I have been talking about the economy and what would happen if a Democrat would win since late 2007. When it became clear that President Obama was the Democratic nominee I discussed how the stock market would react to his win. And after the election I forecasted what would likely happen to the Dow Jones Index on inauguration day.

I hit the nail on the head. Well close enough to that anyway. I called for a 7600 Dow on or shortly after the inauguration. I called for a 500 point drop on inauguration day. And I detailed how the economy would continue to tailspin to levels last seen in the Carter Administration.

The Dow Jones Index closed down 332 points. The Dow currently sits at 7949. That’s down 4% from Friday and 12% since the start of the year.

Some will want to blame this all on President Bush, but the reality from Wall Street is that a Liberal Democratic President is a negative for the economy. If only ½ the economic promises made on the campaign trail come true the national debt will tower over any level seen before, and none of the plans are good for private business. And that is bad for investing.

Still crude oil is at lows, and the inflation hitting food has not increased in a while. So maybe Joe Public doesn’t realize how bad things will get, yet. But Wall Street is preparing. And they are looking at the long haul.

I still target the low of the first half at about 7600. I still believe that the money wasted on the mortgage/ credit bailouts will increase drastically. I say again that the 2nd stimulus plan will be a worse waste of money than the first under President Bush. And I insist that the Democrat-led Congress under Pelosi and Reid are the worst Congress in at least my lifetime.

I really hope to be wrong. But so far I am 4% or 349 points from being exactly on target. Any spike in oil prices, a run on gold, a blip in the value of the dollar, continued fighting in Israel, or any of a number of anti-American nations - and terrorist groups - beating their chests (as Vice President Biden promised will happen) and my targets will be exceeded. And all the feel-good talk prior to the inauguration will evaporate.

Yes the stimulus plan will be a great political boost for our new President. And public opinion will soar, until everyone realizes that the extra $60 a week (or less) will not prevent them from losing jobs. Or that at some point soon you will be paying taxes for a house you don’t own. Or paying for a healthcare system that is substandard and as convoluted as any department of the Government. Stock will lead the way down.

But there is time to avoid all this. Congress can reel back all the new additional spending. President Obama can give up on the 2nd stimulus plan. Taxes could be cut, at both the corporate and personal levels. And departments of the Government could be trimmed of wasteful spending.

In a pig’s eye.

Congress is going to spend more than what has been used to bailout the financial industry as the first shot in the bow. Additional money will soon be needed to balance the financials already continuing to flounder, not counting those that will follow like dominoes. And the auto industry that stated flatly that a penny less than $50 billion in a bailout would mean Chapter 11, will become bankrupt as they did not get their money.

Increased regulation will increase cost, and fail to increase good business decisions. And companies will fail. The stock market will lead it all down. Lines will form for Government corporate handouts. The national debt will soar.

Sounds bleak doesn’t it. It should. It is happening before your eyes. By the end of the 1st quarter Joe Public will feel it, badly. Just in time for taxes.

And if I am only as correct as I was about my prediction for the inauguration, well you can see what that will mean. I hope, honestly hope, that I will be wrong.

I really want to be wrong. But what I see in the marketplace tells me that I am right. That double digit inflation and unemployment are mere months away. And that it will last at least as long as the Obama Administration, if not longer.

So since putting your money in a bank will gain you nothing, the taxes on investments make that plan dumb for anything with a return in the next 2 years, and gold is already moving just wait. Wait and take small bites all the way down. Because America will rebound at some point. Because I hope to be wrong soon. The reward from that will be better than me eating crow, it will be a stronger economy.

I can’t wait.

Labels: American economy, Congress, Dow Jones Index, Harry Reid, mortgage bailout, Nancy Pelosi, Obama Administration, stimulus package, Wall Street

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

I've waited for a while now, just waiting for something from Caroline Kennedy to justify or remove her from consideration in replacing Senator Hillary Clinton. Mind you that I am not sorry to see Senator Clinton gone from office, as I am tired of her excuses on the broken promises that mark her time in New York. Though I am greatly saddened to see her working anywhere near the Executive Branch. But long-term readers know that, and this is about Kennedy.

Up til now there can be no question that Caroline Kennedy has zero qualifications for the Senate. She is a lawyer, like much of Congress. She is a Democrat, which at the moment gives her a boost. And she is the daughter of a revered dead President. Because if we are honest, that is the only reason any of us know her name.

Since she has never been politically active, which is a problem for me with anyone that would be Senator, we need to look at other aspects of this woman. She is part of the NAACP Legal Defense and Education Fund, which I personally like but is not enough. She has worked for 2 years, 2002-4, and rose $65 million in private funds for schools in New York which is great. The job was only 3 days a week though and one must wonder how much money she could have raised if she worked a full 5 days, the schools in NY could have used the extra effort.

Still none of this is a qualification. Yes she helps people, and is a committed Democrat. But what can she do? And what does she plan to do to help the state in this very critical time? The New York Times and other news media had the same question and asked her just that on several issues. The answers reveal quite a bit.

Mrs. Schlossberg is shrewd, having given a total of $7300 to Clinton before she switched to Obama in September of that year and gave him $2300. At the same time she has not voted in numerous Primaries since 1988. So we can understand she is willing to let her money vote for her.

In addition we now know that she supports same-sex marriage, which 68% of the nation opposes - even in California and New York. Something that neither Clinton nor Obama support. Which makes me believe she is even more liberal than the former most liberal member of Congress - President Obama.

It also seems that she opposes any restriction on abortion. This is another far-left Democrat policy stance. It includes, and Kennedy defered to not answer about, partial birth abortions. Even those in favor of abortion have issues with that. But seemingly not Kennedy, though she prefers to avoid having to make polispeak about such a position.

And in a hat tip to the Pelosi led Congress, she supports the mandating of public vote at unions. Thus taking away the normal right of secret ballots, and forcing workers to deal with peer pressure and criticism for co-workers and management. How kind.

And of course she is in favor of the auto bailout. Something that all Democrats are pushing to advance, though none have answered a simple question. When the auto industry came back to Congress after using up $25 billion in bailout money in one month, they stated that they HAD to have $50 billion or they would fail. Congress is trying to provide $15-35 billion instead, with a "car czar" (otherwise known as more government interference resulting in another Barney Frank). Since this is not $50 billion, and thus means the auto industry will fail and/or come back for more money, why does she support the lesser amount? No Democrat has a good answer for that, though they have been very good at avoiding the question.

And we know that Kennedy is anti-gun, which places her at odds with most of the state - except New York City. And it is the City that NY politicians proffer to.

Speaking of which, surprisingly she backs her uncles plan to make illegal immigrants (otherwise known as undocumented workers - the missing document is a greencard and reason to be in the U.S.) citizens. Pay a fine and swear in. We might as well make citizenship available on eBay.

But in a question that hits the pockets of the people in the state Kennedy is mum about capping property taxes. Or on taxing the higher income brackets more (which still would not make up the shortfall that the new spending creates).

So all in all what can we surmise? Kennedy is a liberal the likes of which we have not had in this state as far back as I can remember. She is more liberal than Clinton, and Obama. And if you wonder why might that be a bad thing recall this. Senator Clinton PROMISED to bring 200,000 jobs to New York State if upstate New York voted her in. We have lost over 30,000 jobs as of 2007, long before the current crisis hit.

Do you believe a more liberal, pro-illegal immigrant, anti-second ammendment, spend and tax, lawyer with no experience in politics would be a good Senator? Without the last name, the answer can only be no. But what Gov. Patterson decides will happen. Sadly.

Labels: 2nd Amendment, Abortion, auto industry, Caroline Kennedy, Congress, Democratic Party, Gov. Patterson, illegal immigration, mortgage bailout, New York State, Senator Clinton, Senator Edward Kennedy

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

I had some extra time today so I decided to take a look at what has happened this year. I wanted to go back and take a look at the various buyouts and bailouts that the Government has backed, and the promises made so far. And the numbers are horrendous.

The main focus so far is on the $1.5 trillion that has been authorized and/or spent thus far. $700 billion for the bailout of mortgages and the credit crunch, and now another $800 billion for mortgages and consumer loans. But those numbers are not the full amount of cost this year.

The year started with the bailout of Bear Stearns. It cost $29 billion to allow JPMorgan to buy that failed brokerage house. And we were promised that would fix everything. Then there was the $150 billion stimulus package that was promised to fix the sagging economy, which failed. Then came Fannie Mae and Freddie Mac, which Representative Barney Frank publicly pronounced as healthy and secure, that cost $120 billion each (not including the $600 billion that is now part of the $800 billion bailout package). And the numbers are still not done.

AIG cost $120 billion by itself. That though was said to be included in the $700 billion authorized by Congress. That means of the 1/2 of the funds given to Treasury Secretary Paulson only $230 billion was available for everything else needed. Not counting the tens of billions given to banks, or the money spent to buy bad loans at unknown valuations.

Of course there was also Citigroup. This cost $20 billion plus $306 billion for guarantees of their bad loans, for a total of $326 billion. Now that is a problem because if the funds came out of the same pool as AIG, we are in a bigger negative than the spending is already creating. A double negative of sorts. And yes I know that guarantees are not the same as cash, but a guarantee must be backed by something besides words. Which means cash from somewhere.

But let us not forget the $25 billion given to the auto industry. And that has nothing to do with the additional $25 billion that is being asked for now, just roughly 5 weeks later. Which is separate money. And that precedent is going to lead to the requests of the airline, credit card, home building/construction and other industries. If the Government is handing out money to businesses, it would be folly not to get in the line.

So the total is $1.94 trillion dollars. Which does not include Citigroup or the additional amounts from the auto industry. Including that figure we get $2.27 trillion in money that never existed and must be repaid. To be exact that means that every American, each of the 300 million citizens, owes $7,567 to the Government.

It is expected that some of these loans and stock purchases will eventually break-even or turn a profit. The expectation is that will happen in 10 - 15 years. Though it is absolutely unclear how the public will be repaid, though the Government will collect all the money. Thus it is possible that the Government will receive money from the public and hold repayments from loans - effectively being paid twice. And it is very likely that any repayment will be funneled into Government agencies instead of the public, as was attempted by Democrats with the first version of the mortgage bailout bill.

But even if 40% of the loans were to make a 50% profit, the bulk of the debt incurred will still be greater. And that does not cover the direct cash infusions made without a loan or repayment provision - which is about 70% of all the funds so far as I can gather.

And the fun does not end there. Remember that President-elect Obama, pushed by House Speaker Nancy Pelosi, has promised a now $700 billion second stimulus plan. The exact details of this plan are unclear, but some amount will be given to the public and some will be used to fund public works. Or so the loose plans state so far. That would mean that in 1 year the cost is $2.97 trillion.

And President-elect Obama still is pushing to add over $800 billion in new spending for new and/or expanded programs. That makes it $3.77 trillion. Or in terms of cost to you and I - $12,567. That's for every man, woman, and child alive right now - working or not.

Put in different terms, this money could have completely funded the entire NASA budget (roughly $419 billion unadjusted for inflation) since inception nearly 10 times over. We could have funded 1,000 moon landings ($36 billion unadjusted) including all the research and development.

Let me make it more personal. That amount is more than the entire net worth of Oprah Winfrey, Bob Johnson, Tiger Woods, Michael Jordan, Tom Cruise, Bill Gates, George Soros, and Warren Buffett combined and multiplied by 10. It's enough money that every single American citizen, of any age, could go to the average college for 2 years. It's enough money to give every American alive today a 10% down-payment on a $120,000 house.

And there is no guarantee, in fact there is reason to highly doubt, that it will get better.

Labels: AIG, Barney Frank, Bill Gates, Citigroup, Congress, Freddie Mac, mortgage bailout, Nancy Pelosi, NASA, Oprah Winfrey, Tiger Woods, Treasury Secretary Paulson, U.S. economy, Warren Buffett

This year Christmas has come before December, especially if you are a money center bank, a brokerage house, insurance company, or car manufacturer. For regular people though the holiday may not arrive at all. Such is the way things happen when the Government gets involved.

The news is out now that Citigroup will receive another $20 billion, with guarantees for $306 billion in assets, before the holiday season ends. In fact they should have the money, your money, in hand before the holiday season officially starts this Friday. Santa it seems has a 401k.

The good part of this is that Citi should not fail. Thus money will be stable in over 100 countries around the world, for the time being. Another bonus that New York City officials must love is that Citi will not be sold off in parts, and thus tens of thousands of additional jobs should be secure. And there is a better than 50% chance that many of the major bonuses that help the Big Apple float will be paid out (contractual obligations don’t end when the company gets a Government bailout). And in all honesty that is a good thing for the U.S. economy too, as long as they spend the money and not hoard it in fear of future layoffs.

The bad thing is that none of the officials tasked with resolving the financial crisis the nation is in foresaw this event. Chriss Dodd and Barney Frank didn’t see it coming, not because they were asleep at the wheel like when they promised Fannie Mae and Freddie Mac would be ok, because they were too busy blaming anyone but themselves for missing the problem. Treasury Secretary Paulson missed it. Fed Chairman Ben Bernanke missed it too.

Not one of these men, each tasked with identifying this continuing problem, envisioned this problem. They have dozens of staffers and hundreds working behind the scenes crunching numbers. Yet they all missed the chance of this happening. And the public is left to assume that it was so sudden they couldn’t have known.

Not true.

“I believe that the move to junk rating of ACA, the probable $6 - 12 billion loss at JP Morgan [significantly higher than expected], eventual losses from Citigroup - which reinsures itself, oil breaking $100 a barrel, and the multiple overseas investments will all hit the market in mid-January 2008. Thus I think a move to 11,000 is more than probable.”

I said that in December of 2007. That’s without being a stockbroker for years, without financial racords, conversations with CEO’s, discussion of the Fed, data from international sources, or Congressional committees. Just me reading the news and analyzing the public information.

I in fact went on to say

“Will those experiencing deflation outweigh the inflation fears? And if more people lose their homes how much of our financial institutions are we willing to sell to avoid the harshest realities of a crash?”

I knew Citigroup was in trouble a year ago. I knew there would be a major crisis from the mortgage industry, and that a bear market would hit the stock market. And I defined it several times, months in advance, in detail. The main thing I have been wrong on is the severity and speed at which all these things happened.

My point about this is simple. If I can figure out how bad things were, and most likely will continue to get, then what the hell were all these people whose only job is to figure this out doing!?

If they can’t get off they political posteriors, open their Government entrenched eyes, and understand the degree of a problem that is apparent to a guy on a computer in Binghamton – without even a stock ticker – they why are we giving them control of $700 billion and more? How can we expect that a single dollar of that money will be put to a use that is effective?

Case in point. Citigroup is in big trouble. They insure themselves internally. They are failing. So what is the value of the $306 billion in assets today, what was it yesterday? Are we guaranteeing a value that was intially set for these assets, the current market value of these assets, or are we getting to pick up the debt and bad loans of Citigroup mixed in with actual assets? The difference is very important. And I doubt if Barney Frank and Chris Dodd are even aware that this question should be asked.

I asked how much are we willing to sell to avoid a problem a year ago. Today I am looking forweard and I have to ask a different question. How much of the American capitalist system the nation functions on are we willing to lose to avoid the pain of this crisis? And if we are willing to comnpromise the basis of our economy, how do we prevent losing the freedoms a solcialist nation cannot tolerate?

Labels: Barney Frank, Ben Bernanke, Chris Dodd, Citigroup, Federal Reserve, financial news, mortgage bailout, New York City, Treasury Secretary Paulson

As the holiday and Christmas seasons quickly approach, even as the stock market and economy falter, I wanted to take a moment to reflect on something that came up in a conversation with a friend of mine. The power of African Americans in the marketplace and the desire for advertising on Black media.

There is no question that Blacks buy things just as every group in America does. But if you were to look at most of the media coverage you might believe that African Americans are laden down with debt and/or depend on the Government for survival. Such a perception is both ignorant and false. And advertisers know it.

Recent projections place the African-American buying power at about $845 billion annually, growing to $1.1 trillion by 2012. That means the buying power of Blacks equals the money spent by the Government this year to save the entire financial and mortgage industries. This amount dwarfs the money being debated and requested by the auto industry. And this is more than double the money that is to be spent by the Government for the 2nd stimulus plan in 2009.

Targeted advertising cost up to 73% more for African Americans than any other group. That’s because the top 17% of affluent African Americans contribute 45% to all the buying power in any 1 year. And Pew research reports have shown that up to 2/3 prefer to emphasis their ethnic identity.

All of that money is part of the reason of the success of Black filmmakers, like Spike Lee and Tyler Perry. It is also part of the support to BET, and various television shows that star prominently African American actors/actresses. And it is one of the reasons why advertisers are including and/or directly marketing to Blacks. McDonald’s was one of the first to do this, but today hundreds of companies are doing so.

And the blogosphere is quickly becoming one of the major focal points of advertisers. Because the buying power of African Americans has grown 166% since 1990, the ability of blogs focused on or attracting African Americans to retain a steady daily influx of viewers is important. The internet allows visitors to connect with their favorite sites several times in a day as new posts are added to the blogs throughout the day; as I have seen in my own blogs as an example.

Political blogs were a huge resource in the Presidential election, and I can personally attest to TV One’s interest as VASS was selected as one of 2 blogs to provide daily coverage of the entire election cycle for their online visitors. Similar is true of all blogs, and especially those targeting African Americans.

Add to this the fact that the Black population tends to be younger and female (though my readers are about 50/50 for gender, age 12 - 49 predominantly, college or better educated, middle class incomes or better, and generally single); which advertisers are obsessive in their efforts to gain attention with. Not to mention that home ownership for African Americans is up 32% since 1990, and that the buying power of African Americans in just 3 states (New York, Texas, and Georgia) equals the money spent by the Government on AIG for fear of a complete collapse of the economy.

Black teens spend more money on clothing, video games, PC software and footwear than the average of the entire nation. In fact it could be argued that without Black teens athletic shoes, cell phones, DVD’s, and fast food industries might all lose their profits. And that says nothing of the fact that magazines like GQ, Entrepreneur, Inc. and others rely on the more than 25% readership that comes from African Americans.

Advertisers have increased spending in Black media by 72%, some 791 million dollars in 2006 alone. The automotive (GM leads), communications, cosmetics (L’O’real SA leads) industries and others (Dell, Procter & Gamble, Time Warner Inc., PepsiCo) lead in trying to gain Black consumer attention.

I say all this because I realize that for every news media image and story that denigrates or diminishes African Americans, the fact remains that this nation cannot survive without us. Just as was true during the time of Slavery, African Americans are the unsung backbone of the nation. Our buying power is so great that its loss would lead to financial ruin for the entire nation, in a manner that matches and/or exceeds every aspect of the current mortgage/credit crisis.

So this year when you go out to shop (or stay in and online) for your Christmas/holiday gifts, if you are Black, remember this when the guards and employees watch your every move. They need you, and if they could do it they would thank you. Because without us, they would be out of work.

**Several fact were complied from Package Facts and Magazine.org **

Labels: African Americans, AIG, American Slavery, Black consumers, mortgage bailout, TV One, U.S. economy

I just love the way that Congress is trying to look tough these days. An auto industry bailout? Hold on, we need details. Right.

Come on, this is the same group of people that handed $700 billion to Treasury Secretary Paulson without a plan. It was the same group of people that fell asleep when Fannie Mae, and Freddie Mac were in trouble (someone wake up Barney Frank). And it was these very same people that gave away $25 billion to the auto industry about a month ago.

Does anyone seriously believe that they won’t bailout the auto industry, and receive neither repayment terms, nor assurances of industry improvement. They couldn’t even create a bailout for the financial industry that could prevent Paulson from moving the money around however he chooses, and that was a concern of House Republicans from the start. With even more Democrats in Congress, and the continued misleadership of Harry Reid and Nancy Pelosi is a better outcome likely?

I’m reminded of a quote from Ben Franklin I believe.

“Doing the same thing over and over, while expecting a different result is the definition of insanity.”

I apologize to Franklin is I got the quote wrong. But the point stands. And it will stay in place until the mid-term elections in 2010. Won’t the damage be interesting to see then.

The fact is that the U.S. automakers need to fail. Let several go bankrupt. It won’t be the end of the world. It will actually be the best thing that could happen.

When large companies fail a couple of things always happens. Several smart businessmen rummage through the wreckage and find bits that they can create new companies with. Those new companies will in part of the gap the old company had, but mismanaged. That spurs growth as a new corporation grows in that niche.

Also the old behemoth of a company slims down. Much of the old baggage is discarded, and the company refocuses on whatever they do best. Renewed energy flows and the company normally creates profits the old company could never do.

This is all good for the economy, though the jolt during the process is unpleasant. But it creates a stronger economy than the one existing before it. And more people are employed after these events than before.

The worst aspect of the auto bailout is the fact that it will be followed by an airlines bailout, and a retail bailout, and probably another financial markets bailout. The Government has made a precedent of stepping into the markets and private industry, because they are afraid of the pain. And in each case it has proven one thing. The Government has no idea what it is doing.

The more socialized things become the more the Government is compelled to step in. The more money is thrown around to avoid feeling bad, the worse everyone feels. Because the Government is incapable of fixing anything, nor can they regulate bad decisions out of business. And they shouldn’t. Bad decisions are normal business and are resolved in the marketplace over time.

Only in America is the concept of perfect markets feasible. It’s stupid and regrettable. But it also seems inevitable. Were that not so, the auto industry execs would never have taken separate corporate jets to fly to D.C. and speak with Congress. They did it because they know they will get the money.

I stated that the Dow Jones will hit 7600 in 2009. But if Congress throw more money at the problems in the markets, and involves more politicians that sleep when they should be watchful (Frank and Chris Dodd) I could be very wrong to the upside.

Labels: auto industry, Barney Frank, Congress, Freddie Mac, Harry Reid, mortgage bailout, Nancy Pelosi, Treasury Secretary Paulson

As the 4th quarter moves steadily towards the holidays and businesses across the nation collectively hold their breath, I decided to look forward to 2009. What are some of the things that I see coming economically in the new year?

Dow Jones Index at 7600. Yep that’s a bleak statement. It’s not what anyone is asking for in their wishlist to Santa this year (except a few masochistic short-sellers). This is definitely a lump of coal.

But I will say something that you really aren’t expecting. That’s the upside in my view.

The 4th quarter of 2008 is going to be bad. Very Bad. We all know it. We knew it when before Halloween businesses were already getting their Christmas displays in order. They needed sales that bad. And still do.

Unemployment is up, financial companies are laying off people in the thousands, and the prospect of inflation looms larger by the day. Add to that recipe a Democratic President (a historically bad indicator for the economy) who’s policies – based on his voting records – are extremely left leaning, a Democrat-led Congress, the worst Speaker of the House ever, and you get a big mess.

But there is the fact that over $1.2 trillion has been spent this year to bailout the mortgage and credit crisis. The money has been the worst spent money I have seen since Waterworld was made. And the fact that no one has control over how or where this money is being spent, just means that it is being spent poorly and ineffectively.

So all that is left to look forward to is the thought that the auto makers are now first in line to ask for their own bailout, to be followed by retailers, pharmaceuticals, airlines and probably every other industry in America. And Congress will likely pony up the money for each of them.

But let us not forget that Congress has included the people in their spend at will program. So far a 2nd stimulus plan is being conceived, growing from an initial hidden $50 billion, to $150 to $300, and now is being speculated at $500 billion dollars. Nancy Pelosi doesn’t just screw up, she does it with swings to the bleachers.

Any one of these things would not hurt the stock market that much. And the by-product of severely deflated oil prices would be a boon to business in the mid-term. But it’s all happening at once. Saving on energy doesn’t matter much when you have no sales revenue.

The weakness in the stock market can bee seen in that just before the presidential election, the big institutions watched the polls and sold to get out of the way before President Obama was voted in. His promises to raise taxes, and his historic voting record were not overlooked. The only pause in selling came to allow smaller investors a chance to buy into the market and raise prices for the next wave of selling. My guess is that most of the money is sitting in cash right now, waiting for an opportunity in anything but stocks. At least in the U.S.

This means that New York City will get crushed this year. Bonuses from financials are getting scrutinized and thus being cut across the board. That means less money in the tri-state area, and thus a bad Northeast holiday season. That means the east coast will suffer and the nation as a rippling effect.

I’m sure some believe the polispeak that Wall Street and Main Street are separate – a concept only politicians could come up with. But this is how I see it all playing out.

Holiday sales will be off from last years rate, further pressuring the Dow Jones Index. Unemployment will increase going into the New Year, and inflation will start to rise.

President Obama will get inaugurated and the Dow will drop 500 points. This is not a racial reaction, but a political one. Within a week or so of that date a $300 billion 2nd stimulus plan will be passes raising the market temporarily. Several forward indicators will suggest a negative 4th quarter and 1st quarter 2009. Home sales will drop again – due to fewer loan approvals. Home prices should drop in proportion, with foreclosures increasing.

Oil prices should stabilize at around $65 - $70 per barrel to start the year as speculation and alternative investments will drive the price higher. Gold and precious metals should all increase dramatically in a similar manner to that of 2008. Growth in China will likely stall as well, especially since the boost from the Olympics will have faded.

President Obama will be forced to state that he will not raise corporate taxes, and a smaller increase in capital gains will be proposed. Taxes will increase roughly 3% on all income groups.

HD television service will cause a disruption across the nation and millions realize they need different television set, and will spike retail sales – but this is a false increase in the economy. It will be read as a positive indicator by politicians though.

Several mid-sized financials will fail, blame will go to short-sellers and corporate greed. Increased regulations will be passed that will not address the potential for bad business decisions, and the markets will sell again in fear of a more socialized America. The first rounds of nationalized healthcare will be discussed. The national debt will run higher, the deficit even more so as new spending will have no check from Congress.

Confidence in the U.S. Treasuries will weaken, and several nations will begin to sell in hopes of buying national debt of England and a few isolated nations. There will not be a run on America as this would instantly plunge the world into a depression. But the fear will accelerate pressure on the markets. The Fed will lower interest rates again to counter these fears, and to again increase loan availability. Inflation will start to gain attention in the media.

Unemployment will hit a 20 year high, again raising fears of a depression. And Iran and Russia will take aggressive stances in the world stage. Oil will run on this fear, as will gold. But direct crisis will be averted for the time being.

I expect all of this to happen in the first quarter of 2009. It is my expectation that to some degree every item I mentioned will occur. The importance and effect of each of these items will depend on timing and reaction as they all play off of each other. But the net result will be a 7600 Dow Jones Index, or lower.

I expect that this will be the bottom of the market. Smaller investors will flee the markets, and discussion of Federal intervention to save 401K’s will begin. This will also be seen as socialistic, but the need will outweigh these fears. The market will likely hover in this bottom range for the 2nd Quarter.

I’m not sure what might happen next.

I hope that I am wrong an most of these expectations. I would love to see the market gain confidence and rally in the face of these events. I hope that President Obama can rise to the occasion and lift the economic and personal spirits. But that is yet to be seen.

If I am as correct as I was in 2008, then 60 – 70% of what I have said will occur, though not exactly in my timeframe. Take that as you will.

Labels: Congress, corporate taxes, Dow Jones Index, gold spot prices, mortgage bailout, Nancy Pelosi, New York City, Polispeak, stock market, U.S. economy, Wall Street

President Obama has won the 2008 election. I am as elated by that news as any African American or minority in America right now. But at the same time I am looking at what the nation said last night.

At 6pm initial exit poll results started to flow and there were several important facts that were provided by the polls, granted that the information was slanted as all exit polls have been shown to be.

While 93% stated that the economy was negative right now, only 47% thought the economy would improve in 2009 and 40% supported the $700 billion bailout package that is still working it’s way into the economy. This bailout may be part of the reason that 73% disapproved of the job the Democrat-led Congress has done. And it may also be part of the reason that 70% predict that taxes will be higher under President Obama.

And that’s the important thing to note. The economy was the single most important issue among those polled. 62% felt the economy was priority #1. It was that thought and the thought that Senator McCain would continue the policies of President Bush (50%) resonated with the masses along with the feeling that President Obama was in touch with them (57%).

Honestly these are dumb reasons.

Several key Democrats presided over the downfall of the mortgage crisis, thus directly requiring a bailout, which had it’s creation in the Democratic policies of President Clinton and Democrats pushing loans to people that did not qualify to receive them. Somehow this escaped the public notice. As did the thought that there is nothing to stop a Democratic President with a liberal agenda and voting record, backed by a Democratic Congress, from creating more bad policies that even more Democrats may ignore in favor of Party unity in a time of an economic downturn.

$1.2 trillion dollars may well look cheap before the next 4 years are up. Especially since President Obama has promised to expand the Government by $837 billion and House Speaker Nancy Pelosi is waiting for the inauguration to present a $300 billion stimulus plan (at least, it may be higher by then based on her comments). That means 2009 may well start with a Congress approved budget, passed without consideration in full, with a stimulus plan that doesn’t work in an economic downturn. That’s another $1.1 trillion and that does not include anything necessary yet. And all of it must be paid by the American public at some point soon.

Still 51% felt that Obama’s policies were just right (obviously they didn’t have a calculator handy), though the polls also showed that 60% felt that Senator John McCain and not President Obama has the experience to traverse things properly.

And for those like Harry Reid that want to say that President Obama was elected as a statement of the people, the polls (which skew Democratic) stated that only 30% of voters picked President Obama because he shared their views. That’s piss poor low. What is more accurate and clear is that voters made a statement about President Bush – whose disapproval was just 2 points better than Congress at 73%. Sadly he wasn’t the one that was up for election so the point is moot.

It was the economy, and the promise of President Obama to provide money to low income Americans even if they don’t file taxes that made the election – which was stated in the poll by the 51% that thought the Government should do more to solve problems. So the more that pundits and politicians alike explained why this plan to offer the equivalent of welfare at the cost of the economy, the more it guaranteed a win for President Obama. For the 81% that feared that their family finances would be hurt by the mortgage crisis/credit crunch, it was like manna.

Don’t get me wrong, millions were voting in this election (in excess of 105 million by the last count I saw). Not all of those that voted agreed with all of the above. But more than enough did to provide President Obama with the win. Also in that group are Americans that voted for Obama based on race – some 47% believing that President Obama would mean an improvement in race relations for the nation. That part I hope is true, both for selfish and national reasons.

But while the electoral vote was huge, and will be the focus of comments by Democrats in justifying their agenda and giddy news media, the popular vote was quite close. For most of the race up until the well after 11:39pm there was only a 3% difference in votes (which was the margin I had previously mentioned I thought would decide the election). This was no landslide victory.

The nation is still as center-right as it was yesterday. But it will be lead by a left of center Government in the Executive, Legislative, and potentially by the end of 4 years Judicial branches. That means higher inflation, higher taxes, Government run healthcare (equal in stature and performance to the way the VA is run), retreat from Iraq and likely Afghanistan, legal abortion at any stage (so effectively an alternative contraceptive), gay marriage, public votes for unions, higher electricity costs, and no nuclear power. Oh I forgot fewer coal plants, higher demand for electricity due to electric car mandates and less supply, more ethanol gluts, and limited if any domestic drilling.

Doubt me if you will but just keep track of these items as the next 4 years go by. In fact I expect the 111th Congress to vote on these 4 items in January or February

2nd stimulus plan
Tax code change for people below $200,000 - $250,000 and corporations and investments
End of secret ballots for unions
Passing the Fairness Doctrine – effectively either limiting free speech that does not express liberal views or glutting media with liberal speech that would not make it without Government intervention

Some may find all the above appealing. But almost half the nation did not, and with reason. Reasons we all may well learn very quickly.

Not to mention the crisis that Vice President Biden promised to occur. And that President Obama would seemingly fail at, again as VP Biden promised.

But I could be wrong. The economy could rebound without help, or inflation and slowdown. The stock market might not sell off another 1000 points by the end of the inauguration in January. Americans might just go right out and spend all the credit they can find this holiday season and Wind energy may become effective in 6 months (much to the benefit of Nancy Pelosi’s stock account). I hope I am wrong.

Because I honestly want the First Black President to be the greatest President ever. I want him to be seen as a strong leader. A world leader that will defend America with force if pushed, with wisdom to improve – or at least stabilize – the economy. A President that lifts the nation such that teen pregnancy and high school dropout rates fall lower. A President that inspires small business start-ups and job creation. And if he can convince China to join us in cleaning the earth, and ensure quality healthcare I’d love it.

Throw in reparations and an apology for slavery and I’d be tickled pink.

But we all know that isn’t going to happen. But we will get change. And I will blog about the positives, negatives, promises kept and broken. And I’m more than willing to eat crow and say I was wrong – especially if the First Black President can sustain history in the manner I described above.

We will see. It all starts in 76 days.

Labels: Congress, mortgage bailout, Nancy Pelosi, President Barack Obama, Presidential election race 2008, race in America, tax policy, 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