Lessons from Standard Oil... Big Banks New Power... College Football... A Conservative from a Conservative State...

Lessons from Standard Oil...
Nearly a century ago, the oil fields of western Pennsylvania gushed think black crude oil. Derricks were placed almost on top of one another, and oil ran so thick that it flowed out into the streets and local streams. Boom towns like Titusville and Oil City sprang up over night. However, it took an Ohioan by the name of John D. Rockefeller to reign in the awesome power of oil by controlling the only aspect of production that truly mattered... refineries.

Rockefeller was able to mater the refinery business... and use almost every crude by-product imaginable. He was also master of pinching pennies. As the story goes, the hands-on leadership of Rockefeller had barrel makers experiment with the number of soldering drops used to seal a barrel. Rockefeller calculated that if two drops of solder could be saved on every barrel, he could amass a fortune in savings.

Trust-busters and other progressive candidates like Teddy Roosevelt claimed that Standard Oil had become too big and too powerful. Later, the Federal government broke up the Standard Oil Company for uncompetitive business practices under the Sherman Anti-Trust Act. This created a number of smaller oil companies including Exxon, ARCO, Conoco-Phillips, Standard Oil, and British Petroleum.

It is interesting how times have changed. We are currently witnessing the creating of trusts in the financial sector. Smaller local and regional banks are being squeezed out. Yet big banks like Citi, Goldman Sachs, PNC, Morgan Stanley, and Bank of America continue to get bigger. Yet, we are more focused on health care issues which while a major component of every day life, will pale in comparison to the power that is being wielded by big banks. Should this course hold true, banks will emerge from this crisis with new found powers, and more importantly added leverage on Capitol Hill. (2)

As I have reminded readers, Founding Fathers like Thomas Jefferson warned against bank interests claiming "I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

Later, Andrew Jackson took the entire bank lobby to task. Even after he did not renew the charter of the Bank of the united States, Jackson claimed " I have always been afraid of banks." Not only did he fear the power of banks, and their ability to manipulate finances but more importantly, he knew that banks could also manipulate politicians and policies as well.

You heard it here first. Should Congress continue to press the Federal Reserve for an audit, there will be another financial panic... and you can take this one to the bank!

College Football
I kicked myself. Sure I went 1-2 with neither East Carolina nor Missouri covering. I was more disappointed with the fact that Missouri really should have been Boston College, as I wrote down the wrong selection for my reader. Regardless, I am currently at 4-2 for the season.

Jim Tressel played the last quarter of the game not to lost, as opposed to playing to win. I just knew that USC would score on the final drive... I have seen in happen too many times to teams like the Browns where one of John Elway's drives... an Ernest Byner fumble... a Brian Sipe interception to Lester Hayes... or whatever... My point is that the Browns are not the kind of comparisons I want to make to any team I follow unless you are the Bad News Bears.

1. http://www.bibliotecapleyades.net/sociopolitica/sociopol_rockefeller03.htm
2. http://online.barrons.com/article/SB125271768860105425.html?mod=BOL_hpp_mag

College Football... Have We Learned Our Lesson? Liar...

College Football Selections
East Carolina +7.5
Michigan +5.5
Missouri -17

For the latest line (Click Here)

Have We Learned Our Lesson?
If the goal of the U.S. government in general and Wall Street in particular was to re-inflate the bubble, then it is working. Sure, the markets might have been overly beaten down last March. Sure, pessimism was at its highest in March. But what has really changed? Are we as a nation doing business any differently? Is Wall Street more cautious today than they were in March? We all know the answer to those questions.

However, after every recession and economic downturn there are always a clear list of winners and losers. Whether it was a successful business model. A great product. Pure innovation. Access to government officials. Or, quite simply a premonition that a major shakeout was on the horizon, one thing is for certain. There are a number of sectors and businesses that will emerge stronger and more efficient from this crisis. Yet, we know that a number of losing businesses were saved as well. Stupidity, excessive risk taking, and lobbying kept a good portion of companies that should have failed into the pits of bankruptcy. Trust me, no one wants to see American businesses succeed more than I do. However, we are reminded that aide and propping often times do more long-range good that bad. (See McKinley's tariffs on textile imports... when the business was on its way out of the United States.)

According to Tim Geithner, there is a major re-structuring of Wall Street that is in the works. Dare he say the word reform? However, I believe most of the proposed reforms will be phoo-phooed by the likes of Barney Frank, Chris Dodd and friends. In the end, the true reforms will be lost somewhere in the Congressional Offices in D.C..

Liar
In a recent Townhall Meeting, Representative Steve LaTourette suggested that the Healthcare Bill will have a provision which allows coverage for illegal immigrants. I believe LaTourette is telling the truth. And while the Democratic Party is currently running the table in D.C., it is likely they will have their way in ANY kind of legislation.

The question is should a Congressman call the President a "Liar" during an address to Congress? If we were in Great Britain where Parliament meets, I would say yes. (Click Here for a snap shot as to the way the Brits. run their government meetings.) However, we are Americans. The Republicans do not have the same access to media outlets as the Democrats. I am certain it is a source of frustration. There is desperate need for fairness (an ideal of any democracy prevails at all time.) Yet, if you agree with the President or not, there is a time and place for everything. The truth must be told... The 5-10% of Americans who actually pay attention to political debate... those digest legislation... and those who can make an informed decision must stay connected to these political debates.

GMACs Candid Response to "The Rest of Us." ... China Syndrome... College Football Results...

GMACs Candid Response to "The Rest of Us."
Since our house is on the market, I thought it a good idea to call GMCA. This fine institution holds our mortgage. I was curious about our payoff figure if and when we sell our house. After that vital information was shared, I had a few questions I needed answered:

Question: If my house does not sell, am I privy to the government refinance programs?

GMAC's Answer: If you are referring to the Obama Loans (as we call them at GMAC), you must meet three criteria.

1. You must submit a letter requesting loan modification.

2. You must submit financial information which demonstrates economic hardship.

3. Our underwriters must agree that your unique financial situation qualifies for the Federal Loan Adjustment Program.

Should that be the case, there was little or no reason to carry this conversation any further. My credit score is in the 800s. While my income is not as high as some of the charlatans applying for the help for homeowners program, I was certain that I have no chance meeting the underwriting standards for loan modification. It seems as though the deadbeats are getting rewarded here, while they are in many cases keeping a home that they never should have bought in the first place... Go figure. Yet, I do see this as a plan aid banking and mortgage companies.

The China Syndrome
China became a bit more intriguing as the Communist country announced that there will a shut down of specialty elements. These are the same elements that are used in ceramics, cell phones, etc. Should China continue this degree of politics, you can rest-assured that this move will hurt China more than the rest of the world.

Since China is responsible for nearly 99% of rare earth mining, it does put those companies who specialize in those products subjects of interest. China will create pricing pressures on these materials. As a result, ceramics to cell phones will increase in price. Maybe it is time to consider a few companies which specialize in this mining area. As for the rest of China, FXI is probably the best way to short them. A "sluggish" growth prospect for the rest of the world means China will have to sop up their extra demand... or concentrate massive wealth reserves on infrastructure.

College Football
To those who followed my college football selections were treated to a 3-0 sweep.
Notre Dame was an easy cover. Connecticut did what it took to cover the spread against Ohio University. (Why does the MAC even have football?) And Army was an outright winner against Easter Michigan.

I hope to list three more complementary picks buy Friday.

G20... The Spanish Armada...College Football

This weekend's G20 Summit will meet a background of recovery. After all, world markets have rallied off lows, unemployment in the U.S. seems to have peaked, and many are tauting the effects of economic stimulus. Not completely convinced that stimulus is completely working, leaders will be a bit squeamish to turn off the spigot as of yet. Still though, there will be mild cause for celebration.

However, the collective group will address bank capital requirements just in case this "era of good feeling" wears off as soon as the stimulus money is gone. Lena Komileva, head of G7 market economics at Tullett Prebon, said officials will unite over the need to keep fiscal and monetary stimulus going for now, and "coordinate exit strategies later." Some media reports indicated there is friction among officials on those points.

"Amid ongoing uncertainty about the sustainability of the current concerted global upturn, focus will revolve around proposals for higher capital standards for banks and curbs on executive pay and bonuses." (1)

One needs only to look towards Spain, the sick man of Europe for a dose of economic reality. Spain has seen wave after wve of stimulus packages that are designed to build bank credit, improve infrastructure, and revive their economy. However, it appears that nothing seems to work unless you are a financier playing the market. As one blurb from Marketwatch suggested "Judging by the amount of road work clogging up Spain's capital city currently, with Madrid practically being unearthed, you'd be forgiven for thinking you were in the midst of a dynamic and growing economy.

However, that's anything but the case. Public works programs have been going on across Spain under the government's so-called "PlanE" bid to stimulate the bleakest economy in Europe, where the jobless rate hit 18.5% in July and is expected to top 20% in 2010 as a decade of growth driven by the now-collapsed housing market painfully unwinds.

Spain is in its fourth straight quarter of recession, with output dropping a sharper-than-expected 1% in the second quarter. Future growth prognosis range from cautiously optimistic at Moody's Investors Service to the downright catastrophic: "Spain is a disaster waiting to happen," says a note from Variant Perception, an institutional research house based in London." (2)

Spain has not been right since 1588 when the Spanish Aramda attempted to invade England and replace Elizabeth I. A great empire ebbed away until even the United States in its colonial period whisked away Cuba and the Phillipenes. With 18% unemployment, see Spain for what it is... a patient on life support.

Could the U.S. be in the same boat? Probably not. However, let's not kid ourselves that everything is peaches and cream as well. Place new capital requirements on banks, and I can almost guarantee that a tightening in credit will continue. Yes, enjoy the enthusiasm of this market... date it... milk it for all that it is worth... but do not marry it.


1. http://www.marketwatch.com/story/us-stock-futures-higher-with-jobs-data-on-tap-2009-09-04
2. http://www.marketwatch.com/story/with-highest-jobless-rate-spain-rallies-2009-09-03


College Football
Conn. -4 to Ohio
Army +5.5 to E. Michigan
Notre Dame -15 to Nevada

Teeter...Totter

Sherlock Holmes does not work at the SEC. The questions is who does? Today a blistering report was released that pointed out how security regulators missed red flags. According to Inspector General David Kotz "Despite numerous credible and detailed complaints, the SEC never properly examined or investigated Madoff's trading and never took the necessary, but basic, steps to determine if Madoff was operating a Ponzi scheme." (1) Now investors and Wall Street alike are facing a government that may want to go into punishment mode, or use financiers as a election scape goat for their own political short-comings. Of course, the real concern should now be that the government would over-regulate... As of now, I believe government officials are afraid to touch Wall Street do to its volatility... so tongue lashings and grand standing may have to suffice in the near term... down the road many reforms may get conveniently swept under the rug.

Interesting that the market has reacted so poorly the last three trading days. Monday, it was speculation that the market has come too far too fast. I believe the Tuesday theme ran something along the lines of the ripple effects from an over-valued China. Today, worse than expected employment numbers coupled with lower than expected factory orders put the market on its heels once again. I find it interesting that no news was bad enough to stop the market rally from March to August. Now it appears a more rational approach is besetting the markets.

Trades
Downward pressure on the financials has influenced both by C 9/5 calls as well as FAZ puts. Should the employment numbers be within reason... or better than expected, we could see a sharp move up.

SRS I own common and have considered adding positions to this one since it is trading so low. I ran a hedge with puts as well and will need a meltdown reminiscent of Chernobyl to make this one work out. However, I will maintain the approach of calculated risks for calculated rewards.

I am looking for downward pressure on UNG, SLV, and a may even look at BAC should it breech $15.00. It is not that I am cracked up about the market right now. I am not. I do think that successful trades can me made, but only if due diligence is done and individual stocks can make a run. I am certain that SP 500 funds will be in a holding pattern for a while.

Shorts are starting to look more attractive again. WYNN is hitting resistence as is AMZN and FXI. Keep those birds on the radar screen.

1. http://news.yahoo.com/s/nm/20090902/ts_nm/us_sec_madoff

Blowing off a Bit of Steam...

Greetings Readers,

Again, I took a hiatus from blogging due to a number of technical difficulties with my computer and then my monitor. They were remedied by the purchase of a new tower from www.tigerdirect.com. Later, I discovered that I needed a new monitor as well. This purchase was made at Dell where I was able to find a 19" flat screen monitor for $94.00 with taxes. Shipping is always "free."
It is good to be back, as I have missed updating this blog.

The market has been simply amazing. But, the economic data that seems to be fueling market sentiment is even more amazing...almost as if it is too good to believe. I do believe that a portion of that data has been manufactured... or at best analyzed through some of the rosiest colored glasses that are available. But who am I to argue at this point. I have taken a few lumps on the short side of things, and can truly appreciate the education I have received via Wall Street University.

I have a few shorts that expire in January... I will continue to see these as the "downside insurance policy" for the next three and a half months or so. I had at various times convinced myself that this rally was too good to be true, and in some regards have had to pinch myself when companies like AIG rally $11.00 in one day. I need not remind readers that this one was and still is on government life support. At best, this is a clear indication that Wall Street sees the worst is behind AIG... and let's face it, if there is another meltdown to come, Uncle Sam will be there to plug the hole of this sinking ship with more taxpayer money.

Hey, who am I to complain? I did make a few plays to the upside in C (currently up 50% from my purchase price). I also scored well on SSO... and let a couple of down days in early August spook me out of some even more significant profits... but heck, as the old saying goes, profit is never a dirty word.

Now, I am keeping my fingers crossed that the 9/9s on SSR and the 9/23s on FAZ puts can finish strong for me. In both cases I actually looked for some of the most volatile and financially sensitive ETFS, and saw opportunity with low risk loss... and possible home run potential upside. I will need a bit of help... Maybe Congress will back off the plan to audit the Fed... maybe anther Wall Street darling will have "better than expected earnings" or better yet, "narrower than expected losses."

President Obama may suffer his first political setback as it appears that his Health Care Bill... or whomever this bad boy belongs to these days could be in some serious trouble. All along my position has been one of economic responsibility... sure up Medicare and Medicaid... and help create a more efficient medical community. I am concerned that Pandora's Box will be opened with the current attitude in Congress. In one of his town hall meetings, Representative LaTourette admitted that the political climate in D.C. is the most frustrating he has encountered since becoming a Congresssmen over 10 years ago. He specifically noted the TARP, CAP in Trade, and now the Health Care Reform bill as points of frustration... and that the momentum of "Get-er Done" politics has been both irresponsible and outright dangerous. Additional amendments to bills of 1000 pages (see TARP) and a over 300 pages (see Cap in Trade) echo pork barrel spending in its most vile form. It is kind of funny to write about ridiculous spending bills. This evening I sat down with my daughter to read a school story about the Statue of Liberty. There was actually a collection between public and private owners taken to pay for the pedestal. Something that all Americans joined hands together to accomplish. When is the last time we have heard a whisper of working together... or saving in Congress?

Enough pontificating for now. I will return by Sunday with another article. I hope to return to a more scholarly format of quoting sources and analyzing economic trends.

Dollars for Dummies, The Las Vegas Experiment, Las Vegas Real Estate, Culture and Moralism 101

Dollars for Dummies
To call the Cash for Clunkers program a success is an understatement. A wildly popular program that takes gas-guzzlers off the road in lieu of newer fuel efficient cars has middle America buzzing with excitement. To be frank, I hadn't paid much attention to the program until two of my neighbors decided to trade in their "clunkers" for a new cars. Wiktoionary.com defines a clunker as a decrepit car. For those of you who want to get technical, decrepit is defined as worn and broken down by hard use. If that is the intention of the Cash for Clunkers program, than neither of my neighbor's cars fit the description of a clunker. Rather each car was less than seven years old... and neither had rust. However, each "clunker" got less gas mileage than the car that was purchased. I would not call the program a boon for automakers, while Honda, Hyundai, Toyota, and Ford have seen an uptick in sales, all automakers are well below their 2007 numbers. Scrap dealers such as Alcoa (AA), Metal Management (MM), or Steel Dynamics (STLD). Some grumblings echoed of Smoot-Hawley claiming that monies should only be spent on American made cars. Can anyone really name a car that is totally Made in America? Sorry GM and Chrysler, you will not be enjoying this feeding of public dole.

The Las Vegas Experiment
About 50 years ago, the mob financed Buggsy Siegel's experiment that became known as Las Vegas. It was a city that was built is the desert... a place which under any normal circumstances would be seen as valueless land.
Today Las Vegas is known as the most entertaining city on the planet... A city dedicated to hedonism... the good life... fun... and over-indulgence. Still though, everyone I spoke to in Las Vegas cited a marked downturn in revenue. It's not to say that the casinos are not making money... the casinos are simply making less which is requiring many cash-strapped organizations like LVS to seek any financing arrangements. Casinos are all vying for the high end gambler. This is the guy who thinks nothing of dropping a $100,000 on a game of blackjack. Here is a list of casinos who are completing for those gamblers and shoppers:
Mandalay Bay, The Palazzo, The Wynn, Belaggio, and Mirage
While the recession has really hit all social classes in the United States, we were reminded that companies like WYNN seem to be less prone to losing gamblers... Should the recession receive two or three indications of bad news, I believe any one of these can be shorted near their March lows.

Las Vegas Real Estate Market
I have friend who teachers school in Las Vegas. Clark County Schools pays him well. There are no property taxes. The state pays 100% of his retirement. During the latest real estate boom in Las Vegas, he purchased a home for $275,000. A three bedroom cement slab with no grass located in the desert. Today, his home is worth $125,000. A mortgage broker who bought a home across the street paid $349,000 for his and has seen a loss of nearly $200,000 in equity.

But there is a plan to take care of everything. The mortgage broker is going to do a "short-sale" on his home... and bailout on his mortgage note. He is actually talking to my friend to do the same thing on his home. Don't ask me how, but this could be the way that homeowners attempt to crawl out from under the mortgages of homes which have lost over 50% of their value.

In areas further from the Las Vegas Strip, the term "Suburban Ghetto" now strikes a chord as homeowners and speculators alike are finding someone...anyone to live in the properties... In some cases, homes that were purchased for over $300,000 are now part of Section 8 housing.

Culture and Moralism 101
Middle class values are simple when it comes to education. Work hard in school. Get good grades. Get into a good college. And get a good job.

According to one teacher in Las Vegas, those values can be thrown right out the door. "The kids in my class have parents who deal blackjack and earn $80,000 a year. A valet at the right hotel can make an easy $100,000. The average parent in a city like Las Vegas does not stress education because it is more about the hustle than it is about the brains. Street Smarts are what you need to survive there. Save the books for those who earn money to visit.

KO System
I gamble more for entertainment...but let's face it... I also play to win. Here are my success and failures in Las Vegas:
Sports Betting: 4-2 in

Blackjack: I lost more than I won. In each case, I was AHEAD in my winnings only to give them back to the house with aggressive play. I used the KO Card Counting System along with basic BJ Strategy. In Single Deck BJ a +3 count is the time to get aggressive betting...from raising the bet to doubling down. And that is where strategy failed me. I will re-evaluate my victories and defeats in BJ and look to ammend methodology that failed me.