Stock Market News & Stocks to Watch from StraightStocks » Bush

Let’s call it what it is; It’s Reagan’s Fault!

Dr. Stock Pick — Sun, 08 Nov 2009 16:54:12 +0000

Dr Stock Pick HOT News & Alerts! _______________________________________ FREE Daily Stock Alerts From DrStockPick.com _______________________________________ Sunday November 8, 2009 DrStockPick.com Article! ************************************************************** Let’s call it what it is; It’s Reagan’s Fault! The government, both state and federal, is on a feeding frenzy to save the banks, the real reason is that the banks are the feeding ground for our politicians, in fact any [...]

RA’s Daily Russian News Blast – October 5, 2009

Robert Amsterdam — Mon, 05 Oct 2009 07:41:45 +0000

TODAY: Lavrov keeps eagle eye on Georgia; Netanyahu's fears about Russian rogue scientists; Chubais takes the fall for hydropower plant disaster. Litvinenko widow despairs over apparent British moves towards rapprochement. Luzhkov-Baturina to take Nemtsov to court. UN report pessimistic on...

Follow the Money: Washington to Wall Street…

Contrarian Profits — Mon, 28 Sep 2009 19:59:10 +0000

pBy Adam Lass, Senior Editor, a href="http://www.taipanpublishing.com" class="alinks_links"Taipan/a Publishing Group/p pstrongemThis American company has gained 777% the old-fashioned way: selling junk in backroom deals./em/strong/p pAs regular readers know, I am a Ford man./p pBack when I was a kid, you had to make three really important choices. First, you had to pick a political party. Didn’t matter how well you knew the candidates – you picked a party and that’s what you were./p pWe are talking Democrat or Republican here. Libertarians weren’t much discussed, and backing the Socialists could get your parents blackballed at work. And if you wanted peace around the dinner table, you just went with the same side your folks did./p pSecond, you had to choose “your” baseball, basketball and football teams. We didn’t have#8230;/p

Follow the Money: Washington to Wall Street…

Adam Lass — Mon, 28 Sep 2009 05:00:00 +0000

This American company has gained 777% the old-fashioned way: selling junk in backroom deals. As regular readers know, I am a Ford man. Back when I was a kid, you had to make three really important...div class="feedflare" a href="http://feeds.taipanpublishinggroup.com/~ff/taipan?a=nyrW8DjjglA:pNhSUIYsvxU:yIl2AUoC8zA"img src="http://feeds.feedburner.com/~ff/taipan?d=yIl2AUoC8zA" border="0"/img/a a href="http://feeds.taipanpublishinggroup.com/~ff/taipan?a=nyrW8DjjglA:pNhSUIYsvxU:V_sGLiPBpWU"img src="http://feeds.feedburner.com/~ff/taipan?i=nyrW8DjjglA:pNhSUIYsvxU:V_sGLiPBpWU" border="0"/img/a a href="http://feeds.taipanpublishinggroup.com/~ff/taipan?a=nyrW8DjjglA:pNhSUIYsvxU:F7zBnMyn0Lo"img src="http://feeds.feedburner.com/~ff/taipan?i=nyrW8DjjglA:pNhSUIYsvxU:F7zBnMyn0Lo" border="0"/img/a a href="http://feeds.taipanpublishinggroup.com/~ff/taipan?a=nyrW8DjjglA:pNhSUIYsvxU:wd9GD17jvC4"img src="http://feeds.feedburner.com/~ff/taipan?d=wd9GD17jvC4" border="0"/img/a a href="http://feeds.taipanpublishinggroup.com/~ff/taipan?a=nyrW8DjjglA:pNhSUIYsvxU:l6gmwiTKsz0"img src="http://feeds.feedburner.com/~ff/taipan?d=l6gmwiTKsz0" border="0"/img/a /divimg src="http://feeds.feedburner.com/~r/taipan/~4/nyrW8DjjglA" height="1" width="1"/

Protectionism Wars, Here We Come!

Contrarian Profits — Mon, 14 Sep 2009 19:06:26 +0000

pCurrencies back off gains#8230;Administration slaps tariff on China#8230;And Yen rallies#8230;Quotes from Davos#8230;And Now#8230; Today#8217;s Pfennig!/p pGood day#8230; And a Marvelous Monday to you! I hope your weekend was grand#8230; I was supposed to be traveling back from Williamsburg today, so this is a bonus day for you all! HA! On Friday morning, I told the early arrivers that the currencies were strong, Gold was strong, it was all good, and we needed to close up shop and go home, because it wasn#8217;t going to get an better than that, and that the rest of the day had nothing but disappointment risk! Boy did I nail that one on the head! Let#8217;s get to the goings on./p pThe currencies added to their gains#8230;/p

Still More on Unemployment – Analyst Blog

Dirk Van Dijk — Fri, 04 Sep 2009 21:02:42 +0000

So how should we look at today’s jobs report -- as good news since the number of jobs we are losing is slowing significantly, or as bad news since the unemployment rate is jumping?

Personally I think that the number of jobs is the more significant of the two, since the data is more reliable and because it is the number of jobs that actually drives the economy. The unemployment rate is a lagging indicator of the economy while the number of jobs lost or created is closer to being a coincident indicator.

The graph below shows both the unemployment rate as well as the year-over-year percentage change in employment. Based on the unemployment rate, things were actually worse in the 1982 recession, but in terms of employment growth, this downturn has been far worse than anything seen in the lifetimes of anyone but the most senior of senior citizens.

I would also point out that this is following an economic expansion that was particularly anemic in the rate of job creation relative to any other recovery. Also note that in the last two recessions the unemployment rate peaked long after the recession was finally over.

Still, even if we focus on the jobs numbers rather than the unemployment rate, the fact still remains that we are losing jobs. I think the graph below shows the two sides of the picture well. It is the same total payroll data, but on the red line and the left hand scale it is looking at the year-over-year rate of job loss (or gain historically) while the blue line and the right hand scale shows the month-to-month change.

Clearly we have made great progress if one just looks at the month-to-month progression, but on a year-over-year basis, things are as ugly as ever. That has as much to do with last year as this year. Prior to the financial markets seizure a year ago, the monthly pace of job losses had been more or less what we had seen in previous downturns. Then the bottom fell out.

The only month that historically even came close to the rate of job losses we were seeing last fall and winter was December 1974, when the economy lost 602,000 jobs. The five months between November and March (inclusive) were really unprecedented, with drops of 597,000 then 681,000 then 741,000 then 681,000 and then 652,000, for an average of 670,000 jobs lost per month over five months. Last month’s decline of 216,000 is less than one third of that average.

Given that unemployment can cause a vicious circle of people losing income, so they spend less, so businesses have to lay off more workers, that sort of reduction is a very significant achievement.

I would like to turn my attention now to two measures of the job market that do not get anywhere the amount of attention that they deserve. The first is the civilian participation rate, or the percentage of the population that actually wants to work -- all the people with jobs and the unemployed.

It is not at 100% because we have things like child labor laws, so your 2-year-old is not considered unemployed. Stay-at-home parents are also not considered to be participating in the work force, nor are people who are retired.

It is shown on the blue line in the peach colored graph below. Notice two things about it. The first and most obvious is that starting in the mid-1960’s the participation rate started a long secular uptrend that lasted until about the end of the century. This was due to two things. The first is that back in the 1960’s, if you ever saw the words "women" and "labor" in the same sentence, the article was probably about childbirth. Clearly that is no longer the case.

While men are still more involved in the workforce than women (housewives are still much more common than househusbands) their participation rate is 75.0% for men 20 years old or older, while for women it is 60.8%. That is still higher than participation rate was for the whole population back in the 1960’s.

The other factor causing the participation rate to rise was the Baby Boomers. In the 1960’s they were still kids, and thus not part of the labor force. When they entered the labor force in the 1970’s the participation rate started to shoot up.

However, the secular uptrend in the participation rate appears to have reversed, falling from its peak of 67.3% in April of 2000 to its current level of 65.5%. There is also a tendency for the participation rate to flatten out or decline during bad economic times. Thus I’m not sure how much of the current decline is cyclical and how much is secular.

However, if you refer back to the first graph, you will notice that the unemployment rates were generally higher in the 1970’s and 1980’s -- regardless of where we were in the economic cycle -- than they were in either the 1960’s or in the 1990’s and 2000’s.

For more than a decade from the mid-1970’s until the 1980’s, it was extremely rare for the unemployment rate to drop below 6%, despite often extremely robust job creation. By contrast, job creation so far this century, even before the current recession, was, to put it bluntly, godawful -- yet the unemployment rate rarely exceeded 6%.

The change in the participation rate is the reason for this. The economy had to work much harder to keep the unemployment rate down in the 1970s than it has had to so far this century. When you consider the change in the participation rate that was occurring, Jimmy Carter has gotten a very unfair rap on his handling of the economy, and Bush’s performance was even worse than you thought (not to be too partisan about it, since this consideration would also upgrade the performance of Reagan, and make Clinton’s performance somewhat less than commonly believed).

The other related measure that the press really needs to start to pay a lot more attention to is the employment to population ratio, or as I like to refer to it, the employment rate. In many ways the employment rate is more significant than is the unemployment rate (the difference between the two lines is the unemployment rate).

After all, one way or another, it is the people who are working who have to support those who are not working, and many hands make the load lighter. Obviously, the employment rate is much more volatile and cyclical than is the participation rate.

The decline in the employment ratio has been huge since the peak in April of 2000 at 64.7%. It now stands at 59.2%, its lowest level since March 1984. The decline has been particularly sharp since the recession began, falling from an interim peak of 63.4% in December 2006, and it was still as high as 62.9% as recently as January 2008.

However, it never got close to the highs of the late 1990’s. With the impending retirement (if they can afford it) of the Baby Boomers, it seems unlikely that we will ever get back to the Clinton-era highs (well, who knows what will happen in 2050).

Like a lot of other employment measures, the employment rate tends to hit bottom after the recession is over, but the length of time after the recession was over was particularly long after the last two recessions. Thus, even if the recession is over, it is likely that the percentage of people bringing home paychecks is likely to decline for some time to come.

This is important since it is jobs that bring in income. In terms of household income it really doesn’t matter if one spouse is not working because they want to raise their kids, or because they have been laid off. It is not a question that is asked by the cashier at Wal-Mart (WMT); they just want to know if you have the cash to pay for your stuff.

Employment is particularly critical this time around since the consumer is already so far in debt. Major credit card lenders like Capital One (COF) and American Express (AXP) have been cutting credit card limits.This is understandable from their perspective, since if someone is going to declare bankruptcy because they are out of work, COF would much rather have then do so when they owe $2,000 rather than when they owe $10,000.

The other source of credit people used to be able to use to tide them over when they were out of work was home equity. Very few people have significant home equity any more, and millions are underwater. So that simply is no longer an option.

Read the full analyst report on "WMT"
Read the full analyst report on "COF"
Read the full analyst report on "AXP"
Zacks Investment Research

Do You Suffer From This Common Investing Mistake?

Contrarian Profits — Thu, 03 Sep 2009 16:26:34 +0000

pWe received a letter snooty letter recently accusing us of confirmation bias. Maybe we are only capable of seeing the bearish side of the story?/p pAccording to good old Wikipedia, confirmation bias is “an irrational tendency to search for, interpret or remember information in a way that confirms one#8217;s preconceptions or working hypotheses.” Put simply, it means you look for information that agrees with your own perspective./p pIn our case, we guess that means ignoring idiots like Paul Krugman, who tells us that we can spend our way out of a depression and the do-gooders in the Obama administration, who tell us that everything will be okay and that we’re about to witness a miraculous V-shape recovery. (Just like when President Hoover#8230;/p

Obama’s Bush-Like Foreign Policy

Frank Holmes — Tue, 25 Aug 2009 05:00:00 +0000

As a candidate, Barack Obama positioned himself as the Anti-Bush. But as president, his foreign policy actions and outcomes so far could be called Bush-Like. Thatrsquo;s the view put forth in an interesting analysis from Stratfor Global Intelligence, a geopolitical think tank based in Austin, Texas. Stratfor president George Friedman spins the globe and points out where the campaign rhetoric left off and the realities of being president set in. Wersquo;re still deeply entrenched in Iraq. We are still telling the Iranians to negotiate on nuclear development, or else. Our tense relationship with the Russians over regional dominance remains intact. The French and Germans are still holding us at armrsquo;s length despite Obamarsquo;s overtures. We are maintaining the status quo with China by focusing on our common economic interests and avoiding politics. Sure, itrsquo;s only been seven months since Obama took office, but contrary to the view of Obama purists, Friedman says the promises made on the campaign trail naturally give way to reality. ldquo;He has conducted his foreign policy as if he were Bush. This is because Bushrsquo;s foreign policy was shaped by necessity, and Obamarsquo;s foreign policy is shaped by the same necessity.rdquo; The same can be said for Obamarsquo;s approach to the U.S. recessionmdash;a heightened commitment to the Bush theme by more than doubling the economic stimulus spending. The Stratfor article is available here*. *This link goes to Stratforrsquo;s Web site. U.S. Global Investors does not endorse any information supplied by this website and is not responsible for any of its content. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. 09-578

Prieur’s readings (August 6, 2009)

Prieur du Plessis — Thu, 06 Aug 2009 09:11:05 +0000

This post provides links to a number of thought-provoking articles I have read over the past few days that you may also find of interest.

U.S. GDP Contraction Slows, but the Road to Recovery Will Be Rocky

Money Morning — Tue, 04 Aug 2009 23:42:45 +0000

Peter Schiff: Why this Money Should Replace the U.S. Dollar There’s a new universal currency, backed by solid gold. You can use it to make online purchases anywhere in the world. Converting some money to the new currency takes just 5 minutes. You can start with as little as $10…or as much as $10 million. [...]

U.S. GDP Contraction Slows, but the Road to Recovery Will Be Rocky

Peter D. Schiff — Mon, 03 Aug 2009 16:50:22 +0000

You Say You Want a Revolution?

Contrarian Profits — Wed, 22 Jul 2009 22:00:53 +0000

pAmericans should have been in the streets to reclaim the country long ago. Patrick Henry and his fellow patriots are turning over in their graves about the present day USA. The savvy folks I talk to on a regular basis are exceedingly pessimistic that our blessed republic can pull out of this present financial, economic and political tailspin. The US as we have known it is on the ropes./p pOur third President and signer of the Declaration of Independence, Thomas Jefferson, long ago stated …”Banking establishments are more dangerous than standing armies”./p pHe also declared …“If Americans ever allow banks to control the issue of their currency, first by inflation and then by deflation, the banks will deprive the people of all#8230;/p

American Perestroika, Part 2

Robert Amsterdam — Tue, 21 Jul 2009 14:58:04 +0000

I am interested and confused by this article in the Moscow Times by the Kremlin polittechnologist Yevgeny Bashanov.Obama spoke to Russian leaders as equals in a manner befitting the leaders of sovereign states. The U.S. president could not behave otherwise;...

Stock Market News for July 7, 2009 – Market News

Zacks Market Commentaries — Tue, 07 Jul 2009 14:09:34 +0000

US stocks pared early losses to end the day mixed as a fall in commodities and oil prices worried investors, but a late rally in some blue chips sent conflicting signs about the strength of an economic recovery. Mood was cautious on the Street Monday as markets looked for fresh direction ahead of the second-quarter earnings which begin this week.

The Dow Jones industrial average rose 44.13 points, or 0.5%, to 8,324.87, and the broader Standard & Poor's 500 index edged up 2.30 points, or 0.3%, to 898.72. The technology-laden Nasdaq declined 9.12 points, or 0.5%, to 1,787.40. Among DJIA components, 19 closed higher while six of the ten S&P 500 industry groups advanced. On the New York Stock Exchange, declining issues beat advancing ones by a three-to-two margin.

Among DJIA components, American Express (NYSE:AXP), up 5.6% and Merck (NYSE:MRK), up 3.3% led on the upside. American Express gained after Stifel Nicolaus upgraded its rating on the firm (NYSE:AXP), noting the company the best positioned of credit-card issuers to endure the regulatory changes, advising as well that worries of bad debt are easing. Dupont (NYSE:DD) shares added 2.2% and Proctor & Gamble (NYSE:PG) gained 2.1% on their safety play appeal. However, as commodities declined, Alcoa (NYSE:AA) slid 6.1% ahead of its quarterly post after the markets closed Wednesday.

Bank of America (NYSE:BAC) shares declined 3.9% following a Credit Suisse (NYSE:CS) report that warned of worse-than-expected loan losses likely impacting the company's second-quarter results. Nevertheless, financials rose 1% with Bank of NY Mellon (NYSE:BK) adding 2.9%, Goldman Sachs (NYSE:GS) gaining 2.1% and JP Morgan (NYSE:JPM) rising 1% on news that Moody's (NYSE:MCO) may lift its rating on Brazil debt, lowering banks' exposure risk. FedEx (NYSE:FDX) gained 3.2% to $56.04 after head of the company's international business said he saw signs of an economic rebound in the second half of the year.

Amid lingering worries about the pace of an economic recovery, commodity and material issues proved to be a drag as crude prices plunged to a five-week low of $64.05 after hitting an eight-month high of above $73 per barrel last week. Among the ten S&P500 industry groupings, basic material shares fell 1.9% and oil and gas declined 1.3%. Technology shares eased 0.5%, as Apple (NASDAQ:AAPL) fell 1.0% and Microsoft (NASDAQ:MSFT) edged 0.7% lower, even as chipmaker Samsung projected a fivefold profit increase for the quarter. A bullish report on semiconductors was also issued this morning, as Bank of America/Merrill (NYSE:BAC) upped its ratings on the sector, estimating 21% 2010 revenue gains versus 14%, and upgrading Intel (NASDAQ:INTC), Marvell (NASDAQ:MRVL) and LSI (NYSE:LSI) to "buy" and Maxim Integrated Products (NASDAQ:MXIM) and National Semiconductor (NYSE:NSM) to "neutral." Sprint Nextel (NYSE:S) jumped 3.5% after receiving a ratings upgrade on strength of its Boost prepaid mobile telephone contracts.

Remarks from Obama advisor Tyson who noted a second stimulus package should be planned "on a contingency basis," and aimed at infrastructure investment may underscore remarks from Vice President Joe Biden Sunday complaining of a worse-than-anticipated economic legacy from ex-President Bush as well as the possibility of a second stimulus.

Zacks Investment Research

Back to the Stimulus Debate: W, Timing, the States, and Baselines

Menzie Chinn — Fri, 03 Jul 2009 03:45:48 +0000

A "W" Recession?

Martin Feldstein has recently raised the possibility that we might experience a relapse into recession in 2010 (a perfect symmetrical W), with the next dip in 2010. In my view, this means (1) we should have opted for a bigger and better composed stimulus package, and (2) the timing of expenditures in the stimulus package might not be as problematic as many commentators have indicated.

"I think we"re going to see a temporary substantial improvement," Feldstein, the former head of the National Bureau of Economic Research and a Reagan administration adviser, said today in an interview on Bloomberg Radio. "I emphasize the words temporary and substantial."
Feldstein -- a member of the private panel that dates the start of recessions and recoveries -- suggested the economy will contract into next year, and that the pattern of economic turnaround will be more of a seesaw than what he called "a beautiful symmetrical W."

Interestingly, neither the OECD nor Deutsche Bank project such a "W" shaped trajectory. Nor do any of the forecasters in the May WSJ survey.

Figure 1: Log real GDP (blue), OECD forecast of 24 June (red), Deutsche Bank forecast of 29 June (green), and CBO estimate of potential GDP of January 2009 (black). NBER defined recession dates shaded gray. Source: BEA, 2009Q1 final release, OECD, Economic Outlook No. 85, Deutsche Bank, "World Outlook: Recovery Ahead," Global Markets Research (June 29, 2009).

That doesn't rule out the possibility of this occurring. I can think of several reasons for thinking a W shaped recession would be plausible. The most plausible in my mind would be if the world economy failed to rebound sufficiently to provide enough externally generated aggregate demand via exports. The other possibility is that monetary policy tightens too soon, as inflation hawks press their case (see FRBSF President Janet Yellen's assessment, as well as this post).

The Timing of Stimulus Spending, Again

At this juncture, it's useful to recall that the peak in spending would be in FY2010. As shown in this figure from this post, roughly half of the stimulus occurs in from October 2009 to September 2010.

Figure 2: Estimated spending and tax revenue reductions, per fiscal year, embodied in HR 1 final version. Shaded areas pertain to spending occurring outside of the 19.5 month time frame. Source: CBO, H.R. 1, American Recovery and Reinvestment Act of 2009 (February 13, 2009).

I know that there's going to be a big group of commentators who will argue the multiplier is 0, but I'll go with the CBO and assert there will be some impact of indeterminate amount. In addition, if the critics who have argued that the spending is occurring much too slowly are correct [0], then the actual spending will more likely occur in this "dip" period that Feldstein is predicting. (Previously, I argued that the recession was likely to be long, so speed would not be of the essence [1]).

Mendacity Alert

Figure 1 also demonstrates why the critics of the stimulus bill that cite today's nonfarm payroll losses are being disingenuous. It was understood that most of the spending would not occur in FY2009, and even that which occurred within FY2009 would be toward the end of the year. (Really, did anyone expect the impact to be discernable in four months after the bill's passage?).

Figure 3: Log nonfarm payroll employment (blue), log nonfarm payroll employment minus government workers (green), log aggregate weekly hours in private industry (red), all normalized to zero in 2007M12. NBER defined recession date shaded gray, assuming the recession end has not arrived by June 2009. Vertical black line denotes ARRA signed into law in February. Source: BLS, Employment Situation June release.

The series in Figure 3 are plotted in log terms. This means that changes in the slope indicate changes in the percentage rate of change in the indices. The fact that the slopes for the blue and green lines means the rate of deterioration in employment is declining. However, there was little evidence before that the labor market was improving even before this morning's release [2], and that point is reiterated today by Jeff Frankel.

Interestingly, if the critics of the stimulus bill focus on changes in trends post ARRA [i] [ii] [iii], they might regret it in the future (well, assuming they're interested in internal consistency of argument). That's because the rate of GDP decline does look like it's stabilizing in 2009Q2, at least based on early readings from e-forecasting and Macroeconomic Advisers. (Once again, the series are plotted in log terms, so changes in slope can be identified as changes in the percentage growth rates.)

Figure 4: Log real GDP from BEA (blue bars), and Macroeconomic Advisers 6/12 (green line), e-forecasting 7/2 (thick red line), all in Ch.2000$, SAAR. NBER defined recession date shaded gray, assuming the recession end has not arrived by June 2009. Vertical black line denotes ARRA signed into law in February. Source: BEA, GDP 2009Q1 final release; Macroeconomic Advisers [xls], e-forecasting, and NBER.

Valid, and Not so Valid, Criticisms of the Stimulus Bill

I do think the one big failings of the stimulus package that I highlighted back in March is now coming to light: the cut in the transfers to states that came about as a result of the compromise with the Senate Republican moderates [3]. As the states grapple with truly challenging budget shortfalls [4] [5] [6], they are cutting spending and raising taxes – exactly the measures that the textbooks say are not ideal from a countercyclical stabilization policy standpoint.

One digression on bureaucratic procedures. In the day before yesterday's NYT, David Leonhart chastises the Administration for using models that were too optimistic. I certainly agree in retrospect the Administration's baseline forecast was too optimistic. Two observations: First, it's important to realize that the end-February assessments were based upon early January forecasts completed by the previous (Bush) Administration, and finalized on February 3 [7]. When taken in that light, I don't believe the forecasts were that much out of line with private sector forecasts [8]. Second, (in my limited experience) if one is to deviate from a model, it helps to have a formal alternative model to use. It's not clear to me an alternative formal model that had widespread acceptance exists, so, it's all fine and good to say a more pessimistic model should've been used, but it's hard to make a case for that in a bureaucratic setting, especially if it deviated from the Blue Chip.

Will Week of Controversy Undermine Financial System Overhaul That Calls for Broad Expansion of Central Bank’s Power?

Contrarian Profits — Mon, 29 Jun 2009 17:45:17 +0000

div class="entry" pDocuments brought to light by key by congressional investigators hightlight real disagreement between top-level U.S. Federal Reserve officials about how it should address the strongBank of America Corp.(NYSE:a href="http://www.google.com/finance?q=NYSE%3ABAC" target="_blank"BAC/a)/strong acquisition of strongMerrill Lynch #38; Co. Inc/strong. are almost certain to fuel the ongoing congressional debate over a href="http://www.moneymorning.com/2009/06/18/obamas-financial-system/" target="_blank"the central bank’s push to expand its authority over the U.S. financial system/a./p pThis a href="http://online.wsj.com/article/SB124606477050863921.html" target="_blank"growing concern/a manifested itself Thursday, when Fed Chairman Ben S. Bernanke; was grilled by Capitol Hill lawmakers during a congressional hearing looking into the central bank’s conduct in BofA’s buyout of Merrill Lynch. Bernanke’s failure to resolve some of the most-pointed questions posed by congressional leaders – (especially Republicans) who wanted to discover whether the Fed overstepped its authority and interfered with merger-related decisions – may undermine a#8230;/p/div

Will Week of Controversy Undermine Financial System Overhaul That Calls for Broad Expansion of Central Bank’s Power?

Contrarian Profits — Mon, 29 Jun 2009 17:45:17 +0000

The Elephant in the Room

Contrarian Profits — Fri, 26 Jun 2009 22:00:15 +0000

p“Under current law, the federal budget is on an unsustainable path,” begins the latest report from the Congressional Budget Office. The report, titled The Long Term Budget Outlook, was about as bad as you’d expect… maybe even worse. /p pAt the heart of the matter, this chart:/p p style="text-align: center;"a class="flickr-image alignnone" title="Projected US Debt Obligations" href="http://www.agorafinancial.com/5min/crazy-debt-projections-the-new-global-currency-congress-very-bad-idea-and-more/"/a/p pThe CBO (which is a government arm, mind you) predicts that, under the most likely scenario, our national debt will exceed 100% of our GDP by 2023… 200% by the late 2030s. Man, who could have seen this coming?/p pIn formulating their projections, the CBO used two scenarios. The first, the “extended baseline scenario,” assumes things will remain about the same over the next decade… all scheduled changes under current law will occur and all budget#8230;/p

“The Coming Great Inflation Will Destroy America’s Economic Leadership”

Contrarian Profits — Thu, 25 Jun 2009 20:52:45 +0000

pOne of our favorite underground investors a href="http://www.contrarianprofits.com/articles/author/porter-stansbury/" class="alinks_links"Porter Stansberry/a of Stansberry #38; Associates Investment Research has picked up on a chart from the Wall Street Journal that will make your hair stand on end. a href="http://www.contrarianprofits.com/wp-content/uploads/2009/06/niu525.gif"/a(Click here to see image: a href="http://s.wsj.net/public/resources/images/ED-AJ638A_laffe_NS_20090609175213.gif" target="_blank"http://s.wsj.net/public//aa href="http://s.wsj.net/public/resources/images/ED-AJ638A_laffe_NS_20090609175213.gif" target="_blank"resources/images/ED-AJ638A_/aa href="http://s.wsj.net/public/resources/images/ED-AJ638A_laffe_NS_20090609175213.gif" target="_blank"laffe_NS_20090609175213.gif/a)/p p/p p class="MsoNormal"This shows an explosion in America’s monetary base on anem unprecedented level/em. According to Laffer, a former economic advisor to President Reagan and supply-side economist:/p p class="MsoNormal" /pp class="MsoNormal"The percentage increase in the monetary base is the largest increase in the past 50 years by a factor of 10. It is so far outside the realm of our prior experiential base that historical comparisons are rendered difficult if not meaningless#8230;br / br / To date what#8217;s happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime#8230;/p

BRIC, The Dollar, and U. S. Monetary Policy

Bullish Bankers — Wed, 17 Jun 2009 11:00:34 +0000

Over the past several months I have written regularly that the value of the United States dollar will decline over an extended period of time. The basic argument for this is that over the past forty years or so, any country that has run excessive governmental budget deficits and has not had an independent [...]

Food Inflation Returns, Watching the Fed, Dollar Bulls Rampage, Bestselling “Car” and More!

Addison Wiggin — Tue, 16 Jun 2009 13:54:33 +0000

pRice rationing redux? a href="http://www.contrarianprofits.com/articles/author/chris-mayer/" class="alinks_links"Chris Mayer/a on the return of rising food prices#8230; Dan Amoss on what the Fed says versus what the Fed does#8230; Russia sings dollar#8217;s praises, dollar bulls stampede#8230; Chuck Butler looks past the rhetoric#8230; China#8217;s latest resource grab#8230; Iraqi oil#8230; America#8217;s best-selling car#8230; with an MSRP of $60#8230;/p p strongWe begin a new week pondering the question that bedevils the conscientious market observer every day./strongInflation? Deflation? Or as Agora founder a href="http://dailyreckoning.com/author/bbonner/"Bill Bonner/a is wont to suggest, both?/p p strong“Inflation – rising prices, or a drop in the purchasing power of the dollar – will soon rise to the very top of economic concerns,” writes Chris Mayer./strong “I can’t understand why there are pundits who insist we can’t have inflation while the economy is weak. There are plenty of examples#8230;/p

Obama’s Moscow Challenge

Robert Amsterdam — Tue, 16 Jun 2009 10:08:16 +0000

Barack Obama's much-anticipated first trip to Moscow is approaching, but will the new President's peacemaking endeavours be as effective on the Kremlin as they has been in other contexts? As Russia welcomes Iranian President Ahmadinejad to the SCO summit, leaving...

The Future of the Dollar

Bullish Bankers — Sun, 07 Jun 2009 11:00:07 +0000

We live in a global economy. And, unless we destroy the global economy that now exists the way the world destroyed the first global economy starting with the 1914 conflict and proceeding through the next fifty-five years or so, we will continue to face the duties and responsibilities of operating within a world economy. [...]

The Russo-Venezuelan Fistfight

Robert Amsterdam — Wed, 20 May 2009 18:13:13 +0000

A Canadian defense reporter has dug a a little bit of gossip about a fight between the bodyguards of Hugo Chavez and Dmitry Medvedev last year, which may have caused Caracas to cancel its deal to buy some Russian submarines. ...

Are We ‘Back from the Fiscal Abyss’ as Dallas Fed Claims?

Lorimer Wilson — Wed, 20 May 2009 02:11:41 +0000

Richard W. Fisher, president and CEO of the Federal Reserve Bank of Dallas, was once one of the most expressive economist imaginable often using graphic and sensationalist words and expressions to get our attention when describing the ‘nightmarish predicament’ and ‘monstrous challenge‘ that has finally engulfed us. It was only a year ago that he [...]

Stress Test Leaks

Jeffrey Miller — Thu, 07 May 2009 02:32:31 +0000

Here at "A Dash" it seem like amateur hour in analyzing the stress tests and the various leaks. People who have little experience with government and policy making are rushing to judgment about the process. Let us consider a prominent...

Bigger Than Watergate?

Contrarian Profits — Wed, 06 May 2009 18:06:53 +0000

pReportedly, Bill O’Reilly referred to a recent story out of our nation’s capital as “bigger than Watergate.”br / Whether the story is bigger than Watergate or not, it is definitely a scandal of huge proportions./p pTo sum it up, on April 23, 2009, New York Attorney General Andrew Cuomo sent a letter to Chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs Chris Dodd; Chairman of the House Financial Services Committee Barney Frank; SEC Chairwoman Mary Schapiro; and Chairwoman of the Congressional Oversight Panel Elizabeth Warren.br / The letter outlined how former Treasury Secretary Paulson and Fed Chairman Ben Bernanke forced Bank of America’s acquisition of Merrill Lynch – even though Bank of America CEO Ken Lewis and the board of directors#8230;/p

Is Goldman Sachs Controlling Washington?

Contrarian Profits — Mon, 04 May 2009 21:49:31 +0000

pContrary to the prevailing analysis, we believe that the Obama and Bush administration insistence on protecting banks at the expense of the taxpayer is the result of a Machiavellian effort by Goldman Sachs and other major banks to influence U.S. economic policy by infiltrating the corridors of power./p pToday, we duly note that Goldman Sachs has just hired former Barney Frank staffer Michael Paese to be its top Washington lobbyist. This position was formerly held by Mark Patterson, the current chief of staff at the Treasury./p pPease and Patterson are not the only ones to pass through the revolving door between Washington and Goldman. Bush’s Treasury secretary, Hank “The Hammer” Paulson is a former Goldman CEO. And his replacement, Tim Geithner, was#8230;/p

Housing Prices Continue to Tumble – Analyst Blog

Dirk Van Dijk — Tue, 28 Apr 2009 16:32:39 +0000

Highlights include Citigroup, Inc. (C) and Bank of America Corp. (BAC).

The S&P Case Schiller index, the best measure of housing prices, showed prices were still declining in February. The 10-city composite was down by 2.1% for the month, 18.8% year over year and is 31.6% off its peak (May 2006). The 20-city composite has a shorter history but tells much the same story -- it was down 2.2% for the month, 18.6% for the year and is off 30.7% from its peak (also May 2006).

As the chart below (larger version available at http://www.calculatedriskblog.com/) shows, the most positive thing that can be said is that the year-over-year rate of decline has started to slow a bit, particularly for the 10-city composite. This was the first time in over two years (20-city composite, 16 months for the 10-city composite) that the year-over-year decline did not set a record. For the month, housing price indexes were down for every one of the 20 metropolitan areas followed. For eight of the 20 cities, the monthly declines were at least 3.0%.

The worst-hit cities for the month included many of the usual suspects, which means that the hardest hit places continue to get hammered. For the month, Cleveland registered a 5.0% decline, followed by Phoenix with a 4.5% drop and Detroit with a 3.8% decline. The other hard-hit cities include (in order of monthly declines) Las Vegas, Chicago, San Francisco, Minneapolis and Miami. The only city to have less than a 1.0% decline for the month was San Diego.

However only two cities have housing prices below January 2000 levels (when the indexes were all at 100) -- Detroit and Cleveland. The three cities with the highest current index levels are New York (178), Washington D.C. (168) and Los Angeles (163). Only time will tell if they are simply behind the curve, or are more resilient than other areas. I suspect the former.

The level of house price decline is one of the key metrics for the so-called "stress tests." As the second graph shows, the "more adverse" scenario under the stress tests is the one that most closely matches the economic reality.

The baseline scenario is not even worth considering, for it involves no stress at all. Any bank that cannot pass the baseline scenario should be avoided by investors at all costs (depositors are fine up to $250,000, for at least as long until the FDIC runs out of money, but even then the Treasury or the Fed will bail it out). Such a bank is insolent, not just illiquid, insolvent. They will need to raise very large amounts of capital that will severely dilute the existing shareholders.

Passing the "more adverse" scenario means that the bank should be able to make it, provided there are no major exogamous shocks to the system -- like, say, a worldwide flu pandemic.

The decline in housing values is really at the core of the current economic troubles. To be more precise, it was the unwarranted rise in those housing values (which are now returning to earth) that was the core problem -- it is just that the pain is felt on the downside of the bubble.

The continuing decline in housing prices will lead to more people being underwater on their homes. That will lead to more foreclosures (and rising unemployment will speed that process along). Those foreclosures will cause more pressure on bank balance sheets.

Since the administration seems intent on being extremely nice to the bankers, it means that there will be more taxpayer money flowing to the coffers of the banks to shore them up. It certainly does not come as a surprise that Citigroup (C) and Bank of America (BAC) are likely to need to raise more capital. However, if recent history is any guide (under both the Obama and Bush administrations), they will probably get it from the government on extremely preferential terms, with the government going out of its way to asset any ownership rights that might protect the taxpayers.

The decline in housing values also means that those still with positive equity in their houses will have less of it, further diminishing retirement nest eggs for millions. This will keep the pressure on for people to try to save out of current income. That is a good thing over the long run, but the savings will come at the expense of consumption, and the lower consumption will further depress the economy.

On the bright side, young people (and renters) may actually be able to afford a house in the near future. They will need a low monthly mortgage payment given the amount of taxes they will have to pay in the future given the debt the country is taking on to make sure that bankers can live in the style that they have become accustomed to.

Zacks Investment Research

Is America a Nation of Laws or a Nation of Banks?

Contrarian Profits — Mon, 27 Apr 2009 18:56:16 +0000

tr strongNotes from thebr / Investment Underground/strongbr / /tr tr Monday, April 27, 2009br / Palermo Viejo, Buenos Aires, Argentina pstrongWelcome to emSopranos /emUSA… Can the “junk-stock” rally last? Credit to get worse before it gets better… Feds’ “hair of the dog” recovery plan… Shockwave coming… Jim Rogers on why he’s not buying stocks… Introducing your new emNotes /emtax expert, Raife Neuman… And more! /strong /p pstrong*** What kind of men have we entrusted to manage our economy? And whose interests do they serve? /strongGet the answer to either of these questions wrong and you’re in for a rough ride as an investor./p pstrong*** Consider the facts surrounding the Bank of America’s takeover of Merrill Lynch. /strong /p pThanks to New York Attorney General Andrew Cuomo, we know that former Treasury secretary Hank “The Hammer”#8230;/p/tr

How to Protect Your Finances from Reckless Government Spending

Contrarian Profits — Thu, 23 Apr 2009 20:17:38 +0000

tr strongNotes from thebr / Investment Underground/strong /tr tr pThursday, April 23, 2009/p pPalermo Viejo, Buenos Aires, Argentina/p pstrongThe greatest economic disaster in recorded history (and how to profit from it)#8230; Your market ”script”#8230; Lessons on guerrilla investing#8230; Banks switch sides#8230; The best communications company in the world#8230; 3 sectors you should own now#8230; Your key to “permanent wealth”#8230; A massive glitch in the administration’s matrix#8230;/strongstrong /strong strongemNotes/em subscribers beat up on your editor#8230; 1,159% gains as stocks go bust#8230; And more! /strong/p pstrong*** “The current administration#8217;s economic strategy could create the greatest economic disaster in recorded history,” /strong says a href="http://www.contrarianprofits.com/articles/author/porter-stansbury/" class="alinks_links"Porter Stansberry/a in today’s ema href="http://www.dailywealth.com" class="alinks_links"DailyWealth/a./em/p ulNot only is the administration planning on enormous deficit spending this year, but the current plan calls for increasing deficit spending emfor the next decade /em– spending that will more than#8230;/ul/tr

Leading Stocks are Acting Like They Want to Run

Market Speculator — Fri, 17 Apr 2009 10:54:16 +0000

My attention will always be on the leadership of the market. At the moment, since March’s follow-through day we have seen leadership grow. The NUMBER 1 thing I look for is how leadership is acting, number 2 is price/volume action. Everything else is simply secondary and can not trump the first 2. At the onset [...]

The Feds Keep Spending Alive

Bill Bonner — Tue, 14 Apr 2009 14:50:18 +0000

pWhat a wonderful time to be alive! Never has it been easier to feel superior to our fellow man! So many dopey ideas…so many preposterous delusions! So many fools…so eager to part ways with their money!/p pWe have to pinch ourselves occasionally…and remind ourselves that it is real./p pYes, after the real estate bubble burst, we thought the fun might be over. But no! In come the feds. As you know, what brought about the housing bubble was a sort of madness that caused people to do the damnedest things with their money. But now, the feds are doing even stranger and crazier things!/p pActually, we were happy to see the bubble blow up. Spending more than you make is hardly a formula#8230;/p

The Fed’s March (to) Madness

Contrarian Profits — Mon, 30 Mar 2009 16:00:14 +0000

pThe Fed pulled out its “nuclear” option last week when it announced coming purchases of $300 billion in long term Treasuries (and other similar extravaganzas). This is an act of total desperation. /p divIt will also serve as a key historic moment in US and global monetary economics. Let’s look closely at what it will mean to you.Why exactly did the Fed resort to such a stunt? The stated reason is to bring down long- term interest rates in typical central planning fashion. A re-inflation of another credit bubble is also in their pipe dreams. We all like low interest rates when we borrow,but our capacity to borrow is long goneem. /emUnfortunately, low interest rates punish savers who should be the#8230;/div

Automakers PHEVs: Between “Barack” and a Hard Place

Investment U — Fri, 20 Mar 2009 13:31:11 +0000

Automakers & PHEVs: Between “Barack” and a Hard Place by David Fessler, Advisory Panelist During the last few years of the Bush administration, the EPA was directed to ignore California’s pleas to grant it a waiver of the Clean Air Act. Why? The grant would effectively have permitted California to enforce stricter emission rules its legislature had enacted [...]

Autos & Auto Parts – Zacks Analyst Interviews

Zacks Market Commentaries — Fri, 20 Mar 2009 05:00:00 +0000

OPPORTUNITIES

The industry is very concentrated, with the top 8 global auto companies having more than 90% of global revenues and the top 50 global auto parts companies having 80% of global revenues (the top 4 US tire producers have 75% of the US market).

There is a focus on automation and simplifying product lines to lower costs and benefit from economies of scale. The average car now needs only 15-25 man-hours per vehicle and this drops 2% annually.

Hybrid/alternative cars represent a source of growth in the future. Market share gains by hybrids/alternatives will be slow, and they are now only 4% of cars on the road.

Back in December of 2008, President Bush approved an emergency bailout of the U.S. auto industry, offering $17.4 billion in rescue loans in exchange for tough concessions from the deeply troubled carmakers and their workers. The government will have the option of becoming a stockholder in the companies, in effect partially nationalizing the industry.

If the carmakers fail to prove viability by March 31, 2009, they will be required to repay the loans, which they would find all but impossible. A firm will be deemed viable only if it can show positive cash flow and can fully repay the government loans. Under terms of the loan, General Motors (GM) and Chrysler must provide the government with stock warrants giving it the option to buy GM and Chrysler stock at a specific price. In addition, the automakers would be required to agree to limits on executive pay and eliminate some perks such as corporate jets.

This is a band-aid, but not the surgery this industry needs. In essence, we see this as the first step towards a long-term solution, which will include the following:

Getting a bankruptcy attorney and filing ASAP -- this measure extends this until March 31. Then healthcare and pension issues can be removed and this would go a long way towards making Detroit competitive with foreign manufacturers
Separate dealerships from the rest of the company. The parts and service issue can be guaranteed by the US Government and these companies can be separated and recapitalized from the rest of the Big Three. We find it hard to believe that consumers would buy something from a bankrupt company
Get a labor attorney and have a nasty confrontation with the UAW while in bankruptcy. This would be the worst labor showdown in out memory and may involve the Supreme Court at some point
Have the US Government be a DIP [debtor-in-possession] financer, as opposed to writing blank checks to the auto manufacturers. They are there to support -- but not nationalize -- the industry. The challenge will be when to get these companies out of the private sector hospital, which is the US Government
Focus on only 35+ MPG vehicles. Transition from SUV to AFV (Alternative-Fuel Vehicles)
Remove the top 50 officers of the all of the Big Three and replace them with outsiders. Encourage creative and dynamic thinking
The US Government should look at tariffs and quotas to protect these companies as they restructure. Also, this would force foreign manufacturers to build plants in the US rather than export, which would make a worker-retraining issue a worker-relocation issue, which is far easier to deal with
Consumers should be allowed to deduct automotive interest, which would increase demand for autos and alleviate the credit issue that surrounds the industry now. Perhaps this can be for AFVs and 35+ MPG vehicles only. There should be a punitive tax on SUVs which will make them unaffordable for consumers. These tax revenues can fund growth of the AFVs and high MPG vehicles with tax credits
Global alliances should be forged among the manufacturers to take advantage of global economies of scale. These new "super-car" companies would be able to tap into the Chinese and Indian markets, where the car industry is a growth business and billions of people are screaming for a new car, not just a second hand retread from the US or Europe. Economies of scale/Rationalization and China/India increasing the global baseline demand for cars may permanently increase profitability for the industry and avoid this situation from happening again

WEAKNESSES
Earnings are below expectations and have been for some time. Some of these companies may be bailout candidates, which would leave equity holders with no value. Demand for autos is down (15)% due to a weak economy and weakening real estate market.

Demand is also hurt by weakening employment. The recent credit crunch is crippling to auto sales, and this has a trickle-down effect throughout the industry.

Furthermore, there is a slowdown of SUV sales, which are 55% of sales (cars are 45%). Imports have also been more competitive, as they tend to have better gas mileage. Costs for domestic producers is much higher than seen for foreign producers, and this is creating a loss of market share in the US by US producers.

The presence of unions has led to costs being much higher than seen in other countries. Pricing averages (2)% in this sector annually. Incentives are increasing as the industry is trying to increase sales. Overcapacity is about 20% in this sector. Pension deficits are rising due to a weak stock market, lower interest rates and less pension funding.

Auto sales were very weak in February, but this is a continuation of an ongoing trend. Overall sales are down 41% and were the worst since 1981. The average incentive was $2900, which is up 8% and was unable to stimulate sales. Ford (F) sales were off 50%, mainly due to a tired product line and weak F-series sales. GM (GM) sales were down 53%, with weakness in the SUV part of the product line. Chrysler sales were down 44%, even with average incentives of $5,500, which is 20% of the price of a car.

Honda (HMC) sales were off 38%, which is 3% higher that the market and shows why they are the best of the "Big-4" automakers (Honda sources more of its content from the USA than even Chrysler). Nissan (NSANY) sales were down 37%. Toyota (TM) sales were off 40%. We suspect sales were weak in the SUV part of the product line. Hyundai continued to buck the trend and had flat sales, which implies that their "return your car if you lose your job" program is having huge success.

BUY/SELL RATINGS

Autoliv (ALV) is a Sell due to the slowdown in the auto market and weak pricing. AutoNation (AN) is a Sell due the slowdown in the auto market and exposure to California. American Axle and Manufacturing (AXL) is a sell due to the slowdown in the auto market and costs related to the new UAW agreement.

Ford and General Motors are Sells and bailout candidates that need a major restructuring. CarMax (KMX) is a Sell due the weak auto market and falling prices. Lear (LEA) is a bankruptcy candidate. TRW Automotive (TRW) is a Sell due to the weak auto market. Zacks Investment Research

Auto & Auto Parts – Industry Outlook

Zacks Market Commentaries — Thu, 19 Mar 2009 21:16:43 +0000

OPPORTUNITIES

There is a focus on automation and simplifying product lines to lower costs and benefit from economies of scale. The average car now needs only 15-25 man-hours per vehicle and this drops 2% annually.

Hybrid/alternative cars represent a source of growth in the future. Market share gains by hybrids/alternatives will be slow, and they are now only 4% of cars on the road.

If the carmakers fail to prove viability by March 31, 2009, they will be required to repay the loans, which they would find all but impossible. A firm will be deemed viable only if it can show positive cash flow and can fully repay the government loans. Under terms of the loan, General Motors (GM) and Chrysler must provide the government with stock warrants giving it the option to buy GM and Chrysler stock at a specific price. In addition, the automakers would be required to agree to limits on executive pay and eliminate some perks such as corporate jets.

This is a band-aid, but not the surgery this industry needs. In essence, we see this as the first step towards a long-term solution, which will include the following:

Getting a bankruptcy attorney and filing ASAP -- this measure extends this until March 31. Then healthcare and pension issues can be removed and this would go a long way towards making Detroit competitive with foreign manufacturers
Separate dealerships from the rest of the company. The parts and service issue can be guaranteed by the US Government and these companies can be separated and recapitalized from the rest of the Big Three. We find it hard to believe that consumers would buy something from a bankrupt company
Get a labor attorney and have a nasty confrontation with the UAW while in bankruptcy. This would be the worst labor showdown in out memory and may involve the Supreme Court at some point
Have the US Government be a DIP [debtor-in-possession] financer, as opposed to writing blank checks to the auto manufacturers. They are there to support -- but not nationalize -- the industry. The challenge will be when to get these companies out of the private sector hospital, which is the US Government
Focus on only 35+ MPG vehicles. Transition from SUV to AFV (Alternative-Fuel Vehicles)
Remove the top 50 officers of the all of the Big Three and replace them with outsiders. Encourage creative and dynamic thinking
The US Government should look at tariffs and quotas to protect these companies as they restructure. Also, this would force foreign manufacturers to build plants in the US rather than export, which would make a worker-retraining issue a worker-relocation issue, which is far easier to deal with
Consumers should be allowed to deduct automotive interest, which would increase demand for autos and alleviate the credit issue that surrounds the industry now. Perhaps this can be for AFVs and 35+ MPG vehicles only. There should be a punitive tax on SUVs which will make them unaffordable for consumers. These tax revenues can fund growth of the AFVs and high MPG vehicles with tax credits
Global alliances should be forged among the manufacturers to take advantage of global economies of scale. These new "super-car" companies would be able to tap into the Chinese and Indian markets, where the car industry is a growth business and billions of people are screaming for a new car, not just a second hand retread from the US or Europe. Economies of scale/Rationalization and China/India increasing the global baseline demand for cars may permanently increase profitability for the industry and avoid this situation from happening again

WEAKNESSES

Earnings are below expectations and have been for some time. Some of these companies may be bailout candidates, which would leave equity holders with no value. Demand for autos is down (15)% due to a weak economy and weakening real estate market.

Demand is also hurt by weakening employment. The recent credit crunch is crippling to auto sales, and this has a trickle-down effect throughout the industry.

Auto sales were very weak in February, but this is a continuation of an ongoing trend. Overall sales are down 41% and were the worst since 1981. The average incentive was $2900, which is up 8% and was unable to stimulate sales. Ford (F) sales were off 50%, mainly due to a tired product line and weak F-series sales. GM (GM) sales were down 53%, with weakness in the SUV part of the product line. Chrysler sales were down 44%, even with average incentives of $5,500, which is 20% of the price of a car.

Honda (HMC) sales were off 38%, which is 3% higher that the market and shows why they are the best of the "Big-4" automakers (Honda sources more of its content from the USA than even Chrysler). Nissan (NSANY) sales were down 37%. Toyota (TM) sales were off 40%. We suspect sales were weak in the SUV part of the product line. Hyundai continued to buck the trend and had flat sales, which implies that their "return your car if you lose your job" program is having huge success.

BUY/SELL RATINGS

Autoliv (ALV) is a Sell due to the slowdown in the auto market and weak pricing. AutoNation (AN) is a Sell due the slowdown in the auto market and exposure to California. American Axle and Manufacturing (AXL) is a sell due to the slowdown in the auto market and costs related to the new UAW agreement.

Ford and General Motors are Sells and bailout candidates that need major restructuring. CarMax (KMX) is a Sell due the weak auto market and falling prices. Lear (LEA) is a bankruptcy candidate. TRW Automotive (TRW) is a Sell due to the weak auto market.

Zacks Investment Research

Seven Ways to Get an Income-Tax Boost From the Obama Recovery Plan

Contrarian Profits — Tue, 17 Mar 2009 12:41:23 +0000

pSo what will $800 billion buy these days? At the macro level, the Obama administration’s rescue plan will buy some new roads and bridges, 3.5 million new jobs and, hopefully, an economic recovery in the process./p pOn an individual level, the benefit will come from the mix of tax benefits that are part of the package./p pOn Feb.17, U.S. President Barack Obama signed into law a massive $787 billion stimulus package aimed at jump-starting the domestic economy. While the jury is still out on its future success, average Americans are left to ask: What’s the best way to benefit?/p p#8220;In general, lower-income folks are more likely to see the most actual benefits from these provisions,’#8221; said a href="http://www.scandh.com/about/leadership/default.asp"Gregory Horning/a, co-founder and director of a href="http://www.scandh.com/"SC#38;H#8230;/a/p

Osiris Therapeutics (NASDAQ:OSIR): President Obama to Lift Stem Cell Research Ban; Osiris is Top Pick in Space – Piper

Notable Calls — Mon, 09 Mar 2009 12:38:00 +0000

div style="text-align: justify;"Piper is out pumping span style="font-weight: bold;"Osiris Therapeutics (NASDAQ:OSIR)/span as their favourite Stem Cell play this AM after speculation over the weekend President Obama is expected to lift the ban on the use of federal money for funding medical research with human embryonic stem cells at a White House ceremony at 11:45AM ET. The move reverses a 2001 policy enacted by former President Bush limiting federal funding to existing cell lines.br /br /Piper notes they do not believe lifting the ban will have any immediate benefit for the majority of publicly traded stem cell companies since most federal research funding is directed at earlier stage projects carried out primarily in academic settings.br /br /They further point out that the ban only applied to research on cells isolated from human embryos. A majority of publicly traded stem cell companies access stem cells from other sources.br /br /That said, they view the move as a longer term positive for stem cell companies generally. In addition to lifting the research ban, the Obama administration has also increased funding for basic science research at the National Institute of Health (NIH) by $10.4 billion through the economic stimulus package.br /br /Piper's top pick in the stem cell space remains Alpha List Osiris Therapeutics (OSIR), the leading adult mesenchymal stem cell play. Osiris has a busy 2009 with results from 3 pivotal trials for Prochymal. They believe Osiris is on track to file a BLA for Prochymal in refractory graft-versus-host disease (GvHD) late this year with approval likely by mid-2010.br /br /Reiterate Buy rating, Alpha List rating and $27 price target for Osiris.br /br /span style="color: rgb(255, 0, 0);"Notablecalls:/span Given how much the usual suspects (GERN; STEM; ASTM) are bid up in the pre mkt, I wanted to put this one in front of you as a possible pop candidate. Don't overstay your welcome, though.br //div

Unemployment Rate Hits 8.1% – Analyst Blog

Charles Rotblut — Fri, 06 Mar 2009 14:34:46 +0000

Highlights include Abbott Laboratories (ABT) Johnson & Johnson (JNJ), General Motors Corp. (GM) and Palm, Inc. (PALM).

The unemployment rate soared to 8.1% last month as 651,000 jobs were cut. February was the 3rd consecutive month that more than 600,000 nonfarm payrolls have been lost.

Anyway you look at the data, it's just ugly. The unemployment rate is at its highest peak since 1983, and the current downturn is the worst the U.S. has seen since the Great Depression.

The U.S. is in both a recession and a bear market. Worse yet, visibility remains poor because of the rapid pace of deterioration and falling earnings estimates. The only positive sign is that the number of job cuts appears to have stabilized over the last 3 months, albeit at a terrible level.

Though some political pundits are claiming the weakening economy and the Dow Jones Industrial Average's ($DJI) sustained drop signifies the market's rejection of the new administration's policies, they are wrong. The current downturn is no more President's Obama's fault than the bursting of the tech bubble in March 2000 was the fault of President Bush.

Rather than focusing on who should be blamed, however, you should seek out stable companies trading at discounted valuations. The current market environment has put many companies on sale, such as Abbott Laboratories (ABT) and Johnson & Johnson (JNJ).

Conversely, avoid taking unnecessary risks by betting on the survival of troubled companies like General Motors Corp. (GM) or on the success of a new product, such as with Palm, Inc. (PALM).
Read the full analyst report on "ABT"
Read the full analyst report on "JNJ"
Read the full analyst report on "GM"
Read the full analyst report on "PALM"
Zacks Investment Research

Cord Blood America Inc. (CBAI.OB): President Obama Guarantees Stem Cell Work

QualityStocks — Fri, 20 Feb 2009 14:49:31 +0000

Cord Blood America’s focus is on preserving stem cells, taken from the blood remaining in the umbilical cord and placenta after birth, to combat life-threatening illnesses. Research and development has shown that cord blood stem cells have tremendous future value for treating blood disorders and genetic diseases because the concordant stem cells in blood can [...]

DOW Has Much to Clean Up – Analyst Blog

Zacks Market Commentaries — Tue, 27 Jan 2009 15:34:44 +0000

In this post, the following companies are named: Dow Chemical (DOW), Rohm and Haas Co. (ROH) and Lubrizol Co. (LZ).

What is going on in Midland, Michigan?

Dow Chemical (DOW) is in the midst of significant fallout since its proposed basic chemical joint venture [JV] with a concern in Kuwait fell through. Dow was to have received $9.5 billion in cash as part of the remuneration for the assets contributed to the deal. When the deal fell apart recently, as noted in a previous blog, a $2.5 billion breakup fee was to be paid to Dow. The Kuwait concern is contesting this and the two are heading off to court in London.

So, Dow starts to move to Plan B. Or is there a Plan B? The reality is that it is a mess. The company is eying lowering the price tag on its $15.4 billion acquisition of Rohm and Haas Co. (ROH) by 35%. There is a $13 billion bridge loan to enable the completion of the deal (are the banks still willing to do this despite the credit crunch?).

However, this may lower the company's debt rating to junk status, and there is not a concrete plan to refinance this loan. The Chairman today also mentioned that the company's dividend is too high (10-11% versus what the Fed will give you -- 0%). The company is scrambling to find a new basic chemical JV partner or find $7.5 billion in assets it can sell quickly. (So far the sale of a business with $85 million sales to Lubrizol Co. {LZ} was made). And a call to Warren Buffet for $4 billion more has not yet been finalized.

A plan to layoff 11% of the workforce and close 20 plants was implemented. The company then met with Rohm and Haas and said it would let the company know of the status of their deal by 6/30. So Rohm and Haas runs to court and there is another lawsuit due to this delay and wanting the deal closed at the original price. This could be a sticky lawsuit that may form precedence for other deals.

The world has changed since the original terms were struck. Many other M&A deals may be in the same boat. How this all ends up is not known. My prediction is that Kuwait pays Dow the breakup fee (maybe they need President Bush 41 for some help on this?), Dow pays Rohm and Haas a breakup fee, and everyone moves forward. I also predict an excellent job market for attorneys in Midland, Michigan for the intermediate term.

Read the full analyst report on DOW.

"DOW" Free Stock Analysis: Buy? Sell? Hold?
"LZ" Free Stock Analysis: Buy? Sell? Hold?
"ROH" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

Today, Obama Reveals Way to Make Millions

Contrarian Profits — Tue, 20 Jan 2009 20:16:41 +0000

tr HIDDEN VALUE /tr tr pDear Value Seeker,/p pAs I sit down today, President-elect Obama is making his way to Capitol Hill. (He#8217;ll be President Obama by the time you read this.) /p pObama campaigned on a message of change. His inauguration speech today in expected to focus on hope./p pUnfortunately, hopes for banks are fading fast./p p#8220;Financial stocks clobbered,#8221; reads a MarketWatch headline today./p pChaos in Britain#8217;s financial system, along with more weak earnings from regional banks, dragged financial markets lower again today./p pNeel Kashkari, who is running the Treasury#8217;s TARP program, has written to 20 banks in receipt of handouts demanding monthly reports on business and consumer loans. Kashkari wants an #8220;insight#8221; into how the banks are spending taxpayers#8217; money./p pWhat a good idea! Shame we had to#8230;/p/tr

Short Health Insurers (UNH) As Courts Close In

Contrarian Profits — Fri, 16 Jan 2009 15:19:44 +0000

pstrongAdam Lass/strong says funding pressures will increase political pressure to investigate the practices of big health insurers. strongUnitedHealth Group /strong(NYSE:a href="http://finance.google.com/finance?q=unh"UNH/a) is ready to pay out $50 million in reimbursements. Adam says traders stand to make triple-digit gains by shorting UNH and other insurers being scrutinised by the courts./p pThis from a href="http://www.taipanpublishing.com" class="alinks_links"Taipan/a Daily:/p blockquotep“$700 billion here… $700 billion there… after a while, you are talking about real money!”/p pYeah, I filched the line. Supposedly it was originally uttered by famed Illinois Senator Everett Dirksen. Except it was supposed to be about a mere couple billion dollars. And no one’s really sure if he actually said it./p pHere’s something I know he said, as I filched it from the Congressional Record of June 16, 1965:/p p style="PADDING-LEFT: 30px"emOne time in the#8230;/em/p/blockquote

How To Bag 75% Gains By The Summer

Contrarian Profits — Tue, 13 Jan 2009 19:25:47 +0000

tr HIDDEN VALUE /tr tr p br / Dear Value Seeker,/p pIt could almost be comical#8230; if our financial futures were not at stake./p pToday, Fed Chairman Ben Bernanke spoke about the economic crisis and the government’s policy response./p pAfter defending the Fed’s policies over the last 18 months, ‘Helicopter Ben’ made it clear that he isn’t about to be upstaged by Obama’s mega stimulus plan./p pIn my view, however, fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system#8230;/p pMore capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets.#160;A continuing barrier to private investment in financial institutions is the large quantity of troubled, hard-to-value assets that remain on institutions#8217;#8230;/p/tr

Obama Stimulus Will be Topic of Debate Through Inauguration

Contrarian Profits — Mon, 12 Jan 2009 14:00:08 +0000

pPresident-elect Barack Obama said Saturday that an analysis of his stimulus proposal found that the capital infusion could save or create as many as 4 million U.S. jobs by 2010, nearly 90% of them in the private sector. /p pObama previously estimated that his estimated $800 billion strategy for winching the American economy out of its year-long recession could save or create 3 million jobs, but the new study has found that the actual number would range between 3 million and 4 million./p pThe analysis was submitted by Christina Romer, head of Obama’s council of economic advisors, and Jared Bernstein, the economic advisor to Vice President-elect Joe Biden. The analysis directly follows an official government report showing that U.S. employers slashed more#8230;/p

History Points To Huge Opportunities Amid The Gloom

Andrew Gordon — Wed, 07 Jan 2009 13:42:35 +0000

p style="text-align: left;"Last year, the illusion of permanent wealth and prosperity was shattered. Just as The Great Depression followed the #8216;roaring#8217; 20s, so we now face a huge correction to years of unrestricted gains. But take the historical parallels further, and strongAndrew Gordon/strong says this year could be your best chance in decades to secure your financial future./p p style="text-align: left;"This from Investor#8217;s Daily Edge:/p blockquotepWe thought we were in a #8220;New Era.#8221; We thought the party would never end./p pSaving was out. Why save when stock prices were going up so fast. For almost eight straight years the stock market knew only one trajectory and that was up. #8220;Buy now and pay later#8221; defined not just a financial strategy but a lifestyle. And not only for the#8230;/p/blockquote

GM Receives First Tranche Of Emergency Loan

Daniel Shepard — Thu, 01 Jan 2009 17:55:54 +0000

Thursday January 1, 2009 Navivest The U.S. Treasury confirmed that it had yesterday, paid out a first disbursement of $4 billion to General Motors (GM) as part of the emergency $17.4 billion emergency loan package that President Bush approved for the automakers on December 19th 2008. Chrysler, which will also be receiving emergency aid, has not received its [...]

China Debacle Dims Hopes For Green Energy Investors

Irwin Greenstein — Tue, 30 Dec 2008 15:31:06 +0000

pAlternative-energy investors have pointed to China as the fastest way on the planet to make money in the green revolution. I guess they never went beyond the executive summary of a recent report titled “The Green Evolution - Environmental Policies and Practice in China’s Banking Sector.”/p pWritten by Friends of the Earth in San Francisco, and distributed by BankTrack, the international network that monitors commercial and investment banks, the report offers a promising future for China’s massive and lucrative clean-up - until you reach page 15./p pThe report is an 18-month update of key developments on a program that China implemented to cut funding for companies that contribute to the country’s devastating pollution./p pThe program, China’s Green Securities policy, was launched in February#8230;/p

Ford: All Park, No Bite – Zacks Tale of the Tape

Zacks Market Commentaries — Tue, 30 Dec 2008 10:13:31 +0000

Even though the main reason Ford Motor Company (F) is in such dire straits is that no one in America wanted to buy a car when gasoline cost over $4 per gallon, the beleaguered U.S. automaker introduced this morning -- ta-da! -- its brand new luxury models with automatic parking included.

Wow. It's like their demonstrating how they got to be so beleaguered in the first place.

When alternative fuels, conservation and economy are all MAJOR factors among a wide swath of what would-be car buyers are looking for these days, Ford calculates that they'll just do better enticing those they already know can afford to buy cars -- those who would be interested in the self-parking 2010 Lincoln MKS sedan and the new seven-passenger Lincoln MKT luxury crossover vehicle.

Not only that, but Ford's not even first to market with the self-parking auto. That distinction goes to Toyota (TM), who introduced their luxury Lexus with automatic parking back before the U.S. economy began to crumble.

We are sure it's great that the future is now for some people. But are these the folks Ford is going to be able to rely on to stay in business?

At this point, we're more relieved than ever to see that Ford was not part of the TARP loan President Bush has alloted for General Motors (GM) and Chrysler a week or so ago. Zacks senior automotive industry analyst Paul Raman, CFA has had a Sell rating on Ford since August of this year, with a price target of $0.00.

Read the full analyst report on F

Read the full analyst report on TM

Read the full analyst report on GM

"F" Free Stock Analysis: Buy? Sell? Hold?
"TM" Free Stock Analysis: Buy? Sell? Hold?
"GM" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

As a tourist site, Federal Reserve is worth its weight in gold

Alex Stanczyk — Mon, 29 Dec 2008 16:55:50 +0000

As a tourist site, Federal Reserve is worth its weight in gold Amid these troubled economic times, a trip to the central bank is an eye-opening glimpse into the world of currency. Plus, don’t you want to see the big vault? By John Horn, REPORTING FROM NEW YORK 03:22 PM PST, December 24, 2008 The stock market was in [...]

CIT To Receive $2.33 Billion Under TARP

Daniel Shepard — Tue, 23 Dec 2008 14:59:25 +0000

Tuesday December 23, 2008 Navivest Commercial finance company CIT Group (CIT) announced today that it has received preliminary approval to receive $2.33 billion from the government#8217;s $700 billion financial bailout fund. CIT will receive the funds from the Troubled Assets Relief Program, or TARP, which congress approved earlier this year, to help bolster the balance sheet of large [...]

Toyota (NYSE:TM): A First Time For Everything

Investment U — Mon, 22 Dec 2008 19:09:44 +0000

Toyota (NYSE:TM): A First Time For Everything This morning, Toyota Motor Corporation (NYSE: TM) announced it expects its first loss in 70 years. But the Japanese automaker sits on almost $19 billion is cash with little debt - a far cry from the dismal situation over a General Motors (NYSE: GM). Around the world governments have been [...]

An Early Christmas Present For Detroit

Rick Pendergraft — Mon, 22 Dec 2008 15:00:52 +0000

pAs I write to you this week, I am back at my parent#8217;s house in Indiana. I have written before about New Castle and the struggles the town went through back in the #8217;70s and #8217;80s. Kind of ironic that I am here when President Bush announces that the a href="http://www.investorsdailyedge.com/article.aspx?id=1712"automakers/a are getting a $17 billion bailout./p pI think about this action and how New Castle doesn#8217;t have any auto plants anymore, but there are so many retired Chrysler workers here that it will certainly affect the local economy. Many of the residents rely on the pension program of Chrysler to maintain their lifestyles and had Chrysler gone under, New Castle would have taken several steps back./p pThe town has grown in the past#8230;/p

Cash In On Bailouts With Mini-Dow Trading

Investment Education Staff — Sun, 21 Dec 2008 16:26:47 +0000

President Bush has been on the TV a lot lately. Too late for him to go down in history as a good president, but we will give him credit for trying. The Pres. has assured us all that we can grow our economy by spending more money. He even sent us each a few hundred to help us do that. One has to wonder if that was a set up for what was to come.

Notable Stocks – 12/19/08

Daniel Shepard — Sat, 20 Dec 2008 16:30:45 +0000

Saturday December 20, 2008 Navivest Allstate - (ALL) $31.86 +$1.92 Shares of the insurer were up as were other insurers, which were mostly up in the day, probably on the auto industry bailout that was announced by President Bush. Apache – (APA) $74.57 +$4.76 Shares of oil and gas producer Apache were up after crude oil managed to eek out [...]

Cash In On Bailout

Investment Education Staff — Sat, 20 Dec 2008 11:19:02 +0000

White House Approves $13.4 Billion in Loans for GM and Chrysler

Contrarian Profits — Fri, 19 Dec 2008 17:52:12 +0000

pGeneral Motors Corp. (a href="http://finance.google.com/finance?q=gm" target="_blank"GM/a) and a href="http://finance.google.com/finance?cid=4090940" target="_blank"Chrysler LLC/a will receive $13.4 billion in loans from the federal government as part of an emergency measure to keep the companies operating at least until the spring./p p“These are not ordinary circumstances, in the midst of a financial crisis and a recession allowing the U.S. auto industry to collapse is not a responsible action,” said President Bush, who made the final decision to move ahead with the bailout after a href="http://www.moneymorning.com/2008/12/15/tarp-auto/" target="_blank"Senate Republicans last week balked at passing a House-approved rescue of the auto companies/a./p p“Chapter 11 is unlikely to work for the American automakers at this time,” he added./p pThe $13.4 billion will be taken from the Troubled Asset Relief Program (TARP). GM and Chrysler will then get an#8230;/p

Letter to the Future Car Czar – Analyst Blog

Zacks Market Commentaries — Fri, 19 Dec 2008 14:26:40 +0000

We cite these companies: General Motors (GM), Ford (F), Toyota (TM), Nissan (NSANY), Honda (HMC) and Daimler (DAI).

Today, President Bush approved an emergency bailout of the U.S. auto industry Friday, offering $17.4 billion in rescue loans in exchange for tough concessions from the deeply troubled carmakers and their workers. The government will have the option of becoming a stockholder in the companies, in effect partially nationalizing the industry.

Under terms of the loan, General Motors (GM) and Chrysler must provide the government with stock warrants giving it the option to buy GM and Chrysler stock at a specific price. In addition, the automakers would be required to agree to limits on executive pay and eliminate some perks such as corporate jets.

Today's rescue plan retains the idea of a "car czar" to make sure the auto companies are keeping their promises and moving toward long-term viability. The carmakers have announced extended holiday shutdowns. Chrysler is closing all 30 of its North American manufacturing plants for four weeks because of slumping sales; Ford Motor Company (F) will shut 10 North American assembly plants for an extra week in January, and General Motors will temporarily close 20 factories -- many for the entire month of January -- to cut vehicle production.

This is a band-aid, but not the surgery this industry needs. In essence, we see this as the first step towards a long-term solution, which will include the following:

1 - Getting a bankruptcy attorney and filing ASAP -- this measure extends this until March 31. Then healthcare and pension issues can be removed and this would go a long way towards making Detroit competitive with foreign manufacturers.
2 - Separate dealerships from the rest of the company. The parts and service issue can be guaranteed by the US Government and these companies can be separated and recapitalized from the rest of the Big Three. We find it hard to believe that consumers would not buy something from a bankrupt company.
3 - Get a labor attorney and have a nasty confrontation with the UAW while in bankruptcy. This would be the worst labor showdown in out memory and may involve the Supreme Court at some point.
4 - Have the US Government be a DIP [debtor-in-possession] financer, as opposed to writing blank checks to the auto manufacturers. They are there to support -- but not nationalize -- the industry. The challenge will be when to get these companies out of the private sector hospital, which is the US Government.
5 - Focus on only 35+ MPG vehicles. Transition from SUV to AFV (Alternative-Fuel Vehicles).
6 - Remove the top-50 officers of the all of the Big Three and replace them with outsiders. Encourage creative and dynamic thinking.
7 - The US Government should look at tariffs and quotas to protect these companies as they restructure. Also, this would force foreign manufacturers to build plants in the US rather than export, which would make a worker-retraining issue a worker-relocation issue, which is far easier to deal with.
8 - Consumers should be allowed to deduct automotive interest, which would increase demand for autos and alleviate the credit issue that surrounds the industry now. Perhaps this can be for AFVs and 35+ MPG vehicles only. There should be a punitive tax on SUVs which will make them unaffordable for consumers. These tax revenues can fund growth of the AFVs and high MPG vehicles with tax credits.
9 - Global alliances should be forged among the manufacturers to take advantage of global economies of scale. These new "super-car" companies would be able to tap into the Chinese and Indian markets, where the car industry is a growth business and billions of people are screaming for a new car, not just a second hand retread from the US or Europe. Economies of scale/Rationalization and China/India increasing the global baseline demand for cars may permanently increase profitability for the industry and avoid this situation from happening again.

We see the following as impacted companies: General Motors (GM), Ford (F), Toyota (TM), Nissan (NSANY), Honda (HMC) and Daimler (DAI).

Read the full analyst report on GM.

Read the full analyst report on F.

Read the full analyst report on TM.

Read the full analyst report on NSANY.

Read the full analyst report on HMC.

Read the full analyst report on DAI.

"GM" Free Stock Analysis: Buy? Sell? Hold?
"F" Free Stock Analysis: Buy? Sell? Hold?
"NSANY" Free Stock Analysis: Buy? Sell? Hold?
"DAI" Free Stock Analysis: Buy? Sell? Hold?
"TM" Free Stock Analysis: Buy? Sell? Hold?
"HMC" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

Trading Plan For Today – 12/16/08

Daniel Shepard — Tue, 16 Dec 2008 09:46:59 +0000

Tuesday December 16, 2008 Navivest Today will be an interesting one for the stock market. We could possibly see a move to the downside in early trading, followed by a very nice move to the upside in later trading. The monetary policy setting arm of the Federal Reserve, the Federal Open Market Committee, will be announcing its latest [...]

Waiting on the FOMC Meeting

Contrarian Profits — Mon, 15 Dec 2008 15:50:00 +0000

pFOMC to cut further#8230; Bernanke turns his back on inflation#8230; Kiwi and Australia rally#8230; Gold continues to shine#8230; And Now#8230; Today#8217;s Pfennig!/p pGood day#8230;and welcome to another week, hopefully the currency markets can continue their assault on the dollar which began a few weeks ago. The dollar index peaked back on November 21, and with the exception of a few days around the beginning of December, the greenback has consistently fallen vs. most of the major currencies. Friday was no exception, and the dollar continued to give back gains over the weekend with the Euro climbing back over $1.35 for the first time in two months./p pThis morning the markets are focusing on the Fed#8217;s Open Market Committee meeting and rate announcement#8230;/p

Major Ice Storm Slams the Northeast; Stocks Move Higher on Lower Volume

Market Speculator — Mon, 15 Dec 2008 01:36:24 +0000

Ice Storm cools Wall Street as Volume eases and Stocks rise. Stocks were battered by news Thursday night the auto-bailout would not be able to pass the senate as senate Republicans were not satisfied with UAW’s concessions. However, President Bush stepped in and hinted that TARP funds may be able to assist the automakers. Stocks were [...]

Oil Ready for Short Term Rally

Michael E. Brisky — Mon, 08 Dec 2008 18:33:00 +0000

Oil prices, and oil stocks, are ready for a short-term rally here. OPEC is scrambling to deal with the major slowdown in global demand. a href="http://online.wsj.com/article/SB122858288078585557.html"Most likely they will decrease production output to help prices recover/a. Remember in July when President Bush went to Saudi Arabia begging for production increases? What a difference a couple of months can make. br /br /The pattern I see here is: br /br /A) Right now-oil stocks oversold with oil prices around $40.br /B) OPEC cuts production. Oil moves to somewhere between $50-75/barrel. Oil stocks rally.br /C) Rally wears off, sometime early 2009. Stocks fall again as recession-caused demand destruction continues. Oil stocks back to current levels.br /br /By the way, this is also the pattern for financial stocks, and homebuilders, and automakers. We're seeing a potentially trade-able pattern, but a pattern of lower highs and lower lows.br /br /For the trade, take a look at the usual suspects:br /br /National Oilwell Varco (a href="http://finance.yahoo.com/q?s=NOV"NOV/a)br /Schlumberger (a href="http://finance.yahoo.com/q?s=slb"SLB/a)br /Exxon Mobil (a href="http://finance.yahoo.com/q?s=xom"XOM/a)br /Noble (a href="http://finance.yahoo.com/q?s=ne"NE/a)br /Transocean (a href="http://finance.yahoo.com/q?s=rig"RIG/a)

Video-o-rama: Market Maelstrom

Prieur du Plessis — Sat, 06 Dec 2008 04:40:32 +0000

Another week and another batch of fascinating video clips about bailouts, economic woes and other crisis-related matters. As to be expected, the good-news videos are in rather short supply. A number of the more interesting clips that have attracted my ...

Spreading Credit Woes Cause Government Intervention

QualityStocks — Fri, 28 Nov 2008 19:46:49 +0000

When it comes to the financial markets, September was a startling and unsettling month that Americans may never forget. We have witnessed the collapse and/or government rescue of financial services giants that are household names. The financial fears of the public and the resulting stock and bond market volatility have prompted the Federal Reserve and [...]

The G20 Summit: A Disappointing Bunt to the Spring

Jonathan O'Shaughnessy — Mon, 17 Nov 2008 22:46:29 +0000

The G20 Summit was first proposed by the UK and France during the first waves of the global economic meltdown. It was long anticipated as a coming together of the major nations in the world to discuss necessary changes to help better regulate international finance, attempt to help stabilize the current turbulent markets, and [...]

A Greater Depression?

Contrarian Profits — Mon, 17 Nov 2008 14:11:33 +0000

The record drop in consumer spending in October is clear evidence of a profound weakening of the US economy. Even President Bush think thinks the situation is bad. At the G20 summit over the weekend, he said it was conceivable that the US “could go into a depression greater than the Great Depression“.

- Of course a depression is what they used to call a recession. Then came the Great Depression. After that, economists and politicians stopped using the word for fear of jinxing the economy. Now, a depression means a severe and protracted recession.

- Bush may be right about the chances of the US slumping into a depression. Part of the problem is that it’s not only the US that’s…

A Deluge of Advice for Obama on Russia

Robert Amsterdam — Fri, 14 Nov 2008 15:27:55 +0000

Now that Russia has successfully stolen the spotlight to become President-elect Barack Obama's #1 foreign policy puzzle, a deluge of advice is pouring in from all corners. Let's hope that the next president is already aware of most of the...

France Looks to Get Back into the Kitchen

Robert Amsterdam — Fri, 14 Nov 2008 14:44:39 +0000

This is an excerpt from an interview with the French Mid-East scholar Gilles Kepel: Q. What is your advice for the next president of the United States? A. After Iraq, it is clear that American military might is no longer...

Bailout Bounty: $5 Trillion And Counting

Contrarian Profits — Thu, 13 Nov 2008 13:24:59 +0000

$5 trillion. That’s how much it has cost so far to bailout out corporate America from its own stupidity, greed and corruption (yes, Fannie and Freddie, that means you). Or to put it another way, the US government in its eternal wisdom has now put the American taxpayer on the hook for $5,000,000,000,000.

- Here’s the breakdown, from CreditSights, a research firm in New York and London, as reported in Forbes magazine.

The Fed

$1 trillion in overnight or short-term loans since March to primary dealers through its emergency discount window*
$1.8 trillion in loans to primary dealers through the Fed’s term auction facility since in January*
$29 billion in Bear Stearns debt
$60 billion of credit available to American International Group
$22.5 billion to set up…

Obama Must Put An End To ‘Crony Capitalism’

Contrarian Profits — Wed, 12 Nov 2008 19:21:24 +0000

The biggest challenge for President elect Barack Obama is to stop Congress turning this recession into a depression, says Adam Lass. Reckless government spending and “crony capitalism” got us into this mess. And throwing endless credit at non-productive industries will only end up creating inflation and destroying the dollar.

This from The Rude Awakening:

The American people voted for change…and now they’re going to get it. But the change they get may not be the change they expect Obama to deliver. Something more sinister may be coming our way.

After an historic election and inauguration, president-elect Obama will enter office with a huge list of challenges. These challenges — from a contracting economy to large-scale corporate bankruptcies to soaring national indebtedness — will…

Stock Market Set For Worst Year Since 1937

Bill Bonner — Tue, 11 Nov 2008 18:37:37 +0000

Barring a massive bounce in the coming weeks, this will be the worst year for stocks since 1937, says Bill Bonner. The greed driving the market has turned to fear. And not the kind of fear that President Bush created about terrorists to push through his agenda. This time we need to be afraid…

Bailout Culture Spreads to Auto Industry

Contrarian Profits — Tue, 11 Nov 2008 12:59:04 +0000

Short-term aid, long-term assistance. According to the IHT, this sums up Barack Obama’s attitude toward the government’s role in the US auto industry. Obama is pushing President Bush to use some of the $700 billion bailout package to prop up GM (NYSE:GM).

- The wrangling between Bush and Obama comes in the wake of news that GM’s shares tumbled to 1946 prices, closing down 23% to $3.36, as analysts downgraded the stock on worries it would soon run out of cash and shareholders would be wiped out by any federal bailout.

- GM has 263,000 workers worldwide. If it does go under, that’s a hell of a lot of people joining dole queues.

- This, of course, would have disastrous consequences in the US, where unemployment…

How To Profit As Market Forgets Oil And Gas Fundamentals

Justice Litle — Mon, 10 Nov 2008 12:26:40 +0000

“It was the best of times, it was the worst of times.” Justice Litle thinks Dickens’ classic line provides an apt description of today’s markets. Sure, this year has been hell. But it has also created some amazing opportunities for contrarian investors. Justice says this is most apparent in the oil and natural gas market, where irrational risk aversion has made most people forget the fundamentals.

This from Taipan Daily:

Mark my words. It will not be six months before the world tests Barack Obama like they did John Kennedy. The world is looking.

— Vice–President-Elect Joe Biden

Just a few weeks ago, Vice–President-elect Joe Biden (back when he was plain old Senator Joe Biden) promised the world that Barack Obama will be “tested” by America’s…

Will Obama Look the Other Way on Russia?

Robert Amsterdam — Sat, 08 Nov 2008 14:57:01 +0000

From the New York Times editorial:

President Bush spent years looking the other way while Mr. Putin harassed opponents, stifled a free press and bullied his neighbors. (A new report that suggests that Georgia had no reason to send troops into a breakaway enclave is disturbing, but not surprising, and still doesn’t justify Moscow’s brutal invasion.) While he was busy looking into Mr. Putin’s eyes, Mr. Bush also ignored Russia’s list of grievances — many of them illegitimate, but not all. Mr. Medvedev and Mr. Putin now seem determined to push their way to the top of Mr. Obama’s very crowded agenda. We suspect that they will get a more receptive hearing if they stop trying to bully their own people — and everyone else.

Bailouts Will Bring Short-Term Relief, Long-Term Catastrophe

Contrarian Profits — Fri, 07 Nov 2008 16:18:09 +0000

“All of the nations that have resorted to money-printing in the past, ultimately saw a total economic collapse,” says Puru Saxena. The government bailouts and stimulus packages may provide some short-term relief, but the long-term hyperinflation and damage to the dollar will be much, much worse.

This from The Daily Reckoning:

Let there be no mistake; the U.S. has now transformed itself into a great socialist society by using taxpayers’ money to buy-out private companies. In my view, this ridiculous measure is a slap in the face of capitalism and will further promote reckless and dubious practices. Essentially, by bailing out the behemoths (Fannie Mae, Freddie Mac and AIG [NYSE:AIG]) and allowing the smaller fish (Lehman Brothers) to fail, the U.S. establishment is…

A Contrarian’s Guide To Post-Election Investing

Rick Pendergraft — Mon, 03 Nov 2008 17:07:11 +0000

The stock market is due a bounce after the election, regardless of who wins. But after that, the voter’s choice will have a big impact on industry winners and losers. Rick Pendergraft says biotech and alternative energy stocks should get a lift under Obama, while defense and oil will benefit from a McCain victory.

This from Investor’s Daily Edge:

It’s finally here. The long awaited and hard fought election will end tomorrow (at least I hope we don’t see a repeat of 2000 where we don’t know who won for weeks). Rather than make predictions about the election itself, I want to tell you how I think things will play out after the election.

First, I think the overall market will rally after the…

Changing The Rules On The Bank Bailout

Contrarian Profits — Mon, 03 Nov 2008 15:26:44 +0000

For a guy with a Harvard MBA, President Bush simply doesn’t get how real banks work… but anyone who has waited three to five days for an out of state check to clear gets how the “float” works.

Government regulations allow the bank to use that money for a few days before you get your shot at it. Hope the President opts for direct deposit on his pension check, book royalties and the millions he’ll get paid to speak in public.

Anyway, the Associated Press reports that, earlier this week, it was an impatient White House that prodded banks and other financial companies to quit hoarding billions of dollars flowing into their vaults from Washington and start making more loans.

Hoping to thaw…

Election Plays?

Brian Shannon — Thu, 30 Oct 2008 16:53:00 +0000

Stem cell company's engage in research methods which some people find to be objectionable. President Bush has been one of the largest critics of their methods and has taken the extreme action of vetoing Federal funding for embryonic stem cell research twice. The coming change in administration will bring support for embryonic research (see positions of both candidates from wikipedia below) which means the companys engaged in that area of research will become eligible for federal funding for their research. Of course it will take time to pass the bills and get the money to the companys, but the perception of change is likely to be the catalyst for more investor awareness/ buying of the stocks. None of the stocks look bullish here, but some of the charts are improving. The stocks I am watching in this group are:ASTM, GERN and STEM. I am long some ASTM now and will be a seller of part of the position near .40 and will hold the balance for a move up towards .50-.55 if the momentum builds. I do not consider these to be good investments, they are small speculative bets on a change in perception. If the stock drops down towards .32 I will liquidate and move on. Do your own research and manage risk.

Obama supports embryonic stem cell research and was a co-sponsor[273] of the 2005 Stem Cell Research Enhancement Act which was passed by both houses of Congress but vetoed by President Bush. Obama condemned Bush's veto, saying, "Democrats want this bill to pass. Conservative, pro-life Republicans want this bill to pass. By large margins, the American people want this bill to pass. It is only the White House standing in the way of progress - standing in the way of so many potential cures." He also voted in favor of the 2007 bill lifting restrictions on embryonic stem cell research that was passed but was also vetoed by President Bush.

McCain is a member of The Republican Main Street Partnership and supports embryonic stem cell research despite his earlier opposition.[317] He states that he believes that stem cell research, and indeed embryonic stem cell research, will continue whether or not the U.S. sanctions it, and so it would be the wisest course of action to support it to the extent that the United States will be able to regulate and monitor the use.[citation needed] In July 2008 he said “At the moment I support stem cell research [because of] the potential it has for curing some of the most terrible diseases that afflict mankind.

BTW, I am considering putting all intraday updates in the bonus section of the book site next week, which means you will need the username and password in the book to access.

Insurance Stocks Rise On Possible Treasury Investment

Daniel Shepard — Mon, 27 Oct 2008 09:00:45 +0000

Monday October 27, 2008 Navivest Shares of some insurers rallied on Friday, despite the 312.30-point drop in the Dow Jones Industrial Average, on word that the U.S Treasury might be taking equity stakes in some insurance companies by buying some of their preferred shares. This would be akin to the Capital Purchase Program announced on October 14, 2008, [...]

CRA and Fannie and Freddie as betes noire

Menzie Chinn — Tue, 21 Oct 2008 20:00:00 +0000

There is so much chaff floating around about the roles of Fannie and Freddie and of the Community Reinvestment Act in the current crisis, despite the best efforts of economists like Jim Hamilton [0] [1], Mark Thoma and Janet Yellen, that it seems worthwhile to once again go through some of the arguments that have been forwarded.

From David Goldstein and Kevin G. Hall, "Private sector loans, not Fannie or Freddie, triggered crisis":

Federal Reserve Board data show that:

More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.

From David Goldstein and Kevin G. Hall, "Private sector loans, not Fannie or Freddie, triggered crisis," McClatchy Papers (October 12, 2008).
The article continues:

What's more, only commercial banks and thrifts must follow CRA rules. The investment banks don't, nor did the now-bankrupt non-bank lenders such as New Century Financial Corp. and Ameriquest that underwrote most of the subprime loans.
These private non-bank lenders enjoyed a regulatory gap, allowing them to be regulated by 50 different state banking supervisors instead of the federal government. And mortgage brokers, who also weren't subject to federal regulation or the CRA, originated most of the subprime loans.
In a speech last March, Janet Yellen, the president of the Federal Reserve Bank of San Francisco, debunked the notion that the push for affordable housing created today's problems.
"Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans," she said. "The CRA has increased the volume of responsible lending to low- and moderate-income households."
In a book on the sub-prime lending collapse published in June 2007, the late Federal Reserve Governor Ed Gramlich wrote that only one-third of all CRA loans had interest rates high enough to be considered sub-prime and that to the pleasant surprise of commercial banks there were low default rates. Banks that participated in CRA lending had found, he wrote, "that this new lending is good business."

One point the article does not touch on is why the states did not regulate more rigorously the banks most involved in subprime lending. The answer is, in part, explained by this item (which I've cited in the past) from the NYT:

The Fed was hardly alone in not pressing to clean up the mortgage industry. When states like Georgia and North Carolina started to pass tougher laws against abusive lending practices, the Office of the Comptroller of the Currency successfully prohibited them from investigating local subsidiaries of nationally chartered banks.

What about the charge that Fannie and Freddie "made" the market so that all these subprime loans could be securitized? There's a grain of truth in there, but I think keeping in mind which loans are going bad is useful, when reading this excerpt.

This much is true. In an effort to promote affordable home ownership for minorities and rural whites, the Department of Housing and Urban Development set targets for Fannie and Freddie in 1992 to purchase low-income loans for sale into the secondary market that eventually reached this number: 52 percent of loans given to low-to moderate-income families.
To be sure, encouraging lower-income Americans to become homeowners gave unsophisticated borrowers and unscrupulous lenders and mortgage brokers more chances to turn dreams of homeownership in nightmares.
But these loans, and those to low- and moderate-income families represent a small portion of overall lending. And at the height of the housing boom in 2005 and 2006, Republicans and their party's standard bearer, President Bush, didn't criticize any sort of lending, frequently boasting that they were presiding over the highest-ever rates of U.S. homeownership.
Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble.
During those same explosive three years, private investment banks -- not Fannie and Freddie -- dominated the mortgage loans that were packaged and sold into the secondary mortgage market. In 2005 and 2006, the private sector securitized almost two thirds of all U.S. mortgages, supplanting Fannie and Freddie, according to a number of specialty publications that track this data. [Emphasis added -- mdc]

Now, again, consider which subprime loans, in the graph below, went bad...

Figure 1.8 from IMF, Global Financial Stability Report, Oct. 2008.

Notice that the delinquency rate is highest in the years after Fannie and Freddie are constrained in terms of their subprime holdings. So, more regulation of F&F was a good thing, I'll say, with the benefit of hindsight.

Now, there are more sophisticated, game-theoretic based arguments. In particular, Jim has observed that the mere existence of GSEs with substantial portfolios of MBS's meant that the government -- by insuring Fannie and Freddie -- would implicitly insure the private firms as they expanded their operations, supplanting F&F's market share:

what forces caused the explosion of private participation in a much more reckless replication of the GSE game? A year ago, I suggested one possible answer-- private institutions reasoned that, because the GSEs had developed such a huge stake in real estate prices, and because they were surely too big to fail, the Federal Reserve would be forced to adopt a sufficiently inflationary policy so as to keep the GSEs solvent, which would ensure that the historical assumptions about real estate prices and default rates on which the models used to price these instruments were based would not prove to be too far off.

This is by far the most intelligent and plausible interpretations of how F&F could have contributed in a significant way to the current housing crisis (as separate from the overall crisis, which would have been triggered by some other market given the mixture of securitization, credit default swaps and high leverage [2]). In fact, Mike Dooley and I have made similar arguments about the expansion of contingent liabilities, in the run-up to the East Asian crises [3]. The challenge here is how to test this hypothesis against others; we need to measure the implicit insurance that these private firms felt they had directlyfrom the Fed's intent keep the monetary policy sufficiently expansionary to keep housing prices going up, separate from the insurance committed directly by the Treasury to prevent individual banks from going under. (By the way, this is a separate issue from whether F&F made sense economically in their circa 2006 form; see the analysis by Frame and White. I tend to think the answer is no.)

Interestingly, one of the corollaries of this argument is that it would be hard to disentangle the balance of blame of F&F and the "Greenspan put".

One question I do (or will) have is the following: if the credit card or auto loan securitized markets blow up [4], who are the equivalents to the GSE's?

I think all of this leads to a more nuanced view of the role of CRA and the two GSE's in the crisis. If I had to identify the central factors, I wouldn't point to F&F alone, or CRA alone (if at all). Rather, I'd look to (i) monetary policy (including whether it was lax, and the implications of the "Greenspan put"), (ii) what drove down the returns at the long end of the maturity spectrum ("the conundrum") thus inducing the desperate search for yield, (iii) securitization in the absence of countervailing regulation and (iv) the development of a completely non-transparent and unregulated over-the-counter credit default swap market.

Bush, Bernanke Now Supporting New Stimulus Bill

QualityStocks — Mon, 20 Oct 2008 19:09:06 +0000

It is beginning to look as if another economic stimulus package is in the cards for Americans as President Bush and Fed Chairman Bernanke, previously opposed to the bill, changed their tune and announced support of the idea. “With the economy likely to be weak for several quarters, and with some risk of a protracted [...]

Second Stimulus Plan Gaining Fans

Trader Mark — Mon, 20 Oct 2008 12:48:00 +0000

We mentioned immediately after the first stimulus plan (the $170B rebate checks - i.e. sending money directly to China (Walmart) and Middle East (gas)) that another one would be announced as the economy worsened. Keep in mind at the time, there was no agreement that any recession would even occur - so [...]

Get Ready for ‘Depflation’ (Depression + Inflation)

Contrarian Profits — Sat, 18 Oct 2008 14:12:16 +0000

The current financial crisis is supersized, inexorably linked to the rest of the world, ruled by chaos and precariously perched atop a mountain of debt, says Oilver Garret, CEO of Casey Research. And “a rapidly growing money supply at the same time the biggest credit bubble in 25 years bursts makes for a less than desirable scenario.” We could be facing a period of “depflation” says Oliver — an inflationary depression.

This from Oilver Garrett at Casey Research:

Doug Casey coined the term “Greater Depression” in his best-selling book Crisis Investing, published in 1979. Today, it resounds throughout the land; even CNN’s Glenn Beck recently used it in an op-ed piece. And the signs are increasing that a depression may indeed be what…

Paulson Says to Investors – This Too Shall Pass

QualityStocks — Wed, 15 Oct 2008 19:57:50 +0000

Paulson Says to Investors - This Too Shall Pass Waking up this morning and turning on “Good Morning America,” we heard a new familiar voice. Treasury Secretary Henry Paulson spoke up about the economy stating, “This will take time. There will be challenges.” It’s funny how most people never really knew who he was or what [...]

U.S. Government to Invest in Nine of the Nationâ€™s Largest Banks

QualityStocks — Tue, 14 Oct 2008 19:16:37 +0000

President Bush revealed plans to use a portion of the Congress approved $700 billion bailout plan to invest into the banking system through capital infusions. Nine of the nation’s largest banks have already agreed to take the capital and in return will give preferred shares to taxpayers and limit executive pay. It is widely expected [...]

US Dollar Whipping Everyone

Doug Casey — Mon, 13 Oct 2008 19:26:24 +0000

In the currency market, the dollar vaulted higher against the euro. Late Friday, the euro was trading at $1.3394 vs. $1.3594 on Thursday.

The dollar index was also up 1.5% against a basket of six major currencies, and the buck shoved the British pound below $1.68 before sterling rebounded back over $1.70. Nevertheless, the pound lost 0.65% on the day and 4% on the week, and the drop below $1.70 was the first since December of 2003.

The dollar’s strength certainly reflects the perceived weakness in other country’s currencies, but even so is a bit perplexing in the light of the turmoil in US financial markets. Obviously, its status as the world’s reserve currency, though tarnished, is still intact.

But some of its strength may be illusory, writes Brian Dolan, of Gain Capital: “During such panic driven turmoil, the Japanese yen strengthens across the board, and yen-crosses plunge. Such cross-selling pressure weighs on other dollar pairs, sending [pound/dollar], [euro/dollar], and [Australian dollar/U.S. dollar] lower and this is frequently viewed as U.S. dollar strength.”

Meanwhile, President Bush went on TV to try to reassure a nervous public that things are not as bad as they seem, even as high level talks began in Washington to deal with things that are every bit as bad as they seem.

Wrote Marketwatch.com: “Finance ministers and central bankers from the Group of Seven nations meeting Friday in Washington are expected to begin hammering out a round of coordinated, uniform measures designed to salvage the financial sector and encourage banks to resume providing loans to each other.”

Concurrently, Bloomberg reported that "Italian Prime Minister Silvio Berlusconi said political leaders are discussing the idea of closing the world's financial markets while they 'rewrite the rules of international finance.'

"Berlusconi didn't give any details about what kind of rules leaders were looking to change, except to say that leaders are 'talking about a new Bretton Woods'."

We are speechless.

Source: US Dollar Whipping Everyone

Why President Obama Would Damage US Economy Further

Contrarian Profits — Wed, 08 Oct 2008 15:38:57 +0000

When US stocks dived following the passing of the bailout bill, President Bush sought to calm investors. He said it would "take a while" for the bill to take effect. Problem is George W doesn't have much of time.

In less than one month, Americans will vote into office either Barack Obama or John McCain. Each has very different ideas about how to tackle the financial crisis.

Martin Hutchinson says Obama is most likely to win on a populist anti-Wall Street platform. But if he follows up this rhetoric with more regulation and protectionism, this could hurt US investors even more in the long run.

This from Money Morning:

The market’s verdict on the billion bailout was pretty clear: Stock prices started dropping the moment the bill was passed on Friday afternoon and continued to do so Monday, with the Dow Jones Industrial Average closing down 370 points for the day – after being down 800 points earlier that same day.

The economic effect is also pretty clear: Given that the bailout plan is being launched at a point when money is already tight – and that it pours $700 billion of our money into the most useless, toxic waste left over from the housing bubble – you can be certain that it will end up starving more-worthwhile potential investments of badly needed capital.

But the political impact is less clear, in both the short- and long-term periods.

For a start, it’s not clear to the electorate who is to blame for the financial debacle. The Democrat presidential nominee, U.S. Sen. Barack Obama, D-Ill., naturally blames the Bush administration and mysterious “deregulation” for the problem. Indeed, he has a particular deregulatory act in mind, the 1999 Gramm-Leach-Bliley Act, which ended the separation of commercial and investment banking – conveniently ex-Sen. Phil Gramm was an advisor to Republican presidential nominee, Sen. John McCain, R-Ariz.

Add in conventional Democratic rhetoric about the “evils” of Wall Street (albeit toned down somewhat since so many Wall Street titans are Democratic supporters and have provided funding for Obama’s campaign) and you would think he had a pretty clear path to sail to achieve electoral victory. After all, if economic or political disaster occurs on the “other guy’s watch, it generally doesn’t take a rocket scientist to figure out a way to blame that “other guy” for what happened.

However, it’s not quite as simple as that, though you would think it was from the initial reactions of the McCain campaign. Blaming Wall Street greed gets Republicans nowhere, since Wall Streeters are popularly thought to be mostly Republican. And if there was regulating to be done, why didn’t the Republican administration do it? Thus, the populist comments by the Republican vice-presidential candidate, Alaska Gov. Sarah Palin, at the end of the vice-presidential debate last Thursday night amounted to a series of “own goals”— a soccer term for when a team forgets which end is which and boots the ball past its own goalkeeper.

There are two perfectly respectable things a Republican candidate can say in defense of the last eight years of economic management:

First, much of the housing disaster was caused by the activities of Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE), the two government-backed behemoths who should never have existed in a rational free-market economic system – and who were pushed into conservatorship by foreign governments

Second, much of the misbehavior on Wall Street – as well as the subsequent collapse – resulted from an excessively loose monetary policy by the U.S. Federal Reserve over a period of more than a decade – and the Fed, in case nobody noticed, is not a private-sector operation.

There were signs Monday that McCain was moving onto the attack on the subject of Fannie Mae and Freddie Mac. Obama, after all, was the Senate’s second-largest recipient of campaign funds provided by the executives of those organizations – topped only by Sen. Christopher J. Dodd, D-Conn., who chairs the Senate Banking, Housing, and Urban Affairs Committee, which oversees Fannie and Freddie. Further, McCain was a leader of the (rather feeble) Republican attempts in 2005 to rein them in, which Obama and other Democrats opposed. Indeed, back in 2004-2005, there are lots of good sound-bite quotes from the Democrats about what splendid organizations Fannie and Freddie were.

Regrettably, for the Republicans, the responsibility of Fannie and Freddie for the disasters on Wall Street, while substantial (the securitization market would probably not have got off the ground without them) is somewhat indirect. Even more directly linked is the responsibility of the Fed in inflating money supply and inflating bubble after bubble. No politician, except the eccentric Rep. Ron Paul, R-Tex., has gone after the Fed, and since neither McCain nor Palin can be classed as economic experts, it seems very unlikely that either of them will use the Fed’s misdeeds as a key election-talking point in the last month of the campaign.

Thus, Obama’s mantra of Wall Street greed and excessive deregulation will probably continue to register with voters in the next few weeks, and should maintain – or even increase – the lead Obama is showing in opinion polls. The $700 billion bailout, which appears (rightly) to be massively unpopular, will remain in the news as supervising staffers are appointed and the first purchases of loans are made, and will be blamed primarily on the administration that thought of it. Both candidates supported it, so any advantage between them will be minor. At this point, therefore, it is difficult to see how McCain can win on Nov. 4, unless some foreign policy crisis refocuses the electorate’s attention away from the economy.

Obama elected on a platform similar to President Bill Clinton’s 1992 platform of free trade and middle class tax cuts would be relatively investor-friendly, as was Clinton himself. Moreover, Obama’s undoubted ability might help him take the right steps to clear up the current mess and move the economy back into growth mode. But Obama elected on a platform of bashing Wall Street, opposing global trade, raising taxes on the rich and re-regulating everything is a very different matter; if he really believed his own propaganda he would be a menace both to investors and the U.S. economy.

Fortunately, as with most politicians, it seems likely that what Obama says to get elected and what he will do in office bear little relation to each other. We will just have to wait and hope.

Source: Election 2008: Who Will Get to Spend the $700 Billion?

The Dollar Can’t Survive This Crisis… Buy Gold Now

Justice Litle — Tue, 30 Sep 2008 19:31:55 +0000

Yesterday, traders sent the Dow down a record 777 points. Today, the mood is more upbeat. The Dow is up 363 points. Traders clearly still want to believe the government can still help sort out Wall Street's problems.

Justice Litle isn't fully sold of the bailout. But he says it isn't an option to let Mr. Market sort himself out this time: the US is too leveraged to follow Andrew Mellon's "liquidationist" approach during the Great Depression.

That's why the feds will do whatever it takes to prop up the system... and run the dollar into the ground. And that's why you should buy gold now.

This from Taipan Publishing:

The problem, in a word, is leverage. Rightly or wrongly, we all got leveraged up to the eyeballs these past few years. Not just the Wall Street banks (though they were the worst offenders) but everyone, including U.S. consumers.

As we all know by now the offending financial institutions - be they bought out or bankrupted or absorbed - were leveraged by as much as 30 or 40 to 1. That’s the equivalent of making a $100 bet with two or three bucks in your pocket, declaring yourself “good for it” if the bet goes bad.

So now, thanks to the laxity of Greenspan, Bernanke, the SEC, Congress and others, we’re saddled with “capitalism on the upside and socialism on the downside,” as some have aptly put it. Wall Street’s stupidly big bets have become everybody’s problem.

But you know what? Joe Sixpack got himself nicely leveraged, too.

Spengler of the Asia Times observes, “Leverage is the secret of American wealth. The average American family in 2004 had a net worth of US$448,000 on an income of $43,000, according to the Federal Reserve's survey.”

When Americans talk about their net worth, they are largely talking about two things: the value of their homes and the value of their investment portfolios. Both those numbers are greatly inflated by the built-in leverage of the system.

For example, what is a house worth? Whatever someone is willing to pay for it... the “multiple” of which depends greatly on a few key things. (Like functional credit markets, for one.)

And what is a stock worth? Whatever multiple someone is willing to pay for the company earnings stream... again based on a handful of key factors.

The upshot is that the average American is leveraged, too, by a factor of 10 to 1 or more. And we’re only talking about Americans with positive net worth here -- not to mention the trillions in pension funds.

If the financial house of cards comes crashing down, it doesn’t just crush Wall Street. It crushes Main Street, too. This is what the Cool Hand Lukes who want to say “screw the system” don’t understand: We as a country are too deep in the system to survive its sudden demise. When you’re in up to your neck, you can’t walk away.

The Mellon Plan: Not an Option

Andrew Mellon was the only Treasury secretary to have served under three U.S. presidents. He held office from 1921 to 1932.

After the crash of ’29, as the Great Depression got underway, Mellon made his position known as a “liquidationist.” Mellon’s famous advice in response to the budding ‘30s crisis: “Liquidate labor, liquidate stocks, liquidate farmers.” In short, liquidate everything in sight. Let the weak fail... and let God sort them out.

That’s simply not an option today. Our entire system is built on leverage. That is the Achilles’ heel of modern financial markets.

In normal times, it’s a good thing that a young couple with a promising future can buy a house on 20% down. In normal times, it’s a good thing that a single mother can get a low monthly payment on a car so she can drive to her new job. In normal times, it’s a good thing that an entrepreneur can get a loan to start up a small business.

But all those good things require debt and leverage... on at least one side of the equation, if not both.

Leverage, like debt, is not an inherently bad thing. It’s a tool that can be used or misused. The ability to use leverage efficiently has played a large part in our current prosperity. But as a result, the use of leverage has become too common and too widespread to just say, “liquidate.” We’re in too deep... we no longer have access to the “Mellon plan.”

The Nuclear Option

This is why I think the powers that be will go “nuclear” in a way we haven’t yet seen.

That is to say, when the depth of the danger really hits home... when it sinks in that the viability of the entire system is at stake, and that we are all at risk of being sucked into the deleveraging vortex... the public and political resistance to a full-blown, no-holds-barred rescue will evaporate.

We haven’t seen the full-blown response yet, only shades of it. But it is coming.

On Monday we got news that Wachovia (NYSE:WB), another major American banking institution, would disappear. The Fed took great pains to clarify it was “not a failure” like WaMu (NYSE:WM)... but another giant bites the dust nonetheless. We also got word that Fortis (EBR:FORB), a Belgian bank, is on the brink. (Welcome to the party, Europe.)

In response to all this, the Fed announced plans to pump $630 billion into the global financial system, according to Bloomberg. By the time you read this they may well have pumped a lot more. (Tell me again why $700 billion is supposed to a big number?)

The plumbing of our global financial system is rotten. Pipes are bursting left and right. A bunch of fat-cat bankers may be the ultimate culprits, but we all played a part... and it’s the only system we’ve got.

Really, what other option is there?

We cannot just “ride this out.” We cannot just “let it pass.” Full-on liquidation would be the equivalent of economic and political suicide. It is going to keep getting worse until the powers that be come up with the most dramatic response they can muster.

We haven’t gotten to that point yet. The “nuclear” option -- in terms of flooding the system with enough dollars to flood the Panama Canal, or even writing outright checks for U.S. equities a la Hong Kong in 1998 -- has not been tried.

It’s going to get worse from here. And so the government is going to do more. And they will keep doing more until things have been turned around, at least on paper.

“This Sucker Could Go Down”

“This sucker could go down,” as President Bush so eloquently put it last week.

The U.S. electorate and Congress did not really believe the Commander in Chief, seeing as how he has been so dead wrong on so many other things. They thought the crisis could be handled with a helping of provisos and quid pro quos -- a little urgency with a little temperance, too. They didn’t really believe that the entire global financial system as we know it was at stake.

But, like it or not, it is at stake. As much as I find it surprising to agree with Dubya, this “sucker” really could “go down.” I view this not as a moral assessment, but a structural assessment... like an engineer testing the joints on a suspension bridge and finding it in danger of collapse. It doesn’t matter whether the situation is fair or unfair, or who screwed up the bridge or built it poorly in the first place. It just is what it is.

When the truth sinks in, the powers that be will do all they can to prevent collapse from happening. The blame game will by sidelined by emergency the task at hand.

And how do I know Washington et al haven’t “done all they can” yet? Because the dollar, heading into its twilight days as the world’s reserve currency, has not yet been destroyed.

That’s the final outcome of the von Mises prophecy... the final reality of the Austrian Endgame. And it’s where we are headed. When the dust clears, it may be recognized that we had to pass through this panic point, to reach the height of realization of what’s at stake, before the true “nuclear” measures were implemented.

Gold Shines Here and Now

There are few areas where I’d be willing to buy with both hands right now. There are some incredible bargains out there to be sure. But as the market bleeds, they are just becoming even more incredible.

I still think the “stocks in the stratosphere” scenario as laid out last week is likely to play out, as the flipside of a U.S. dollar meltdown plus hyperinflationary stimulus.

I think that, with the Dow in full-blown crash territory, we are closer to that “nuclear” trigger point now than we were before. It’s a bit of a counterintuitive thing... before we get paper asset lift-off, things have to get bad enough to panic the powers that be into creating the inflationary conditions that fuel lift-off.

In other words, you don’t walk the path of Zimbabwe and Weimar Germany if you can avoid it. A big part of my thesis is that America’s path is predestined -- and we’re being forced onto that path now.

Being a trader at heart, I prefer to buy when the prices of things I like are going up, even when I’m buying for long-term investment purposes.

Today, what’s going up is gold.

Gold stocks aren’t following suit in the short term, but that’s because frightened hedge funds continue to dump assets left and right. We are witnessing a fire sale of epic proportions. I believe that hard on the heels of this we will see a stimulus injection of epic proportions, and that will push a lot of hard assets higher.

So you could do far worse now than to get your hands on gold: physical gold, gold ETFs, gold stocks. That’s the general ranking in order of safety vs. risk. I like them all now. Gold and gold stocks also make a compelling case for a trade from the technical side.

On the fundamental side, as the reality sinks in of what’s ahead of us, I believe gold will punch through its old highs and keep going (and going... and going... and going...).

Keep a cool head, and I’ll do my best to keep you informed.

Source: Why the “Nuclear” Response to the Crisis Is Still Coming... and What to Buy Now

Will FDIC deposit insurance limits rise? And will mark to market accounting be suspended?

Mike Larson — Tue, 30 Sep 2008 18:46:21 +0000

These seem to be the latest angles of attack for the government, which is wrestling with how to amend or replace the bailout bill. From a New York Times item:

"As they worked to make the government bailout plan more palatable, Senators John McCain and Barack Obama on Tuesday both proposed raising the federal insurance limit to $250,000 in an effort to help small businesses and restore public confidence in the American financial system.

"The presidential candidates discussed the idea in separate telephone calls with President Bush on Tuesday, aides said, as they began working to build support for the $700 billion economic package that failed on Monday in the House. Their tones – so far, at least, more measured from one day earlier – underscored the complicated politics at work for both men.

“Given the progress we have made, I believe we are unlikely to succeed if we start from scratch or reopen negotiations about the core elements of the agreement,” Mr. Obama said in a statement. “But in order to pass this plan, we must do more.”

Reuters is also reporting that the FDIC will soon formally request authority to insure deposits above the current $100,000 threshold.

As for mark to market accounting, here is an argument for suspending it. Here is an argument against doing so. Meanwhile, a recent survey from the CFA Institute shows that its members largely oppose (73% against) eliminating the accounting standard.

The thing that I have a hard time with: Those in favor of suspending the standard say that today's prices are "fire sale" prices. They say it's forced selling that is driving the value of these assets down, and that they are really worth a lot more.

I say: Says who? How do we KNOW the intrinsic value is higher -- or that prices will be higher, later if banks are just allowed to hold to maturity? If home prices keep falling, the economy deteriorates, and so on, the value of these assets could just keep slumping.

Even if prices eventually recover, my other point would be "So what!" The price of something -- any good, asset, service, or what have you -- is what you can sell it for at any given time. Period. I bet GM would love to sell its Hummers for $200,000 each today based on the idea that gas prices will be lower down the road, and therefore the "real, intrinsic value" of its gas guzzlers is higher than what people are paying today. But it can't. The price is what it is.

Or here's another example: For the first year/year and a half of the housing market downturn, sales volume started dropping sharply and for-sale inventories started surging, but home prices really didn't decline. Ignorant observers said: "Look, there's no downturn. Prices are still up!"

But what was really happening? Sellers were clinging to unrealistic views of the long-term, intrinsic value of their homes. They were saying: "I'm right. The market is wrong. I'm not going to GIVE my house away." They refused to mark their homes to market. Result: The housing downturn was prolonged.

Now, thankfully, that attitude has been tossed out the window. Sellers ARE coming to grips with reality. They are marking their homes to market. And you know what? It's helping to clear the backlog of inventory in certain hard-hit markets. I think what we have here isn't a case of they're being NO market for this paper, and therefore artificially low "marks." It's that sellers and policymakers don't want to acknowledge just how far the market value of these assets has fallen.

Stock Market Crash of 2008

Market Speculator — Tue, 30 Sep 2008 03:06:01 +0000

Stocks Collapse on the Failure of Washington DC to Come Together on a Bailout; Was This a Silver Lining? Panic struck Wall Street as many are fearing a complete meltdown of the nation’s banking system. The media has done a fabulous job, aided by President Bush’s plea to the American people to strike fear across this [...]

23 Votes Short? Time to Invest in the Almighty Apple

The Simplified Investor — Tue, 30 Sep 2008 01:50:07 +0000

I know what you’re thinking - why invest in Apple when its stock price fell 18% today? But think literally about apples, which you’ll find in any outdoor fruit stand on the streets of New York. Today, our sadly ineffective government failed to pass its so-called “bailout” plan. The meaning is clear [...]

Agreement Reached on Bailout – Analyst Blog

Charles Rotblut — Sun, 28 Sep 2008 12:42:28 +0000

Early Sunday morning, an agreement was reached on the proposed $700 billion bailout of financial firms. A vote still needs to be held, but it seems likely that the revised package will be approved by both the House and the Senate.

It is Congress, however, and nothing will be official until a bill reaches President Bush's desk and he signs it into law. Nonetheless, things are looking positive.

The Wall Street Journal, and several other news sources, have a summary of latest version of the proposal. Key provisions include:

Half the $700 billion will be paid in the future and is dependent on Congressional review
Some bad loans will be insured rather than purchased by the government
Taxpayers will receive warrants in participating companies
If government is unable to recoup losses within 5 years, a 2% tax will be placed on participating companies to pay back the bad debt
CEO compensation will be restricted
Oversight is greatly improved
The government can modify mortgages

Though not perfect, the latest plan is vastly improved over the original version. The revisions help to protect taxpayers, while still providing much needed liquidity to the financial sector.

Keep in mind that the proposal is not a magic cure for companies like Comerica (CMA) or National City (NCC). It also does not automatically improve business conditions for MBIA (MBI) or PMI Group (PMI).

History will be critical of this bailout and in hindsight, we will find other solutions that would have worked better. However, in a crisis situation, action is better than no action. Henry Paulson and Ben Bernanke deserve credit for coming up with a creative solution.

Read the analyst report on Comerica

Read the analyst report on MBIA

Read the analyst report on National City

Read the analyst report on PMI Group

"PMI" Free Stock Analysis: Buy? Sell? Hold?
"MBI" Free Stock Analysis: Buy? Sell? Hold?
"CMA" Free Stock Analysis: Buy? Sell? Hold?
"NCC" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

Congress Working Overtime: $634B Spending Bill and Bailout Plan

Mike Havrilla — Sat, 27 Sep 2008 15:36:00 +0000

An overwhelming 78-12 vote by the Senate sends a massive $634B spending bill to President Bush, who is expected to sign the measure before the government's fiscal year-end comes to a close on Tuesday. The bill contains provisions for $25B in subsidized loans for automakers in addition to removing a ban [...]

India and the U.S. – Nuclear Trade Partners?

QualityStocks — Fri, 26 Sep 2008 19:28:14 +0000

Officials of India’s nuclear energy program have expressed the desire to do business with General Electric and other U.S. energy firms. It will fall upon Congress to give American companies the thumbs-up to sell uranium and nuclear technology to India. President Bush and the Indian Prime Minister met in Washington on Thursday, both hoping to [...]

Republican Opposition to Paulson’s Bailout Plan Stalls Talks

Contrarian Profits — Fri, 26 Sep 2008 17:22:55 +0000

An insurrection among Republicans in the House of Representatives today (Friday) torpedoed any chance that the Bush administration’s planned $700 billion plan would pass expeditiously, as members of the House refused to back U.S. Treasury Secretary Paulson’s measures and offered up their own plan to solve the credit crisis – a plan they say does not cost the American taxpayer.

Discussions over the government bailout of the financial markets stalled late Thursday, when House Republicans said they would not participate in the passage of Paulson’s deal.

"At the end of the day, it’s a $700 billion bailout," Rep. Scott Garrett (R-NJ) told USA Today. "It puts the taxpayers on the hook."

A bipartisan group of negotiators Thursday expressed hope that a deal would pass sooner rather than later after discussions with Secretary Paulson led to an agreement in principle. That framework included $250 billion in immediate relief with another $100 billion available without congressional approval. The remaining $350 billion would be made available later with approval from congress.

The plan also included caps on compensation for company executives, which Paulson initially opposed. Rep. Frank on Sunday referred to lavish executive salaries and bonuses as a "perverse incentive" that encourages executives to take inappropriate or excessive risks in exchange for multi-million-dollar payouts, and therefore, part of the problem.

Paulson finally agreed yesterday, stating that “the American people are angry about executive compensation and rightfully so. We must find a way to address this in the legislation.”

Stock warrants, which would provide the Treasury with equity stakes in participating companies, were also included in the agreement.

“Right now the price of admission [to the proposed Treasury program] is zero,” Sen. Jack Reed, D-RI, said Tuesday. “It’s not inappropriate to demand that if they benefit from this transaction in the future … that they will share that benefit with the taxpayers who made the benefits possible."

After a late night meeting on Capitol Hill, however, it became apparent that House Republicans would not support Paulson’s plan, regardless of the stipulations.

House Financial Services Committee Chairman Barney Frank said no House Republican took part in negotiations, but that Rep. Spencer Bachus (R-Alabama) made a brief appearance to deliver a one-page statement that outlined the House GOP plan.

The GOP plan involves the creation of a mortgage-backed securities insurance fund, Bloomberg News reported. The holders of mortgage-backed securities would be charged premiums to finance this insurance. According to the plan’s outline, Wall Street participants would be forced to fund their own bailout by injecting private capital, which could be raised, in part, by suspending dividends. Measures such as these would be facilitated, the Republicans said, by the removal of “regulatory and tax barriers that are currently blocking private capital formation.”

The Republican plan also requires participating firms to disclose the value of mortgage-related assets currently on their books, a review of credit rating agencies, and an audit of failed companies to ensure their financial position was accurately portrayed.

After being confronted with stiff opposition from members of his own party, President Bush said in a speech Friday morning that he was optimistic a rescue package would be passed soon.

“There is no disagreement that something substantial should be done,” he said. “We are going to get a package passed. We will rise to the occasion.”

While Democrats hold a majority in the House of Representatives, Speaker of the House Nancy Pelosi has made it clear that she will not agree to a bill without the full support of Congress.

After talks at the White House crumbled Thursday night, Treasury Secretary Paulson reportedly knelt down in front of Pelosi and pleaded with the house speaker to not “blow up” the deal by withdrawing her party’s support.

“I didn’t know you were Catholic,” Rep. Pelosi reportedly retorted in reference to Paulson’s kneeling. She went on: “It’s not me blowing this up, it’s the Republicans.”

A comment, to which Paulson responded with a sigh saying: “I know. I know.”

Source: Republican Opposition to Paulson’s Bailout Plan Stalls Talks

Is The Bailout Broken?

Sean Brodrick — Fri, 26 Sep 2008 11:11:42 +0000

Apparently, House Republicans are in open revolt against the Wall Street bailout plan put forth by the White House and Treasury Secretary Henry Paulson. Part of it may have to do with all the changes that the Democrats made to the plan to make it palatable to their constituents, like allocating 20% of profits made by the US Treasury on the deal to a program to help low-income folks keep their homes.

As the AP reports ... A White House summit meeting on Thursday meant to shore up John McCain's shaky campaign "devolved into a contentious shouting match." And that's how McCain's own campaign described it.

The meeting revealed that President Bush's $700 billion bid to combat the worst financial crisis in decades had been suddenly sidetracked by fellow Republicans in the House, who refused to embrace a plan that appeared close to acceptance by the Senate and most House Democrats.

By midnight, it was hard to tell who had suffered a worse evening, Bush or McCain. McCain, eager to shore up his image as a leader who rises above partisanship, was undercut by a fierce political squabble within his own party's ranks.

The consequences could be worse for Bush, and for millions of Americans if the impasse sends financial markets tumbling, as some officials fear. Closed-door negotiations were to resume Friday, but it was unclear whether House Republicans would attend.

And this next part is very dramatic, and should make for a good scene when this fiasco is inevitably turned into a TV mini-series ...
Treasury Secretary Henry Paulson literally bent down on one knee as he pleaded with House Speaker Nancy Pelosi not to withdraw her party's support for the package over what Pelosi derided as a Republican betrayal, according to the New York Times.Not all Republicans in the House are opposing the plan, but the conservative wing, led by House Republican leader John Boehner of Ohio, wants to take a different route, founded on more "conservative" principles.

Wait, it gets better! The New York Times reports that McCain sat silently at the meeting he'd called for about 40 minutes. So, Obama tried playing mediator. Again, witnesses report that Obama first tried to reason with Boehner, and asked him to detail what his plan was. According to witnesses at the meeting, Boehner put forth (somewhat heatedly) the right wing plan: deregulation, capital gains tax cuts, and an insurance plan. The new House Republican plan would have banks, financial firms and other investors that hold such loans pay the Treasury to insure them.

After he did this, Obama asked Paulson if it would work, and Paulson said that it would NOT work.

According to AP ...

Then Obama said it was time to hear from McCain. According to a Republican who was there, "all he said was, 'I support the principles that House Republicans are fighting for.'"

And that, say witnesses, is when the shouting started.

Now, Treasury Secretary Paulson has called the House Republicans' plan a non-starter. So where does this leave us? Maybe we'll go with a plan designed by the Democrats, like the one proposed by James Galbraith. Writing in the Washington Post, he said the bailout as proposed was "A Bailout We Don't Need," and added ...

Now that all five big investment banks -- Bear Stearns, Merrill Lynch, Lehman Brothers, Goldman Sachs and Morgan Stanley -- have disappeared or morphed into regular banks, a question arises.

Is this bailout still necessary?

The point of the bailout is to buy assets that are illiquid but not worthless. But regular banks hold assets like that all the time. They're called "loans."

With banks, runs occur only when depositors panic, because they fear the loan book is bad. Deposit insurance takes care of that. So why not eliminate the pointless $100,000 cap on federal deposit insurance and go take inventory? If a bank is solvent, money market funds would flow in, eliminating the need to insure those separately. If it isn't, the FDIC has the bridge bank facility to take care of that.

Next, put half a trillion dollars into the Federal Deposit Insurance Corp. fund -- a cosmetic gesture -- and as much money into that agency and the FBI as is needed for examiners, auditors and investigators. Keep $200 billion or more in reserve, so the Treasury can recapitalize banks by buying preferred shares if necessary -- as Warren Buffett did this week with Goldman Sachs. Review the situation in three months, when Congress comes back. Hedge funds should be left on their own. You can't save everyone, and those investors aren't poor.

The rest of Galbraith's plan is investment in infrastructure and renewable energy to help pull us out of what he sees as an inevitable coming recession.

Now, I'm happy to see Paulson's plan, as proposed, go away. I'd be happier with other alternatives that have been proposed -- Galbraith's plan for example -- that probably have a better chance of success.

But we can't forget that the reason that Paulson, Bernanke and other leaders in Washington were so keen on their plan in the first place -- they are terrified of what comes next if some kind of bailout isn't passed.

What the Democrats are really trying to get is a bailout of Main Street, not Wall Street. Without credit, Main Street cannot function. Without it, as one observer said, "we are possibly looking at Great Depression II, and the sequel is always worse than the original."

What does this mean for investors?

If there is no bailout deal, it's probably bad for oil prices. It's certainly bad for stock prices, especially financial stocks. Industrial materials and industrial stocks are also going down. Short-term Treasuries and the yen will probably rally hard, as investors fly to safety.

That said, I still think we'll see some kind of deal over the weekend. There is too much at stake. If Paulson's plan is dead, and if the House Republican plan is a non-starter, maybe they'll go back to square one and start with a Democratic plan. We may not like a Democratic plan ... and it may not fix the problem either. But if we have a plan on Monday, oil will probably head higher, and we'll probably have a strong market rally.

I hate the fact that we have to rush into this. I'd like some careful deliberation ... a real attempt to find out what the problems are and find workable solutions. I hope we get the time we need.

We'll see. It should be an interesting day.

How Will the Fear Factor Impact Markets?

Jack Crooks — Thu, 25 Sep 2008 13:37:49 +0000

How Will the Fear Factor Impact Markets?

Is it just me or does anyone else think that an impromptu Presidential Address should be designated for declaring war, explaining foreign matters or tending to personal Whitehouse affairs … if you know what I mean?

President Bush’s address to the Nation last night did none of those things, really. Sure, it was a fairly clear and concise synopsis for all those who are wrapped up in the markets on a daily basis and/or already understand what’s going on. Rather, Bush took the air to play ‘bailout salesman’.

For all the people disconnected from the markets, for all the people that don’t really know or haven’t really had a chance to lend any thought to what’s going on and what’s been proposed, President Bush needed to sell them on the idea of a several hundred billion dollar bailout billed to the US taxpayer. His strategy was not all that uncommon as it’s consistently used around election time.

Opportunistic scare tactics is what I’ll call it.

And I’m not talking Democrats or Republicans here, I’m talking Democrats AND Republicans – they’re all guilty. It is the simple idea of using fear and uncertainty to trigger the socialistic instinct of human beings. ‘Please, if something horrible is happening, do anything in your power and even beyond your constitutional jurisdiction to take care of us. Please!’ This is one of the ways government can further blur the line between the public and private sectors.

Consider the USA Patriot Act, written and signed into law after 9/11 with the intent of protecting Americans from the spread of terror. The act is actually a long acronym that stands for:

Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Controversy surrounds the Patriot Act, specifically its blatant disregard of several civil liberties (though some see it as an appropriate response in a dangerous world). I am in the blatant disregard camp, but do understand there are extremely valid arguments on the other side.

Now let’s consider this bailout plan proposed by Bush and/ or Paulson. For grins, let’s call it USA Patriot Act II which is aimed at stabilizing the financial system and sparing the economy from its disastrous consequences should no action be taken. Perhaps the acronym would go something like this:

Uniting and Strengthening America by Pick-pocketing Assets, Twisting Regulations and Imposing on Ordinary Taxpayers

Don’t you think that outlines the recent initiatives rather well?

Now this bailout plan, that President Bush is calling his own, may or may not win the approval of the public. And an overwhelming disapproval maybe shows that taxpayers are sick and tired of footing the bill for reckless government spending. Regardless, it seems some form of bailout plan is going to pass through Congress and be granted to Mr. Paulson and friends. The question is how the markets will behave once this remedy is finally prescribed.

Thus far, with the fear factor firmly in play, currencies don’t seem to want to commit to any particular direction. What’s interesting is the US dollar’s ability to hold up the face of this bailout. The consensus has turned decisively anti-dollar now that its multi-month rally has taken a rest.

The way we see it, there’s a pretty good chance the anti-dollar consensus is in for a rude awakening. That is if reasonable market players see past the scare tactics seeping into the dollar-view ... something that reasonable people have done lately.

The main theme of money flowing out of emerging and developed markets and back into the US is what’s supporting the buck. It’s a somewhat perverse concept, I will admit. But the fact that we’re told, and the rest of the world is realizing, that the US economy is walking a tight rope with no safety net could very quickly become a major problem outside of US shores and cause foreign economies to tumble. This idea isn’t sitting well with some. Check out our blog entry (Coming Over to the Dollar-Bullish Camp) for a story on one Asian bond fund diversifying back into US dollars.

In the meantime, risk-averse currency plays may gain the upper hand ... though an overwhelming advantage is not clear just yet. As I wrap this up most US dollar pairs are range bound in the short-term and most currencies attempted to strengthen at the expense of the US dollar in the wake of crummy durables goods and jobless claims numbers this morning. But that commotion calmed down rather quickly.

There’s a lot of steam built up in the market. And there’s a good chance a break out of these sideways ranges will open the door to substantial moves, for or against the buck. Be ready and be quick and be careful when the government tries sticking their hand in your pocket.

Oil vs. US$ Index inverted 240-min chart:

Of late, the dollar has ebbed and flowed with oil prices. Of course we don’t know who leads and who follows, but the slowdown story seems to be dollar supportive still. This can change at any moment and why any near-term breakout here might be worth a punt. [US$ index inverted means when the red line in the chart below is going down, the dollar is appreciating. We show the chart in this manner so you can see the visual correlation with crude.]

Regards,

Jack & JR

How Will the Fear Factor Impact Markets?

Jack Crooks — Thu, 25 Sep 2008 13:37:49 +0000

How Will the Fear Factor Impact Markets?

Opportunistic scare tactics is what I’ll call it.

Consider the USA Patriot Act, written and signed into law after 9/11 with the intent of protecting Americans from the spread of terror. The act is actually a long acronym that stands for:

Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Uniting and Strengthening America by Pick-pocketing Assets, Twisting Regulations and Imposing on Ordinary Taxpayers

Don’t you think that outlines the recent initiatives rather well?

Oil vs. US$ Index inverted 240-min chart:

Regards,

Jack & JR

Stock To Watch – 09/25/08

Daniel Shepard — Thu, 25 Sep 2008 08:00:06 +0000

Solar stocks rallied on Wednesday 09/24/08, after the U.S. Senate on Tuesday, approved an energy bill that could benefit solar companies and expand the U.S. solar market. While the bill still has to get approved by the House of Representatives, President Bush has indicated he will support the bill. One of the solar stocks that showed [...]