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


AX said...

I can't believe there's optimism over another proposed stimulus plan. Didn't we try that once with dire results? Do people not realize still that it's just a cash advance on future tax returns, not free money? How many local and state budgets need to suffer before we stop giving the money away?

DCNorth said...

Overspending causes bankruptcies? Tiger Coach, I hope you called the papers and told them to stop the presses!

Unbelievable. The older I get the more I realize that there is nothing common about common sense.


AX said...

Don't fly blind DC! That's what th b-teamers on CNBC said this morning....why fly blind when there's a blueprint to bankruptcy. Hope all is well up north...

DCNorth said...

Hello Ax,

Flying blind? Man, we just got snow up here!...haha. I took Tiger Coach's advice and bought some BAC's, made a quick 45% and got out today. Still holding to the Ryland. Blueprint to bankruptcy? Not if the US government has its way with all the head fakes they are throwing.

Things are well up here, currency getting crushed by the US dollar right now. Had some guests over and they loved getting 20% off everything...sheesh.

Gentlemen, I hope you are doing well!

All the best,