The imaginary and real Obama Administration
Written by Michael Vass
Well I’m still looking for the jobs that the Obama Administration claimed to have “saved or created” since the Democrat-led Congress passed the $787 billion Economic Stimulus Plan early this year. You do recall that plan right?
Yes, President Obama was on a bandwagon then. Telling the nation how well his economic policies have been helping the average American. A soapbox that he jumped off of just in time to switch to trying to pass his healthcare plan. You might wonder why he has switched gears. The answer is the following data just out.
Does that sound like a plan that is working? Does it in any way sound like the average worker is more secure now or less so? Are you willing to spend more money in this economic environment or less?
In fact, these numbers place my observation about how the Obama Stimulus money is hurting some families right now as severely under-estimated.
Keep in mind that IF you are RECEIVING a paycheck you are getting the stimulus money right now. No check from the Government, but an extra $25 off of your taxes. So the stimulus is in effect right now. And you can see how this is improving the nation. With forecasts from even the most lenient economists stating that the unemployment levels will hit at least 10%, perhaps as high as 11%, going into 2010. So it will only get worse for many people across the nation, not better.
But President Obama PROMISED that his plans for the economy and budget would save jobs – some 3 million of them. He also promised that immediate action upon passing the Stimulus package – which won’t mostly go into effect until the 2nd quarter or so of 2010. Lightning fast.
I bring all this up because President Obama has hustled the nation from one economic crisis to another, with Congress cheerleading the whole way. There was the $410 billion to keep the Government funded, and the $3.5 trillion for his budget - all separate and not including the $787 billion stimulus package. These included over 9,000 earmarks – something President Obama PROMISED to remove if elected. This included the situation that PREVENTS families from getting food stamps to feed their families. This includes social changes like the Government now owning 2 auto companies (costing over $50 billion dollars and losing around 100,000 jobs conservatively), and the desire for the Government to dictate employee pay and hiring. Not to mention the ability of the Government to violate contract law, invalidate bondholder rights, and potentially to take over any private business it wishes.
But now the President has moved on to healthcare. Again we are being told that this is an immediate need. That this is our sole option. That this will help the nation. At a cost conservatively around $1.5 trillion, an amount greater than all the taxes collected by the Government (around $1.3 trillion a year). None of this counts the interest we must pay on all the borrowed money.
Plus there is the promise that President Obama seems to be on track for.
But wait, there is more. Don’t forget that there is also the Cap and Trade idea of the Obama Administration floating around. A plan that promises to increase the cost of gas and energy. A plan that will FORCE the public to conserve energy because of the higher prices. And by the way, some in Congress (House Speaker Nancy Pelosi for one) will benefit hugely and directly because of this.
And this says nothing of Representative Barney Frank’s attempt to create another housing crisis in the future by lowering the requirements for mortgages again – this time in the Condo market. A brilliant move by the person directly responsible for telling the nation, on national television, that anyone warning the public about problems at Fannie Mae and Freddie Mac was lying for political gain – 2 weeks before they failed under his direct oversight.
So to sum up, looking at the Obama Presidency to date, where are the benefits? For all the calls of change and improvement, where are they? What is better now than before? I bet they are with those jobs that have been “saved or created” that no one can find.
Obama Stimulus costs or keeps $38 million from 344,000 Americans
Written by Michael Vass
Interesting headline isn’t it? The best part is that I can back it up. At least as well as the Obama Administration can back up the jobs they have “created or saved” with the Stimulus package. In fact I can provide better proof. The worst part though is that the money is being lost by the poor and the unemployed.
The problem stems from the very $787 billion stimulus package that the Democrat-led Congress and President Obama shoved down the throats of the American public. In the rush to capitalize on the popularity of the President, with the cries of absolute depression emanating from every Liberal politician and pundit in the background, the stimulus package was passed without ANYONE reading what was in the 400 pages. Thus an extra $25 a week was ensured for 4 months to every American that GETS a paycheck.
But that’s also the problem. Because the extra $100 a month was never factored into any other Government program. Which means that if you happen to be getting unemployment as 6.8 million Americans (and more each month) are, and you happen to need food stamps as well to feed say your family, you may have a problem.
This is happening right now. According to the Associated Press (hardly a conservative arm of the media) there are cases in Iowa and Georgia, and other States, already. People are finding out that because of the extra $25 they cannot decline, calculations made including this money is placing Americans over the Government limits for food stamps and other forms of aid. The range of the loss is unknown (and likely to remain so), but the AP provided an example – costing a family $300 in food stamps they now cannot receive. The average for food stamps as stated in the AP article is $111.
So using a bit of math that President Obama and his entire Administration cannot do for his claim of “creating or saving” jobs with the stimulus package I will now present you with how much Democrats have cost the poor and unemployed in this nation. Conservatively.
Since there are no less than 6.8 million people on unemployment right now, I will take 5% of that total as people potentially being affected by the extra money. That comes to 344,000. A really small number of people. It’s 1/10th the number of people in the nation. It’s about the number of people that lost their jobs in March alone.
Now taking the average provided by the AP on food stamps, and not the actual example provided that is about 3x as high, and you get 344,000 x $111 = $38,184,000. That’s $38 million being lost or prevented from helping people feed their families in this nation right now. And that figure is monthly. So to be really honest, for the life of the stimulus package (at least the part that the public actually gets as a stimulus) the poorest and most needy in this nation will lose of be prevented from having $152,736,000 in food.
I bet Democrats across the nation are feeling really proud now. I can see Speaker Nancy Pelosi and Senator Harry Reid giddy in Congress. Rep. Barney Frank must be searching the political map for someone else to blame this oversight on. And I can imagine that the Obama Administration is taping Vice President Biden’s mouth shut lest he reveal how much is being taken from the poor INSTEAD of the rich as Democrats promised would happen.
Yes, there is nothing like an unfettered Democrat-led Congress to rush serious and profoundly important legislation through all the hoops, passed in votes without a single concern for the American people or a glance at the actual wording and thus effects.
So I say again, the stimulus plan was idiocy. It was a bad idea created by people who think the Government is smarter than the average person. Yet they prove consistently that there is virtually no part of the Government, or its programs, they can’t screw up. And the bonus is they are growing the size of the Government so they can do even more.
Only another year and 5 more months before we can elect a new Congress. 3 years and 5 months till we can see if President Obama gets re-elected. Don’t you just feel confident.
Stimulus plan in Binghamton, New York
Written by Michael Vass
Recently I read about a part of the $787 billion Stimulus Plan President Obama has spent, that affects my town of Binghamton, New York. The funds that will be coming to the city is just over $850,000. Not a huge sum, but in a small town like Binghamton it’s a lot.
This money is part of the Neighborhood Stabilization Program. Obviously this is intended to improve neighborhoods across the nation. In Binghamton, the local press did a story of how 8 buildings are to be condemned. In addition some unnamed amount of funds are to be used to pay for apartment housing. Sounds good yes?
Not exactly. First consider this. The only housing project I am aware of going on in downtown Binghamton is student housing. And that was paid for before the Stimulus Plan. So where is the money going?
Another question is how much does it cost to tear down a building? If we look at just the 8 buildings that were detailed in the newpaper then that means around $100,000 per building. The average home in Binghamton does not cost that much. In fact you can easily buy a home in the range of $60,000 – which is including the increase in housing prices that has been going on for the last 6 months at least. So it would seem there is some waste there.
Separate of that is the question of what impact removing these houses has. Of the buildings identified, the neighborhoods are some of the worst in Binghamton. The homes on the same streets are in horrendous condition. The people there are lucky if they can be considered part of the local middle class (not the national average which is way higher). So fixing or removing 1 building is suddenly going to improve the neighborhood?
And this is in the face of the fact that every time there is a strong rain (which is frequent here) several areas have flooding, in part due to the poor drainage system, which cause traffic and health issues. It is in the face of the fact that 1 in 3 (if not more) storefronts in Downtown Binghamton is empty – and has been for the last 5 years I have lived here. In fact there are dozens of empty buildings in the downtown area right now. Not just the storefront, but the entire 4 or more stories of building. Which includes space that easily can be or is apartment space.
What stabilizes a community is jobs. Not short-term projects like tearing down a building, but a full-time consistent job. It gives the people in the area the funds to improve their homes, and buy furniture. It creates a feeling of anything but despair and disdain. It provides opportunity for a better life of a family.
What do apartments in a vacuous downtown mean? Nothing. Beyond students that only live in the city seasonally and would like to be closer to the bars, there is no benefit to citizens. There are no new jobs that are nearby for students, or citizens, to work at. There are no grocery stores close by. Nothing is centralized beyond the bars. Oh and 4 banks plus the sports arena. The framework for a thriving downtown it is not.
I’m not saying that the condemned buildings don’t need to be torn down. They do. But the limitiations on how the money from the Stimulus Package can be spent seem to be more waste than benefit. Because the decreasing numbers of citizens in Binghamton will not reverse itself with 8 more abandoned buildings no longer standing. Adding more aparment space in a town with ample cheap housing does not improve the standard of living. And none of this employs anyone (except the bars downtown).
It just makes me wonder where the stimulus is in the Stimulus Plan? Because the window dressing in Binghamton does nothing but anger me. I’m not paying a mortgage on top of my actual mortgage to watch a building be torn down and politicians claim that this rights the ills of the entire town. I’m just not that stupid.
How is the stimulus money being spent in your town or city? Is it actually creating real jobs? Is it improving the lives of people around you? Or are you finding that your $120,000 (approximately your share of future earnings for the entire stimulus plan including interest) is just going nowhere fast?
I really would like to know.
Investing vs. Trading - the Alcoa example – the follow up
Written by Michael Vass
Back on the 14th of April I decided to make an example of the position I own in Alcoa to demonstrate the difference between trading and owning. At the time I stated
Based on the examplew above I would have sold the AA position for $9.25 from my cost basis of $5.55. The 32% total takes into account the cost of the trade and the taxes on the profit. Because of the 30 day rule the position could not be bought back until May 14th. Which would give me a repurchase price of $8.74 as of the close.
The difference is .51 cents or roughly 6% less than the sale price of April. Thus if we add in the 5% cost to repurchase the stock, the net added gain to me is 1%, granting a total gain of 33%.
While that gain is very respecatble, especially in a down market, having just held the stock my return to date is 70% at the time of this post (AA is currently $9.43). Had I made the sale for the trade and repurchased the position my current gain would be 3% (including the cost to repurchase the stock giving me a net cost of $9.18).
So in comparison, holding the stock would have me currently with a 70% gain, minus tax and sale cost becoming a net 40% gain. Trading the stock, with a repurchase, gives me a net 36% gain. While the difference may not sound large, it is taking net profit out of my pocket.
This also does not factor in the fact that if I had not repurchased the stock I would be out 6% of profit. If I purchased the stock one day later I would have had to buyback the position at $9.03, which including commission would plce me at a loss on the current price and drop my profit to 31%. And if for any reason I was unable to purchase the stock until today, I would be losing even more of the initial profit in the stock (a repurchase cost of roughly $9.90 net or a loss of 7% dropping the profit to 25%).
All of this ignores the fact that I had the option, if I held the stock, to have sold it at $10.50 – a 90% gain or a net of 60% as of the close May 6th. Not counting the fact that I recall the stock having an intraday high of $11. That is a home run in a bad market and horrible ecomonic environment.
Still the stock has not hit my first target of $15. So I have no intention of selling yet.
But the question is if trading a stock is better than buying and holding. In my opinion, buy and hold is always better if you have sound fundemental reasons for purhasing the stock in the first place. As this example shows, the net gain is better under all circumstances, by holding the position. Only luck could allow a better net return, potentially.
This is of course a theoretical example. Actual returns and strategies may result in differing returns. Objectives of your portfolio may be substantially different than those posed in this example. Any portoflio decision should always be discussed with professional.
But at least you may have a bit more insight to the question of Investing versus trading. I hope this has helped.
Chrysler - the bad bet of President Obama
Written by Michael Vass
You know what’s really sad about the economy? What really angers me about the bailouts? The way that the Obama Administration, Congress, and the Bush Administration have all wasted our money.
Yes even the anointed President Barack Obama is complicit in the waste of money that has been the bailouts and stimulus package. While President Bush started this waterfall of taxpayer money, and Congress has failed in every respect on these matters, President Obama has jumped in with both feet on making this a costly mistake since day 1.
Chrysler has now declared bankruptcy. They told America they would back in November of 2008 when they didn’t get the full bailout they requested, along with the rest of the U.S. automakers. Rather than allowing the automakers to do the inevitable, the Government has thrown away our money in amounts that are near incomprehensible. Chrysler alone is responsible for some $10 billion of our money that will now not only fail to send our kids to school, or buy new homes, or build new businesses, but has effectively vaporized.
Of course there will be a cheer from Democrats since the American Government now owns 8% of Chrysler. What a bargain. They paid more than top dollar for a miniscule percentage of ownership, that currently is worthless. But don’t worry, the Government can always buy more with your taxes and printing as much money as it wants. Your kid didn’t need college anyway.
This is not a joke. I’m being serious. President Obama announced to the nation, along with Speaker Nancy Pelosi and Harry Reid, that the only way to save American jobs and fend off a depression was to keep the automakers out of bankruptcy. That was a big part of the $1.29 trillion that President Obama spent in the first 100 days. Yet bankruptcy is what has happened.
Can you imagine $10 billion dollars? Does it make sense? Imagine a stack of dollar bills that reaches to the moon and back, with lots of money left over. That’s how much money just disappeared.
Had the Democrat leadership just said no, and allowed the car makers to fail there would be that much more money available to help people survive this outcome. There would be that much money ready to help new smaller businesses to pick up the pieces of the failed companies and create new jobs and innovation. But the Government knows better than you or I. The Government can manage everything better - though facts to the contrary abound.
Think about this. If the Government is wrong about the billions it gave Chrysler, which has been proven by the bankruptcy, what else is it wrong about? That a depression will not be the outcome of this action? That they wasted more of our money on bad ideas than AIG, the automakers, and most of the major banks combined? That the total of the Congress and the President have less knowledge and acumen in the world of business than your local paperboy?
Each of the political parties is culpable in this mess. They all have played their part in creating this fiasco over the past two decades at least. But I must say that all the polispeak of President Obama stands out the most. Because the buck stops at the President, and his assurances are the ones that have failed the biggest right now.
I am pissed off because of in my forced ownership of Chrysler (via the bailouts using my cash like yours), I gain nothing. Had I made the choice of what to do with my money, I would have kept it in my pocket. Or gone out to a small dinner and helped the economy. Or added it to my investments (though future taxes on those investments would surely be more than the some of money I started with). I might even had given it to charity (though the tax on that gift might have been more than my charitable gift now that President Obama raised the taxes on that too).
Simply put, the President and the Democrat-led Congress made a bad bet. If they were a publicly run corporation I’d have shorted their stock long ago. But instead of their stock price going down, national unemployment is continuing to rise, my tax bill is increasing, I’m paying a mortgage of other Americans on top of my own mortgage, and I get to fear for my ability to maintain just what I have. Because they made their bets with my money, and yours.
This will no doubt be spun to blame everyone but the current Administration and Congress. There will be no end to the flowery views of future green cars and some abundant productivity in the future. But the fact staring us all in the face is that all those dreams would have been just as true, and likely, without an extra $10 billion in debt for the nation.
Media Matters worried about credit not money
Written by VASS
I find it interesting that when the question of how the $787 billion of the stimulus package is being spent, the argument from many liberal sources is to attack who is getting proper credit about these facts. Not that the spending is in no way connected to stimulus. Not that the places the money is going are places the public was never told about or hinted at by politicians.
Take for example the report by Bill Hemmer of Fox News on the 23rd. Media Matters, a liberal leaning organization that often attacks Fox News jumped on the report. They stated that all the information comes from the Republican Majority Whip’s website. They went on and on that Fox News did not state that this very public information supposedly came from Republicans.
But my point is who cares, if the information is true. Media Matters made it very clear that the $61.9 million reporter Bill Hemmer spoke about was factual. They even noted that another 9 projects are highlighted at Washington Watch Report. So there is no question that my money, and your money, is being spent as was reported.
Let’s not divert attention from the facts. Had President Obama, Speaker Nancy Pelosi, or Senator Harry Reid mentioned that our money was going to go to pay for a homeless program where there is no homeless problem or programs, that we would be paying to build a skateboarding park, that we would line streets with art, and/or fund plans for future programs that have no start dates or even a defined probability of existence, they would have never gotten support.
That’s $61.9 million dollars of money we will never see again. Not one dollar of it is going to create new jobs. These are not projects that will help families stay in their homes, or keep their businesses running. We were told that the stimulus package would keep America out of a depression that loomed on our back. I dare any politician to explain how a skate park in a city with a multi-million dollar deficit will help in a long-term manner. Or how funding a program that does not exist will save someone’s home.
So do you care who found out about all this wasted money, or do you care about the wasted money itself. If Fox News was lying about the money, Media Matter would be perfectly sound in attacking Fox. But when the President is asking for more money in his budget than ever before in the world – a budget that will nearly triple the national debt by the most generous estimates – shouldn’t our focus be on where he is spending that money. Because ultimately you and I will be paying for every dollar spent.
Think of it this way. If the Stimulus package had 10% less waste than it has right now, that would be an extra $260 in the pocket of every man woman and child in America right now. That’s 65% of all the money that will go to the Average American from the Stimulus package. That’s maybe $50 million dollars in interest payments that could be saved. That’s enough money to feed 3 people for 1 month at least.
Do I care that a Republican, or a Democrat, noticed that literally food is being taken out of the mouths of American citizens? No I don’t. Do I care that someone isn’t getting full credit on issues that can be found in a simple Google search? Nope, not when the fact is that our money is being burned.
So the next time a liberal or Democrat want to tell you how great a job President Obama and the Democrat-led Congress is doing, ask them what is in the stimulus package and how it is going to keep anyone working. I’d love to hear the answers.
The credit crisis is over - bull
Written by Michael Vass
Recently I was having a conversation with several associates of mine. They range from across the country, but mostly in the Northeast. Several have standard businesses, and a few have internet based companies like myself.
The topic of conversation was the economy. If it’s improving, where and how fast. Overall the impression is that things are not getting much more stable. This flies in the face of the latest presentations of success that the media and the Government are trying to imply. Thus we all need to be cautious.
One example is an associate that recently went for a loan. The business is a small one, revenues are under $250,000. The loan amount was under $50,000. The company has been in operation for over a decade.
My associate went to a regional bank. This bank holds several account of theirs, including a business account that was started shortly after the business started. The bank in question took no TARP funds, and is in stable condition.
The business loan was denied. The reason was that the business was valued significantly below what the bank felt was reasonable. But there was a chance that my associate could get the loan under a personal basis. That is, if they could claim that at least half the funds would go to home improvements. So it was tried.
That loan was also denied. Because my associate had no debt. Let me clarify that. My associate is older than me, and owns a home. They operate their business with cash on hand, no credit lines. They have no credit cards, as they had become massively in debt back in their 20’s. It took my associate a decade to payoff all the debt and mistakes they had made. But they never went bankrupt. Still they decided to never own credit cards again.
So, because my associate has a minor stock portfolio and no history in credit cards they are considered a bad risk. That is opposed to their credit rating which is 725. And the fact that they have maintained an account with the regional bank, only bouncing checks 3 times recently when a client’s funds bounced. that was quickly resolved, but still hit the account.
So how good is this economy? Not that good at all. When banks that have no problems, look at old customers and turn them down for minor loans there is a problem. When people are turned away from creating or expanding businesses because they don’t already have debt, because they fixed their credit, that is a problem. Seriously, the bank in question stated that if my friend had a couple of credit cards, and/or an outstanding car loan, they would have approved the loan.
Now this may be just one bank. it may be an exception to the rule. But I don’t think so.
Right now, many banks have funds that could be loaned. There are many small businesses that would love to expand in this troubled market. But banks won’t do it. It’s not a question of cash on hand. The billions from the Government have assured that. Banks just don’t trust anyone.
If small businesses are being forced to stand still, while the Government targets them for higher taxes, what do you think will be the result?
Right now, it is easier to raise $500,000 than $50,000. But what if your business doesn’t need $500,000? What if that is too much money? What if raising that much placed the company into a situation that is detrimental to the growth of the company due to the terms attached to that much cash?
As long as small businesses, established companies, are being denied the chance to grow the economy is not growing and will likely falter.
If mom and pop are being squeezed by the credit conditions out there, average Joe will be too. Which means that any improvement is a house of cards, waiting for the wind. No matter how much money is pumped into bank coffers, no matter how much large corporations get pushed around by the Government. If small town America can’t get the opportunity to do what it needs to, everything fails.
Perhaps I am too cautious. Maybe the people I speak with are exceptions. Maybe things just need more time. But that’s not the message in the media and the Government.
Do you see the current trend of praising the rush to push businesses by the Government as good? Do you see small businesses growing? Do you see more or less security in your small towns?
I say it’s hype, and that’s dangerous. What do you say?
President Obama - The economy has glimmers of improvement
Written by Michael Vass
Lately President Obama has been commenting on the positives in the economy. It’s a huge reversal of the absolutely impending doom that he has virtually preached before and after his inauguration. But the big question is if it is true.
Is the economy better? Did any of the things that the Obama Administration pushed forward helped? When will joe average feel more confident?
All good questions, but there is no clear answer so far.
If you look at the economy as a whole you get mixed answers. Looking at NY State I can say that I am aware of a huge mixed bag. There are several businesses that have folded just this month, or are looking to sell right now. This is in part the fault of the overall economy, but also has to do with all the new taxes that Gov. Patterson is enacting. It just costs too much to do business here, especially in a bad economy.
A great example is the fact that over the last 30 days sales of potato chips and snack foods for a large multinational chain have plummeted to all-time lows from Buffalo to Syracuse. Is that a reaction to the new food tax that Gov. Patterson has recently proposed? Add to that the fact that cigarette sales have now jumped as well, costing about $7 on average in Binghamton alone. Which flies in the face of the fact that a 15 minute drive provides cigarette buyers a roughly 35% discount if they cross the border and buy cigarettes in Pennsylvania. How much do you think the higher costs will help NY business owners?
Consider that while there are some businesses that are expanding, they tend to be larger businesses. The smaller private businesses that provide most of the jobs for the local economies are just dropping off the radar, leaving other connected businesses with nothing but a debit in their accounting. The ratio is such that for every job that is generated somewhere around 3 or 4 are being lost.
So is that an improving economy? Jobs are being created, but is the cost too high? And can any local or even federal economy survive such a discrepancy when even the most mundane products are encountering dramatic downturns?
And then there is the banking sector. We have banks that took Government bailout money, even if they didn’t need it (to have a hedge), that now are being strangled by Government intervention. New regulations are being required that are obtuse at best. Which is preventing banks from providing loans to businesses that normally would have been provided.
A recent conversation I had concluded
‘We have these guys in the Government. They have never worked in finance. They don’t understand making a loan or stock market operations. But they are the ones making regulations on how to make a loan or oversee the stock market. What do they know about it? Nothing. But they are the ones overseeing everything, bogging down what works and flooding everything with what doesn’t work.’
Consider this, the Government is so far up banking that even if a bank that took public funds wants to pay back every dime and interest, the Government won’t accept it. That is part of the provisions of the stimulus plan that was passed without anyone, especially Congress, reading it. Government is imposing regulations that they themselves don’t understand, nor can comprehend the impact of. Government is actively demanding business transactions that have no proven benefit (like the demand for hybrid cars though the market is immature and still developing). All the while it is imposing new taxes that impede business growth, and/or increase the cost to the end consumer - like new taxes on energy that directly affects the end user and increasing taxes on businesses and investments limiting growth.
So is the economy really improving? Or is it just getting a polispeak political shuffle that makes some aspects look impressive while diverting attention from long-term problems. I once offered the example of lowering the average Americans debt, just as President Obama has offered to lower the national debt. No one that I presented this scenario to found it to be worthwhile, yet the Obama Administration’s budget plans continue without discourse or change. How can this make sense?
Window dressing is great. The President finally speaking about the economy in terms that do not sound like chicken little is a bonus. But the long-term impact is something far more murky and glum.
If the current actions in New York State are any indication, the rollercoaster ride is hardly over. The worst of what is to come is far more dire than what we are being presented. True consumer confidence is still at arms reach, in the best case.
Take that all into consideration the next time you hear that the economy is glimmering with improvement. Because all that glitters is not gold.
Investing vs. Trading - the Alcoa example
Written by Michael Vass
Today I received a call from a friend who also reads several of my posts. The reason for the call was to congratulate me on my purchase of Alcoa (AA) at $5.55, plus the question of asking me where I am selling and when I would be getting back into the stock. Now several of my former colleagues that are still stockbrokers will not like this answer, but I’m not selling.
The fact is that I feel there is a huge difference between investing and trading. That difference is not subtle, and a huge part of the losses many smaller investors make on a regular basis. I can say from my experience that it is a leading cause of why the average investor loses money on some 70% of their portfolio each year (good or bad markets).
My friend has confused my investment and his trading tendency. The thought in his mind was that because I currently have a 67% gain I must want to get out of the stock and take the profit. Then I can simply wait for a pull-back in the stock and buy back in. This is a terrible technique.
First let’s look at the trading theory. I take the profit now. That’s 67%, minus the 5% it cost to buy the stock. Take out another 5% to sell the stock. Then come taxes, on a short-term (less than 1 year) trade they are about 25%. So I net 32%. This is great, but far less than what I have on paper; and no where near what my target was for the stock.
But the really important thing is the potential for the company. I bought Alcoa because I felt that it was well positioned over the long term. That due to the extreme emotional environment the discount of the company’s book value was ludicrous. I felt the company is worth at least 1.5x book value, which at the time I bought it was roughly 14. Even giving a 40% discount to book it meant that the stock was worth 15 to me. So I believe the stock still has a strong upside from here.
If I were to sell the stock, what guarantee do I have it will drop? Considering the extreme and highly pessimistic outlook at the time I bought the stock, what are the chances for it to go to a similar level in the near-future? If I get out, I must wait 30 day before buying back the same security (otherwise the IRS does not count the sale), so if the stock does tumble right after I sell it I get no gain unless it stays at unreasonably low levels. Or I have to have the vision of Nostradamus to pick the perfect 30 day window on the stock.
If I get the timing wrong, which is likely, the stock may run to my target. It could go beyond it. And then I own nothing. Or worse I might be buying the stock far closer to my target sell price and reduce my overall gain.
Trading stocks, or any investment, is a rush. It feels great to pick up a nice percentage gain and mention it to your friends on the golf course. And that’s about all it is useful for. It is not a means to garner true wealth.
Investing means you do your homework, which I did to find Alcoa and other stocks I believe are worth owning. Investing means you know your goals, which for me are long-term appreciation and in this case the occasional dividend (whatever that may equate to). Investing means that unless there is a change in the company or the markets that is significant and fundamental, you wait.
No bragging, no excuses.
So no, I have not sold my holding in the stock. Nor do I plan to any time soon. I love the fact that the value has increased in the portfolio, but I don’t follow it daily. I actually hadn’t realized it had run up so quickly, because I did not expect that for at least another 6 months or more. Still it is not where I targeted it. And the outlook has not changed. So I have no reason to act.
My friend thinks I am crazy. He believes that I am wrong. So here is the experiment. Just for the sake of mental masturbation, let’s assume I sell the stock today for $9.25, a gain of $1.77 or 32% net. In exactly 30 days we will say I will buy the stock back at the then current price. Let’s see if this makes sense. And then in another say 6 months from the theoretical buyback date we’ll take a look at the value then (if the stock does not hit my actual target). We can then evaluate which plan has created the best gain, net and not percentage.
Perhaps this will help some understand investing and true wealth as opposed to trading and bragging about 401k’s and such. But as always, I advise people to speak with a financial professional. I am a former stockbroker, so I may do ok for myself, but that does not mean what I say is perfect for your financial goals and outlook.
Polispeak in political math and jobs made simple
Written by Michael Vass
There has been a lot of talk about huge budgets and deficit spending over the past couple of months. Numbers in the trillions of dollars have been tossed around, to the extent that few seem to comprehend the meaning of such numbers. So I thought I’d try to simplify it all.
Let’s start with the budget President Obama is pushing hard to get passed. He is asking for $3.6 trillion dollars. Overall his plan will reduce the deficit to about $500 – 700 billion dollars. And then, no matter who does the math, everyone agrees the deficit will double and grow for every year until 2019 – at around $9 trillion dollars.
In simple words that means the following.
If the average American owes $6,000 in debt right now, the Government will add another roughly $100,000 to their debt. This money is the future earnings of each American, spent now. That money will be paid back via taxes – no matter what income level you have.
According to the Obama budget plan, that debt to taxes will drop to $50,000 in 2012. So you will have to bay back far less of the money the Government has taken from your future earnings. [None of this includes interest on the money taken.]
But in 2013, you will owe $105,000 (plus the $6,000 in debt you already owed). By 2019 each and every American will owe some $300,000 to the Government that will come from your taxes – regardless of what income level you have (plus interest).
Put another way, If next month all your debt was cut in half would you be happy? Would you still be happy if the month after that (in 2 months) you owed slightly more than you owed today? And in 3 months you would own 50% more. By the end of the year you would owe roughly 250% more than you owe today.
Ie. the average American owes $6,000 right now. Next month, in this example, it would be $3,000. In 2 months from today it would be $6,100. In 3 months from today it will be $9,000. By the end of the year the average American - making less than $30,000 a year - would owe $15,000 plus interest that would come out of your income as taxes in this example.
Does that sound like a good plan?
Well add another factor to this plan. Jobs.
You might have a job today. If you have that job tomorrow, the Obama Administration counts that as a job saved. If you lose that job in a week, the Obama Administration says that they helped you keep your job longer under their plan. If in 4 months you get a new job, the Obama Administration says that they created that job for you. Do you feel more secure with their plan? (By the way, in month 4, going by my example above, you would owe around $9,500 regardless of the fact you had no income for over 3 months.)
It gets better.
According to the actions of the Democrat-led Congress, certain aspects of America will be changed. This stems from the AIG fiasco.
As of right now, any contract the Government does not like can be ignored. The executives at AIG had contracts for their bonuses. The contracts meant that if AIG had money, they must pay the bonus. Congress and the Obama Administration knew this, and kept the contracts as they stood. Thus the bonuses must be paid.
But because this is politically unpopular they retro-actively punished the AIG executives for having a contract. This is illegal and unconstitutional. And it means that if the Government can arbitrarily change one contract, they can change ANY contract. (Thus if you got a job with a contract for extremely good pay, the Government could decide to take up to 70 - 90% of it based on how they retro-actively punished AIG. And you still would owe the $15,000 from the above example at the end of the year with more than 3/4 of your income removed via punative tax.)
In addition, the Government is saying that they can adjust the pay of ANYONE, if they deem it to be too much. Yes, so far they are saying only people that received money from the Government, but to some extent every business receives money from the Government, as does every citizen.
And at this very moment the Secretary of the Treasury is asking for the power for the Government to take over ANY business that they deem to be in trouble and important to the economy. What qualifies as important to the economy? There is not qualification set. What is trouble? Again there is no limitation set. (So following the examples above, if you started a business and made it a superstar of business for a time, the Government could take it from you. And you still would owe money.)
So if we look at the historical actions of the Government, once they are capable of doing something, they expand to do it more. Remember, there has not been one Agency of the Government that has closed, or ended operations, or received less operating capital for the last 40 years that I am aware of. Do you think that expanded powers that are undefined, and directly intrude on the public life, will become less or more powerful in the future based on historical factual actions of the Government?
These are the things that President Obama is asking for right now. These are the changes that are happening right now. These are the things that Congress and the Obama Administration are using polispeak to achieve.
According to these plans, your child cannot possible afford college. These plans also mean your retirement funds are at risk. According to these plans the Government will decide your health care options. The Government will decide how much ANY citizen might make.
And if you somehow have extra money, the Government will take more of it if you try to donate it – since they know where you should donate better than you do. [Tax rates on donations have been increased. Fact] Or if you invest it, the Government will take more of that money, if you make a profit. (Thus if you avoided losing money in a contract, or losing a business, and you made a profit on an investment of say 10% in a year - a very good return - you would in fact lose 25% when taxes and commisions are factored in. And this is the proposed change to investment taxes, not an example.)
On top of that, the Obama Administration will force EVERY American to pay more for electricity and fuel. Because the Government will force you to conserve, as they know what amount of energy you should use. Again this is a fact of what the Obama Administration is proposing.
If you doubt what I am saying, just read the proposals and do the math. Everything I have explained is a simplified version of what is before Congress and the President. Though the Obama Administration has failed to live up to the promise of presenting all the potential laws to the public before being signed (in fact even before all of Congress had had the chance to read all the details of the laws proposed), you can still look this up.
And when it comes to math, you might also want to add in $400 billion and $787 billion to what is in the Obama budget for what he has already spent. No that is not part of the $3.6 trillion proposed budget.
So now that you can understand these huge numbers in a real manner, how do you feel? Do you think the future of America is better or worse? Do you think the lives of our kids will be better or worse?
Alcoa - suddenly a superstar
Written by Michael Vass
Well either I am a genius or I will be in the doghouse with good company.
Back on the 24th of February I stated that Alcoa was one of a small group of companies that I felt were undervalued. I was speaking of the market in general, what we can expect and in what time frame, but I directly mentioned that stock as an example of a long-term investment I like.
3 days later Jim Cramer made essentially the same kind of call on Alcoa. It was during his show and he considered it more speculative than I did. Still it was further confirmation of my original thought. Then the company slashed its dividend.
The inital reaction in the market was to sell the stock. I really can’t tell you why it’s a bad thing that a company hoards cash in a market environment that we are in. I assume that investors looking for dividend payments were upset and pulled out. Or some investors misunderstood that the dividend cut was an indication of trouble as opposed to avoiding it.
But a mere day later and what do you think happened? The company is up 18% and now there are analysts praising the company for ther move. Suddenly investors are looking at the stock, nearly 1 month after I first mentioned it.
In fact the Motley Fool just highlighted the stock as a potential stand out.
With shares down 86% in the past year, how much of the current downturn do you suppose is already reflected in today’s share price? If you’re like me and you come up with an answer of close to “all of it,” I think you’re on the right path.”
It only took roughly a month for the market to figure out what I already noted. Amazing. And for the record I do own Alcoa at $5.55, not the lowest it has been, but in the range of what I hoped for.
So now that there seems to be capitulation in the stock, with the lights coming on in various minds of institutions and investors alike what happens next?
Not much really. I took the view that the stock will languish, as will the entire market for 18 more months. The bump in price right now is great, but I don’t expect a whole lot more. Just as I think the entire rally of the last week is nothing more than a bull trap. Nothing has changed in the markets except the notion of bargains. The economy is no better off, and in fact I believe is getting worse with the efforts of the Obama Administration.
Add to this the increase in capital gains taxes, and the proposed gains in personal taxes and you get a net flat result until the stock hits roughly $9. At that point it is feasible for some speculators to get out. So it will reach pressure there I expect. After that threashold the stock should move on, slowly, to my personal target of $14 to $20. With any upside to the economy I think the stock trading at a dicounted book value of 1.5x is very fair and cheap. [I'm discounting the current book value of $14 to $10 - which is a huge revaluation.]
Will this happen? Not in the next 9 months. Probably not in the next 18. But in 24 months I think we will see it reach this level. At least that is my plan. That plan may not work for you, nor is there any way to be sure it will appreciate at all.
Essentially, before you rush out to buy a stock because it looks cheap or some market guru said it was do your homework. Figure out what is important to you. Determine what you expect and think the markets will do over a period of time. Then look for stocks that match your goals. A financial advisor is great for this approach.
If you do this, you too may be able to quote how the market is following your lead (at least for a while) because you figured out what they were too preoccupied to notice. Because there are definitely gems out there, if you can find them.
Jon Stewart vs. Jim Cramer: really missing the point
Written by Michael Vass
So Jon Stewart took on Jim Cramer tonight. It was a beat down. It was vicious. It was obvious that Stewart had an ax to grind. And it was wrong on many points, yet true to the feelings of many.
As a former stockbroker I have had many discussions with people about the markets. I’ve written many things about the economy. And from time to time I have noted points in agreement and disagreement with Jim Cramer. But to attack him, and/or CNBC, as if they were the cause of the current economic crisis is both a fallacy and an attempt to find a scapegoat.
To be fair CNBC and Cramer failed in their mission to inform the public. Then again, neither ever truly were supposed to do that. Anyone thinking that either was more than an educated high-brow entertainment probably was sniffing glue (or some other like substance) and likely thought they would be made a millionaire by buying internet stocks they never heard of, or knew what they did, during the late 1990’s.
Is the market a fixed game? No. Is there an unfair advantage for large corporations and wealthy individuals? Absolutely. And are the major brokerage firms the biggest crooks in the industry? I’ve always believed so. Yet not one part of this, or what Stewart was railing about, is any different than it was 50 years ago for the most part.
What has changed is the greed and work done by small investors. If there is anyone to be upset with, it has to be that.
Jon Stewart will without doubt gain huge ratings. Jim Cramer may be looked at with harsh eyes in the near future. And CNBC will get the branding of slipshod reporting that they deserve. But it really doesn’t matter.
I don’t care how many regulations are created to prevent another Bernie Maddoff, or Enron, or Tyco, or AIG, and on an on. Given time there will be another scandal. And another ridiculous bubble in some sector of investing, with a crash that has to happen as well. Because the greed of everyone, at each level of the game, necessitates it.
I listened tonight as Stewart and Cramer went back and forth saying ‘You seemed to know’, ‘Did you know’, ‘Why weren’t we told’, ‘I was lied to’, and so on. Its wonderful posturing, but you don’t need to be an economist to have seen what was happening. Without following more than the politics of the day, occasional glances at the Dow Jones Index, and reading bits of news over the internet I foresaw the problems of the mortgage crisis. It was blatant, and there was plenty of time to act before the hammers started falling. And while I’m smart, I’m not so smart as to have been the only one to recognize what was going to happen.
Don’t believe me? Check out what I wrote back in October 2006
Just keep this stuff in mind as you watch the talking heads spout how great things are in the market. Or you see that ad saying that you should invest on your own.”
or on December 2007
or even January 2008
I say all this for one reason. So that you my readers can be prepared. If I am correct even in part, then this nation will encounter times we have not seen for quite a while. I doubt that we will see the inflation and unemployment that existed in the 1970’s (when I was a child) but I am sure that we will see levels that those under 30 have never experienced.”
My point is that the current crisis was very visible, if anyone was not bothering to be distracted by hype from the likes of Representative Barney Frank and other Government “watchdogs”, or being entertained by CNBC. All you had to do was read and do the math. Investments are no different than your home, if you don’t keep up with it then don’t be surprised if it falls apart one day.
But there has to be a bad guy. In America we are conditioned to look out for someone in a black hat if something goes wrong. And today that guy gets to be Jim Cramer with Jon Stewart as our hero. Bull.
The bad guy is in equal parts the Government, for creating an environment over a decade ago that was little better than a Ponzi scheme. Then there are the corporations, that jumped in on the game looking to ride the wave for as much short-term profit as possible. Add to this mix speculators who looked for ever faster gains with commensurate risk. Throw in cable networks whose goal is ratings above reporting, and then put in a public that didn’t care as long as the paper investments looked better than the Jones’ 15 minutes ago.
And this complete recipe is virtually exactly what happened with the internet bubble, except this one was bigger and not quite as exhuberant. No one learned then, because no one cared. All that mattered was the immediate gratification being reported on our instantaneous communication devices. But the risk of instant gain is the environment we find ourselves in today.
It will happen again. No matter the regulations – because most of the factors that caused this meltdown were all legal if not bad business decisions which can’t be regulated. No matter the protests of Government – because their lack of understanding (or overall disdain) feeds these kinds of bubbles and crashes. Without regard to who reports what facts in whatever manner – because most don’t care or bother to pay attention to the details anyway. No matter the pain for the public – because everyone wants to be a millionaire tomorrow without doing the work required, and many believe they deserve such rewards just because they breathe air in America.
So the indignation of Jon Stewart amuses me. Yes, Cramer and CNBC could have done a better job of reporting. Yes, Congress could have done a far better job of enacting realistic regulations and understanding how those regulations are affecting the market. And a big YES, the public could have paid attention to the facts at hand and did some math. But none of them did these things. Nor do I believe they ever will, to any large or useful degree.
So I won’t score the big points with the blogosphere with this post. My past comments about the economy and markets went without much fanfare as well. Such is the fate of being right consistently. But let me ask you this…
Do you really want to feel smug and righteous because some comedian beat up on a quasi-entertainer/commentator, while politicians throw your future earnings down a drain and your retirement funds evaporate?
Do you know what the Government is doing with trillions of dollars, and how that will affect investments today and in 5 years – with even a slight bit of educated estimates?
Do you get to save your house, or retire, or pay for whatever any easier because a liberal leaning comdey show host got serious for a minute while you still don’t know how to read a corporate 10Q, understand why a second stimulus plan is already being worked out and how badly that will affect your savings and jobs, and re-elect Congressional leaders that can’t figure out their responsibilities even after 20+ years on the job?
I’m sure that many of my long-time readers do get all these things. Perhaps even more than a few of my first-time readers will. But for those that don’t, ignore the hype this one program will raise and start paying attention. Your money will depend on it.
I will now go back to the entertainment news Black Entertainment USA is normally dedicated to.
President Obama thinks stock market is a good deal he doesn’t care about
Written by Michael Vass
There is nothing like watching the daily polispeak dance that politicians like to do. It is especially interesting when the dance is being done by the President. Few Presidents are as skillful with polispeak as President Obama, which says a lot.
I mean just look at how President Obama has handled the complete meltdown of the stock market. The Dow Jones Index, along with virtually every stock on any exchange, have nosedived down a vortex nearly every day since he was elected. But this is considered merely “day-to-day gyrations” that are of no consequence.
An almost total freefall, some 26% since the first trading day of 2009, is a minor happenstance. This is hardly worth talking about in the view of the President. And if you must speak about it, it is all the fault of the prior administration.
Of course President Obama started talking to the markets and the nation months before he was inaugurated. He was dictating economic policy and outlining his initiatives well over 60 days before he was sworn in. And he has effected economic policy changes as well as given somewhat direct guidance on what steps he plans to take in these troubled times. But the current effects on the economy have nothing to do with his Administration.
I mean let’s just look at what he has done so far.
His Secretary of Treasury has gotten the remaining $350 billion dollars from the Bush mortgage bailout. There has been no word on how that money is going to be spent, if it has not been already, but he has the access to it.
He let the Democrat-led Congress loose on a stimulus package that swelled from the day he was elected (then a mere $50 billion dollars) to the final passage of $787 billion dollars. The package is all money borrowed from the nation to be repaid by taxpayers with interest in the future. But everyone who receives a paycheck will be able to make an extra $13 a week for 4 months – if they are under the class of rich which is $75,000 for individuals.
But besides the non-lump sum of $400, the public is also paying for honey bee research ($100 million), and moving Government Agencies at $500 million a move, and research to find a way to create usable green energy (~10 billion dollars - just to find a way to make it, not a dime to actually implement it since it does not exist and may not for a decade), and $100 million for moving fish barriers in mid-West rivers among hundreds of other spending programs.
All of this is to ensure that the roughly 500,000 people who were laid off from Circuit City and almost every other major private sector company in January alone will still have a job. I’m not sure how since I doubt most people have degrees in biology, physics, engineering, and so on, but he said it so it must be true.
President Obama also told the world that he was going to increase the tax on investments in the stock market. Because the fact that interest rates are too low to invest in bonds was not enough. Plus he intends to tax the hell out of those able to afford to invest. So you can understand why the world has rushed in to invest in our markets.
But in case anyone just wanted to hold onto their cash, President Obama is authorizing the Government to essentially take over banks. This way the Government can ensure that loans are made – as well as who will receive them (by the way, isn’t that part of the reason we are in this mess?). Plus the Government can be right on hand to wherever people are putting their money.
But lest you try to give away your money, to charity, the Government under President Obama has another answer. The taxes are to increase on donations. Thus you can give away all your money to a charity, and still owe the Government a huge sum of money. Because under President Obama the Government is smarter than the public and will decide where your money should go and who can receive it. Even though the Government can’t balance a checkbook and most of the public can.
Still just in case any money is not accounted for the Obama Administration has a plan. By increasing the cost of energy, like gasoline and electricity, with taxes they can scoop up more money. Even though this means the price of filling up a car, heating a home, buying food or any other consumer item will increase as well. But remember the Government gave everyone getting a paycheck an extra $13 dollars a week for 4 months to cover the cost of everything going up. If you make under $75.000 and thus not rich.
Yes, all of this. Yet the stock market has continued to sell off like a waterfall. Why should anyone be concerned. It’s not like the stock market is a forward indicator of the economy.
Still, just to cover his tracks, President Obama is now talking like he cares about the IRA’s, mutual funds, stock investments and retirement funds of tens of millions of Americans. He has now stated that “buying stocks is a potentially good deal”. Isn’t that great!
Oh I can see the crowds forming a line to just jump into the markets, with money left over from I know not where. Considering the prospects he has laid out, it’s easy to see how you can make all of 10% - before taxes and commissions – in about 2 years. That’s only a LOSS of maybe 20% after taxes and commissions. Why wouldn’t anyone want to get on that train.
And that loss should coincide perfectly with the $2 trillion in spending cuts President Obama plans to make, if he does not continue with his plans to spend $3.5 trillion on the national budget. Plus every projection he has made – that his own economists think are improbable – comes true exactly as he has stated they should.
Polispeak is a wonderful thing. Because after stating all these things, driving away investors and making every industry of business cringe, President Obama maintains a 64% approval rating. Just watch him dance.
Jim Cramer must be reading my posts
Written by Michael Vass
Like most everyone who can do math, I have spent many hours trying to figure out how President Obama will reduce the deficit, or spur growth in the nation, as he proposes $3.5 trillion for his budget. But I wanted to stop to discuss something I was just told.
It seems that around 6:45pm or so, Jim Cramer was asked his opinion of Alcoa. He stated that the stock is a speculative buy. Aren’t you shocked?
Well if you have been reading what I’ve said you wouldn’t be.
I know about Cramer’s comment because I was just told about his comments from a friend that I was discussing the markets with earlier today. And my friend likes to keep account of the predictions and outlooks I have for the economy.
Now I know some people are looking at the market environment and thinking, ‘Alcoa may be cheap, but I want something that will move.’ It won’t happen.
President Obama has unveiled a budget of $3.5 trillion, filled with smoke an mirrors at almost every turn. Funded on the backs of the “rich”, which I take to mean higher taxes on the middle class. He is seeking to further stall any growth in investments with higher capital gains taxes. He is looking to crush the ability of private business to rebound with higher corporate taxes and Government intervention.
If anyone is looking at the market with the thought of a return horizon under 2 years, I feel they are foolish. It’s just not a reality. And even in that timeframe, assuming the pipedreams of Democrats are half-realized and just half-effective, the best return will average to about 15% after taxes.
But that is a matter for another day. I’m just going to bask a bit in the fact that Kramer is several days late and paying higher prices than what I called for. The difference may be minor, but the fact is that in this market, just getting vindicated is all you can really expect.
Where is the bottom?
Written by Michael Vass
Over the past several days I have been asked two questions over and over. Where is the bottom, and where would I invest? They are difficult questions, and I don’t have great answers.
It has taken the market 4 months to reach the lower target for the Dow Jones that I called for on November 18th 2008. Once it reached that point I expected another 500 point drop, which took a week. At this point some 55% of my predictions from last year have happened. And that is a conservative estimate.
Since that time I have spoken with many former stockbrokers, business owners, and investors. And from all these discussions, the political environment, and what I believe, I can say the following with confidence in my mind.
The Dow will flounder between 7100 and 6600 for as long as the next 9 months.
Any upside movement in the market will be temporary.
If any global political events heat up in the next 9 months, things may get far worse.
Gold and oil will run sharply first.
A major bank will fail.
Since the start of 2009, the Dow Jones Index has lost 20% of its value. This was predicated on a liberal Democrat taking office as President, a Democrat-run Congress, the addition of $800 billion (not including interest but rounding up slightly) in spending called a stimulus package, and the fact that some $350 billion of authorized bailout is pending use.
None of this is a positive for the economy. Every large investor and institution could see that. I believe that major investors took the time from October until December to pull out most assets from the market. December was a time when small investors entered the market, and some short seller closed their positions. Which led to an artificial rise in the markets, seen by small investors and some media as confidence in President Obama.
From Jan. 2nd and on (at the latest), I believe large investors have shorted the market – if not just before that time. I believe that they foresee little opportunity for an investment over the next 18 months. Bonds are worthless at these interest rates (especially if inflation grows even half as some expect). Corporations are troubled by negative growth for at least 2 more quarters, and the continuing credit squeeze. Thus stocks are inadvisable, generally.
But I do not see large shorts to close their positions yet. They are waiting for a signal from the Oval Office and Congress. IF the Obama Administration goes forward with creating a nationalized healthcare, costing tens of billions of dollars to start, and Congress goes forward with the currently whispered 2nd stimulus (of the Obama Administration), then the shorts will increase and the Dow will go far lower.
The result of continued spending is that tax rates for the “wealthy” and corporations must increase. Where else will the money come from? And wealthy is a relative term. Because as the just passed stimulus package has made clear $75,000 for singles and $150,000 of couples is the threshold. And since corporate taxes were promised to increase 10% during the Presidential campaign, that cuts the current profits. Including transaction costs and taxes, the Dow would need to go down roughly 800 more points to give a decent net profit. If the cost of the Government is increased the assurance of who will pay grows exponentially.And thus the profit needed must as well.
But a friend mentioned something interesting to me. The market is always wrong at the top and bottom. With maybe some 90% of the market negative currently, we must be near or at capitulation. Which I agree with. Except normally at the top or bottom of a market there is an obvious near or mid-term expectation. There is none now.
There is virtually no sector of the market that can be observed to have an obvious benefit under the current political plans. Nor in the current private markets. Thus there is no area for capitulation to rush forward to. Thus it will not happen.
When the markets do reach the profit point of acceptance, and close their positions, where will they invest?
It is my expectation that the safest and smartest positions to create are in oil and gold. Only in those 2 arenas are we able to see assured continuous demand. Every other sector is questionable on time and return. Especially in this political environment.
There are companies in these sectors, or related ones, like Alcoa that trade at below book value now. This is an interesting value. But expectation of near-term growth is null. Yet at some point the vital raw goods will be needed, and demand plus speculation must drive the prices higher. And as that price rises, without another sector to compete with any real assurance, there will be a run – latter to be followed by another crash in those sectors.
At the very best, I expect some sectors of the market to show better than expected numbers in the 3rd quarter. Those that took short positions and closed out long positions in mid-2008 might have the same result for the 2nd quarter, but that will be far fewer companies than in the 3rd quarter.
This is a recipe for very flat to downward trends in the market.
Still there is hope. But it takes a lot of patience, building of positions in small steps, and no expectation of a reward (ie a return of 15 – 25%) for 18 to 30 months from now.
There is my answer. Take it as you will.
Dow Jones at 7600 - what I said, right and wrong
Written by Michael Vass
Back on November 18, 2008 I made a prediction. I said that in the first quarter the Dow Jones Index will hit 7600. I then proceeded to explain why it will do this and what will be happening. With the Dow having crossed my target I will reflect on what I said then.
“…auto makers are now first in line to ask for their own bailout,… And Congress will likely pony up the money for each of them.”
In fact the auto makers asked Congress for $50 billion dollars. As a surprising move, probably meant to give citizens the impression that Congress has some idea of what it is doing, the auto makers only received $15 billion.
Keep in mind that like the credit bailout, auto makers claimed at the time that the entire amount was needed or they would fail. To date the auto makes have not failed (though they have laid off workers, which was inevitable) nor has the economy though less than all the funds requested have been used.
“So far a 2nd stimulus plan is being conceived, growing from an initial hidden $50 billion, to $150 to $300, and now is being speculated at $500 billion dollars. Nancy Pelosi doesn’t just screw up, she does it with swings to the bleachers.”
House Speaker Nancy Pelosi not only hit the bleachers, she hit it out of the park. The stimulus package is being signed by President Obama today at the eye-popping total of $787 billion. But only Democrats think there is no waste in the stimulus.
“This means that New York City will get crushed this year.”
So far the budget of New York State is so bad that Gov. Patterson is in the process of taxing citizens based on weight. And who knows what will be next, but be assured the State is in severely bad condition.
“President Obama will get inaugurated and the Dow will drop 500 points.”
In fact the Dow dropped every day from the start of 2009. On the inauguration the Dow jones Index dropped 337 points. Not the 500 I expected, but close enough.
“Oil prices should stabilize at around $65 - $70 per barrel to start the year…”
I am completely wrong. They are currently at about $37 a barrel of crude oil. The economic crisis is keeping demand way down, and so far oil is not being used as an alternative investment.
“Gold and precious metals should all increase dramatically in a similar manner to that of 2008.”
As of today, Gold hit $973.80 an ounce. It is within $36 of an all-time high, set last year.
“Growth in China will likely stall as well, especially since the boost from the Olympics will have faded.”
The World Bank has stated that real exports will be down 7.5% in 2009 (at 3.5% versus 11% in 2008) and the growth in that nation will slow to 7.5%, or down 1.9% from 2008.
“Taxes will increase roughly 3% on all income groups.”
Wrong so far, but just wait for it.
“Several mid-sized financials will fail, blame will go to short-sellers and corporate greed.”
Expectations are that this is on the horizon.
“Confidence in the U.S. Treasuries will weaken, and several nations will begin to sell in hopes of buying national debt of England and a few isolated nations.”
Thankfully I am wrong on this so far. I pray to remain incorrect. But there is no reason for any nation to buy Treasuries at below 5%. It’s just not worth it.
“Unemployment will hit a 20 year high, again raising fears of a depression.”
I cannot count the number of times Democrats, and President Obama, have stated we are in or about to be in a depression. Call it fear mongering if you want to be honest, but it’s a daily statement without question.
Unemployment recently broke a 28 year record.
“Iran and Russia will take aggressive stances in the world stage.”
They have been blustering a bit of late. But they have not taken a full-blown aggressive stance. Yet.
“If I am as correct as I was in 2008, then 60 - 70% of what I have said will occur, though not exactly in my timeframe.”
Well looking at it empiracally I would say that I have got it about 55% right so far. The 1st quarter isn’t over yet either. World politics can shift in a minute, so that might push up my percentages at any time. And honestly I don’t what the rest of what I expected to come true. It would mean devestation to millions.
I will stand by a though I made at that time as well though. I expect things to get a bit worse and hold through the second quarter. But given I had no idea what the stimulus package would entail, nor such a enormous wasteful pricetag I will ammend my thoughts.
The 2nd half of 2009 will be just as bad, if not worse than the first half. There is no stimulus in the stimulus package. There is nothing to preserve or create jobs. No sound person would use any of the paltry amounts the stimulus will provide to do anything but save, pay bills, or watch evaporate if gas and/or oil prices move up at all.
At this point I would imagine gold hitting $1150, crude oil eventually getting back to about $60 (mostly through alternative investment speculation and production cutbacks). I fear but expect unemployment to hit 10% by the end of the year. The 4th quarter will be horrible. Inflation will likely run 3% higher. The Dow Jones Index can be expected to drp another 500 and stabilze there over the next few months.
Again I will say that I hope I am wrong. I want to be completely wrong by the end of the year. I want to laugh at what I expected with tears of joy. But I doubt it.
I’m at 55% and we are only in the middle of the 2nd month of the year. With a liberal Democrat President, a Democrat-led Congress that is headed by 2 of the most incompetent (in my opinion) politicians in decades, and expectations of spending that might have been called astronomical only a few years ago.
But we will see. Do let me know what you think.
Why Socializing America is bad
Written by Michael Vass
I have heard a lot of talk lately about socialism and the idea of nationalizing various aspects of America. I have heard how this group or that think it’s a good idea. I have heard how some think this is a direction America must take.
But in every case I am aware of, not a single one of those people promoting nationalizing whatever have lived in a socialist nation.
I have heard how great national healthcare can be. Yet thousands spend enormous amounts of money to come to America for our capitalist, market driven healthcare. Because it is the best in the world.
When it comes to banks and finance there is much the same kind of situation. People speak of redistribution of wealth. Evening the playing field. And placing ever more of a burden on the ”rich” while ensuring that the poor have no option beyond the Government.
Let me say something of personal experience to all of this. I have lived in a socialist nation. I am not from one, but I did live - not visit or vacation - in the old Soviet Union. I lived in Moscow and Tsbilsi. I have visited Latvia, and other parts of the old communist regime. So I have some experience in this debate. Far more than those in favor of nationalization.
The fact is that I witnessed the healthcare system firsthand. It was deplorable. When I had a tooth that was in severe condition I went to a local Moscow dentist. The room was filled with people waiting to see the dentist. When I signed in, the only question I was asked was if I was paying in rubles or dollars. I had both, and was told dollars were better.
I was ushered into the dentist’s office, ahead of people that had been waiting hours, within 5 minutes of entering the office. My first impression of the room was a white ceramic version of medieval dungeons I had seen on television. The equipment I saw around the room were working versions of equipment over 30 years old.
When the dentist confirmed that I had paid the huge sum of $20 American, worth more than 500 times the fee in rubles, I was provided an anesthetic. This was something that only the international cash paying customers received. Novocain. Not watered down or otherwise diluted, nor other lesser medications that regular citizens receive. And I had my tooth pulled. I was out of the office in roughly 30 minutes.
And every face in that room knew they could not afford and thus would not receive the same service I had just gotten.
When it comes to finance I prefer to look at the daily life of the average person. I lived in an apartment like anyone else. The cost was a $10 a month, or 1000 times it’s value. I had someone who shopped for meat and bread for me. That cost another $20 dollars.
I went out a few times to get food from the store myself while I lived in Russia. The lines were at least an hour long, just for general foods. The cold cuts were of a quality too low to ever be served in any American store. The selection of foods were minimal. The cost was next to nothing. But when I say the quality was low, I mean that some of the canned meats were the exact look, smell, and consistency of middle brand dog food I served my pets in California.
But it was enough to keep me alive. Though if you have ever waited for 2 hours in a line during a Russian winter, you would question how much fun life really is.
Mind you that 3 blocks from the office I worked at in Moscow, there was a McDonald’s. At almost any point in the year there was a line no less than 3 hours long (the longest I ever personally saw was 8 hours) just to get into that McDonald’s. They would let in groups of 20 – 30 people at a time. It was the largest McDonald’s I have ever seen anywhere, and I believe it is the largest in the world.
You could cut the line for all of 500 rubles, which was an inordinate price for the average citizen. Inside I could buy enough food for a family of 5 for less than the equivalent of $5 American. That same amount of food required that the people on the line, from across the USSR, had saved money from the entire family for a year, just to spend a vacation to get to this fast food restaurant. Many would leave McDonald’s and start the trip back home, the vacation starting with and ending in that one place.
When I took a cab ride to anywhere it was always the same. A cab stops and negotiation begins. Where are you going, does the cabbie want to go there, what time of day it was, were you paying in dollars or rubles, how much are you willing to pay. If all of it lined up, you had a ride. If not, you hailed another cab. And there was always another cab to be had, since only the rich could afford such a luxury on a regular basis.
I recall watching people getting on lines at 4am because the bread delivery had arrived. If you waited you might not get any bread and there would be no more. The bread was free, if it was available.
I recall walking into stores that were completely empty, because there was no food delivered yet and the shelves were bare. And I recall the lines when a delivery came, while the best meats were sold out the back of the store to those that paid far more than most could gather on a regular basis.
And I recall the trading. A chit to get shoes traded for a chit for sugar. 2 of those could get you a chit for meat. And maybe 3 of those can get you a chit for vodka, which could get you a bunch of anything else.
All of this is not to say that the people were anything but fair and friendly. I never had a problem while I was living in the USSR. Well, except for the civil war and attempted coup. The people though were salt of the earth.
But when I listen to the talk of socialized this and that, from people who have never lived under such a way of life I shiver. I don’t like socialism, or communism. Not because of some ideology, but because I lived it. I lived it the best way possible and it still left me cold and miserable in a way that the worst winter storms and double pneumonia never could.
Ask anyone that has lived in a socialist or communist country. I’ve never heard one say that life was better there. And the person you ask can be poor as hell. Because the quality of life in America is about as good as you can get. Problems and all.
So I don’t agree with celebrities, far-left liberals, politicians and so many others that think the idea in their head will be better than the lives we live. But if you let them keep changing the laws, and experimenting with our lives, you will know what it’s like to have less than you ever thought you could survive on.
I can only hope I am dead long before that day comes.
Ready or not, the spending will come
Written by Michael Vass
Well it’s good to be back home. You may have noticed I was gone, the joy of filing taxes is all I will say.
And on that subject let’s take a look at the final stimulus package that has been rammed through Congress. This is not a bi-partisan package. It’s not even a package that is considerate of the needs of the nation. This is a rushed conglomeration of Democrat spending hopes of the last several years.
Looking at the facts for a moment we see exactly what is happening. This started as a $50 billion dollar pipe dream of the frugal House Speaker Nancy Pelosi. Once it was clear that President Obama had won, and Democrats owned the Congress, it swelled to $800 billion, in about a week. But what does it do for you and me?
Well from July to the end of the year those making a paycheck will receive $13 a week, up to $400 for an individual, if you make less than $75,000. Let the spending begin. In most of New York State that equates to 2 packs of cigarettes (excluding New York City) or a 1 pound package of chop meat, a loaf of bread, a container of instant coffee, and a package of cheese. Put another way its roughly 4 – 5 gallons of gasoline. Yet another way, it is not enough to pay any single bill you might have. And that will stimulate the economy.
Mind you that this is an absolute necessity. The economy will fall into a depression if you don’t get the extra $13 dollars a week. Just as the $700 billion for the banking bailout had to be passed or the economy would fail (ignore that fact that only $350 billion was spent of the immediate need for it all, much of it wasted, and the economy has not fallen into a depression). Not to mention the $50 billion that the U.S. auto makers absolutely needed to have before the end of the year (2008) or they would fail (even though they received $15 billion and none have failed).
But if $13 dollars a week is not enough to get you out spending more money than you can afford, it might help you stay in more. And if you are in more you might try to enjoy a different process that could help you gain more money. Extra kids. Because even if you are too poor to pay taxes, or have at least 3 kids, you can get extra money for more children. That will stimulate the economy.
And since you have more kids you will need a new home (don’t worry about the fact you may not have a job in 6 months). And to help you there, you get an $8,000 tax credit. Of course that ignores the thought that you need to be qualified to get a home in the first place. Since you will need a car for this hoard of children you can get a new car too, and take off the federal tax on that.
All with an extra $13 a week, for half the year, if you make less than $75,000. Does this sound remotely like what got us into this problem in the first place?
But the joy does not end there. If you insulate your home or buy a new furnace, you can get back up to $1,500. The furnace will likely cost $5,000 or more up front and all you have to do is wait a year to get that money back And the insulation can cost up to $55+ per roll (you may need 10 or more rolls for an attic). Mind you that you shouldn’t do both as the credit is for one OR the other. All of this on $400 a year.
You might say that is all well and fine except you need to be sure to have a job. Not to worry if you work for the Government, and we all do right? There are plenty of jobs to build roads, and move offices, and take care of honey bees. You can even get work moving medium sized fish barriers in selected rivers, because we all live near one of those. Or you can get a job in ‘green’ energy, once the technology is created and made efficient. Who care if it’s estimated to take over a decade to create that, you can get a job tomorrow in that field – you do have a Masters in engineering, conservation, chemistry, and/or biology right?
Of course if you worked for say Circuit City and have no job now you still won’t after this package. But the unemployed will get an extra $25 (not per week) in benefits and extended time for those benefits.
All of this will mean that you will have a job and more money just in time for the mid-term elections in 2010. And if you don’t there is a bunch of money left over to spend in that year to tell you that you will get a job right after you vote.
Can you imagine why any fiscal conservative (Democrat or Republican) might not have wanted to spend money on this?
The Dow Jones Index does not lie
Written by Michael Vass
Unless one of the better turn arounds of the stock market history occurs in the next 10 minutes, the Dow Jones will have fallen several hundred points, around the range of 7900 or less (a mere 300 points from a target I predicted over 3 months ago). This is happening at the same time that the Senate has pass the economic stimulus package created by House Speaker Nancy Pelosi, bloated by Democrats, and touted by President Obama. So I have to wonder, exactly which people involved with the economy think this is a good plan?
This plan, and the extensive bailouts that President Obama’s tax dodging Treasury Secretary Geithner, are proposing obviously have not convinced the critical group of Americans that good times are anywhere close to the horizon. Since these investors also represent a large portion of the small and mid-sized business owners in America, as well as the world, I expect only one thing. All the emphasis of gloom and fear drummed up by Democrats will actually come to pass. Just as a result of their actions, and not the inaction they claim.
Unemployment in the nation is bad. Not quite the nearly 11% level that the policies of the Carter Administration created, but President Obama and the Democrat-led Congress have just gotten started. We currently hover at 7.8% unemployment, with the seeming goal of 25% reached in the Great Depression getting closer to the crosshairs each day.
None of this has stopped any Democrat, including the President from pressing forward. We have waste and pet projects, call them earmarks by another name, and little hope of improvement. Just look at what is planned.
That says nothing of the $100 million to be spent on Honey bees and similar items I cannot imagine creating jobs.
“The plan that we’ve put forward will save or create 3 million to 4 million jobs over the next two years.” – President Obama
“The president’s own economists, in a report prepared last month, stated, “It should be understood that that all of the estimates presented in this memo are subject to significant margins of error.”
But the polispeak is great. The promises of improvement sound fantastic when you include supposed facts that no one can ever corroborate. And the inclusion of key words like “save” helps keep the polispeak from becoming an outright lie, while showing the absolute lack of confidence that the plans instill. Yet this is good enough for the average American that does not review transcripts nor listen intently to ever word. But those who invest and run companies do, more often than not.
“The economic stimulus bill would allocate about $20 billion to help hospitals and doctors transition from paper charts to electronic health records for their patients… By itself, the adoption of more health IT is generally not sufficient to produce significant cost savings, the Congressional Budget Office reported last year.”
Again it is the confusion of facts and expectations, without proof, that keep many Americans from noticing the horrendous ramifications of the stimulus package and continued bailouts. The examples are not limited to just these few statements, but a collection of comments to the public since Pelosi first stumbled into the idea of another stimulus package in October (then priced at $50 billion total), and the factual items in the nearly $900 billion (actually over $1 trillion when interest is included modestly) terms.
The Dow Jones Industrial index is a forward indicator of the mind of business and economic health. Often it overreacts to the actions around itself on any given day. And there will be more than enough pundits and economists declaring just that, if the major news media that has invested so much into President Obama bothers to investigate that much. But economists don’t work the stock market. Stock brokers and business owners do. And without the degrees, charts, and visions of Santa delivering a healthy economy they have concluded, since January 2nd, 2009 that things are going to only get worse.
So I ask you, who do you believe? Congress and the Executive Administration that routinely fail to pay their taxes, write bad checks, organize pay-offs, and lie about the job they were elected to do (Barney Frank)? Or the guy who signs your check, watches the economy in action every day at every tick on the Dow, and the guy that will give either of those 2 enough money to expand their business and employ more people?
I was a stockbroker, so my opinion is biased. But you can look at the facts and the carefully stated words for yourself. Just don’t look at the value of your 401K while you do so.
The true Democrat definition of rich
Written by Michael Vass
I just figured out a secret that I don’t think most people in America have noticed. The fact is it’s not much of a secret, it’s more like the elephant in the room. And Democrats have successfully avoided mentioning it for a while now.
Looking at the supposed “stimulus” package that is trying to be shoved through Congress before the public realizes what’s in the package I noticed something. Now we have to step into the way back machine called facts for a moment. Democrats be prepared.
Remember that? It was March of 2008 when all the Democratic candidates (including then-Senator Obama) voted to increase taxes on anyone making more than $31,850. It was at that time that Democrats started to insist with high order of polispeak that only the rich would suffer under their leadership.
Of course that leadership also was asleep as the mortgage crisis grew and then spawned the credit crisis. Both of which are still evolving into bigger problems. But I digress.
As then-Senator Obama won the Primaries, he began to discuss, vaguely, his economic and tax plans. It was a central point that he envisioned the rich as the sole point of higher taxes. This of course raised the question, what is rich?
The Obama campaign started to almost answer that question with anyone making around $250,000. That later went down to $200,000. Shortly after that it became $150,000. Then the nation got distracted, as financial institutions fell left and right. The only question at that point was who else Rep. Barney Frank might blame the collapse on other than himself.
Now we can move up to the present.
The House Democrats (minus 11 bi-partisan Democrats who joined the entire Republican membership) voted to pass the bloated, non-immediate, useless, stimulus package that also seeks to fund Honey bees, fix NASA, and study ‘global warming’ among other useless actions. But in this current version of the non-‘stimulus package’ there is a provision for tax rebates.
The money is to be provided to the public, as a savings each month for 4 months of about $120. But here is the catch. It’s only good for up to the first $8150 you earn, so if you exceed that amount before the 4 months are up you lose out.
Worse yet is who will get that money. And this is the elephant. You must make less than $75,000 (or $150,000 jointly). And there is the new definition of rich. The answer that has been over 6 months in the waiting has presented itself.
So if you thought Obama would only tax the rich, hello you very likely are now part of that group. Honestly I never considered making $75,000 as rich. It isn’t poor but its just as far from Bill Gates.
Think about that. Middle class income is a cut-off point for Democrats in Congress, and President Obama who is all in favor of the stimulus package as is. Can anyone tell me this is what they expected when they voted for President Obama?
If this is the threshold for who gets help, and who pays for that help, it seems more lopsided than even during the Primaries where Democrats were leapfrogging each other to sound more moderate and friendly to the public. But Congress is not partisan, nor are the current batch of polispeak promise socialisic – according to the self-admitted major news media.
Let’s be honest. If President Obama told the American public the truth, that he considered $75,000 rich, he never would have been elected. No wonder he never gave a firm answer. And why Democrats have avoided the issue entirely, because the public backlash would sink the approval ratings faster than Nancy Pelosi can waste money. And that is very fast indeed.
Well you may not hear the truth in many other place, but you have heard it from me. If you doubt this, just look up the provisions of the stimulus plan. It’s right there for you to see.
Obama Stimulus Package: an urgent need to do nothing
Written by Michael Vass
The more I hear about the Obama stimulus package, the less I like it. Yet it is the most “urgent” piece of legislation that his Administration is working on passing, immediately. Just as the $800 billion for the credit crisis had to be immediate.
And just as with the mortgage/credit bailout quick action without forethought provides for mistakes, waste and a few political amendments that no one will notice until after the fact.
As of right now, the Obama stimulus package is being referred to by President Obama as
Now think about this for a moment. The stimulus package is intended to avert a depression and reverse the recessionary trend currently happening. This is important to remember as I continue.
25% of the Obama stimulus package will not take effect until after 2 years have passed. That’s not my opinion, that’s from the White House itself. Thus the package is not immediate.
The package includes several hundred billion dollars for environmental studies. That also takes an extended amount of time, and provides nothing to the economy. But it does make the global warming crowd feel all warm and fuzzy.
The package requires that:
“Much of the spending would be for items such as health care, jobless benefits, food stamps and other such programs.”
Jobless benefits do not create jobs, and therefore does not help the economy. Food stamps do not create jobs and therefore does not help the economy. Healthcare could create jobs, except that the money allocated for that is to supplement the coverage and cost for those that have lost a job. Again it does not create anything.
And a huge portion of the stimulus package is targeted to give the public money. But that’s not exactly true. First you have to make less than $75,000 (or $150,000 for those filing joint). Second you must receive a paycheck. Third you will receive a discount on the federal taxes you pay – up to the first $8150 of your annual salary.
That last one is important. It means that if you get paid once a month (as an example), and in month 2 or 3 your income exceeds $8150 you will no longer get the benefit. Of course the entire benefit only amounts to about $120 a month anyway. Which should be plenty of money to go out and buy hoards of new items. Which would create new jobs.
Except that $120 a month isn’t much at all. For most major purchases, like a new TV that will work with the HD changeover, cost far more than a mere $500 (which would take 4 months to save up to and is not immediate). Add to that equation the fact that the average American has $6000 in debt, and with tens of thousands of jobs being lost so far in this month alone most are more concerned with lowering debt as opposed to buying a new shiny something to compete with the Jones’ next door.
So again this is not creating jobs.
But there is some portion of the funds that will go to small businesses. Roughly $2.7 billion dollars. Or in other words, next to nothing. And larger businesses will get money as well, if they can prove they can create jobs through Government approved calculations that have been proven to be next to impossible to qualify for.
But do not fear. The Government will be funding jobs via public works. Like in the time of FDR. Except that just like then, if nothing is being done to create private sector jobs, which the above proves it is not, when the Government stops the funding there are no jobs for people to apply for.
In essence, this is a political polispeak attempt to look good. The long term effects are negligible at best. The quiet side provisions are definitely not popular. In virtually every aspect it fails to create jobs, or spur consumer confidence. It fails at its immediate and definitive purpose, stimulus.
If this passes, Democrats in Congress and President Obama will look good. For a while. And Republicans will have yet another thing that will be blamed on them. And when the built in failure of the plan becomes apparent, Republicans will be the first people selected to blame for their disagreement.
What is needed is a stimulus plan. Not the word stimulus, not the projection of sending the public checks that will need to be paid back at some point in the future. Least of all is the need for the Government to take care of everyone as if they were children, which this package does in abundance.
I don’t want the Government to give me what it thinks I need. I want the ability to earn enough to make my own choice about what I actually need, and if I do well what I want.
All politicians should reject the Obama stimulus package. Democrats won’t. Most Republicans will. And it will get passed because there are more than enough Democrats who seek political gain over their constituents well being.
Not the definition of change most voters expected, but it is change indeed.
Don’t say I didn’t warn you
Written by Michael Vass
I have been talking about the economy and what would happen if a Democrat would win since late 2007. When it became clear that President Obama was the Democratic nominee I discussed how the stock market would react to his win. And after the election I forecasted what would likely happen to the Dow Jones Index on inauguration day.
I hit the nail on the head. Well close enough to that anyway. I called for a 7600 Dow on or shortly after the inauguration. I called for a 500 point drop on inauguration day. And I detailed how the economy would continue to tailspin to levels last seen in the Carter Administration.
The Dow Jones Index closed down 332 points. The Dow currently sits at 7949. That’s down 4% from Friday and 12% since the start of the year.
Some will want to blame this all on President Bush, but the reality from Wall Street is that a Liberal Democratic President is a negative for the economy. If only ½ the economic promises made on the campaign trail come true the national debt will tower over any level seen before, and none of the plans are good for private business. And that is bad for investing.
Still crude oil is at lows, and the inflation hitting food has not increased in a while. So maybe Joe Public doesn’t realize how bad things will get, yet. But Wall Street is preparing. And they are looking at the long haul.
I still target the low of the first half at about 7600. I still believe that the money wasted on the mortgage/ credit bailouts will increase drastically. I say again that the 2nd stimulus plan will be a worse waste of money than the first under President Bush. And I insist that the Democrat-led Congress under Pelosi and Reid are the worst Congress in at least my lifetime.
I really hope to be wrong. But so far I am 4% or 349 points from being exactly on target. Any spike in oil prices, a run on gold, a blip in the value of the dollar, continued fighting in Israel, or any of a number of anti-American nations beating their chests (as Vice President Biden promised will happen) and my targets will be exceeded. And all the feel-good talk prior to the inauguration will evaporate.
Yes the stimulus plan will be a great political boost for our new President. And public opinion will soar, until everyone realizes that the extra $60 a week (or less) will not prevent them from losing jobs. Or that at some point soon you will be paying taxes for a house you don’t own. Or paying for a healthcare system that is substandard and as convoluted as any department of the Government. Stock will lead the way down.
But there is time to avoid all this. Congress can reel back all the new additional spending. President Obama can give up on the 2nd stimulus plan. Taxes could be cut, at both the corporate and personal levels. And departments of the Government could be trimmed of wasteful spending.
In a pig’s eye.
Congress is going to spend more than what has been used to bailout the financial industry as the first shot in the bow. Additional money will soon be needed to balance the financials already continuing to flounder, not counting those that will follow like dominoes. And the auto industry that stated flatly that a penny less than $50 billion in a bailout would mean Chapter 11, will become bankrupt as they did not get their money.
Increased regulation will increase cost, and fail to increase good business decisions. And companies will fail. The stock market will lead it all down. Lines will form for Government corporate handouts. The national debt will soar.
Sounds bleak doesn’t it. It should. It is happening before your eyes. By the end of the 1st quarter Joe Public will feel it, badly. Just in time for taxes.
And if I am only as correct as I was about my prediction for the inauguration, well you can see what that will mean. I hope, honestly hope, that I will be wrong.
I really want to be wrong. But what I see in the marketplace tells me that I am right. That double digit inflation and unemployment are mere months away. And that it will last at least as long as the Obama Administration, if not longer.
So since putting your money in a bank will gain you nothing, the taxes on investments make that plan dumb for anything with a return in the next 2 years, and gold is already moving just wait. Wait and take small bites all the way down. Because America will rebound at some point. Because I hope to be wrong soon. The reward from that will be better than me eating crow, it will be a stronger economy.
I can’t wait.
Surprise! We are still in a bear market.
Written by Michael Vass
Let me see if I understand this correctly.
That means that someone thought consumers would go back to spending money, or realistically increasing debt, because the new year started? Or they thought that the $120 a month less in taxes (for only 4 months) President Obama has proposed was going to spur new home purchases? At the same time that nearly every industry in the nation is slashing jobs?
It must be great in the world that some of these economists live in.
We have lost the most jobs in this nation since 1945. That’s at the end of WWII, when we scaled back from the massive military supply we needed for the war. And I believe more people had more savings and less debt than today - even adjusting for inflation. And the Government had none of the debt we have today, or will soon have even more of if Congress and President Obama get to spend as they plan on doing.
How could anyone look at the 2nd half of 2008 and not expect consumer spending to continue downwards. To expect the stock market to continue in the bear market that it’s been in for months now. I mean what did they expect, President Obama would smile and the world would just step up and buy stocks?
President Obama is a Liberal Democrat. He has said from day one that he will increase the deficit, spending more money than ever before. He has made it explicitly clear that he intends to get even more money from fewer sources, business and the higher incomes. What exactly counts as higher income keeps changing, and getting smaller. And business really loves to have to pay more money as sales shrink.
Let’s not forget that with the mismanagement of the Fed and the Treasury (neither of which is President Obama’s fault - given) we have wasted billions of bailout dollars, have a line of industries waiting for their turn at the free money ATM called Government, and inflation is the one word no one wants to talk about. And inflation will be the one thing that really kicks everyone’s ass.
Of course President Obama will say that the sky is falling tomorrow if he doesn’t get to give away all our money. That’s polispeak, meaning that he wants to look good at trying something that can’t work so he has some political clout before it all falls apart. Then he can point backwards in time and blame everything that fails in his plan on President Bush. Politics as usual.
Of course these “old politics”, that President Obama promised to banish, are very good at keeping political clout but horrendous for low wage earners and small business. The stock market knows this. That’s why its a bear market. And as we approach the inauguration, I expect even more selling. I mean why have an investment when the taxes on it will cost more than you expect to make in the next 2 or 5 years.
As a stockbroker I learned to look for capitulation in the market. That emotional point when people just give up. That’s when smart money jumps in and buys. Except that the emotional selling all happened in September and October. Since the election smart money is selling. And that means things are really going to get worse.
Until there is a reason to buy stocks, the market will continue to slowly slide down. Never in just a straight line, but trend down it will. The Democrat-led Congress will authorize spending in new programs that will not help any one get a job or start a business. The President will come up with plans on how the Government can take care of everyone, while being in every pocket deeper than before. And $1.2 trillion dollars in debt will look like a target to strive for in coming years.
I’ve said it before and I will again, a Nancy Pelosi and Harry Reid Congress with the most Liberal Democratic President in decades equates to double digit inflation, double digit unemployment, rock bottom consumer confidence, and business bankruptcies all not seen since the Carter Administration - if we are lucky to have it that good.
So who is surprised? Not me.
New stimulus package is 60% waste
Written by Michael Vass
Now that we have entered 2009, the time for details has begun. President Obama has now stated that he intends to make 40% of the proposed stimulus plan, that was championed by Speaker of the House Nancy Pelosi from $50 billion to its now $800 billion level, business tax-cuts. That is the first logical and reasonable thing I’ve heard about this plan since its inception.
Some $300 billion dollars will target businesses by cutting taxes on new workers hired and accelerated depreciation among other thoughts. The tax break from hiring new employees is critical. Tax on employees is one factor that cannot be controlled by an owner and is devastating to the bottom line. If this proposal, which is short-term, could be made more substantial - by being proposed long-term or matched by a cut in corporate taxes - it will have a definite impact on the economy. But that is not thinking like a liberal Democrat.
If President Obama goes to his consistent style of thought, and Speaker Pelosi is able to forge ahead with her plans, we will see more of the compartmentalized thinking that dominated the election speeches. That is the thought that there is no connection of one economic plan with any other part, nor that new deficit widening spending or raising taxes might counter any other stimulus proposed. Listening to the Democratic leaders one would believe that each of these things are isolated and do not interact, but in the real world they always do.
Thus if corporate taxes are raised, any gains created from a tax break on new employees will evaporate and those new hires will quickly become unemployed again. But it will buy the politicians a few months of back-patting on the lowering of unemployment.
But the majority of the new stimulus plan is still solidly in the realm of polispeak. Only in that realm is the thought that $500 for singles and $1000 for a family able to turn around a mortgage crisis, credit crunch, and shrinking economy.
The last stimulus plan, which was completely ineffective, came about as a direct payment of money from the Government to the public - which will be repaid in taxes at a later date. That money was used by the majority of Americans to stave off mortgage default and pay down on debt. This time President Obama believes that by directly cutting payroll taxes for 4 months it will have a bigger impact. Which is perhaps even more dream-like an expectation.
That equates to around $120 per month, or $240 for families -
“The $500 tax credit would apply to the first $8,100 of wages, meaning a worker who earns $24,400 a year and is paid twice a month would get about $60 extra per paycheck for four months.” http://news.yahoo.com/s/bloomberg/20090105/pl_bloomberg/a4akxhku_ule. While that is not insignificant, it is not a factor either. If the average person in America has $6,000 in debt currently, and basic monthly costs of some $1500 to live the extra money is 1 night out, or 2% payment on the debt not including interest, or 1 month of cell phone service. Which seems most likely for a person to do?
From what I have heard across the nation a free month of phone service, or paying down on the auto insurance, or electric bill, or catching up with the cable bill, or having a bit of extra food, or paying on the car loan, or replacing clothing are higher priorities than going out for drinks and a dinner. Sure some may buy an new video game, but they may well be doing so because they will be losing cable and thus the game is their only entertainment.
The fact is that stimulus plans that depend on creating money to give to the public, that will need to be paid back via taxes, will never work. Unless the nation were to get $6,000 per person it will never work. The current individual debt and the interest on that debt is too high. And any amount below the current debt load is too small to invest in anything - even if consumer confidence were there.
This stimulus plan is a failure just as much as the one proposed by the Bush Administration was. There is no improvement. There is no greater gain. Money given to the public will garner no positive lasting effect in the economy any more than the last one did. The only thing that will happen is the polispeak will be positive for a time. Great for politicians, but ultimately bad for the public.
If this stimulus were to be a real fix, corporate taxes would be reduced, new employees would create a tax break, accelerated depreciation would be tied to new equipment purchases, and Government would not be directly involved in the daily actions of private business. But that too is a pipe dream. Just like watching the Dow go above 9000 any time soon.
Mike Huckabee v. Jon Stewart - fiscal policy that’s not funny
Written by Michael Vass
So I saw an interesting thing the other day on the Jon Stewart Daily Show. It was a discussion between Stewart and Mike Huckabee. As you might imagine it was confrontational, but not to the degree of say Bill O’Reilly and Rep. Barney Frank.
The crux of the first part of the conversation was on their differences on fiscal conservatism versus liberal policies. Stewart advocates larger Government. By that he means larger influence of Government in the daily affairs of the citizenry. He wants a Government that mandates what cars are made, what profits are allowed and who is lent to. He wants a Government that spends more to provide a mandated healthcare and smaller military.
Huckabee is the opposite of all these things.
But Stewart makes good points in his argument, tinged with sarcasm and humor. Which is great for a parody, but fails to deal with the issues at hand on a more serious level.
Take what Huckabee points out. This Democrat-led Congress failed on every level, and in each Party, to deal with the mortgage crisis which led to the credit crunch. In fact several members of this Congress either lied or have no idea what the hell is going on when they stated the economy was fine. That major financial institutions were secure - which was said at several points in the year - just prior to several major meltdowns. How can we expect a Congress that inept to resolve issues in the stock market, or anywhere for that matter.
And Stewart makes a common misconception as well. He makes the assumption that regulation prevents bad policy. The 2 are not the same.
It was bad policy decisions that made the U.S. auto industry focus on SUV’s when hybrid and smaller cars were more logical decisions. Regulation would not change that. And it was the bad regulations, mandating unqualified lenders get home loans, that caused the mortgage crisis in the first place. And bad regulation practices let lead-coated toys into the nation. And it was lack of action by these same oversight groups that failed to prevent or even anticipate the meltdown of Fannie Mae and Freddie Mac as examples.
And one thing I want to directly point out that Jon Stewart said.
“Conservatives would say ‘I want a big military’. Well that’s Government… The fact that you would trust the Government with tanks and nuclear weapons but not to pass out cheese to poor people. You know, you’ve got to figure, so…I don’t get it!”
Get this. In New Orleans the Government with some 15 agencies failed to provide water to people in the Dome for 3 days during Hurricane Katrina. But there has never been a nuclear weapon that has gone off accidentally or been lost. Nor has a tank been lost. The Government has proven in multiple actions that it is quite good at protecting this nation, when allowed to do so, and engaging in war or military actions.
But in terms of helping the citizenry it is far less efficient. Part of the reason why is the fact that the Government is so big concerning domestic issues that its right hand does not know where is or what is being done by the left. Big Government hurts the people, smaller Government does so less.
Liberals seem to want a Government that is involved with all aspects of daily life. They want Government to make decisions for them, or to assist in that decision process. Yet we see that the more Government there is, the less that is done or done efficiently. So why do Liberals expect that a Government-run healthcare system will be more efficient or helpful than FEMA or the VA or the Post Office, as an example.
And that is no joke at all.