Monday, March 31, 2008
George Washington had two influences on his administration: Alexander Hamilton and Thomas Jefferson. While Thomas Jefferson tended to look out for the interests of the common man, Alexander Hamilton was more of an elitist. Thomas Jefferson envisioned a nation of farmers and plantation owners. Alexander Hamilton wanted to build the United States into a powerful nation. Hamilton understood the desperate importance of financial stability, especially during the fledgling years of the early United States.
The United States was a debtor nation (sound familiar)..and owed a considerable amount of money to our European Allies from the American Revolution including France and Spain. To make matters worse, many American had floated the United States loans (in the form of bonds) during the Revolution. Hamilton understood the importance of servicing that debt if the United States were to maintain any type of credit. (Being a financial deadbeat back then was much worse than it is now...heck they even had debtors prisons back then!)
Many bond holders had become weary of the impending financial calamity facing the United States. A good number of the bond holders sold off to a group of speculators. Hamilton formulated a plan that would allow the United States to pay the speculators and our European creditors too. He spoke at great length to George Washington, and his supporters in Congress insisting that a Bank of the United States be created. Jefferson appealed to both Hamilton and Washington that this was an abuse of government authority. However Hamilton cited the "Elastic Clause" in the U.S. Constitution as a means to create such a bank.
States in the North rolled their war debts into a national debt that all states would be responsible for servicing. Europeans would receive payments on the debts that we owed them, and most importantly the speculators became a wealthy class of financiers centered in New York City.
Now that the cat is out of the bag, it appears that Paulson's idea of creating a more forceful and observant Federal Reserve was well-received by the financiers on Wall Street. As the CEO of Wells Fargo commented. The plan while not perfect creates a Fed that will become a partnership with the financial industry... I am concerned that tax payer monies are being spent to bail out those that should have suffered the consequences of Darwin's Natural Selection. Instead it appears that we are heading into more of a corporate welfare state...
I purchased a July(ITM) PUT on WGO @17.5. Unless gasoline drops down to 1.00 expect a tight consumer, baby boomers who are putting off retirement, and a glut of people who will not drive their Winnebagos anywhere.
Saturday, March 29, 2008
With inflation on the rise...out-right scary consumer spending numbers, is it a mere coincidence that gas prices nationwide are now falling? Let's face it gas effects EVERY aspect of the U.S. economy. From a cheeseburger at McDonald's to a gallon of paint at Sherwin-Williams. Gas prices hit everyone. And the lower on the food chain you are, the more it hurts! While servicing one of my daughter's vending machines at a Dairy Queen, I struck up a conversation with a fellow who worked as a driver for a semi-truck supplier. He said his job is safe for now...but the semi-truck business is getting killed. One of his customers spent $3,000.00 last month for diesel fuel. The truck suppliers are almost at a standstill. The truckers are hurting as well. It is these types of people who represent the bread and butter of our economy...you know, the little guy. The ones who get our stuff from point A to point B. The behind the scene types who really make things happen. They are the ones who are going to feel the pain...at least at first. From here a domino effect could easily take place all the way up the food chain. I'm waiting for schools to start canceling field trips...or consolidating athletic events. If there is a school district that is considered poor...and things are financially tight...watch out!
In a recent article from New York Times columnist Edmund L. Andrews, he expounded on the White House's desire to expand the FED's oversight powers on financial markets!!! What the heck! Why not! If President Bush is looking for a super hero to save the day...maybe it's the Fed. Let's give the Fed enough power to to regulate banks, brokerage firms, hedge funds, and even private equity firms! But remember, the FED is not part of the U.S. government... And if Congress were to give the President his request, I am sure everything will be just fine...or would it be a case of the fox guarding the hen house. How can a group of people, who resides in the shadows of the Fed, control 99% of our money? Does absolute power corrupt absolutely? In the end I think Congress always has the power to pull the plug...I think!
I have never been one to think that there is a grand scheme of manipulation going on...but now I am starting to second guess myself!
Here is the vending machine money is going:
College Plan #1:
British Petroleum (BP)
College Plan #2:
Dominion Natural Resources (D)
Reynolds American Tobacco (RAI)
College Plan #3:
*will soon be adding additional plays to the portfolio.
Monday, March 24, 2008
Vice President Cheney found himself in the Middle East again...in part to shore up support for the Iraq situation, in part to touch base with OUR dear friends in Saudi Arabia. Saudi Arabia for a long time had been the cornerstone in what Ron Paul refers to as "Dollar Hegemony."(1) As W. did last year, is a desperate plea to the Saudis to increase oil production and more importantly to pull the beleaguered dollar out of a tailspin. The U.S. must at all costs confirm that oil producing countries will continue to price oil in U.S. dollars...or usher in a period of worldwide financial collapse. Since that visit, oil has come off its record high last week, recording a 9% drop. (2) While it is surely no coincidence, Cheney also found himself in Israel backing a Middle East Peace plan while reiterating the U.S.' stance against Hamas and the countries who support them (namely Syria and Iran). It is my belief that intelligence was shared by the U.S., Israel, and Saudi Arabia's governments regarding Iran's nuclear program...and that is one of the stories that did not hit the papers...
Don't be fooled by the Bear Sterns bailout...
During a recent interview on NPR former Secretary of Treasury Robert Rubin commented that the problems on Wall Street at this point...are not limited to Wall Street but may effect the average American who does not have a dime in the stock market. In essence, he is of the mind that the FAT CATS in Bears Sterns should be burned for their risky investment strategy. (3) While greed cannot be regulated by the government, Rubin commented that over-regulation of the financial markets can in fact be detrimental to the U.S. economy. If that is the case, hasn't over-regulation already taken place when tax payer dollars have been infused to bailout the risky behaviors of the greedy on Wall Street? As is always the case, the little guy is left holding the bag once again. In the case of the "underprivileged" or "Average Joe" at Bear Sterns, grief counselors were called in for the saps who were cleaned out...(the average employee lost $200,000.00). Chicken feed for the guys who put the big JP Morgan buyout together! (4) Who knows the real truth for the wheelers and dealers on this one...will the real truth ever be found? Do you believe the company's elite executives had to speak with grief counselors as well on this one? I doubt it!
Employment News...National Association of Realtors Propaganda...and the Recovery that never was...
The 4/4 jobs report will be on everyone's mind. Non-farm payrolls should be down like the Titanic. While Cleveland, like much of the Midwest HAS BEEN IN A RECESSION for the last six months, The Plain Dealer's job opportunities was the weakest in years. During the bull market of the 1990's the employment listings would be four sections long...Sunday's was only one! While the Midwest as a collective lot has not seen the gains of other regions, this observation should be indicative of other job markets outside the oil booms in Texas and Oklahoma. The National Association of Realtors should consider cross-training their constituents in other lines of work if they plan on renewing memberships this year. The "encouraging" numbers for existing home sales are a snap shot of income tax returns...that are feeding a few realtors as of now...and don't count on the "bonus checks" to be of any real consequence in sustaining the realty market.
The Fed and Wiggle Room...
|This Week ||Month Ago |
|WSJ Prime Rate||5.25||6.00||8.25|
|Federal Discount Rate||2.50||3.50||6.25|
|Fed Funds Rate||2.25||3.00||5.25|
|11th District Cost of Funds||3.970||4.072||4.392|
A high degree of creativity has been applied by the Fed. (5) (I still would like to know who exactly is the Fed...and who the private citizens are that sit on the boards of these quasi-government institutions...sure seems like A LOT OF POWER TO ME!) The real question becomes...What happens when the Fed runs out of wiggle room? What happens when there is no other way to manipulate the currency system with smoke and mirrors? While the 1929 Market Crash was seen as an over-active Fed. What happens when the Fed is too active?
1. put PHM...look for a new 52 week low by July...tighter standards...and slow resale continue to hurt new home giant.
2. long call COIN...great outlook for a company that is cleaning the environment by reducing chemical applications in agriculture.
3. call Zeus will test its 52 week high.
Post your favorite money stretching tips:)
WHO really is the FED?
Sunday, March 16, 2008
While this forum has been a wonderful tool discussing economic and historical trends, it seems prudent to discuss another trend...this one is medical.
Like many Americans, I am afflicted with acid-reflux disease. It is a disease which takes place in the upper-G-I tract. The flap which closes the esophagus from the stomach does not always function at full capacity. While acid reflux is an inherited trait, it is compounded by the LOUSY American diet to which we subject.
In my case, scar tissue built up in my lower esophagus which caused scar tissue, and stricture. This can cause additional complications with every day activities such as swallowing food. It is of the utmost importance that ANYONE who feels difficulty swallowing to see their family doctor at once. More than likely, they will refer you to a GI doctor who can run an EDG to determine if there is damage to the esophagus. Left untreated, the results can be deadly.
Friday I had to perform the Heimlich Maneuver on myself to clear the raw broccoli that became lodged in my throat. My wife noted that I was not totally clear and followed up with an additional compression. (This is another reason why EVERYONE should be familiar with CPR as well). DON'T think that it cannot happen to you or a loved one.
For more information on this condition please refer to the following link.
Wednesday, March 12, 2008
Do Historical Trends Apply?
During the Great Depression, one product that always
seemed to move was scrap metal. As a commodity,
metal always has value. As in the case of the late
Great Depression of 1929, the
shipped a great deal U.S.
of scrap metal to
to help create their war machine. Japan
Fortunately, our world economy is now so inter-connected
that war with the
Pacific Rimnations is almost in-
conceivable.However, there will continue to be a strong
demand for scrapand raw materials such as iron ore.
1. Metal Today...Metal Tomorrow
Weakening Unions…Protectionism…NAFTA…and a
re-invigorated metals market.
Stock Investments: I like steel as a broad based
investment. The steel unions are on life support with little
chance of being revived anytime soon. For instance, US Steel
and AK Steel have both won major concessions from the unions.
(see beggars can be choosers)Look for this trend to continue
as unions are not always part of the solution but, part of
the problem. The days of wildcat strikes and walkouts are
over until the next full-scale military crisis. Whoever the
next President is, HE will have to re-evaluate NAFTA in
general. The Democratic Congress will jump on this band-
wagon, or face a backlash similar to the one the Republicans
received after W’s disappointing Presidency… At worst,
will getits own round of corporate welfare. America
will continually look for new rules which will protect U.S.
American manufacturing. This will weaken our NATO alliances
as did the Smoot-Hawley Act of the early 1930s. A weak dollar
exports. Stocks to watch: Olympic Steel U.S.
(ZEUS) or AK Steel (AKS) or U.S. Steel(X)or Cleveland Cliffs
Does AKS still have legs? You had better believe it!
After all, steel is fundamental to national security! Also,
several of the large rail operators are double-tracking!
2. Activities for Kids… Under-Indulgence v. Over-indulgence
According to the book The Fourth Turning (Howe, Strauss) we a
re seeing a group of young people who will change the meaning
of American youth. While some children will be under-indulged
and under-protected, look for a type of helicopter parent that
is constantly hovering around the children, doing too much as
opposed to too little. Kids who have been raised with Barney
…child on board car signs… and a strong sense for parents to
give the children every opportunity to succeed in life. It has
also redefined the role of parents…what a good parent is…and
what a good parent is not! In spite of tough financial times
ahead,parents will make sacrifices to keep their children
happy. Some parents are even willing to find every angle to
give their child the competitive advantage they need in life.
GIVE, GIVE, GIVE… WIN, WIN, WIN!!! Camps…
Activities… Study Skills Courses… Life Choices…
Entrepreneur Schools… you name it there are literally 1000’s
of niches that can be turned into legitimate business ideas.
P.S. Email or post the little things you are doing to make the
most of your money...or what you are doing to get more bang for
4. http://blogs.wsj.com/economics/2008/02/15/lessons-for-today-bank-panics-and-the- great-depression/
5. The Fourth Turning (Howe and Strauss)
Tuesday, March 11, 2008
The Great Depression was not a sudden total collapse. The stock market turned upward in early 1930, returning to early 1929 levels by April, though still almost 30 percent below the peak of September 1929. Together government and business actually spent more in the first half of 1930 than in the corresponding period of the previous year. But consumers, many of whom had suffered severe losses in the stock market the prior year, cut back their expenditures by ten percent, and a severe drought ravaged the agricultural heartland of the USA beginning in the northern summer of 1930.
In early 1930, credit was ample and available at low rates, but people were reluctant to add new debt by borrowing. By May 1930, auto sales had declined to below the levels of 1928. Prices in general began to decline, but wages held steady in 1930, then began to drop in 1931. Conditions were worst in farming areas where commodity prices plunged, and in mining and logging areas where unemployment was high and there were few other jobs. The decline in the American economy was the motor that pulled down most other countries at first, then internal weaknesses or strengths in each country made conditions worse or better. Frantic attempts to shore up the economies of individual nations through protectionist policies, like the 1930 U.S. Smoot-Hawley Tariff Act and retaliatory tariffs in other countries, helped to strangle global trade. By late in 1930, a steady decline set in which reached bottom by March 1933.
Many of the readers will be thrilled to see a historical connection between the Smoot-Harley Tariff of 1930 and the CAMPAIGN PROMISES of Barack or Hillary...Maybe the more disturbing view of the Great Depression lies at the feet of Ben Bernake who notes the correlation between the DEBT-DEFLATION of the 1920s and now. It was a cycle where the economy hinged on cheap credit and consumer spending! Unfortunately, many consumers are TAPPED OUT on their credit limit...and will continue to struggle as basic essentials such as gasoline and food tip the scales of BANKRUPTCY. Throw in the DEFLATION seen in housing prices...and the lack-luster dollar, and the writing is on the wall. Should these trends hold true we can anticipate the following:
1. Look for a LARGE layoffs of up to 25%.
2. Drastic cuts in business spending.
3. Non-existent consumer spending.
4. Continued pressure on the housing market.
5. FINANCIAL INSTITUTIONS (which are left standing) will tighten lending standards.
6. Big businesses that proved time and time again that they could not regulate themselves.
Remember the stock market trends moved in a downward cycle for nearly 10 years!
HIT THE BOOKS AND FIND THE INVESTMENTS THAT REALLY MADE OUT DURING THE GREAT DEPRESSION!
WILL THE INDIANS WIN THE PENNANT AGAIN?
Thursday, March 6, 2008
will continue to move on Wall Street.
Rationale: While Wall Street continues to deal with deflation…
the housing crisis…run-away debt…and growing concern about
the U.S. dollar’s strength…there will be continued interest in
A.Precious metals are a classic hedge against deflation,
as are varied commodities. As Bernake is caught between
a deflating dollar due to increased liquidity…and lower
interest rates to keep businesses and consumers borrowing,
it is a holding pattern that will continually benefit commodities.
Gold at $1500.00…
’s original business tobacco will never go out of style. America
Sure, there are people in the
who have regulated United States
smoking, others who have sued the tobacco companies for health
related issues. Cigarette companies will look abroad to developing
countries in the
Pacific Rimto boost revenue.
No government regulations? No problem!
C.While the original hype of green energies may have worn off
(i.e. corn based ethanol will cost approximately 5.00 per gallon),
it is becoming apparent that renewable sources of energy may
be the wave of the future. Look for the heavy invest in R and D
to start paying off by mid- summer. Battery powered cars? Maybe!
D.Possibility of merger mania taking place.
Financials insurance companies, banking, and brokerage houses
are all in play with a strong foreign dollar, and a weak U.S. dollar.
Foreign interests may see that some
businesses are on sale. U.S.
Tuesday, March 4, 2008
2. The price of gasoline will hit $3.75 a gallon.
Rationale: Regardless of who wins the White House the
will continue its pressure on United
and Iran while Venezuela
trying to put instability in
to rest once and for all. Iran
A. Iran in particular has continually shown disregard for
U.N. sanctions and has continued to harass its neighbor
Whilethis is done in part to keep the radical clerics and
their puppet Ahmadinejad in power, it could well backfire.
, or a joint coalition could use an United States
air strike to disable the nuclear program.
has already Iran
B. Oil is currently priced in dollars. If the dollar
continuallydepreciates, then a commodity such as oil will cost
C. Unless government leadership (Congress in general and the
Executive Branch in particular) puts the oil executives in
check,then this will be seen as a green light for continued
D. Hugo Chavez may be the President of Venezuela. However,
itappears that he is interested in being more vocal about his
supportof other Leftist regimes. This will cause further
South Americaand another oil exporting
are working with the Russians to the oil resources
of that region!
Sunday, March 2, 2008
1. The Republicans will win the 2008 Election.
Rationale: McCain is a maverick in one of the
truest senses of the word. McCain has
consistently broken party lines and joined
moderates on both sides of the aisle. Do not
be surprised if he puts the election on its ear by
picking a Democrat (such as Joe Liberman) as
his V.P.candidate or even a Colin Powell type.
While Obama has the current momentum from big victories,
there are severalfactors that are working against him.
Several of these factors do not go beyond the
mere specter ofracism or pure speculation.
Let’s face it, the average voter is not that bright
and is notinterested in finding out the truth.
A. Barack H. Obama (Middle Name H is for
Hussein and Americans will not like it!)
B. Swore in on the Koran
(Untrue since he is a Christian…
but ignorance is its own end.)
C. People question his loyalties because he
was once a Muslim(A Muslim in the White House?)
(Similar to how people questioned Kennedy’s
Catholicism and his true allegiance.)
D. Obama is of African-American descent
(While this should not be a factor, people will vote
against him because of it...sad but true.)
E. Rumored drug use. (While W. was known to
have his problems I believe Obama will be held
to a different standard.)
F. There is also an issue of bailing out of
could well be as unpopular as the war itself, most
Americans will look to finish the job.
said “Let us be dedicated to the unfinished Lincoln
work which they have so nobly advanced.”
G. Special interests on both sides will mobilize
like never seen before. While there will be no direct
campaign contributions, look
for high-powered personal attack ads.
If you think big business will roll over
for Obama...think corporations: …think oil
…think NRA…think Obama?…