Let me see if I understand this correctly.

"A jump in unemployment sent stocks sharply lower Friday as investors feared that Americans won't soon deviate from their tightened budgets."

That means that someone thought consumers would go back to spending money, or realistically increasing debt, because the new year started? Or they thought that the $120 a month less in taxes (for only 4 months) President Obama has proposed was going to spur new home purchases? At the same time that nearly every industry in the nation is slashing jobs?

It must be great in the world that some of these economists live in.

We have lost the most jobs in this nation since 1945. That's at the end of WWII, when we scaled back from the massive military supply we needed for the war. And I believe more people had more savings and less debt than today - even adjusting for inflation. And the Government had none of the debt we have today, or will soon have even more of if Congress and President Obama get to spend as they plan on doing.

How could anyone look at the 2nd half of 2008 and not expect consumer spending to continue downwards. To expect the stock market to continue in the bear market that it's been in for months now. I mean what did they expect, President Obama would smile and the world would just step up and buy stocks?

President Obama is a Liberal Democrat. He has said from day one that he will increase the deficit, spending more money than ever before. He has made it explicitly clear that he intends to get even more money from fewer sources, business and the higher incomes. What exactly counts as higher income keeps changing, and getting smaller. And business really loves to have to pay more money as sales shrink.

Let's not forget that with the mismanagement of the Fed and the Treasury (neither of which is President Obama's fault - given) we have wasted billions of bailout dollars, have a line of industries waiting for their turn at the free money ATM called Government, and inflation is the one word no one wants to talk about. And inflation will be the one thing that really kicks everyone's ass.

Of course President Obama will say that the sky is falling tomorrow if he doesn't get to give away all our money. That's polispeak, meaning that he wants to look good at trying something that can't work so he has some political clout before it all falls apart. Then he can point backwards in time and blame everything that fails in his plan on President Bush. Politics as usual.

Of course these "old politics", that President Obama promised to banish, are very good at keeping political clout but horrendous for low wage earners and small business. The stock market knows this. That's why its a bear market. And as we approach the inauguration, I expect even more selling. I mean why have an investment when the taxes on it will cost more than you expect to make in the next 2 or 5 years.

As a stockbroker I learned to look for capitulation in the market. That emotional point when people just give up. That's when smart money jumps in and buys. Except that the emotional selling all happened in September and October. Since the election smart money is selling. And that means things are really going to get worse.

Until there is a reason to buy stocks, the market will continue to slowly slide down. Never in just a straight line, but trend down it will. The Democrat-led Congress will authorize spending in new programs that will not help any one get a job or start a business. The President will come up with plans on how the Government can take care of everyone, while being in every pocket deeper than before. And $1.2 trillion dollars in debt will look like a target to strive for in coming years.

I've said it before and I will again, a Nancy Pelosi and Harry Reid Congress with the most Liberal Democratic President in decades equates to double digit inflation, double digit unemployment, rock bottom consumer confidence, and business bankruptcies all not seen since the Carter Adminsitration - if we are lucky to have it that good.

So who is surprised? Not me.

Labels: American economy, bear market, Congress, credit crisis, Harry Reid, inflation, Nancy Pelosi, Polispeak, President Barack Obama, stockbroker

Oh the horror. Now you have your choice of what the horror is. The $188 billion spent on the mortgage/bank bailout so far, the latest news from AP stating that in 2007 banks paid $1.6 billion on salaries and compensation, or the fact that Barney Frank dares to question anyones work ethic.

"Most of us sign on to do jobs, and we do them best we can," said Frank. "We're told that some of the most highly paid people in executive positions are different. They need extra money to be motivated!"

Frank is head if the Banking Committee in Congress and failed to do his job all year long. He thought the sale of Bear Sterns would end the crisis. Then he thought that Freddie and Fannie Mae were fine. Then he thought AIG would end the mess. And so on. He either needs new batteries in his calculator, or we need a new head of the Banking Committee - you can guess which I suggest.

But back to the point at hand.

I don't care that last year the banking industry spent way too much money. That has nothing to do with the current problem. That's the thing these days in politics. You need ratings or you want to get positive results, polispeak on the past and you look like a genius. Too bad that hides the fact you don't know your ass from your elbow right now.

Have many executives gotten paid too much? Hell yes. I have no problem with the thought that an executive that comes to a company and improves it such that the jobs are secure and profits are up, getting a bonus, that is the concept after all. But being paid exceptional amounts for piss poor work and endangering the company makes no sense. I mean it's not like an executive can't survive on the tens of millions they get paid as salary in the top companies.

But this is an issue going forward. It really doesn't matter if the CEO gets a driver, or financial planning advice as a perk. That isn't enough money to matter. In total that is maybe 3 employees of the company saved, and nothing else. It wouldn't even show up on the companies liabilites sheet.

Though seeing where the company valued it's mortgages, and when, makes a big difference. Looking at what debt instruments the company is still using makes a difference. Looking to see if the bank is loading every bad debt and problem asset into the bailout money is worth knowing. The other stuff is a trifle meant only to gain readers and sell newspapers.

Executive pay is in all the headlines these days, driving the mantra of Democrats that regulation is good. But all this bluster hides a couple of simple things. You can't legislate good or bad business decisions. Oversight means nothing if the person in Congress is not smart enough to understand what they are reviewing. And the most important, the more the Government is involved with private business the more screwed up and like the Post Office it becomes.

So when you think of the horros of 2008, perhaps that last thought is the only one that really matter.

Labels: Barney Frank, Congress, credit crisis, Democratic Party, mortgage bailout

So I saw an interesting thing the other day on the Jon Stewart . It was a discussion between Stewart and Mike Huckabee. As you might imagine it was confrontational, but not to the degree of say Bill O'Reilly and Rep. Barney Frank.



The crux of the first part of the conversation was on their differences on fiscal conservatism versus liberal policies. Stewart advocates larger Government. By that he means larger influence of Government in the daily affairs of the citizenry. He wants a Government that mandates what cars are made, what profits are allowed and who is lent to. He wants a Government that spends more to provide a mandated healthcare and smaller military.

Huckabee is the opposite of all these things.

But Stewart makes good points in his argument, tinged with sarcasm and humor. Which is great for a parody, but fails to deal with the issues at hand on a more serious level.

Take what Huckabee points out. This Democrat-led Congress failed on every level, and in each Party, to deal with the mortgage crisis which led to the credit crunch. In fact several members of this Congress either lied or have no idea what the hell is going on when they stated the economy was fine. That major financial institutions were secure - which was said at several points in the year - just prior to several major meltdowns. How can we expect a Congress that inept to resolve issues in the stock market, or anywhere for that matter.

And Stewart makes a common misconception as well. He makes the assumption that regulation prevents bad policy. The 2 are not the same.

It was bad policy decisions that made the U.S. auto industry focus on SUV's when hybrid and smaller cars were more logical decisions. Regulation would not change that. And it was the bad regulations, mandating unqualified lenders get home loans, that caused the mortgage crisis in the first place. And bad regulation practices let lead-coated toys into the nation. And it was lack of action by these same oversight groups that failed to prevent or even anticipate the meltdown of Fannie Mae and Freddie Mac as examples.

And one thing I want to directly point out that Jon Stewart said.

"Conservatives would say 'I want a big military'. Well that's Government... The fact that you would trust the Government with tanks and nuclear weapons but not to pass out cheese to poor people. You know, you've got to figure, so...I don't get it!"

Get this. In New Orleans the Government with some 15 agencies failed to provide water to people in the Dome for 3 days during Hurricane Katrina. But there has never been a nuclear weapon that has gone off accidentally or been lost. Nor has a tank been lost. The Government has proven in multiple actions that it is quite good at protecting this nation, when allowed to do so, and engaging in war or military actions.

But in terms of helping the citizenry it is far less efficient. Part of the reason why is the fact that the Government is so big concerning domestic issues that its right hand does not know where is or what is being done by the left. Big Government hurts the people, smaller Government does so less.

Liberals seem to want a Government that is involved with all aspects of daily life. They want Government to make decisions for them, or to assist in that decision process. Yet we see that the more Government there is, the less that is done or done efficiently. So why do Liberals expect that a Government-run healthcare system will be more efficient or helpful than FEMA or the VA or the Post Office, as an example.

And that is no joke at all.

Labels: Barney Frank, Bill O’Reilly, Congress, credit crisis, Jon Stewart, Mike Huckabee, mortgage crisis

So you want shock and awe? How about the fact that Congress is about to give the major automakers $15 billion more in bailout money. Yeah, what I thought. A yawn.

It's not a surprise to anyone that the auto industry is getting the bailout money. A loan from us to them as Congress likes to put it. And it will be paid back as soon as February. Or so Congress wants to polispeak the spin.

But the real facts are simple. Congress is pulling out any stops on spending money. They are giving money away to basically every big business that walks up to them. I expect that airlines should be next.

So far we have given more than a trillion dollars in this year alone. Forget about the combination of nations that it would take to equal the amount that has been spent. The thing is that none of this is helpful, though Congress keeps saying they think this will do it.

Our money has been poured hand over fist to the financial industry, and we got fewer loans being made, more ownership and intervention from the Government, and a promise that in some far off day we will get paid back. Of course you have not heard a single word on how we will get paid anything back, or what will that money be used for since it won't be in our pockets. But the taxes to pay for it until we do one-day get repaid will come out of our pockets.

And we gave $25 billion to the automakers about a month ago. So the current $15 billion might make it to the end of the month. Then they will ask for more, blaming Congress for being stingy and not helping enough for them to get to do what they need to. But don't fear Congress will appoint a Governmental agent to watch over the auto industry.

I expect that will be someone like Treasury Secretary Paulson, or Fed chairman Bernanke, or maybe like Congressman Barney Frank. And you know all of them were right on the job, wide awake, making sure things couldn't get any worse. Oh damn, we are seriously in the crapper aren't we?

The worst part of this is the fact that a Government agent overseeing private industry, with the ability to mandate changes in their business practices that is solely motivated by politics, is a far cry from capitalism. It is yet another desperate attempt to avoid the pain needed to innovate and become more efficient. Which means it is ultimately a failure of massive proportions that will be passed down the line a bit for someone else to deal with. Hopefully not the politicians in office currently.

For all the bluster, and there were loads of it especially from the financial oversight genius Barney Frank, the fact is this is the worst case scenario and we all knew it was going to happen. From the moment that Congress sat to listen to the auto makers we knew it. The only questions were how much and when. Now we know.

The fact that our politicians lack courage is bad. The fact that they are protecting their political supporters (the UAW as one example) above helping the nation is worse. But the fact that our elected officials have no clue what is going on is the most troubling of all.

So there goes another $15 billion. Compared to the $500 billion+ stimulus plan for 2009, or what has already been spent in 2008 it's not a big deal. Until the snowball of what Congress is doing moves just a bit closer, faster, larger. And then they won't be able to print the money fast enough.

Labels: Barney Frank, Ben Bernanke, car czar, Congress, credit crisis, mortgage bailout, Polispeak, Treasury Secretary Paulson, UAW

So it seems that Fred Thompson and I have been reading the same tea leaves on the economy. You have heard what he has had to say about the current status of the bailouts, the impending 2nd stimulus plan, and President-elect Obama's economic policies for 2009?

If you have not, here are his own words as they can be found at his informative site FredPac.com



Oh I bet the kids are just drooling with anticipation of what will be under the tree. I bet that if you follow the Government's plans it won't be a college tuition.

Labels: auto industry, credit crisis, Economic Stimulus Plan, Fred Thompson, mortgage bailout, U.S. economy

When the major media, pundits, and Wall Street scream about how the mortgage crisis will cause liquidity to dry up and hurt the average citizen, I doubt most thought it might affect them as I just had it affect me.

It’s not that the value of my house has gone down. I’m not in default or danger of default on my mortgage. My business is functioning well and my bills are all paid. But I did run into a problem just this weekend. And it was completely unexpected. And it is directly tied to the credit crunch.

One of my credit cards is Tribute MasterCard. Not a huge name in the credit card market, but just a small card I use for minor purchases. I’ve had a card with them for 2 years. In that time they never increased my credit limit, but they did increase the annual fee.

Now I will tell you a bit about me personally. My business has been going for over 5 years now. My credit rating is excellent, the only debt I have is my home and my credit cards (I have 3). None of my credit cards has been maxed out in the last 4 years at least. I have missed no payments, and had 1 late payment in that time (5 days late to be exact).

I say that so you understand my surprise this weekend. I had car trouble, which I discussed in a different post, and wanted to use this card to handle the situation until I could get home and evaluate which account I wanted to use to pay off the situation. I found out that this card was dead. So I used a separate card and followed up the situation today.

I called the company, and the joy I found as I had no credit, but I did have a balance from use of the card last month. When I got a human on the line, I had the joy of speaking to someone in India. Her English was good, which is not as common as you might think, and she could not say anything more than I no longer was a wanted customer of the company. Which shocked and angered me.

The exact reason as I was told was that I have made a late payment. Not missed a payment, not overdue. I was exactly 5 days late in getting my monthly payment out to the company, a month ago. And that was the only problem that the company has ever had with my account.

Now I have to imagine that things must be pretty bad over at the First Bank of Delaware, which issued the card on behalf of MasterCard International. If I had an account at that bank I would be checking to see how my money was. If I was invested in that bank I’d be calling my broker and the bank to find out how their loan reserves are doing. Because it sounds like they are on the verge of collapsing.

When a credit card company is willing to drop a long-term client, of solid standing, because they have 1 payment that was 5 days late there is a problem. That problem is not me.

I am now rather scared. The fact that a credit card company is that terrified of an open balance that has never been over a couple of hundred dollars in an account that has spent 75% of its activity paid off in 30 days every month troubles me. It means that if even people with excellent credit, and significant histories with a financial company are being shoved to the wayside, there are banks with massive problems out there still.

Now this is no real problem for me. I have 2 other credit cards and I have enough cash to handle my needs. But the fact that this can occur means that I fear what might happen if another card were paid a day late. Or my mortgage. Again I’m not saying not paid, just late.

The financials are in paranoia, if this is any indication. And that paranoia is reaching the smaller companies, which I generally prefer since they are less prone to the risks that large multi-nationals will take to prop up quarterly reports for analysts. This paranoia will not resolve itself in a week or 2. This is something that will take months to work out.

And I can only guess at the repercussions over the holiday season, especially to those with less than perfect credit. Late paying off the Thanksgiving dinner, say goodbye to Christmas shopping. Took a client out to dinner and put the payment in the mail after midnight, so much for that business account. Your mail man was lazy and didn’t pick up your mail as usual, don’t ever have your car breakdown, on a weekend, on a highway in the middle of nowhere.

Suffice to say that I am displeased with the service at Tribute MasterCard and the First Bank of Delaware. I’m sure that no longer doing business with them will only prevent a future problem with them for me. This is a benefit, and there are several dozen other companies looking to provide me cards every week, so the net impact of having them as one of my extra credit cards is negligible.

But if you have a credit card from First Bank of Delaware, or Tribute MasterCard, I’d advise you to switch the account.

And if anyone at First Bank of Delaware would like to discuss this matter on the record I’d be happy to provide my readers with the full interview and transcript.

Labels: credit cards, credit crisis, First Bank of Delaware, mortgage bailout, Tribute MasterCard

Lately every pundit and expert discussing the market of lat has spoken about the financial companies. There is of course good reason for this but the really smart investors are looking in place that the general populace are not, for the next rally that will inevitably come to pass.

Following that line of reasoning I have written about how I found gold and coal to be solid buys. I also have stated that I think some financials are the best buys in the market. But I have to admit I got caught up in all the emotion and forgot to look at the tech market as well.

Now I realize that back in August I was discussing how technology stocks should not be limited to just companies that are directly tied to a PC or Mac. And my reasoning was sound , since technology is more than a computer and it’s funtioning. But if we were to look at the tech stocks that focus on computers what might be said?

Well there is eBay. This company might be the best buy on the market right now for this sector. Without having stores and storage facitlies overhead costs are always low. Since the purpose of the company is to facilitate trades interest rates are not a primary focus on their ability to do business.

Actually when you think about it, a messed up economy should mean good business for this company. As people worry about keeping jobs, and if they will have to take a pay cut or have reduced hours, the holiday season that is the 4th quarter is coming to bear. And kids love to see gifts on Christmas or Haunakah, because the economy means nothing to them. And parents love to see their kids happy.

So would you rather go out in the cold, spend money on gas (which is still high considering how much crude oil has gone down), and fight crowds to pay top dollar for the latest whiz-bang must have, or might you look for a refurbished version of that same item. Or perhaps a more traditional item? Or a nice gift for you spouse and/or significant other. Especially if that item costs less than in a retail store.

This is why eBay has had increased sale each 4th quarter for years. I really think this will do well as other brick and mortar store have a horrendous quarter.

What else might be interesting? Wll according to Toan Tran, an associate director of research at Morningstar in Chicago

“If you really were a long-term investor, and you really were to buy these stocks, go away for ten years and not look at them, any of the big-cap tech names look cheap now -- Microsoft, Oracle, Apple and Cisco -- they're all trading at extremely cheap valuations.”

Of course valuations are based on business and the rationality of the markets. Neither of which are good now. Still of the big names I would believe that Microsoft is a solid choice.

Microsoft has lots of cash on hand, which eases their need for credit in the near-term. They are a highly diversified company. And they provide a product (though often buggy) that is needed for most people to operate their computers with ease. Being the near monopoly they are has its advantages at times.

I also like Netflix. It’s a simple business model, basically renting movies. It’s a huge industry and the more people can’t spend money outside their home the more they want to be entertained in their home. So there is a stability there, if not a reason to expect increased sales. If jobs are sketchy, and especially if gas prices stay at present levels or go up, people want to be in their homes and save money. Since a trip to and from the movie theater can cost as much as $30 per person, a Netflix movie is a wonderful alternative.

Now these examples are not perfect. The credit crisis and the mortgage bailout will hit them hard like any other company. And the general malaise of the stock market will infect their prices as well. But looking at the long-term they will be fine I think.

These companies and others like them will be able to adjust more rapidly than traditional companies. They have goods and services that people need and/or want no matter how the economy is doing. Their costs are manageable and their structures have survived the internet crash so we have reason to believe that they can survive this.

The big question is when to purchase them, or any stock. That is the hard question. I am an old stockbroker, so I like to buy when the market is in a panic (check), there are big problems on the horizon (check), and after bad news.

The bad news will be 3rd quarter earnings which are about to be released. You can safely bet that the financial will all report painfully bad losses and missed expectations. So will several other major companies that rely on credit for their operations. So another sell-off should be expected. Add to that the likelihood of a President (if Obama is elected) that plans to increase corporate taxes by 10% while the economy is reeling, and the increase in inflation from the sudden federal rate cut today.

Put that all together and I look for the last 2 weeks or so of October through middle of November as a buying period. I expect that the market will pick up a bit in that time, so properly picked companies should establish new floors and trade from there.

All of this does assume that Europe and the rest of the world does not fall into a complete depression. And even a steep recession might alter things a bit. But the basic logic still works.

So do your homework, pay attention, and look where everyone is not looking yet. In every down market there are opportunities – you just have to work at it.

Labels: credit crisis, eBay, Microsoft, Morningstar, mortgage bailout, movie theater, Netflix, stock market, stockbroker