Friday, May 22, 2009
The Terminator... The Market... The Politician Who was Not...
Arnold Schwarzenegger wanted to become President, but he had to settle for Governor of California, the fourth largest economy in the world. After leading a campaign to recall then Governor Grey Davis, then winning a special 2003 recall election against the likes of Gary Coleman, and adult film star Mary Carey, Schwarzenegger enjoyed a series of minor victories including an initiative to decrease license registrations. Consider the following economic conditions that helped propel California's wealth:
1. Silicon Valley
2. Ports to the Far East
3. Cheap labor from Mexico
4. Obnoxious appreciation in housing prices
However, Arnold is seeing the state of California crumble around him. One Californian summed it up this way. "Silicon Valley is waiting for the next great idea to come around." The housing market like much of California was based on easy credit. And let us not forget the ports which have been the center of California's success. When trade stopped, so did California easy money from the ports.
"California is looking at a budget deficit projected at more than $24 billion when the new fiscal year starts in July. That is more than one-quarter of the state's general fund.
This week, voters said they no longer want the Legislature to balance budgets with higher taxes, complicated transfer schemes or borrowing that pushes California's financial problems off into the distant future. In light of that, Republican Gov. Arnold Schwarzenegger has made it clear he intends to close the gap almost entirely through drastic spending cuts." (1)
It is often said that California enjoys being the innovator and trend setter for the rest of the nation. Should this be the case, the tremors in California may well stretch to other areas in the nation. California could suffer more than any other state in the Union... except for Nevada who is in a league of their own. These problems are not the fault of Arnold. More or less it is a combination of a weak state constitution that is easily amended, lobbyists who influence politicians, politicians who are easily duped, and a belief that good times would last forever. Parlay those belief with a good old dose of loony left politics and you have a recipe for disaster.
The Dow Jones finished another down week. For those of you who are keeping track, the last four of five weeks the Dow has finished down. Some analysts are calling this a consolidation period. Others are not so easily sold on the market rally. One analyst David Rosenberg suggested that all should “keep an open mind as to whether the lows from March will hold or not as we go into the second half of this year. I’m not sure where the buying power is going to come from.” (2)
In the most classic sense, markets generally test their lows before a new bull market can begin. The 1929 Chart shows that each test only brought a another new low. Buyer beware!!!
A familiar theme has been casino stocks based solely on discretionary spending. A short on WYNN last week reaped a handsome profit as share value dropped over 20% in the past week... I was happy to see that MCRI was down in sympathy!!! Still, I need another few dollars of drop in stock price by September...and think that it can happen. Should Wynn creep over the Mason-Dixon line of $40.00 consider another short with confidence. With a bit of luck, I will do my own bit to hurt the casinos when my wife and I celebrate our 10 year anniversary later this year. I have been utilizing the KO card counting system with a degree of success, but must familiarize myself with the nuances of 2,4, and 6 deck strategies.
Still though, United Bank's failure in Florida did little to move today's market. After all, it was only another $4.9 billion dollar hit to the F.D.I.C... and let's face it, who is keeping track of F.D.I.C. losses anymore...(3) Interestingly enough, someone is paying attention as the 10 Year Treasuries are losing a bit of interest. Rates are now at 3.4% and it appears that the Fed will make another purchase of T-Bills to sop up the extra T-bills that not one else wants. While I do believe our financial system is based on a high degree of genius and sophistication... we are reminded of the farmer who went to the well too many times found his well to be empty.
The Politician Who Was Not...
I would encourage all readers to Google the name Andrew Mizsak. He is from Bedford, Ohio... is a member of the school board... and for all intensive purposes is an aspiring politician. The dreams of politics came to a screeching halt the other day as police were called to his house during a domestic incident. It turns out that the 29 year old (who lives in his parent's basement) refused to clean his room... and furthermore threw a temper tantrum when his parents wouldn't get off his back. Upon police arrival, Andrew went to his room crying promising to clean it. I have definite thoughts about this incident, but will let readers draw their own conclusions. I hope that he owns his behavior, and treats this as a growing experience. This goes to show all readers that everyone..everyone has a public and a private life...