold leverage into the system, and b) represented little more than Mr. Smith buying fire insurance on the houses of Mr. Jones and Mr. Wesson. If a fire (whether natural or via arson) consumes the entire street, the neighbourhood as a whole loses out, but Mr. Smith is quids in. What sort of incentive structure does this give Smith, and what is the impact on society at large?
Tuesday, March 24, 2009
Paper Tiger, Bull Trap?
Paper Tiger or a bull trap?
We push up through some levels of resistance now from 780-820 on the SP500 can we get to the next one at 880 than to 940 or will we consolidate here? There seems to be enough negative emotion and news coverage to give this rally legs. But the Bull trap could also be set for markets to make new lows. Oh the times we live in>
What is the next piece of news from Obama communist regime will it be a reason to rally or flop back on our backs? Ok that maybe a little harsh. But congress and the administration is looking at incenting consumers to purchase cars and truck which is a great idea and would have a greater impact on the industry than giving poorly run companies money, at least this would give the consumer a reason to buy. But the protectionists are taking a stand and trying to force congress to make another bone head decision, they want to only incent you to buy vehicles assembled in the USA hmm. Gut check how many GM, Ford, Chrysler cars and trucks are assembled in Mexico and Canada would they qualify or not how many Honda’s and Toyota’s are built in Tennessee? , My point being if we get into a trade war or even the notion of one watch out below this kind of news would pull the rug out from under this market
From an extreme view a professor once said to me “Either goods cross borders or Men with guns will”
Energy and commodities look like a base has formed, could be time to get long at least with some risk capital.
We push up through some levels of resistance now from 780-820 on the SP500 can we get to the next one at 880 than to 940 or will we consolidate here? There seems to be enough negative emotion and news coverage to give this rally legs. But the Bull trap could also be set for markets to make new lows. Oh the times we live in>
What is the next piece of news from Obama communist regime will it be a reason to rally or flop back on our backs? Ok that maybe a little harsh. But congress and the administration is looking at incenting consumers to purchase cars and truck which is a great idea and would have a greater impact on the industry than giving poorly run companies money, at least this would give the consumer a reason to buy. But the protectionists are taking a stand and trying to force congress to make another bone head decision, they want to only incent you to buy vehicles assembled in the USA hmm. Gut check how many GM, Ford, Chrysler cars and trucks are assembled in Mexico and Canada would they qualify or not how many Honda’s and Toyota’s are built in Tennessee? , My point being if we get into a trade war or even the notion of one watch out below this kind of news would pull the rug out from under this market
From an extreme view a professor once said to me “Either goods cross borders or Men with guns will”
Energy and commodities look like a base has formed, could be time to get long at least with some risk capital.
Sunday, March 8, 2009
Thursday, February 19, 2009
June 9, 1997
June 9, 1997 was the first time the DJIA crossed and closed above 7465.95.
Today, 2.19.09 the DJIA closed below the previous low ( 11.20.08 ) in the current bear market.
Some suggest this is bad sign, others, a very bad sign.
It will be interesting to see if the SP500 @ 778.94 remains above it's closing low from 11.20.08 of 752.44.
We shall see.
Today, 2.19.09 the DJIA closed below the previous low ( 11.20.08 ) in the current bear market.
Some suggest this is bad sign, others, a very bad sign.
It will be interesting to see if the SP500 @ 778.94 remains above it's closing low from 11.20.08 of 752.44.
We shall see.
Monday, February 16, 2009
The next time your advisor says "92% of returns...."
The next time you hear your advisor say "92% of your returns comes from asset allocation" ask them what that means. Just say "explain that to me." Have them walk you through it in detail.
I'll bet you $5 they won't have a clue....not a chance. Some advisors out there do, some get it inside and out. But they are few and far between and I'd guess about <5%.
"Specifically, data from 82 large pension plans over the 1977–87 period indicate
that investment policy explained, on average, 91.5 per cent of the variation in quarterly total plan returns."
I'll bet you $5 they won't have a clue....not a chance. Some advisors out there do, some get it inside and out. But they are few and far between and I'd guess about <5%.
Most advisors are unaware of what they are actually misquoting, who wrote it, or what it means. By reading this post you'll move to the head of the class.
Here is the quote:
"Specifically, data from 82 large pension plans over the 1977–87 period indicate
that investment policy explained, on average, 91.5 per cent of the variation in quarterly total plan returns."
The quote is from an article, a study really, by Gary P. Brinson, Brian D. Singer and Gilbert L. Beebower, written in 1991, in the Financial Analysts Journal. ( http://tinyurl.com/bdmgug pdf )
This article was a follow-up to a similar study they did in 1986.
The KEY point, which I bolded above, is that investment policy ( asset allocation ) explains 91.5% of the variation in returns !
It does NOT explain or determine WHAT your return will be....just how VOLATILE it will be...or how the returns will vary. That's it.
Example = If your asset allocation is 100% cash, the variability of your returns will be not so much. Cash does not move around in value. The interest rate may change, but that's it.
If your asset allocation is 100% stocks, or stock mutual funds, then the variability of your returns will be all over the map ! Because we know the stock market, even in 'normal' times, can be + 20% or - 20% within the same year.
So, asset allocation ( investment policy ) has everything to do with how your returns will be jacked around by the market, or by whatever major asset class you expose them too. No more, no less. Asset allocation does not predict, ensure, or make more likely a certain return %, nor does it guarantee you'll achieve an investment goal.
This is not to say that asset allocation is without merit. Not at all.
Asset allocation has plenty of merit, use and investment application.
It is unfortunately oversold as a solution and severely misunderstood. (9)
Overused and misused quotes...
Too often we hear or read "...in the long run we are all dead." (Keynes )
Here is the entire quote:
"The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again."
Here is the entire quote:
"The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again."
One of us is a HUGE Jeremy Grantham fan...
One of us is a HUGE Jeremy Grantham http://tinyurl.com/dh39ke fan and aims to read his every word. The passages excerpted below are from his most recent Jan. 2009 GMO Quarterly Letter.
"Never underestimate the power of a dominant
academic idea to choke off competing ideas, and never
underestimate the unwillingness of academics to change
their views in the face of evidence. They have decades
of their research and their academic standing to defend.
The incredibly inaccurate efficient market theory was
believed in totality by many of our financial leaders, and
believed in part by almost all. It left our economic and
governmental establishment sitting by confidently, even
as a lethally dangerous combination of asset bubbles, lax
controls, pernicious incentives, and wickedly complicated
instruments led to our current plight. “Surely none of this
could happen in a rational, efficient world,” they seemed
to be thinking."
"Heavy buy-and-hold equity positions are fine for long-lived
computers, but for impatient humans – given as we are to
waves of overconfidence and abject fear – they are simply
dangerous and unsuitable."
"Never underestimate the power of a dominant
academic idea to choke off competing ideas, and never
underestimate the unwillingness of academics to change
their views in the face of evidence. They have decades
of their research and their academic standing to defend.
The incredibly inaccurate efficient market theory was
believed in totality by many of our financial leaders, and
believed in part by almost all. It left our economic and
governmental establishment sitting by confidently, even
as a lethally dangerous combination of asset bubbles, lax
controls, pernicious incentives, and wickedly complicated
instruments led to our current plight. “Surely none of this
could happen in a rational, efficient world,” they seemed
to be thinking."
"Heavy buy-and-hold equity positions are fine for long-lived
computers, but for impatient humans – given as we are to
waves of overconfidence and abject fear – they are simply
dangerous and unsuitable."
Citizen observations...
Two weekends in a row I've heard a series of radio commercials for 'massive liquidation sale..! everything must go ! !'
These events are being held at decent sized 'expo' and civic centers ( small arenas.)
It's all Retails items / goods; clothes, shoes, belts, purses, perfume, bags, small furniture sets, etc.
I'm guessing there is tons of unsold, post-holidays retail stuff which, as the ads say, must go !
I'm also guessing there will be many more of these liquidation events.
Stay tuned. (9)
These events are being held at decent sized 'expo' and civic centers ( small arenas.)
It's all Retails items / goods; clothes, shoes, belts, purses, perfume, bags, small furniture sets, etc.
I'm guessing there is tons of unsold, post-holidays retail stuff which, as the ads say, must go !
I'm also guessing there will be many more of these liquidation events.
Stay tuned. (9)
Part man, part monkey
This excerpt is from James Montier, who at the time ( 11.22.2002 ) was with Dresdner Kleinwort Wasserstein and is now with SocGen in London.
The 10 page pdf can be read here http://tinyurl.com/d927rz and we suggest re-reading it at least annually.
This piece was titled "Part man, part monkey" enjoy. (9)
"Leaving the trees could have been our first mistake.
Our minds are suited for solving problems related to our survival, rather than
being optimised for investment decisions.
We all make mistakes when we make decisions.
The list below gives a top ten list for avoiding the most common investment mental pitfalls.
1 You know less than you think you do
2 Be less certain in your views, aim for timid forecasts and bold choices
3 Don't get hung up on one technique, tool, approach or view - flexibility and pragmatism are the order of the day
4 Listen to those who don't agree with you
5 You didn't know it all along, you just think you did
6 Forget relative valuation, forget market price, work out what the stock is worth (use reverse DCFs)
7 Don't take information at face value, think carefully about how it was presented to you
8 Don't confuse good firms with good investments, or good earnings growth with good returns
9 Vivid, easy to recall events are less likely than you think they are, subtle causes are underestimated
10 Sell your losers and ride your winners "
The 10 page pdf can be read here http://tinyurl.com/d927rz and we suggest re-reading it at least annually.
This piece was titled "Part man, part monkey" enjoy. (9)
"Leaving the trees could have been our first mistake.
Our minds are suited for solving problems related to our survival, rather than
being optimised for investment decisions.
We all make mistakes when we make decisions.
The list below gives a top ten list for avoiding the most common investment mental pitfalls.
1 You know less than you think you do
2 Be less certain in your views, aim for timid forecasts and bold choices
3 Don't get hung up on one technique, tool, approach or view - flexibility and pragmatism are the order of the day
4 Listen to those who don't agree with you
5 You didn't know it all along, you just think you did
6 Forget relative valuation, forget market price, work out what the stock is worth (use reverse DCFs)
7 Don't take information at face value, think carefully about how it was presented to you
8 Don't confuse good firms with good investments, or good earnings growth with good returns
9 Vivid, easy to recall events are less likely than you think they are, subtle causes are underestimated
10 Sell your losers and ride your winners "
Investor behavior...
This excerpt below comes to us from Louis Gave of GaveKal, courtesy of John Mauldin.
"Most investors have a natural tendency to project their most recent experiences far out in the future."
This is a dangerous behavior which can have disastrous results.
In working with investors we've seen this far too often.
Currently = clients reflect upon their % losses or $$ losses and extrapolate them forward into to the future...which quickly leaves them 'broke!' Or, 'I'm going to loose it all !'
Early 2007 = 'Does this thing have any China in it ? How about emerging markets, gold or oil ? That's what's making the gains...'
The same was true in the summer and fall of 2002 and the early winter / spring of 2000. (9)
"Most investors have a natural tendency to project their most recent experiences far out in the future."
This is a dangerous behavior which can have disastrous results.
In working with investors we've seen this far too often.
Currently = clients reflect upon their % losses or $$ losses and extrapolate them forward into to the future...which quickly leaves them 'broke!' Or, 'I'm going to loose it all !'
Early 2007 = 'Does this thing have any China in it ? How about emerging markets, gold or oil ? That's what's making the gains...'
The same was true in the summer and fall of 2002 and the early winter / spring of 2000. (9)
Sunday, January 25, 2009
Sunday is the 1st day of the week...
Sunday is the 1st day of the week and offers a great chance to review & preview and to think about your investments.
Below are the weekenders we suggest can help any investor from novice to professional stay well informed. Enjoy, 9.
Economic - Northern Trust (pdf) http://tinyurl.com/d9uj6b
Analysis / Commentary aggregater - Dr Prieur du Plessis - Words from the (investment) wise for the week that was (January 19 – 25, 2009) http://tinyurl.com/atr2nt
Analysis & Commentary - John Mauldin "Here Comes TARP 3 and 4" (pdf) http://tinyurl.com/al9opv
Trading & Technical investing - Bill Cara - Week in Review #04, 2009 http://tinyurl.com/dmfdbe
Below are the weekenders we suggest can help any investor from novice to professional stay well informed. Enjoy, 9.
Economic - Northern Trust (pdf) http://tinyurl.com/d9uj6b
Analysis / Commentary aggregater - Dr Prieur du Plessis - Words from the (investment) wise for the week that was (January 19 – 25, 2009) http://tinyurl.com/atr2nt
Analysis & Commentary - John Mauldin "Here Comes TARP 3 and 4" (pdf) http://tinyurl.com/al9opv
Trading & Technical investing - Bill Cara - Week in Review #04, 2009 http://tinyurl.com/dmfdbe
Thursday, January 22, 2009
Here comes socialism
President Obama yesterday made a fairly bold move attempting to increase transparency to his administration along with freezing pay for his senior staffers who make over 100k, (possibly a symbolic gesture paving the way for him to ask us, the tax payer to do the same in the near future) as well as changing the way his administration can be lobbied. All of these changes are great on the surface but nothing addresses the Large Annoying Pink Socialist Elephant (LAPSE) sitting in the corner of the room. Dick Morris takes a shot below.
My question to you is how do you invest in this type of market? In general basing an investment thesis solely on the intentions of government is a risky endeavor (Ethanol). My concerns are I feel valid after listening to the Geithner hearings yesterday; numerous times he was lectured by our Congressional leadership, reading off of prepared statements on how the government needs to not allow people and companies to innovate faster than they can regulate. (He was even told at one point that Social Security is not a concern??? But I will leave this for a different time) The fear of innovation or government controlled developed is very disconcerting. It harkens back to a planned economy, this may and I hope is an extreme interpretation of possible outcomes but it needs discussion. The dynamic nature of our nation and our economy is based on innovation, the foundation of our military strength is the ability to change, adapt and conquer, if our government which by design is a slow and sometimes a messy Democratic process is allow to direct innovation how will we have a positive outcome? Was Marx right?
http://thehill.com/dick-morris/the-obama-presidency--here-comes-socialism-2009-01-20.html
Dick Morris
The Obama presidency: Here comes socialism
The Obama presidency: Here comes socialism
By Dick Morris
Posted: 01/20/09 06:12 PM [ET]
2009-2010 will rank with 1913-14, 1933-36, 1964-65 and 1981-82 as years that will permanently change our government, politics and lives. Just as the stars were aligned for Wilson, Roosevelt, Johnson and Reagan, they are aligned for Obama. Simply put, we enter his administration as free-enterprise, market-dominated, laissez-faire America. We will shortly become like Germany, France, the United Kingdom, or Sweden — a socialist democracy in which the government dominates the economy, determines private-sector priorities and offers a vastly expanded range of services to many more people at much higher taxes.
Obama will accomplish his agenda of “reform” under the rubric of “recovery.” Using the electoral mandate bestowed on a Democratic Congress by restless voters and the economic power given his administration by terrified Americans, he will change our country fundamentally in the name of lifting the depression. His stimulus packages won’t do much to shorten the downturn — although they will make it less painful — but they will do a great deal to change our nation.
In implementing his agenda, Barack Obama will emulate the example of Franklin D. Roosevelt. (Not the liberal mythology of the New Deal, but the actuality of what it accomplished.) When FDR took office, he was enormously successful in averting a total collapse of the banking system and the economy. But his New Deal measures only succeeded in lowering the unemployment rate from 23 percent in 1933, when he took office, to 13 percent in the summer of 1937. It never went lower. And his policies of over-regulation generated such business uncertainty that they triggered a second-term recession. Unemployment in 1938 rose to 17 percent and, in 1940, on the verge of the war-driven recovery, stood at 15 percent. (These data and the real story of Hoover’s and Roosevelt’s missteps, uncolored by ideology, are available in The Forgotten Man by Amity Shlaes, copyright 2007.)
But in the name of a largely unsuccessful effort to end the Depression, Roosevelt passed crucial and permanent reforms that have dominated our lives ever since, including Social Security, the creation of the Securities and Exchange Commission, unionization under the Wagner Act, the federal minimum wage and a host of other fundamental changes.
Obama’s record will be similar, although less wise and more destructive. He will begin by passing every program for which liberals have lusted for decades, from alternative-energy sources to school renovations, infrastructure repairs and technology enhancements. These are all good programs, but they normally would be stretched out for years. But freed of any constraint on the deficit — indeed, empowered by a mandate to raise it as high as possible — Obama will do them all rather quickly.
But it is not his spending that will transform our political system, it is his tax and welfare policies. In the name of short-term stimulus, he will give every American family (who makes less than $200,000) a welfare check of $1,000 euphemistically called a refundable tax credit. And he will so sharply cut taxes on the middle class and the poor that the number of Americans who pay no federal income tax will rise from the current one-third of all households to more than half. In the process, he will create a permanent electoral majority that does not pay taxes, but counts on ever-expanding welfare checks from the government. The dependency on the dole, formerly limited in pre-Clinton days to 14 million women and children on Aid to Families with Dependent Children, will now grow to a clear majority of the American population.
Will he raise taxes? Why should he? With a congressional mandate to run the deficit up as high as need be, there is no reason to raise taxes now and risk aggravating the depression. Instead, Obama will follow the opposite of the Reagan strategy. Reagan cut taxes and increased the deficit so that liberals could not increase spending. Obama will raise spending and increase the deficit so that conservatives cannot cut taxes. And, when the economy is restored, he will raise taxes with impunity, since the only people who will have to pay them would be rich Republicans.
In the name of stabilizing the banking system, Obama will nationalize it. Using Troubled Asset Relief Program funds to write generous checks to needy financial institutions, his administration will demand preferred stock in exchange. Preferred stock gets dividends before common stockholders do. With the massive debt these companies will owe to the government, they will only be able to afford dividends for preferred stockholders — the government, not private investors. So who will buy common stock? And the government will demand that its bills be paid before any profits that might materialize are reinvested in the financial institution, so how will the value of the stocks ever grow? Devoid of private investors, these institutions will fall ever more under government control.
Obama will begin the process by limiting executive compensation. Then he will urge restructuring and lowering of home mortgages in danger of default (as the feds have already done with Citibank).
Then will come guidance on the loans to make and government instructions on the types of enterprises to favor. God grant that some Blagojevich type is not in charge of the program, using his power to line his pockets. The United States will find itself with an economic system comparable to that of Japan, where the all-powerful bureaucracy at MITI (Ministry of International Trade and Industry) manages the economy, often making mistakes like giving mainframe computers priority over the development of laptops.
But it is the healthcare system that will experience the most dramatic and traumatic of changes. The current debate between erecting a Medicare-like governmental single payer or channeling coverage through private insurance misses the essential point. Without a lot more doctors, nurses, clinics, equipment and hospital beds, health resources will be strained to the breaking point. The people and equipment that now serve 250 million Americans and largely neglect all but the emergency needs of the other 50 million will now have to serve everyone. And, as government imposes ever more Draconian price controls and income limits on doctors, the supply of practitioners and equipment will decline as the demand escalates. Price increases will be out of the question, so the government will impose healthcare rationing, denying the older and sicker among us the care they need and even barring them from paying for it themselves. (Rationing based on income and price will be seen as immoral.)
And Obama will move to change permanently the partisan balance in America. He will move quickly to legalize all those who have been in America for five years, albeit illegally, and to smooth their paths to citizenship and voting. He will weaken border controls in an attempt to hike the Latino vote as high as he can in order to make red states like Texas into blue states like California. By the time he is finished, Latinos and African-Americans will cast a combined 30 percent of the vote. If they go by top-heavy margins for the Democrats, as they did in 2008, it will assure Democratic domination (until they move up the economic ladder and become good Republicans).
And he will enact the check-off card system for determining labor union representation, repealing the secret ballot in union elections. The result will be to raise the proportion of the labor force in unions up to the high teens from the current level of about 12 percent.
Finally, he will use the expansive powers of the Federal Communications Commission to impose “local” control and ownership of radio stations and to impose the “fairness doctrine” on talk radio. The effect will be to drive talk radio to the Internet, fundamentally change its economics, and retard its growth for years hence.
But none of these changes will cure the depression. It will end when the private sector works through the high debt levels that triggered the collapse in the first place. And, then, the large stimulus package deficits will likely lead to rapid inflation, probably necessitating a second recession to cure it.
So Obama’s name will be mud by 2012 and probably by 2010 as well. And the Republican Party will make big gains and regain much of its lost power.
But it will be too late to reverse the socialism of much of the economy, the demographic change in the electorate, the rationing of healthcare by the government, the surge of unionization and the crippling of talk radio.
Morris, a former adviser to Sen. Trent Lott (R-Miss.) and President Bill Clinton, is the author of Outrage. To get all of Dick Morris’s and Eileen McGann’s columns for free by email, go to www.dickmorris.com. To order a signed copy of their new best-selling book, Fleeced, go to dickmorris.com
Wednesday, January 21, 2009
ETFs that hit our 'over sold' screen...
The ETFs below hit our 'over sold' screen as of 1.20.09 close - many other sectors and country specifics are not too far behind. A few additionals...nobody wants to catch a falling knife - asset classes can remain under pressure for a long time - it's one thing to buy cheap, or relatively cheap, it's another to buy cheap with improving fundamentals or momentum ( as my colleague is SO often reminding me.) (9)
OEF Ishares SP 100
IVE Ishares SP500 Barra Value
FIO Ishares FTSE NAREIT
EWO Ishares MSCI Austria
EWK Ishares MSCI Belgium
EFV Ishares MSCI Value Index
USO US Oil Fund
* needless to say this is not a recommendation to buy or sell *
OEF Ishares SP 100
IVE Ishares SP500 Barra Value
FIO Ishares FTSE NAREIT
EWO Ishares MSCI Austria
EWK Ishares MSCI Belgium
EFV Ishares MSCI Value Index
USO US Oil Fund
* needless to say this is not a recommendation to buy or sell *
Monday, January 19, 2009
The purpose of this blog...
The purpose of this blog is to share our thoughts / views on the following;
1 - Investment management - specifically a focus on absolute returns investing
2 - Investments and trends in asset management to include mutual funds, ETF’s, SMA’s, ‘alternative investments’ ( hedge funds, commodity managers, private equity, etc. )
3 - The pros and cons of the modern and current approach to investment management / planning for retail clients, specifically, the near-religious belief in Modern Portfolio Theory ( more to follow )
4 - Our review of and tracking / sharing information re asset managers whose investment process we subscribe too
5 - Our approach to asset management ( to include portfolios and investment strategies )
1 - Investment management - specifically a focus on absolute returns investing
2 - Investments and trends in asset management to include mutual funds, ETF’s, SMA’s, ‘alternative investments’ ( hedge funds, commodity managers, private equity, etc. )
3 - The pros and cons of the modern and current approach to investment management / planning for retail clients, specifically, the near-religious belief in Modern Portfolio Theory ( more to follow )
4 - Our review of and tracking / sharing information re asset managers whose investment process we subscribe too
5 - Our approach to asset management ( to include portfolios and investment strategies )
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