I just got off the phone with a friend of mine. He too was a former stockbroker, and concerned about the bailout. He believes that the $700 billion should be approved, because we cannot let this go on for a prolonged period of time.

I was informed that Jim Cramer was on cable television discussing how this bailout must be approved lest 5 million homeowners hit the market all at once. I was informed that other stockbrokers we know are looking at the potential for the market to drop up to another 1000 points if this bailout is not approved immediately. And I was reminded that this is not a situation that will resolve itself.

My friend remembered that this problem did not start last moth, or this year, or last year. He was clear in that this is far beyond politics. That we as a nation are facing the serious potential of a depression if this is handled wrong.

But as I listened, and reflected on my previous thoughts on this issue, and all the news that has been made available I was reinforced on my opinion.

The bailout as it stands is not in the best interest of the nation. Throwing money at a problem will never resolve it. Politicians and regulators have no understanding of the depth or causes of this crisis. Had they any understanding they would have seen the problem over a year ago. In January they would have reacted properly, but they all had no clue. Giving them even a Trillion dollars will not end the problem.

The bailout is meant to be an investment for the public. But this investment currently has no established value, no terms of repayment, no system of repayment, nor any assurance that future repayment will not be needed. I have a problem with that.

Honestly this is not like getting a credit card or a loan. In both of those cases you are assuming part of the cost of those that fail to make their payments in the interest rate you pay. You are provided documentation that states how you share in that coverage. It’s a system maintained by the private business that created the system.

The bailout, as proposed, is a mortgage – for some like me a 2nd mortgage – to which we receive no benefit other than the security of knowing the financial system might continue for another day. And while my friend believe that the next President will not directly raise taxes in the wake of this bailout, I believe that must. My friend believes that we will see social programs cut, and on that I agree as well.

The next President will have to raise taxes. While I doubt they will ask for the $5,000 to $10,000 that is estimated for the bailout from each American taxpayer, I do believe that taxes will increase for everyone by 5% at least. Because of the bad decisions of some people and several businesses. And that does not take into account some of the very costly programs one of the Presidential candidates wants to implement.

I also believe that no matter what the terms of the bailout ends up as, the market will lose over 1000 points from where it is now. With the eventual return of short-stock trades, a 4th quarter for retail companies that will by abysmal, and increasing costs for crude oil and heating oil, the market will have little choice but to turn down. The picture is dire. But taking blind action is no better than inaction.

We need time to figure out what to do, and how. To determine the full cost, and how the public can be repaid. To unravel the actual valuation of these properties, and to decide how many homeowners in default will be allowed to lose their homes – because the only way some will not is in a dreamworld.

I believe that some $200 billion should be used to fill the water in the tub, and then time spent to find the actual leak. Before the 4th quarter ends we should be able to answer the big questions facing us now – how much, how long, will we be paid back, and how to get the money back.

Maybe I am wrong. Maybe my friend, Cramer, and others are right. But I have to tell you that I am afraid, not of what happens if this works but what happens they are wrong.

Labels: financial news, Jim Cramer, mortgage crisis, tax increase

Utility stocks are the Shakespeare of the stock market. That’s the common thought. They don’t have big swings in price, are good for dividends, and are safe. Ask most stockbrokers and that’s what you will probably hear. Most think it’s the place to invest in bad economies and for old investors seeking to preserve money.

But is that true?

Utility stocks include several areas that are now, or possibly in the near future, growth industries. That includes ethanol, wind energy, biomass, hydropower, and other forms of green power generation. Each of these and many more are considered new areas of development that could help fuel the economies of multiple states, as well as the overall American economy.

A recent comment by Jim Cramer states

“Wind power is hands-down the best form of renewable energy.”

One of his picks in the wind power arena is Kaydon, which should have wind power account for 20% of the company's sales by 2009 possibly tripling by 2010. Kaydon is currently the market leader in wind-power bearings, with over 50% market share.

Now that is not the kind of growth that sounds stolid or boring. That sounds like big growth. And similar comments can be seen in several energy areas, that formerly were as unexciting as dividend returns (which have been cut by many utilities in recent years). Considering this a new look at utilities is in order.

There may be more reasons to be involved with utility stocks than you ever thought before. But check with a registered professional before making any investment decision.

Labels: biomass fuel, ethanol, green energy, Jim Cramer, kaydon, utility stocks, wind power

I was just watching Jim Cramer at 6pm on Tuesday. The stocks Cramer had been discussing included Monsanto, Potash and Deere. The subject was the increase in cost of food, international famine, and the glut of ethanol expected to be reported over the next several days.

The focus of the review of the potential for these stocks was primarily famine and the fact that because 35% of the grain production in America is being mandated to use for the creation of ethanol. There were in fact 5 stocks in the agricultural industry that were Cramer picks. Of note was the fact that Cramer mentioned that

“If I were a politician I would vote for ending using corn and grain, our food, for the production of ethanol… But I’m a broker so instead I will buy these stocks. If you want to help the world famine then buy these stocks and donate the profits to the U.N. world famine relief…” Paraphrased from the Mad Money program (if you have a video of this please let me know)

The argument is powerful and dramatic. Ethanol is a less effective means of fuel. That is a fact. And compounding that inefficiency by burning our food is in one point of view illogical. Especially when we have the example of Brazil where ethanol is created from sugar, thus not affecting the food supply or cost.

In watching this monologue from Jim Cramer I was struck by 2 things. I felt he really would rather that the world famine was being resolved by these companies as opposed to creating the roughly 164% aggregate increase in stock price since 2005 he noted. The other point was why other forms of renewable energy are not focused on.

In Florida nuclear plants shutdown and caused over 3 million to be without power mid-day. The price of corn is rising in commodity markets and supermarkets, as is beef. Ethanol is being mandated by the government even though it is more expensive and there is a glut of supply as it’s virtually impossible to find outside of the Midwest (mostly in 2 states).

Why then when all this is considered is the U.S. not seeking to promote wind energy, or solar, or any of a half dozen other ideas? Nuclear power is not green (due to the resultant waste) and problematic. Ethanol, as is currently being implemented, is counter-productive in multiple manners. What motivates the blind eye to all other forms of renewable green energy?

It doesn’t make sense to me. Ending corn as an ethanol base will not end world famine, but it may help deal with the problem. Wind energy does not harm anyone. Solar is plentiful and consistent. Biomass fuel is turning waste into a productive product. Shouldn’t we focus more on these answers?

I have to believe that when brokers, like Jim Cramer, are highlighting the fact that they would prefer to not make money in a stock or industry the public and government should take notice. When he, and others, would prefer to work harder to make money – which is his job – because of the international benefit then I have to say good for him and shame on the rest of us.

The options are there, and we need to take advantage of them.

Labels: agricultural industry, commodity markets, Deere, ethanol, Florida, Jim Cramer, Mad Money, Monsanto, nuclear power, Potash, renewable energy, stock market, world famine

Continued from Jim Cramer gets upset with reason Part 1...

It’s a real gloom outlook. Like dominoes falling the effects move from the financial sector to every other industry. Once it starts there is really nothing that can be done. This is why so many would tell Mr. Cramer they are afraid. This is why he would demand that the Fed ease rates. It’s not a recession they fear, it’s a depression. It wouldn’t be 1929, but a depression all the same. Economically it’s just part of the cycle, emotionally and in terms of real people it’s quite another.

Most average people are unfamiliar with the terms being discussed by most analysts. Many see Mr. Cramer flipping out and they don’t get it. Such are the markets.

It’s not worth pulling everything out of the market in a panic, to me. It is worth evaluating and planning your investments around. A good plan takes into account that these things may happen and provides shelter for the storm. Just as the markets rebounded from the 2000-1 drop, the up-coming drop will also be survivable. But don’t doubt it will hurt a lot.

Since 2003 the market has gone from around 8000 to 14000, a total of roughly 75% overall or about 19% per year. That is very strong growth. The 7% drop from 14,000 to 13,000 is not enough to balance the growth. I’d expect a drop to 11,000 before things settle out. And at the same time there will be far less credit available. Already that has gotten tougher as Mr. Cramer mentioned. It will get worse.

These are things I expect. I could be completely wrong, and that would be a great thing. How any one person should prepare for this potential problem is a conversation that I cannot have. I would suggest having the conversations with your professionals though, and re-evaluating the potential costs of a mortgage. Preparation is the key.

**Mr. Vass is no-longer a stockbroker, and is not providing any financial advice. The above is an expression of the thoughts of Mr. Vass and do not make or imply a solicitation. Investments of any nature are complicated and highly individualized; it is recommended that any financial advice be sought from licensed professionals. **

Labels: Jim Cramer, mortgage rates, stock market, stockbroker

So I was checking out a few things when I ran into this conversation by Mr. Jim Cramer. Actually I can’t really call it a conversation. It’s Mr. Cramer going off about his concerns. This is perhaps the most passionate I have ever heard him be. And I understand exactly why.

I’ve mentioned before that I am a former stockbroker. I’ve had years of experience and have spoken or listened to maybe hundreds of analysts and CEOs. I’ve come to understand the relationship between the markets, data, investor impressions and institutions both domestic and international. Given this I have a bit of understanding of Mr. Cramer’s words that some I’ve read do not. He may be blustering and a bit of a showboat, but he is no idiot.

Here is the actual footage –


The fact is that if you are an investor in the market, you should be concerned as well. Things are not going well and they will probably get worse. For all the naysaying of many democrats (and a couple of Presidential candidates) the economy has been doing well. That has a lot to do with the low interest rates and the boom that has persisted in the housing market. Couple that with investor impressions and you get most of what the market has been for a while now. But interest rates are on the rise and the evil some men do is coming to term.

When I say evil I mean the vultures that sought out the uninformed and ill-advised that were convinced to take on high-risk variable rate mortgages. Whether they are White or Black, most were less educated in the ways of markets and were not prepared for what would happen if rates increased. I don’t know how many people took advantage of the low rates being offered to take second-mortgages to cover rising healthcare costs or to keep up with the Jones’ and get new cars or some other such. How many ads are still being shown on TV advertising the homes that can be bought for as little as $1000 if you just call a 1-800 number for details.

For whatever the reasons, I estimate that the last 5 years has caused more people than are being estimated now to take on a home. I would say 10-20% of them were older people that took on risky second mortgages and 10-20% were mislead about the eventual cost of a first mortgage. I guess it could mean a total of about 10 million are in danger of defaulting on their loans.

If so many were to do so, banks and financial institutions would take significant losses. Profits would shrink as they are used to cover the defaults. Credit would tighten, causing some small businesses to fold, middle level companies to stagnate and fire employees and large corporations to increase prices. Unemployment goes up and the GDP of the nation drops.

Continued in Part 2...

Labels: Jim Cramer, mortgage rates, stock market, stockbroker