Tax Stock Transactions...Idea of the year?

Let's please get one thing straight Wall Street isn't capitalism at it's best it is more like a casino on a Cruise ship. You know going in the deck is stacked against you but you are hoping that your talents will overcome this house edge.

There are some sure things, riskless bets if you will but they are only available to the very upper crust of the trading community. I do not have access to the server room at Nasdaq nor do I have the high frequency trading programs that Morgan Stanley or Goldman Sachs have. High Frequency trading is where volume is artificially produced in the market when a computer can see the bid and ask before anyone else can buys the ask adds a fraction of a penny and sells to the bid in under a second. A Completely unnecessary middle man, some might even call it illegal front running.

Next huge factor in the Rigged Casino... Dark Pools. From the NY Sun (http://www.nysun.com/business/dark-pools-threaten-wall-street/64598/):

'Dark Pools' Threaten Wall Street

By LIZ PEEK, Special to the Sun | October 16, 2007

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One of the fastest moving trends on Wall Street has flown under the radar of individual investors and, seemingly, the Securities and Exchange Commission: the rapid rise of "dark pools" stock trading arenas.

As the name suggests, dark pools lack transparency: They are used by institutional investors seeking to trade large blocks of stocks without creating the price wobbles that routinely accompany such moves. The trading is done away from the traditional exchanges, offering unprecedented anonymity.

Recently, more than 20% of all trades in New York Stock Exchange-listed stocks have been funneled through these dark pools, up from just 3% to 5% two years ago, according to NYSE figures.

Asked about the SEC's view of dark pools, a spokesman cited a recent speech by the head of the Division of Market Regulation, Erik Sirri, who said that "while the increasing use of hidden orders may be troubling," the SEC believes the new venues are available to all market participants. He suggested that the SEC is not in the position of favoring one market model over another. It would appear that until the trend toward dark pools has a measurable impact on investors, the SEC is willing to be simply an observer.

In the wake of the subprime mortgage debacle of the past two months, the importance of transparency is obvious. The packaging and repackaging of impossibly shaky mortgages into sophisticated investment products resulted in securities that were overly complicated and not well understood, and that ultimately went bust and brought down an entire industry.

An increasing number of these dark pools are popping up — more than 35, it is estimated — that seek to match large buy and sell orders without recourse to the traditional trading discourse on stock exchange floors. This is not to be confused with electronic trading, which is not new. The electronic communication networks such as Archipelago and Instinet that started up in the 1990s changed trading forever by essentially replacing the matching efforts of the specialist with computers. The ECNs report trading data in a traditional manner — publicly.

Dark pools, by contrast, do not alert the market makers that a sizeable order has been placed. Instead, by breaking the orders into smaller pieces, computer programs match and execute the different segments of the order in hundreds of separate transactions. This slicing and dicing is very similar to the complex structures banks used to divide up subprime mortgage debt.

All the major investment banks have dark pools operations, such as Block Alert, owned by Merrill Lynch, and ACE, which is part of Citigroup. There are also independent firms such as Liquidnet, which now ranks as one of the top 10 brokers. None comes close to Sigma X, which is owned by Goldman Sachs, some say.

"Goldman is a leader in the area. They're way ahead of everyone else," a financial services analyst with Punk, Ziegel & Company, Richard Bove, said. "They have spent hundreds of millions of dollars on systems. They have more people in IT than they have traders or investment bankers. They want to drive the price of trading to a level that will drive most firms out of business."

The attraction of these dark pools is clear. If an insurance company, for instance, wants to unload 1 million shares of Deere & Co., it traditionally would have to phone its broker, who would then have to contact the floor of the New York Stock Exchange, and in the process information about the institution's intent to sell would begin to leak out to other traders. Presumably, the shares would come under pressure, and the seller would end up receiving less money for his stock.

The problem is that in using the dark pools, there is little way for sellers to assess whether they have received the best possible execution on the order. Although by law the participants have to print the trade on one of the exchanges, the information is after the fact, and not especially revealing.

This is especially the case if the broker has "internalized" the order. This popular activity allows brokers to match the order within their own shops, operating beyond the vision of other dealers and outside the spotlight of the SEC. Though internalization has always taken place, the development of crossing networks has greatly expanded the in-house opportunities.

This has an impact on the average investor by shrinking the amount of trading that is being funneled through traditional channels, and which is available for filling the orders that such small investors place through their brokers. That is, it reduces liquidity and transparency in the marketplace for the small investor, while enhancing it for the big players. Less liquidity means less opportunity for "price improvement," wider spreads, and, ultimately, more costly executions.

Also, over time, internalization will mean a continued consolidation in the brokerage industry. Those firms such as Goldman Sachs that have giant order flows already are obviously best positioned to fill orders in-house. They profit off a spread between the price they paid for a stock and the price they charge the buyer. While initially they are likely to seek narrow spreads so as to attract business, if there is a fall-off in the number of competitors, the spreads will likely widen.

Not everyone is against the rise in dark pools activity. Dark pools "are providing a critical service with new technology," a former chief of the SEC, Harvey Pitt, who now heads Kalorama Partners, said.

Others argue that the private trading could augment opportunities for self-dealing. In an op-ed piece written several years ago, Mr. Pitt acknowledged that trading firms often put their own interests ahead of their clients'. Especially troubling, and the centerpiece of an SEC investigation into Knight Securities, was the practice of using client orders to enhance the profitability of the firms' proprietary trading desks. It is hard to imagine that increasing nonpublic trading improves matters.

Finally, as more investors rely on complicated algorithms to perform the market making functions that were once the province of the specialist, the transparency of the marketplace will be forever diminished. This will not be a problem until it is a problem — just as the inadequate pricing of risk in the CDO market was not a problem until it became a problem.


The Government is Slow, Stupid and Corrupt. The smart money is always one step ahead it seems but the government has the ability to put a halt to these (2) grossly unfair practices right now. Charge a transaction tax of 1/10 of 1%. To the retail investor or an infrequent trader (say somebody who holds his stock for at least 1 minute) this tax isn't a dealbreaker. If you trade 25million shares a day this removes the arbitrage associated with High Frequency Trading. In the end the retail investor very well might pay the exact same price for stock purchased or sold but I would bet my bottom dollar people would rather pay it to Uncle Sam than Goldman Sachs.

If Dark Pools pay tax it will at least give the retail investor if there is accumulation or distribution going on (if the tax code is written properly).

Don't get me wrong the casino will still be rigged but the ridiculous market manipulations will be minimized and if it helps Wall Street find their back pocket and contribute to the tax rolls instead of sucking from them so much the better.

Inflation or Deflation... Gold as a Tell

Not sure if the chart will post correctly but please click on it. It is a 5 year chart of the GLD ETF. This ETF represents the price of 1/10 of an ounce of gold making it a very good proxy for physical gold. Notice the two lines I drew, it is currently going through a consolidation before it either goes to the moon or drops like a rock. The move is imminent and it means the market is trying to decide whether we are in the grips of inflation or deflation. When GLD breaks this triangle we will know.

From Stockcharts.com:

Flag, Pennant (Continuation)

Flags and Pennants are short-term continuation patterns that mark a small consolidation before the previous move resumes. These patterns are usually preceded by a sharp advance or decline with heavy volume, and mark a mid-point of the move.

1. Sharp Move: To be considered a continuation pattern, there should be evidence of a prior trend. Flags and pennants require evidence of a sharp advance or decline on heavy volume. These moves usually occur on heavy volume and can contain gaps. This move usually represents the first leg of a significant advance or decline and the flag/pennant is merely a pause.
2. Flagpole: The flagpole is the distance from the first resistance or support break to the high or low of the flag/pennant. The sharp advance (or decline) that forms the flagpole should break a trend line or resistance/support level. A line extending up from this break to the high of the flag/pennant forms the flagpole.
3. Flag: A flag is a small rectangle pattern that slopes against the previous trend. If the previous move was up, then the flag would slope down. If the move was down, then the flag would slope up. Because flags are usually too short in duration to actually have reaction highs and lows, the price action just needs to be contained within two parallel trend lines.
4. Pennant: A pennant is a small symmetrical triangle that begins wide and converges as the pattern matures (like a cone). The slope is usually neutral. Sometimes there will not be specific reaction highs and lows from which to draw the trend lines and the price action should just be contained within the converging trend lines.
5. Duration: Flags and pennants are short-term patterns that can last from 1 to 12 weeks. There is some debate on the timeframe and some consider 8 weeks to be pushing the limits for a reliable pattern. Ideally, these patterns will form between 1 and 4 weeks. Once a flag becomes more than 12 weeks old, it would be classified as a rectangle. A pennant more than 12 weeks old would turn into a symmetrical triangle. The reliability of patterns that fall between 8 and 12 weeks is debatable.
6. Break: For a bullish flag or pennant, a break above resistance signals that the previous advance has resumed. For a bearish flag or pennant, a break below support signals that the previous decline has resumed.
7. Volume: Volume should be heavy during the advance or decline that forms the flagpole. Heavy volume provides legitimacy for the sudden and sharp move that creates the flagpole. An expansion of volume on the resistance (support) break lends credence to the validity of the formation and the likelihood of continuation.
8. Targets: The length of the flagpole can be applied to the resistance break or support break of the flag/pennant to estimate the advance or decline.

Even though flags and pennants are common formations, identification guidelines should not be taken lightly. It is important that flags and pennants are preceded by a sharp advance or decline. Without a sharp move, the reliability of the formation becomes questionable and trading could carry added risk. Look for volume confirmation on the initial move, consolidation and resumption to augment the robustness of pattern identification.

Everybody likes deflation...except the Fed

It should be no surprise that after the shock of this last fall that we are starting to see businesses pick up the pieces and some of the strong ones are starting to prosper. We can see this in the ISM Chicago Index which shows the pace of business picking up.

Between the business climate warming and housing bottoming out old "Uncle Buck" has risen from his deathbed and started to do a jig. The Stronger dollar is taking it's toll on oil prices, demand is still slack and since it's priced in dollars the stronger the dollar gets the cheaper ALL commodities get. This sounds like a healthy enviroment to me.

It is also deflationary, all the money the Fed has cranked up has gone to transfer the balances of troubled banks (bad mortgages, car loans and credit cards which is the American Consumer) onto the Federal Balance sheets. This has not expanded the money supply nor has the first tranche of the Federal Stimulus as any increase in spending by the Federal Government was met with reductions in spending from the States, a zero sum game.

So excess production capacity, high unemployment, low commodity costs and an unwillingness by banks to lend because they have to keep capital on hand to cover losses. If just left alone the economy would come roaring back, sadly that isn't going to happen.

The Fed needs inflation for (2) reasons: First, and this is paramount inflation is the exact same thing as devalued dollars. The same dollar buys less goods and services. Deflation is terrible for people/country in debt. Second, Inflation makes the banking institutions magically solvent. Infaltion would drive up housing prices making home owners "above water" and creating a market where homeowners can and will sell their houses instead of walking away from hopeless mortgages.

If the Fed lets its liquidity programs just "go away" they will still have to pay down the National Debt and high taxes will crush any recovery a crappy solution but much better than defaulting on our loans. If they find a way to "inject" liquidity into the consumer we get inflation, low tax rates, high interest rates, and high commodity prices.

Ben just give me a heads up on which poison you are going to choose.

July Personal Spending Up .2%, Income Flat

While the whole world is fretting about the massive inflation that will hit the US Economy in 2012 they seem to skipping over the deflationary funk we are in. July personal spending inched up .2% which is just pathetic considering this time period covered the "Cash for Clunkers" sales promotion. Take away that once in a lifetime government giveaway and I think the personal spending number is actually negative. Income neither shrank nor grew during this same time period.

This is actually a healthy thing, the consumer is repairing their balance sheet. Thinking that the consumer is going to magically reappear is just not going to happen. Let me predict the future for you.... Back to school sales suck and Christmas sales suck. It's not that the American Consumer has lost their passion to consume but rather they are up to their eyeballs in debt and 20% of them are un/underemployed. Outside of buying staples and replacing things that break I think we can reasonably expect sluggish Personal Spending numbers for a long while.

What is important to remember is that the Government is NOT injecting liquidity (also known as cash money) into the consumer instead they are putting it in bank balance sheets. That money is there as loan loss provisions so when the unemployed can't make their Credit Card, Car or House Payments the banks that made these loans won't go under. They will get all the T-Bill money so that they can continue to exist.

This is being done under the guise of protecting the American/World Citizen from all the bad things that would happen if BofA, AIG, Fanny, Freddy, Citi and JPMorgan went belly up. What no one has done is calculate is the cost if they did go belly up and compare it to the cost of not letting them go belly up. I think as a country we choose wrong.

Do Some Shopping Dammitt

I would like to go on a cruise..... Now support your hard working blogger and do some shopping.....over there to the right..... ==========>

Oil Prices: Demand Vs. Inflation

Today the Crude Oil Inventory report was released showing a build of 128,000 bbl. Crude oil briefly touched $75/bbl in trading early this week and is retreating from that number. It is perhaps the most telling aspect of this "recovery". Demand was down, is down and will be down the economy while not dead is in bad shape and will be so for a good deal longer.

The price of oil is up, way up from it's lows of $35/bbl. There are (2) reasons for this... First, Chinese consumption is rumored to be up although I'm of the mind that they are diversifying out of T-bills and stockpiling oil which is much less likely to default. Second, it is a tangible commodity with real world value making it a reflection of the perceived future value of the US Dollar, the currency it is priced in. If the market thought the "future" US Dollar had some hope oil prices would be much lower.

Here is the problem, We are looking at a devalued dollar which is good for exports and managing our national debt but there is no free ride on this train. The downside is that because of the weak dollar we will be looking at higher interest rates and energy prices....the birthplace of "Stagflation". Welcome to the future, it looks a lot like the late 70's.

June New Home Sales "Great Success!"

Today the June new home sales report was released and it showed an annualized rate of 433,000. This number blew away expectations of 390,000... "Great Success!!" or is it?

If you look at the chart above it looks like about 800,000 units a year is fairly average, we are still way below par. Recession or no recession people are going to need new homes, cars, dishwashers, etc. that's just the way it is. While it is encouraging that the "stock" of homes on the market is down from a 13 month supply to a 9 month supply it hardly is giving me the warm fuzzies. 90% of people still have jobs and interest rates are at historic lows this is a prime environment to move some homes and yet it really isn't happening.

What is scary is that interest rates are going to go up because when you are at ZERO there is only one direction, no? I also have the feeling that home prices are going to firm up real soon and start actually going up, this will have more to do with the devaluation of the dollar than real demand for real estate. This will have the added benefit of making banks solvent again.

The 12 trillion dollar question is if wages will keep pace with the rise in housing stock? I'm thinking no. So couple decreased purchasing power and credit availability with higher prices and interest rates and I don't see us getting back to 800,000 units a year. We are on the right track but I see a ton of tough sledding in front of us.

Postal Service Buyouts, 450 million well spent

From the Wall Street Journal:

The U.S. Postal Service is offering buyouts to tens of thousands of employees as it faces mounting financial losses caused by the recession and fundamental changes in the way Americans communicate.

Up to 30,000 employees will be eligible for the buyouts, which postal officials estimate could save the agency $500 million a year. The Postal Service expects to lose $7 billion in the fiscal year that ends Sept. 30.

The buyouts – under which eligible workers will receive $15,000 payouts – come at a time when the Postal Service is enacting a variety of other cost-cutting measures.

The agency has closed six district offices, instituted a nationwide hiring freeze, cut more than 100,000 work hours and freezing salaries. A proposal pending in Congress would eliminate Saturday service.

http://online.wsj.com/article/SB125122901758157941.html?mod=rss_whats_news_us_business

I never did quite get the Postal Service. It is a government sponsored institution that exists solely because of a Federal law which prohibits anyone but a US Postal worker from putting mail in your Mailbox. So 6 days a week a schlub who makes more than me puts a handful of bills and junk mail in mailbox and for this honor I pay $.44 for a stamp and incur billions in debt.

It doesn't really matter to me if they have a defacto monopoly or not but here is an idea... Adjust your service, rates, and staffing to make sure you don't lose money. I have a tough time mortgaging our future for junk mail and bills, is this really a national priority? Couldn't we get mailed delivered (3) days a week? What is so pressing we need 6 day a week delivery?

We are 12 TRILLION dollars in debt, figure out a way NOT to lose money or repeal the Federal law or both. I like middle class welfare too, but enough is enough.

Budget Deficit to Explode from 455 Billion to 1.6 TRILLION

I guess some records were not meant to stand the test of time. Last year's record budget deficit of $455 Billion will balloon to $1.6 Trillion this year. Although $1.6 Trillion is a big number it pails in comparison to the $11.7 Trillion that comprises our national Debt. From Yahoo News:

"The alarm bells on our nation's fiscal condition have now become a siren," Senate Republican Minority Leader Mitch McConnell said. "If anyone had any doubts that this burden on future generations is unsustainable, they're gone -- spending, borrowing and debt are out of control."

The title of the 2010 Budget (http://www.gpoaccess.gov/USbudget/fy10/pdf/fy10-newera.pdf) is oddly enough"A New Era of Responsibility: Renewing America’s Promises" and it addresses the previous era of irresponsibility:

Fiscal Irresponsibility

Another manifestation of irresponsibility is
the large budget deficits we are inheriting. These
deficits, over time, will harm economic growth
and impose burdens on our children and grandchildren.
For the past eight years, in a time of economic
growth, the Government spent recklessly
on tax cuts for the few and hand-outs for the welloff
and well-connected, mismanaged billions of
dollars in taxpayer money, and failed to honor the
responsibilities we have to future generations.
Massive new programs have routinely been omitted
from the Budget to mask their true cost, while
a new entitlement program and massive tax cuts
were proposed and signed into law without any
attempt to pay for them. Between 2000 and 2008,
real Government outlays increased at a 3.6 percent
annual average rate, three times the 1.2 percent
annual average rate between 1992 and 2000.
This has helped turn a surplus of $236 billion at
the end of the Clinton Administration, that was
projected to grow still larger over time, into a deficit
of more than $1 trillion in 2009. (see Figure
12, Surpluses Have Turned to Deficits). Furthermore,
the amount of debt held by the public has
nearly doubled to $6.4 trillion from 2001 to 2008.
We are now living with the fallout of this deep fiscal
irresponsibility.
Unfortunately, we are also inheriting the worst
economic crisis since the Great Depression—
which will force us to increase deficit spending
temporarily as we try to jumpstart economic
growth. This is an extraordinary response to an
extraordinary crisis, and as we come out of this
recession, we must return to the path of fiscal responsibility.
It will mean tough choices—choices
that are tougher because of the legacy of fiscal
irresponsibility left to us.

Sounds like a plan! Wait they just said they were pretty much bankrupt and just left it at that, what's with the business with "It will mean tough choices" shouldn't it be "It means tough choices".

Let's do some quick math: The total federal budget is roughly 3.1 Trillion back out the deficit which is 1.6 Trillion and Uncle Sam has 1.5 Trillion coming in. If we did nothing else but pay down the debt it would take us 8 years to pay it off. No Military, No Jails, No Social Security, No Homeland Security and no High Speed Rail. Just the IRS and Barrack with his check book. 8 years. Of course this isn't going to happen but what about just balance the budget and revolving the debt? From Yahoo news:

But while figures released by the White House foresee a cumulative $9 trillion deficit from 2010-2019, $2 trillion more than the administration estimated in May, congressional budget analysts put the 10-year figure at a lower $7.14 trillion.

I guess not so we can add 18 trillion to the 12 trillion we owe, the logic being that we take the highest government estimate and double it and we should be pretty close to reality. Now we are in the hole for 30 Trillion.

The reason the US Government Sovereign debt rating is AAA is because the Fed will NEVER default on a payment, this is absolutely true. When the debt burden becomes so crushing and taxes can't be raised any higher without civil unrest the Fed will turn to the Treasury and Money will be created out of the ether to pay down our debt.

I hope I'm wrong but the same people who lacked the backbone and let the National Debt get to 12 trillion suddenly will not grow a spine and take care of the problem while it is still solvable (which is open to debate).

Federal Reserve loses suit demanding transparency

From Reuters:

The case arose when two Bloomberg News reporters submitted requests under the federal Freedom of Information Act (FOIA) about actions the Fed took to shore up the financial system in 2007 and early 2008, including an expansion of lending programs and the sale of Bear Stearns Cos to JPMorgan Chase & Co (JPM.N).

After the Fed resisted the request, Bloomberg sued to compel disclosure.

Preska concluded the Fed "improperly withheld agency records in response to a FOIA request by conducting an inadequate search," she wrote.

FOIA obliges federal agencies to make government documents available to the public, subject to various exemptions.

They work for us don't they? They are subject to the "Freedom of Information Act" aren't they? From RCFP.Org...

Fox loses FOIA suit against Federal Reserve...

Judge Alvin K. Hellerstein in the U.S. District Court in Manhattan ruled that the Federal Reserve Board in Washington had properly withheld more than 6,000 pages of documents from Fox because the records fell under the FOIA exemption protecting trade secrets and confidential information.

What trade secrets could the Federal Reserve be keeping? There can only be (2) reasons for denying a FOI request, both of them suck. First, if you disclose who the Fed bailed out the market (AKA Goldman Sachs Hitmen) will short them out of existence. This doesn't hold water because without this information I can make a pretty educated guess that Citi and most of the other Money Center Banks are insolvent.

The Second reason, I smell smoke does anybody see fire?, is that they wanted to hide what they did while they had a blank checkbook and unbridled power. Companies were saved and lost on whims and grudges and fortunes made and lost. I am sure it is just coincidence that Goldman and Sachs had there best quarter ever after there former boss operated under a veil of secrecy.

Audit the Fed, Audit it now, and get my pitchfork, torch and best hanging rope.

High Speed Rail....Why???

From the Wall Street Journal:

WASHINGTON -- States applied for billions of dollars for passenger-rail projects Monday, marking the start of a stimulus program designed to kick-start high-speed rail service in the U.S.

California alone submitted 42 applications, seeking $1.1 billion, according to Bill Bronte, rail division chief at the California Department of Transportation. Virginia asked for $75 million to lay 11.4 miles of track along the busy I-95 corridor south of Washington, D.C. North Carolina applied for six projects totaling $76 million, including work needed to establish faster passenger rail service heading north from Raleigh.

It seems like every time there is a need for an infrastructure project high speed rail rears it's ugly head. Why? We have these wonderful things called airplanes, they are very fast, safe and convenient. They keep fares down due to a thing called competition. This allows people living in Chicago to fly, in about 3 hours time, to Orlando for $99 dollars.

What if we took all the money slated to go to high speed rails and put that towards parking garages, runways and flight control improvements. I would love to bitch about airline travel but for the most part, "Homeland Security" exempted, it's really kinda hassle free.

Is this the best thing we can waste our money on? If I want to get from Orlando to Tampa I will hop in my car and will be there in about 90 minutes, no problems. How about we tackle this problem.... Chicago to Naperville, Phoenix to Gilbert, Dallas to Flower Mound, Orlando to Kissimee. I haven't been there in years but I'm going to go out on a limb and say the Metra station at Rt. 59 in Naperville has less than no parking, we could build a parking garage!

You wonder why as a country we are 12 TRILLION dollars in the hole, well here is your answer. Build something really expensive we don't need that will have a ton of legacy costs and completely ignore the needs of millions of people just trying to get home for dinner.

Last time I checked the last public national railroad went bankrupt in the 1970's and to this day is still owned by the Federal Government. Isn't one railway enough?

Dennis Kneale IS an idiot

Please take a look at the following chart:



Dennis Kneale actually strikes me as a well intentioned man and NOT the biggest tool on CNBC. That award actually goes to "Family" man Brian Shactman, ....




But I digress... Dennis "the real deal" Kneale is an idiot because he just doesn't understand the chart at the top of this page. I can understand Dennis Kneale wanting to be positive, who wants to think the worst is going to happen? But when you suspend reality and risk the LIFE SAVINGS of your viewers you get called an Idiot. Actually Idiot is probably being nice to Mr. Kneale, one could make the case that the advice he dispenses borders on Criminal.

Let's look at that chart. From 1900 to 1980 the DJIA went from 0ish to 1000ish or in other words America built 1000 points of value in 80 years, not exciting but good. Between 1980 and 1990 the DJIA went from 1,000 to 2,000, in 10 years we had created as much value as the previous 80 years..."Great Success"

Between 1990 and 2000 the DJIA went from 2,000 to 11,000. 80 years = 1,000 points, 10 years = 1,000 points and finally another 10 years = 9,000 points. The amazing part is we did this while getting rid of our manufacturing base. I wonder what could have caused such incredible growth over the past 20 years?



Being an idiot, Dennis Kneale would say that this only means that we are going to 20,000 so you had better BUY, BUY, BUY!!! Instead of being on a quest to tell people that they need to hop on the recovery train would it kill him to tell people how to hedge? You know, acknowledge that he has no freakin idea where this market is going. Yes it could go to 20,000 in an inflationary orgasm but it could just as easily go to 1,500, in line with historical levels.

Since he won't tell you how to hedge I will. Pick 5 high dividend diversified out performing stocks and make that 50% of your portfolio. With the other half of your portfolio buy stock symbol SH (Inverse S&P 500). Now rebalance every 6 months, you won't make a killing but you won't lose everything when the market crashes (you will actually make a killing that day).

I think that Dennis Kneale is an idiot because everyday he could be helping investors move towards a comfortable retirement but instead chooses to convince people that he is right de facto risking THEIR future well being.

A Simple Solution To America's Foreclosure Crisis

The American housing market is in the depths of a major "correction". As housing prices started to outstrip American's ability to pay the mortgages either the bubble had to stop inflating or the safety mechanisms had to be disabled. We went the route of 100 year interest only balloon mortgages. The school of thought went that consumers ability to pay was irrelevant because the value of the asset will continue to appreciate, ooops.

My thought on this is that the housing industry should take a page from the Auto Industry. Cars long ago outstripped the consumers ability to pay for them, yet they have been able to hang onto the sales by introducing the concept of leasing cars. Once you waive the "right" to ownership you get to drive the exact same car as somebody else for much less money. Why can't we "lease" homes? Let's say a house bought in 2006 for $400,000 is now worth $250,000. The Homeowner is now $150,000 underwater and the bank is verrrry nervous. Go to the Homeowner and have him lease the house for $1,800/month (+ taxes & insurance)for 60 months. This takes the home off the market for 5 years and lets the homeowner see a light at the end of the tunnel. Everybody knows at the end of 60 months the house goes back to the bank.

There are a lot of variables in play but this general workout could make the banks AND the consumer a lot more solvent.

CNBC, Are the "Green Shoots" related to "Marijuana, Inc"

Today the Market is up for the 5th day in a row, good times indeed. I would normally take this as an encouraging sign as the reflation/recovery trade is back on, unfortunately the market is getting ahead of itself. Right now the Stock Market is factoring in 4% growth in GDP of 2010 as the market is a forward looking vehicle. From USA Today:

The Federal Reserve is also talking about the economy in a more upbeat way, and said last week that it would keep short-term interest rates at about 0% for an extended period in an effort to boost the economy.

The optimistic tone is also being driven by economists who are raising their growth forecasts for the second half of the year, which runs counter to the previous consensus of subpar growth in coming quarters. ISI Group, for example, is estimating 4% GDP growth in the final six months of the year. The ISI estimate is above the long-term average of 3.4%, according to government data. But ISI's estimated growth rate is still shy of the average 7.3% growth in the quarter after a recession ends, data from Strategas Research Partners show.

http://www.usatoday.com/money/markets/2009-08-18-investors-buy-on-faith_N.htm

I sure like the sound of that don't you? Sadly I don't see any evidence of that happening. The rally has advanced to the point that "Green Shoots" should be plants by now. How are those plants doing? From Business Week:

So far, second-quarter results have arrived from 83% of the Standard & Poor's 500-stock index companies, and earnings are down 28.4%, according to Thomson Reuters (TRI). Before earnings season officially began a month ago, analysts were expecting a drop of 35.6%. The S&P 500 is up about 13% since Alcoa (AA) kicked off the second-quarter earnings season on July 8 through Aug. 6.

http://www.businessweek.com/investor/content/aug2009/pi2009087_585511.htm

This of course has a bad effect on the P/E ratios of companies:

Scary valuation metrics

In general, P/E ratios are based on forward-looking or projected earnings, which often reflects wishful thinking. The P/E ratio, based on recently reported earnings, available on Standard and Poor’s website, is a whopping 143.95. This is not a typo!

The earnings for S&P 500 constituent companies have declined over 95%, since peaking in Q3 2007. If current estimates hold, Q3 2009 will see the first ever 12-month period during which S&P 500 earnings are negative.

P/E ratios are one of the simplest yet most accurate valuation metrics around. A historic analysis of major market bottoms show that there has not been a single prior bear market that bottomed without P/E ratios (and dividend yields) reaching rock bottom levels. In fact, those levels can even be used to calculate a target range for the ultimate market bottom.

Just as the human body is not healthy unless it runs at 98.6 degrees, the stock market is not healthy unless P/E ratios and dividend yields reach those trigger levels. Needless to say, a P/E ratio of 143.95 (even P/E of 15) is far removed from levels indicative of a bottom.

http://www.etfguide.com/research/213/8/Is-The-Worst-Really-Over?/

Okay so there are no "Green Plants" just yet, I just wonder where this growth is going to come from?I guess not from anybody who uses the freight system to either bring in raw materials or ship finished goods.

WASHINGTON, August 6, 2009 — The Association of American Railroads today reported 1,319,387 carloads of freight in July 2009, down 17.5 percent (280,659 carloads) compared with July 2008. U.S. intermodal rail traffic, comprising trailers and containers on flat cars not included in carload figures, totaled 922,734 units in July 2009, down 18.0 percent (203,061 trailers and containers) compared with July 2008.

For the first seven months of 2009, total U.S. rail carloadings were down 19.0 percent (1,854,657 carloads) to 7,885,039 carloads, while intermodal traffic was down 17.2 percent (1,153,208 units) to 5,569,802 trailers and containers.

All 19 major commodity categories tracked by the AAR saw carload declines in July. The biggest carload declines were coal (down 9.9 percent, or 68,879 carloads); metals and metal products (down 47.7 percent, or 29,849 carloads); metallic ores (down 58.9 percent, or 26,724 carloads); and crushed stone and gravel (down 25.8 percent, or 26,402 carloads).

http://www.aar.org/NewsAndEvents/PressReleases/2009/08_WTR/080609_Traffic.aspx

So railway traffic isn't killing...what about electricity usuage?

Only two industries added jobs in the second quarter of 2009. One was health care, a sector where demand for products and services usually transcends even the most dire economic circumstances.

The other was a bit more surprising: utilities. As I pointed out last week, demand for electricity in the US fell sharply over the past 12 months. That was at least in part due to milder than normal weather. But the main reason was a dramatic decline in use by heavy industry.

http://www.kciinvesting.com/articles/10046/1/Jobless-Recovery/Page1.html


I am not saying we won't continue to go up or set new all time highs, what I am saying is be very careful here. We all saw how the internet bubble ended up. I can't say when the bubble will burst but stocks are closing in on bubble status......

Obamacare.... Creeping Socialism?

I'm not sure what this Healthcare reform debate is about, from the Financial Times of London:

Home truths about rationing healthcare

By Philip Stephens

Published: August 17 2009 19:53 | Last updated: August 17 2009 19:53

The brouhaha in the US about healthcare has generated in Britain bemusement and irritation. The British are not shy of complaining about the National Health Service. But to swap free-at-the-point-of-delivery healthcare for the US private insurance system would beggar belief. As David Cameron’s Conservatives know to their cost, to hint at privatisation is to invite political immolation.

Beneath the transatlantic waves lies an awkward truth; one that politicians of all shapes and sizes – conservative and progressive, European and American – would prefer not to discuss. Healthcare is rationed everywhere.

If you start with the premise that healthcare is a limited commodity then the issue becomes about the distribution of it. It seems we Americans haven't quite figured that one out yet, we pay more for it than anyone else and our quality of care is middle of the pack. Really if we want to pay more than anybody else in the world, I'm okay with that just please make sure we have the highest quality. Can we agree we overpay for health care?

If we overpay for health care, who are we overpaying? That one is easy... the people who absolutely do not want to change the system at all. Who would hate change? Lawyers and Insurance Companies... Ding, Ding, Ding I think we have an answer.

Personally I don't see what all the big deal about Obamacare is. I have insurance but I can't afford to insure my wife or kid nor have I used it or had the need for this previous year, some great victory for me huh? I would be personally like an option that would let me provide access for my family without making decisions like health care or food. If it means that we have less open MRI machines available 24 hours a day, I'm okay with that.

It seems to me that the "best" arguement I've heard against the Obamacare plan is.."It's Socialism!!!!" to which I respond... "so?" I don't have a problem with my socialist Police, Fire, or Library so why would government health care scare me? It doesn't seem to scare American Veterans (the VA), Elderly or Poor (Medicare & Medicaid) so is it really that bad?

It's not like I'm love with Obamacare either for all the fuss that is being made it really doesn't do all that much. God forbid we actually wanted to make a real change.

Cash for Dishwashers???? You have got to be kidding!

I guess everyone at Sears and and Best Buy is getting all geeked up because the "Cash for Appliances" bill is about to go into effect. The bill states that if you buy certain energy star appliances you will be eligible for up to a $200 rebate/refund. The intention is very clearly to stimulate the American Consumer.

This is just a few degrees of seperation away from Cash from Clunkers both are intended to stimulate consumption and have nothing to do with creating actual jobs. In other words they are trying to make the collapse of the credit bubble less painful. Please tell me if you notice anything kind of non-American about this list from Yahoo! :

The Top Ten Cash for Clunkers Trade-Ins:

1. 1998 Ford Explorer

2. 1997 Ford Explorer

3. 1996 Ford Explorer

4. 1999 Ford Explorer

5. Jeep Grand Cherokee

6. Jeep Cherokee

7. 1995 Ford Explorer

8. 1994 Ford Explorer

9. 1997 Ford Windstar

10. 1999 Dodge Caravan

The Top Ten Cash for Clunkers New Cars:

1. Ford Focus

2. Honda Civic

3. Toyota Corolla

4. Toyota Prius

5. Ford Escape

6. Toyota Camry

7. Dodge Caliber

8. Hyundai Elantra

9. Honda Fit

10. Chevy Cobalt

Go America?????

Well in the Spirit of Government Largesse I've come up with my own snappy names for some programs that are already in existance:

Cash for Food: Uncle Sam will give you a Credit Card with flags or eagles or some such shit so you can buy food. Cost 95 Billion in FY 2009

Cash for Drugs: A Government program that will try to prevent you from dying if you get ill, hey life's a crapshoot good luck! Cost 561 Billion in FY 2009

Cash for Terrorist Extermination: Nobody likes a terrorist, they have a nasty habit of blowing up things/people we like and with this program we can cut down on the liklihood of another terrorist attack. Cost 549 Billion in FY 2009

Cash for the Old and Lazy: Why work? If you are old or "disabled" there's no need with this government program. Cost 581 Billion in FY 2009

Cash for Cribs: Paying the rentman sucks, let Uncle Sam pick up the tab on some fine section 8 housing. Cost 40 Billion in FY 2009

Cash for Credit Bubbles: Creating Bubbles in Internet startups and housing isnt' cheap. In fact a lot of that money had to be borrowed but until we can actually devalue the dollar we'll just continue to make the minimum payment. Cost 237 Billion in FY 2009.


Total of programs: 2 Trillion 63 Billion dollars & 00/100 cents.

Oh and in case you missed there will be a budget shortfall this year (Tax Revenues - Government Expenditures) of only 1,580,000,000. This was better than expected because the banks didn't implode like everybody thought they would....but there's always next year.

Hey if you made it this far, show a little love ======>

Warren Buffet states the obvious

Today Warren Buffet took out an ad in the New York Times ( http://www.cnbc.com/id/32473352) and proceeded to tell us about the unintended consequences of preventing a financial collapse due to government involvement.

He says that the billions of dollars borrowed by the Federal Government is justified but that we need to be careful because this policy is inherently inflationary.

Memo to Warren Buffet: No shit!

Oh as an aside, his greatest is fear is that when the time comes politicians will lack the political will to put the brakes on to prevent inflation. I believe that is a given, oil is back up to $72/bbl today and I believe the market is pricing in this complete lack of backbone because supply and demand do not justify this price.

The 12 trillion dollar question is when does the deflationary cycle end and when does the inflationary cycle start?

Perhaps he would have been better off explaining the liquidity traps of the fractional reserve banking system. Until the Federal Government side steps these flooding the market with money will not happen, all that will happen is a balance sheet transfer. The Federal Government will sidestep the liquidity trap when people start demand jobs and civil unrest becomes a real possibility, I am sure this is the time when they will develop the backbone to hike interest rates to 25% and reduce liquidity.

I saw it presented this way earlier.....

Deflation = Default on sovereign debt = We're Screwed.
Inflation = Monetization of sovereign debt = We're Screwed.

Pick your poison

Are Stocks Going to Test New Lows?

Since March the stock market (S&P 500) has moved from 666 to over 1000, that is a move of 50%. Initially it was a move to relieve the oversold conditions from the big drop started in the fall of 2008, figuratively and literally. The next part of the rally, I believe, was caused by the reflation trade.

The reflation trade says that because of the massive debt incurred by the US Government that the value of the dollar will weaken substantially over time. Since stocks represent actual "things" they will get more valuable as the value of the dollar decreases along with commodities like Gold, Oil, Coffee, Frozen Concentrated Orange Juice, etc.

The "thing" that the Fed wanted to prevent in the midst of the credit crisis was deflation, this would be a disaster for the economy. Home prices and the prices of all other asset classes would decline and worst of all the debt incurred to pay for those rapidly shrinking assets would be more in nominal dollars. To combat this the Fed rolled out 7 trillion in aid and backstops giving us a "shadow" government and an alphabet soup of Federal Programs: TARP, TALF, Cash for clunkers, etc. This all lead to a fear of inflation and a rise of oil to $70/bbl, gold to just under $1000/oz, and a stock market up from 666 to 900.

To make the jump from 900 to 1000+ the stock market needed more fuel and got it in the form of earnings season. First the banks showed an amazing ability to make money when they could mark their bad assets at the price they paid for them and collect 11% interest on money they borrowed for free. Throw in some one time asset sales and the banks had a fantastic quarter. Next was the Fortune 500 companies, their earnings looked all the same. Top line revenue down about 25% but due to aggressive cost cutting there was a good profit on the bottom line. This was the fuel to take the market up some more.

Here is the problem with the runup...it counts on inflation in the next 6 to 12 months unfortunately for Uncle Sam I just don't see it. Right now we are in a deflationary spiral and as odd as this sounds unless the Federal Government finds a way to spend money somewhat efficiently in the "real" economy increasing the money supply it will be deflation city. Right now all of the money that the Fed has borrowed is just sitting there as a backstop to banks as loss reserves. This means when a foreclosed house gets written off (x100,000) the federal government will step in and bail the bank out allowing the bank to stay solvent and effectively transferring the debt from the private sector to the public sector.

The Government has not/cannot borrow enough money to put the entire private sector debt onto it's books, it is only putting a very small fraction of it. In the meantime the consumer will continue to tighen his/her belt by deleveraging. This is a little confusing so pay attention. When you or I do not spend (consume) with our money it is by defination "saving". Now this savings didn't go into a christmas account, cd's, or money market account it went to pay down their debts.



We are now a year into the beat deflation experiment and we are starting to get tangible results in. With the enormous amount of borrowing being done at the Federal level surely inflation must be starting to rear it's ugly head.... Not so much.

Today Housing starts came out and they were at 581k a decrease from last months 587k and more importantly the Producer Price Index came in at -1% meaning the cost of doing business actually went down by 1%. Couple this with an industrial output running at 69% of capacity and 10% unemployment and it seems deflation has the wind at it's back.

This is bad, bad, bad for the market. Stocks are trading for absurd P/E levels because inflation is "baked" into the price, everybody (banks included) just had a one off quarter and will be hard pressed to repeat, and global consumer demand is down. I am not saying stocks will go down, I just don't see the catalyst to take us higher and in all likelyhood we will test the lows sometime soon.

It seems we have a choice as a country now... live in a deflationary enviroment or bypass the traditional fractional reserve banking system and make direct cash injections into the economy which will absolutely cause inflation. The clock is ticking.

DC's Solution to a Credit Crisis...More Credit of Course!

From Yahoo Finance.....

WASHINGTON (AP) -- With banks limiting the availability of auto, student and other consumer loans, the Federal Reserve said Monday it would extend a program intended to help spur more lending at low rates

The program is set up to provide up to $1 trillion in low-cost financing to investors to buy securities backed by consumer and commercial loans. But private economists said the program, Term Asset-Backed Securities Loan Facility, or TALF, has so far provided little benefit for consumers and businesses still struggling to get credit.

http://finance.yahoo.com/news/With-credit-tight-Fed-extends-apf-3707488235.html?x=0


To review, the crisis we are currently in is because the Fed wanting to forgo a "healthy" recession after the 9/11 attacks held interest rates artificially low. This led to the housing bubble and accompanying stock market bubble. Consumer spending went through the roof and debt piled up like cordwood. When it became apparent to all involved that this was unsustainable growth the housing bubble popped and the credit markets seized. Though the economy is bad, consumers are "de-leveraging" which just means they are paying down debt from the halcyon days. This is actually a healthy thing. Unhealthy or otherwise the Federal Government needs to see growth other politicians will be thrown out of their jobs and they most certainly don't want that.

The risk here is that in order to get out of the hole we are in we are going to have to blow a bigger bubble and when that pops.....

Memo to FDIC: Hope isn't a strategy

From the market insider:

The agency's insurance fund already has dipped to $13 billion, with more than 300 battered banks and thrifts still on an undisclosed FDIC list of problem institutions.

That's an interesting point about the increase in costs-per-failure. These banks aren't just insolvent, they're massively insolvent.

As of the FDIC being down to $13 billion -- yeah, that's bad, especially if there are a few more Colonials out there.

I am not sure of many things but one of the things I am sure of is that as soon as the funds are depleted they will be immediately replenished by congress. Nothing will kill a recovery like a nationwide bank run...that will lead to some serious liquidity and counter party issues.

In addition to the 77 bank closures this year there is an estimated 100 more banks on life support including Corus and Guaranty Bank which have negative tier one capital ratios. This is problematic because it is against the law for this to happen. When a bank has negative tier one capital ratios they are defacto insolvent and should be euthanized or nationalized or some other -ized. In this day and age the -ized these banks will get is "Super Sized" ;o) .

So if the FDIC knows they have 100 more banks to shut down why don't they do it? I suspect the reason is that shutting down 100 banks would be as an admission that the economy really isn't as good as the media thinks it is, so the FDIC whistles past the graveyard.

This policy is based on the fact that most of the banks troubles are based on residential and commercial real estate. IF Jim Cramer is right and the housing market has bottomed...no worries these banks will be solvent in no time flat. I for one hope he is right but reality sometimes has a nasty way of interjecting itself.

From ABC News:
Despite recent good news about increasing home sales and moderating price drops, there is still no relief in sight when it comes to foreclosures. RealtyTrac will report Thursday that a record 360,149 homeowners received a foreclosure filing in July, up 7 percent from the previous month and up 32 percent from a year ago.


http://abcnews.go.com/Business/story?id=8311623&page=1

and from the Boston Business Journal:
The 18.1 percent price drop was the biggest quarterly decline in the 25 years since the index has been published. The second-biggest drop in a quarter was the fourth quarter of 2008 when the quarterly decline was 10.6 percent.

http://www.bizjournals.com/boston/stories/2009/08/03/daily12.html


Memo to the FDIC: Take off your rose colored glasses and do your job, the process of recovery cannot begin until we at least acknowledge the problem. Put another way if you let a wound fester it's going to be a bigger problem than it originally was.

The Fed's 12 Trillion Dollar Problem

Deflation. The Fed owes people 12 trillion dollars, which is not a problem if the value of those dollars continues to go down. If you took out a loan for say 5,000 in 1930 paying it back 2009 dollars would be a breeze.....

This is exactly the Fed's game plan, they are going to pay you back all that they owe you..... just in future dollars (the cheaper brother of today dollars). The only thing that could go wrong with this BRILLIANT plan (who could possibly see this coming?) is if the future dollars were actually worth more than today dollars. That would suck....like alot. Unfortunately for the Fed a credit contraction is an incredibly deflationary event. Money is disappearing out of the economy: Home prices are down 25+%, IRA's/401 k's are down 30%, commodities are down 40%, consumer spending is down, consumer and business credit lines are down. This is called a liquidity trap, it means that no matter how much the Fed borrows it will not make it into the economy through traditional means. That is tantamount to saying no matter what you do you cannot stop inflation.

One doesn't have to look very hard to see the signs of deflation, they are actually all around us. I have faith though. If anyone can circumvent the liquidity trap and get cash into my sweaty hands it's Uncle Sam. He's like that crazy Uncle of yours, you know, the fun one. He'll mail you a check, build a bullet train from Anchorage to Miami, start a colonization on the Sun, Free Healthcare for everyone, or start a couple of new wars. It doesn't matter. I have faith that we can slay the Deflation Demon. The Hyperinflation Demon is the one I'm worried about.

Kill a Dog = 18months in Prison, Kill a person = Probation

Today it was announced that Michael Vick was signed with the Philadelphia Eagles, he previously was with the Atlanta Falcons as their star quarterback. He also got fired from his job and sentenced to 18 months in prison for running a dog fighting "ring".

Donte Stallworth is with the Cleveland Browns, and has had several jobs in the NFL as a pro bowl caliber wide receiver. On March 14, 2009 has got shit faced in Miami Beach and killed Mario Reyes (59), after getting the dings and blood off his Bentley he received probation and a 1 year suspension from the NFL after paying the family a generous settlement.

I do not condone dog fighting, I really don't understand how people can do that, but yet they do. I do understand why people get shit faced in Miami Beach though. I suppose the intent is the difference between the sentences, Michael Vick being evil and Donte Stallworth just being a well intentioned idiot but do not the consequences matter?

It just seems like another giant disconnect in the "Justice System", really shouldn't sentencing guidlines start at Genocide and work backwards to Jay-Walking? What the hell am I thinking? Just lock everybody up, more construction jobs for prisons and more jobs for guards. Problem solved.

Publish Post

Pent up Supply???? June Housing Report In.

First a couple of facts: People want a new (different) car every 2.5 years and a new (different) house every 5 years. After these time periods pass consumers develop an "itch" to change. In economics this is called pent up demand, it is the reason we usually explode out of recessions. We HAVE to have the latest, greatest car/neighborhood etc. Since "the consumer" is 70% of economic activity in this country this itch coupled with easy credit is a recipe for economic success. Unfortunately I am not seeing this happening right now.

From Barron's (Click on blog title to go to article):

The median price of an existing single-family home dropped to $174,100, the most in records dating to 1979, the National Association of Realtors said today. Total sales rose 3.8 percent to a seasonally adjusted annual rate of 4.76 million from the first quarter and fell 2.9 percent from 2008’s second quarter.

So we must be at a bottom right? Prices are going to rocket from here, right?

“I don’t think we’re at a bottom yet in home prices,” said Scott Anderson, a senior economist at Wells Fargo & Co. in Minneapolis. “There’s also a pretty big shadow supply of houses. People are kind of waiting for the bottom but there’s a pent-up supply out there.”

Pent up supply???? Don't you mean pent up demand? Most people have mortgages on their properties, when they sold their house in 2006 the could do 2 things with the equity: Spend it on jetskis, cars, vacations, or a myriad of other things they didn't really "need" or they could have rolled it into their new house letting them buy a bigger house than they could otherwise afford in a sense leveraging themselves up. Turns out home values have gone down and all that equity is gone, how much the homeowner is underwater is dependent on how much they put down on their "new" crib. Between being underwater, having the moving itch, and/or being unemployed the consumer just wants the pain to end and is looking for any bounce in the market to sell their property. In the stock market they call it "being trapped" and believe me there is tremendous supply above these levels with people waiting to liquidate their 401k's.

That is just consumer supply. The banks also have alot of supply on their books and also are looking for any sort of market bounce to unload their foreclosures/delinquent loans. Theoritically they should just take the hit and liquidate them but then they would have to realize the loss on their books. Once these loans enter the stormy waters of mark to market accounting ( a fancy word for how much something is actually worth) then the banks would be exposed for the insovent insitiutions they are.

From the Congressional Oversight Panel (http://cop.senate.gov/documents/cop-081109-report.pdf )

The uncertainty created by the financial crisis, including the uncertainty attributable
to the troubled assets on bank balance sheets, caused banks to protect themselves by
building up their capital reserves, including devoting TARP assistance to that end. One
byproduct of devoting capital to absorbing losses was a reduction in funds for lending and a
hesitation to lend even to borrowers who were formerly regarded as credit-worthy.

As far as I can tell the only way out of this dilemma for both the banks and the consumer is inflation. On the plus side the Federal Government is excellent at spending money.....

Uh Oh....China is Buying Commodities

From the Wall Street Journal:

Crude oil imports jumped 18% from a month ago to 19.63 million metric tons last month, or about 4.8 million barrels a day, according to monthly data released by China's General Administration of Customs. Iron ore imports rose 5% to 58.08 million metric tons.

There is nothing sinister about this, China wants to build up it's strategic reserves. While not sinister it is problematic for the good old US of A. This is how the business cycle has run for the past decade or so: WalMart buys thousands of containers of cheap...errrr...inexpensive Chinese goods and sells them to you and I. They take there proceeds and pay them in dollars. It would seem that this would strengthen the Yuan and make their products less competitive relative to ours. This is how trade imbalances come into balance, one party buys too much and because of this their currency is devalued and they just can't afford to buy as much. The workaround for this problem was for China to take all their hard earned dollars and buy Treasury Bonds, this allowed the Yuan to remain undervalued relative to the dollar and for them to continue their industrial expansion unabated.

Funny thing is you can't trick basic economic principles forever. It is quickly dawning on China that they have lots and lots T-bills redeemable for US Dollars. If you are worried about the long term health of the dollar, which is a pretty valid concern, you would look to get rid of as many of them as you could, preferably on the down low. If you have warehouses of Dollars you have to spend Dollars, which is thankfully the world's reserve currency. You could be buy more T-bills, which they are doing in hopes that they can pull out slowly drawing out the collapse. You could buy American Companies, not as likely because of the high profile nature of this. Finally you could take your dollars and buy commodities, ditching their rapidly devaluing currency and picking up something they can use like copper, aluminum or oil.

As they continue to divest from T-bills into commodities we as US citizens are going to get hit by supply and demand on two fronts. First Gasoline (and Doritos for that matter) are going to get more expensive as more dollars are chasing fewer goods (more dollars because the Chinese aren't locking them up anymore in T-bills). Secondly, without Chinese and other sovereign wealth funds buying our treasuries (Demand) the interest rate will have to rise to lure dollars back into this market.

This is bad times. High commodity prices and high interest rates do not a recovery make. On the plus side we won't be able to afford anything imported so our trade deficit might actually turn into a surplus as we ship out all our raw materials to be turned into finished goods in other lands.

Congress Too Good to Fly Commercial

Before I start ranting I just wanted to take a stroll down memory lane:

Big 3 automakers shamed for taking private jets.....

"There's a delicious irony in seeing private luxury jets flying in to Washington, D.C., and people coming off of them with tin cups in their hands saying that they're going to be trimming down and streamlining their businesses," said Rep. Gary L. Ackerman (D-N.Y.) "There's a message there.

"I mean, couldn't you all have downgraded to first class or jet pooled or something to get here? It could have at least sent a message that you do get it."

http://articles.latimes.com/2008/nov/20/business/fi-bailout20

Ok I can understand if you ran a bankrupt auto company.... what if you ran Goldman Sachs and made over $3 Billion in profit in 12 weeks? Nope, no such luck Congress expects you fly coach or take the train.....

Lloyd Blankfein, CEO of Goldman Sachs, which the government allowed to convert to a bank-holding company last year, will take "public transportation" on Wednesday, the bank said.

"It has taken months and gallons of bad ink, but it seems that the bailout bank CEOs are starting to wake up. Now that every American taxpayer is a shareholder, they need to be on better behavior," said Stephen Ellis, vice president at Taxpayers for Common Sense, a nonpartisan watchdog. "To be sure these are minor cost-savings compared to the billions the Treasury has invested in their companies, but a bit of humility and shared sacrifice can go a long way."

http://www.foxbusiness.com/story/markets/industries/finance/wall-street-titans-downgrade-commercial-flights/

There might be perfectly valid reasons for a Congressperson to have to travel in the stylish luxury of a private jet. If they flew commercial they might have to go through a Homeland Security Checkpoint and sit next to their constituents. On the plus side the unemployed don't do much flying these days.

I just don't get it... 8 new Gulfstream and Boeing Jets. I find it impossible to believe that there are no alternatives to buying these jets. Last time I checked we still had an Air Force, they seem to have alot of planes but in all fairness enlisted people fly commercial it seems it's cheaper.

Perhaps with the ludicras amount of spending they do up on the Hill they could get Amex's with Frequent Flier miles. Not only could they fly for free but they could probably get some sort of first class deal with the participating airlines.

Lastly, if Amtrak is good enough for Citibank shouldn't it be good enough for Hillary Clinton or Charles Schumer? I mean has the phrase "Company Man" lost all currency these days?

It seems the best arguement for the private planes is that the time of high level government officials is valuable. I couldn't disagree more! Perhaps if politicians spent more time going through security checkpoints and waiting for missed connection (just like you and I) then they wouldn't have as much time to devote to the destruction of America.

Hey Can We Have $80 Billion for Afghanistan?

From the Washington Post:

Since the invasion of Afghanistan eight years ago, the United States has spent $223 billion on war-related funding for that country, according to the Congressional Research Service. Aid expenditures, excluding the cost of combat operations, have grown exponentially, from $982 million in 2003 to $9.3 billion last year.

and

"Afghan forces will need $4 billion a year for another decade, with a like sum for development," said Bing West, a former assistant secretary of defense and combat Marine who has chronicled the Iraq and Afghan wars. Bing said the danger is that Congress is "so generous in support of our own forces today, it may not support the aid needed for progress in Afghanistan tomorrow."


So the question running through my mind is what are we getting for our $303 Billion Dollars? Am I the only one who thinks it might be better to buy an alarm system rather than construct a castle with moat and drawbridge?

Here's a thought... take that $80 billion dollars and NOT spend it. Oh yeah it's Washington they have to spend it...hmmmm... I know!!!!! We could hire people to sit on the beach and watch for terrorists! It is just as wasteful but at least it would help the employment picture.

Geithner asks Congress for higher U.S. debt limit

It seems sometime this fall that the statuary debt limit of 12.1 trillion dollars is going to be hit. Meaning we are 12.1 TRILLION dollars in the hole as a country in addition to what we owe as individuals and corporations. I have an idea....NO FUCKING WAY!!!!! If you can't learn to get along with a 12.1 trillion credit line then maybe, just maybe, you should cut up cards just like Suzie Orman would say to do.

After you do this, come back to me and ask for another trillion or so....

1) Audit the Federal Reserve, Hey when I've been tapped looking in the sofa or the floor of my car is usually good for a couple of bucks maybe they could squeeze a couple hundred billion out of existing Fed expenditures.

2)Hit up Medicare for a couple of hundred billion, some austerity might do them good it seems like the VA is gets better deals... why is that?



3) Scrap the mission to mars and the new space shuttle, I'm sure were spending more than the russians getting crap up to the space station. Are rockets not cool enough for us?

4) Get rid of the marines, that would be like 15-20% of our defense budget and it seems everything they do (with the exception of guarding embassies) is redundant.

5) Nationalize Haliburton, they seem to be a branch of the government, why not make so that way they can quit gauging us for obscene profits.

6) Get rid of the post office, do I really need to explain this one...

7) Sell Amtrak.

8) Fire those Homeland Security freaks at the airport and let's go back to good old fashion racial profile, hey it works for El Al.

I could literally go on forever but you get the point, call your congress and tell him to vote no. Get outraged when the limit is raised anyway and crack another beer...

Consumer Credit June 2009, Some say the glass is half full...

Because we don't actually make anything in America anymore, we prefer to sell insurance, mortgages, and things made in China to each other, consumer spending is 70% of all the economic activity. No spending + No sales = Bad times.

I often wondered how my friends bought McMansions, had (2) Suburban Assault Vehicles...errr...SUV's, and took vacations to Europe, hell the McMansion payment would eat my whole month's check. It turns out they couldn't afford any of this stuff either, they were levered to the gills and buying everything on credit, consuming today and pushing the bill down the road. Today the Federal Government released it's consumer credit report http://www.federalreserve.gov/releases/g19/Current/ . Not surprisingly the amount of credit outstanding is down 10 billion dollars, mostly on Credit Cards (revolving) and even though home sales and new mortgages are going through the roof outstanding credit for mortgages is down, it leads me to believe that more people are defaulting than buying.

What is truly interesting is that while the consumer's (ie me and you)balance is shrinking the Federal governments is ballooning. Could it be that we are shifting our debt to Uncle Sam? I guess that's ok because when I print money they call it counterfeiting, when the Treasury does it they call it Quantitative Easing.

For all the unemployed Mortgage Brokers, Real Estate agents, Car Salespeople, Roofers, Painters, Masons, and Middle Managers of all stripes please pay attention this could be valuable job training below......