Investment challenge: Alcoa vs. GM
Written by Michael Vass
Let’s take a trip through time. Back in February 2009 I purchased Alcoa (symbol AA) at $5.55. It was an investment that I bought with a 2 year timeframe. And I further used this purchase to provide an example of the benefit of investing versus trading.
Today, Alcoa closed at $12.94, down from the pre-election surge. The benefit of Republicans winning the election has given way to the reality that a stalemate in Government is coming. That stalemate will NOT result in a repeal of Health Care Reform, with the taxes and increased regulations it requires. The stalemate will NOT lower the deficit, and may only marginally slow the growth of the Government - according to the resistence to ban earmarks that Democrats are currently proposing. At this point it cannot even be clear that the Bush Tax Cuts will continue, causing a tax hike to small business owners and further damaging investor returns.
Given these facts, I continue to hold my investment of Alcoa. My target continues to be a 2 year objective. I still expect to reach a $18/share or better exit (though I did have 1 opportunity to exit the position in this range already).
But let’s compare that investment to something else. The “investment” America made into GM, via the $49.5 billion bailout. An investment that was made with our tax dollars with a promise of not only repayment but also profit.
To date $9.5 billion of the bailout has been repaid. The bailout provided the Government 61% ownership, with unions being paid at the expense of bondholders. A violation of law, and the principle of bond ownership.
GM will be introducing a new IPO potentially at $33/share as soon as tomorrow. The Government will wind up with 412 million shares (reducing ownership to 26%), unions will have over 100 million shares. Foreign investors will gain 16% of the new stock (China will own some 5% alone). A dozen major brokerage firms will make tens of millions off the offering. The American public will receive… nothing.
Which investment (both occured within months of each other) seems the most beneficial? Which might help encourage job growth or pump critical spending into the still failing economy?
Why is the Government holding the shares of GM? Why not give this “investment” to the public (maybe 1 or 2 shares to each person that has filed an income tax since 2009) to spur potential investment and allow individual taxpayers the opportunity to determine when they have made enough of a profit? Why wouldn’t the Government want to let tax payers invest - with the potential to gain increased tax revenue from the sale of that investment while providing a critical institution the potential of tens of millions of new investors?
Lets look forward. GM still has problems that have not been resolved. Unions still cost too much, the retirement funds are still too expensive. The cost of a GM car still has a built in expense of $2,000 just because of union costs. Which says nothing of the impact the Health Care Reform will have on this company.
Add to this the fact that the Government has required the creation of electric cars. The Volt, an electric car from GM built on the chasis of an existing $16,000 car will cost $41,000. There is no market for this vehicle. It is so expensive and unwanted that the Government will provide a subsidy for its creation. Senate Majority Leader Harry Reid is about to propose $4 billion to supplement the creation of this car.
If GM is required to make cars that have no market, at a cost that is too expensive to own, how successful will the company be? How long will GM remain at or above the potential $33 IPO price?
But there is more. Remember that Democrat leadership and President Obama want to pass Cap & Trade. The Bill will mandate an increase of some 150% or more on the average energy bill of individuals. To force people to conserve energy. To be more “green”.
If the Government is successful in “necessarily skyrocketing” [President Obama quote from January 17, 2008 - see Cap & Trade link above for video] energy costs, while mandating electric cars in an auto industry the Government holds sway over, how many people do you believe will want to buy electric cars? Electric cars that are so expensivce they require Government funding to make. Cars that will require an increase in the electricity that the Government does not want individuals to use?
And exactly what might happen to the share price of GM in this scenario? How likely do you think it will be for GM to repay the bailout, or to pay a profit on that bailout? How long might that take?
Returning to the original thought. When investors are allowed to make decisions on their own, profit can be made. That profit will eventually benefit the Government in taxes - assuming that the taxes do not absorb the profit. That profit allows for consumer purchases and job growth, which benefit the economy.
When the Government interferes, as in the case of GM, there is a mess. The company is not better off. The investors are potentially at significant risk. The product is impared and unwanted. No one wins, except foreign governments and selected special interest groups (like unions).
Is GM a good investment? Will the IPO make money for individual investors, or for the American taxpayer? Will GM be worth more or less in 2 quarters, in a year? All good questions. I would say the prospect, based on Government interference is no. I would say that I won’t sell my profit in Alcoa to buy GM. I would say that in 5 years I think that GM will be in as bad a shape as it was 2 years ago.
So here is my challenge, my thought experiment. Taking the closing price of Alcoa vs. GM after the IPO, I will compare the profit/loss in 6 months and 1 year. Let’s see if Government intervention and mandates are a benefit or loss to investors and taxpayers.
What do you think will happen?
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Does the Dow at 11,000 mean the economy is improving?
Written by Michael Vass
Recently we were asked by an associate
“If the economy is so bad, if the Stimulus is to blame, why is the stock market running higher?”
It’s a good question. Here is our answer.
The economy is in a bad place. The unemployment rate has yet to decrease below 9.5%, the underemployment rate is increasing, and tax hikes are looming. None of these factors bode well for the economy going forward either.
In 2010 the number of mortgages in trouble has increased, over the increases throughout 2009. Roughly 1 million homes are expected to be foreclosed on this year - likely even with the current hold on foreclosures. The housing market has yet to rebound in the face of this, and financial comapnies are still suffering as they try to absorb all the bad loans made.
The pressure on banks and other fiancial companies is restricting further loans. Given the outlook for continued unemployment in a range of 9.5 - 10.5% or greater until 2012, the fact that higher taxes means higher prices and thus lower consumer spending, and higher levels of foreclosures. Money is not flowing to the most needed area - smal businesses. This is true no matter how many Government loan stimuli are proposed or enacted or for whatever amount of billions, as most small businesses do not qualify especially in this environment.
That summary, which is given as very general, highlights the core of the problem. It is a problem that will not reverse overnight no matter what political party controls Congress. But it is a situation that can begin to improve depending on who is in Congress.
This is where the stock market comes into play.
Stocks do not move on news or fact. They move on the emotion created by news, facts, and rumor. That emotion often has little to do with anything but perception. And it is almost always a perception of the future.
Thus a company provides earnings that beat the street expectation and it moves higher based on the thought that it will continue to create bigger earnings. The counter is that if they miss the fear is that there is trouble and the company will not make estimates going forward.
An example is best seen in drug companies. The expectation of a drug being FDA approved can catapult a stock by hundreds of percent. Gaining FDA approval can rocket a stock based on the perception that enormous revenues will be earned. Neither is often true to the extent of emotion moving the stock. The counter is also true. AMLN missed FDA approval for the first drug in its pipeline, and the stock fell from about $12 to $6 in 3 minutes on the news. The company then eventually went to $.25 as the emotion was that the company would never get approval. Today the stock is at $21.41 a share after having gotten an FDA approval.
Looked at another way, the market has been in love with the earnings reports of many companies for several quarters now. Companies of every sort have outperformed expectations, and year over year results. This has moved many companies higher based on the outperformance. What is not being addressed is that the year over year comparisons are against some of the worst of quarters due to the mortgage/financial crisis and its aftermath. The reality is that a company just staying in business is highly likely to have shown better numbers just because they are still around. This is becoming less of a factor as business stabilizes a bit, though the emotion has yet to fizzle completely.
In addition to the above there is another factor. Politics.
The stock market tends to view politics in a very distinct manner. Historically it views elections as an indicator of how well they will do. Democrats tend to mean higher taxes and more regulation - thus restricting growth and depleting profits. Republicans are seen as the reverse.
So in looking at the overly simplified summary, the result is that the economy hasn’t gotten better. Companies have only improved the emotion that is felt about their stocks and future. Added to that is the emotional benefit from the growing consensus that a record-breaking return to a Republican-led Congress is impending. Emotions are running high, when that is positive the market runs, when it is not bears rake in cash.
Lastly, look at gold. As a barometer it tends to indicate how secure investors feel about the future. Low gold spot prices mean a positive economic outlook, stable is more of the same, and high means trouble on the horizon - as a general rule. Gold is currently $1348, and probably going to go higher near-term. At least until the issue of the Bush tax cuts and court questions on the Health Care Reform are resolved.
Taken in total, the Dow Jones Index is running because Democrats are about to lose power massively, and the expectation that there will be less tax and regulation in the future. The results for quarterly earnings is less a factor for now.
If all the outcomes are not exactly what is expected, investors will sell. If taxes are not lowered, if future earnings reports compared to non-devastation reports are flat to down, if Republicans do not control virtually every seat available in the election, if Health Care Reform is upheld by courts, and if further restrictive regulation is passed, the markets will reverse quickly.
As I have said back when I was a broker, don’t look at the market as a reflection of the health of the nation’s economy. Look to it as an indication of the emotion about the issues facing the nation next week.
Fact check - Stimulus “exactly what was needed”, success
Written by Michael Vass
In the Vestal Public Library, Dan Lamb, speaking on behalf of Rep. Maurice Hinchey for the night [video to follow shortly], made a statement about the Stimulus. He stated that the Stimulus was “exactly what was needed” at the time. He also stated that supporters of his boss should be as proud as Rep. Hinchey is about his actions in support of his constituents. He later discussed the Stimulus as a success - having 1.3 - 3 million jobs created or ’saved’.
We want to point out that Mr. Lamb later verified the source for this figure, and therefore the success of the Stimulus, come from the CBO. Which is in fact from the August 2010 report on the Stimulus. We do not dispute the range stated by the CBO, nor do we question either Mr. Lamb or Rep. Hinchey for quoting this range.
But we do dispute the implication that this range verifies success. Websters Online Dictionary defines success as: “favorable or desired outcome”. We will keep this in mind.
The Stimulus, originally envisioned by Speaker Nancy Pelosi in October 2008 as a $50 billion proposal, swelled in scope and price the week of President Obama’s election, eventually reaching $787 billion. The claim was that the nation was on the brink of a depression - to paraphrase President Obama. The key economic advisors to the President (all but 1 now having left service to the President and public duty) claimed - and were repeatedly quoted by Democrats at the time - that if nothing was done unemployment would rise to 9% and eventually stagnate at over 10% until 2014 or so. If the Stimulus were to be passed unemployment would be capped at 8%, and by the 4th quarter of 2010 would be receeding under 7.5% and falling.
Therefore, the definition of success is not just that 3.5 million jobs be created or ’saved’ (a term that has yet to be reasonably defined), but that unemployment be under 8%, the economy stable, and the at least latter stages of a recession be in place.
Now that we know the terms of success, let us evaluate what the Stimulus has done - based only in fact - and therfore determine if pride and accolades should be taken.
The Stimulus is currently projected to cost $814 billion, an increase of $27 billion. That is a revision from an earlier estimate of $862 billion. This is from the CBO. Therefore the Stimulus has failed to be on budget, and it is unknown what the actual cost will be especially since the on-going projections vary massively (massively being defined as the GDP of nations between the size of Latvia and Angola) - not accounting for interest payments on the national debt it increased.
The unemployment rate at the start of the current recession (Dec. 2007) was 4.8%. At the time of the Presidential election, and the swelling of the Stimulus proposal, unemployment was at 7.1%. At the time that the Stimulus was proposed to the American people (Feb. 2009) it was 8.9%. Unemployment has never been back to this level since. By Jan. 2010 unemployment hit the current high of 10.1%, and as of Oct 1st sat at 9.5%.
Therefore, according to the U.S. Bureau of Labor Statistics, the Stimulus has failed to cap unemployment at the desired level. It has failed to stabilize the economy. It has, in real numbers, failed to create any jobs and failed to ’save’ jobs - however that term is wished to be defined.
Stepping away from the absolute facts, there are the softer facts which may be interpeted however anyone might wish. Those numbers show that the average cost for each job claimed to have been created and/or ’saved’ is roughly $200,000 - jobs that pay roughly $30,000. Again these numbers vary from place to place and have been subject to improper documentation or just plain old bad math; but the consensus by everyone that evaluates the figues is that an inordinate amount of money is being spent on a per job basis.
There is also no question that the Stimulus was proposed to create some 60% of jobs in the private sector. There is equally no question that actual job creation in the private sector has never approached that percentage - arguably if any positive growth has occured at all. Which ignores the question of the long-term sustainability of the jobs, which debatably does not exist now.
Given these factual and subjective thoughts to contemplate, let us return to success and it’s definition. Has the Stimulus achieved success?
Also consider this fact. In the report from the CBO where the range (not an exact figure, and about as accurate as comparing the national population of Trinidad and Tobago to Panama) the report also stated that the positive effects of the Stimulus will
“gradually diminish during the second half of 2010 and beyond”
Therefore, the best possible outcome from the Stimulus has already come and passed. Which may be proven to be fact if the report by Gallup of an unemployment level shockingly increasing to 10.1% in September is accurate.
So in conclusion, the question once again is
By what criteria can the Stimulus be called a success?
That answer is probably the equal of another item, a coincidence if you will. While there is no doubt that Mr. Lamb has great pride in his work and his employer, Rep. Maurice Hinchey apparently does not hold the same regard for his votes in Congress. While we may be inaccurate, to our knowledge and research, there is not one political ad for re-election that shows Rep. Maurice Hinchey - or any other Democrat up for re-election - that promotes their voting record in Congress (Stimulus, Health Care Reform, Cap & Trade, DREAM Act, failure to pass a budget, failure to take a vote on the Bush Tax cuts).
Why should constituents be proud of Rep. Maurice Hinchey? There may be many reasons, but the Stimulus is definitely not among them.
How close were the predictions of 2008?
Written by Michael Vass
Recently the past came up in a conversation. Specifically the predictions made on November 11, 2008 about the Obama Presidency. That prediction was focused on the fiorst 100 days. But in fairness (and in no small part the fact we have been busy) let’s look at the array of things that we predicted 2 years ago.
To start it off, the predictions made were:
So how good are we at M V Consulting, Inc.?
Well, good but not fantastic. Almost none of the events we predicted happened in the first 100 days. But to expect such a whirlwind of action from the Government was beyond real expectations anyway.
Forgetting the timeframe failure, we were about as spot on - in fact better - than almost every pundit in America. Certainly more accurate than the Democrat Party and the Obama Administration. And we are sorry that we were on the mark.
In the past 2 years the national debt has rocketed forward, along with the unemployment rate. More money is spent in a year now than ever in the history of the Government. But there is less to show for all the spending.
Unemployment has remained at an average of 9.4% or higher since the Obama Administration took office. That number is significantly higher if we factor in all the people that are on ever extended unemployment check roles (now at a remarkable 99 weeks), and the number of people that have used up the Government payments and therfore are no longer counted. In Government math, those people just evaporated. Therefore we accept that underemployment rate of 16.4% as being deadon, if not an underestimate of reality.
Partisanship is at a level of divisiveness almost unseen before. The unending mantra of blaming everything on President Bush and Republicans continues without stop. It has also lead to several Bills from Congress that can claim 2 Republicans (and several if not dozen Democrat defectors) at best for bi-partisanship. This from a President that nearly guaranteed co-operation with the other side of the political line.
That partisanship also extened to the public. Initially in the manner in which the Stimulus was passed, without reading, without knowledge of effect, for $787 billion (it’s cost has since gone higher). It then was consumated in the Health Care Reform. A law that was almost universally opposed outside of Washington D.C., and still the majority of Americans want it repealed.
That partisanship has also lead to the attempts to sneakily pass a repeal of Don’t Ask Don’t Tell, and a backdoor deal for amnesty and illegal immigration reform in the guise of the DREAM Act.
So we got partisanship, a myopic Congress, Stimulus, increased debt and unemployment correct. What else?
Well there is the effect of the Stimulus. We said it would fail. President Obama, VP Biden, and Speaker nancy Pelosi all say it is a success. Democrats up for re-election won’t even talk about it. But with unemployment far exceeding promised levels, and with multiple smaller stimulus clones being proposed, we stick with the opinion that we were right.
Of course we were completely wrong about the Health Care Reform. Our fault for thinking that Democrats would not stoop to pulling every legal trick and form of bribery to get it passed. Our fault for assuming that when 60%+ of the nation says don’t do something, politicians would listen to voters over their political Party. By the way, how many Democrats are running on that decision? Might be a clue to how good it is. Again we are sorry were were wrong about that, would have been better if we were right.
Another sad thing that was right was the result for homeowners across the nation. We knew mortgages would fail even more, and that the number of people in foreclosure would grow to include non-sub prime homes. The rate today, and for the past 2 years has only increased from the rate 2 years ago. Not surprising that has also lead to dozens of smaller banks failing - though it is less publicized these days.
One surprise we hit spot on was the Dow Jones Index. By Feb 17, 2009 the Dow was under 7600. It would ultimately bottom at 6626 in March 2009. Well within our 100 day target. We really hoped that would not happen. But since that time the Dow has corrected - without any real good reason - and is currently rising on a tide that indicates a massive victory of Republicans in the mid-term elections.
We missed on the inflation estimate, though the cost of real goods (or the fact that may goods are being sold at the same price for less quantity) has been flattish. We could argue the issue, but instead we’ll accept that we are wrong. The same can be said for the auto bailouts. Time magazine stated the cost was $80 billion and growing in March 2009, today it is generally accepted that it cost about $90 billion. We missed, but boy were we close. Which is a shame considering the contract law that was violated and the pitiful return we got for the bailout.
Speaking of pitiful returns, Fannie Mae and Freddie Mac. No more need be said.
Lastly, we were wrong about the Fairness Act. Congress just hasn’t had time to get to it. Considering that they have had to wrestle with finding a way to pass the unwanted Health Care Reform, try to slip past an Immigration Reform, rebuked Arizona as the majority of the nation praises it, and generally ignore job creation while touting it, you can’t hold it against them for not following through with that.
There is just one more thing. We predicted that president Obama would lose in 2012. We didn’t factor the massive backlash that is the 2010 mid-term elections. So while we still think President Obama should and will lose, it will be a far more difficult proposal. But we will stand by the accuracy we proved above.
Hopefully, in all earnst honest, we want to be wrong going forward. We really do still want to be wrong, because if we are life for the nation will vastly improve. But we aren’t counting on it any more than back on November 11, 2008.
M V Consulting, Inc. Announces Milestone at its Online Political Commentary Division
New York, NY (PRWEB) August 31, 2010
Today M V Consulting, Inc., president Michael Vass announced the achievement of the milestone 1000th article at the Company’s political commentary blog site - http://www.mvass.com (VASS). In celebration the Company has planned a month long sale at its online store.
“We are pleased to have achieved this milestone. It is a representation of the effort and dedication of the Company, as well as the ongoing support of viewers across the globe,” stated Mr. Vass.
He went on to say, “While providing a 10% discount on all purchases over $100 at our Alchemy at World of Vass online store for the month of September is not related to political commentary, it is something that we can do for our visitors that have come back day after day over the years.”
The VASS political commentary blog has been in existence since 2005, with an official launch in 2006. In that time it has been selected as 1 of 2 sites covering the entire 2008 Presidential election for TV One, and cited in the book Current Controversies: Immigration (hardcover editions), by author Debra A. Miller. Author Michael Vass was also selected as one of 3 contributors to the Central New York Business Journal, Greater Binghamton Business Journal, and Mohawk Valley Business Journal – Financial Quarterly editions, May 14, 2010, based on the financial commentary found on this site.
In addition to these recognitions, VASS has also interviewed Mayor Matt Ryan of Binghamton NY, NY Congressional candidate George Phillips, NY State Assembly candidate Art Garrison, NY State Assembly candidate Jason Stokes. Interviews with several additional candidates for the 2010 mid-term elections (local, State, and Federal) are currently in planning stages.
VASS has also covered major news events including the Binghamton Civic Center Shooting, the Viet Nam Living Wall Memorial, Coverage of anti-war activist Cindy Sheehan, and the recent Binghamton Tea Party Rally (where Company president Mr. Vass was an invited speaker).
Company president Michael Vass also stated, “We have provided coverage of elections, commentary on major legislation and its effects on the nation, economic forecasts, and posed public questions on issues to elected officials for 5 years. We have taken the stance that questions not often asked by the major media need to be asked of elected officials, and the ramifications of legislation that the public needs to know must be made clear. It’s a daunting task, but with visitors from 100 countries (predominately from the U.S.A.) per month in the tens of thousands, we feel we are succeeding in that continuing quest.”
The VASS political commentary site is one of several divisions of M V Consulting, Inc. The Company also owns Black Entertainment USA (http://www.blackentertainmentblog.com) - an entertainment blog primarily presenting movie, television, and entertainment reviews; Alchemy at World of Vass (http://alchemy.vassconsult.com) - an online store featuring handmade imported English pewter jewelry, accessories, and clothes; World of Vass (http://www.cafepress.com/nova68) - an online store featuring t-shirts, clothes and other items with unique proprietary custom designs; and the M V Consulting, Inc. corporate site (http://www.vassconsult.com) - featuring SEO, Video production and editing, Webmaster, consulting and other services of the Company.
Where does the Dow Index go after 10,000?
Written by Michael Vass
Earlier today I had an interesting conversation with a former colleague of mine. In the past we had both been stockbrokers, and my colleague wanted to find my opinion on the economy. Specifically it was the likely outcome of the Dow Jones Index dropping below 10,000.
It’s not new to hear that many analysts state that the 10,000 level on the Dow holds no importance on trading levels or investor confidence. But I disagree. There is a psychological connection to targets like 10,000. It’s a landmark number, a value that implies importance and significance. It’s so important that the markets fought for days to stay above, and will likely try for a rally tomorrow to get back over.
But with the breaking of the 10,000 mark what is next?
As I stated in my contribution to the Central New York Business Journal Financial Quarterly edition of May 14, 2010
“Today there is little better that I can see coming in the months ahead. Unemployment continues to exceed 9% nationally, and regionally. Many of the short-term benefits of the 2009 Obama Stimulus have come and gone, with jobs like the Census soon to come to an end, further impacting the unemployment rate… I believe that a return to levels around 8500 is probable.”
3 months after the fact I see no reason to change my opinion. Unemployment is at 9.6%, 40% of those on unemployment have been so for over a year. Half of the 1.3 million homeowners that tried to get help from the Government on their mortgage have fallen out of the $75 billion program without any help. Mortgage defaults and foreclosures are higher today than at the peak of problems in 2008 or 2009.
The solutions being offered by the Federal and State Governments are to increase taxation while increasing spending. In 19 months this has not worked. The current plan is to continue this process, even to double down. Those of us that understand any level of economics in the real world and not academics realize that if there was going to be a positive effect it would have happened in the first 6 - 9 months and be done by this point.
In speaking with my former colleague I was asked what then would I do to change things.
Cut taxes and stop spending. Simple and direct. Also unpleasant on a political and real world level. Because it will not be a good expereince for anyone.
There is some $421 billion of the Obama Stimulus that has not been spent yet. It should be placed against the national debt and otherwise be unused. It has not helped to improve the economy, and at best it has only drawn out and extened the timeframe in which the nation will languish in this recession. Continuing on this path by using these funds will only extend the problems for additional years, with the potential of passing on an even worse trap for future generations than what is being experienced now.
The 60%+ of funds from the TARP that have been repaid need to go to the deficit. These funds are not a slush fund for Congress to cherry-pick pet projects to fund. The purpose was to save banks that should have been allowed to fail. The banks are no better off as foclosures hare more prevalent today than in 2008, with losses mounting daily. Banks have failed by the dozens in the past 2 years. Businesses small and large have continued to be denied loans.
These are just 2 examples of spending that needs to end.
In New York higher taxes have been rampant at every level of government, without any lessening of the State debt. Jobs in the State are being lost almost proportionately to the tax increases. Not good indications of a positive outlook from one of the largest and most prosperous States in the nation.
The Health Care Reform has already caused insurance rates to rocket 20% across the nation, 3 years before the law becomes active. Already firms have stated that future jobs are in danger as companies plan for the higher costs the law demands. Already individuals are redoing their budgets as they are preparing to pay higher taxes for the health insurance they currently have. Jobs aren’t being created, therefore the economy will not improve.
The perhaps biggest example of the depth of the problem for the average American? The fact that tens of millions are realizing that the cost of bank fees exceed the interest in thier bank accounts. Bank fees that have increased in part due to the intervention of Government in the banking industry.
Ben Franklin once stated that the definition of insanity is doing the same thing over and expecting a different outcome. Everyday economics has proven that spending money that doesn’t exist is counter-productive. Therefore following this path can only be concluded as the path to greater debt, instability, and continued unemployment.
By cutting taxes, at the individual and corporate level benefits can be had. Companies can gain some confidence in highering employees. Individuals can have some confidence in spending money. Tax revenue based on volume provides more than higher taxes on an ever diminishing base.
Some things are simple. If what you do does not work, change what you are doing. It’s a concept that 5th graders can understand. Perhaps Congress and the obama Administration just need to go back to 5th grade.
Wag the dog Mr. President
Written by Michael Vass
I have no problem stating that I believe President Obama is an intelligent and accomplished man. In terms of his politics, that is another matter. But I believe that credit must be given to the President for what he has done this summer.
The summer of 2010 was set up to be a shining example of what a Democrat-led Congress coupled with a Democrat President could do. The American Recovery Act (Obama Stimulus) was planned to have had it’s penultimate effect during this time. Promises of jobs were made with this summer being the payoff for the patience of the public. As the months after passage ticked away the message was that the end was in sight and assurance of the near-guaranteed change was at hand.
But things did not get better.
At every step the Obama Administration promoted the Obama Stimulus. They touted websites and figures of jobs saved ranging from the hundreds of thousands to the millions (depending on which official you asked, sometimes differing even on the same day - though completely refuted by news organizations that bothered to check the numbers). They noted that there was still billions more in spending to come. They repeated the mantra that given just a bit more time, the recovery would be apparent to everyone.
19 months after the swearing in of President Obama, 17 months after passage of the Obama Stimulus and the economy is worse than where it started. That’s not rhetoric or partisan. That’s fact with enough data to prove it that it could choke a horse.
Unemployment has risen to levels that exceeded the worst case scenario of doing absolutely nothing, laid out by the President and all his advisors. As of this time in the promise, unemployment is supposed to be under 7.5%. Currently it is in excess of 9.3%. Unemployment checks have been extended to 99 weeks, with debate raging on extensions even further out. Over 40% of those receiving unemployment benefits have done so for more than a year.
Worse yet, mortgage foreclosure rates have risen steadily, now at all-time highs. And projections are that over 1 million foreclosures will happen by the end of the year. These foreclosures are no longer confined just to sub-prime markets, this now includes middle class Americans that previously maintained excellent credit.
Jobs creation is unseen. With the exception of temporary Government jobs (ie Census), the private sector has limped along barely creating 20,000 new jobs in any given month - though unemployment claims have maintained over 400,000 almost non-stop. Projections again are for more of the same or worse as the year progresses.
Taxes are soaring on both the Federal and State levels. The end of the Bush Tax Cuts are expected to increase taxes to the average American some 3%. That’s not including the Health Care Reform - initially promised not to be a tax increase but currently being called a tax in courtrooms as Americans at the State level look to repeal the law. All the while healthcare insurance rates are skyrocketing 20% or more, in direct opposition to the promise of lower health insurance rates. And the best outlook on this front is that there is still 3 more years before the Health Care Reform takes effect.
This says nothing of the proposal to “necessarily skyrocket” (as then-Senator Obama promised in a television interview) energy prices with Cap & Trade. Nor does this touch upon the gargantuan [never get to use that word much] increase in deficit spending, hastening the unsustainable level of national debt to a propbable collapse that would make the combination of Greece and Spain look like a pittence.
Therefore under even the most generous and partisan view, the Obama Administration and the Democrat-led Congress, have failed in the most attrocious manner at every economic indicator. Such failures would define any other President as a disappointment, and turn his remaining time in office into an extended lame-duck session.
But instead President Obama has the tail wagging the dog. With the help of the major media, news of the economy escapes the daily news reports. In 2007 and 2008 there was barely a day where the mortgage or finacial crisis was not a headline. In 2010 the media is hard pressed to notice that unemployment levels are increasing, the latest at 500,000 without work for the week. And the last time anyone mentioned the foreclosure rate in the nation was before the Health Care Reform was passed.
In fact the news tomorrow will not be about the economy. It will not be about the insanity of statements like “this is the summer of recovery” or “unemployment checks are a stimulus” (the last said by Speaker Nancy Pelosi - a statement that begs the question of what her math grades were in school). The news will be about the proposed mosque next to the remains of the Twin Towers in New York City.
Given that this is an issue. A moral impasse that is being kept alive with one-sided arguements on the Freedom of Religion (an issue that many liberals have fought against for decades) that no one disputes, and near complete silence to serious questions of where the source of funding is coming from. Is there a right to build the mosque? Of course, and everyone agrees with that. Should it be done? Will it improve relations with Muslims in this nation? No and no.
But I have to admire the brilliance of President Obama. With 2 almost diametrically opposed statements he has elevated the arguement to a national discourse, distracted everyone from the elephant in the room that is the economy, given incumbent Democrats a desperate chance to try to get re-elected by distancing themselves from the President, and hung a racist label on anyone that opposes his views.
That’s the kind of strategy only a lawyer would consider. A deflection from the obvious so simple that if it were transposed to our fight against Al Quaeda, Osama Bin Laden would walk out of a cave in Afghanistan (or Pakistan) right up to a camera and troops to argue the pros of the mosque. It’s a confusion so taunt on the heartstrings of millions that many won’t even notice the fact they are being thrown out of their homes as they argue.
Is President Obama a great President? Does he deserve the A he gave himself back in January?
Yes; great if you mean a great failure, a complete loss, an utter incompetence at every level of economic planning. Yes, he deserves an A grade; if the grading is based on distraction, obfuscation, and deception (which if he were a car salesman it would be called fraud).
Yes Mr. President you have the nation wagging by it’s tail. But, at some point, the wagging will stop. At some point, the nation will pay attention to the details because President Bush walked out of the White House 19 months ago and counting. At some point, everyone will recall that regardless of color or political party the buck stops at the door of the White House and whomever holds the Office.
Will that day be before or after the mid-term elections? There is no doubt that the White House and many Democrats up for re-election hope so. But only time will tell.
The next economic bubble
Written by Michael Vass
For all the stimulus, the deficit spending, the promises of “saving” jobs the economy has not improved. Unless you count the 400,000 temporary Census jobs as growth. Otherwise things are not better off for the average American or business. In fact they may be getting ready to get worse.
Paul Krugman wrote in an NY Times Op-Ed
“We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression [of the late 1800s], than the much more severe Great Depression. But the cost–to the world economy and, above all, to the millions of lives blighted by the absence of jobs–will nonetheless be immense.”
That is a troubling thought from a well respected economist and Nobel winner. But what if that is correct.
Currenly New York State, the 3rd largest State population and the 16th largest economy in the world (as of 2007), faces an $8.5 billion deficit (as of May 27, 2010). Unemployment in the State is 8.2% as of April 2010, off the peak but double the rate of 2007.
The Governor of New York has proposed multiple new taxes to try to eliminate the gap. The reality is that in the recession, with so many unemployed and underemployed (14.3%), adding taxes to a population already struggling to make ends meet only exasperates the problem. Worse, higher taxes reduces the number of small businesses and the jobs they provide. In essence, trying to fix the deficit by increasing taxes but not reducing benefits makes the deficit worse.
New York State has roughly $59.3 billion in municipal bond debt. That debt is not included in the deficit. It’s a rotating debt. But if the recession grabs hold of the nation, and unemployment rises higher as Krugman believes, then States will fail. That means that muni bonds will not be paid off. The State and local governments would not be able to pay off the debt. There just won’t be enough revenues, no matter what the tax rates increase to.
If California, and New York, and even 1/4 of the other 44 States currently in a deficit fail, what will that do to the economy? If the mortgage crisis created a credit crunch because some 5% of individuals could not pay off their higher mortgage payments, what happens to the faith in the U.S. economic system when 25% of the States in the nation fail to pay obligations backed by the faith of the Government?
If a State can’t pay it’s government workers, its financial assistance and food stamps, its road and bridge maintenence, it basic needs and public obligations, or even if it can only make those payments by defaulting on the muni bond payments - what kind of panic will flood the markets. Who will be able to get a loan if New York State can’t qualify for a loan or bond?
IF Paul Krugman is correct, and another leg of the recession drops then it is reasonable to expect that muni bonds of at least some of the 46 States in deficit now will default. Worse yet is another thought that Krugman proposed
“Unfortunately, most Western economies are now thoroughly addicted to government spending. Each fiscal and monetary injection into zombie banks will likely have to be larger in order to offset the withdrawal symptoms of losing the last stimulus plan.”
That sounds exactly like what President Obama has proposed at the recent G20 meeting. More, larger, stimulus spending. Which means more, larger, State deficits. Which means the likelyhood of a muni bond collapse is that much more likely. The dominoes fall one by one.
It is terrifying to envision, but it is possible that the mortgage crisis may be the happy days of this recession.
Sneak preview: Central New York Business Journal - Financial Quarterly edition
Written by VASS
If you are in the Central New York area, you may want to pick up the May 14th Financial Quarterly edition of the Central New York Business Journal. In that edition will be found the views and projections of this writer. It is a proud addition to the citations this blog and writer have gained over the years. The article will also be found in the Mohawk Valley Business Journal, and Greater Binghamton Business Journal, Financial Quarterly.
Excerpts of part of what will be found in the newspaper articles follows:
“…Today there is little better that I can see coming in the months ahead. Unemployment continues to exceed 9% nationally, and regionally. Many of the short-term benefits of the 2009 Stimulus have come and gone, with jobs like the Census soon to come to an end further impacting the unemployment rate.
Energy costs continue to move higher. Gasoline cost are edging up closer to all-time highs even before the impact of the oil spill in the Gulf being considered. The potential of off-shore drilling being suspended or any refinery shutdowns only adds to the cost of gasoline and other refined oil products. Thus the intermediate-term costs will go higher, likely exceeding the highs of 2009 and 2008.
Another factor that is not often discussed is the international instability. Whether the question is Greece, Afghanistan, a nuclear Iran, or attempted attacks on America it all has an effect on the markets. The current instability of Greece and its effect on the Euro might be devastating to Europe and thus America as well…”
“…The company has total cash of $59 million vs total debt of $40 million with a current ratio of 5.59. Book value (11.13/share) is 1.31x the current price. The forward P/E is targeted at 10x, with 78% institutional holding.
The negative is that potential slowdown in sales related to Lockheed Martin have not been factored in. Giving a discount to book of 10%, and factoring in a similar discount to cash while increasing debt proportionately, the company maintains an attractive overall balance…”
“…It is unlikely that all these things will happen, or to the degree mentioned. In fact none of this may happen. But the markets react based on emotion and the perception of what might happen. Investors that remain calm and evaluate the circumstances stand the best long-term advantage.
Remain calm in commotion, evaluate situations to determine if changes in a company are fundamental or market driven, have a long-term objective and strong fundamental reasons for owning any investment. Plan for a degree of the unknown occurring, establish downside limits. And always speak with a trusted investment professional before acting on an investment…”
There is more to the article and the answers than the excerpts above. But it gives a small indication of the information that will be found in the Financial Quarterly. [Note, the article was written on Thursday May 6, 2009 for publication deadlines, and all stock data is based on those closing date prices.]
If you have the chance, do purchase the respective Journals for the full article. Thank you for your support.
Stock investments: how are we doing?
Written by Michael Vass
Back a year ago I discussed my impressions about the stock market. It was a terrible time. There was blood on the streets, and as an investor I loved it. I saw it as the time to step in and buy.
I choose Alcoa (AA) as my intial purchase. I was able to pick up shares at $5.55, which I documented on this site. My outlook was a 18 - 24 month hold seeking to exit in the range of $15 - $20. So far the stock has peaked at about $19.20, but currently trades in the range of $14.38. All in all a very good investment, though some are now looking for the stock to decline to around $12 or so.
My reasons for buying Alcoa have not changed. It has a strong management, aluminum is still a very necessary metal that they have superior control of, and the book value versus price is still in an excellent range. Even if the stock dips between now and the next 6 months I believe I will ultimately reach my $20 upper threashold. At worst I should maintain my lower threashold, with a return of $9.45 or 170% in 18 months. I can live with that return.
Of course not every investment works out so well.
Later last year I did take a position in E*Trade as well. I stepped into that position at $1.55. The outlook I had for the company was 3-fold.
I would see the company taken over, which has not happened yet. I might see the company completely fold, which is less of a concern today than when I stepped in to buy it. The last thought was that the company would just survive, and appreciate based on the fact that it continues to operate.
While rumors continue to abound about a takeover, none has materialized. The latest rumors (which I do not base any investment on) state that the hiring of a new CEO, Steven Freiberg formerly of Citigroup, means the company will go on its own path. This could bode well for the stock, as any improvement with it’s troubled mortgage assets would substantially improve the balance sheets.
At the same time there is the converse rumor. That the company will be taken over because along with the new CEO will be a reverse-split of the stock (a proposed 10-1 split). It is said this will make the balance sheets look more attractive, and lessen the impact for a merger. The new CEO is only an added benefit in that he can add a sense of long-term improvements to the balance sheets, and will add to any new management well.
Both opinions state that the bonus for Steven Freiberg is a big incentive. He will receive $1 million in pay, with the potential for $3 million based on performance. Obviously a takeover would qualify, but so would an improvement in profits. Either should increase the stock value substantially.
My problem is that I do not have confidence in Mr. Freiberg. Citigroup had (and I believe still has) horrible mortgage accounts. They were and are in severe trouble due to the fact they re-insure their own accounts. That means the accounts in trouble are difficult to see. Mr. Freiberg may well have had nothing to do with that, but I do not like that he was in the company atmosphere that allowed such actions.
In addition the reverse-split is going to hurt. Not in terms of valuation, as that will remain the same. The public impression of a reverse-split though is far more serious. It is always seen as a negative. Already the stock dropped on the news, though it has recovered to $1.50 now. Once enacted, the stock will have another 2 - 3 day drop. Partially because of the misgivings of the reverse-split, partially from smaller investors that will see a sudden higher price and will sell assuming they made a huge profit.
Given this I will not sell at this time. My forecast was based on a 2 year investment. Given time, with new management in place and any improvement in the economy, E*Trade should rebound. The potential for a takeover increases as the outlook of the economy improves. Thus as long as the stock does not drop below $1 (or $10 post-split) I believe it is worth holding - as no fundemental change in the company occurs. In my worst case, my profit from Alcoa will offset any loss.
Now beyond all this I am looking forward. What else could be a solid investment? I missed out on buying Sirius Sattelite (SIRI) at $0.55, and it currently sits at $0.85. I don’t think the move to $1 is worth stepping into yet, though if I can get it at r below $.75 I would be interested.
I like financials still, but I have not identified a bank I really like yet. Especially with the new fees from President Obama. I think the Ipad is a fad. I don’t see much in the computer markets, and many other sectors look flat. I expect Wal-Mart to take serious losses if and when there is an improvement in the economy and consumers feel safe to spend more for brand names.
I think that the area that might be of most interest is entertainment. Not movies or music, but video games. They are relatively inexspensive, they are popular in age ranges from 15 - 45. Men and women enjoy various games. And compared to the relatively short time a movie provides they are a better use of money dedicated to entertainment.
Thus Electronic Arts looks like the best bet. The problem for me is that it has a book of $8 (book value 2.3x, I prefer 1.5x), $5.46 in cash per share, and a P/E of 30. The short interest is minimal, but I find it a bit pricey. Of course the summer is a bad time for video games, and the stock should dip. I plan on re-evaluating the investment potential in a month or 2.
Well, that’s enough for now. More soon. And remember, always speak with an investment professional before investing.
**I do not receive any benefit for discussing my thoughts about investments**
Please remember to visit Alchemy at World of Vass and World of VASS, your support helps keep this blog alive.
It the economy stupid - 2010
Written by Michael Vass
I realize that most people are getting ready for the holidays and time with family and friends. But for those of us with small businesses this is the time when we start trying to total up the year and plan for next year. To that end, I offer some thoughts.
I have confirmed among bankers I know that all small businesses, at least in central New York but I’d imagine across the nation, are in a worse position than the White House wants to admit. Unemployment numbers are still high and are net increasing the number of unemployed. Christmas sales are sluggish, even with massive discounts in excess of 40% on almost any item you can name.
But look forward a bit. In January 2010 you can expect a surge in unemployment numbers. That’s because those that were employed for the holiday season will be let go. Add to that the 4th quarter earnings of most businesses will report minimal or negative sales growth. Thus I expect the stock market to take a hit, not that it’s recent rise is based on anything but hype.
In addition we will see the Government wax on about how it is doing everything it can for small business. Like a recent SBA loan programs for $30,000. Except it will not mention that the program to increase lending by commercial banks is ill-defined. It requires so much paperwork and restrictions that it requires banks to add personnel just to administrate the loan, which banks don’t want to do. It has restrictions on who banks can lend to and how they might qualify - regardless of their credit ratings or relationship with the bank. It has murky guidelines on disbursement, and will not allow a small business to consolidate debt or use the funds for current liquidity concerns. In effect it is useless for most small businesses, and as I have been told not one bank in central New York, at least, has accepted the program or made a single loan under it.
So much for helping small businesses. And 2010 will likely have even more of the same.
The Obama Stimulus will kick in, mostly around the election, with far more of the $787 billion than has been used to date. Most of that money will be directed to short-term Government based jobs. Items like building roads, giving raises to teachers, and supporting States that are underwater with their budgets. It will do nothing for small businesses more than what we have seen already.
The answer to this problem, according to some politicians, is to create another Stimulus - with a different name. Under this new program even more money will be spent on building roads and infrastructure (temporary Government jobs) and on loan programs to spur small business growth (via programs that few can qualify for, banks don’t understand, and are restricted in the use of the funds such that its effectiveness is nullified).
The net result, in short order, will be an increase in foreclosures and mortgages that are in default. This is the only result from the increase in unemployment and the real number of people not working (not just the Government stats). But polispeak and posturing will make it sound like everything possible is being done, while it is not.
Ultimately, Government unemployment figures will hit 11.5%, and for the first time I believe it may hit or exceed 12% before April 2010. Most of this job loss will be among small businesses. Also there will be a new all-time high in home foreclosures (a topic that has suddenly become unreported in the last year).
In this year I have watched some 20% of small businesses I know go under. I have watched and had confirmation of many more small business owners taking on part-time or full-time jobs just to keep close to even and/or maintain their homes. I am aware of small businesses earning some 40 - 65% less money this year than last, with projections for early 2010 to earn another 25% less on top of that.
But the best part is the taxes. For 2010 many small businesses will have to still pay taxes on money they don’t have. States like New York and California are leaning even more weight on small business to pay for debts that will not shrink. If Health Care Reform passes, even more taxes will be owed by small businesses. Then there is the burden of the “necessarily skyrocket” of energy costs and taxes proposed by the Cap & Trade Bill that is trying to be quietly passed in Congress.
For those that may want to seek aide, the Government offers nothing. Small businesses do not qualify for unemployment benefits, though they pay a lot of the taxes that fund it. Small businesses that are failing are ineligible for SBA loans and banks will not back them due to their increased restrictions in this economy. In fact, a troubled small business can only count on one thing from the Government - a higher tax burden.
This is what 2010 appears to hold for small business. It’s a bleak landscape with any sign of improvement so far off it does not appear on the horizon. Personally I see this as the culmination of a grand experiment of intellectuals and academics that fill the White House. But a person forewarned can make preparations.
Of course I would love to hear from other small business owners. Do you see the same environment as I have? Are you hearing the same comments from your local and regional banks? Are you feeling the same weight from taxes and future tax burdens? Are you experiencing similar loss of profits and revenues? What do you think will happen in 2010?
Did you think about your 2009 tax bill yet?
Written by Michael Vass
So I was just thinking about something interesting. Obviously President Obama has made a big todo about his Stimulus package. He gave everyone who receives a paycheck (and only those people) some $500 - over several months. In addition his Administration gave out $4500 to those that bought a Government approved vehicle.
But has anyone stopped to consider that all this money is income? When I say income, I mean as in money added to your net on your IRS tax forms. I mean that this is money that you are responsible for, and how it affects your tax bracket.
You could even possible include the $8000 home credit, but I believe that is offset by other factors in buying a house. Still it is also income as I understand it.
Thus it is possible for someone to have gained up to $13,000 on their annual income. This is of course money that NO tax was paid on. So it is separate of any gross amounts that you have made. Which can make a major difference.
Consider this, a person filling with $20,000 net, would now be in the higher $33,000 tax bracket if they received money from all 3 programs. Thus any money they might have expected to receive from a IRS tax refund, will instead turn into a tax bill they need to pay in 2010. And that would be a burden on top of the rising cost of living, the increase (of some 150% or more) to gasoline and electricity prices, and other Obama Administration goodies - like Health Care Reform.
Obviously few would fall into that category. But many more will fall into the group that gained $500 to $5000. And that still makes a huge difference. It’s the kind of money that has already cost families across the nation $38 million in food for their families.
Isn’t that wonderful? 344,000 families denied food because of Democrats speed in passing a Stimulus Bill that no one read, and President Obama insisted on. It’s no surprise that this was not something the major media focused on. Pets like MSNBC would never highlight such a dramatic failure of President Obama’s Administration.
But I have to wonder, will they warn the public about the likely tax ramifications that will be due April 15, 2010? Are they going to give all those people counting on a IRS tax refund the chance to consider if the Obama money is going to increase their tax burden? Especially since many people of all income brackets count on that refund to help pay off the Christmas gifts and other bills they are incurring over the holiday season.
I don’t think so. The Obama Administration is desperate to have 4th quarter numbers that show some sign of a false recovery. That means they need the public to buy and now. The chances for Democrats to be re-elected ride on this. Thus hiding the truth - like presenting false Stimulus job numbers, calling a 3 million person increase in unemployment job savings, and tying the need to pass Bills like Health Care Reform to job growth - is just par for the course.
So take heed of what I am saying. Ask your tax professional what the impact of the money from the Obama Administration and Democrats means to your IRS bill. Find out if you really will be able to afford all that Christmas gift buying. Because finding out after the fact may be far worse than a lump of coal as a gift.
And just wait. Next year, if Democrats and President Obama have their way, you can have the extra joy of knowing you will be required to spend even more of your money on health care insurance - even if you don’t want it or can’t afford it - and quite possibly massively more for your energy bills. I bet that will help you buy gifts next year, and increase jobs too.
Not to worry though. Democrats will take care of you like a child on an allowance. Look for another Stimulus package to hook you into even more IRS taxes and increase your dependency on Big Government like a crack addict.
Success of the Obama Stimulus
Written by Michael Vass
Since there have been so many that are imploring everyone to just be happy with the success of the Obama Stimulus, I thought I might take a moment to list the benefits that have come to the nation. The gains since President Obama enacted the stimulus package have been numerous and widespread.
Besides creating several skate parks and artist walks in multiple cities across the nation, the Obama Stimulus has also helped curb homelessness in cities in Upstate New York without a homeless problem. It has helped increase consumer spending, thus ending the recession this summer. Except that the $25 a week actually didn’t affect the consumer spending at all, and the only thing that did improve the numbers was the $3 billion spent on Cash for Clunkers - which was additional spending by the Government. Well at least there is no dispute that the Obama Stimulus created or “saved” 1 million jobs.
Except that it didn’t make it to 1 million. According to the numbers reported by the White House, which were triple checked, only some 600,000 jobs were created. But that’s not quite right either. The White House, via recovery.gov, quietly reduced the number of jobs created or “saved” by 60,000 - because of human errors.
Human errors. That’s a critical statement. Because it has nothing to do with the Obama Administration instructing those that got stimulus money to count a raise as a percentage of a “saved” job. So if anyone got a raise of .05 cents from Stimulus money, their entire job and income was multiplied by 1.8% and used to determine a job that was created. This lead to several reports like from Massachuesetts where a company with 500 employees reported 900 jobs “saved”. Because Government math is the right math.
Of course that has nothing to do with the at least 4 states that had reports of jobs created or “saved” in congressional districts that don’t exist. Yep, there are places that only exist in a map made by the Obama Stimulus, and recovery.gov, that got stimulus money and employed people that live in these other dimensional places. Take for example the Florida 86th Congressional district.
The 86th Florida congressional district does not exist. Anywhere. Yet they contacted recovery.gov and reported that they received $3,000,000 to create 5 jobs. So money was spent on a place that is imaginary and gave work to people that are best identified as illusions. Or more hopefully someone made a major mistake. Over and over again as this has happened repeatedly in multiple states with multiple fictional districts.
But don’t worry, this report was triple checked before being released to the public. The White House said so as late as October 28th.
And be reassured that President Obama will not let this “side issue” (as stated in an interview with Major Garett of Fox News - the people that weren’t real news remember?) clutter up the success of the stimulus. I mean he has the unemployment rate to brag about. It’s just 10.2% - according to Government figures because the real unemployment data shows 18% if you include those people no longer able to get unemployment checks, which the Government doesn’t. That’s only 2% over the absolute ceiling that President Obama promised the public, and even White House economists now state that the numbers can go higher by next year. (My early guess was 11.5% but I may be wrong - to the low end)
Plus President Obama has the ability to brag about the cost per job from the Stimulus. Let’s just assume that even the fictional places and people, plus all the Government math, are all right. That means there is roughly 600,000 jobs. We spent roughly $166,000 on each job, and each job will generate roughly $30,000 a year. That’s only a loss of $136,000 a job, which by Government standards is pretty good.
The best part may be something I just learned about today. Remember Florida? Well Representative Ginny Brown-Waite wanted to see just how much money President Obama spent on creating the recovery.gov website that has been so accurate and outstanding. How much do you think it was worth to have this site created with such pinpoint accuracy and authenticity?
Well the answer, as given to a member of Congress, is who knows? Yes, I will repeat that. There is no known cost for creating the website Recovery.gov. Made for the Obama Administration, the contract is redacted so as to completely obscure what the original cost was. Since this has nothing to do with national security, and since just a member of Congress was asking I’m glad we got to know this minor “side issue”.
But the news gets better. We also know, thanks to Representative Brown-Waite, that it cost a mere $18 million to update the Recovery.gov site. That’s barely enough money to have created (or “saved”) 15 jobs - by Obama Stimulus standards. And I know all those web designers like M V Consulting, Inc are thinking that they might have been able to bid lower than $18 million dollars to UPDATE a website. But it wouldn’t have worked as the CBO offered to do it for $600,000 (not even enough to create - or “save” - even 1 job) and they were turned down.
So don’t you feel happy? Feel a tingle up you leg? Due to the Obama Stimulus, which is completely a Democrat idea and passed by Democrats well after President Bush was gone, every American can be proud to say they have paid for what I believe is the most expensive website in the world to date. Perhaps ever.
And it is so accurate that if it were a clock it would be right twice a day - sometimes. It’s so transparent that only reading details with your eyes closed would be more informative. It’s created so many jobs that only the number saved is more effective at reversing unemployment. It’s so cost-effective that it inspires trust in Health Care Reform and Cap & Trade (and the more than whispered 2nd Stimulus for 2010) that only the utter brilliance in planning that was Cash for Clunkers could achieve.
Yes, President Obama along with Democrats and Vice President Biden should be basking in the joy that the Obama Stimulus has succeeded in creating. They have really proved me and all other detractors wrong.
“How can we expect the administration to run stimulus when they can’t even run a Web site?” - Rep. Ginny Brown-Waite of Florida
The Stimulus didn’t work because of consumers
Written by Michael Vass
As I scanned thru the news I ran into something that caught my eye. A minor article that spoke about the economy, President Obama, and his approval rating. One year on, Obamamania cools to luke warm support says nothing new really, but it hints at something I had not suspected before.
It hit me when I read this quote
“He is “the first African-American president, a young man who has won many honors and done great things. He is a cultural phenomenon in the US and around the world,” [Professor Clyde Wilcox of Georgetown University] said.”
Considering that President Obama hasn’t done anything, let alone anything great, I was amused at the quote. Which made me think of the Nobel Peace Prize that President Obama won. Based on the things he might do at some point in the future. A kind of treatment that only celebrities and rockstars tend to get.
But that’s it! The answer to the problems in the economy. President Obama passed the Stimulus package making sure that anyone who gets a paycheck (and only those people as long as they don’t get paid too much) would have an extra $20 a week. Which is exactly what many of the souveniers and t-shirts featuring our Presidents face and unyeilding smile sold for.
The way to stimuluate the economy was for every American to buy a product with our leaders visage every week. Not only would it improve the economy, and of course spread the joy that is President Obama beyond the thrill his mere voice gives MSNBC, but it would resonate with the ego our President has.
No wonder the Obama Stimulus was passed so quickly. Approval ratings of 70% don’t last long when you are “sharing the wealth” and “redistributing” private industry. But it wasn’t his fault that the stimulus didn’t work, it’s ours since we all don’t have shrines build upon the trinkets that have been available since his election by now.
It all fits. And I can see why President Obama is annoyed by reporters asking him petty details about the economy. They should have clearly seen what the stimulus money was supposed to be spent on. How dare they rain on his parade and slow sales. Their negativity ruined the path out of the recession. Good thing there was an extra $3 billion hanging around to prop up the Cash for Clunkers program to make the 3rd quarter look more successful than it was.
But perhaps, as Congress and the President continue to plan to use money America does not have, nor will for another decade or 2 if ever, for another Stimulus package they might mention that we are supposed to buy all things Obama. At least that way, when the plan fails yet again, the public will only have themselves to blame. Because it couldn’t possibly be the fault of a President that “done great things”.
Examining President Obama and his Stimulus
Written by Michael Vass
I almost feel bad for President Obama. He came out strong with plans to change America. He dove head first, leaping without looking, into Guantanamo Bay, the economy, healthcare, and Afghanistan. He promised a transparent Government, with accountability, and decisive action.
So far he has failed at every turn to provide a single positive. His supporters can only state, “Just give him more time.”
But how much more time does he need? When President Obama passed the Federal funding budget, $410 billion, it contained no less than 3,000 earmarks. Which he blatantly signed and allowed though he consistently promised that he would never do that. The $787 billion Obama Stimulus was - no, IS - a fiasco from the start. No one read the Bill, and consequences as severe as denying tens of thousands of families food was just one consequence. But mor on that in a second.
President Obama is mired in confusion when it comes to what will happen with Gitmo and the detainees. Afghanistan is even worse as whatever plan existed in the spring no loger exists. In fact President Obama has his handpicked General for that theater of war sitting for over 45 days waiting for an answer to his request to expand the number of troops - to protect the troops and accomplish the mission he was given. He has spoken to this General 2 times in 100 days. How long must we give the President before his inaction is responsible for any American deaths in that nation?
President Obama was able to show positive economic numbers for the 3rd quarter, technically signalling the end of the recession. Of course on the same day, new unemployed numbers came in at over 530,000. Plus the big trigger for the gains in the 3rd quarter was the Cash for Clunkers program, that went over budget by 200% for a total cost of $3 billion. The 4th quarter will not see that artificial bump to numbers.
I’ll skip over the lack of transparency and other issues in the Health Care Reform Bill. I’ve covered that extensively already. I won’t mention the problems pending in the Cap & Trade Bill that is sitting on the sidelines. I’ll avoid for a moment the increased aggressive nature of Iran and North Korea with nuclear programs and missile launches. I won’t even begin to discuss the fact that allies of America across the globe have done nothing to help us in foreign policy on any level. And don’t get me started on the increase of size and power of the Government now that it owns private companies (and can absorb any company it wants), dictates who can be employed and what they get paid.
Let me get back to the Obama Stimulus.
It was the second thing President Obama did. It was fast, so fast that no one knew what they had done. It was big, bloated big, with more waste and ineffectiveness than even Congrerss is known to do. it was hailed for months as the answer to the economic ills of the nation. It was heraled as the first example of how the Obama Administration would change America. For 6 months the Obama Administration talked up hopw great the Obama Stimulus was.
Then they shut up.
We now know a few things about the Obama Stimulus that cannot be questioned. About 15% of the total has been spent so far (about $118 billion, though there is no exact number anywhere). It has caused over 100,000 families to become ineligible for food stamps. It has caused an unknown number of people on other Government programs to lose or lower aide. It has not stemmed unemployment in any scope of discussion. It has created numerous skate parks and art walkways across the country (it even funded $500,000 to fight homelessness in at least one city without homeless).
What can be argued is that the roads and bridges that were promised to be fixed have not been (the Golden Gate Bridge could be one such example). It can be said that the Obama Stimulus has extended the problems of the recession. It can be stated that unemployment is 2% higher than the worst case scenario described to pass the stimulus package, thus invalidating any statement of jobs “saved” or created. It can be argued that any program meant to provide a stimulus that does not take immediate action is not a stimulus; and with the bulk of money being spent in 2010 - an election year - it is simply a political tactic to maintain a Democrat power base. It can be argued that the entire Stimulus is an embarrrassment.
Worse is the lastest news. Following reports from every State in the nation it has been determined that 30,000 jobs were created or “saved”. Those jobs cost $71,000 each as an average, while paying closer to $30,000 each. Which implies absolute waste and ineffectiveness. The best of States claimed less than 5,000 jobs, the worst 6. That is not a typo.
Beyond being the singular largest statement that the Obama Stimulus is perhaps the worst named Government program in my lifetime, there is new news. According to the Associated Press it wasn’t even good enough to acheive that paltry level of success.
The AP also stated that the upcoming White House report on the Stimulus, expected to shower praise on the plan, will likely contain further inaccurate numbers and exaggerations. Which at this point the White House has neither refuted nor debated.
So I ask supporters of President Obama, how much time does he need? How far do we need to travel down the path he seems to be leading before we say this might be the wrong path? When is it that we will stop praising the President for what we hope he will do (like the Nobel Peace Prize), and pay attention to what he is doing and how it is failing?
Don’t believe the facts, believe in President Obama
Written by Michael Vass
I think I get it now. President Obama and leading Democrats are embarrassed. With the complete failure of the Obama Stimulus, Democrats look as dysfunctional and incompetent as their detractors have claimed. So the story has to change.
From before the onset of the Obama Stimulus, I have said it was a bad idea. When Speaker Nancy Pelosi first floated the idea (then only a mere $50 billion in cost) in 2008 I was against it as a waste of our taxes. When the Obama Stimulus became bloated to $787 billion I screamed at how bad it was. The fact that no one, in the White House or Congress, read the proposal confirmed every fear I had.
But it became a fact, and we were promised success. We were provided imaginary numbers of success and job improvement as facts like the Government unemployment numbers steadily rose. But the fact that the Obama Administration had cuckholded the majority of the news media ensured that the focus was on their rosy projections and not reality.
Then came the reports. Facts from every State in the nation. And as they came in reality was almost unavoidable. The Obama Stimulus was only responsible for wasting the taxes of future gererations that have yet to even have a chance to earn a dollar. And there is no question of failure.
Not even MSNBC, the favored parrot of the Obama Administration, could cover up the evidence. Claims of 150,000 jobs created in May, false. Projections of 1 million jobs created or “saved”, a pipedream more likely to exist in the mind of a crack addict. The waste? In the tens of billions.
Every Democrat responsible should be embarrassed, to say the least. In Binghamton, where I live, Mayor Matt Ryan was able to create or save 430 jobs, with 38 small businesses created. That may not sound like alot, but that is about 1% of the population. The Obama Stimulus was proposed to improve the lives of roughly 1% of the nation (in 2 - 4 years), with 1/3 of this happening by this month. In fact the Obama Administration acheived 30,000 jobs out of 1,000,000 (don’t even think of it in comparison to the 3.5 million jobs targeted). That’s a failing grade no matter the polispeak spin.
In fact the city of Binghamton out performed the entire State of Rhode Island, among others. Bridges and roads across the nation are no better off. And unemployment is about to cross 10% (2% higher than the worst case detailed by President Obama in February).
But think about this. The Obama Administration has decided to avoid their failure and accountability. They are attacking anyone that points out their ineptness. They are using their mouthpieces, MSNBC and others, to shun and berate those that would provide fact and not the lofty words of President Obama. They are distracting the nation as best as they can from the truth. The truth that a candidate Barack Obama promised to make as clear and transparent as no other Administration had ever done.
While this is happening, the Democrat led Congress is marching forward with a Health Care Reform that is equally as ineffective and filled with faulty logic as the Obama Stimulus was. No one has read the Health Care Reform Bill, as it has yet to be fully written. The cost of the Reform has been obfuscated by seperating some of its costs from the Bill and using a math that only the Government could decipher. And again, any form of critique is being declared racist, uninformed, false, and/or forbidden.
All this while in the cracks a Cap & Trade Bill is moving slowly forward that will increase the cost of heating and electricity. Claims that it will improve the global climate are laughable. Claims that it will reduce costs are unintelligible. And questions of whether the Bill has been written or if anyone has read it go unasked.
So yes, the Democrat leadership are embarrassed. They are desperate to keep attention on anything but the attempts at leadership they have presented thus far. They are holding on tooth and claw until they can get re-elected, keeping their majority grip on changes in the nation.
This is change I believe because it is happening. The results are striking the nation, like it or not. And the President is ducking for cover until the dust hides him from sight.
But the question to you is this. Will you be good little voters and only pay attention to what the White House says and none of the facts? Will you continue to be enraptured by the mere sound of President Obama, though those sounds equate to words without substance? Will you cower to the will of the Liberal far-left as the nation is fundementally and irreprobly changed? Will you vote to re-elect the very people that look upon reading the Bills before them, or answering to the electorate, with disdain and contempt?
The 2nd stimulus - out the corner of your eye
Written by Michael Vass
Michael Scherer of TIME had an article today that I thought was quite interesting. The article Is the White House Planning a Second Stimulus Payout? outlines what the prospects are. And I agree straight down the line, as I did months ago.
The fact is that more and more of Washington DC analysts and commentators and press are catching on to what I proposed in the past. That the Democrats have no clue about economics, the Obama Stimulus is a complete waste of money, and this failure will be covered up by real economic stimulus -
But the key is not that a second Obama Stimulus is being planned. It’s not that the initial parts of the 2nd stimulus is being put together to be passed by Congress before the end of the year. The critical thing to understand is that all of the parts of the 2nd stimulus will be done independent of any other part. I have to give Scherer credit for noticing that before I did.
The only reason that it will be done in this manner is because Democrats can’t have yet another stimulus plan on their necks. They will be walking into the 2010 mid-term elections with failure surrounding them. The smell of the results they have thusfar reaped can only get worse if the phrase “2nd stimulus” reaches the ears of the voting public.
After now having the facts made public, with far far less than the promised 1 million jobs created at a cost of $71,000 each, the White House and Congressional Democrats are reaching to find a polispeak angle to imply success. Add to this the fact that all the unpopular Health Care Reform Bills are more expensive than stated and questionably less effective, while being completely unwritten and hidden from the public eye.
And there is still the forthcoming Cap & Trade Bill that will increase, possibly by double in some instances, the cost of electricity to the public and business.
Democrats calling for even more money to be spent to stem the rising unemployment rate, in another package of a size that doesn’t fit many calculators, would be committing political suicide. So instead, the 2nd stimulus will be done in small parts, spread over time, without any mention of another part so that the general public does not notice.
In effect Congress is pulling a scam. Selling the public one item and then another because its needed as much as the first part bought. And so on. Kind of like buying a car, and then being told that the engine, the steering wheel, and each tire are all separate of the cost. And you are stuck with the car no matter what option you might chose not to pay for, or that may not work even if you do.
So I am not surprised that Michael Sherer has noticed what I saw coming. I’m just wondering how long it will be before anyone in the press dares to ask President Obama about it.
How effective is the Obama Stimulus?
Written by Michael Vass
So just before the White House comes out with its victorious cries of success on the Obama Stimulus, I suggest we all look at what really is happening. Yep, time for a bit of math. Something I’m sure President Obama’s supporters will hate.
Right now several States have released the numbers being submitted to the Government about how many jobs were saved with the Stimulus. I say just saved as any claim at job creation pales in the wake of 9.8% unemployment. That’s 3 million Americans without a job since the Stimulus passed, that’s almost 2% higher than the guarantee the Stimulus was sold to the public to preserve. And that says nothing of historic levels of mortgage failures, continued bank insolvency, and a real unemplyment in excess of 15 million people.
But staying focused on the ’saved’ jobs, which includes jobs that are part-time, temporary, and even a few full time full year jobs. I was able to find 7 seperate reports via a google search for stimulus package report. The States are: California, Michigan, Minnesota, New Mexico, North Dakota, Oregon, and Tennessee.
California was the big winner. They claim 100,000 jobs saved since the Stimulus passed. Which sounds great, and will be the big focus of Democrats. What they will avoid is the fact that it cost $5.3 billion. Working the numbers that means it cost $53,000 for each job. And somehow I don’t believe that 100,000 people got that for a year of work via the stimulus. I’ll bet money on that.
Michigan lost its mind for its jobs, spending $189,743 per job ’saved’. That may sound like quite a bit (especially when you factor in the fact that it is in the Democrat threashold of ‘rich’), but it does not top the list. That honor goes to North Dakota.
North Dakota reported spending $207 million of stimulus money. At the same time they reported 624 jobs. That’s $331,730 per job. This ridiculous amount of money is insane. Especially since the jobs created did not pay that amount to any 1 individual. Which means the money is either being wasted, or otherwise disappearing.
The other States come in from the relatively reasonable $18,780 spent in New Mexico (for 4100 jobs) and $27,722 spent in Tennessee (for 7700 jobs) to the extreme $135,593 in Minnesota (for 11,800 jobs).
Does any of that sound reasonable? Maybe New Mexico, but what about the rest? Why is it costing so much to give a person a $30,000 job. In fact if you do the numbers, it would have been better to give every American man, woman and child $2600 than to have used the stimulus as it has been so far.
Which highligts something else. I’ve said it before, a stimulus is something that causes an immediate reaction, the Obama Stimulus does not. But the Obama Stimulus does spend the bulk of its social reform money in 2010, just before the mid-term elections.
Does that sound like buying votes? I can hear the political ads now. Some Democrat up for re-election will stand before a crowd claiming that any and every improvement in the economy is a result of the Stimulus [as opposed to reguar cycles] and promise that the next Stimulus plan will be even better than the last [which I said months ago would happen]. Yes, Democrats will praise what has happened, hoping the public doesn’t stop to think about it.
We were told all the bridges we use would be fixed - they are not. We were promised unemployment would not exceed 8% - it has. We were told that jobs would be created in the millions - they haven’t even been done in the dozens. And every job that has somehow been credited to the Obama Stimulus costs more than 2 jobs anywhere else (in total).
But I will say this, it is a stimulus. It will do it’s job. It will stimulate the political futures of Democrats. It will help to preserve (save of create) their jobs in Congress. The real cost? Roughly $3,896,039,603.96 for every Democrat that get re-elected in 2010. And if you are President Obama, Nancy Pelosi, or a Liberal, I’m sure you think its a bargain.
Democrats are planning to buy your vote, again
Written by Michael Vass
In the not so far off past, long time readers will recall that I had a post about then candidate-Senator Hillary Clinton. The title was Senator Clinton tries to buy cheap votes with baby bonds.
The issue at the time was the polispeak pitch by then-Senator Clinton to families across the nation. She proposed, half-heartedly as usual, to give every child in America $5000. All you had to do is be born in the nation. At the time I stated
“First, who is going to come up with the 20 billion dollars such a program will cost? You will, say hello to new taxes.
Second, what if your child doesn’t want to go to college. Maybe they want to be an artist, truck driver or construction worker. Where does their money go to? Do they just lose it? Where does that extra money go?
Third, when we say every baby, that includes the babies born of illegal aliens (or the silly undocumented workers designation - here’s a clue - the document missing is a U.S. birth certificate or green card hence illegal)…
Fifth, if the average college tuition is $22,218 (private) or $5,836 (public) and we assume 10% annual growth for just 18 years that means (forgive my math it’s been a while) $98,973 and $32,380 respectively. Taking $5,000 for 18 years at 10% (current rates are 4.75%) then Senator Clinton’s generous gift of your money generates $27,936. Now if my math is correct (which I’m sure I will be told if I am not) and interest rates go up to and stay at 10% (not going to happen) there is still a shortfall of $4,444 just for [public] school.”
It was a laughable idea, and was dropped by Clinton the second one of her Democrat Primary competitors raised an eyebrow at this shameless attempt to buy off the votes of the public.
But it seems that the idea didn’t die in October 2007. {yes for all the new readers, I do go back that far in my political coverage. And further with literally hundreds of posts at a separate blog platform - check the link above}
The new proposal from Democrats is the ASPIRE ACT, standing for America Saving for Personal Investment, Retirement, and Education. Given that Democrats have already wasted $787 billion, set up a budget that’s some $3.5 trillion in deficit, and are trying to past a bogus Health Care Reform (at least $1.2 trillion when Congress fails to cut Medicare) with the Cap & Trade slipping in the back door (double your electric rates) - there just isn’t extra money around to waste on this idea.
A mere $500 dollars is being proposed for
Forgetting that the billions it would cost have to come from somewhere, higher taxes yet again, let’s think about this plan. The problems above still all apply. Yes even the illegal aliens since the interpretation of the Constitution these days requires that any law to benefit all Americans must include everyone in the Country. So your taxes would help give an illegal alien your money directly.
Actually the second question was answered. Still it’s a chunk of money on top of all the other rampant spending from Congress. But I have to wonder, why this idea now? And again I am reminded of Hillary Clinton.
Clinton proposed this idea to bolster he political standing and distract from her many flaws and non-convictions. Congress right now needs much of the same thing. Health Care Reform, as it currently is being discussed - nothing is written yet, is still considered a bad idea across the country. Yet Democrats have blatantly stated it’s going to happen no matter what voters think. Such an attitude will surely come back during the 2010 mid-term elections.
If Cap & Trade passes as well, the hit to every Americans pocketbook will really be hitting home by them. Both in the higher cost of electricity and fuel & for any product made via electricity - can you name one that isn’t?
Democrats need something to distract voters from the fact they just got it hard and without grease or so much as a here it comes. Democrats need a way to ensure that their super majority holds so they can complete the social engineering plan they have enacted under the standard of “Change you can believe in”.
So just as they bought favor with promises of an Obama Stimulus that put nothing in the pocket, took tens of millions in food away from American families, and increased unemployment 2% higher than what President Obama stated would happen is absolutely nothing was done. Well that’s not completely true. A bunch of cities got skate parks and some people got a part-time job for a week.
Do you want to be bought? Is your vote in the 2010 mid-term elections for sale at a discounted price from just 2 years ago (talk about an economic crash). Are you as dumb as Democrats hope you will be?
I don’t think my readers are.
CBO confirms the problems with Health Care Reform
Written by Michael Vass
It’s a victory, if you are a Democrat. Then again, the Democrat-led Congress has yet to read any of the Bills being voted out of Congress since the Obama Administration took over. So I doubt they really know what the CBO has just said.
The review by the CBO of the Baucus Bill has stated that it will cost roughly $829 billion. That’s over $100 billion more than what was proposed. So already the Bill has a strike against it. But Democrats call this a victory as it is less than $1 trillion they thought it might actually cost. Funny how they quote one cost, knowing that it will cost far more. Makes me wonder why the budget is so far out of whack (and prior Administrations of either Party are no better on this).
But here is another gem that you likely won’t here from Democrats that is in the CBO report. After all the hype about how we must provide healthcare for 47 million uninsured people, the CBO says that the Health Care Reform will still leave 29 million people uninsured. Yes, 29 million of those people that we just have to change the entire system for will remain in exactly the same the same position as they are now. Minus $829 billion.
Remember that the 47 million is a false number. It can only be reached by adding in 12 million or so illegal aliens, and 7 million or so people that CHOOSE to not have healthcare. Which leaves a net total of 28 million uninsured. So in fact the Baucus Bill CREATES roughly 1 million new people that will be uninsured.
Don’t worry though. At least 1/3 of all the new people that will be covered by the Baucus Health Care Reform will in fact be illegal aliens. That’s right, the CBO agrees with Representative Wilson - President Obama and the Democrat leadership lied.
So that’s strikes 2 and 3 right? The Bill should be out. It should be history, a complete failure that needs to be brushed aside for something that actually will do what it’s title states. But, remeber this is a Democrat victory.
The Bill is able to pass the stipulation President Obama announced on television. Yes, they are trying to keep a promise for a President with a record of 97% failure to keep promises. How encouraging.
How will this be deficit nuetral? Matter of fact, as you will hear Democrats tout, the CBO claims it will save $81 billion over 10 years (that’s a total saved over 10 years, not a lump sum). But what you aren’t being told is how it gets to that savings.
$400 billion will come from Medicare, or in other words the elderly. So if you get old, expect to have less coverage and care when you need it most. I bet that line will be real popular, if it ever gets into the mainstream media, when it comes time for re-elections. Or Congress will just ignore the cuts in Medicare, as they have done in the past, and the price will skyrocket to $1.2 trillion. But no one will be paying attention at that point, and even if you did it will be a law and so you are S.O.L.
This says nothing of the increased taxes that will be placed on companies and current premium health insurance plans. Not sure what that means? Higher taxes on the average American. Middle class taxes in effect. Just like every tax on business is passed on to the consumer and public. Kind of like Cap & Trade but with your health.
Yet the joy does not end there. Don’t forget about that pesky increased 29 million without health care. They will be charged for not taking the Obama Care like a good American should. They will be penalized, and that is part of the cost savings the CBO found. $4 billion dollars is expected over 10 years, from most likely people in their 20’s. That’s roughly a fine of $1800 each person, each year they don’t get on-board with the plan. But don’t call that a tax hike.
Of course you could decide not to pay that fine. As I have already covered, the Bauchus Bill covers that possibility. If you fail to pay the fine you will go to jail, and/or have to pay $25,000. Not sure how much of that is factored into the CBO numbers, but I bet it’s in there. Cost savings indeed.
Look this thing is still full of holes. It still is not a benefit to the nation. It still will cost more money than ever projected, as has Medicare and Medicaid. Which says nothing of the fact that this places Government directly into the private lives of Americans.
Health care reform is not a Right. Just as there is no Right to owning a house, or eating your favorite food, or driving a car. The Government can’t post a document onto the internet in less than 2 weeks, but they are claiming to protect a Right that does not exist in the Constitution and was created to invade your privacy.
Yes, you won’t hear this in the major media. Because they will be busy with polispeak celebrating a victory. With hopes of convincing people this is a good idea, long enough to pass this and glide past the 2010 mid-term elections. That is if you don’t pay attention.
Are you?
Obama Stimulus saved your job - or did it?
Written by Michael Vass
It’s almost funny how the Government can make you feel less intelligent than a 5th grader. I mean if you thought you knew how to add, the Government makes you seriously question that. Because the math they use for some of the things they state is either wrong, or so advanced to make me wonder what I was taught. Especially since the Government is absolutely sure that they know better than the public.
Case in point is the Obama Stimulus. The Government took $787 billion of our money to ensure that the economic crisis that we were facing in January would not get worse. President Obama, and a slew of Democrats, politicians, White House economists, and others swore that passage of the Stimulus package would “create or save” jobs. President Obama virtually guartanteed that if the Stimulus was passed unemployment would be capped at 8.5%, the recession would end, and there would be sunshine and lollipops for everyone.
The Obama Administration really rammed home the thought that the Stimulus had to be passed immediately. So no one in Congress read the Bill, nor did the White House. And the prospect of proving a “saved” job was set aside as the rantings of racists and greedy corporate execs. So the Bill that no one read was passed, preventing a ‘Depression greater than in the 1930’s’.
Since the passage of the Obama Stimulus the economy has gotten worse. Unemployment has not only surpassed 8.5% (currently 9.7%), it is now forecast - by the White House - to hit at least 10% this year. Other forecasts target 11.5% unemployment in 2010. Which says nothing of the real unemployment rate (which is not how the Government counts) of 15% currently or what it will be in 2010.
Mortgages in delinquency rates have reached highs never before seen. According to the MBA (Mortgage Bankers Association), which has records going back to 1972, the delinquency rate – loans that are more than 1 month late but not in foreclosure – is 8.86% as of August. That is a new high, breaking the record set in the 1st quarter of 2009. If we include mortgages that are in foreclosure the rate is 13.16% also an all-time high.
Thus we see directly that actions to prevent increases in home loan defaults have failed, and the Obama Stimulus failed in this regard as well. Which breaks promises that President Obama made about passage of the Stimulus package.
Yet none of this prevented the White House from claiming that 150,000 jobs were “saved or created” by the Stimulus in May. Which was announced as the White House pushed the auto industry into bankruptcy, immediately forcing over 100,000 people into unemployment.
Better yet. Over 1 million more people are currently unemployed today than if the Obama Stimulus was never passed. That is according to figures given by President Obama to Congress and the nation.
Still none of this has prevented the Obama Administration from strutting like a peacock while stating that they have now “saved or created” 1 million jobs with the Obama Stimulus.
Less noted by the Obama Administration is another part of the conversation the White House Council of Economic Advisers had at the same time with the news media
“In a conference call with reporters, the council chairwoman, Christina Romer, said it was “absolutely correct” that other factors may have affected the economy, but that the stimulus plan was “one of the biggest.”
So with my 5th grade math I get the following. The White House says they “created or saved” 1 million jobs. But you can’t count a “saved” anything because you can’t prove it. Effectively it does not exist. So that is 0. Thus we are left with 1,000,000 + 0 = 1million jobs.
But we must subtract no less than 1,240,000 jobs up until June and add in at least 216,000 jobs lost in August or 1,240,000 + 216,000 = 1,456,000 jobs lost.
So the real math of 5th grade says 1,000,000 – 1,456,000 = negative 456,000 jobs.
Thus the math that allowed the Greeks to figure out the distance to the moon, the math that every child in America can do, the math that has Americans balancing checkbooks and buying groceries says that the Obama Stimulus – at best – has lost almost 500,000 more jobs than promised. And this assumes that 1 million jobs were created somewhere that no one has seen, nor has been reflected in the unemployment numbers. A strutting peacock indeed.
I suppose the ultimate thing is this. What do you believe, simple math or the polispeak words of an elected official with a vested interest in the 2010 mid-term elections and Health Care Reform Bill?
I think you can see my choice. What’s yours?
Alcoa - my investment update
Written by Michael Vass
Back on Febrary 24 of this year I was discussing the stock market and economy. At the time I was mentioning my expectations for a continued drag on the market, and that there were several opportunities to be had. One of those opportunities was Alcoa (AA on the NYSE).
At the time Alcoa was severely below book value. So I took the opportunity to buy the stock at $5.55 and decided to follow the investment with my readers. On March 19th I stated that the target I was looking for was $14 - $20 and expected the stock to reach that in 18 - 24 months. My basis was via a valuation based on a then discounted book value of $10.
On April 14th the stock stood at $9.25, a solid 67% return. And at the time the market was still shaky. Unemployment numbers were just starting to exceed the projections of the Obama Administration (even after authorizing a $787 billion stimulus package meant to curtail unemployment). And I decided to see what would happen if I hypothetically traded the stock and repurchased after the 30 day tax window.
On May 18th I proved that holding a position, while the fundamental reasons for owning the stock have not changed, outweighs the concept of trading a stock. the net difference was small, but when you are talking about losing money that you could have kept even a small amount makes a difference.
All that being said, I now will inform my readers that I sold half my position in Alcoa (AA). My sale price was not my $14 low end target, nor the $13.60 it recently reached as a high. I sold the position for $11.60. A tidy 109% profit. And I continue to own some of the position as I still believe that under my original outlook, the stock should reach $15 - $20 in the next year. Though the book value of the company has dropped as I factored into my expectations.
But I want to also share with you my next intention. And this is based far less in empirical numbers than the shape of the economy. I plan to buy E-Trade (ETFC on NASDAQ) at the open of the market. I expect to get a price of $1.50 or so.
My reasoning is simple. One of 3 things are going to happen to the company in the next 18 months.
As a bonus, E-Trade also has another factor that I like. It is trading around .5 of book value. In addition it is held 20% by insiders and more importantly 44% by institutions. Thus the company is worth more absorbed or liquidated than as it exists. Even discounting the book value significantly the company is worth more just on the basis of the number of active and long-term accounts it holds.
My guess is that there are too many institutions holding this stock. They all couldn’t get out without killing each other, and certainly not at a profit. Thus a take-over is likely to happen. In fact it is logical considering all likely factors.
I would expect this company to be aquired for around 3x book or roughly $9. But again I will adjust the current numbers down and discount the book value to $2 per share. Which gives a takeover price of $6.
I may be wrong on this price, or the exact nature of what moves the stock higher. But I believe the chance of the stock collapsing is minimal. So I will take the shot. My target, without a takeover is still $6, as once the stock rises above $5 it becomes marginable and will rise on that basis.
Keep in mind one thing as I say all this. A stock trading at $1.50 is expected to go bankrupt. The real challenge is to get out of the stock before it does so. Thus any good news will lift the stock dramtically, while negative news is already priced in generally.
Before you follow any of this advice, speak to an investing professional. I used to be a stockbroker and I have several factors I use for my own decisions. I have not discussed them all here, nor will every investor be willing to assume risk as I do. Think about any investment before you make it.
Now let’s see how well I do with this.
American economy: 2nd half 2009 to 2Q 2010
Written by Michael Vass
Once again I am looking forward in time at what I expect to see happen to the American economy in 2009 and the first half of 2010. In past years such reflections have always wound up being 62% or more correct. Something I am of course happy to say, though considering the downturns that I have correctly anticipated I did prefer to be wrong.
Still we all look forward. And this is what I expect.
It is a given that the Obama Administration currently states that the unemployment levels will reach 10% in this current year. Debate rages on the potential of unemployment going even higher in 2010, and the exact number of people unemployed that do not count into the Government unemployment figure (people no longer count as unemployed after several weeks – even if they remain without work).
My expectation is that we will see unemployment hit 11.5% by the second half of 2010. Which by my estimate would mean that some 18% of the nation would be unemployed in total. This obviously bodes very badly for consumer goods companies. As well as the banking sector. Likely the rate of new business growth will be negative and existing small businesses will close at an exponential rate.
Thus 4th quarter sales in 2009 will be very bad. I expect to see no growth and relatively strong losses over the season. I would not be surprised to see the quarterly figures down to -1.5%, and that retailers will be slashing prices 40% just to clear out inventory. The start of the 1st quarter of 2010 will have some of the largest increases in unemployment ever, with the exception of the Great Depression maybe.
This ties directly into the mortgage foreclosure rate and new home sales. I expect the worst here. Already there have been 75 banks that have failed in 2009 so far. The largest of the year has been Colonial BancGroup, directly tied to mortgages. But I believe that by the end of the year we could see a total of 125 banks closed and an even larger financial institution collapse.
I expect that this will bolster another round of pressure on the housing industry. Home prices will likely fall another 3 – 5% on average. And it will reinforce the sluggish sales going into the 4th quarter.
A factor that has not been spoken about much at this point will be energy costs. Not considering the effect of Cap & Trade, crude oil has been on the move ahead of the cyclical trend in pricing. Currently prices are around $70 a barrel. I believe that this winter will be colder in the northeast (so much for global warming) and with all the other factors involved we could see the price of crude oil rise to $90 by the 1st quarter 2010.
Moving hand in hand will be the price of gold and other commodities. Fueled by the increase in mortgage failures, the increase in bank collapses, and the unemployment increases, there will be a rush to security with Gold being the thing to have. I can imagine seeing gold spot prices reaching $1100 early in the 1st quarter and stabilizing there.
Very likely, due to these circumstances, the dollar will weaken especially from the spending spree in Congress and the White House. IF Cap & Trade, Health Care Reform, and several other promised changes are enacted as proposed the national debt will increase quickly with projections exceeding $11 trillion dollars in 10 years. Which will make American debt nearly worthless to purchase by nations like India and China. The only reasonable means to encourage their continued support will be to increase the Bond rates, sparking inflation.
Higher costs of energy means increased costs to employers. Which will be passed to consumers, who will already be burdened by the prospect of losing jobs. The other alternative will be to fire more workers. Again adding to the pressure on 4th quarter sales and mortgage foreclosures.
Increased transportation costs, the proposed increase in taxes for the Health Care Reform Bill (which I expect to be shoved thru Congress under Democrat only support and with minor changes), and the pending repeal of the Bush tax cuts will all create inflation. This will likely be hidden as it has been to date – via smaller portions of food and goods, coupled with slightly higher cost, plus an exodus of companies to foreign soil where workers are cheaper to employ.
I expect that oil companies will again be the target of Windfall taxes, while domestic offshore oil and natural gas drilling will be killed as an option. Renewable energy options will be touted as answers, and more money will be dumped into Wind Energy and Corn-based Ethanol. Neither is viable or anywhere near realistic, but will contribute to the inflationary increases that should start to catch attention in February 2010.
I expect that the stock market will react to all these factors in late September – amplifying the normal October sell off. I believe that another downturn will take hold of the market in January until April as year end earnings will be flat compared to estimates in most industries especially retail sales. Mining, Gold, Coal, and other commodity dominated stocks should prosper though. If I am correct then we could see a low in the market of somewhere around 8200 – 7900 by November 2009 and again in March 2010.
Expect a growing call for a second Obama stimulus to start around November at the latest. I would expect this to take the form of a check, much like the Bush stimulus, in the range of $200 billion. I would believe that this will pass in March of 2010, and distributed to the public by September – in time for the 2010 mid-term elections.
Like in any look forward there are many factors that cannot be foretold. Many of these factors are outside of the influence of the nation, many are reactions to events that have nothing to do with us. Thus the following can have an effect on what I have stated above:
Iran (especially their nuclear program)
North Korea (especially firing more missiles)
Afghanistan war (especially American losses)
Iraq (growth of insurgents and internal strife)
Pakistan (especially if America strikes targets in their nation and/or collateral damage to civilians)
African regional conflicts escalate (notably Darfur and others)
Israel (especially if they take pro-active steps against Iran or others)
Gold and/or Crude Oil production
Increases in Piracy
Terrorist attack against Americans
The abovementioned list is not complete, but does equate some of the larger issues facing the nation. I have listed them in order of potential threat and action. But there is no limit to things that might happen, say with China curtailing Rights or Russia becoming more aggressive as it did last year.
Factors that could adversely affect my projections with domestic influences include:
Health Care Reform (passed in a very different form, or completely shut down)
A 2nd Stimulus
Cap & Trade
The end of media support to President Obama
Accelerated job losses and unemployment
The collapse of a major financial institution (I still don’t like CitiGroup)
Public questions about czars and their power (ie. pay, automotive, ect.)
Additional new programs like Cash 4 Clunkers
A national disaster
Increased racial tensions
A new Government plan for mortgage foreclosures
Use of repaid TARP funds
The unused Stimulus money
Renewed questions about illegal aliens (or undocumented workers if you really prefer)
One of the biggest factors that will affect 2010 is the mid-term elections. The Democrat majority will be seeking every means of maintaining their powerbase. This means that several controversial issues, if not addressed and passed by the end of 2009, will not be touched in 2010. It also means that several options that will bolster the image of Democrats will be pushed forward as we approach May 2010 (ie 2nd Stimulus).
Overall I expect that the Obama Stimulus will continue to be a failure, though as we reach June 2010 there will be some improvement in unemployment numbers and will be claimed as due to the Stimulus. This is a false assumption as it appears the recession is following a natural path, if not slightly impeded by the Stimulus.
The stock market will enter a stable period after the 1st quarter drop. It will slowly rise back to current or higher levels by mid-summer 2010 based on improving unemployment numbers. Several companies will beat estimates strongly, and the foreclosure rate will drop by 2%. Housing prices will stabilize. I think that oil prices will hold at the $85 a barrel level into the summer. But the recession will not end until April 2010 – though politicians will proclaim its demise by November 2009.
Inflation will give way to an early trend of hyper-inflation. Credit card debt will again start to be a talked about concern. Car loans will remain sluggish, waiting for another Government program that will arrive before the mid-term election.
There are many factors that can effect the economy. No one person can ever anticipate them all. Likely only a portion of the things I have projected will happen. Still having an objective view is essential to creating plans for various outcomes.
Always discuss changes to your investments with a qualified investment advisor. Check events and information for yourself. And have a plan.
Sen. Schumer responds to Michael Vass
Written by Michael Vass
On August 11, 2009 I sent email and written letters to Senator Gillibrand, Senator Schumer, Representative Hinchey, and President Obama about the proposed Health Care Reform Bill currently in Congress. To date there has been only 1 response, from Senator Charles Schumer.
The entire email from Senator Schumer can be seen in the comments section of the post Asking Sen. Gillibrand, Sen. Schumer, Rep. Hinchey about the Healthcare Bill. This post is a commentary on the response I have received compared to what I asked.
First I want to thank Senator Schumer for responding. On an issue that is so critical to the nation, and so hotly debated, information is critical. I am happy to be able to share his response with all my readers, and the constituents of New York State that Sen. Schumer represents.
As to what I asked Sen. Schumer, I detailed 22 questions that I have found to be among the top questions Americans have about the health Care Reform and how it will affect American lives. Senator Schumer provided me what I believe is a form letter response. That response did not answer even the most simple question I asked,
“Have you personally read and understood all 1000+ pages of the proposed Health Care Reform Bill?”
Worse, the letter sent to me by Sen. Schumer assumes I support the Health Care Reform being proposed, and the public option.
“Thank you for contacting me and expressing your support for increasing access and coverage in health care reform.”
To be clear, I took a neutral stance in my letter asking that he provide answers to questions only.
Sen. Schumer further stated
“I also strongly support the establishment of a public health insurance option which would create a not-for-profit insurance plan, started by the government, which would compete on a level playing field with existing private health insurance plans. Because the public health insurance option would be not-for-profit, it would help to lower premiums and, therefore, exert downward pressure on the premiums of existing insurance plans. This change is pro-consumer because it adds competition to insurance markets, allowing New Yorkers and all Americans one more choice of affordable and comprehensive health insurance.”
It’s a nice pat response. But it does not address the question of why alternatives are not on the table. Like increasing competition by allowing Americans to pick ANY insurance plan in the nation and not just those in their state. Or the question of why any employer would continue to pay increased costs to maintain a healthcare plan (that workers may be happy with) when they can increase funds by dropping healthcare and forcing workers onto the Government plan (which they may not like or want). Or other questions that I directly asked about
“2) Does the current Health Care Reform Bill (HCRB) require any Americans to switch existing coverage to a Government plan? If so how many Americans are estimated to be required to change and where does that estimate come from?
7) Is there a punitive cost to the HCRB? To clarify, it has been stated that those electing not to take the Government plan will incur a 2.5% penalty assessed in their taxes. Is that correct? Is there any additional cost beyond that?
11) Will the American Government have access to private patient information that is currently restricted by law from the Government database?
12) What incentive will private insurers (who employ tens of thousands of Americans) have to compete with a Government plan that is paid for by taxpayers and thus can be run at an annual loss?
15) Will Congress and/or any elected official be mandated to be covered by the exact same Government program as the general public? If not why?19) Why is there a need to pass the HCRB before the 4th quarter? Already we have seen that immediate passage of the Obama Stimulus package created unforeseen problems, as one example. Why is taking more time to review all aspects of the 1100 page Bill, and it’s most likely effects, counter-productive to the American public?
21) How many of the estimated 47 million people (roughly 12% of all Americans) without healthcare will remain without coverage based on the HCRB, if any?”
Notice that not one of my questions, and there are more, is answered. Not one of the issues that Americans across the globe have raised is covered. Not one reason other than Sen. Schumer says it’s a good idea and that he is working hard is provided.
Now I will not make a conclusion about the response of Sen. Schumer, beyond what observations I have already made. I leave that to you my reader.
Is his response to my 22 questions good enough? Is his answer enough of a reason for you to support the Health Care Reform? Are your questions answered?
I do not know if, or when, any other elected official will respond to my 22 questions on Health Care Reform. I do know that when the mid-term elections of 2010 come up, I will make sure that the several hundred thousand voting Americans that read my posts are reminded of the verbatim response (or lack thereof) our elected officials felt was worthy of giving the public.
In addition, I will be sending another letter to Sen. Schumer. In that letter, which I will provide to my readers on this blog, I will remind the Senator that he failed to address a single concern I mentioned. And that as a voting New York State resident, as well as member of the press, I am deserving of a bit more than what seems to be a form letter that fails to provide any direct or indirect information on one of the admittedly most important issues of our day.
Perhaps Sen. Schumer will respond better on the second try. In addition, I will attempt to contact the Senator via phone.
More as I have details.
Results of my 2009 first half economic predictions
Written by Michael Vass
Back in 2008 I made a couple of predictions about how the economy would fare through the 2nd quarter of 2009. That was over a year ago, before the election, before the mortgage crisis really took hold, and before all the bailouts and stimulus packages we now have. How good was I?
The post was Predicting the U.S. economy for 2nd half 2008 and 2009. In that post I stated
“The Fed has been providing banks extra money to ensure their solvency, but not requiring that loan reserves be increased. It’s kind of like stopping a leak in your tub by adding more water. The problem is not getting fixed and may get far worse. And all the panic about the mortgage industry seems to have done nothing but whip up polispeak from political candidates and political parties, each looking to sway voters…
I expect that in total some 7% of homes are in danger of foreclosure this year…
Of course what is likely to happen is that Congress (with it’s 9% approval rating - sure to go lower) will take taxpayer money and bailout homeowners and financial institutions alike. Thus more water will fill the leaky tub. Undoubtedly the current Administration will be blamed (even more than they should) and the war in Iraq (and possibly Afghanistan) will be identified as the cause of all these ills. Which is false…
The outcome will probably be a surge for Senator Obama, who prefers a bailout. This may lead to him being elected and higher taxes to pay for that bailout. And if anyone thinks a bailout of this size will be limited to just the top 1% of the nation they are insane…
1. Confidence in all financial will go lower forcing the need for more liquidity
2. Several institutions will fail - focused mostly on those dealing with housing markets first
6. Home foreclosure will hit 5.5%
7. Bankruptcies will increase by 3%
9. A Democratic Congress will be re-elected
10. Senator Obama will likely be elected
11. Republicans will be blamed
12. Taxes will be increased for all incomes by 3% by 2009
13. Corporate taxes will be increased by 10% early in 2009
14. Inflation will soar unchecked by 3 - 5%
15. Unemployment will grow to 8.5% by December 2008There may be other sources of opportunity but they will be guided by factors including but not limited to:
Iran
Iraq and Afghanistan wars
Inflation
Unemployment
Manufacturing and Industrial layoffs
Retiree growth rates
Healthcare costs
International political stability”
Other than the increases in inflation, corporate and individual tax rates, (which I still expect) and the timeframe of the events everything mentioned above happened roughly as I expected they would. The net result I expected
“As money tightens, gold will be a hedge and prices for all precious metals will soar again. Credit will get severely crunched, and credit card rates will fly. The debt load on the average American will increase from the current $6,000 to $8,500. Most of this increased debt will be from higher energy costs. Thousands of small businesses will shutdown.
As a result of all these things I expect that the Dow Jones will drop to 10,200 by December. If I am correct about Congress and Senator Obama - for the reasons stated - then I further expect a drop to 9,300 during 2009. A significant bear market indeed.”
As of today, the net debt of every American citizen is in excess of $10,000 (just from the $3.5 trillion budget). Gold prices are up. Credit is still crunched. Energy costs are rising, and Cap & Trade will drive it substantially higher. At least thousands of small businesses have folded already, with more expected to go under as the year continues. The Dow Jones Index blew past 9,300 on its way to 6,440 at the bottom.
Overall, looking at everything I expected to happen and the things that have not, plus the parts I got partially right I was roughly 62.5% correct. [30 dead on, 14 dead wrong, and 4 partially correct]
I wish that this was something I could cheer about. My predictions were gloomy and filled with trouble. It was an outlook that continued forward for potentially several years. It predicted that millions would be placed into a position of financial instability and workplace insecurity. I truly would have like to be massively wrong.
But for those that heeded my comments a year ago, some solace was gained. And that at least is a positive. Going forward I will soon be making my predictions for the second half of 2009 and the first 2 quarters of 2010. I cannot promise that all my outlook will be positive – if any of it. But if I remain as consistent as I have for every year I have made a prediction (so far I have never been lower than 62%) at least my readers will be prepared.