Saturday, April 12, 2008

Paulson Party Politics, Ordinary People, Stock Analysis, and Testimony of a Spend-Thrift...

Paulson's Party Politics:

This weekend Secretary of Treasury Henry Paulson again reminded members of the G7 that the Global Economy would be"more difficult" than recent years, with "headwinds coming from adjustments in the U.S. economy, financial market stress, and higher than desirable inflation." This sounds like a well-crafted set of words...maybe even poetic... However, let's get to the real message of this statement at G7. Translation of Paulson's comments: Our out of control government spending has put the United States, Congress, President Bush, and the Fed behind the eight ball. We would like to apologize for those of you who have continued to hold our debt because we are now paying you back in the form of deflated dollars. This was the only way we could combat the massive amounts of imports that are hitting our shores from the Pacific Rim nations and the Iraq War. While we both know the US dollar is deflating and inflation is much higher than the U.S. government will report...please keep accepting our dollars. By the way we (the United States) would like a little more control over this IMF so we are better able to manipulate the world's financial systems. As of now, this is a risky situation that can only be remedied by printing more money...sorry!

Ordinary People Yesterday and Today:
Before the Great Depression, the ordinary person did not have a ton of money in the stock market. While a number of individuals were on margins (stocks bought on credit) when the market crashed, many were immune (or at least thought) they were immune to the credit crisis. In the Depression, when people did not have enough money they did not buy things...or saved until they could buy those basic necessities. However, in 2008 the story has changed. Instead of saving for purchases, as they did during the Depression, now people are able to purchase desired items on a whim with credit cards. The problem is this. In 2008 if people do not have money, they simply resort to credit cards or home equity loans. The more they need the more they spend, the more they spend, the deeper it gets. The Bible refers to the Debtor as being a SLAVE to the Creditor. (Deut. 15: 1-2) However, the creditor now appears to be at risk as well.

Stock Analysis
GE missed profits and sent a tremor through Wall Street last Friday. More negative reports can be expected this coming week. It will continue to add a more somber tone to Wall Street. It is still not too late to short the dollar via an ETF. Anticipate a tug of war on Wall Street between the bears (the un-patriotic forces so dis-liked by CNBC) and the bulls (who will more than likely digest any negative a bottom, and say the worst is over once again.) It is my belief this will put added pressure on the financials...and maybe even the homebuilders who are far from out of the woods. While many U.S. financials are asking their accounting departments to preform David Copperfield type tricks, do not be surprised to hear a few more stories released if the powers that be are in damage control mode. While Wall Street is poised to pound their chests on the TAX REFUNDS which are scheduled to be sent out next month as a rallying point, the vast majority of that money will service debt, be spent on gas, higher groceries, or blown at Walmart.

Testimony of a Spend-Thrift:
I must admit that I am conspiring against the credit card companies of the world. It is easy to document their method of making money...extend credit, count on consumers to over-spend, and charge APR's that will make their toes curl. Well I decided to beat these characters at their own game... What would happen if you used the credit card companies against each other?

My Experiment:
In my house we live below our means. (We are sure to have money left at the end of every month beyond savings.) However, I wondered how I could abuse credit card know...beat them at their own game. So I charged some graduate class on a Citi Visa which ran at a 0% APR for 18 months...once that expired I opened a Chase Card with a similar offer and did the same thing all over again. My hope is to one day pay these companies back...but in dollars that are more worthless than the original ones that I borrowed. Some may call me crazy, or others may say I am a bit sadistic. Whatever! While this money could be paid back tomorrow, I am enjoying a high degree of levity knowing that I am beating these characters at their own game. Statistics to follow next blog!

Sources Cited
Holy Bible
or Torah Book of Deuteronomy 15: 1-2

1 comment:

AX said...

TC, as you know my brother works at GE Capital. When confronted with poor earnings, he still mentioned that the business made over $2 billion last year. The "negative" spin he was blaming was written by CNBC, who as you know, is owned by GE (so I doubt that was the case). GE stock is right where it was 13 years ago....

Some defensive and shocked emails flying around Friday from my GE buddies...even talk of maybe taking away their AAA, that would be disastrous. But as I said, if the stock plunges below 30, might be a good 2-year window to make solid gains.

Still looking for your boom/bust recos..any thougths? Made my play with NCC, strategy you suggested is too complicated for me.