Sunday, October 26, 2008

The American Voter... Dollar Cost Averaging Revisited... Cha-Ching... Letter from Senator Voinovich...

Sheldon Adelson could be thinking about the $13.5 Billion dollar hit he took. At this rate, Adelson could fall off the Forbes 400 List!

The American Voter...
In approximately one week, it will all be over. We will have elected a President. House and Senate races will be over, state and local elections will have been decided, and various issues will have received the thumbs up or thumbs down vote from constituents. I am curious as to what events are really influencing the American Voter this election? I put together a list:

1. The economy...
2. The economy...
3. The economy...
4. Everything else...

Nothing short of cardiac arrest hit voters at month's end when 401 K statements were opened, and people realized that at least the last five years of saving had been cut by half or more! What to do... What to do??? What to do!!! For some, the ghost of job loss is haunting them worse than any Halloween Goblin. Economic slow-downs mean job loss. Housing prices... sure people have seen a good portion of their home equity disappear over the past two years as well.... These people are stuck in investment plans who have always "bet" that the market will only go up. Downward trends only mean that stocks are on sale right?

Dollar Cost Averaging...

Invest for the long-term... throw your money into a fund and forget-about-it... These were the battle cries of financial advisers (salesmen) since the 1950's. As a matter of fact, one interviewee in the Cleveland Plain Dealer said that "They are not going to wait these financial markets out." (1) Personally, I have stopped any further auto-deduct program into 403B plans, or even direct purchase programs as I had for D and WMT. D is probably one of the last companies in the United States that I am worried about, but it does not make a lot of sense to chase stocks that are losing value. At the end of the day, no one will take care of your money like you!!! Case in point, a family friend called her "financial adviser" regarding her account balances... The Raymond James representative said your are down 25%, consider yourself lucky!!! That 25% equals $125,000 to you and me!!! Evidently this adviser has a different agenda...invest when the market is good... invest when the market is bad... If you are out a bundle of money... sorry. And these people call themselves professionals!!!


It was two short years ago that Sheldon Adelson was number three on the Forbes list of richest Americans. Adelson's Las Vegas Sands gambling empire positioned him near the top, with momentum enough to become the world's richest man in a year or two. His net worth was an estimated $20.5 Billion dollars! That was then, and this is now. From August 29 to October 9 Adelson's net worth declined $13 Billion dollars. (2) that is not to mention that LVS shares have moved from $149 per share to $6. Adelson may well fall right off Forbes' List this year. The next time you're feeling a bit beat up when the market is not treating you right, just remember it is always worse somewhere else! Evidently, this is one bet the house lost. (2) Since Trump and Adelson have already gone into the tank, consider Steve Wynn as the new whipping boy. WYNN 3/30s are looking quite attractive at this point!

Sources Cited
1. The Cleveland Plain Dealer, Business, Sunday

Letter from Senator Voinovich

TOD (202j 224-6997 hltp:l/voinovich .senate .gov

United States Senate
WASHINGTON. DC 20510-3504
October 14, 2008

Dear Brian:

Thank you for contacting me regarding the Emergency Economic Stabilization Act of 2008. I appreciate hearing from you on this important matter.
I believe we are at a turning point in our economy. Recently, we have seen numerous major financial institutions come under tremendous stress. As a result of this stress, basic financial transactions are at a halt. I have spoken with Ohio employers large and small who will have to make choices like laying off workers because they cannot get money from banks to make payroll. I have spoken with manufacturers, auto dealers, farmers, municipalities, and community banks who are already having trouble conducting business because credit is disappearing. I cannot sit back and allow this to happen. I believe this is affecting not only Wall Street, but Main Street and my street, and we must do everything we can to calm the markets by restoring confidence in the credit system.
Ohioans depend on credit to buy a home, drive to work, and send their children to school. The possible ramifications of doing nothing are staggering: businesses laying off workers or closing completely because they cannot make payroll; a dramatic loss of retirement funds; an inability to get a loan to pay for college, a car or a house; cities unable to float bonds to build hospitals or schools; and home prices plummeting further. As Congress considered how to address these issues, I set forth four criteria for any legislative solution. First, it must protect the taxpayers to the maximum extent possible. Second, it must stabilize home prices and reduce foreclosures. Third, it must deny companies' executives golden parachutes if they want to participate in any fix. Fourth, it must restore confidence in the credit markets.
On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of2008 (PL. 110-343). I voted for this legislation with a heavy heart. I have spent my entire career focusing on eliminating debt at the local, state, and federal level so we do not pass it on to our children and - - grandchildren. While deciding to vote for a package of this magnitude feels like being punched in the gut, the thought of what would happen to average Americans if we did not do this is much more painful. While I am pleased to see that any profit the federal government may make off this deal will be used to pay down the national debt, our work cannot stop here. We must make a full-court press to stabilize the housing market, pass fundamental tax and entitlement reform, and become energy independent. These issues all relate to each other: the crushing debt burdens on homeowners, financial institutions, and the federal government; the declining value of the dollar; and the massive transfer of US. wealth that occurs as America buys Middle Eastern oil and Chinese goods, all feed on each other and threaten our prosperity.

The Emergency Economic Stabilization Act of 2008 allows the Secretary of the Treasury to purchase up to $700 billion in troubled assets from companies, including mortgage-related and other assets. When the Department of the Treasury buys assets directly, the selling institution must observe standards limiting executive incentives, including golden parachutes, for as long as Treasury holds the asset. Institutions must also provide warrants for future shares of stock, so taxpayers can share in future profits. The sale of any assets must be used entirely to reduce the federal debt, and may not be used to increase government spending.
Under this legislation, the Treasury must also create a plan to maximize assistance for homeowners. To the extent the Federal government owns, holds, or controls mortgages, mortgage-backed securities, and other assets secured by residential real estate, the government must implement a program to help distressed homeowners by reducing interest rates or loan principal, or making similar modifications. This legislation also strengthens the Hope for Homeowners program to increase eligibility and improve the tools available to prevent foreclosures, and extends my Mortgage Relief Act for another three years, from 2009 to 2012, which excludes from taxable income any mortgage loan forgiveness provided by a lender on a principal residence. My legislation relieves families of a tax burden when they work out a deal with their lender that helps them avoid foreclosure and stay in their home.
The Department of the Treasury will also establish an insurance program, where financial institutions could pay in premiums to receive a government guarantee of their troubled assets. Finally, Congress will conduct extensive oversight to ensure taxpayers' money is invested wisely - including the establishment of a Special Inspector General housed at Treasury, which I requested be created in a letter I wrote to Treasury Secretary Paulson.
The Securities and Exchange Commission is also given the authority to suspend the mark-to-market accounting rule, which requires companies to value assets on their balance sheet at their current market value, even though this amount may be significantly lower than the value of the asset when it is eventually sold. Additionally, the Federal Deposit Insurance Corporation will temporarily increase deposit insurance from $100,000 to $250,000 for both banks and credit unions until December 31, 2009. The insurance amount for retirement accounts will maintain at its previous $250,000 level.
Thank you again for contacting me. I appreciated the many Ohioans who wrote, called, and visited my office to share their ideas and concerns. As a fellow Ohioan, I genuinely appreciate hearing from you. Please feel free to contact me again regarding this or any other issue that concerns you.

George V. Voinovich United States Senator

Friday, October 24, 2008

Buy American, I Am... A Trip to the Capitol... I See Red...

Buy American, I Am...

America's favorite investor Warren Buffet has been pumping American stocks. Last week, he opined a piece in the New York Times titled Buy American, I Am... For years, the legendary Oracle of Omaha has enjoyed the clout of a baseball slugger with bases loaded. Many times, Buffet and his creation Berkshire Hathaway have benefited from his value investing model, and his wit in turning around company management. Buffet's latest article reminds readers of this policy. "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful." This may be part of the reason that Buffet has bought positions in GE, GS, and BSF. The GE deal clearly demonstrates that even Buffet's value model has flaws. Currently, Buffet has options to purchase GE shares at $22.50 ... yet the stock price is $18.80. After all, no one is perfect right?

Greenspan's Hot-Foot
If anybody is suffering a case of burns today, then it is Alan Greenspan. He delivered testimony to members of the House Financial Services committee. It was almost as if the members built a fire, and held Greenspan's feet to it. The most disturbing portion of the testimony came when Greenspan disclosed that "those of us who have looked to the self-interest of lending institutions to protect shareholder's equity (myself especially) are in a state of shocked disbelief." Alan Greenspan is an intellectual... however, this statement clearly demonstrates that his strong intellect of understanding financial markets has been clouded by a basic misunderstanding of human nature in general, and Wall Street in particular.

Not to be out-done, the Senate had members of Treasury in for a similar hearing. During the hearing Senator Dodd noted that the entire Bailout Package of $700 Billion will, in his humble opinion, be a waste of tax payer money if the housing crisis is not addressed. At this juncture, there are several conclusions that can be drawn regarding bailout monies. 1. Bailout monies will be used only for financial institutions. 2. Monies will be used to provide working capital. 3. Monies will increase the amount of liquidity among financial institutions allowing businesses and individuals access to credit. Beyond that, if Dodd is looking for an end to the housing crisis then it will need to come after Election Day. By that time, there will be a new President. More importantly, there could be a wide enough Democratic margin in the Senate to overcome Republican filibusters. The last time in history that happened was under the Johnson Administration. And we are still dealing with broken social policies from that time period! However, note that there was considerable improvements in civil rights legislation. Should the filibuster majority come to fruition, then expect a BIG Housing Bailout Plan that could hurt the standing of our U.S. dollar... but all will agree... that have to do something.

I See Red...

I see red
it hurts my head
guess it must be something
that I read

it's the colour of your heartbeat
a rising summer sun
the battle lost --- or won
the flash to fashion
and the pulse to passion ---
feels red
inside my head
and truth is often bitter ---
left unsaid
said red red
thinking about the overhead ---
the underfed
-- couldn't we talk about
something else instead?
Words by Neil Peart, Music by Geddy Lee and Alex Lifeson of Rush (1)

No matter where you look, world financial markets are at meltdown stage. Recessions are not contained to one country, or even one continent. This is one great big financial meltdown which is encompassing every continent. Even the cash-rich OPEC states have seen a 50% drop in the price of crude oil. Aside from financial instability, the other unfortunate and often-times long-range problems deal with political unrest in nations which are most effected by turmoil. Specifically, developing nations whether in Europe, Asia, or South America may see drastic changes in the way governments do business. As noted in a previous blog "A Look at Charts", to simply call market behaviors recessionary is like saying the Titanic had a small leak. However, there will be life boats available for most this time. My biggest concern is that the United States may (through an eventual weakening of the U.S. dollar via over-spending) may have a diminished role as a world power. As of now, ever nation on earth is hoarding dollars as the currency of strength... Conversely, gold has taken an unfair beating. Should the U.S. reach a "Day of Reckoning" due to a compromise in our AAA bond rating, there will be a day of reckoning which will debase all currencies. Prior to WWII the British Pound was the currency of choice. However, the post-war era saw the U.S. dollar take over that position.

What to Do?
Stay short consumer discretionary spending... WYNN still has TREMENDOUS homerun potential. I have puts of 3/35s. DDE is another consideration.
Commercial Real Estate could only be a matter of finding the "biggest loser" VNO and SPG are two favorites here. VNO 3/60s SPG 1/35s
China FXI 4/16s
CNK 3/10s
BBW 5/10 5s
I also have a number of bids out including FXB (British Pound), RYL, WSM, DRI, DDR,

BAC 12/25s... As I am expecting the plan to position Bank of America... They are now too big to fail, and will benefit immensely from political "traction" on Capitol Hill.
AU... I am getting beaten like a red-headed step-child on this one. The ONLY thing in my favor is time!">href="">

Tuesday, October 21, 2008

The Best-Laid Plans...

In "To a Mouse" Robert Burns pointed out the fact that man continually interferes with the dominion of nature. We create a world and modify the natural flow of events to fit our vain purpose. Yet Burns points out that even "The best-laid plans of mice and men often go awry." -Robert Burns 1785

National City Bank has made their own plans. Today, CEO Peter Raskin informed rank and file that the company would be laying off 14% of its work force over the next three years. For NCC that is approximately 4,000 employees. (1) But the street likes this news taking giving the company a 3% bump to just over $3.00 per share. Chrysler too has put unions on notice throughout the world. For instance, the plant in Twinsburg, OH which has seen its workforce dwindle from 6,000 to approximately 1,200 now expects another pairing to take place... a pairing that will start soon... and many of these workers will not be back on the line until after Christmas. And so it goes with local steel manufacturers. For instance, 1,800 steel workers were laid off in Pennsylvania due to a softening demand for product.

At one time, people who were employed by the state or local municipalities were thought to have had "safe jobs." However, the State of Virginia announced that it is laying off 570 employees. This will add to the ranks of the already 800 state jobs that are already unfilled. As of now, the governor sees a $970 million short-fall this year. Unfortunately, estimates suggest the budget will be short $1.4 billion by next summer. (2) Camden City Council is going through exhaustive measures to save 60 public employee positions that are on the chopping block.

With the onslaught of job loss figures, there is considerable speculation that the Bush Administration might verbally acknowledge that we are in a recession. After all, people are much happier when they are told the truth as opposed to political rhetoric. But talk had been cheap for a while now. On a consistent basis, market-makers on TV are calling a bottom to this market daily... and with little to no evidence to support their case expect for "classic levels" or "technical indicators." Today, Henry Paulson was asked when he planned on attacking the "heart of the matter" by addressing the foreclosure crisis in America. He gave an answer, yet I am still at a loss to explain what the plan is... One thing is for certain, he is focused on the credit markets.. everything else is secondary. But as Robert Burn once wrote "The best-laid plans of mice and men often go awry."

Stock Watch
FXI puts
CNK puts
SPG puts
VNO puts
Wynn puts
BBw puts
(And a whole heck of a lot of low-ball bids on other companies like CMG, DDI, DRE, DDE, etc.)


Sunday, October 19, 2008

Overspending Causes Bankruptcy?

News Flash...
According to a University of California's recent study, OVERSPENDING was the leading culprit to BANKRUPTCY. Other interesting discoveries in the study suggested 50% of bankruptcies were overspending related, with another 13% due to unemployment, and 5% from medical costs. This particular study recommends reforms in bankruptcy laws to prevent people from escaping from excessive debts. (1) My heart will always go out to anyone who is unemployed... or has lost a job... but overspending is just not acceptable.

Interesting enough, Nouriel Roubini believes the Recession will last for at least 18-24 months and the bailout will require doubling funds. The second bailout would be needed to assist struggling homeowners who are on the brink of foreclosure. Roubini went on to suggest that anything less the a second bailout for homeowners could well spell doom for any recovery in the housing market. I will let readers contemplate the effects of a second bailout on the prices of gold, and the value of the U.S. dollar. (2)

Gail Collins from the New York Times has become increasingly suspicious of any bailout plans... or anything else the current administration may have in the works. According to George Bush “America is the most attractive destination for investors around the globe. America is the home of the most talented and enterprising and creative workers in the world,” said the President, who also insisted that “democratic capitalism remains the greatest system ever devised.” While most readers are rooting for the United States to pull this financial crisis, at the bare minimum, they have become increasingly suspicious of almost anything that is associated with the Bush Administration. (3)

It is never a good sign when a CEO like Scott Wolstein of Developers Diversified cashes in 1,207,000 shares of stock in one week... to you and me that equals a cool $20,000,000.00... following suit, an officer by the name of Joan Algood cashed in 40,000 shares for $750,000.00. This would seem to fly in the face of other buy and hold types who think the market has bottomed. Evidently, the commercial real estate market is in for a beating and these two are following the most practical of advice... preserve capital at all costs! Readers would best be served by monitoring the insider trading moves from VNO and SPG as well... Big moves out of these two will tell the rest of the world that commercial real estate is heading into the tank. Don't count on Japan bailing us out this time either. They still have whip marks on their back from the great real estate deals they got in the 80s. (4)

According to Deutch Bank's latest analysis, California's economic consumption has been revised from mildly positive to out-right negative. Furthermore, the latest revisions all suggest a considerable slowing in the nation's GDP. "Accordingly, we now expect a major recession for the world economy over the year ahead, with growth in the industrial countries falling to its lowest level since the Great Depression and global growth falling to 1.2%, its lowest level since the severe downturn of the early 1980s. We also see a steep drop in global inflation to 3.1% next year thanks to a collapse of energy prices and rising unemployment." (5)

According to a fellow blogger known as the London Banker, "Subsidised banking seems a faster method of going bust than military adventurism, but the two together will see the US bust even more certainly. The $700 billion appropriated for the Paulson Plan and the $840 billion extended in parallel by the Federal Reserve last month are together more than three times the expenditure on US wars for the past five years. The federal borrowing requirement for 2008 is now in excess of $1.02 trillion, and for 2009 is now estimated between $1.5 and $2 trillion." (6) Should the London Banker's predictions be accurate, it means that the United States will debase the U.S.' currency, destroy its credit rating, and export the debt deflation cycle throughout the world. Newsflash...overspending causes bankruptcy!!!

Suggestions include staying short on this market, with the expectation that the U.S. government will be applying bailout funds in precision strikes, with the overall goal of propping up the financial sector. Consumer related stocks suck as CNK, BBW, and WYNN will continue to show signs of weakness. Commercial real estate could well be the next victim of the credit crisis, as there is more un-leased commercial property now than in any other time in U.S. history. This problem is not simply confined to the U.S.. Therefore, it would only make logical sense to short China at this juncture. After all, they will not be able to export cheap products to the U.S. unless they are the junky toys China was known for back in the 1970s. Consider GLD, and AU.

Sources Cites
1. The Cleveland Plain Dealer, Jim Wasserman, Sacramento Bee
4. Thomson Financial Insider Trading moves

Wednesday, October 15, 2008

No Business... Like Show Business...

Three... yes you heard in right! Three Broadway Shows are closing the curtains early this year. This might have something to do the estimated 165,000 financial service workers in New York who have been added to the ranks of the unemployed. This city may never sleep. However, city officials could well be suffering from a case of insomnia thinking of a way to cover NYC's mountain of debt. One solution is to loan the city money. That's right, loan the city money in the form of bonds which are now paying an average of 6%. No these bonds are not backed by the U.S. government, but New York is good for it right? Since when has a city that size defaulted?

Speaking of real estate... I promised readers that we would look at this dead horse for investment ideas. Since it appears that the residential side of the industry has less down-side potential. Let's look at some of the losers that are out there. SPG down a mere 11.00 a share today. This commercial real estate business specializes in regional malls and outlet centers. VNO is another one to keep on the board. This lovely owns over 30 million feet of commercial property in New York City. Time shares... yes they made a nice come back when money was flowing like an endless river. Now times are different. Decisions, decisions, decisions...what to keep, what to dump. I guess if it is a choice of keeping the primary residence or a time share... you keep the residence. If it is a difference of sending Junior to school, or the time share, Junior is getting an education... you get the picture. I like HOT a.k.a. Starwood Hotels and Resorts as a big loser here. Act now and you get $100.00 off the Equinox Resort and Spa in Vermont. Not to be outdone, Wyndham Resorts WYN, boasts of over 200,000 vacation rental accommodations.

If you like the idea of shorting North, Central, and South America... and you think the consumer is dead like I do, then you will love Cinemark (CNK). While this one is only in the 8.00 range, there's a good chance that it could be heading all the way down to Davey Jone's Locker!!! After all, not everyone can go to the government for a bailout. You have to know somebody like the Honorable Barney Frank... By the way, CNK is at a -.52 cents per share earnings and this recession is going to be deeper.. and last longer than most people think.

Not to belabor the short side of things, readers should also consider the apparel industry. Ralph Lauren (RL), has specialty shops called Cashmere where ladies can spend a few grand on some clothing. Pink Pony shirts only run a mere $200.00 a piece. And let's not forget the namesake restaurant in Chicago. I am sure the line for that one is right out the door. Consider PVH as another play here. Consumers can't eat names like Bass, Izod, and name sake Van Hussen. I am convinced that this sector could hemorrhage for quite a while.

Last, Harley Davidson (HOG)is a luxury item. They may get good gas mileage, but many people will re-evaluate their need for a $40,000.00 motorcycle. Financing, job loss, and a tapped out consumer could easily send this classic into the single digits!!! The only hope for many of these companies is that the government tires to print their way out of this recession... Keep CMG on the board.

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Tuesday, October 14, 2008

Time to Jump In? Consumer Discretionary...

"The Life Guard Blew the Whistle, Everybody can get Back into the Pool." This is what one of the guests said on CNBC this morning. After all, the government just announced that it was spending $250,000,000,000 to purchase preferred shares in eight of the nation's largest banks. Not only will these purchases add much needed liquidity, it will allow banks to purchase smaller-struggling banks at a mere pittance. I like to think of this as a closeout store where customers can purchase damaged and defective products at a huge discount. This was the first of Treasury's installments. There will be two more installments equaling $500,000,000,000.00 to be announced at a later date. As usual, CNBC hosts and guests were ear to ear smiles.

Which banks may get the most under Paulson's Plan
Citigroup $25 billion
J.P. Morgan $25 billion
Bank of America $12.5 Billion
Merrill Lynch $12.5 Billion
Goldman Sachs $10 Billion
Morgan Stanley $ 10 Billion
State Street Bank $3 Billion
Bank of New York $ 3 Billion (1)

I have always been told that “You never want to Make Uncle Sam a Partner in your Business.” An over-involved government tends to destroy creative thinking and limit future progress. While there is no doubt that the government has a vested interest in the success of U.S. companies, now these financial institutions are almost guaranteed by the tax payers. A little freedom has been sacrificed in lieu of security…

Is There a Doctor in the House?
One might find it ironic that the guest speakers were both questioned by CNBC hosts.
CNBC “Have we bottomed?”

Guest 1 “I will not call a bottom as we have risen too far, too fast, with too little resistance.”

Guest 2 “The truth is, we have at least another 12 months of horrific earnings to go… Unemployment will add another 2,000,000 claims over the next year. Companies will need to demonstrate where their earnings are coming from.”

The Rest of the Story
A little honesty is nice… Even though this conversation bordered on honesty a time or two, the bottom line it that neither party got to the heart of the matter… This rally is not much less than a shot of adrenalin while a patient is in cardiac arrest. If the GDP is based on consumer spending, then it will need to find another growth engine… It is my belief that the unemployment prediction is low… and with high unemployment, we are looking at a number of scenarios. For instance:

GMAC has tightened credit requirement on anyone who is interested in buying a car. They will only work with scores of 700 or better. It looks like the used car market will prosper… used car parts like Auto Zone may be a winner here… Does J.D. By-Rider have a ticker symbol? Regardless, financing will be tight for tier two credit applicants!

Restaurants like DDI (Durden Restaurants) who also own Pottery Barn will have a difficult time weathering the storm. As will several smaller operations like the Build a Bear Workshop (BBW).

If readers like to gamble, then the time is right to bet against anything that deals with discretionary consumer spending. For instance WYNN, clearly shows that Las Vegas is not a recession proof city. After eight quarters of weakening profits, Wynn announced that year over year number will be lower than last fiscal year. By the way, Las Vegas’ foreclosure rate is up 169% from last year’s horrific numbers.

Along the lines of consumer discretionary spending, WSM is the maker of high end consumer appliances which will not do well in a tighter market. SKS can be added to that list as well. If the theme is a dead consumer and tight retail margins, then we must give tribute to the commercial real estate sector which could be in for the rudest of awakenings. More of that next time…

Sources Referenced

Friday, October 10, 2008

Some Dollars, No Sense... Looking at Charts...

A Trip to the Bus Garage...
Worker "Brian, did you hear the stock market dropped another 700 points today?"

Brian "I heard something about that."

Worker "You know what they are saying?"

Brian "What's that?"

Worker "Now is the time to buy... Within two years you will at least double your

Brian "Huh... who is saying that?"

I am curious to know who "they" are? Sure it could be some of the workers in the bus garage, but more than likely the "they" in this case are market oracles who know that the market is coming off its worst week in history, and therefore it has to go up...

Maybe Newton's Law of Gravity works in physics, but I do not believe those laws apply to stocks or markets for that matter. The truth is credit markets are in worse shape now then they were a week ago... and the bailout plan is already a law. Maybe it's the fact that AIG needed more money this week. (Hopefully some of it went to tip the servants at the extravagant hotel executives stayed at...). Another theory behind seized up credit markets is that banks just don't trust each other (The Libor Rate is now higher than any other time in history.) Maybe credit markets are still reeling with the systemic collapse of Iceland due to the country's financial insolvency. I believe it is the fact that President Bush was on TV again saying that he has a plan. At this juncture, readers should be reminded that in July, the President was quoted with "We narrowly missed a recession." Evidently, Bush believes the real problem that is driving the market is anxiety. The good news is that the President will be meeting with G-7 leaders this Saturday. No doubt, that all this will be worked out by Monday morning... But I doubt it!

According to major Economic downturns, three charts suggest that markets usually take a while to bottom...

According to this chart the greatest of all crashes.. the 1929 "Crash" the stock market headed down nearly 35% on Black Tuesday. What many people fail to mention is the market did not completely bottom until three years later. There were several mini-rallies followed by heavy moves to the downside. When the bottom finally hit, the market only retained 12% of its original value... Kind of scary if you think about it!!! I wonder how many of those saps heard teh words "Now's the time to Buy?"

The second chart is from 1987. I believe this crash was predicated on a meltdown of Savings & Loans in the United States, and the subsequent bailout. While this crash... or panic if you will only lasted one day, it appeared to be confined to one segment of the U.S. financial markets. Some investors piled into the market the next day, and received an instant reward. I found this chart on a site entitled "The Best Way to Invest." Rarely though are we afforded an opportunity to pick a bottom in a market. A second follow-up day of losses and it is Good Night Irene.

The third chart underscores events related to the terrorist attacks on 911. I distinctly remember CNBC raising the questions as to "Who are the real Patriots who were going to ride out the storm?" It is my belief that the real patriots in that case were those who were piling money into their 401K and 403B plans. I do not doubt for one second that many of the "investor" "trader" class types jumped out of that market with both feet! Only to jump right back in when the opportunity presented itself.

However, the last chart I must share with you is fundamentally different from all the others. It clearly demonstrates two trends.
1. It shows a perpetual slide where the DOW lost 25% from its high.
2. It underscores the fact that the economic slowdown could in-fact go on for months if not years!
The stock market's condition now is based on factors such as consumer consumption, a credit crisis, and debt. This recipe suggests that the slide will not be a week to week condition, but a slow slide into the abyss, in-spite of what the experts think.

Let the Oracles of Wall Street buy this market. In my humble opinion, now more than any other time it is of the utmost importance to preserve capital! There is no clear indication that this market has bottomed...or is even close to bottoming. Remember, the market took three years to bottom after the "Crash" of 1929!

Sources Referenced

Thursday, October 9, 2008

The Exodus... The End of the Age of Excess... I Want My Son (or Daughter) to be President... Stock Talk

The Exodus
Where is Moses when you need him? While Moses led the Hebrews out of bondage, it appears that salesmen and Wall Street analysts could well be leading their followers into years of financial slavery. After seven losing days in a row, and reports of additional capitulation in the Asian markets, this may well be only an end of the beginning, with more to follow! For the stock market, there is no leadership nor immediate counter-measurers in place to stop the massive Exodus that is taking place. There was a Promised Land in the world of stocks, but it seems the followers of the great Wall Street Oracles could well spend the next 40 years wandering in search of their portfolio values. Some people are opening their 401K statements and finding out that they have lost over 25% of their hard-earned money. Values that have taken years to earn are being wiped out in hours. In the last hour of trading alone, the market lost over 300 points in value. It crossed below the psychological mark of 9,000 and settled at 8,579. I have heard testimonial after testimonial of "What should we do Brian?" As a former banker, a historian, and amature economist I have recommended a few ideas:

1. Preserve Capital at all Costs...
2. Don't listen to salesman and analysts say now is the time to buy...
3. Pay down debt... a house running at 6.5% should be paid instead of chasing negative returns in the stock market...
4. The notion of investing for the long-term and just forgetting about the money may well be a cliche of the past.

Today, the stock meltdown was even on the Dr. Phil Show. Two of the guest panelists were Ben "Ride it Out" Stein... and the one and only Jimmy "The Jinx" Cramer. While I did not watch much of the show, a couple of quotes came to mind...

"The notion of retirement was only a passing ideal in civilization. People will no longer enjoy the same type of retirement their parents did." -Ben Stein

"I have a 17 year old son who is starting college next year. I pulled enough out of his account to cover the first couple years of school. As for my 13 year old daughter, I am letting it all ride." -Jim Cramer

I always liked Stein every since he played the Principal in Ferris Bueller's
Day Off... "Bueller... Bueller..." As an economist in the Nixon Administration, I have always appreciated Ben Stein's conservative straight-talk. He too was part of the dollar cost averaging crew who proclaimed that it is all going to workout in the end when we retire barring government interference... Little did Stein know that a repeal of Glass-Stegal would spell the credit market's doom.

As for Cramer, I am certain there is a group of people looking to string him up as of now. It was only three weeks ago that Cramer pounded the table on Goldman Sachs, Bank of America, and Wachovia. It is his absolutely trust in Bank of America CEO Ken Lewis that deserves particular scrutiny. Lewis told everyone back in July that B of A was not cutting dividends, that the Countrywide deal was going to add income directly to next quarter's report, and they were well leveraged. Heck, in several of my Seeking Alpha articles, I was strongly criticized for smelling a rat on B of America's ship... Maybe the audience will hang them both (Cramer and Lewis) with the same length of rope!

The End of the Age of Excess
Maybe it is times like these that we should re-evaluate the important stuff:

1. Good Health
2. Family
3. Friends
4. Faith...
Of the four points mentioned, faith is the only thing that lasts. As a matter of fact, we may well be on the verge of another "Spiritual Awakening" in the United States... Isn't it kind of funny how everyone looks for God when things are a bit rough?

One thing is for certain, GDP's that are 80% consumer driven have come to a screeching halt. People had the opportunity to live large for a long time... many took advantage of easy credit and now they are going to pay for it. Others, only treated debt as a tool... These are the ones who will craft their way through this financial mess. It's all about survival skills now! If anyone tells you differently, they are lying!!! Iceland was declared insolvent in part due to the ASTRONOMICAL Debt they are carrying, with out the means to service it... It doesn't take a rocket scientist to figure this one out!

I Want My Son to be President
Monday's Presidential Debate was a real yawner... I hate to say it, but there was not a lot of spit fire that the public is looking for. I wondered to myself, are these the best that this country has to offer? And after seeing the way we treat these people who are running for President, it is apparent that other qualified individuals who could run...don't. WE beat on these public servants, the media crucifies them, and then we are disappointed with the choices we have. To be quite frank, I don't know why anyone in their right mind would subject themselves nor their family to the ridicule, dirt, and lies. We are going to have a new President in January. We better start looking for the good in both of these men...and just quite ragging on them. This is a time where the next President needs our prayers much more than our criticism. After all, I want to be able to tell my son that I want him to be President one day!

Stock Talk
FXI 5/16s... China's market has a heck of a lot further to fall that the U.S..

CMG... I love Chipoltte but they have some fundamental issues that could well turn this one into a $5.00 stock.

I am still trying bids on WYNN, ZION, DID, SKS, GLD (calls), CLF and WSM.

Wednesday, October 8, 2008

The Voice of Reason...

October 7, 2008

Dear Mr. Davis:

Thank you for contacting me regarding the economic "bailout" bill. I appreciate you taking the time to share your position and thoughts with me on the current economic crisis we are facing.

As you know, the Emergency Economic Stabilization Act of 2008, H.R. 1424, passed both the House and Senate and was signed into law. I was not able to support this measure because I believe the bill was far too expensive, there was not a factual basis for the $700 billion dollar price tag, the bill did not offer enough help to directly assist average Americans, and pork and pet projects were added to the bill unnecessarily. I was also disheartened by the House leadership not allowing alternative plans and ideas from being debated, or allowing any changes to the existing bill. I know that something needed to be done, however, we had an opportunity to do a better bill that was not as costly to taxpayers, but that opportunity was not allowed to be realized.

The vote I cast was not one that I took lightly. I felt we were given a horrible choice - give the Secretary of the Treasury $700 Billion for a plan that is not guaranteed to work or face the possibility of the American people losing their life savings, 401Ks, investments and/or pensions. I understood that no matter how I voted that I was going to make some people unhappy, but I truly believe the vote I cast was the right course of action, and it was also representative of most of my constituency. There is no question that we are facing serious economic times and since the bailout bill passed, I would like nothing more than to see the plan succeed and for our country to have a bright economic future.

Once again, thank you for contacting me. Should you have any questions or wish to discuss the issue further, please do not hesitate to contact me again.

Very truly yours,

Steven C. LaTourette

Member of Congress

The Congressman from the Great State of Ohio has earned my vote on Election Day!!! It is my belief that Congressman LaTourette represents the creative energy that will be instrumental in helping solve the financial crisis. More importantly, he is interested in addressing the heart of the the matter, namely the housing crisis. I will actually place a campaign sign in my front yard if I can find one! During last night's Presidential Debate I noted McCain's plan to "buy" foreclosed properties with government money. I think that could be one of the worst ideas I have ever heard. Maybe... since FNE and FME are now government sponsored entities , a more logical decision would be to sponsor loans at 2% interest... which turn to 5% after 10 years. There are reasonable buyers out there, it is just a matter of creating a situation they cannot refuse...


Teh cost of shorting the market has gone up tremendously! Specifically, the price between bid and ask prices have demonstrate market volatility on steroids. China dropped close to 9 % today...Hang Seng 15,288.00 -1,432.00 -8.56.
There will be an attempt to coordinate credit markets at this point... The G-8 will meet this weekend. Look for a series of cuts which will attempt to thaw credit markets. More importantly, central banks will put the printing presses in over-drive. While I still hold puts on XLI, XLY, STI, and COF, I believe there is tremendous downside potential in FXI, WYNN, VMC, CLF, and SKS. Do not forget the short ban expires on 10/17/2008... The question is, will there be anything left to short? BIDU, RPLNS, and Petro China are on the board as well.

Sunday, October 5, 2008

Observation Points... Stocks on the Board

Quotes from the Local Papers...

"Only a few generations ago, a life well lived wasn't lived on borrowed money. Patience not purchases was priceless. Credit cards were only used for emergencies. People paid cash for new cars. Paying off a home mortgage was cause for pride and celebration." (1)

Questions Financial Institutions have on the Big Bailout

1. How much will the government pay for the loans?

(Hopefully market value, after all what is the value of a non-performing asset?

2. Will there be any strings attached?

(This is not free money, it is a loan from the tax-payers of the U.S.
government... you banks should know by now that there is no such thing as free.)

Financials Interest in the Bailout Plan...

"The critical question is price..." RBC Capital Markets

"We think it is a good thing that this bill passed...We are in the process of understanding the ramifications and then will be able to make our decisions on how to proceed." AmTrust (Formerly known as Ohio Savings)

"It's something we are following closely... I think we'll want to wait until the dust settles." Fifth Third

"We do not have toxic assets which are the primary focus of this bill." KeyCorp

"We are quite interested" in potentially selling loans "but it is not our only alternative." National City CEO Peter Raskind

"We don't have a whole heck of a lot to get rid of." Marc Stefanski Third Federal (1)


The new street is in! Model home is finished! Build one or two homes at absolute cost in my suburban housing development. If you believe the bottom is near, we should talk. (4)

Credit Implications

Credit Cards: Existing card holders see limits cut, fewer offers, higher fees and interest rates.
Student Loans: The cost of loans will rise. Families need to rely less on loans and have more money saved for college.
Home Mortgages: Don't be surprised if 20% down becomes standard again. Credit scores and documentation will be needed.
Auto Loans: Bring credit scores of 700 or higher and proof you can pay. (2)

In essence, people for the last 10 years have been encouraged to use credit. It has almost been seen as a Constitutional right... Now it appears that credit will be tightened at the consumer level. This means that average everyday American will be facing several problems: (3)

1. Servicing existing debt...
2. Establishing new credit... (the old standard of having a pulse will be the exception as opposed to the rule.)
3. Living within one's means...

Stock Market
Calls...puts... whatever, this is an extremely volatile market. Evidently, the bailout plan that was passed last week has yet to be digested... Do not be surprised with an emergency rate cut this week... The U.S. will be expected to perform counter-measures... and the world community will follow suit. A G-8 meeting will be held this weekend... The powers that be will attempt to form a game plan to address the economic downturn... and stop it from becoming a crisis.

CMG, BWLD, RRGB, ANF, TXI, URBN, TSCO, MLM, BYI, LVS, WYNN, and CLF are all on the radar screen. We are all reminded that Wynn and Adelson were geniuses for expanding into China because there was too much upside potential. Evidently, we are learning that recessions can spread everywhere... A global slowdown is a global slowdown...I am looking for a big up day in the market to move on a couple of these stocks... In the meantime, a few low ball bids could get filled with the right pop in the market... There are no long-term plays at this time. Simply, booking profits when profits are made. I would much rather be playing upside potential of the stock markets. However this is the situation we have been afforded.

Sources Cited
1. Cleveland Plain Dealer, Business Section, 10/04/2008
2. Cleveland Plain Dealer, World Section, 10/5/2008
3. Cleveland Plain Dealer, Business Section, 10/05/2008
4. Cleveland Plain Dealer, Classified Section, 10/5/2008
5. Various internet sources

Saturday, October 4, 2008

The Fourth Turning

The Fourth Turning (The History of Americas Future), next to the Bible, had been one of the most influential books that I have ever read. In this book by Neil Howe, and (the late) William Strauss the authors look at The United States in a Cultural, Historical, and Political perspective. Through this analysis, the authors identify cycles in U.S. History. For instance:

* The First Turning is a High —an upbeat era of strengthening institutions and weakening individualism, when a new civic order implants and the old values regime decays. Old Prophets disappear, Nomads enter elderhood, Heroes enter midlife, Artists enter young adulthood—and a new generation of Prophets is born. (1)
This is best viewed as the WWII generation, and the subsequent Baby-boomers who were their children.

* The Second Turning is an Awakening —a passionate era of spiritual upheaval, when the civic order comes under attack from a new values regime. Old Nomads disappear, Heroes enter elderhood, Artists enter midlife, Prophets enter young adulthood—and a new generation of child Nomads is born. (2)
This is best viewed as the 1960's Revoulutionary period from Women's Liberation Movements, Black Panthers, Sexual Revolution, to Woodstock.

* The Third Turning is an Unraveling —a downcast era of strengthening individualism and weakening institutions, when the old civic order decays and the new values regime implants. Old Heroes disappear, Artists enter elderhood, Prophets enter midlife, Nomads enter young adulthood—and a new generation of child Heroes is born. (3)
This is best viewed at the period of 1980s to 1990s where terms like latch key were used for the first time, heavy metal, and the Nation at Risk Report.

* The Fourth Turning is a Crisis —a decisive era of secular upheaval, when the values regime propels the replacement of the old civic order with a new one. Old Artists disappear, Prophets enter elderhood, Nomads enter midlife, Heroes enter young adulthood—and a new generation of child Artists is born. (4)
The 911 attacks marked the gateway to his period. Deficit spending, unraveling of financial institutions, and civil, political, or international unrest lead to the CRISIS.

There is no doubt, we have entered the Fourth Turning. The book has accurately predicted the future. For instance, the Neo-Conservative Revolution which led to our invasion of Iraq was suggested, the financial fallout of excess (credit bubble), and the pendulum swing to a candidate who more closely resembles a socialist now appears to be a matter of coming true in this next election. Still closer attention is needed in the area of generational archetypes which play a significant role in the formation and handling of crises.

This is a lot to digest, so I will simply recommend the Fourth Turning by Howe and Staruss as a must read!!!

Thursday, October 2, 2008

Fast Tracked... Back to Basics

Fellow Blogger at BigBigBet wrote an article titled that "The Fix was In" the other day. In it, he cited a number of moves inside the financial industry which clearly demonstrates at the bare minimum favors from the government. At the extreme end, collusion and malfeasance.

Truly Monday was a short-lived victory in defeating the Bailout Package. As the final vote tally passed the Senate by a healthy margin. Now, this bill will be sent back to the House where they can either:
1. Reject it by voting the bill down...
2. Add more to the bill... where it will be sent back to the Senate once again for approval...
3. Passed as is, and sent to the President for approval.

The original bill has gone from 14 pages to well over 350 pages! Some oversight was added... Feel good legislation was added like restricting CEO pay... FBI investigations into crooked lending practices... And enough pork was added to this bill to make Porky Pig squeal.

Of the Senate debates on this bill, there were a couple of legislators who spoke for and against it. Senator Mikulski (D-MD)promised that her additions to the bill would bring about more FBI agents who would seek justice for the scam artists who caused this crisis... Senator Reid (D-NV) in a real tear jerker read a letter from a struggling middle class family in his home state, citing that these are the kinds of people that will be helped in this legislation. Senator Mitch McConnel (R-KY) read a testimonial from a constituent who ran a business claiming that the line of credit for his business had gone up nearly 300% and he would not be able to make pay roll. He also was concerned about a retired public school teacher who was on fixed income... In the back ground, Senator Dodd (D-CT) smiled all along... for he knew this plan was shaping up as a big victory and his hard and soft money supporters would applaud him.

Sure there was some resistance to the bill. Senator David Vitter (R-LA) questioned the legislation as an act of socialism. Jim DeMint (R-SC) noted that the legislation was not solving the root problem of the financial systems problems which is the housing market. However the most impressive speech came from Senator Bernie Sanders (I-VT) whom up till yesterday I had never heard of. In his Independent Party attitude, Sanders began by finger pointing at Congress for the speed in which they passed such an incredibly large spending bill. Then came the well-deserved beating of the Executive Branch of government. Sanders knows it... and most American don't... but this rabbit (Bailout Bill) had been sitting in Bush's hat for a while... and Henry Paulson's hardball approach would be enough to push it through.Let the stock market drop close to 800 points to shake up the public, and watch them squirm. It is interesting that the bill had the "tax cuts" placed in it... the same monies that could well have serviced some of the debt created in this obscene bill. Sadly enough, I did not see leadership from McCain on this bill; and Obama's speech became more of a campaign stump... It could well me that both of these candidates lost my vote today! Not that they voted yes, but I was looking for a degree of leadership or independent thinking that was not visible.

Back to Basics
As an Eighth grade American History teacher, I go back to the foundation of this great country. At Lexington Green a rag tag militia of shop keepers and farmers showed up to defend their freedoms from an oppressive British government. The minutemen who showed up that morning to defend their rights were not standing at Lexington Green for the money... or fame... or fortune. What good is money when you are staring down the end of a British musket? These men stood for an ideal. The British would bully them any longer. Show me men of character and self-sacrifice, and I will show you a great nation. In the world of business, stock options, credit lines, and self-interest, we have forgotten the sacrifices that were made so long ago. To fight against one tyranny only to allow another type to foster its growth within our own borders is a slap in the face to our Founding Fathers. That ladies and gentlemen is the real crisis facing the United States.