The Economic Bibb - A Safety Net for Economic Drool

The Bibb Has Moved Again...

2009-11-12T12:37:00.001-06:00

This site has been all but dead for quite some time. If you read the previous post you know that I was fortunate enough to have been able to join www.commoditynewscenter.com and wrote there since last May. Now however I’m moving again…this is excerpted from my blog at CNC:

As you have no doubt noticed I have not been writing on a regular basis for quite some time. The reason for this is somewhat bittersweet and I’d like to take a moment to let you know what’s going on. Over the past few months I have been working diligently to re-brand the consulting firm that I have been operating since 2007. In that time I was able to create the “New” company Turnkey Trading Partners (www.turnkeytradingpartners.com). To give you a brief low down on what we do and the reason for our existence here is a blurb from the “About Us” section:

“Turnkey Trading Partners was formed by a group of highly specialized individuals with a combined 40 years of financial, regulatory, and marketing experience. We exist to help firms navigate the ever changing landscape of the financial markets so that they can focus on what they do best; trading. Turnkey Trading Partners utilizes its vast knowledge of the futures regulatory environment and wealth of experience within the fields of accounting, marketing, and regulatory compliance to enable firms similar to yours succeed. Our goal is to provide comprehensive turnkey solutions for all of your day to day operational needs.”

All in all being a blogger, analyst, commodity expert, or whatever it is you want to call me has been a great joy and success. I have gathered more fans and readers than I could have ever imagined the day I started the original Economic Bibb at blog spot. The opportunity to write for and be interviewed by major news publications was more than I could have ever hoped for. Furthermore, being able to speak with you via email and sometimes over the phone has been a true joy; I sincerely appreciate your loyal readership. However at some point the rubber always meets the road, for this is reality, and we all must make choices with our time.

Every man, woman, and child is afforded only twenty four hours a day while they are blessed to be on this earth. Unfortunately I can no longer devote a portion of my time to writing in the capacity that the Bibb requires. The consulting firm has simply taken up too much of my time and as a result I will be switching my focus towards writing several times a month on regulatory issues to support that business. The issues I discuss will be primarily related to the commodity and forex market space however so you may still be interested in what I’m thinking. If you’d like to follow me on this course change you can access my materials through the home page of my new site www.turnkeytradingpartners.com. However, if this type of literature does not interest you I understand and this is where we part ways.

Again, thank you so much for your readership and all my best for your future endeavors.
The Bibb.

The Bibb Has Officially Moved

2009-05-11T12:26:00.002-05:00

The Bibb is now officially gone...well from this location anyway. To continue following my writing please go to www.commoditynewscenter.com on a daily basis and click the Economic Bibb tab at the top right of the page. Once you get used to CNC I am confident that you will enjoy the site and it's content. More specifically, check out the financial charting and research information on the site. CNC is one of the only providers that I know of with free commodities charts, quotes, and market insight. Although not an equities site, CNC also has the ability to provide you with all of your equity market needs as well. Check it out, perhaps you'll like it better than Yahoo! or Google for financial research.

Click Here For Commodity News Center's Financial Markets Information.

Cheers,

The Bibb

What it means to be a libertarian

2009-05-07T12:46:00.001-05:00

The Economic Bibb is finally moving full time to the Economic Bibb section of www.commoditynewscenter.com.

To Access today's post "What It Means To Be A Libertarian" please follow the link to CNC.

Thanks for your continued loyalty, we wouldn't have made it over to Commodity News Center without each other.

Stressed Out!

2009-05-06T12:17:00.000-05:00

The Economic Bibb is finally moving full time to the Economic Bibb section of www.commoditynewscenter.com.

To Access today's post "Stressed Out" please follow the link to CNC. Thanks for your continued loyalty, we wouldn't have made it over to Commodity News Center without each other.

Enjoy your day!

It's Friday!

2009-05-01T10:41:00.001-05:00

The Economic Bibb is finally moving full time to the Economic Bibb section of www.commoditynewscenter.com.

To Access today's post "It's Friday!" please follow the link to CNC. Thanks for your continued loyalty, we wouldn't have made it over to Commodity News Center without each other.

Have a great weekend!

-The Bibb

Bitter On Twitter

2009-04-29T23:50:00.002-05:00

The Economic Bibb is finally moving full time to the Economic Bibb section of www.commoditynewscenter.com.

To Access today's post "Bitter On Twitter" please follow the link to CNC.

Thanks for your continued loyalty, we wouldn't have made it over to Commodity News Center without each other.

-The Bibb

Hog Heaven

2009-04-27T15:18:00.005-05:00

This story and other Economic Bibb articles will be slowly transitioning to http://www.commoditynewscenter.com/. To see this story, and others like it please review the Insight or the Economic Bibb sections of the CNC website.

It was about 5 years ago to the day when the world learned in February 2004 about H5N1; Avian Bird flu. “Bird Flu, The Next Global Pandemic?” the headlines read and the world was scared. Every night we watched the evening news and saw people throughout Asia wearing masks, all of whom were affraid to fall ill to H5N1. As of yesterday we started hearing about “Swine Flu” and the headlines were back “Europe Union Revives Pandemic Plan” and “WHO may raise pandemic threat level over swine flu” they read. Today the markets are reacting to these headlines but what do they really mean for you and your investments?

George Santayana said: “Those who cannot remember the past are condemned to repeat it.” In trying to apply lessons from the bird flu outbreak to the recent swine flu outbreak we are dealing with materially similar details. In both scenarios we have similar mortality rates, incubation periods, and levels of global fear that a pandemic is upon us. So based on this is it logical to assume that we will see similar results in the markets?

Taking a look back at articles written during the bird flu scare reveals some interesting information. One of my favorites is an article called “Templeton’s Mobius sees bird flu psychology” by Jonathon Boyd. In this article from March 15th, 2005 the following statements were made:

“In 1957-8 an Asian flu led to about 70,000 deaths, while in 1968-9 it was linked to about 45,000 deaths, while the outbreak of SARS between 2002-3 caused about 900 deaths, he says. The problem is these declining total numbers of deaths - as opposed to death rates of those infected - do not offset the level of worry people may have about the possibility of a new pandemic. This psychological impact could be greater than the actual immediate economic impact, Mobius says, although if, for example, tourists stop travelling to Asia it would have a real knock-on effect.”

Psychology? That’s interesting; especially when one considers that bird flu did little to affect the financial markets from a long term perspective. Taking that idea and exploring it a bit further consider these statements taken from the news today:

From the Wall Street Journal

“Unlike some countries, notably Russia, the EU won't restrict trade in pigs or pork. "Pigs can't receive or transmit this virus," says Mr. Madelin. "Countries that have imposed trade bans aren't following the evidence."

All the victims of avian flu caught the virus from birds. It never mutated into a form contagious between humans. Swine flu "is a much bigger problem, because it is a human virus," says Mr. Madelin. "Calling it swine flu is unfair to pigs."

And from Reuters

“The number of confirmed cases is changing rapidly as more information comes in. Hartl said the WHO now counted 40 confirmed swine flu cases in the United States. There are 26 confirmed cases in Mexico, 6 in Canada and 1 in Spain, he said. Britain subsequently confirmed 2 cases, and New York has 45 confirmed or likely cases, Mayor Michael Bloomberg said. Mexico has reported 1,600 suspected cases and says 149 people have died, possibly because of the disease. There are also suspected cases in France, Israel and New Zealand.”

Psychology or legitimate threat? Well, consider the following…

The normal “Plain Jane” flu has a typical mortality rate of between 5 and 10% depending on the strain of the virus and in the most severe seasons can get as high as 15%. Currently based on the most recent figures provided in the news there are about 2,000 confirmed global cases of swine flu and there have been approximately 150 deaths. Thus, so far, the swine flu has an estimated mortality rate well within “normal” flu limits at roughly 7.5%. Thus, when looked at statistically, swine flu has yet to even come close to the 25% level needed to be considered a pandemic.

Now, knowing the mortality facts from above, consider the way the global financial markets have reacted to the news of the flu thus far. Today across the world (generally) the following happened: The travel and hospitality industry was rocked, safe haven currencies, most notably the dollar and yen rose, drug manufactures were up, energy was down, most commodities were down, and most obviously hogs were crushed. With regard to hog prices falling does this even make sense considering that the disease is passed from humans to humans not from pigs to humans? It does, but only if people psychologically stop eating entirely safe pork.

As with the Bird Flu (which in my novice opinion was worse because it was passed from birds to people) the chance that swine flu is the next bubonic plague is next to zero. On top of this, as Mobius noted in 2005 and we saw in the markets today, the biggest concern appears to be a decrease in global travel due to the disease. Ironic, since virtually no one is traveling during the economic crisis anyway! So what are we worried about here; A late season outbreak of mildly stronger than normal flu? Expect things to go back to normal (whatever that is during this economic crisis) within the next couple of weeks, just as they did with the bird flu scare. Most importantly though, whatever you do, don’t believe the hype or get overly concerned until you do the quick math and realize the mortality rate has gone over 15%. When that happens it’s time to sell everything, hide inside, and pray you’re headed for hog heaven.

It's Friday!

2009-04-24T10:46:00.007-05:00

This story and other Economic Bibb articles will be slowly transitioning to www.commoditynewscenter.com. To see this story, and others like it please review the Insight or the Economic Bibb sections of the CNC website.

It's finally Friday and here are the headlines you should be reading if you're looking for good news:

Ford is finally heading in the right direction in "US Stocks Gain On Earnings, as Ford Motor, Microsoft Rally." In a week where GM all but announced it's bankruptcy, 10 days before Chrysler goes bankrupt, and much contention over the auto industry we should all be cheering for Ford. They haven't asked us for any money (yet) and hopefully they never have to. On top of this they are starting to make vehicles that people want and are beginning to show some signs of life. Of course they aren't' out of the woods yet but it's a step in the right direction. If you don't think Ford is doing good things take a peak at the new Taurus for crying out loud (I've seen it in real life and it's impressive, ask around):

Shortly the Federal government is going to release some of the results of the now infamous "Stress Test" which was run on our nations banks. I don't expect the results that come out of any statement from them to be useful but at least we won't have to hear about it anymore. Something to consider when you hear the results are the "stress" levels that were used in the "scenarios" tested.

The worst case scenario used an unemployment rate of slightly higher than 10% and anticipated the crisis ending by late 2009, they also assumed housing prices would fall 22% or less. How on earth is this the worst case scenario? Most of these assumptions are already true for crying out loud! If anything I'd say this is a best case scenario, not the worst. To prove my point consider that U-6 unemployment (real unemployment) is already at 15.6% and "government" unemployment; U-3 is at 9.8%. So what's good about this? What's good is that our banks are well capitalized under the worst case scenario, which is today. In this crisis we're taking it one day at a time and one more day forward is another day closer to the end of it.

Lastly, Apple is doing well as it has finally after only 9 months sold 1 Billion Iphone applications. This proves that with a good product you can still thrive in a down economy and should be a testament to all to be innovative. Also, today we learned that the Taliban is removing some forces from Pakistan and (probably) reducing the chance of all out war with a country that has nuclear capabilities and a very unstable government. That may be the best news of all because if a nuclear war broke out the economic crisis would be the last thing on our minds.

Be thankful for what you've got and don't long for what you don't, forget about the past, and look to the future. For tomorrow is a new day and we have the whole weekend ahead of us to enjoy ourselves.

Take it easy everybody and have a wonderful weekend.

Remember Setting The Scene?

2009-04-24T09:19:00.004-05:00

This story and other Economic Bibb articles will be slowly transitioning to www.commoditynewscenter.com. To see this story, and others like it please review the insight section of the CNC website.

Before I begin I want to say THANK YOU! to everyone who has been a supporter of this blog. I appreciate you as my readers and (as I have several times) apologize for the lack of consistency lately. Thanks for sticking with me, the future for the Bibb is looking up with CNC. My Friday post should be coming along before noon, until then consider this...

This is a reprint of sorts for some of you from an article that I wrote in January of 2009. I am republishing it in response to the headlines which hit the news today “US Role Questioned On Merrill.” The article represents that the State of New York and Andrew Cuomo have uncovered startling information about our federal government official’s actions in the midst of the banking crisis. Recall previously I wrote this piece as a screen play to represent what I felt may have happened at that time. Now it appears, this script may turn out to be a blockbuster. Before reading further remember that this is all a work of my imagination and how I had envisioned the takeover process occurring. Unless referenced, the comments and material here are from my mind and may not have a material basis in fact.

Check out the original story here and get refreshed on what may be coming to a theater near you.

Hyperinflation Is Not Coming Soon...Here Is Why

2009-04-21T12:00:00.015-05:00

This story and other Economic Bibb articles will be slowly transitioning to www.commoditynewscenter.com. To see this story and others like it please review the insight section of the CNC website.

Over the past several months the idea that hyperinflation will hit the United States in the near future has become increasingly commonplace. From mainstream economists and money men to Joe barbeque's cook out, everyone around the world it seems is on board with idea that the US Dollar is headed towards hyperinflation; everyone that is except for me and a handful of others.

Why You're Being Told Hyperinflation Is Coming Soon

Generally speaking, (this certainly is not an exhaustive explanation) the arguments for hyperinflation point to almost exclusively to the idea that the US Treasury is currently running its printing presses non stop to keep up with Federal deficit spending. Through this printing activity, hyperinflationists contend that there is an ever increasing money supply which will create a glut of US Dollars at some point in the future (they do not generally agree to a specific date though most are suggesting late 2009 to mid 2010). To an extent this idea is accurate, the US government is indeed running the printing presses and they are in fact increasing our money supply at an alarming rate. Inflationists often illustrate and support this through the use of the following charts taken from the Fed

Adjusted Monetary Base

M1 Currency

If you want to hear in detail what (arguably) the most famous of the hyperinflationists, Peter Schiff, was saying early in the crisis and is still saying take a listen here:

Now that you have been able to see the charts above and listen to the argument as presented by Peter Schiff, I'll briefly explain why I think the thought of US Dollar hyperinflation is currently misplaced.

Why You Shouldn't Be Concerned About Hyperinflation

There are three major reasons why hyperinflation will not be playing at a theater near you anytime soon:

1. There has never been a period in US history when home prices have been falling and we have had real inflation. Currently, prices on everything, everywhere (almost) are falling. Even more importantly in the US home prices are still plummeting, so unless there was some sort of abrupt and magic end to this global and domestic price free fall, statistically by all historical accounts, inflation is all but impossible at the current time or in the near future. If hyperinflation can't be happening right now what is occurring? Deflation - A sustained drop in the general price level of goods and services; read up on it because the word will be in the news more and more frequently in the coming months.

2. Hyperinflationists, in general, only point to one side of the monetary argument when they discuss the "printing presses." In almost all hyperinflationary arguments the discussion of the rate at which global wealth is being destroyed, relative to the amount of currency being printed is never fully reconciled. This is problematic to the hyperinflationists argument because they only take into consideration one component of monetary policy; creation of money not destruction. Institutions, small businesses, and average Joe's the world over have witnessed wealth destruction in the form of massive real and/or paper losses in almost all asset classes. This loss of wealth far outstrips the amount of money which has been printed in the US and points us further away from the idea of hyperinflation on a sheer creation replacement basis.

To illustrate wealth destruction I wish that there was a simple graph which I could use to represent the "print to destruction ratio" I am trying to explain. Unfortunately, given the difficulty of determining how much wealth has been destroyed (there is no government stat for this) the best we can do here is use this projection from the Wall Street Journal and the IMF. They say:

"The report [from the IMF] indicated a significant deepening and spreading of the crisis beyond the mortgage-related assets in the U.S. responsible for sparking the turmoil. The IMF now projects that worldwide financial losses could top $4 trillion through next year, with the estimated damage from U.S. assets alone increased to $2.7 trillion from a previous forecast of $2.2 trillion in January."

Recall form above (see adjusted monetary base graph), the money supply recently rose in the US from approximately $800 Billion to around $1.8 Trillion (Read: $1 trillion hot off the "printing press" which is indeed staggering). Now, according to the IMF, it is estimated that we have lost $2.7 trillion in the US alone; a difference of approximately $1.7 trillion dollars. Keep in mind that this does not include the amount of US Dollar denominated losses abroad.

3. When evaluating the risks of, and arguments for, hyperinflation (again this is not readily discussed) one must also consider the staggering reduction of consumer credit in the US and global economy. Over the past several months we have frequently heard our government officials refer to our banks as "not lending" and that being "the" problem. In fact just today Tim Geithner announced this (again) in response to questions asked of him (rightly) by congress about why the various rescue plans implemented do not appear to be working.

Now that you have looked at the wealth destruction component in point 2 above you can understand why, for these officials anyway, bank lending is a problem. To spell it out, credit is needed to reinflate the loss of US wealth now that we have a staggering aggregate reduction in real global capital. As I have said countless times in the past: If the problem was too much lending, then by definition, the solution could not possible be the same as the problem; more lending. So how does this relate to hyperinflation?

Due to the incredible level of credit contraction within the US, most of the money being put into the banking system by the government is not making it back into the economy. In general, banks are acting as they should by evaluating the overall lending risks in our economy and implementing tighter (more appropriate) lending standards. Under this regime few are willing to borrow and banks are also now unwilling to lend. Also under this ideology the printing presses could (in theory) run all day and nothing would happen because those who can afford to borrow money don't want or need it, and those who do need it can't qualify for it. If you are interested in this phenomenon, check out this video on the money multiplier effects of the fractional reserve system.

After watching it and understanding the "They Won't Lend" model you'll see why many are now suggesting the fractional reserve/Federal Reserve model should be abolished; however that argument is another issue all together.

With regard to "They Won't Lend" this time around a graph is available to show that the money going into banks is not leaving. Notice here, how in the past banks ran with their capital requirements at the bare minimum. In addition, also note that banks have added on about $800 Billion in excess reserve capital over the past year or so. Does that number or this chart look familiar to anything you saw above?

Excess Reserves

Regardless of what you believe inflation, deflation, hyperinflation, total collapse...you should know what strategies to use when investing your hard earned money.

If you agree with me and feel that hyperinflation is not likely in the near future and want to invest in a deflationary period you should: avoid debt and additional risk, consider renting or leasing where possible, and try to increase your cash on hand.

If you agree with the hyperinflation idea you should: spend as much money as quickly as you possibly can, go long on real estate and real property investments, get out of treasuries and low risk fixed income return investments, get into foreign currencies, go long commodities, and and check out the Bullion Vault to use Gold as Money.

In closing, based on the proven hyperinflationary and deflationary investment strategies I spelled out above which would you rather do right now? The way you answered that question should be the most compelling argument of all.

It's Friday!

2009-04-17T13:43:00.006-05:00

It's Friday and it's time for some afternoon good news:

For those of us in the Midwest let me say FINALLY! The weather this year has been dismal and the fact that we can open up our homes and get outside is a great thing. Make sure to take advantage of this, it likely will be snowing again by this evening...

Citibank, Goldman Sachs, General Electric, Bank of America, JP Morgan Chase, and Morgan Stanley all released better than expected earnings statements. On top of this the overall markets have continued to rise and things generally are much better than they were prior to March for investors. Though I don' t think we've reached the bottom of this economy and I think we are headed back down and hard, this may be a great time for some to earn back losses they had taken in the markets. Even though equities are rising, I would be careful to get back into a bear market rally if your assets are still primarily held in cash. Make sure to use your head and stay well read on what's happening in the gutturals of the economy. If you do that I can assure you not much has changed fundamentally and you may re-think why the economy is rushing forward with such exuberance. However, enjoy the rally while it lasts because for now this is a good thing and the market can always stay irrational longer than you can stay solvent.

John Madden retired this week!

What this means is that we'll finally be able to watch football and listen to commentary that makes sense and isn't glaringly obvious to anyone with eyes. Here are some examples of Madden's horrendous game time lines:

"Don't worry about the horse being blind just load the wagon."

"When your arm gets hit the ball is not going to go where you want it to."

"The fewer rules a coach has, the fewer rules players have to break."

"Hey, the offensive lineman are the biggest guys on the field, they're bigger than everyone else, and that's what makes them the biggest guys on the field."

"Real frontier-busting math explores new worlds, ... If you can communicate that experience, somewhere between math and uncertainty, life experience provides the balance.”

"They're goin after him like uh....uh.....sugar is on him or somethin"

"And on this play the LB hits the WR, great play"

"Boom, Tough Actin Tenactin!!"

For more Madden quotes and to hear how awful this man actually was as an announcer all you have to do is Google John Madden quotes. Good riddence! Here's to more enjoyable football this season.

Time Warner announced it would no longer be purusing capped internet and/or providing metered service. Yet another example that in technology you can't take away from people what you have already given them; in this case nearly unlimited internet usage. As a consumer I am glad to see that metered internet is not going to take hold just yet. Of course you could argue that some don't come close to using what they are paying for. In that regard I guess if I was using dial up internet I'd be mad too. However, for the majority of people as streaming media service gets more popular (Hulu, Pandora, or even just today Youtube announced it would stream TV shows and Movies) we'll need an ever increasing amount of broadband.

Don't think for a second that Time Warner's proposal was made because it was good for us as consumers. Time Warner is recognizing that our bandwidth use is going through the roof and it is under charging to maintain its network to meet use demand. This raises an interesting point and what I want to know is when people and tech companies are going to learn that you can't run a business and give things away in unlimited amounts for free. Take Skype for example, it's business model was designed around calls for free and revenue off of advertisements on it's call hub. That model somehow made the company worth $2.6 billion in 2005 when Ebay bought them. Today (this week in fact) Ebay is doing every thing it can to get rid of Skype through an IPO because it's unprofitable. Why is it unprofitable? Because they provide a service for free and can't make enough money to maintain the service and network to meet usage demands. Keeping that in mind I'd suggest that you take heed of this and do not get involved in the Skype IPO or with Skype stock in the future. Time Warner just proved once again that in the technology business when you give something away for free it's going to be free forever.

Have a great weekend everybody!

Goldman Cracks?

2009-04-16T10:25:00.008-05:00

This week Monday, on the front page of the Financial Times a story ran that said "Tarp Cop to Investigate Whether Banks Have Cooked Their Books." In the article the Tarp Cop Neil Barofsky said:

"I hope we don't find a single bank that's cooked its books to try to get money but I don't think that's going to be the case"

The former New York prosecutor said the decision to expand the Talf to encourage investors to buy distressed, or "legacy", assets from banks could put public money behind investments that were backed by fraudulent mortgages. "One of our strongest recommendations of the last report was: do not expand the Talf to buying legacy assets. If its structure is not changed considerably, it's very, very dangerous," he said.

"We know the triple A rating [ascribed to the securities by credit ratings agencies] was a sham. We could be buying securities that are backed with assets that we know were likely riddled with fraud." Mr Barofsky revealed at a congressional hearing this month that he was involved with "probably more than a dozen" investigations into possible wrongdoing and fraud. He told the Financial Times that potential fraudsters would pay attention when his team began seeking indictments. "Indictments can serve as great deterrents," he said.

Interestingly enough the very next day the Financial Times wrote another article "Goldman's Push To Repay $10 Billion." In that article the Times said:

The bank said that, pending government approval, it would use the $5bn raised through the sale of common stock to help pay back the $10bn allocated to it last year as part of the Troubled Asset Relief Programme.

Adding a touch of drama to its earnings announcement, Goldman released its figures late on Monday, after markets closed, rather than on Tuesday as originally scheduled. The announcement of the capital raising, dilutive to existing shareholders, sent the bank’s shares down slightly in after-hours trading following a day in which Goldman stock jumped $5.82 to $130.15. The firm’s $1.81bn of net profits marked a 20 per cent increase from a year ago, and a sharp reversal from the $2.1bn loss in the fourth quarter of 2008.

The performance was driven by a record showing in fixed income, commodities and currencies activities, which generated $6.56bn in revenues, more than double the total from a year ago. Revenues in Goldman’s equities business were $2bn, a 20 per cent decline from a year ago. Investment banking revenues, at $823m, were also off from levels of a year ago and late 2008."

Finally, one day later on April 15, the Financial Times had this opinion piece "Don't Set Goldman Free, Mr. Geithner." Here the author, John Gapper said a couple of things that struck me:

The bigger danger is the long-term precedent it would set. Goldman wants to bolt before Congress or Mr Geithner, who still operates as a one-man band while the nomination process for his senior staff meanders along, has the chance to change fundamentally how it operates.

Goldman is now backed by the US government. That is why Mr Blankfein wants to repay the Tarp money. Once it has repaid the $10bn, Goldman hopes to go back to paying employees what it wants, buying and selling more or less what it fancies and operating as before. He [Blankfein] is peddling an illusion. Even if Goldman repays the equity, the world has changed irrevocably because it is a government-backed enterprise. [Remember Goldman is now a Bank Holding Company] That will formally be true for a year at least.

As well as the preferred shares it [Goldman] took from the Tarp, it has raised another $28bn in bonds backed by the Federal Deposit Insurance Corporation and intends to carry on using the FDIC’s balance sheet.

This is what I was thinking and you should be considering:

April 13, Day 1 - "I knew the TARP plan, the lack of thinking, and lack of details, of the first bailout plan would turn out to be disastrous." I wonder if any major banks will be implicated in this?

April 14th, Day 2 - "Huh? I thought Goldman had $160 some billion dollars in cash? Why would they want to repay TARP money back today of all days? Wait a minute; Why did they take the tarp money if they were so well capitalized to begin with? What did they do with the Tarp money...huh, they didn't really tell anyone what they did...now they are making more money on riskier trading operations? Oh my gosh they took very cheap, almost free tax payer dollars, leveraged them up through risky trading, and tried to generate as much revenue as possible knowing they could always get more and were too big too fail! I wonder if the figures they used to apply for TARP weren't accurate? One day later and a stock offering to do it that's ironic?"

April 15th, Day 3 -"Wow - I didn't think of that! Now I get it! Goldman issued $28 Billion in bonds backed by the FDIC as a Bank Holding Company, then they traded $10 billion of our cheap, nearly risk-less, TARP tax dollars in very risky highly leveraged investments to earn $6.56 billion in revenue (65% return), then they decided to issue $5 Billion in stock to come up with an additional $40 Billion Dollars! Incredible.

What does that mean? It means that we as the tax payers put $10 Billion dollars at risk on Goldman and then they traded it in a reckless fashion (relative to the intent of the TARP). For this privilege we'll get our $10 Billion back, but we'll not be compensated on any of the risk Goldman took. Then they issued $28 Billion in debt which we again get the privilege of backing if they fail as a company; which they can't because they are too big and they are now "systemic".

So why is it very ironic to me that Goldman is paying back money a day after the Tarp Cop announces his investigation? If Goldman needed the TARP money in November 08'then became a bank in December 08'(doing reverse math from 12/31/08 through the first quarter 3/31/09) they should have had conservatively (162 Billion Cash - 10 TARP - 1.81 Net Profit - 28 Billion FDIC Bonds - 5 billion stock offering) $117.2 Billion, again approximately, in cash. With that much money why would you need TARP? The answer to me may be that Goldman's assets vs. their liabilities when marked to market made them insolvent as a brokerage at the time of the TARP offering. Knowing this Goldman had to have known that in order to survive the company would have to get creative, even if it meant taking more risk, to find a way to come up with another $40 billion dollars...the rest, as they say, is history.

Lasting Solutions Part III

2009-04-14T13:00:00.002-05:00

On March 23rd I wrote Lasting Solutions Part I and then on March 31st, I wrote Lasting Solutions Part II. Finally, today (a little later than I would have liked) it's time for Part III. If you haven't been following and want to catch up use the links above, otherwise lets discuss why I believe that our elected officials are not fit to lead.

I know that to make a statement such as the one above regarding the inability of our leaders to properly lead us as their people is bold; stick with me a moment and I'll explain. In October of 2008 the Wall Street Journal ran an article about how our Congress wasn't fit to make economic decisions related to the then "infant" economic crisis. The article stated:

"As Congress works on one of the most important pieces of economic legislation in a generation, a Washington research group has pointed out that more than 8 in 10 members of Congress don’t have a formal educational background in the business, economics, or finance fields.

The research by the Center for Economic and Entrepreneurial Literacy, which aims to educate the general public about finance issues, showed that about 14% have degrees in economics-related fields and just 6.7% specifically have an economics degree. More than 30% of members have degrees in politics and government, while 18% majored in humanities.

CEEL’s method of not counting law degrees excludes a total of 193 members, or 36% of Congress."

So according to this research we know the following: 36% of Congress has a law degree, 30% more have a political science degree, and at least 18% majored in the humanities. That means that roughly 84% of our leadership has a degree in (no offense to anyone with these degrees as they are important) something that has very little to do with the issues they legislate. Again, I'm not attempting to belittle any of these degrees I'm simply saying they are more often than not irrelevant to the issues that Congress decides on for the country.

Based on Congress's educational background it is certain that they can read our bills and they can write all sorts of legalese into them. They know the fundamentals of game theory, state and societal theory, and how to handle international relations in principal. They can also help to point out all of the plight associated with the human condition and then try to implement social programs to attempt to solve it. All of this is great but what I want to know is what they really KNOW about? So I rant.

Mr Congressman (woman):

Can you adequately answer complex questions about Banking and/or Finance? Do you know what mark to market accounting is? Do you understand GAAP versus International Financial Reporting Standards? What are CDS's? OTC Derivatives? Can you tell me what happens during gene therapy? How about what the medical differences between embryonic and adult stem cells are? Do you know how and/or why certain types of stem cells are more or less useful for medical research? Do you know exactly what it takes to build a bridge or highway? Do you understand the mechanics of operating an electricity grid? Do you know what it might take to construct wind farms across the plains? Do you know what a wind farm is? Is there enough wind to farm in the Midwest to make the project viable? Do you know how oil is drilled for and if it is or is not bad for the environment? How would you run GM or Chrysler? How would you not run GM or Chrysler? How would you run a bank? Do you know the pro's and con's of a fiat currency model and fractional reserve system? Have you ever run a business? Do you know about tax law and policy? Do you truly understand what the IRS tax code says? All of it? Do you pay your taxes? How does nuclear energy work? What are the benefits and pitfalls of this type of energy? What is a carbon credit? Who buys carbon credits? Do you get my point?

So if 84% of our Congress has a degree in something unrelated to what I would consider "Real" congressional matters what do we do about it?

We must eliminate the way the Senate, as well as the House of Representatives, is populated. To do this we have to again change our current thinking about the way we vote just as we did by deciding earlier to go to web based ballot casting. If you agree with my argument (that our leaders are not fit to lead) it is no longer acceptable to base the number of individuals allowed into Congress on a State's population or as a flat static figure without qualification. When considering the original reason for the populace process from day one, it was designed solely to allow for the most populace states to control the biggest portion of the vote on a bill. Through this process there is no specific consideration that actually qualifies anyone to lead or be knowledgeable about the choices they make for us all. Working off of that idea, the following points will further elaborate my thoughts as to how to restructure the voting process to get more qualified individuals to the decision making chairs.

Get More Qualified People Into Office

Working first through the larger and more complex House of Representatives model; rather than elect our representatives by state population we should make our selections by region. To show you an example of how this might work below is a map of our current state by state population:

Currently, based on this population, our delegates in the House are broken out like so:

As of today we have 435 members in the House of Representatives; how many will we have if we use the regional model? If we do not use population as a measure I would increase our number of representatives to 600. Then I would break out the number of representatives from each region as follows:

Western Region 150
Midwestern 150
Eastern 150
Southern 150

To get elected each representative would be responsible for campaigning in his or her respective region. Then, only constituents registered to each region would be able to vote for representatives running in their respective region. Identifying who can vote would be easy based on the qualifications outlined previously for voting via the web (see Lasting Solutions Part II). Through electronic voting a person would be able to select up to 150 representatives, but would be allowed to vote for as few or as many people up to that figure as they saw fit. After all the votes were cast then the top 150 candidates, determined by who earned the most votes outright, would become the representatives of the region.

Recognizing that the selection of 150 candidates is a tedious process, we would need to segment those running into groups for the ballot. I have decided to not speak about voters knowing the candidates because I do not believe the average voter knows the candidates now; this can not be amended in the adjustment of a process. So this is where we step up the "qualified to lead" criterion by creating groups based on qualification rather than party or geographic location as detailed below.

Break Down of the 150 Regional Representatives

Now that we have established that each region would be represented by 150 house members, we would need to eliminate party affiliations. The elimination of parties would mean no more Republicans, Democrats, Independents, Conservatives, Liberals, or anything else. We also would have to definitely eliminate straight ticket voting with this measure as well. By eliminating party affiliations and straight ticket voting people will (in principal) be forced to become more knowledgeable about their voting habits. This change would require at a minimum that a voter know the names of the people they are voting for, lest they pick people randomly. Most importantly though once we get all of the partisanship out of the way, we should be able to focus more on qualifications alone.

To do this, of the 150 person vote, the web ballot would include sections broken out as follows based on expertise only. Also of note, to be eligible in any of the following categories one would have to have an accredited college degree with no exceptions. This is not discriminatory, it is simply a metric to try and get the best and the brightest into office based on statistics. Furthermore, under the following metric, voters will be able to more readily identify people by "profession" through personal experience or relationships much easier than they ever could have through a party system.

So the bracketing would look like this:

30 Medical (any medically licensed)
15 Financial/Business (any)
15 Defense (Degrees from Military Academies only)
30 Engineering/Industry (Engineering of any type)
30 Tax (Only licensed CPA's)
15 Political Science (any)
15 Legal (only Lawyers)

Making it All Worth While and Managing What We Pay For

After making the process of getting elected harder we'd then have to focus on making the effort to get to office worth while. If not, just like anything else, the best talent will not be interested in pursuing a government position. The first thing that would have to be done is to increase the salary of a representative to $750k per year. We would also then create a $500k bonus for re-election (consecutive term on a 4 year basis) to incentivize congress to make the right choices and do the will of the people. Then to ensure that we don't waste our money on a bad congressional representative we'll also establish congressional term limits for the first time. To do this we would establish that a persons aggregate congressional eligibility could be up to only 24 years; 12 years in the House, 12 years in the Senate with no exceptions. We would also require all congressmen and/or senators to be re-elected on the same day every 4 years just as our president is.

As for the Senate we would apply all of the same principals with the following exceptions. Each State would be required to send 6 Senators (300), this would be an increase from 2 per state currently. These 300 would be selected exactly as their House of Representative counterparts above but using the following proportions:

1 (medical)
1 (tax)
1 (engineering)
1 (legal)
1 (political science)
1 (financial/business)

Senators would be required to have a masters degree or equivalent competency in their respective fields and would be compensated $1 million per year for their higher qualifications and the smaller number of available seats. They too would get a bonus for consecutive re-election and that figure would remain at $500k. Senators would follow the same protocol throughout the re-election and term eligibility process as well.

Make Comments, Work Together, Find the Mistakes

Of course there are many intricacies and "what ifs" that can be thought up relating to any of my Lasting Solutions propositions; I hope you bring them out. As I have eluded to this is not intended to be a comprehensive representation of how things have to be. It is rather a framework that I think could be molded and shaped to work properly to address the 3 major reasons I think the US government is failing its people. Please as usual interject with your comments and thoughts on any of my ideas as this is the only way to get to a truly refined and lasting solution. Stay tuned for the final segment of this framework in the coming days.

It's Friday!

2009-04-10T10:01:00.005-05:00

It's Friday and it's been a really challenging week for me which has affected the amount of time I've had to write for the blog. I recognize the quality of the content at the Bibb has gone down significantly over the past couple of weeks; it has not occurred however as a result of my throwing in the towel. Many unforeseen events have come up in my personal and business life which have materially affected my ability to post. I am hopeful however that next week we'll be back in the swing of things and it will be business almost as usual. So without further adieu...

One of the reasons that I have been pre-occupied and posting less frequently is that I have been working on signing a contract to write for and become an editor at Commodity News Center; a leading commodity news source. This past Friday we were able to come to an agreement on how the arrangement would look. As a result of this over the next couple of weeks you will see the Bibb transition and be incorporated into the CNC website. I am hopeful that this will be a great thing for the Bibb's overall exposure and an opportunity for you my readers to learn more about commodities while you are at CNC. Currently CNC has some information on this move but over time more content will be available with them. Check it out at http://www.commoditynewscenter.com/ at the top of the page you'll see an Economic Bibb tab.

This week Wells Fargo announced that it expected a $3 Billion profit for the first quarter of operation in 2009. This on it's face is a good thing but don't be fooled. Well's has only been able to be profitable because it has been trading your tax dollars in the markets to make profits. Since our government gave no restriction as to how this money could be used, as the cost of the funds is incredibly low, as no one is lending or borrowing, the only thing they could do to generate profits that large is trade your tax dollars. This is not all bad though, at least they aren't burning through our tax dollars, paying bonuses, buying jets, redecorating their offices, or doing some other sort of stupid thing with the cash. Just remember when you consider this profit that they are leveraging up cheap tax dollars and risk them in the market to make money, this is not exactly prudent stewardship of our handouts.

On Wednesday South Park rocked Kanye West's world with an episode pointing out how arrogant and ridiculous he is. West in the past has said the following:

"My greatest regret in life is not being able to see myself perform live"

"I'm the voice of my generation."

"I want to be a doper person..."

"I just can't get past myself"

"I'm to music what Michael Jordan was to Basketball"

"If I don't win Album of the Year, I'm gonna really have a problem with that. I can never talk myself out of [winning], you know why? Because I put in the work. I don't care if I jumped up and down right now on the couch like Tom Cruise. I don't care what I do, I don't care how much I stunt -- you can never take away from the amount of work I put into it. So I don't wanna hear all of that politically correct stuff. You put the camera in front of me, I'm gonna tell you like this. I worked hard to get here. I put my love, I put my heart, I put my money [into Late Registration]. I'm $600,000 in the hole right now on that album and you tell me about being politically incorrect?"

To Watch a clip of the show Google South Park Studio's and search there for "Fish Sticks". The episode was amazing [though politically incorrect] and as South Park is typically able to do may have finally humbled Kanye West's tremendous Ego. I am hoping that this will help to put an end to his stupidity and perhaps change the way a generation of kids look up to his arrogant ways. Thanks to South Park for pointing out Kanye's obvious flaws and giving us a great laugh this week.

The stock market has continued to rise...be careful however. If you have any evidence that you can send me that shows what has fundamentally changed within the global economy since the bear market rally began please forward it to me. Always remember the market can stay irrational longer than you can stay solvent and be leery of people calling market bottoms.

Lastly, this week is Easter and/or Passover for many across the country. This means that all of those who celebrate this time will be spending time with friends and family which is always a good thing. If you are one of these many enjoy the time with your loved ones and potentially the Friday you have or had off.

Have a great weekend everybody and stay tuned, next week the Bibb should be back to normal thanks for sticking with me.

The Bibb Is In the D

2009-04-06T12:36:00.007-05:00

On Friday I was fortunate enough to get a ticket to go see my beloved Spartans beat the UCONN Huskies in the Semi-Finals of the NCAA Tournament. I was even more fortunate to be able to stay through tonight to watch the finals. As you know if you have watched any sports television for the past week, MSU is playing not only for themselves but also for the entire state of Michigan and the City of Detroit. Having gone to Michigan State and grown up in South Western Michigan I have been to Detroit for some big sporting events several times over the past few years. Each of those trips, whether it be for the Super Bowl, playoff hockey, other MSU basketball games, major Tigers games, or any other event (auto show, concerts, dream cruise etc.) none have been able to bring as much excitement as Saturday's game.

As every college basketball fan knows, there is something unique about the sport that brings life to people; if only for a few hours at a time. It is this life which has been able to captivate a struggling city and the hearts of many throughout the country. I want to assure you that what is happening in Michigan is not just something made up on TV to sell the tournament, it is in fact real. I can tell you this whole heartedly because I was able to experience the change that this event and the Spartans have been able to bring upon the people of Detroit first hand on Saturday night. After exiting the stadium I was with a friend and we were approached by a homeless man. The man came up to us arms stretched to the sky and screaming ecstatically. He was saying "We Won! We Won! There is life in the D! The D is back! The D is back!" and then he came up to each of us and gave us a huge hug and we celebrated together for a moment before going on our respective ways.

Now I'm not saying the worst is over. I'm not saying that Detroit or Michigan is back for good. What I am saying though is that the Spartans are bringing life back to Detroit; if only a few hours at a time.

GO GREEN!

It's Friday!

2009-04-03T15:26:00.002-05:00

If this doesn't make you smile I don' t know what will! I'm sorry about the quality I can't find a better copy of this clip than this camera phone recording:

GO GREEN! Win it for yourselves, win it for us, but most importantly win it for Detroit!

Chinese Fools

2009-04-01T22:57:00.002-05:00

For those of you who couldn't find any additional information on the CIC losing nearly $200 Billion Dollars and no one caring....

Breaking News - Chinese Fraud!

2009-04-01T00:01:00.001-05:00

According to the China Times (use google translation):

BEIJING, March 31, 2009 - China's sovereign wealth fund booked huge losses in its overseas investments in the first quarter of 2009. Lou Jiwei, chairman of China Investment Corp (CIC), said that the roughly 2 Trillion Yaun ($200 billion USD) fund had adjusted its investment strategy last year by reducing stock exposure and increasing cash positions. In doing so Jiwei said the CIC had attempted to avoid "big risks and losses" but instead the losses only got worse.

"Generally speaking, contrary to our intentions, putting our positions into cash based assets appears to have allowed for a small number of individuals to control the majority of the CIC's investment funds. These individuals appear to have laundered this money into international shelters and the CIC's investment fund has been virtually destroyed. For the first quarter we are booking large losses on our external investments, and the funds financial position no longer remains sound. At this time it is estimated that we have lost approximately 1.8 Trillion Yaun ($190 Billion USD). We have grossly missed our targets set by the board of directors for the CIC in late 2008...this is a great dishonor to the Chinese people and we are working diligently to discover all parties involved in this matter." Lou said.

"(CIC's) financial performance is far worse than other sovereign wealth funds in the world," Lou said.

A source told the China Times earlier that the fund had made about 200 Billion Yaun ($10 billion USD) profit last year, realising an overall return ratio of 5 percent from both domestic and overseas investments. However at this time it looks like the fund is highly unlikely to make any money for 2009.

According to China Times sources within the CIC about half of CIC's money is tied up in Central Huijin, a financial company that holds the state's stakes in nine big banks and brokerages; the other half is invested overseas with about 2 billion Yaun ($200 million USD) or so in cash in CIC controlled accounts, and the remainder in the form of equity stakes in firms including Blackstone and Morgan Stanley.

CIC was created in 2007 to manage part of China's foreign exchange reserves for higher returns, and the fund has not published any official financial statements.

I don't know what to say about this event except that I am not surprised. This had to happen to a sovereign fund someplace at sometime. Where did this money go? Who controls it? Will it even matter? Does anyone even care at this point? I mean what is $200 Billion USD when that much money is thrown around like mere pennies these days? I'm anxious to see what the rest of the world will think when it reads this tomorrow.

Shiela Bair at the FDIC Lied To You

2009-03-31T23:17:00.002-05:00

Did you know that Shiela Bair, the Chairman of the FDIC lied to you? I didn't think so. The reason you didn't know is because your government didn't want you to know about what was happening within the FDIC. Let me explain.

Today congress approved a bill limiting credit card rates which on it's face seems like a good thing. What is not a good thing though is a little discussed rider placed in this bill regarding the FDIC. For the full story check out Bloomberg to learn more, but pay close attention to this barely mentioned snipet for our discussion:

"The committee amended the bill to include new borrowing authority for the Federal Deposit Insurance Corp. Under the bill, the FDIC would be able to borrow up to $100 billion from the U.S. Treasury, an increase from $30 billion now. The FDIC has said the additional borrowing authority may reduce a special one-time fee imposed on banks to replenish the deposit insurance program."

On March 4th in "To FDIC Or Not To FDIC, That is the Question" I included a quote from Bair about this same $30 Billion dollar credit line. At that time:

Bair rejected arguments that the agency should use government aid to rebuild the fund. The FDIC has authority to tap a $30 billion line of credit at the Treasury Department.

Bair--> "Banks, not taxpayers, are expected to fund the system,” Bair said. Asking for taxpayer support “could paint all banks with the ‘bailout’ brush.”

If I didn't know better I'd guess all the banks have now been painted with the "bailout brush" and the taxpayers are on the hook for up to $100 Billion instead of the original $30 Billion. So much for tax payers not having to fund the FDIC. What happened to the "special assessment" to cover the FDIC insurance fund through 2009? Why would the FDIC need a credit line extension if everything was "ok". So much for Bair telling the American Public whom she serves the truth about who now is really paying for the FDIC.

I ask you again to consider whether or not the FDIC is really worth saving? Read what I wrote previously to refresh yourself of my position and then ask: Will we pay more on a per person basis in taxes than we have to protect? Will the FDIC lead to moral hazard? Would it be better to privatize insurance on deposits?

If you still think the FDIC is good for your money maybe you should consider the fact that they are now also insuring other investment deposits, sometimes high risk deposits, and not just savings accounts. The most egregious instance of this insurance I could find can be seen on Citi Bank's retail Forex deposits; check out CitiFX Pro to see what they insure. Forex trading is some of the riskiest trading in the world, Citi Bank is insolvent, and we are funding the FDIC insurance on this trading!? Further to that point, being a part of that industry I know that many non-bailed out trading houses in this industry can not offer this type of insurance! This is a clear competitive advantage created by the FDIC for a nationalized bank; unacceptable when other non-assisted private companies cannot offer this feature.

Maybe Miss Baer could also take the time to explain to us how we as taxpayers are not paying for that?

Lasting Solutions Part II

2009-03-31T14:28:00.007-05:00

Last week I touched on the symptoms which have stemmed from the actual problem plaguing the United States throughout the economic crisis. I had written that the primary problems in America today were:

1) That our government no longer reflects the will of its people
2) That our elected officials are not equipped to effectively lead
3) That the government has become a business rather than a service

Today I will address part one of this problem, the fact that our government no longer reflects the will of its people. Obviously there are many things that go along with this idea that are inter related and have to be considered. As a result this is presented only to be the framework for change. It is my representation of the framework I would like to see considered and implemented regarding this issue; nothing more nothing less.

In order to properly allow for the government to reflect the will of its people I believe we must materially alter our voting processes. In particular the idea of maintaining write-in voting and having designated precincts is simply archaic. In principal the idea may have made sense in the past but currently it is very outdated and ineffective at getting our best and brightest into office.

Electronic Voting
For starters why is it that every facet of our lives can be controlled online yet we cannot get our ballots available electronically? All of the discussion about electronic voting primarily revolves around “voting machines” and this is what the three main arguments against electronic voting say:

Against
According to Bruce Schneier; who is opposed to the idea -“Technology adds more steps to the process and thus increases the possibility of error with each additional step, all of which are largely unseen by the voter. Put Murphy’s Law of “whatever can go wrong, will go wrong’ into play, and one can surmise that technology will most likely falter.”

A black box voting machine increases the opportunity for the creation of fraudulent voting machines and practices. This occurs because the software to run them must remain black box so that the public is not allowed access to the software. As a result fraud could go masked in the software and no one would know the wiser.

Voter accuracy will be jeopardized because a voter has no way of confirming a vote, and there is also no way of conducting a recount with direct-recording electronic (DRE) voting. DRE does not offer a “paper trail”, no verification record, and thus no scrutiny of the process if something needs to be recalled. They also do not certify that the personal information required of a user to vote will be safeguarded in the machine.

Why “Against” Isn’t Thinking Clearly
First off using a “Voting Box” is just a dumb outdated idea - We have access to all of our financial accounts online, our personal records online, all of our state records online, and even some of our federal records online; so why are we discussing the creation of a physical electronic ballot box? If all of this critical information is available and “protected” online, why can we not figure out how to protect our votes the same way? Voting online will also allow us to add flexibility to when a person can vote. We may not even have to have election day be just a day; perhaps it becomes election week? Regarding the “What can go wrong will” argument, why do people like Mr. Schneir even leave the house if they feel this way? It makes me wonder what would have happened if the postal service had said that about the implementation of email. We need to be flexible to adjust for changed times, this argument is the definition of inflexibility.

I understand the basis of the argument that we need a voting machine, because not everyone has computer or internet access. Ok fine, then set up centralized voting centers with lap tops and the internet for them to access and log in. If that doesn’t work then mail them an absentee ballot and send it in to be counted as usual. After those are tallied then just add the total to the number of votes received online.

As for the next argument, since we’ve already eliminated the need for a voting machine no fraudulent activity increase can occur within something that doesn’t exist. To the point of fraud occurring online, or in general for that matter, I would suggest that fraud can occur using paper ballots just as easily. We cannot make decisions based on the idea that fraud may occur, but should make reasonable efforts to avoid it from occurring. Under any system the process will never be entirely fraud free and that is something that we all just have to accept as some people will always deviate towards doing the wrong thing no matter what.

Lastly, with regard to voter accuracy being jeopardized by electronic or web based voting, the integrity of our personal records being lost, or the idea that a voter can’t confirm a vote let me quickly beat that down:

Hanging Chad- Here’s your accuracy with paper

If you want my personal information go here

and

Has anyone ever heard of a confirmation box?

A Brief Summary Of How The Process Might Work

So this is how it might work (our collective minds can make this work I promise you)

1. The government details what is required of a voter registration system and database online they will establish the URL http://www.voteusa.gov/. At this time they will also establish concrete success metrics for implementation which must be audited and adhered to on a yearly basis. After this the government will contract the creation of the system, based on the government specifications, to the private sector. The private sector would then build and manage the web portal as well as the national database for a minimum of 10 years or 2 elections before the contract comes up for bid again.

2. We start the search process now and set a deadline of 2 years to complete the project and test it before our next major election. The volunteers to test it will be unemployed people who are looking for work in our economy. The government will give them additional monies to answer questions about and use the system as a Beta group. The unemployed will also be used to do annual audits of the system on an annual basis for additional funding. If they choose not to participate they remain under the same unemployment guidelines as usual.

3. At http://www.voteusa.gov/ a voter will have to enter in the following information at a minimum:

-Social Security Number or Other Federal Identification number if you are eligible to vote in the US
- Drivers License Number or State ID number
- Date and county of birth if born in the US and/or country of origin if a nationalized citizen
- Anything else that we all have to identify us as eligible voters.

4. The system will require that users will be able to log in for elections at 12:01 the Monday of the week the election period starts and will be able to vote until 11:59 from anywhere in the world on the Friday the election ends. This will be possible online because voter registration will be identifiable by the information used to log in and the profile associated with that log in information. Additionally, adding a week voting period will allow for flexibility in when people vote, will allow people to change their minds if they get voters remorse, allows people to review their votes, and can allow for errors in the system to be reported. In the event there is an error in the system having a week voting period should allow for the problem to be fixed and will spread voting web traffic out over the course of a week rather than into a 24 hour period.

5. After the stroke of midnight on the Friday of voting week the voting database compiles all of the information it has collected over the previous week. It then creates statistical reports about what has happened, notes any irregularities that are noticed, and determines the winner of the election.

The online voting process does not have to be impossible and is not impossible. It does not have to be some huge debate, and it doesn’t have to be expensive. We can implement online voting, we can change the way we vote within the confines of our constitutional rights, and we can make everyone’s voice heard. All we have to do to accomplish this is be the change Obama wants us to believe in.

Stay Tuned

Watch and Learn

2009-03-30T09:22:00.004-05:00

This is all true and it's even worse in the United States. Nothing will change until we stand up for ourselves and make it change:

Hard choices need to be made, things need to fail, and for the first time in a long while we took a step in the right direction when Barack Obama said he'd pull the plug on GM and Chrysler within the next 60 days. If you have a free second write your congressmen and your senators, tell them something like this:

Senator or Congressmen,

When you have a free moment please visit http://www.youtube.com/. Once at the site search for "Daniel Hannan MEP: The devalued Prime Minister of a devalued Government". After the results come up please watch and consider Mr. Hannan's speech to the British Parliament from last week. Mr. Hannan understands what's happening in the UK and the situation in his country is not dissimilar to ours in the United States; in fact our situation is worse. I speak not only for myself, but also for your other constituents, when I say that my government is failing it's people and I urge you to make changes before it's too late. Please stop spending, please stop thinking the government is a solution, and please stop bailing out companies which are no longer viable.

Sincerely,

Guilty As Charged

2009-03-29T22:45:00.004-05:00

Alright, guilty as charged. I've been saying I would get more material up for the past few days but I haven't. I will work harder for you this week (assuming you've even noticed the absence of my writing.) As is the case with most things I have an excuse...

A Michigan State Final Four Berth in Detroit, what could be better for Michigan's blight than that?

Faithful Readers

2009-03-27T08:06:00.004-05:00

The content on the Bibb this week has been lite, this I am aware of. Never fear though, throughout the day the rest of my plan for changing American politics and the always popular "It's Friday!" post will appear. Look at it this way, you'll have a lot to read over the weekend!

Cheers and Go Green...Beat Kansas!

-The Bibb

Digital TV Converters

2009-03-25T11:27:00.005-05:00

Something struck me this morning on my way in to the office and I want to tell you what it was.

I wrote a few months back about the US Congress debating the change over date from analog to digital TV in "The Boob Tube." At that time the federal coupon program was running out of money and the idea was that millions of people would be left in the cold with no ability to watch TV. The thought was that unless the transition date was changed or more money was allocated for coupons there would be a national disaster (or something like that). Well anyway, today, I read an article about how the coupon program has been funded. The La Times is reporting that not only is the program now funded, but also that expired coupons can be turned back in for new usable ones if they have not been previously submitted to a store.

Based on this here was my thought process:

1. "Great, one of the dumbest programs to be spending money on has been funded; again. If you can't afford $40 dollars why are you watching or paying for TV?"

2. "Why are we worried about executive compensation while we fund up to $80 per family to convert from analog to digital TV at the cost of $10.4 Billion dollars? ($40 times 26 million coupons)"

3. "I wonder how many digital TV converters we've purchased for people that are now on ebay?"

A) Here is the list of eligible tv converters in the program: Eligible Converters

B) Here is the site for ebay: http://www.ebay.com/

C) Get a paper bag

D) Search for the model numbers eligible for replacement with your tax dollars. To make it easy try DTT900, DTT901, or DTA800B1. Of course not all of them on the list are on ebay currently, but remember ebay auction turnover is typically 10 or less days.

E) Puke in bag

Lasting Solutions Part I

2009-03-23T17:35:00.004-05:00

As I wrote earlier today, this will be the first of several pieces I publish over the next few days regarding my ideas for fixing America. I hope you enjoy my thoughts and would love for you to forward them on or improve upon my ideas if you feel so inclined.

Symptoms
The way I see it, and I clearly am not alone, we are approaching the current economic crisis all wrong. As with any problem one does not treat the symptoms, they are simply used to identify their cause. Then, once the problem is identified, one attempts to find a solution, implements a strategy for curing the problem if one exists, and ultimately attempts to stop the symptoms from persisting. In the case of our economy I feel that we are trying to fix the symptoms to our overall sickness rather than getting to the root cause of them. In this regard, attempting to cure any of our social problems will also not provide us with a lasting solution because each of these “issues” has shown up as a result of our greater disease.

The following events and ideas are commonly referred to as being the “cause” of our overall economic crisis. Depending on what and who you read the severity, the combination, and to the extent of which they are a problem is debated. (Note here that these are the most common root causes discussed and not a complete listing).

1) Unprecedented Losses within the United States Housing Market – To this one we all know that the collapse of the housing market has brought our banking system to its knees. I think no further explanation is required on this point as it has been discussed literally every day in the news for the past 2 years.

2) Easy Credit Extension to Under or Unqualified Borrowers for any Reason –Again, I don’t think further explanation is required. Simply, if a person couldn’t afford a loan for any asset they shouldn’t have been given any money to purchase that asset.

3) Statutory Regulation Regarding the Private use of Land -This one might need a little further explanation. Macro (Federal) or micro (cities/local ordinance) requirements regarding the use of private property which required specific spaces be used for specific types of development only (Zoned Residential, Zoned Industrial, Zoned Commercial etc.) creates artificial demand and increases prices. Free use of land is required for natural price progression and supply development and the absence of this feature in our society is altering true demand. Of course there are instances when a certain area can be protected or used for the greater good (ie a park, wetlands, wildlife preserves etc) however specific zoning was and is problematic as it forces demand up in eligible development zones.

Evidence of this principle can be seen in the outflows of residents from large metropolitan areas (high restrictions) to suburbs and other lesser developed metropolitan areas (less restrictions). In turn, artificial demand effectively raised the cost of living which ultimately increased lending exposure to banks. Support for this idea is readily apparent as areas with more regulatory requirements have suffered significantly greater losses than areas of lesser requirements (California, Florida, Nevada, high population density low development space etc.). According to the New York Time’s Paul Krugman in 2005:

“When it comes to housing, the United States is really two countries, Flatland and Zoned Zone. In Flatland, which occupies the middle of the country, it's easy to build houses. When the demand for houses rises, Flatland metropolitan areas, which don't really have traditional down towns, just sprawl some more. As a result, housing prices are basically determined by the cost of construction. In Flatland, a housing bubble can't even get started.

But in the Zoned Zone, which lies along the coasts, a combination of high population density and land-use restrictions - hence "zoned" - makes it hard to build new houses. So when people become willing to spend more on houses, say because of a fall in mortgage rates, some houses get built, but the prices of existing houses also go up. And if people think that prices will continue to rise, they become willing to spend even more, driving prices still higher, and so on. In other words, the Zoned Zone is prone to housing bubbles.

And Zoned Zone housing prices, which have risen much faster than the national average, clearly point to a bubble.”

If you are interested in this idea read through the 2009 Demographia International Housing Affordability Survey to see some evidence of this or read the New York Times’s Paul Krugman’s work on the matter. I digress here as this is a symptom not the problem so what’s the point in solving it.

4) Fraud at Mortgage Lenders, the GSE’s, our Major Financial Institutions – Again I think this one is pretty well understood and pretty clear from all of the coverage lately regarding the bailouts and stimulus plans.

5) The Action or Inaction of George Bush’s and/or Barack Obama’s Administrations (our government)- More specifically of Henry Paulson, Timothy Geithner, Ben Bernanke, and our Congress. – Some (including me) also say on this point that the very possibility that these people (through the Federal Reserve) can take action is a root cause. However, I do not think I need to elaborate more here either as this has been widely discussed.

So what is the Problem?
If the five points above are the symptoms to the problem, what then is the cause of these symptoms and ultimately the current economic crisis? In my opinion, the true problem is that our government no longer reflects the will of its people, is not equipped to effectively lead, and our government has become a business rather than a service.

The US government in its current form is too inundated with ineffective laws, rules, and regulations, which hamper us as a country. I believe the people in office care more about themselves and their careers than they do about the American public whom they serve. I think that lobbying and the media have far too much influence over the way our representatives operate and conduct themselves. Most importantly though, (generally) I do not think our elected officials are qualified to make the decisions that they are required to make on a routine basis; there is simply too much to know and understand. On all of these points I am not alone as the majority of US Citizens agree with me. I wrote about this and provided a lot of statistical support for this claim a couple weeks back in “The Revolution is Coming” so go there for additional insights.

The world is not as it was when our country was founded over 200 years ago and we would be wise to recognize this. Our democratic system has many wonderful features within/about it and has been an amazing asset to the United States. Of course it is only an amazing asset when our government has operated as it was intended to be operated; an ideal which I feel is no longer being adhered to. For this reason, as with all earthly things, when times change we must learn to adapt and change with them lest we become irrelevant. Our founding fathers recognized this and allowed for constitutional amendments to address required change. The need for our government to be changed over time is also why they provided us with a democratic model that allowed for the common person to determine, via a vote, the change they wanted to see in their country. At the time they allowed for a common vote it was assumed that the elected government officials we selected would have the best interest of their constituents at hand; however as above, I suspect this is no longer the case.

It is our duty as US Citizens to not have to rely on the government, to ensure we are able to maintain our freedom, and to fix our democracy when it is broken. Based on these ideals I think the ultimate cure to our current economic crisis is a total overhaul of our governmental system. Our government is required, our government is useful, our government needs to exist, however we need not rely on it, and it must operate with the best interest of its people at hand. Over the following few days I intend to lay out a plan for how I feel this overhaul should look. I am confident that I will not cover all of the details surrounding my plans, however I will create a framework from which to start, and that is the first step in trying to be the change you wish to see in the world.

Fixing the Problem

2009-03-22T22:24:00.003-05:00

Last week I briefly mentioned that I would touch on some ideas that I felt would be helpful in remodeling our government and helping us to emerge from this economic crisis. I had also stated that in general I try to be part of the solution rather than part of the problem. This week, check back frequently as I will be writing double time and there should be more posts than usual. I am going to try and comment on current events as I normally do while throwing in the steps I feel are necessisary to restructure the United States. I hope you enjoy my thoughts and I look forward to hearing your comments on my plans. Perhaps together we can come up with something great, perhaps together we can make a difference, but most importantly perhaps if we share the finalized plan with enough people it will get to the top and be recommended.

Make your week a great one,

The Bibb

It's Friday!

2009-03-20T09:39:00.014-05:00

It's Friday, it's been a long week, so lets try to get positive.

Last week the first thing I noted on Friday was that the market had gone up for the first time in months. This week was no different and we'll continue the trend, assuming the market doesn't tank out today.

As I said last week I'm not overly optimistic that this is a bottom and I still think things will get worse before they become better. However, anytime the index goes up that does help retirement accounts, raises optimism, and ultimately is a good thing. So we'll give a very (and I stress this) quiet golf clap to the market this week.

Also last week I discussed the fact that March Madness was getting into full swing. This we have to remind ourselves, again, is a great thing. Just watching the tournament unfold is a great joy for many people and it becomes even better if you can win money off of your bracket. Also economically speaking the event is a good thing for our struggling restaurants and bars. If you have a chance take a second, pick a team you like, and go out to a bar or restaurant to watch them play. You don't have to spend a lot of money if you don't have it, just get out and buy a soda or a beer if need be. Go be with people this weekend and it will make you happy to see others enjoying spending time together rather than watching the news and hearing more doom and gloom that you can't control. For those of you who don't like basketball, learn to; even if its just for one day.

If you think your bracket is the blueprint to the tournament but you don't have Michigan State going to at least the elite eight I "pitty da foo." Go Green!

For your consideration this is my bracket:

I'm crushing Barack Obama and his bracket as I'm sure you are too. That my friends, is a good thing. First off I want to know why he is participating publicly in "pick em'" anyway? Thank the good Lord he's not doing better than all of us, if he was than he's not thinking nearly enough about our problems. Is there not more on this man's plate then whether or not E. Tennessee can knock off Pittsburgh?

This week at the CanSecWest event on computer security, programmers, web security experts, and former hackers all met to discuss internet browser security. During their time together they decided to try and expose vulnerabilities in the commonly used web browsers Internet Explorer, Fire Fox, Safari, and Google's Chrome through the Pwn2Own competition. After one day IE, Fire Fox, and Safari had all been compromised, however Chrome was able to stand strong and did not show any vulnerabilities for the first 24 hours. This goes to show the level of competency within Google's programming staff and that a private company can create a solid product with few security issues just as well as the open source community can (Fire Fox). The only ironic thing here is that no one uses Chrome.

Also worth noting, this week we fired Citigroup's CFO; I can't imagine why that happened? If that doesn't make you happy nothing will. I just wish the process would have gone differently on his removal. I wish, since we own Citi, they could have had a national contest to determine who got to deliver the bad news to Mr. Crittenden. That's how I think we should handle poor decisions within the bailed out companies; through lynch mob mentality and national contests to allow a "real taxpayer" to fire a person as they see fit. Call up Simon Cowell I just thought of a new reality TV show.

One final thing to consider. This week the National Center for Health Studies announced that in 2007 more people were born in the United States than any other period. Yes, you read that right, more people were born in 2007 than in 1957, the pinnacle of the Baby Boomer period. I'm not sure if this is a good thing or a bad thing but it does bring some startling thoughts to mind about the future of this country. At the same time, this week we also learned our budget deficit will be the largest it has ever been in history at $1.8 trillion.

As a mental exercise try to conceive how long it will take this next generation of people to pay down the staggering debt we are creating today. When you consider the sheer size of a trillion dollars I think it's unfathomable. At the beginning of this blog I wrote about how much a billion was in "Counting to a Billion." Now we are starting to hear the trillion dollar number more regularly. When will the madness end? When will we stop bailing and utterly wasting money?

Here is the silver lining though; AIG paying those bonuses was the best thing that could have ever happened to us during this crisis. It has outraged people and it has brought to light the glaring problems with using bailouts. We all have known the bailouts were a bad idea but the AIG situation may be the icing on the cake that stops the insanity.

I won't rehash on the idea of a trillion, but I do want to leave you with something someone else wrote on the idea for consideration over the weekend. This comes from Page Tuitor and is not my idea or images, if you like it please visit them:

This is $100.00 USD our largest, in use, denominated bill

This is a standard bankers stack of $100's worth $10k. It's a 1/2 an inch tall

This picture represents stacks of $10k bills, at half an inch, proportionately to a human being. The amount shown here is $1 million USD.

This picture represents $100 Million

This picture $1 Billion

This picture a Trillion....or a million, millions, or a thousand billions....(yes they are double stacked)

With that have a great weekend everybody and try to smile! Always remember, no matter what, it's not worth it to worry about what you can not control.

Real Profits?

2009-03-19T06:05:00.002-05:00

Yesterday the Chicago Tribune reported that Chicago's 7th largest bank, Corus, was likely to be going out of business:

"Chicago-based Corus Bankshares Inc. disclosed Tuesday in a filing with the Securities and Exchange Commission that it expects its auditor to issue an expression of substantial doubt about the company's ability to continue as a going concern when Corus issues fourth-quarter results.

The bank holding company said it expects to post a net loss of $317 million, or $5.90 a share, for the quarter ended Dec. 31, compared with profit of $1.9 million, or 3 cents a share, for the same period in 2007. The company blamed the severe economic downturn and the corresponding deterioration in its loan portfolio for the weaker performance.Corus said in its late-filing notice to the SEC that it isn't certain when results would be completed but would issue them in its annual report as soon as practicable.

Also according to Tuesday's filing, Corus Chief Financial Officer Michael Dulberg has taken a leave of absence at his request, effective March 16. His decision isn't tied to any disagreement with the company or its outside accountant on any matter relating to operations, policies or practices, Corus said."

Here is evidence, not just conjecture, that makes me wonder if the news about Citigroup and the other big banks being profitable (which helped lift the markets) is really true. More on this later today, stay tuned. Also remember that today is the start of option expiration's, only this time it's triple witching, be on the look out. As I always say, anything, (unprecedented Fed announcement yesterday coincidentaly lining up with Triple witching?) yes anything, can happen just before triple witching.

give. FX is launched

2009-03-18T13:42:00.010-05:00

If you have read this blog for any amount of time you know by now that I am utterly disgusted with the way our government and financial institutions have operated over the course of the last few years. Simply put, they have not abided by the Golden Rule, and have not been good corporate or moral citizens to the world. So rather than continue to be negative about this, as most of the media and government officials have been, I’ve wanted to try and make a difference. It is for this reason that I write more upbeat positive stories on Friday, and why I try (a lot of the time) to offer potential solutions to the problems that I comment on. From speaking with many people about what's wrong with the country there is only one thing that I confident about that will solve our problems. I am confident that we all must recognize that the world currently needs a lot less finger pointing and a lot more solutions to overcome our dire economic problems. The unfortunate thing is these solutions are not going to come from THEM they must come from US.

Mahatma Gandhi said that in order to make a difference you must “Be the change you want to see in the world.” This statement has resonated with me deeply throughout the current economic downturn and has made me re-think what it means to operate a brokerage business with high moral integrity. I’ve thought long and hard about how to truly have a heart for people (ie following the Golden Rule), and the desire to help other’s when they fall upon tough times through brokerage. As a result of this thinking, based on my area of expertise, and Gandhi’s statement, my partner and I have decided to launch a new marketing campaign through our brokerage; We have decided to bring the world give. FX.

Briefly, we have designed give. FX to allow your trading through our firm to generate and affect change throughout our world. To do this, for every standard lot over the counter foreign currency trade ("Forex") you make we are dedicated to donating $0.25 USD to a foundation or not for profit organization which is working diligently to help people around the world. Our goal at give. FX is to provide you with the trading tools and market analysis you deserve while giving back to the global economy and those who are in need. Through honestly and transparency we are planning to be a brokerage that is truly a cut above the Wall Street mess that you all are so tired of reading about. Together it is our desire to try and attempt to make a difference in our world because if we won’t who will?

You’re probably wondering how we can afford to give up a portion of our revenue when other brokers may not be able to. The answer is simple; since day one we have structured our business with the intent of giving money back to charity efforts world wide. In doing so we have worked hard to operate efficiently and keep our internal costs down in order that we might be able to better serve you and the world. As for transparency, let’s cut to the chase about how we are compensated. We are compensated via a spread based rebate which is paid on your trading activity (the spread is the price difference between the bid and the ask of a currency pair). As for the spread you are offered through give. FX, we have not marked up our pricing to adjust for this donation. You will recieve the same rates on your trading through our firm that would be offered through our firm irregardless of our promise to give back. As an example, from our rebate we will take $0.25 USD off the top of our gross, paid, transaction revenue for every standard round lot that you have traded throughout the month; a round lot is represented as $100,000 in notional USD. (To read about all of the details on this model please see the Give section of our Website.)

It’s as simple as that.

Obviously this is a plug for our operations but I am hopeful that you will find that our goals align with yours. I am confident that enough of you agree with me and want to start working together to make a difference. If you like our model, have an existing Forex account and want to join the give. FX movement contact us today. If you don’t have an account and are interested in learning more about Forex trading please contact me directly or go to our website by clicking the image above. Together we can make a difference. Together we can try to be the change that we wish to see within our world.

If you are considering opening a Forex account and do not already know the risks of trading foreign currency products please continue reading. Forex trading involves a substantial amount of risk of loss and is not suitable for all investors. You should carefully consider your investment objectives and evaluate how much you can afford to lose before investing. Forex trading is highly leveraged and may result in a total loss of your initial investment. For a detailed listing of all the risks associated with trading please review the following risk disclaimers.

Ron Paul

2009-03-17T13:30:00.003-05:00

Ron Paul will be on Bloomberg TV in a few minutes (1:45CST) talking about why the Federal Reserve should be abolished. You might want to watch that because Mr. Paul is generally a brilliant man from an economics perspective and thinks very similarly to the way I do. (I'm by no means economically brilliant so don't think that's what I'm saying at all...).

To watch go to the following location:

Bloomberg TV - United States Version

MGM Mirage Forced to Bet the Farm

2009-03-16T22:32:00.010-05:00

In an ironic twist of fate, MGM Mirage, in order to avoid bankruptcy, is being forced to bet the farm. According to Bloomberg news MGM is said to be offering it's casino's as collateral on it's previously unsecured, Las Vegas debt.

"MGM Mirage, seeking to modify terms of its unsecured loans and avoid default as gambling revenue withers, is in talks with banks to pledge casinos as collateral, a person with knowledge of the discussions said."

“Talks with our financial partners are ongoing,” MGM Mirage said in an e-mailed response to questions. “We’re evaluating every possible option and, as we’ve said before, we will explore all serious and credible possibilities.”

I wonder what type of possible options MGM is considering? Lets take a look at another story that hit the wire tonight on the other side of the country. As if things couldn't get any worse for Detroit; The Detroit News is reporting that MGM is putting it's downtown Detroit casino on the block for sale.

"MGM Grand Detroit, completed in late 2007 at a cost of $800 million, is by far the city's most successful, commanding 42.5 percent of gaming revenue taken in by all three Detroit gambling halls this year, making it particularly attractive for potential buyers."

This, at first glance, makes sense as Detroit is probably the least likely place a casino could survive during this recession. However, the MGM Casino may be the only thing that is making money in Detroit these days. According to the Michigan Gaming Control Board, in February of this year, that one casino generated nearly $50 million in adjusted revenues as well as roughly $4 million in state and Detroit city tax receipts. In addition to this, through 2008 Las Vegas was down roughly 9.3% yet Detroits casinos combined were up by 1.3%. Shocking, but true. So for once this problem is truly not Detroit's, in this instance it's Las Vegas's. Lets read on to figure out what other options are on the table:

"MGM Mirage, the largest casino owner on the Las Vegas Strip, delayed its annual report on March 3 and said a plunge in earnings may cause a breach of the $7 billion senior credit facility, allowing banks to accelerate payment and trigger defaults. Auditors are likely to include “going concern” language in the filing, due by tomorrow. Such language suggests the risk of bankruptcy."

Ok so we know bankruptcy is not likely to be an option judging by the cash flow out of Detroit and the fact that MGM's Las Vegas debt is not yet collateralized. If the banks were to try and force the bankruptcy issue with unsecured debt they would stand to lose just as general creditors and unsecured bond holders would...that I don't think is going to happen just yet; next:

In another option proposed by Bill Lerner, an analyst at Deutsche Bank in Las Vegas, MGM Mirage may exchange a casino to an investor who buys out bondholders at a premium to the securities’ current prices -- though still at a discount to the bonds’ face value."

MGM Mirage may also seek to exchange or repurchase its bonds at a discount to face value, Lerner wrote. “This short-term action for relief would quell bankruptcy concerns, especially as we believe the company should have sufficient liquidity, plus significant free cash flow capability, to address 2009 and 2010 debt maturities.”

JACKPOT!

MGMMirage is betting the farm, selling out the profitable Detroit operation, in an attempt to get a competitor to purchase their "profitable casino" to free up cash flow. With this cash flow they then intend to finance their Las Vegas debt and bailout their now struggling City Center project. That sounds eerily similar doesn't it?

Rewritten:

The US Government is betting the farm on using bailouts, selling out it's profitable tax payers to fund operations that are losing money, and attempting to get China and the rest of the world to purchase their profitable tax revenue's through the acquisition of government debt. In doing this they are able to bailout their now struggling banks and free up needed cash flow.

That doesn't rally much confidence for the MGMMirage plan does it?

What Is Foreign Currency Trading?

2009-03-15T21:43:00.018-05:00

Recently it was brought to my attention that many of you may not fully understand what foreign currency trading actually is or how it works. As a result, being an ex-regulator and part of the Over-the-Counter Foreign Currency Trading Industry (FOREX), I wanted to take the time to address this question, properly explain where currency trading came from, and why it is important.

Before continuing on this is by no means a comprehensive listing of all of the factors, features, and risks of trading this market but it's a good start. If, after you read this material, you would like to learn more about FOREX trading, I would encourage you to review the information at my brokerage website for more details: http://www.givefx.com/

Origins
True, foreign currency trading originally took place between governments, banks, and other large institutions. From these initial players the "original" international currency trading markets began to emerge in the 1970's after the Bretton Woods accord. This accord changed the world's monetary standard from a fixed gold currency standard to a floating currency standard and required that currency prices be determined by the open market. As a result of this change, supply and demand for any given currency, and thus its value, was no longer influenced by any singular source.

After Bretton Woods, currency prices were/are determined through a vast array of economic and political factors. These factors generally fall into three categories: economic events and policy, political conditions, and market psychology. More specifically though, as these factors are continuously changing within the global economy, the prices of currencies are continuously fluctuating over time and are largely unpredictable. It is this unpredictability, in conjunction with large amounts of trading leverage, that creates a substantial risk of loss for individual investors within this market.

Size
According to many sources, institutional foreign currency trading is the largest financial market in the world. According to the Bank For International Settlements Triennial Market Survey Report of 2007 average daily global currency turnover is slightly less than $4 Trillion Dollars; for contrast the global equities markets account for roughly $3.2 Trillion in turnover. In addition to this, the global currency markets are also considered to be extremely liquid, are open nearly 24 hours a day each day of the week (22:00 UTC Sunday to 22:00 UTC Friday), and are available for trading in a wide array of geographically dispersed locations.

According to Euromoney FX, the largest private currency trading firms in the world are Deutsche Bank, UBS, Barclays, Citi Group, and the Royal Bank of Scotland. In addition to these financial institutions, insurance companies, hedge funds, large multinational corporations, and sovereign governments (through central banking) are also heavily involved in the sales and purchases of currency. Governments are involved in this market to finance and/or manage their respective countries economic policies and money supply where as private companies are partcipating to hedge risk or speculate on price movements (see Reasons For Investment below). Excluding governments, it is estimated that on any given day the ten largest private trading organizations by volume (global banks, insurance companies, large companies, mutual funds etc.) account for roughly 80% of the entire currency market's daily transactions. As a result the overall market is largely institutional and very few private traders are actually involved globally, although the currency market’s size is growing everyday.

As access to the internet becomes wider spread, a larger cross section of private traders have and will gain access to the retail over the counter foreign currency market. However, although speculative retail trading is growing, it is not likely that individual investors will materially change the percentage of institutional and government based volume of the FOREX market; as a result on a per trade basis, individual investors are virtually insignificant to global currency pricing.

Structure
Unlike most other forms of trading, the currency markets are largely housed off of an organized exchange. As there is no true central market place for currency price discovery, quoted prices are not necessarily fungible across all markets. Instead of a centralized dealing location (like equities or commodities traded on exchange), there are rather, a number of interconnected marketplaces. In each of these market places where trading takes place, there are then differing pricing models. This implies that there is not a single exchange rate but rather a number of different rates (prices), depending on what bank or market maker is trading, and where (geographically and as a participant in the market) that price is quoted. Although the market is fragmented, it is generally accepted that London, New York, and Hong Kong are the currency market centers of the world.

In practice, quoted currency rates throughout the world should however be very close. If they were not, according to modern market theory, pricing discrepancies would be exploited by arbitrageurs instantaneously. In this regard the price of a currency is always quoted in value relative to another currency (ie US Dollar vs. Euro, US Dollar vs. Yen etc.). As a result in any transaction there is what is called a “base currency” and a “counter currency”. Currently, on any given day, global transaction volume by currency pair is estimated to be:

(Percentage Based on Pairs Traded out of 200%, two currencies per trade)

Reasons for Investment
Large global companies, governments, and international banks originally created the over the counter currency exchange model to hedge against and/or attempt to influence (in the case of governments) currency pricing changes. Only recently (in relative terms) has currency trading become an investment arena which is used for speculative trading. Today, it is estimated that between 70 and 90% of all currency trades conducted are speculative in nature. This is because the majority of market participants have no desire to take delivery of physical currencies, do not require currency exposure risk management, and/or have no purpose for trading other than to seek a profit.

As previously noted above, retail investors (in general) have very little (if any) control over pricing in this market. Broadly speaking, retail investors also have very little exposure to currency price fluctuation on a day to day basis which would require them to hedge. That is not to say that some individual investors may not have a legitimate need for hedging currency exposure. However in most instances, an individual retail investor will be trading foreign currencies in a speculative manner.

Speculative trading, by definition, is the assumption of a risk of loss in the attempt to obtain a financial benefit. In principal the greater the risk of loss the greater the possibility of a large return must be. Within the context of FOREX trading the assumption of risk to an individual retail trader is very high, due to the leveraged nature of currency trading in conjunction with its unpredictability. How high are the risks? Some estimates suggest that a typical retail trader is likely to lose all, or a substantial portion, of his or her invested funds in less than 90 calendar days. As a result, this form of investment is clearly not suitable for everyone. That being said, based on the risk return profile of currency trading, there is indeed the possibility for substantial financial gain through this type of investment. However, although that possibility exists to make money, for most individual retail FOREX traders large gains are not not a typical reality or result.

Overall Investor Risks
Simply put if you are a retail speculative investor, over the counter foreign currency trading (FOREX) is one of the riskiest forms of investment available to you. You should not participate in this market with money that you cannot reasonably afford to lose and should fully consider all of the risks involved with investment in this industry. As noted in the structure section above, the currency markets are traded internationally and do not operate in a centralized location. The result of this is that there is very little, if any, global regulatory authority in the FOREX arena.

Within the United States retail foreign currency trading is regulated primarily by the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). The NFA has made available several investor publications related to retail foreign currency trading which outline the specific risks associated with this type of investment. If you would like to learn more about FOREX trading in the United States I would strongly encourage you to initially review their website and complete their Forex Online Learning Program. If you are thinking about trading in another jurisdiction I would encourage you to investigate which, if any, regulatory bodies are responsible for the oversight of retail currency trading in order to properly determine how markets are governed in your location.

The Revolution Is Coming

2009-03-13T15:04:00.004-05:00

"Despite the economic stimulus that Congress just passed and the budget and financial and mortgage bailouts that Congress is now debating, just 19% of voters believe that Congress has passed any significant legislation to improve their lives. While Congress's approval has increased, it still stands at only 18%."

"When it comes to the nation's economic issues, two-thirds of voters have more confidence in their own judgment than they do in the average member of Congress. "

"Only less than a quarter of Americans believe that the federal government truly reflects the will of the people. Almost half disagree with the idea that no one can earn a living or live "an American life" without protection and empowerment by the government, while only one-third agree. Over two-thirds of voters believe members of Congress are more interested in helping their own careers than in helping the American people."

"All of this is not just a subject for pollsters and analysts to debate. It shows fundamentally that public confidence in government remains low and is slipping. We face the possibility of substantial gridlock along with an absolute absence of public confidence that could come to mirror the lack of confidence in the American economy that the Dow and the S&P are currently showing."

Taken From The Wall Street Journal Today; Obama's Poll Numbers Are Falling to Earth (<--Click Here To Read)

I want Barack Obama to succeed, I really do. I want the Presidency and the United States to prosper and I want our economy to recover. However, why, if we all feel the way we do, are we allowing this to continue happening? Do we not live in a Democracy? Do we not live in a country that was created by over throwing government injustice and tyranny?

I, as apparently you are, am disgusted with the United States Government. This statement runs from Reagan forward and includes Democrats as well as Republicans. Politicians are all the same and they have ceased to be useful or effective at running our country. Stay tuned next week and I will layout an idea for restructuring our political system.

It's Friday!

2009-03-12T20:42:00.009-05:00

It's Friday and it's time for some good news.

Although I am not of the opinion it will last...

...the stock market had an up week for once (assuming it doesn't fall off a cliff later today). This is the first up week we've seen in months and 401k''s and retirement accounts finally got a little bit of relief. As I said, and have written about recently, I do not think this rally is sustainable, however it's Friday and the market moving up instead of down is certainly a good thing.

Citigroup, Bank of America, and GM have all said that they will not need more government assistance this week. I am skeptical of these claims though given the forecasting track record of each of these companies. However, today is not for pessimism; the fact of the matter is they aren't clamoring for more tax payer money this week and that in and of itself is a good thing. I hope congress has "minds like an elephant" (I've never understood that one, are they really that smart?) and remembers these statements for the foreseeable future. If any of these firms come back on what they have said this week the response should be "The bailout train reached the end of the line during the week of March 9th, when you said you didn't need anymore assistance."

The World also was relieved of a certain amount of anxiety this week when Bernie Madoff plead guilty to his crimes. I'm so happy that Mr. Madoff didn't steal more of our money by pleading not guilty and forcing the state to present a case against him. That process would have taken years and cost us as tax payers millions upon millions of dollars to sort through in the legal system. Now the healing process can finally begin for so many who were hurt so badly by one of the greatest crimes of all time. I am a bit saddened however about the uneventful nature of Madoff's confession. At times when people are clearly guilty of crimes (or if a conviction is a near certainty) I wish they would do something creative. I'll share two examples of what would have been more fun:

Example 1
With regard to Bernie Madoff he should have plead not guilty. Clearly he is guilty but our system would have allowed for him to plea however he and his attorney's felt was best for his situation. Then after pleaing not guilty he should have used the media spot light on him to make a statement regarding his innocence. He should have said "I am not guilty of these crimes. The SEC, FINRA, and other regulatory bodies affiliated with my various businesses forced me into this position. They allowed my success and aided and abetted me in my crimes. Tremendous pressure was put on me to keep this crime and this scheme running for so long; but do not be foolish and believe I was able to do it alone." Then he should have walked away from the microphone, went back to his seven million dollar penthouse, hung out with his wife, and watched the country investigate his claims for the next few years. That would have been exciting AND would have launched an investigation into who, if anyone, in the regulatory industry assisted in hiding his heinous crimes for so long.

Example 2
Although Rod Blagojevich has pleaded not guilty to his crimes and the hoopla surrounding his federal inditement, senate appointment scandal, and impeachment have all faded I wish he would have done the following. Prior to his impeachment, while Blago was still able to appoint a senator, which he did in Roland Burris, he should have played his cards much differently. I wish he would have simply appointed himself to the Senate seat. I mean why not? He was clearly going to be removed from office and his political career as he knew it was over anyway. Regardless of who he appointed the country was not going to respect his selection anyway. What would we all have done had he dropped that one on us? I know what I would have done, laughed.

Lastly, it's finally March and the Madness is about to begin. The NCAA Tournament is one of the United States most loved sporting events. It is estimated that the event alone brings in well over $6 Billion dollars in direct revenue, and the measurement of economic activity related to the event (bar and restaurant revenues, merchandising, gambling including office pools, etc.) is nearly unmeasurable as well as unfathomable. This is a good thing for the economy and for our spirits as most of us love watching college kids play like there is no tomorrow. Just last night one of the greatest games in HISTORY occurred when UConn played Syracuse in the Big East Tournament.

If that is happening before the actual Tournament begins just imagine how crazy things will be in a weeks time? If you haven't caught the madness yet get on board and start doing some research. Check out http://www.justin.tv/, Real Time RPI, and ESPN because we all know that you're going to be handed an office bracket sheet soon and want nothing more than to have bragging rights over your co-workers for the next year.

Who Watches The Watchmen

2009-03-12T10:12:00.005-05:00

I wonder if anyone in our Government has seen Watchmen yet?

Apparently not...

Cartoon by Jerry Holbert

Bear and Flag Pennant Finale

2009-03-10T23:26:00.012-05:00

If you have been reading regularly there have been several posts about Bear Flag and Pennant market theory over the past couple of months. To catch up the posts can be found for review here:

February 5 : Bear and Flag Pennant

February 10: Bear and Flag Pennant II

February 17: To Infinity and Beyond

February 25: Bear and Flag Pennant III

"From February 10th, 2009

After this table, in the previous post, I gave a downside prediction range on the S & P 500 index of 640 to 670. Based on how the market is reacting currently, and the way the downside run on the pennant is flattening I am more inclined to think that the run down (should it continue; I think it probably will) could only reach the 670 level. Often times in downturns the market hits resistance, and then rallies upwards, before continuing downward further; an example of this took place on Monday, February 23rd. The overall trend here is still down though and I doubt highly that any corrective move will break the 820 level in the pennant's base. If that were to happen this example of a pennant and theory would be broken until another incident occurred in the market for analysis."

This is the chart from of the S & P Index from the last update through today, the finale of what appears to be a nearly perfectly executed Bear and Flag Pennant theory run. (I used a line graph to make the points very clear this time).

Compliments of www.stockcharts.com

To recap: The original run down started at ~1275 and went to ~900 to make the first part of the pennant (Purple line). Then we identified our bear flag which indicated that the theory might hold (see red lines). After this our secondary drop of nearly half the initial move started from the lower trend line at an index value of 820 (see purple line). Finally, today we had our first strong push back up from approximately 667. If you read the previous posts you will have watched a perfect example of a bear and flag pennant occurrence unfold. Of course, as with any market theory, this model will not always work it just happened to this time. If I had to guess I'd say in this economy the overall bearish sentiment in the markets will reign supreme; thus we have not hit a bottom yet. If I had to guess we'll probably run up again to around 750 and then come back down hard again. Ultimately, as with any investment decision, if you are thinking about trading always remember that this stuff is just a theory and understand that the markets are risky and incredibly unpredictable right now.

What Can Tim Geithner Do Now?

2009-03-09T21:14:00.005-05:00

David Smick, writing for the Washington Post ran the following article entitled "Tim Geithner's Black Hole." I don't typically do this but I liked his article so I want to reprint it and add some comments. I know how annoying it can be when writers do this, but I enjoyed this read and I think Smick (for the most part) "gets it" yet fails to ultimately say what should be said, so I'll do that part for him:

"Pity Barack Obama's economic advisers. The blogs are now demanding their scalps, and Treasury Secretary Tim Geithner and his colleagues face a nasty dilemma: There are no solutions to the banking crisis without extraordinary political and financial risks. Thus, they have adopted a three-pronged approach, delay, delay, delay, in the hope that somebody comes up with a breakthrough. This is in fact what policy makers have done and it is wasting tax payer money everyday. There is a reason the "blogs" want their heads (me included) and so should you. They have acted irresponsibly and have not been willing to take the bold moves or make the tough decisions we have needed since late 2007.

Here's the problem: Today's true market value of the U.S. banks' toxic assets (that ugly stuff that needs to be removed from bank balance sheets before the economy can recover) amounts to between 5 and 30 cents on the dollar. To remain solvent, however, the banks say they need a valuation of 50 to 60 cents on the dollar. Translation: as much as another $2 trillion taxpayer bailout. Here Smick is right on in saying the system needs another $2 trillion or more (I'm on the more side) dollars to become solvent again. In addition he raises a good point here in that the "ugly stuff" does have a value; I think we easily forget this. Ultimately though this solvency difference is precisely the reason why we should want our elected officials heads. Seeing as the depression will not end anytime soon we most certainly will have to throw more good money after bad. Our officials put us in this position by not acting appropriately from the onset of the crisis.

That kind of expensive solution could send the president's approval rating into a nose dive. Consider: $2 trillion is about two-thirds of the tax revenue the federal government collects each year. The logical alternative -- talk show hosts' solution du jour -- is to temporarily restructure or nationalize the banks and leave taxpayers alone. Remove the toxic assets, replace management and cut the too-big-to-fail financial dinosaurs into smaller, nimbler entities. Then reprivatize these smaller banks and let the recovery begin. This will not work and is not a viable solution. First of all as I presented in "Why the Nationalization of Our Banks Won't Happen" there is too much vested interest in the banks to wipe out shareholder equity completely. Secondly, after choosing to bail the banks out our course was set because choosing to nationalize only wastes more money than we already have spent at this point. Lastly, the Government could never unwind the entities properly to separate them into appropriate smaller units; only a private institution could do this. Smick explains this further.

Oh, if it were that simple. I suspect Obama's advisers would like nothing more than to dismantle an irresponsible firm such as Citigroup. They are afraid to do so, for one reason: All the big banks are connected to a potentially lethal web of paper insurance instruments called credit default swaps. These paper derivatives have become our financial system's new master. The theory holds that dismantling a big bank could unravel this paper market, with catastrophic global financial consequences. Or not. Nobody knows, because the market for these unregulated financial derivatives, amounting potentially to over $40 trillion (by comparison, global gross domestic product is now not much more than $60 trillion), is the financial equivalent of uncharted waters. I will vote and stand on the "not" on this one. Yes losses will occur, Yes some institutions will be destroyed, Yes the choice is difficult but it must be made. When will the madness stop? The United States tax payers have now spent over $8.5 trillion and more is needed. Someone has to pay for the problems and it should be those who participated in OTC Credit Default Swaps, not tax payers. Unfortunately there is more to this than Smick touches on; the FDIC can't handle a failure of "systemic proportions" so we bail. See "To FDIC or not to FDIC." If you saw 60 minutes last night you heard Shiela Bair say and I paraphrase "I cannot discuss Citi Group because it is still a viable company. However I would suggest limiting the size of our banks because the FDIC cannot handle the systemic failure of a large banking institution with a full gambit of financial products and offerings. The FDIC insures banks not full fledged investment companies and broker dealers."

Geithner has reason to be terrified. He was part of the Henry Paulson-led team that underestimated the devastating global-contagion effect of the collapse of Lehman Brothers. Geithner won't make the mistake of underestimation again. Geithner also knows that the mood in Congress has changed. Were a global financial brush fire to break out as a result of bank restructuring or nationalization, today's populist Congress might just let it burn. Congressional anger is likely to intensify when policymakers realize that credit default swaps demand a stream of premium payments like a life insurance policy, not just a payment due at termination. And recent signs indicate that firms such as Citigroup, in recycling their taxpayer bailout funding, may have helped other financial firms, including some in Europe, meet these payment obligations. This is what happens when you force congressmen who know literally nothing about economics to make split second decisions over financial bailouts and government aid. They like us have a right to be angry because many of them do not have financial backgrounds and have relied on Bernanke, Paulson, Greenspan, Geithner, Bush, and Obama for guidance and advisement. I disagree with Smick here though when he says that Lehman was devastating globally. The failure was bad globally, but it was not devastating. We all woke up the next day, went to work as normal, read about the billions of dollars lost or wasted, and watched the stock market fall just as we do every other day. Pumping more money into Lehman would have saved it no more than Fannie, Freddie, Merrill, Bank of America, Lehman, AIG, General Motors, Chrysler, or any other institution we have "saved."

In addition, Geithner worries that because the troubled insurance giant American International Group (AIG) is a conduit for the banks' use of credit default swaps, a collapse of AIG (as an unintended consequence of dismantling the big banks) could be catastrophic. AIG's more than 300 million terrified holders of insurance-related investments and pension funds, who have investments totaling $20 trillion (U.S. GDP is $14 trillion), could suddenly rush for resumptions -- the equivalent of a run on a bank. Geithner would face a worldwide insurance collapse to accompany his global banking collapse.

Or again, maybe not. Nobody knows.

Investors are going to rush to get resumptions regardless of what we do to bail out AIG. I wrote about this twice in the past 3 months, first in "Here's to 2009" then again in "Prediction Update #2." The governments of the world can't stop the fall of everything and it will come down, all it will take is time. People are going to eventually realize that there isn't enough money to pay everyone back and that is when the game will be up. The credit default swap market is massive and is so highly leveraged that there is no way everyone will continue to be able to perform on the bets made in this over the counter market. What the government can do though is limit the cost to tax payers by making the tough decision to stop supporting AIG, as well as the other zombie companies, and let them fall. The world again will not end, we will be in the same boat we are in now, and we'll all get up and go to work in the morning; the earth just as it did when Lehman fell will continue to rotate.

Here's another likely Geithner fear -- that Congress forces the banks' bondholders to take a hit. So far, only stockholders have lost out because of the banking crisis. One reason for the fragility in the credit default swap market of late is that markets fear that bank bondholders, who today are protected even before U.S. taxpayers, could soon see their status change. The worry is that if even bondholders are put at risk, U.S. and foreign investors alike would stop financing all corporate America. The administration says that won't happen, but market participants believe (probably correctly) that this White House can't control Congress. See again "Why the Nationalization of our banks won't happen", "Is China Trying to Break the Euro", and "Germany and France just aren't Hungary."

So our Treasury secretary has no choice but to talk of bank stress-testing and other tactics to buy time before the big bank bailout. Notice that the president's budget already contains a contingency fund of up to $750 billion for a future bank bailout -- a politically shrewd number that roughly matches the size of the Paulson bailout. The true cost is likely to be two or three times as much, unless some last-minute intellectual breakthrough -- a tax holiday for derivatives? -- arises. Or the provision was included as an emergency fund to support the millions of people who are out of work and was never included to support bank bailouts. Why get less money approved than you know can solve the problem unless you have no intention of solving the problem with the funds you applied for? This money was most likely appropriated to keep social order and fund social resource programs in the event the collapse gets worse; which it will. What is the only way the government could lose control of this situation? Give up? If social unrest grows too great within the ranks of the unemployed and our social saftey nets fail. This, (sadly) I suspect is the real reason for the approval of the $750 Billion in this instance.

The Obama team needs to remember that we got into this mess because of a lack of financial transparency. It's time to tell the American people what the stock market already knows: that the path to recovery will probably be expensive and politically unpopular, perhaps explosively so. This dire situation could take us all down, which is why Obama should name a proven, world-class problem-solver who is not from Wall Street as his bank workout czar. James Baker, the former Republican secretary of state and Treasury secretary, comes to mind. Other possibilities: former Democratic senators Bill Bradley or George Mitchell. Perhaps the White House should name a team. This will never happen because the government doesn't want any amount of transparency in the process even though they repeatedly talk about "change." Just last week Ben Bernanke would not disclose clearly how money was spent by the Fed throughout the bailout process and was slammed by congress for it. Thank goodness they finally decided to have a back bone! I ask again when will the madness stop? Stop listening to Lawrence summers and bring in a team of "real" economists to assist with what to do!

In the end, at least one thing is certain: Our present position is unsustainable. The longer we delay fixing the banks, the faster the economy deleverages, the more credit dries up, the further the stock market falls, the higher the ultimate bank bailout price tag for the American taxpayer, and the more we risk falling into a financial black hole from which escape could take decades.

Mr. Smick was, for the most part, dead on in his article. He is more clear and concise about the situation facing the United States than nearly anyone I have read. He also spares the bloody details and cuts right to the point in saying that "Our present position is unsustainable" and "The longer we delay the fixing of the banks, the faster the economy deleverages, the more credit dries up, the further the stock market falls, the higher the cost to the American taxpayer, and the more we risk falling into a financial black hole."

I find the analogy of black holes interesting as this comparison is used by many people talking about our banks these days. Fittingly our banks are indeed operating just like black holes as no dollars can escape them, just as light cannot escape a black hole. If this is true then why can we not accept what happens when a black hole is destroyed? A big bang, which some argue brought life into the whole universe. Smick failed to come out and say it but I'm sure I speak for him when I suggest "let the black holes collapse and enough with the bailouts already; they simply won't work." The world will not end, we don't have enough money to stop the collapse of everything, and the demise of the black holes is the only way to bring new life back to our economy.

It's Friday!

2009-03-05T21:40:00.009-06:00

It's Friday and here we go...

During the current economic crisis all we hear about is trading losses and bankruptcy's. This has lead many to wonder if any one, any where is making money. According to Bloomberg at least one trading group is; 36 South, who made 236 (real) percent last year on it's "Black Swan" fund. The Black Swan fund when it was created was laughed at by the financial community because it was from New Zealand and it bet on "Highly Improbable Events" occurring in the market place.

This chart is an example of the types of jokes that were thrown around when the fund was created and it's founders anticipated returns exceeding 100%.

Look whose laughing now...According to Bloomberg the founders of the Black Swan fund are now winding down the effort to start a new fund that will bet on massive inflation. We all know that past performance does not necessarily determine future results so maybe the inflation fund will work, and maybe it won't. One thing we do know though is that this time around people won't be joking and will be paying attention.

On Thursday TCF bank returned every cent of TARP money it had received from the government. CEO, Bill Cooper, was on Fox to discuss why his bank decided to make the return of all of the $361 million dollars in TARP funds bank to the Fed, check it out:

I applaud TCF, Cooper, and several other large banks for coming out to return the funds that they didn't ever want or need. Each of these banks has hinted that the Government "suggested" they take the money seemingly against their wishes. Does this sound familiar to the short screen play I presented to you a few months back? At least while being irresponsible the Government is being predictable.

This week I was sent a clip of Louis CK while he was on Conan a couple of weeks ago. I don't really care much for him as a comedian but I think he puts things in perspective on the show when he said "Everything is Amazing, but nobody is happy"

Now if we could all just take a second to remember how much we do have, instead of worrying about what we don't, we'd be a lot better off for it.

Lastly, Brittney Spears and Michael Jackson both made their respective comebacks this week; What could make you smile more than that?

Remember to keep smiling and try to have a great weekend everybody!

March 5 - FDIC Update

2009-03-05T11:12:00.004-06:00

As I expected I have received a great deal of criticism surrounding my idea of shutting down the FDIC. Please consider the following if you disagree with my thought process:

1. Since most people pay more in taxes per year than they can conceivably save why should they have to indirectly pay for insurance? The banks will pass the cost of the FDIC insurance on to its depositors regardless of what Sheila Bair or Andrew Gray tell us. They will pay lower interest yields, charge more fees, and extract more money from the depositors to cover their mandatory insurance obligations. This has always been the case but is now only more pronounced as we pay for the cost of the FDIC as taxpayers through bailouts.

Why can we not establish a private insurance system for those who want insurance on their deposits? Almost everyone would agree that Federally run insurance programs don't work well (ie Medicaid, Medicare, Social Security etc) anyway. Under a private insurance system, participation would be optional for those who have enough money for insurance to make sense. Premiums in a private insurance model would be assessed based on the amount insured and the overall riskiness of the bank; adding yet more transparency. We do this for our cars, homes, lives, and other valuable assets so why wouldn't it work for our money?

2. Would the fear of not having FDIC insurance really cause people to start stuffing money in mattresses again? I suppose it might at first, however I think that this fear has come from the deeply ingrained belief that FDIC insurance is required. If fractional reserve lending did not force banks to consider deposits as "funding" for new loans, leverage was reduced, and capital requirements increased the insurance issue wouldn't even exist.

The FDIC model was established after the great depression because banks were insolvent and couldn't pay depositors back. Now 80 years later they are insolvent again and if allowed to fail couldn't pay us back. So shouldn't we be asking "How did they get this way again?" instead of allowing the cycle to repeat and insuring ourselves against future collapse? Was/is the solution to stopping this cycle FDIC insurance or is the insurance just a band-aid to conceal the glaring leverage and capital requirement problems still found within the banking system?

3. Just because the issue is a hot topic now, doesn't mean that bank failures are something to be alarmed about. Calculated Risk has some good information on bank failures and this chart was taken from them.

So what are the actual chances, historically speaking, anyone will ever encounter a bank failure and "need" the insurance program? We've had a couple thousand failures in 80 years, most of which occurred between 1982 and 1992 an era most of us lived through and can still remember, not during the great depression. Did you need the insurance then? Do you know a single person that had to deal with the FDIC to get their money personally? If you do I'd love to hear from them on the experience, tell them to write me.

4. If you carefully think through points 1, 2, and 3 how could you possibly feel the FDIC does not add to banking moral hazard more than it assists in alleviating it? I truly love the comments and opinions, you help me to learn as hopefully I help you.

Keep the comments rolling.

Buyrocka Ostocka

2009-03-04T23:37:00.005-06:00

According to The Financial Industry Regulatory Authority ("FINRA"), the overseer of enforcement and regulation of US securities on behalf of the Security and Exchange Commission:

Any securities professional associated with a member firm—including partners, officers, directors, branch managers, department supervisors, and sales persons—must register with FINRA. The registration application requires information about the individual's prior employment and disciplinary history. FINRA prescribes two levels of qualification and registration:

-Registered representatives, generally sales personnel.
-Principals, generally officers of the firm and other management personnel involved in the day-to-day operation of the firm's investment banking or securities business.

How then is it that Barack Obama can say the following to the entire US populace...

"What you're now seeing is profit-and-earning ratios are starting to get to the point where buying stocks is a potentially good deal if you've got a long-term perspective on it,"

"What I'm looking at is not the day-to-day gyrations of the stock market, but the long-term ability for the United States and the entire world economy to regain its footing,"

"The stock market is sort of like a tracking poll in politics. It bobs up and
down day to day, and if you spend all your time worrying about that, then you're probably going to get the long-term strategy wrong."

...and nobody takes serious issue with it?

Does anyone else have a problem with this? Am I the only one who thinks the President of the United States talking about purchasing stocks on a market he ultimately influences and controls is not ok?

Revisiting the SEC law and FINRA regulation from above; to speak publicly and give recommendations about buying and selling stocks while affiliated with member firms or acting as a principal of a member firm requires registration. Seeing as the President of the USA is affiliated with all firms and is arguably the ultimate principal, why is this allowable?

I recognize that there is not much you can do to a President in the way of punishing him for comments like this; I'm not suggesting that. However, perhaps rather than worrying about steroids in baseball, Michael Phelps smoking pot, or trying to figure out if we should switch from analog to digital TV congress could focus on not allowing public officials to make suggestions as to how the market may or may not move.

President Obama's statement on Tuesday was reckless, although I realize he probably didn't mean anything by it. (I'm trying hard to give the benefit of the doubt here because I personally think the statement was made for a calculated reason). Ultimately though, in the scheme of things, what was said really amounts to a mole hill among mountains. However, if we are going to have a Federal rule or a law can it at least apply to everyone equally?

It's your turn

2009-03-04T17:42:00.002-06:00

Open Letter to My Readers (whom I am very thankful for),

From time to time I get wind of certain bills or movements that I believe in and think people should be aware of. This is a quick post for those of you who like to get involved and don't mind contacting your congressional representatives when things don't add up. I personally am pursuing both of these items and I suggest you consider doing like wise. Check out the links and read up on the issue. Then if you feel like it makes sense participate, if not, heaven help us (just kidding...well kind of).

This one is about an FHA housing bill that will allow for more housing fraud to occur. The Bill is HR 600 if you want to go to open congress and read the original. The link below is to a site which has taken up the cause whole-heartedly. At first it looks like a really wacky URL because of the way it is designed but the content is good and informational regarding HR 600. Also believe it or not the Implode O' Meter is a widely popular financial site right now so you might want to keep tuning into it.

Implode O Meter HR 600 Campaign

The next bill is a bill that concerns a tax on trading profits that will be crushing to our markets. I signed a petition on this bill a couple weeks ago but ironically (and its what made me think to post this) a story hit Bloomberg about it today. For information on the bill and what it will do to you and the financial markets read about it here.

To sign the petition on this one it literally takes 3 minutes of your day so please do it if you are concerned. It can't hurt and what's 3 minutes to save potentially thousands of dollars for anyone you know with a 401k or stock account?

Sign the Petition Here

We can make a difference together and the only way anything will ever change is if we start caring about the way our leaders govern us.

Thanks,

The Bibb

To FDIC or Not To FDIC, That is the Question

2009-03-04T09:59:00.026-06:00

On February 23rd I got a little disgusted when I saw Suze Orman advertising with the FDIC. While I waited for the bus Suze told me that "I couldn't lose a penny if my money was 100% FDIC insured" and after reading this I couldn't help but laugh. "At what cost" I thought?

Today the hidden cost of maintaining the FDIC is starting to rear its ugly head and I think it's time for Andrew Gray to answer some of the tough questions I posed to him on the 23rd. I don't want to attack Mr. Gray, everyone makes mistakes. However, if you read this Andrew, at the very least please apologize to Bloomberg news columnist David Evans for your harsh tone and scathing remarks about his journalism. I know you are not the "official" mouthpiece of the FDIC but you were the one who published and authored this letter which is still up on the FDIC website to this day. It clearly was written in an attempt to tarnish Mr. Evan's seemingly solid journalism and not for any useful purpose, to me that is not appropriate, I'll leave it at that.

So you're probably wondering why I am saying all of this? Well before continuing let's take a look at what the Chairman of the FDIC, Sheila Bair, had to say regarding the current state of her agency and why I think tough questions need to be asked and difficult decisions made.

Excerpts from "FDIC's Bair says Insurance Fund Could Insolvent This Year" published by Bloomberg today.

"Federal Deposit Insurance Corp. Chairman Sheila Bair said the deposit insurance fund could dry up amid a surge in bank failures, as she responded to an industry outcry against new fees approved by the agency.

“Without these assessments, the deposit insurance fund could become insolvent this year,” Bair wrote in a March 2 letter to the industry. U.S. community banks plan to flood the FDIC with about 5,000 letters in protest of the fees, according to a trade group.

“A large number” of bank failures may occur through 2010 because of “rapidly deteriorating economic conditions,” Bair said in the letter. “Without substantial amounts of additional assessment revenue in the near future, current projections indicate that the fund balance will approach zero or even become negative.”

The FDIC last week approved a one-time “emergency” fee and other assessment increases on the industry to rebuild a fund to repay customers for deposits of as much as $250,000 when a bank fails. The fees, opposed by the industry, may generate $27 billion this year after the fund fell to $18.9 billion in the fourth quarter from $34.6 billion in the previous period, the FDIC said. The fund was drained by 25 bank failures last year.

Smaller banks are outraged over the one-time fee, which could wipe out 50 percent to 100 percent of a bank’s 2009 earnings, Camden Fine, president of the Independent Community Bankers of America, said yesterday in a telephone interview.

“I’ve never seen emotions like this,” said Fine, adding that he’s received more than 1,000 e-mails and telephone messages from angry bankers.

“For risk-based assessments, our statute restricts us from discriminating against an institution because of size,’’ Bair wrote.

Bair rejected arguments that the agency should use government aid to rebuild the fund. The FDIC has authority to tap a $30 billion line of credit at the Treasury Department.

“Banks, not taxpayers, are expected to fund the system,” Bair said. Asking for taxpayer support “could paint all banks with the ‘bailout’ brush.”

So in summary the plan from Miss Bair is to effectively tax solvent, responsible, well capitalized banks who have a chance of surviving the economic crisis through higher FDIC insurance premiums. Bair admits it will "wipe out" nearly all of the profits for 2009 in smaller banks, but says the "FDIC cannot discriminate on size." Is there any way the FDIC could subsidize failure or hurt the already weak banking industry more? Remember that according to the FDIC these fees are required to protect our deposits in failed banks and thus the increase in premium is justified.

Miss Bair also answered a question I had posed in the original piece on FDIC insurance. I had written:

"...Your agency [The FDIC] has just over $45 billion as of September 08, what do you have now after four bank collapses per month since then? Mr. Gray, Citi bank alone burned through $300 Billion in less than 3 months, can the FDIC keep up with a burn rate like that? Indy Mac cost you almost $9 Billion, that fell in July of last year, and was no where near the size of any of the banks on the verge of collapsing right now. If we assume that the FDIC can't cover the deficit without the Treasury; I'd bet you guys don't have credit lines exceeding a trillion dollars in this economy to bridge the deficit [referring to the estimated shortfall of BAC and C]..."

According to Bair the FDIC's credit line is a measly $30 Billion dollars from the Treasury. Bair also said with the new fees the FDIC will generate $27 Billion in new capital and that the fund fell $15.7 billion from January to March 1. $15.7 billion in 3 months? The economy isn't getting better anytime soon (Bair also admits this hence the new fee) thus the burn rate should remain constant for much of this year. How will the new fees cover this cost and keep the FDIC from needing the treasury line? The facts presented tell us the $27 Billion will be gone by late summer at best. So if the profitable banks give us all of 2009's net income now, and the FDIC still can't cover the cost, how can tax payers not have to fund the FDIC line from the treasury?

Lastly, consider the following information regarding the $8.5 Trillion Dollar amount that tax payers are thus far on the hook for related to our banks through the bailout process.

(Click for larger image)

Image Compliments of The Center for Research on Globalization

Of this amount we have already spent $3.2 Trillion to keep our banks afloat. Since Bair is saying the FDIC can't discriminate on who has to pay the new premium increases to keep the FDIC solvent this means insolvent banks have to pay as well. So what I want to know is how increasing the premium to the banks doesn't cost tax payers anything when we already own a large portion of the banking system? Is the money paid to the FDIC from Citi and Bank of America, or any other assisted bank for that matter, not in fact tax payer money?

The Facts

According to the Bureau of Economic Analysis the national US savings rate as a percentage of disposable income is this:

You saw right, there was actually a quarter in 2005 when the US savings rate per household was negative. That does in fact mean we were spending more than 100% of our income and clearly could have zero savings under that scenario. As of the last quarter in 2008 the savings rate was higher than it's been in years at 3%. According to the census bureau, in 2007 (the most recent data) median household income was $50,740 and in 2007, 13% of US households were living below the poverty line of $21,200 in annual income. Lastly, to be consistent, in 2007 based on the median income figure above, most Americans lived within roughly the 25% tax bracket. (with deductions this rate is undoubtedly lower, however if you include all of the costs to get to "true" disposable income I feel using 25% as an adjustment is more than appropriate).

The Math
Now before doing the math on this also keep in mind our unemployment is higher now than it has been in nearly a generation; read if you don't have a job, you can't save. Also if 13% were under the poverty line in 2007 even more are now based on unemployment; poor people can't really save either.

Annual Income
$50,740

Average Tax Rate at 25% (Disposable Income Adjustment)
($12,685)

Total Disposable Income
$38,055

Current Average Savings Rate at 3%
$1,141.65

The Conclusion

We need to get rid of the FDIC along with the moral hazard it creates and we need to do it fast. Yes I said it, the FDIC needs to be gone, it creates a moral hazard in our system, and in it's current form intends to penalizes solvent profitable banks. Of course it's scary to think that your money in a bank isn't insured, but wouldn't that encourage banks to compete on solvency, make good loans, and remain well capitalized in order to attract more deposits? Wouldn't we all be much more careful about who we decided to bank with and why if we couldn't rely on "required insurance"? If the bailouts hadn't occurred would anyone have left their money in Bank of America or Citi without the FDIC and Suze Orman telling us it will be alright? If not, would the small profitable banks have gotten a larger deposit base, then been able to lend properly and ease our credit situation without the use of more tax payer funds? Would added transparency come to the system because banks would have to compete on their balance sheets rather than on their gimmicks?

Bair, Gray, The Government, and the American people need to look in the mirror and face the facts. Simply put the real cost of keeping the FDIC is staggering to the tax paying public under the current economic environment. All in all what are we getting for having the insurance besides the FDIC bridging the sale of a failed bank to another government backed bank anyway? Miss Bair, I now have a question for you: What does the FDIC project the tax cost on $8.5 Trillion in bailout funds allocated to our banks by the US taxpayer to be? My guess is that it will be a lot more than $1,141.65 FDIC insured dollars per year.

If you live in Illinois...

2009-03-03T00:04:00.004-06:00

Don't forget to vote today Illinois! I know it's only the primary election but it matters if you want things to be different. Nothing can change in a Democracy unless the people care enough to make it change. Haven't you had enough this year Illinois? Take 30 minutes out of your day and stop the madness, get out, get up, and vote!

Taken from the Chicago Tribune:

Election Day: Today is the special primary election for the 5th Congressional District, a seat formerly held by Rahm Emanuel, who is now President Barack Obama's White House chief of staff.

Polls Open: 6 a.m. to 7 p.m.Candidates: 12 Democrats, six Republicans and five Green Party candidates. The field is believed to be the largest on a congressional ballot in the Chicago area in more than 50 years.

Next Step: On April 7, the winner from each party will advance to the special general election.
Lines: There should be almost none. Turnout is expected to be low, and there is just one selection to mark on each ballot.

Vacancy: The district will be without representation for more than three months because of the timing of Emanuel's departure.

Polling Place Locations: Chicagoelections.com and voterinfonet.com

For official voter information: 312-269-7900 (city) and 312-603-0906 (suburban Cook)

Make a difference, primaries do matter! They matter because voter turn out tomorrow will be so low every vote will ACTUALLY make a difference for once in this state. Remember that if you've complained even once about the political machine, the bailouts, or any other government related issue and did not vote, it is just as much your fault that our leaders stink, as it is theirs for making poor decisions.

"You must be the change you wish to see in the world." -Mahatma Gandhi

How it really happened

2009-03-02T22:39:00.009-06:00

Today I was provided with a copy of a letter written by Congressman Fred Upton to one of his constituents who is also a reader of this blog. For those of you who don't know Mr. Upton is a congressman in Michigan's sixth district; the Southwest corner of the state. The reader, we'll call him Richard, had written in to Mr. Upton voicing his concern over the American Recovery and Reinvestment Act.

Many, including myself, have written on this economic bailout plan and included their personal opinions of the bill. However, in all of my reading, I have yet to publicly read any insights from someone who actually represents US Citizens on how the recovery act actually became law. Without further adieu, please read what Mr. Upton had to say to his constituents who voiced concern over the passage of President Obama's stimulus plan. I think you will be quite surprised at what you learn and may be even appalled at some of the information:

Copied From the Original Email

Subject: From Congressman Upton -- Stimulus Package

Date: Mon, 2 Mar 2009 15:38:30 -0500

From: TellUpton@mail.house.gov

Dear Friend,

Thank you for contacting me regarding the economic stimulus package, which was signed into law by President Obama on February 17, 2009. I voted against this package, as it was simply too big and would serve to send our deficit spiraling further out of control. In reaching my decision, I read every one of the nearly 2,000 letters and e-mails that I received concerning this matter, and I have appreciated the time that folks from our corner of Michigan have taken to make their voices heard.

As Michiganders, we have already long suffered the economic hardships that have swept the rest of the country and the world this past year. No one had to remind us that our state is in a recession. Our state continues to face some of the highest rates of unemployment and home foreclosures in the country, levels not experienced in generations. We have also recently watched as hundreds of billions of hard-earned taxpayer dollars have been drained from the federal Treasury with no meaningful return for those who need assistance most.

I voted against the original House bill for a number of reasons. First,while I acknowledge the efforts made by the White House to reach across the aisle, no significant Republican amendments—regardless of their merit—were allowed by Speaker Pelosi and her leadership in any of the three committees of jurisdiction: Ways and Means, Appropriations, and, the committee on which I serve, Energy and Commerce. The same closed-door tactics ruled the day on the House floor, where debate was severely limited to a few hours on an $800 billion bill. As a consequence, rather than forging a bi-partisan package to rally the country and thus improve consumer confidence—which is a big part of our problem—we ended up with a heavily partisan spending bill that will increase the national debt to its highest levels.

I would note that the Senate had a much different process, allowing them to spend more than a week debating amendments offered by members of both parties.

When the two versions of the package went to Conference Committee to reconcile the differences, a number of good ideas were left on the cutting room floor. For example, provisions to assist the auto industry, which impacts nearly one in four Michigan jobs, were slashed. Our Senator Debbie Stabenow tried to allow consumers to write off interest payments on automobiles—a provision that was in the federal tax code in the 1980s.This provision would have been helpful in both getting consumers back into the dealership showrooms and bringing auto suppliers back into full production, again helping working families across the country.Unfortunately, this legislation turned its back on Michigan’s biggest challenges.

I have held tele-town hall meetings involving tens of thousands of district residents every month. When I surveyed last month’s participants, over 90percent concurred with my thought that we need to ensure that all spending in this package go toward “shovel ready” projects that will actually help create jobs. Further, they believed that the package must balance spending with tax cuts for families and businesses.

Sadly, despite a nearly unanimous vote in the House to make this 1,000-plus page bill available to everyone at least 48 hours before a vote, we were only given a few hours and only five hard copies for all 434 members of the House. In essence, members were given one minute of consideration for every one billion dollars of spending in the package. Not surprisingly, in the very short time we had, we discovered a number of costly provisions that would do little in the way of immediate job creation.

Prior to the final vote in the House, I visited the Bureau of the Public Debt where the Treasury essentially borrows money from lenders and foreign governments to keep our federal government operating. That particular day,the Bureau rolled over some $100 billion of U.S. debt to a number of American and international purchasers. I would note that all of the nearly trillion dollars in the stimulus package will have to be sold as well, and that we the taxpayers will also pay billions more in interest for this significant increase in the national debt. What happens if the current borrowers decide not to bid on our debt? The answer, of course, is that the Treasury will pay even higher interest rates, increasing the debt even further.

Knowing how long it will take to pay off this unprecedented financial burden, which will most certainly be passed onto future generations, I voted no. We can and must do better. As your Representative, I will remain ever vigilant in working to foster growth in southwest Michigan and will oppose reckless government spending where I see it.

As always, I appreciate hearing from you and look forward to your continued input as Congress works towards solutions to the many issues facing our country.

Very truly yours,

In Goo Goo's and Mugwumps I touched on what happens to Bi-Partisan promises after those who run on party line compromises are elected. Based on Upton's statement:

"...no significant Republican amendments—regardless of their merit—were allowed by Speaker Pelosi and her leadership in any of the three committees of jurisdiction: Ways and Means, Appropriations, and, the committee on which I serve, Energy and Commerce. The same closed-door tactics ruled the day on the House floor, where debate was severely limited to a few hours on an $800 billion bill..."

I officially appoint Nancy Pelosi the queen of the Goo Goo's and Barack Obama the King of the Mugwumps.

Germany and France Just Aren't Hungary

2009-03-01T22:19:00.018-06:00

Last Sunday, in Is China Trying to Break the Euro?, I wrote about a glaring problem in the Eurozone; it's non-unified debt markets. At that time I highlighted articles by both George Soros and John Mauldin related to monetary policy weaknesses within the EU, then created a theory about how the Euro might be broken if these weaknesses were not readily addressed. (I'd encourage you to read the theory in its entirety from the link above but...) In summary I touched briefly on how an "entity," (possibly China) if it were powerful enough, (from a fiscal standpoint) may be able to unravel the Euro, and potentially shatter the European Union.

Within the original piece I wrote:

"[In the context of shorting the debt of the weakest Nations in the EU]...you can already see the staggering difference in debt spreads between Germany (arguably the strongest Euro zone member) and Italy, Spain, Greece, and Portugal (as above arguably the weakest). Increasing the borrowing cost on debt in the weakest countries would require capital infusions from the Central Bank, however the bank would be powerless to stop the pressure on the sovereign debt of the individual countries because, as Soros said, there is no unified European Bond Market.

After pushing borrowing costs upward in the weaker countries of the Union one would then begin shorting the Euro currency with as much cash as they possibly could. By doing this you would be adding additional downside pressure to the Euro, as the ECB in an effort to save the ailing countries you were shorting debt on, would have to be injecting more and more capital to keep them afloat. This would squeeze the entire Euro zone and, in my opinion, the strongest of the countries would begin to say "enough is enough." At which point nationalism would grow stronger, more thought would be given to the facts in Tables 1 and 2 above, and I would speculate some members would consider leaving or not assisting their ailing neighbors.

In either scenario you would be able to create a massive crisis and downside pressure on the Euro would grow significantly. Currently tensions are already high around the world as the economic crisis continues to unfold and many are starting to wonder about Europe's exposure to countries in the old soviet block which is already damaging the Euro's strength....

Before continuing I want to make it very clear that it isn't good to see the world falling apart; I do not cherish this. As much as I believe it probable and feel it may happen, I truly do not want to see the Eurozone collapse. If the Euro were to disappear, much of the world would be thrown into even more chaos than it is already in, and none of us (except maybe countries grasping for power) need that.

However, in the pursuit of truth, we must continue to search for support of my theory lest I be called an absolute quack. So as today's news began to hit the wire a report came up regarding the EU spurning calls for Eastern European Aid which I find intriguing.

From Bloomberg:

"European Union leaders spurned pleas for special aid for eastern Europe and a rescue package for automakers, bowing to German concerns over budget deficits as the economic crisis escalates. EU leaders vetoed an appeal by Hungary for loans of 180 billion euros ($228 billion) for ex-communist economies in eastern Europe...

...The worst economic slump since World War II is devastating eastern Europe, putting at risk EU goals of stitching together a continent-wide free market. The euro fell to a one-week low of $1.2562, and traded at $1.2575 as of 12:40 p.m. in Tokyo from $1.2669 late in New York on Feb. 27...

...Nine eastern leaders met before the summit to warn the West against putting up new walls in Europe, five years after the EU overcame historic divisions by admitting its first eastern members...[Angela Merkel -German Chancellor] Merkel, representing the biggest contributor to the EU budget, said aid for eastern Europe needs to be channeled through institutions like the International Monetary Fund...

...The aid plea by Hungary, already the recipient of 6.5 billion euros in EU support, also sowed divisions among eastern leaders, with some saying the EU’s newcomers shouldn't be singled out as an economic trouble spot...There are differences between eastern European countries,” Polish Prime Minister Donald Tusk said. “In some respects, western countries are in a more difficult situation...”

...French President, Nicolas Sarkozy, triggered the east-west clash by saying on Feb. 5 that it “isn’t justified” for recession-hit French car makers to operate plants in places like the Czech Republic instead of creating jobs at home. That broadside led Czech Prime Minister, Mirek Topolanek, the first head of an ex-Soviet bloc state to hold the EU presidency, to convene the summit to demonstrate European unity against protectionism"...

This is troubling because you'll note from above, one of the results of my theory was that the strongest countries within the EU would begin to become nationalistic and stand boldly against helping their neighbors. Indeed this is now occurring as both France and Germany are speaking out against assistance to Hungary, Latvia, the Czech Republic, and the other ex-soviet bloc states. In fact, the statements from France and Germany have been so strong that the Czech Republic has publicly called for a summit to discuss European unity against protectionism. This is not a small statement especially when you consider that one of the nations accused of being nationalistic, France, currently holds the presidency of the EU.

If this is happening now against the Eastern European nations, who are not on the Euro, (but are trade members of the EU) it is merely a prequel to what will occur within countries who are on the Euro. More importantly though, if the results of the theory are showing up in the relationships between the old Soviet Bloc EU and the Eurozone EU, (one could easily argue they are unified but divided) what were the symptoms? Were the conditions that I included in my original writing present prior to getting to the final results? I think they were and I'd like to share some of the reasons why I feel that way.

Although borrowing costs for most nations have been escalating for some time now, in the last two weeks credit default swap ("CDS") spreads on much of the sovereign debt within the Nations of the old Soviet Bloc have exploded. After this, ratings on debt for these countries went to near junk, and yields (read: government borrowing costs) went to the moon. As a result floating new bonds became an almost impossible option for these nations, they then had limited available operating cash flow, and have now been forced to come to the rest of Europe for aid. (As I pointed out before not unlike what is happening in California)

Remembering the stats from my first article regarding the debt spreads of Greece, Italy, Spain, and Portugal, relative to Germany, we know that this same process is occurring within the weaker countries using the Euro currency. Will their individual debt spreads get high enough over the "stable" countries of the Eurozone to rate their bonds as junk as well? Only time will tell, but judging by the severity of this recession I'd bet they'll receive a junk rating sooner rather than later. As I watch what's happening in Hungary and the Czech Republic, I can't help but wonder how on earth a country like Greece will be able to hold it together.

Also from December 17th, 2008 through tonight (March 1, 2009) the Euro has crashed down from 1.4349 to 1.2581 against the Dollar. This coincides with the bulk of the run up in debt cost to the Eastern European nations now struggling to survive. At the open of the Asian markets this evening, the Euro gaped down about 1.5 cents. This reportedly has occurred because the world is worried about the amount of exposure Eurozone banks will have to the near certain collapse of at least a few Eastern European nations. What will the market think if some of the Euro using countries start to go bust? What kind of pressure will the Euro be under then if it is under this kind of pressure now? Again, time will tell, but I would suggest we watch this week to see what the Euro/US dollar pair does during the Asian market hours. More selling during the Asian trading period may suggest that there is potentially more to China's influence on the pricing of the Euro relative to my theory.

Lastly, Asia (primarily China) has continued to fund American Debt Auctions and has readily assisted in helping to buy up all available treasuries offered. Yields on US debt continued to fall until last week, when they rose for the first time in 10 auctions. Of course the appetite for US debt has waned slightly as more and more issues have come to market, however the US treasury department is still easily able to unload it's debt onto the free market at unreasonably low rates. Moreover, seeing as Europe has no unified debt market, the security of US backed debt is nearly unrivaled in the world. As a result, I doubt very highly, regardless of what spending occurs within the USA, that anyone buying treasuries for financial security will run out on the US anytime soon. China certainly won't do that as it is continuing to build it's long "USA" position and is benefiting substantially from the run up in Dollar value within it's reserves.

In Summary

I must admit that in my first writing I considered only the countries using the Euro to be a threat to the security of the currency. In thinking this I had not fully considered the implications of the failure of Eastern European non-euro using members; That is, relative to the general viability of the Euro currency. I did however evaluate the exposure of European banks to these countries, but not what the total collapse of the financial systems would actually mean and could potentially symbolize within the theory.

That being said, in hindsight my error in judgement has revealed to me something that I think is even more troubling than China potentially targeting the weaker Euro using states. China may have intentionally contributed to the fall of the weaker non-Euro using nations first to further solidify its efforts in accomplishing it's goal of breaking the Euro.

It makes sense doesn't it? Let me explain. If you assume what I wrote originally:

"...China could benefit from this strategy significantly because it has the largest cash reserve of US dollars in the world. Since China holds between $1 and $2 trillion dollars worth of US currency it has more than enough money to start picking off the weakest of the Euro zone countries and to begin the execution of my plan above. In doing this China would be able to profit from it's shorts on the sovereign debt as the nations it targeted began to fall. Then it would also profit on it's shorts against the Euro because the Chinese are impossibly long US Dollars. Additionally, if China was able to succeed the strongest states of the Union would end up standing on their own and allowing the weaker countries to go it alone and most likely fail.

If China could accomplish this it would ultimately gain the global financial political clout it is so desperately seeking, and wouldn't have to go to war to obtain it...."

With most political, financial, or business decisions the rule of thumb is that it is prudent to take small steps before going all in. Here the small step may be China going after non-euro using EU members before going after the stronger Euro using nations. The signs are all there; heavy buying of more and more dollars, a collapse in Euro pricing, an advance in the dollar, the explosion of sovereign debt spreads in these countries, and the resulting nationalistic comments coming from the strongest members of the EU.

The only difference here to my theory is that the move was done outside the Eurozone; well kind of. China could have assisted here to "test the waters" and see how the rest of Europe would react. If this is the case, which I believe it to be, this choice may have been a brilliant one. It is brilliant because the collapse of any EU state, regardless of it's use of the Euro, will undoubtedly help China to obtain its overall goal of breaking the Euro by increasing stress within the region. But most importantly, while dealing with a finite resource in US Dollar holdings, breaking Eastern Europe first offers China more bang for it's buck, no pun intended.

Although I have been recently criticized, I will continue to stand by my opinion, unpopular as it may be. I think China is trying to break the Euro and I think they stand to gain tremendously if the region falls apart. If my theory holds look for some serious stress to begin appearing in the weaker Euro nations. By serious I mean CDS spreads sky rocketing as they did in Eastern Europe, not just being elevated as they already are. Also start to look to the currency markets for powerful moves during the Asian trading period. But most importantly watch the Treasury auctions in the US. If China continues to purchase US debt and grow its long positions even further it will have officially picked a side and will have no choice but to stand by it's $2 Trillion USD long position.

It's Friday!

2009-02-27T06:00:00.000-06:00

As usual it's Friday so the goal here people is to try and smile; don't fight it you know you want to.

Yesterday I wrote about the bear and flag pennant theory again and eluded to the idea that the downside of the pennant may be running out of steam. This morning I read the following article which came out on the 24th of this month at Bloomberg.Com. In Robert Prechter Advises Closing Short Positions on Stocks I learned that Prechter, someone who I greatly respect, is saying:

"Elliott Wave International Inc.’s Robert Prechter, who advised shorting U.S. stocks three months before the bear market began, said investors should end that bet after the Standard & Poor’s 500 Index tumbled to a 12-year low. He warned of a “sharp and scary” rebound for anyone still wagering on a retreat, according to this month’s “Elliott Wave Theorist.”

In addition, the waves share a variety of features: Wave two never falls below the starting level of wave one; wave three is never the shortest; waves one and five tend to be of equal length; and wave sizes are often related by a series of numbers known as the Fibonacci sequence, wherein each number is based on the sum of the two previous ones.

The S&P 500 has sunk 52 percent since its October 2007 record as financial firms worldwide posted $1.11 trillion in credit-related losses and the U.S., Europe and Japan fell into the first simultaneous recessions since World War II. In July 2007, Prechter advised shorting U.S. stocks, saying “aggressive speculators should return to a fully leveraged short position.”

“Am I saying that the market has reached its final bottom? No!” he wrote. “The wave count is not quite finished, and ideally the S&P should continue down into the 600s.”

This is good news for the short term and may allow people to recoup some of the losses they might have taken in the market lately. I like the Elliot Wave guys and their theory, you should check them out and read up on it if you are interested. The website can be found here; be careful though on this next move up if it happens. You can be sure people will say the worst is over but we probably aren't quite there yet so be leery of what you hear.

Speaking of being leery of what you hear, are you, like me, sick of listening to the talking heads tell you about how bad the economy is? Do you wish that they would just shut up and stop talking? Have you ever thought that nothing could be more unbearable to watch than CNBC day in and day out during this recession?

If you thought that, boy have I got something for you....

In 1964 Andy Warhol created a fim called Empire. In it Warhol set out to make the most unwatchable piece of footage in film history (yes I think it beats CNBC). His movie is 8 hours and 5 minutes long of real time shooting and Warhol would not allow for it to be shown abridged while he was alive. The film was so amazingly unbearable that it now resides in the National Film Registry within the Library of Congress and is considered by some to be a national treasure.

Since I think we all should know more about our national treasures I have decided to prove that there are worse things than Maria Bartiromo and CNBC. Therefore, rather than tell you what the film is about, watch it for a few minutes and remember that there is over 8 hours of this:

Moving on to another more exciting Empire, the old Roman one, I recently learned that the recession is creating new businesses and strange opportunities within the market place. You'll be surprised who is benefiting though, any guesses? No it's not the banks. Unn uhh on the wealthy. How bout trying this one: it's creating opportunities for the...elderly?

Although it may be morbid, I personally like the ideas presented in Bloomberg's "Death Offers Lifeline to Italian Property Owners" and think we should do this in the States.

"The central Rome apartment comes at a 20 percent discount and nobody will find a better bargain in the Italian capital, Francesca Grasso tells her client. The 60 square-meter, one-bedroom abode is a steal at 195,000 euros ($251,000), says Grasso, who works for the Top Casa real estate agents in Rome. “You just have to wait a bit,” she says. By waiting, Grasso means for the owner to die. Deep in the fine print of the sale documents is a number, “88” in parentheses. It’s the seller’s age.

The worst recession since 1975 is eroding the wealth of elderly Italians and forcing them to do something they had never before considered: sell family homes to strangers at a discount on the condition that they can stay on until they pass away. The cash transactions are called “nude sales” in Italy because in most cases the owners are stripped of ownership while retaining use of the property until they die. While they account for only 5 percent of Italian sales, they represent one of the few boom areas as the slump deepens."

This is an awesome idea! What a great way for an elderly person to realize the benefits of his or her lifes work by getting the principle paid into a home back out. If they are financially strapped they get out of a jam and if they are lucky they'll even get some extra cash before they die. Heck you can't take it with you when you go anyway right? On top of all of this they retain the right and the benefit of staying in the home until they pass away; what more could you ask for? Yes this is the same as a reverse mortgage in the states to an extent; except here there is one big difference. In this deal it appears the terms are more clearly spelled out, you can stay until you die not until the principal is gone, and a private investor gets the home rather than a bank which means another individual benefits from the sale.

Of course you can say there is moral hazard and it's betting on some one's life, but lets get serious. Who is in the business of whacking old people for homes? Especially when the beneficiary must have the cash to make the full purchase at day one and the real estate market is down. I wonder if a hybrid of this idea could be created to stop or slow foreclosure in the states? If anyone can think of a way that would work without an individual having equity in the home to sell it out right please let me or someone else know.

This model does have its pitfalls though as later in the reading we find out:

"In 1965, French lawyer Andre-Francois Raffray was 47 when he bought 90-year-old Jeanne Calment’s apartment, expecting to move in with his family within a few years. Instead, she went on to become the oldest woman in history, dying at 122 in 1997. By then, Raffray had already been dead for two years."

That would really put Obama's inheritance tax proposal in a bind now wouldn't it?

Make it a great weekend everybody!

Bear and Flag Pennant III

2009-02-25T22:27:00.007-06:00

Since String and I posted on the bear and flag pennant market theory a few weeks ago I have gotten a lot of positive response. So based on your interest, as I have for the past few weeks, I wanted to give an update.

If you want to catch up on the previous discussion check out the following posts to review the old charts. Thus far the ideals have held up pretty well so investigating the theory for yourself and learning how to use it may be worth your time. Remember though before you get started there is no way to know exactly what will or will not happen in the markets, as with any type of forecasting nothing is 100% accurate.

1. The Original Bear and Flag Pennant Post

2. Bear and Flag Part Duex

Here is the original chart with the most recent market data included:

Chart Compliments of www.stockcharts.com

The beginning of the backside of the bear pennant noted above started officially on February 13th when we broke through 820 in the S&P 500. I wrote about this break in on February 10th, after the market ran down to 827. I wrote about it then because the market had broken the trend line we had drawn to the bottom side of our pennant; although admittedly this line was originally drawn in haste and should have been inked more near to the 820 level. After this move the market ran down perfectly in accordance with the theory. Again, this doesn't mean it will always be this way, it just is now, it is a theory after all and not a proven fact.

Since it is just a theory the ideology allows for adjustment as material external factors change. If you've been reading for the past couple for days you'll recognize that I have posted on our leaders frequently being on TV. In addition there have been other "abnormal" market news releases (ie bailout information, nationalization, bank stress tests, various statements, etc.) which can materially change the timing of market moves. Although these things have happened I do not think the following presentation will change significantly over the long term. I am a believer that the market will do what the market is going to do. This means these external factors may only be factors for the short term but will ultimately fade.

From February 10th, 2009

Tomorrow and Friday will be critical to watch if you are analyzing the bear and flag theory. Before the end of the week the market will most likely pick a direction and give more insight into it's overall directional strength. If it chooses down I'm sticking with my 670 prediction for the long term, but don't underestimate this hesitation. The hesitation happening now is a bit concerning if you are looking for a quick downside move and the theory to hold in the very near future. If the market chooses up, I'd be inclined to adjust my original downside move prediction from the table upward by about 30 points to around 700. I'm basing this adjustment on the shallowness of the initial downward movement relative to what the theory suggests should have happened.

All in all remember that this theory is interesting and appears to have some merit in this particular instance. It's clearly not an exact science and no one can predict the future of the markets but it certainly is fun to try.

Government Pop Stars

2009-02-24T23:04:00.009-06:00

Has anyone else noticed lately how often our government officials are on television? I'm beginning to wonder if they are becoming more famous than even our celebrities? Perhaps, however, it's just the industry that I'm in and the amount of exposure I have to economic information. Tell me if I'm wrong, but I swear either President Obama, Timothy Geithner, or Ben Bernanke have been on television on an average of about once every four hours for each business day of the past two weeks. At what point did our politicians gain such access to the media? Don't they have other things to worry about like governing, reading up on world issues, and focusing on the laundry list of issues before them? Never the less, the trend did not stop tonight as President Obama addressed an anxious nation.

In an unprecedented prime time "State of the Union, oh wait its not a real State of the Union, it can't be called that because its too early, and no president has spoken on prime time at this point in their presidency before" speech, President Obama said:

"We have lived through an era where too often, short-term gains were prized over long-term prosperity, where we failed to look beyond the next payment, the next quarter or the next election...Given these realities, everyone in this chamber - Democrats and Republicans - will have to sacrifice some worthy priorities for which there are no dollars; And that includes me...I reject the view that says our problems will simply take care of themselves, that says government has no role in laying the foundation for our common prosperity...It’s not about helping banks -- it’s about helping people by opening up credit to individuals to let them buy homes and businesses to hire workers...I Get It...I promise you, I get it, But I also know that in a time of crisis, we cannot afford to govern out of anger, or yield to the politics of the moment.”

The reason I highlighted these points of the President's speech is that I found them to be somewhat contradictory to what I previously thought I knew about Barack Obama's stance on this crisis. For starters I find it rather ironic that President Obama has been saying since before he was elected that we must act quickly in the short term to fix our problems. Now he feels it is this focus on our short term goals that out weighed our ideals for long-term prosperity? If I recall, wasn't it the same Barack who helped to tell America it needed to act quickly on the first TARP bailout, Auto Bailout, Fannie & Freddie bailout, and the American Recovery and Reinvestment Act (ARR) act of last week? Those all seem like pretty short sided solutions to me given that none of them have worked at all, will not mysteriously start working anytime soon, and most likely will harm our long term national prosperity when all is said and done.

Next he pointed out that Democrats, Republicans, and even he, himself would have to "sacrifice some worthy priorities for which there are no dollars." So here he's very bluntly saying there has to be sacrifice yet no Republicans voted to pass the ARR in the house because they said it was too costly, would not be effective, and felt the bill needed sweeping changes; all true. Yet rather than compromise or take the time to find a lasting solution, the rebuttal from the Democrat Majority Leader Steny Hoyer to Congress was:

“The economics that got us into this "mess” were the Republicans’ policies for the six years that Republicans controlled both the White House and Congress, through 2006."

The Republican's could have perhaps been more compromising as well, and I'm not making this point from a "Republican" or "Democrat" perspective; I literally voted for neither (yes I voted and it is possible to vote for neither). It's just striking to me that when no votes were generated from a party the response was basically "You did poorly through 2006, so now it's our shot." So much for compromise and long term ideals here as well.

Apparently what no one in Congress decided to discuss or realize on the point Steny Hoyer made about the economy through 2006 is what actually put us into the "mess" we are in. The answer here is actually pretty obvious in its simplest form, too much credit and not enough personal responsibility. It had nothing to do with the economics of the situation and everything to do with a lack of human integrity towards our fellow man. In general at all levels, if you couldn't afford it you shouldn't have bought it. If you knew they couldn't afford it you shouldn't have sold it. As for the Governement's role on the matter, anything that it did, at ANY point in history, not just from 2000-2006, to encourage reckless borrowing and lending fits the personal responsibility ideal as well. Simple as that.

Finally, the last two statements from above can be lumped together. President Obama says he rejects the facts that our problems will simply take care of themselves and told us he gets it. Well clearly he doesn't get it because every plan that he has promoted has done absolutely nothing to fix the problem. This statement wont be rectified by the "wait and we'll see what happens" solution either so lets be clear on this now; I'll restate his current plans will not work to stop the recession. I wrote extensively on this a couple weeks back in two posts: Change You Can Count On and Excuse Me...You Forgot To Give Me My Change. If you disagree with me on this I challenge you to name one government program that works well. The definition of well here is, well enough that the government executes better than a private business would. Also, infrastructure, defense, basic life, and security needs don't count. As I've said countless times before, the solution to a problem cannot also be it's cause; in this case the cause and proposed solution being both "more" lending.

"Getting it" would also mean that Barack would need to recognize we don't need more spending right now we need a crash. We need the market to work itself out as quickly as possible so that we can work on righting the ship and moving forward. Every industry and business we bailout only prolongs our suffering, rewards failure, and slows private industry from moving forward. In addition the longer we stay in a downtrend the longer we grind the little money we do have left in savings down to nothing. If he got it he'd understand free market capitalism and would not continually support rewards for failure. As Rick Santelli said so perfectly last week we should allow those who made good choices to benefit from picking up the pieces left by those who made bad choices.

If he really got it, he'd understand that being irresponsible about any type of decision albeit personal, business, or governmental in nature will always lead to bigger failure. However, in considering this, I'd say there is one place irresponsible choices will almost always put you ahead, when you're a Pop-Star...so I guess maybe he gets it after all.

What is the FDIC Doing?

2009-02-23T22:10:00.013-06:00

Suze Orman, what are you and the FDIC doing advertising deposit insurance? Why did I see you on my CTA bus stop today telling me "I can't lose a Penny if my money is 100% FDIC- insured?" According to the FDIC website, the Federal Deposit Insurance Corporation partnered with Suze Orman to raise FDIC awareness in September of 2008. Raise awareness? Why would anyone need to know about the FDIC? Isn't it a good thing when people don't know all about the Federal Deposit Insurance Corporation? I mean that seriously; isn't the only reason anyone would "really" know about the FDIC is if they had money in a bank that failed and needed to figure out if it was covered or not?

That's interesting to consider since this campaign was launched in September of 2008 when major banks were beginning to fail. A review of the FDIC's failed banks list reveals some startling information:

From October of 2000 through October of 2007:

27 banks failed and were taken over by the FDIC.

From January 25th, 2008 through February 20th, 2009

39 MORE were taken by the FDIC,

For those doing the math at home the equation looks like this: 39 > 27 and that ladies and gentlemen is quite problematic. On average from 00' through 07' slightly fewer than 4 banks failed per year, but now bank failures are nearly ten times higher than they were over the past 7 years at over 3 banks a month. I wonder if our largest banks (Bank of America, Citi, and JP Morgan Chase) are now paying 10 times the premium to cover ten times the failure frequency?

Rest assured the FDIC has reserves to cover a problem like this...well, not exactly. Since Suze Orman and the FDIC want us to be informed, lets get informed:

1. As of September 2008 when Orman started working with the FDIC, the Deposit Insurance Fund had approximately; From the FDIC Site:

"$45 billion – but that figure is not static. The fund will continue to incur the cost of protecting insured depositors as more banks may fail, but we continually bring in more premium income."

2. Also from the Fed site, that $45 billion is to cover $4.2 Trillion in insurable deposits. This gives the Fed a reserve ratio around 1.2% based on the floating nature of customer deposits and the insurance funds premium collections and payouts.

3. From the link in item 1 above, Andrew Gray, the director of public affairs at the FDIC wrote a letter to Bloomberg News regarding an article about a potential FDIC failure which Gray called "A disservice to Bloomberg and it's readers." Gray continued on to say:

"...if needed, the FDIC has longstanding lines of credit with the Treasury Department. Congress, understanding the need to ensure that working capital is available to the FDIC to provide bridge funding between the time a bank fails and when its assets are sold, provided broad authority for us to borrow from Treasury's Federal Financing Bank. If necessary, we can potentially raise very large sums of working capital, which would be paid back as the FDIC liquidates assets of failed banks. As per our authorizing statute, any money we might borrow from the Treasury must be paid back from industry assessments. Only once in the FDIC's history have we had to borrow from the Treasury – in the early 1990s – and that money was paid back with interest in less than two years.

Finally, Mr. Evans' suggestion that the "government" could ever be "on the hook for uninsured deposits" demonstrates a misunderstanding of FDIC insurance. To protect taxpayers, we are required to follow the "least cost" resolution, which means that uninsured depositors are paid in full only if this is the least costly option for the FDIC. This usually occurs when a bidder for the failed bank is willing to pay a higher price for the entire deposit franchise. We are authorized to deviate from the "least cost" resolution only where a so-called "systemic risk" exception is made. This is an extraordinary procedure which we have never invoked. And again, any money we borrow from the Treasury Department must be repaid through industry assessments.

I am confident in the strength of the FDIC's resources to make good on our sacred pledge to insured depositors. And, remember, no depositor has ever lost a penny of insured deposits, and never will."

Whoa. What a bold statement to make? NEVER will? I have some questions for you Mr. Gray and I ask them not as an attack. I ask them so that both you and my readers understand the "cost" of the FDIC. So since you've made bold statements to Bloomberg, I think you deserve bold questions asked back.

Mr. Gray, Sir, after a statement such as the one you made in September, I wish I could say that you may soon be eating your words, but unfortunately at this time I cannot. I say this because we both know that the FDIC alone doesn't have enough capital to stop the fall of our banks and protect depositor assets this time around. You said yourself that the FDIC couldn't do it by itself in the late 1990's and this crisis is much worse. So, if you could, the next time you decide to write an "open letter" to a well respected major news agency could you at the very least not lie? Why was it that you needed to bring in Suze Orman as a spokes person in the first place?

Also, because you said yourself the FDIC would receive "bridge funding between the time a bank fails to when its assets are sold," could you or the FDIC when you read this please tell me what your organization would do if our largest banks, Citi, Bank Of America, or JP Morgan Chase failed to sell their assets? How would you mark all of their assets to market to sell them once you took them over? Who would buy them? I desperately want to know so I can tell everyone else on the planet. All of us have been trying to figure out the answer to those questions since late 2007 and we're glad you have a solution for us! Foolishly, we've all been under the impression that the reason our banks are insolvent is because they can't properly price their assets and sell them. Most of the time when we try to assign them a value, nobody wants them, then they become unmarketable securities. Mr Gray what are we doing wrong?

What will the FDIC do assuming it can find a value for these assets? None of us want to buy them for anything near what they were on the books for so who then will cover the loss on the sale? The FDIC? Before you answer keep in mind that some estimates put our banks under water by as much as a trillion or more dollars; a trillion! Your agency has just over $45 billion as of September 08, what do you have now after four bank collapses per month since then? Mr. Gray, Citi bank alone burned through $300 Billion in less than 3 months, can the FDIC keep up with a burn rate like that? Indy Mac cost you almost $9 Billion, that fell in July of last year, and was no where near the size of any of the banks on the verge of collapsing right now.

If we assume that the FDIC can't cover the deficit without the Treasury; I'd bet you guys don't have credit lines exceeding a trillion dollars in this economy to bridge the deficit. Mr. Gray, to cut to the chase and put it bluntly; all the FDIC has at this time is the ability to cheer lead, bring in the common man's finance guru Suze Orman, and then try to make us all believe our deposits are safe. You still exist because your brother and sister agencies spend our money to prop up our banks on the front end, before the FDIC has to get involved and worry about the problem on the back end. So you were correct when you said that your agency doesn't directly cost us as tax payers any money, but since we're paying for the banks survival, who's really paying for the insurance?

Suze Orman wasn't lying when she said we won't lose a penny if our money is 100% FDIC insured, however it's going to cost us a fortune to keep it that way.

Is China Trying to Break the Euro?

2009-02-22T22:02:00.008-06:00

Last week the Financial Times ran an article written by famous currency trader George Soros. His article was entitled the Eurozone Needs a Corporate Bond Market, and in it Soros touches on one of the greatest weaknesses of the Euro currency; the inability of the European Central bank to control monetary policy across the member states in the Union.

In the article Soros says:

"The euro suffers from certain structural deficiencies; it has a central bank but it does not have a central treasury and the supervision of the banking system is left to national authorities. These defects are increasingly making their influence felt, aggravating the financial crisis...

...The capacity of individual member states to protect their banks came into question and the interest rate spread between different government bonds began to widen alarmingly. Moreover, national regulators, in their efforts to protect their banks, were unwittingly engaging in beggar-thy-neighbour policies. All this is contributing to internal tensions...

...At the same time, the unfolding financial crisis has convincingly demonstrated the advantages of a common currency. Without it, some members of the Euro zone might have found themselves in the same difficulties as the countries of eastern Europe. As it is, Greece is hurting less than Denmark, although its fundamentals are much worse. The euro may be under stress but it is here to stay. The weaker members will certainly cling to it; if there is any danger, it comes from its strongest member, Germany..."

Soros isn't only one thinking this. In Early February I was also turned onto an article about the deficiencies of the Euro zone which was written by John Mauldin of Safe Haven in his "Outside the Box" column. The article if you are into currency trading is fascinating and I think well worth the read; it's called "Can the Euro Survive." What's important for this post though is that Mauldin includes several very helpful statistical figures in visual format that I'd like you to see.

Mauldin says the following:

"There is nothing in the Maastricht treaty which prevents a member country from leaving the euro, yet the decision to join is effectively irreversible. There are a number of reasons for this, the most important being economic costs. Take Italy which has a history of compensating for lost competitiveness through regular devaluations. If Berlusconi did the unthinkable tomorrow (sorry - nothing is unthinkable in Berlusconi's world), Italy's borrowing costs would explode. My guess is that bond investors would demand double digit returns on a Lira denominated bond to compensate for the dramatically increased devaluation risk. Already in a precarious fiscal position, Italy could quite simply not afford that.

So, if any country were to leave the euro, it would more likely be from a position of strength, and only one country possesses enough strength to pull that off in the current environment. That country is Germany. And, although the euro is not particularly popular in Germany, I believe it is extremely unlikely for Germany to make such a move unilaterally. There are several reasons for that - Germany's history in Europe being the most important.

At the same time, the fact that the euro has saved the bacon of more than one country in recent months - Ireland being the most obvious example - should not be ignored. For this very reason, the euro membership is actually far more likely to grow than to shrink as a result of the financial and economic crisis engulfing the world. The issue the EU has to deal with is whether the new applicants should actually be welcomed. Most of those who would want to join will bring plenty of baggage."

And now for some interesting stats to support the idea that the stronger European countries are growing increasingly discontent with some of their lessor neighbors.

Item 1 2007 Unit Labour Cost Index

(2000=100)

Original Source: http://stats.oecd.org/

Item 2: Actual Debt & Age Related Contingent Liabilities

Original Source: Goldman Sachs, European Weekly, 1/22/2009

Item 3: Sovereign Debt Spreads over Germany

Original Source: Goldman Sachs, European Weekly, 1/22/2009

Now for my thoughts on what someone or some country could potentially do to break the Euro or put extreme pressure on the Euro zone if they had enough money. Assuming there was enough capital to pull it off, the play here is to go short the debt of the weakest of the Euro zone members. (I'd say Italy or Greece with Spain not far behind). By doing this you would drive interest rates up on sovereign debt within the countries you targeted. This would create huge problems for them individually, may potentially push them to the brink of default (not unlike California) and would effectively ruin the European Central Banks day.

In table 3 above you can already see the staggering difference in debt spreads between Germany (arguably the strongest Euro zone member) and Italy, Spain, Greece, and Portugal (as above arguably the weakest). Increasing the borrowing cost on debt in the weakest countries would require capital infusions from the Central Bank, however the bank would be powerless to stop the pressure on the sovereign debt of the individual countries because, as Soros said, there is no unified European Bond Market.

After pushing borrowing costs upward in the weaker countries of the Union one would then begin shorting the Euro currency with as much cash as they possibly could. By doing this you would be adding additional downside pressure to the Euro, as the ECB in an effort to save the ailing countries you were shorting debt on, would have to be injecting more and more capital to keep them afloat. This would squeeze the entire Euro zone and, in my opinion, the strongest of the countries would begin to say "enough is enough." At which point nationalism would grow stronger, more thought would be given to the facts in Tables 1 and 2 above, and I would speculate some members would consider leaving or not assisting their ailing neighbors.

In either scenario you would be able to create a massive crisis and downside pressure on the Euro would grow significantly. Currently tensions are already high around the world as the economic crisis continues to unfold and many are starting to wonder about Europe's exposure to countries in the old soviet block which is already damaging the Euro's strength. In addition, as I am writing this, Germany just released a statement regarding it's assistance to weaker Euro zone members so we know conversations are being had about this issue. The unified debt market problem exists, it's starting the world in the face, and someone with a enough power could exploit it.

So who is large enough to do this? Who would benefit from this? China.

China could benefit from this strategy significantly because it has the largest cash reserve of US dollars in the world. Since China holds between $1 and $2 trillion dollars worth of US currency it has more than enough money to start picking off the weakest of the Euro zone countries and to begin the execution of my plan above. In doing this China would be able to profit from it's shorts on the sovereign debt as the nations it targeted began to fall. Then it would also profit on it's shorts against the Euro because the Chinese are impossibly long US Dollars. Additionally, if China was able to succeed the strongest states of the Union would end up standing on their own and allowing the weaker countries to go it alone and most likely fail.

If China could accomplish this it would ultimately gain the global financial political clout it is so desperately seeking, and wouldn't have to go to war to obtain it. Last week while trading the EURO/USD pair I noticed something strange. During the Asian market hours roughly between 23:15 and 7:15 GMT a very large player was dumping a tremendous amount of Euro's onto the market and buying up dollars; so much so that the market was moving a few cents almost instantly which is HUGE in currency trading. I was not the only person to notice this, and it happened 4 out of 5 sessions (see graph below)

Who in Asia do we know that would want to keep the value of the dollar up? Who in Asia do we know that could benefit from the collapse of the Euro? Who do we know has funded the credit expansion of the United States for far too long, isn't getting any global respect, may have said enough is enough, and taken matters into their own hands? China.

It's Friday!

2009-02-20T09:45:00.014-06:00

Since it's Friday it's time to publish some good news. It's time to look past a horrible economy and all of the darkness that has been brought in front of us throughout our weeks. Here we go, and lets try to smile today!

As in any economic downturn people begin looking for investment and employment opportunities in areas that will not be as likely to be susceptible to hardship. Typically at times like this people begin looking to food producers such as Campbells and McDonalds, low cost retailers like Walmart and Walgreens, and yet still others towards massive corporations who are not highly leveraged with great diversity in their economic holdings. This is good forward thinking for some but not for me. Since there is the insane discussion being held about nationalizing our banking system, I figure we as the tax payers will be the owners of giant Zombie banks.

So you wanna know what I'm starting to look at this week? Zombie Survival Kits. Yes, Zombie Survival Kits. Hey why not? I mean technically there are zombie's around us already and soon you may even own one. So you think you're ready for such a situation? I suggest you know for sure and take this survey to find out. Then depending on what happens in that survey I suggest you pursue stocking up at amazon.com (see link its funny).

Health Systems Companies and Hospitals are seeing a growth in revenue and earnings. Good for the companies, Good for doctors, bad for us because it means we're getting sick or injured more frequently. Never the less at least there is still money being made some where and these companies are succeeding even in the downturn.

Today Verizon released the Hub which is a VOIP solution that unifies the entire telecommunications system of the home. According to Verizon's website this phone costs $200, and will provide unlimited calls within the US and to Canada, unlimited text messaging ability, unlimited internet connectivity, and a slew of other services for just $34.99/mo. Awesome. It's this type of private sector innovation that will bring us closer to the Tron world we all wanted so badly in the 1980's and will get our country moving again.

This week another giant financial fraud was uncovered as the SEC and FBI brought charges against Allen Stanford and his bank. Stanford, allegedly ran a $9 Billion dollar scam by offering investors high yield long term CD's with interest rates well above sustainable market rates through his bank. This is a horrible story for investors involved and is yet another black mark to the financial community and the United States regulatory system. However lets look for a silver lining in the situation; at least another scam is off the streets and more people will not be hurt going forward. It is interesting to me that this long term fraud was found out only after Bernie Madoff was discovered and his story began to unfold. After thinking more about it I can't help but wonder if Bernie Madoff invested client funds with Stanford in an attempt to earn a high yield constant return for investors to meet his cash flow needs in his ponzi schme. Think of the irony here; The ponzi scheme king gets bilked by another fraudster and creates a leveraged Ponzi scheme. Sad but hilarious.

Our President, Barack Obama with the help of our Congress finally got the Economic Recovery Act passed this week....

(Did you think to yourself, "That's not good News?")

If you thought that, it more than likely means that you are one of the many who are starting realize our government is failing us and needs to make serious changes. I, and others, yesterday applauded Rick Santelli for speaking out publicly about what has been transpiring and the Chicago Board of Trade showed (what I believe anyway) to be the underlying sentiment of this country very vocally. This is a great thing and shows that Americans will only tolerate so much before pushing back. Santelli might not have known it at the time but his comments may have awakened a nation and started a movement that has needed to happen for a long time. That is definitely something to smile about.

Have a great weekend everybody!

*Special Note: One final thought before the weekend; today is options expiration Friday. If you are an investor you need to be on the look out for anything crazy that might be occurring in the markets. As for me I am watching anxiously to see what happens with Citigroup and Bank Of America throughout the day and over the weekend as the foolish, non-sensical talks of bank nationalization continue to swirl. I wrote a theory involving bailout funds, the government, sovereign wealth, the major banks, and Tim Geithner earlier this week that I think you should read. If my ideology holds it wouldn't surprise me at all to see the talk of nationalizing banks fizzle after the market close today, only to find out later this weekend or early next week that more bailouts will be used to prop up the ailing banks. I doubt very highly shareholder equity will be wiped out at these banks and if that does not happen a lot of people may stand to profit from it. Keep a close eye on the insider, major holder, and overall long transaction volume activity on these financial stocks...that may be the craziness which takes place this options Friday.*

Rick Santelli For President

2009-02-19T13:08:00.005-06:00

Watch this video of Rick Santelli at the Chicago Board of Trade from this morning:

http://www.cnbc.com/id/15840232?video=1039849853

I bet you have never seen something like that on live financial television before have you?

Working out of the Board of Trade and being around traders on a daily basis I think Rick is right. Everyone here, and I suspect around the country, is finally sick of what the government is doing to us. Could this mean that a tax revolt is coming? A revolution? Sweeping Reforms?

Let's hope so because until we do something to stop the government from wastefully stealing our money and the money of America's future generations the injustice will not end and the real crisis will never be over.

Thanks for standing up Rick, you're a good man!

To Infinity and Beyond?

2009-02-17T22:48:00.008-06:00

For the past couple of weeks I have written on bear flag and pennant theory. I personally am of the belief that today may go down in history as the day things officially unhinged for good. This post however is not for the discussion of that thought so stay tuned. I would like to come back to the theory however so refresh yourself on the previous posts if you have forgotten what was written.

See Previous Posts Here:

1. Bear Flag and Pennant
2. Bear Flag and Pennant Part II

For a quick recap, in the first post I discussed the potential set up of a bear flag and pennant within the S&P 500. Then I followed that up with a second post about a week later indicating more specifically my thoughts on where the market may go as the pennant and flag theory looked like it might hold. Today I think we got some more clarity on this issue, but again I don't think more words are required.

The following are shots taken off of http://www.stockcharts.com/ of the S&P 500 index:

Originally drawn late January published on February 5th

Published on February 10th (same trend lines cleaned up)

From today (Same original lines)

You be the judge.

Why The Nationalization of Our Banks Won't Happen

2009-02-16T22:42:00.027-06:00

Tim Geithner is now the United States 75th Secretary of Treasury and after about a month in office he's already being called incompetent and an improper selection for treasury head by many. Before passing judgments against Mr. Geithner myself, I wanted to find out a little bit more about who he is and where he came from. So, you like I should be informed, and compliments of the Wall Street Journal please read this brief biography of Mr. Geithner before you continue on.

Now that you know a little bit more about Timothy Geithner, let's take a look at some of the criticism being thrown his way after only a month in office:

1. The UK say's Geithner's rescue plan is filled with holes
2. The US say's Geithner is the wrong man for the job
3. Prominent Bloggers are calling for his head
4. Prominent Economists are calling for his head
5. He is continuing to receive criticism for not paying his taxes properly

After reading his biography and some of the criticism against Mr. Geithner, you, like I, may be wondering why Barack Obama appointed him. This week I decided to take that one step further and find out. My reasons were simple; I couldn’t understand why a man in such a powerful position would be so widely criticized after only a few weeks in office. However, after the passage of the Economic Recovery and Reinvestment Act and the unveiling of Geithner’s bank rescue plan something just didn’t feel right. But, in fairness, before passing judgment, I needed to know more.

My research on Mr. Geithner started as any research begins today, on the internet. I figured as a currency trader it was obviously important for me to “know” the man controlling my currency. So I decided to read virtually everything I could find related to Geithner in order to have a better understanding of where he might be coming from with some of his policy decisions. During the course of my reading I came across some very startling coincidences and formulated a rather disturbing theory.

The theory that I have come up with regarding why Timothy Geithner was selected as Treasury head is bold. However, before I share it with you, I feel that my thoughts are based on reasonable information which is available to everyone if they are willing to look. My idea may be troubling to some, but sometimes the wildest ideas provide appropriate explanations during the wildest of times. So without further delay, after doing my research, I believe that Timothy Geithner may have been placed into the Treasury position, namely by forces within Citigroup (and potentially other large US banks), non-us based sovereign wealth funds, and their collective influence over the political system rather than on his actual qualifications. I believe that this is possible based on the information that I will lay out for you in the following paragraphs. Each of these groups could have potentially needed Geithner in power because they all would have wanted to ensure federal bailout funds continue to flow into their banks in order to ensure they were not left to collapse or be nationalized.

A very bold accusation indeed, terrorifying if it's true, but now let me explain why I believe this idea has some credibility and why I do not feel our banks will be nationalized or ever be allowed to collapse (in terms of wiped out shareholder equity):

Point 1
If you reviewed Geithner's bio from the Wall Street Journal above, you learned that he was the under secretary to Lawrence Summers and Robert Rubin during the Clinton administration. This is a critical bit of information because Hillary Clinton is now our now Secretary of State. In addition to this fact her husband (obviously ex-president William Clinton) has been traveling around the globe since his presidency raising funds from international groups for his foundation.

Why does this matter?

It matters because our banks (namely Citigroup) have more foreign wealth interest in them than virtually any other single place of sovereign investment in the world (except for maybe US Treasuries). As a result if our banks share holder equity is allowed to go to zero all of those invested monies and owned shares would also go to zero. I would speculate that the Clinton's, as well as our government can't allow that to happen from an international relations stand point.

As an example, the most notable sovereign investor in Citigroup is Saudi Prince Al-Waleed bin Talal who has provided them an undisclosed (in aggregate) amount of money since the early 1990's. Although it's near impossible to know how much he specifically contributed, in late January of this year a story hit the news about his company being the largest shareholder in Citi and losing a fortune on their investment with the bank, clearly this is affecting him and Saudi Arabia, so deduction tells me it must be affecting all of the others sovereign investors as well.Also keep in mind that Citi is not the only bank to need and/or seek sovereign wealth fund investment over the past several years. For quick reference here is a listing of some of the biggest investments in US banks from abroad (this is not all of them, if you search you'll find a ton more). This fact suggests to me that both Hillary and Bill have a vested interest in not allowing our banks to fall. To spell it out, if they did Hillary's job as Secretary of State would become infinitely harder and Bill's foundation would likely take heavy losses.

The Geithner Connection: Geithner is connected to both the Clintons through Bill's administration. I would speculate the Clinton’s may need him to ensure shareholder equity does not get wiped out at the banks as a result of my points above.

Point 2
Lawrence Summers the 71st secretary of the treasury who Geithner undersecretaried (yes I used it as a verb) for has recently been accused of taking bribes from Citigroup. In addition as of late, both he and Geithner have been pushing Christopher Dodd to stop pursuing salary caps for Wall Street Firms who received bailout funds. But lastly, and most importantly, Summers is also actively fighting Paul Volker to stop the formation of an outside council of prominent economists to assist the government in handling the economic crisis.

So why would he do all of these things?

To answer this question please consider for a moment what could happen if a group of outside economists had the chance to advise the government on what to do next. Based on the current sentiment of global economists, I would speculate that they'd probably decide to stop bailout spending at the bank level. This would greatly undermine both the previous administration’s plans as well as Geithner's new proposal. Most importantly though this choice would likely undermine the Treasury’s ability to transfer tax payer money into the banks and could render shareholder equity worthless.

If this happened the Clinton's would lose, Geithner would lose, and a lot of foreign nationals would be very upset. Seeing as Summers also owes the Clintons for his time in office, and must have a deep relationship with them, it is also not surprising to me that he would want to help out.

The Geithner Connection: Geithner was the under secretary to Summers during the Clinton administration. Through summers, Geithner gains access to a well liked previous secretary who has connections to the media as well as other high level officials. Summers also more closely links the idea of not wiping out share holder equity at our banks to the Clinton. Additionally, the use of a Citigroup private jet for personal travel by Summer’s brings Citi more directly into the theory.

Point 3
Robert Rubin, the 70th Treasury Secretary, under Clinton, whom Geithner also undersecretaried for worked at Citigroup from 1999 until last month. During his tenure at Citi he received (as reported) more than $17,000,000 in direct compensation and $33,000,000 in stock options for his services on Citi's board of directors. Also in January 2009 Rubin made Market Watch's list of top ten most unethical business people. Here his name sat along side the likes of Bernie Madoff, Rod Blagojevich, and Ted Stevens; amazing company to say the least. Furthermore, Robert Rubin stands to lose tremendously if Citi were to be nationalized or allowed to collapse due to his compensation through Citi stock and options. Rubin has also expressed strongly that he does not support the nationalization of banks. He has also publically stated that he feels mark-to-market accounting is harmful to banks and to the system. Lastly (and this becomes relevant in my fourth point) Rubin also has sat on Ford Motor Company’s board of directors.

The Geithner Connection: Like Summers, Geithner was under secretary to Rubin. Also like Summers, Rubin worked for the Clinton administration and there is an even more clear connection to Citi group. Rubin also connects the foreign nationals who helped Citi to the Clintons. He does so because he must have personally coordinated, or at least been involved in, most of the capital infusions that came into the bank from sovereign wealth from 1999 forward. Again remember this part when you read Point 4, Richard Rubin also sits on the board of directors for Ford Motor Company (which is disturbing in and of itself).

Point 4
Tim Geithner's father, Peter, oversaw the Ford Foundation's micro finance program which was implemented in Indonesia during the 1980's. Barack Obama's mother, Ann Dunham, was involved in that same micro finance program from the Indonesian side. This is significant because Dunham, allegedly dealt with Geithner's father through the The United States Agency for International Development ("USAID"). I was also able to find information that stated that she met Peter in person at least one time during their efforts.

After this, years later while with the IMF, one of Tim Geithner's biggest accomplishments was to rescue Indonesia from economic collapse. I don't think it's any coincidence that of all the countries in the world that he could have assisted with, one of the few he actually worked for was Indonesia. It is also interesting to consider how President Obama throughout his campaign portrayed his mother as being a “simple” woman. I doubt highly that a simple woman would be dealing with the Ford Foundation and the USAID to develop micro finance programs as a foreign national in Indonesia.

Finally, through Rubin, there is an intriguing connection between Peter Geithner and Ford Motor Company. Peter ran the Ford Foundation and Now Rubin sits on Ford’s board of directors. Another odd point on this is that Geitner became Under Secretary to Rubin during Clinton’s first term, Geithner is now 47 years old. How old would that have made him when he was appointed? Potentially 25? This is odd to me seeing as a federal position in the treasury would typically be reserved for a man with many more years of experience at the time of his appointment.

The Geithner Connection: Through Geithner’s father, there is a connection between Rubin at Ford and potentially the Geithner family. In addition, through Peter Geithner and Ann Dunham, Barack Obama is now directly connected to the theory. The Clinton’s stay on board with this point as well because the selection of Timothy Geithner to under secretary during the administration while he was potentially only 25 must have passed by the presidents desk and may have been influenced by Geithner’s father and the Ford Foundation.

My Personal Conclusion
I believe that Tim Geithner was placed into the treasury position because he is the only person directly associated with everyone listed in the points above. He is very clearly connected to the Clinton’s, Two former Treasury Secretary’s, Barack Obama, The Ford Foundation, and through his policy choices, he currently controls the fate of our banking system.

After doing my research I am of the opinion that Geithner is in his office as I write this not because of his qualifications but rather as a result of tremendous lobbying power. He is there, because forces greater than him are influencing and calling the shots for Barack Obama; at least in the treasury area perhaps not broadly. This information has ultimately reminded me that our political system is just as incestuous as it’s ever been. All in all if my thoughts are true, there is no doubt in my mind that our financial system as it exists today will not be fixed, our banks will not be nationalized, and it will take a revolution to occur for real change to happen within our banks.

In closing, a few weeks back I touched on Alexander Tyler's idea of how societies collapse in "History Repeats Itself." After doing today's research I am reminded of another set of ideals that I think applies to the United States and its current state of affairs; the Kubler-Ross model of dealing with tragedy:

After a tragic event (The collapse of the greatest country in the world perhaps?) the mind and body deal with the situation in the following progressive steps:

Step 1: Denial
Step 2: Anger
Step 3: Bargaining
Step 4: Depression
Step 5: Acceptance

I am fully convinced that the United States has hit Step 8 of Tyler's collapse theory and is moving from government dependence to bondage. Assuming we are at that point the only way to get back to step one and start over again is to move away from our denial that this is not happening. Then we need to look at the facts available to us, get angry, and start working on the bargaining part before it's too late and we hit full blown Depression.

Cash For Gold Part II

2009-02-15T19:23:00.006-06:00

In Cash 4 Gold? I wrote about a company called Cash4Gold.com. Since that time Cash4Gold has moved into the national spot light with bloggers across the globe writing about it (I'd like to think I was one of the first) and a Super Bowl commercial (see below).

In addition to this, the relentless Cash4Gold.com commercials have not yet ceased to ruin our evenings and many of our peers have now used the cash4gold service. Enough with the history though, read my last post if you've been living under a rock for the past 6 months and don't know what cash4gold is; onward.

I wanted to find out how the whole process worked and I requested the "mail in kit" at 2 am on a normal Wednesday evening (no I had not been drinking or doing drugs). When I got the package I reviewed its contents, considered my options, and I decided to send my return kit back to Cash4gold. I did this only after I had scribbled the URL to this video (see http://www.wheredagoldat.com/ or the original post), along with the simple sentence "Where Da Gold At?" on a piece of paper which I stuffed inside the envelope. When I did this I also added 7 standard paper clips into my package; hey I had to send some precious metal right? This all took place on January 19th, 2009.

On January 31st, 2009 I received a letter back from Cash4Gold.com that read exactly as follows:

Initial Cash4Gold Letter

Dear Cash4Gold Customer,

Cash4Gold has received your items and after a complete evaluation we have determined there is no precious metal value contained in your shipment. If you would like any of the items of your shipment returned to you please call our customer service department at (800) 241-1811 to request a return. You may also request a return by emailing info@cash4gold.com. We apologize for any inconvenience that this may have caused you. As stated in our terms and conditions shipping and handling charges will apply to all returned shipments.

Sincerely,

Jeff Aronson
CEO, Cash4Gold

It took me all of about 15 seconds to finish reading that message before I got on my computer to request my piece of paper which read "Where Da Gold At?" and 7 Paperclips back. Hey times are tough and paperclips aren't free! So on January 31st, 2009 I sent Cash4gold the following email:

My Response To Cash4Gold

-----Original Message-----
From: James Bibbings
Sent: Saturday, January 31st, 2009 5:10 PM
To: info@cash4gold.com
Subject: Return Shipment (Email Case#271860)

I recently submitted some materials to cash4gold.com and was informed that they were of no value via US mail. I would like my items returned to me if they cannot be processed. Please let me know the steps that are required for me to get my items back and I will be more than happy to provide you with whatever information you may need. On the invoice I received it says my pre-assigned number is C4G1141964.

Thank you,

James Bibbings

Then this came back:

Subject: RE: Return Shipment (Email Case#271860)
From: "info@cash4gold.com"
Date: Mon, February 2, 2009 10:39 am
To: james@xxxxxxxx.com
Priority: Normal

James,

Thank you for your email. Please allow 7-10 business days for the processing and return of your items via UPS. If you have any further questions or concerns please don't hesitate to contact me.

Thank You

Ana O.

I was shocked. "Well." I thought, "If they send my paper and my paper clips back that would be pretty impressive." At this point I was even willing to pay the shipping and handling just to see it happen because I couldn't believe they would actually send me my worthless stuff back; that all changed though on February 12th.

I came home from the office on the 12th and a package was waiting for me at the front desk of my building. I signed for it, said thanks to the woman at the front desk, and to my dismay discovered that the package was from Cash4Gold.com. With haste I went upstairs and opened up the white pouch which had arrived (and prayed there wasn't anthrax inside). The package was a UPS ground shipment padded bag lined with bubble wrap on the inside of it. Then within the bag I found my original Cash4Gold plastic shipment wrapped in yet more bubble wrap. This packaging was then delicately encased within 3 wraps of clear duct tape. Shockingly, what I'm getting at here is that all seven of my paper clips were returned to me in a bed of extreme padded comfort, but alas my paper had not made the trip.

All in all my Cash4Gold experience did not benefit or harm me it just wasted time Cash4Gold's time. I figured that was the least I could do for them after they had made me suffer through all of those horrible commercials. In any event I never had to pay any shipping costs and received my precious metals back (which were of course completely worthless) with no hassle or headache what-so-ever.

The process was so smooth I'm actually considering doing it again. Actually, you know what I think I will. Tomorrow I'm going to send them a piece of paper that says "Seriously, Where Da Gold At?!" but this time around I'm going to include some brass fasteners and a couple of pennies. If that stuff comes back, I'll keep you posted.

It's Friday!

2009-02-12T21:37:00.008-06:00

As many of you know Friday's are for good news and trying to make people smile at the Bibb so lets get started:

Watch: This clip; we both know you have 3 minutes worth of time to burn if you're at this blog, it's funny, it's true, and it's about the economy.

The Daily Show With Jon StewartM - Th 11p / 10c

Solving the Economic Crisis

Daily Show Full Episodes
Important Things With Demetri Martin

Funny Political News
Joke of the Day

Read: This story about Michael Phelps and the potential he may be arrested for smoking pot in a photo! Don't think this is funny? Ok then check this out and ask yourself if these people are getting arrested for smoking pot in a photo or through oral/written admission: Paris Hilton, Arnold Schwarzenegger, Kristen Stewart of Twilight, All of them. Before I continue I have never smoked so much as a cigarette in my life, no pot, no other drugs, only booze. Irregardless of that fact I still find it hilarious that nearly 40% of them and nearly half of US smoke marijuana, it's public knowledge, and yet Phelps is getting arrested for smoking in a photo? Don't we have an economic crisis and real crime to worry about? I mean for crying out loud the guy didn't lie, he came out and admitted he made a mistake, apologized to the WORLD, took a suspension from professional swimming, and that still wasn't enough? Mr. Phelps if you some how read this would you please do as the politicians do and recant your statements. After doing that just say that you were smoking tobacco out of that bong so I don't have to read about you anymore would you please? This witch hunt over literally nothing is nearly as bad as Congress spending time worrying about steroid use in Major League Baseball! Come on already! All of it is just laughable, but I bet it's even funnier if you're high.

Listen: Make your own David Lee Roth Song! I'd bet you a post of your choice on this blog if you don't laugh within 5 clicks. If anyone wants to take me up on that and can be HONEST I'll write a topic on anything you choose.

Be Slightly Encouraged: (Don't get your hopes up but...) Two good pieces of Economic news hit the wire in the last 24 hours and may lift your spirits. The first is that retail sales were stronger than expected, though I'd argue only because everything has been half off since Christmas (I guess that makes us smile too right?). The second is that China's Economy Is Showing Signs of Recovery, however Chinese economic statistics are notoriously unreliable so we'll take that with a grain of salt. Sorry China while the rest of the world is collapsing you aren't selling, for this is the way of the export economy.

Consider: Is it ironic to anyone else that the Economic Reform Act, arguably the biggest piece of legislation to come through congress in the past 40 years, is being put to vote on Friday the 13th?

Have a great weekend everybody!

Goo Goo's and Mugwumps

2009-02-11T19:57:00.008-06:00

Picture taken from the Financial Times online at http://www.ft.com/

Goo Goo's and Mugwumps. What does that mean? Are those groups of people? Is that even English? Yes. Yes. and...Yes (well kind of). For starters a Goo Goo was a politician in the late 1800's that ran on the platform of working towards the reform of "Machine Politics". Goo Goo's pushed the idea of "Good Governance" (Goo Goo) and picked up the slang nick name for trying to be nice guys, or what we would call Bi-Partisan today; they often closely followed the Democrat platform.

Mugwumps (Algonquian roots not English) also existed in the late 1800's and ran on a similar platform of political reform. They were Republicans but sided with Democrats to support Grover Cleveland and stop "Financial Corruption" that was running rampant at the time.

Does this sound familiar to you? The Goo Goo's and the Mugwumps are back and they're badder than ever! The problem is however that the reason you don't know about Goo Goo's or Mugwumps is because bi-partisan behavior, historically, never works. According to author David Tucker:

"The fact that Mugwumps embodied the liberalism of the 19th century, and their rejection by 20th century historians, who embraced the government intervention of the New Deal and the Great Society, is not surprising. Mugwumps tended to come from old Protestant families of New York and New England, and often from inherited wealth. They belonged to or identified with the emerging business and professional elite, and were often members of the most exclusive clubs. Yet they felt threatened by the rise of machine politics, one aspect of which was the spoils system, and by the rising power of immigrants in American society. They excelled as authors and essayists, yet their writings indicated their social position and class loyalties. In politics, they tended to be ineffectual and unsuccessful, unable and unwilling to operate effectively in a political environment where patronage was the norm."

As I touched on earlier this week in Excuse Me You Forgot To Give Me My Change the Obama plan clearly falls short of it's promises for economic development. It will not create 3.5 million jobs, will not jump start the economy, will not save our banks, and doesn't even properly address the problems in our economy. What is most appalling about this though is that most everyone knows it won't work! I've written countless times about our banks being insolvent, and on how lending and more credit are not the solution. I've also stated that our banks need to fail and that our economy needs to bottom out before it will ever go forward, and I'm not the only one saying this. So why then is the current Chief of the Goo Goo's pushing for more Mugwumps to join him?

The reason is deeper than his economic plan working or not working. The reason is that whenever the Democratic party has run on the platform of political reform they use the ideals of bi-partisan governance to get elected. They do this to capitalize on the short comings of a strongly unified power in the political system ahead of them and to work around it rather than through it. Then once elected they try to shift general sentiment, as well as ideals, from where they always naturally head anyway; towards greed and corruption. This plan of action on it's face is a good thing, however history shows us it doesn't stick and it doesn't work inside a Democracy no matter how much we'd like it to or believe that it will.

To put it bluntly now that President Obama is in office his plans are idealistic, not realistic, and I don't think he or his people care; very Goo Gooey. Evidence of him not caring can be seen by his non-response to investors and economists throughout the world laughing at him over his stimulus bill. I believe however that the ultimate reason for his silence and his lack of care is that he actually knows what the right response to solving the economic crisis is (to do nothing and let it collapse). Even though he is smart enough to recognize this, he also knows that he can't do "nothing." If he did nothing, he would be committing political suicide by allowing the collapse of the US economy. This would be much worse than what he will be subjected to if a vauge economic stimulus package doesn't work. So now that he is faced with a choice of two evils, Obama is making the best out of it and pushing social reform behind an economic mask. Ironically though, as clever as this plan may be, when Goo Goo and Mugwump ideals appear in politics, shortly thereafter, the political system becomes more divided than ever before. After this, overtime and historically of course, governance becomes more of a power grab than anything else and returns back to that which had been in place prior to the Goo and the Wump.

Let's hope that history doesn't repeat itself and President Obama shocks the world by delivering on his now infamous "CHANGE!". If not we're all in for a rude awakening and I for one certainly don't want to end up with any mugwump on my shoes.

Bear Flag and Pennant Part II

2009-02-10T22:58:00.008-06:00

Last Thursday I touched on Bear Flags and Pennants and tried to offer some insight into where the S & P, overall equities markets, and economy may go. After just a few short days it now looks as though (thus far anyway) my charting buddy String and I may be right.

Today the equities markets dropped big after the Obama/Geithner/Congressional Announcements so we pulled the following charts to show you how we stood with our original bear flag and pennant ideas. Keep in mind that these graphs were initially put together on January 30th and held static through today. Note how the market has hit the lower trend line almost perfectly from February 1st through today. Also notice how the market has not broken the upper trend line. What was strange about this particular set up that was stumping us was the elongated sideways movement after the flag set up. We feel this occurred because of the governments discussions and their affects in the market. Today though the market may have decided it was fed up with Team Obama's antics and here's why:

Chart Compliments of http://www.stockcharts.com/

Now the "cleaned up" version so you can see the trend line on the bottom leg of the pennant more easily:

Chart Compliments of http://www.stockcharts.com

Based on the move down in the S & P today of nearly 5% the index finally broke our established trend line so this is why I am thinking we have begun our journey. If you read the last post you now know that if you follow the theory behind bear flags and pennants, after the market converges or shows a flag (as it is/has now) it is likely to set up for a drop or gain in the direction of the initial move that took place in the market you are tracking; In theory this move should be roughly half of the initial directional move. Keeping that in mind and using the first chart above I am expecting the S&P to move downward to around an index value of about 640 (to be safe lets call it 670 but it could go as low as 640).

Why? Lets do the math using the flag and pennant theory:

Without saying anything more the following may or may not be true:

1. We may be at the beginning of the last big move before the economy bottoms out. (I doubt it but maybe) In general trying to call a bottom is a fool's errand and I don't suggest anyone ever try to do it; never try to call a top either for that matter. I like to always trade the middle 60%, never go after the top 20% or bottom 20% of a market.

2. I could be totally wrong and the market could turn, this is only a theory and it is not a proven fact. The Flag and Pennant theory is one of many ways to guess at the future market direction of any financially traded symbol, index, or commodity. The S&P has a nice set up right now for this idea and I think the theory is something fun to play around with.

3. Only time will tell us what happens, if the market does collapse you saw here first that the Obama administration had a shot. Spending won't get us out of this mess but a good plan might have restored some confidence and held us steady; the market wanted good news and hesitated to move down for nearly 2 weeks with no fundamental basis. Unfortunately though our current political leaders, just like those before them have let us down again.

Stay tuned and hold on tight.

Quick Intraday Comment

2009-02-10T09:01:00.003-06:00

I just read the New York Times has published word that Geithner has gotten his way regarding how the remaining $350 billion in TARP funds will be spent. According to the article:

It [the plan] intends to call for the creation of a joint Treasury and Federal Reserve program, at an initial cost of $250 billion to $500 billion, to encourage investors to acquire soured mortgage-related assets from banks.

I'm borrowing this idea from others but considering that the market cap of our 3 largest banks (Citi, BOA, JPMC) is only $160 Billion combined how does this make any sense? Why not just buy all three and give them as much money as they want? We're going there anyway!

This is exactly why the banks that are weak must fail. They must fail because the banks that are left standing will have an opportunity to pick up the pieces and help the economy turn around. From my post last week I showed you the 8 steps leading to the fall of all democratic states. I had said that I thought we were between points 6 and 7; let me restate if no one speaks up to stop the Economic Recovery Act and the Geithner program we are arguably already at point 8 and it's all over.

Excuse Me...You Forgot To Give Me My Change

2009-02-09T23:57:00.012-06:00

I have touched on the Obama American Reinvestment and Recovery Act several times now and most recently in "Cheer Leading" I suggested we pay close attention for differences in the way our new president ran his administration and tried to move bills through the system. As of now it looks like there is literally no difference between the Obama approach and the Bush approach, the cast has just changed. Quickly lets compare:

Bush Administration $700 Billion Dollar Bailout

1) There is ferocious Bi-Partisan fighting leading up to the vote on the bill
2) The bill did not pass the House
3) The Bush administration and the media used fear mongering to get the bill voted on in the Senate as an amendment to a previously passed bill.
4) Prior to the vote, President Bush went to the public and addressed the nation on prime time TV to stress the urgency in passing the bill. During his speech he speaks of the dire consequences of not passing the bill.
5) The bill was voted on again in the Senate where it passed, and was sent to the House where it, on it's second time around, also passed creating the TARP.

Obama Administration $838 Billion Dollar Economic Recovery Act

1) There was ferocious Bi-Partisan fighting leading up to the initial vote on the bill.
2) The bill is brought to the House but no Republicans vote for it, dealing the Obama administration's desire for bi-partisanship a major blow.
3) A new version of the bill was written and brought to the Senate as fears the original bill will not pass the Senate in its original form are realized
4) The Obama administration and the media use fear mongering to try and swing Republican votes in the Senate.
5) President Obama went to the public and addressed the nation on prime time TV to stress the urgency in passing the bill. During his speech he speaks of the dire consequences of not passing the bill.
6) The Senate votes on the bill and it passes by 1 vote.
7) The House version of the bill is all but forgotten, the Senate version must go to the house and America awaits it's fate.

So what is America waiting for in the Economic Recovery Act?

I recognize this will get long but I want to highlight certain things that OUR President and OUR Congress have decided are required in "Emergency" fashion to save our economy. Overall this bill, just as the TARP bill, will not recover or solve anything. However, some items included within it are socially useful as money will need to be appropriated to them eventually anyway. I would argue though that such allocations should not be happening during the worst economic crisis in history and that most of the items in the bill are absolutely egregious and unrelated to our economy. Also as you read please keep in mind my old post on how much a billion is and try not to get too angry:

General Spending Provisions

1. $40 billion to provide extended unemployment benefits through Dec. 31, and increase them by $25 a week; $16.5 billion to increase food stamp benefits by 12 percent through fiscal 2011 and issue a one-time bonus payment; $3 billion in temporary welfare payments. Before I begin remember the name of this bill...Economic Recovery and Reinvestment Act...$16.5 Billion to food stamps? A one time payment of $3 billion in welfare payments? Really? (Lets keep a running total: $19.5 Billion)

2. $17 billion to give one-time $300 payments to Social Security recipients, poor people on Supplemental Security Income, and veterans receiving disability and pensions. $17 Billion to Social Security recipients, poor people, and Veterans equaling $300 a person...once. ($36.5 Billion)

3. $20 billion to subsidize health care insurance for the unemployed under the COBRA program; $87 billion to help states with Medicaid; $22 billion to modernize health information technology systems; $10 billion for health research and construction of National Institutes of Health facilities. $87 Billion to Medicaid? I thought this was an economic bill? ($123.5 Billion)

Tax Provisions

1. As written in the Original House Bill - About $145 billion for $500 per-worker, $1,000 per-couple tax credits in 2009 and 2010. For the last half of 2009, workers could expect to see about $20 a week less withheld from their paychecks starting around June. Millions of Americans who don't make enough money to pay federal income taxes could file returns next year and receive checks. Individuals making more than $75,000 and couples making more than $150,000 would receive reduced amounts.

Now amended in the Senate Bill -The credit would phase out at incomes of $70,000 for individuals and couples making more than $140,000 and phase out more quickly, reducing the cost to $140 billion. $145 Billion in tax credits (recognizable by April 15, 2010 keep in mind) in the amount of $500 and $1000 dollars. How does this help us now? People making more than $70,000 receive even less or nothing at all and people paying zero taxes are now eligible even though they won't be eligible to file a return until 2010, see Change You Can Count On. ( $268.5 Billion)

2. In the original House Bill - $18.3 billion to give greater access to the $1,000 per-child tax credit for the working poor in 2009 and 2010. Under current law, workers must make at least $12,550 to receive any portion of the credit. The change eliminates the floor, meaning more workers who pay no federal income taxes could receive checks.

As amended in the Senate sets a new income threshold of $8,100 to receive any portion of the credit, reducing the cost to $7.5 billion. How many babies can you have? Octuplets mother of 14 Nadya Suleman if you are reading call your representatives and thank them you now get $14,000 for being irresponsible! ($286.8 Billion)

3. $4.7 billion to increase the earned-income tax credit — which provides money to the working poor — for families with at least three children. Nadya don't hang up! Thank them again! Now you get even more! ($291.5 Billion)

So the Economic Recovery and Reinvestment Act of 2009 officially authorizes $291.5 Billion of $838 Billion (35%) as money available only to the poor. I'm all for social responsibility when and where it's warranted, however in the midst of the worst economic crisis in history this is quite simply unacceptable. What is wrong with you Obamanation?! 35% of this bill has nothing to do with the economy or reinvestment! This bill is not for the working class, it is not for reinvestment, and it will not save America. Plain and simply put this is a welfare bill and there is nothing else in this proposed law that will help working America.

Don't lie to us Obama! You're no different than the Bush administration, in fact you might be worse! At least they attempted to put $700 Billion back into the economy (although it didn't work). That plan although heinous had at least a small chance of making some kind of difference. For crying out loud, how can you tell us this bill needs to be passed immediately to avoid an economic depression and stop an emergency of epic proportions when it will do literally nothing for our future or economy! Why are you encouraging irresponsible people to have more kids? Why are you taking tax rebates away from people with jobs who are paying taxes to give them to people who pay less taxes? Why are you wasting our money on non solutions and continuing to spend us into oblivion?

I and everyone else in this country want our change back. (PS I wrote in Ron Paul)

2009 Prediction Update #2

2009-02-08T22:16:00.007-06:00

In my 2009 predictions post I wrote about the potential for insurance companies to default on guaranteed life insurance annuities. Last week this idea hit the mainstream news when the Wall Street Journal wrote a piece on it:

So it isn't surprising that, when 2008 ended, many executives, analysts and regulators took a sigh of relief as they examined preliminary results of four months of extreme stress. "The industry took a body blow, and it still remains viable -- not as strong as it was, but viable," says Connecticut Insurance Commissioner Thomas Sullivan.

Of course, markets are still unstable, and getting through 2008 proved expensive at some companies because of shortcomings of the risk-management efforts. Insurers collectively have taken charges against earnings totaling billions of dollars. To show regulators they can fulfill their promises, they've either raised new capital to further back the guarantees, or have transferred it from other parts of their operations.

Some insurers' shares are off more than 80% over the past year, reflecting stockholders' worries that the companies may need to take more charges and raise more capital. They'll learn more details this week, when many U.S. insurers will post fourth-quarter results.

A new worry also has surfaced: Volatile stock markets and low interest rates in recent months have pushed hedging costs to sky-high levels. Numerous insurers have begun raising prices or trimming guarantee features to try to bring the promises in line with the costs. Some price increases apply to existing annuity owners, as do changes like the elimination of some risky stock funds from the lineup. Consultants anticipate more changes ahead.

Now that we are two months into 2009, things haven't gotten any better and don't look to improve anytime soon. Just tonight a new story came up regarding Hartford Life and its plans to request capital relief. Interestingly the same man, Thomas Sullivan, who said the industry was viable at the end of 2008 now two months later says...err doesn't say:

In a statement Friday Connecticut Insurance Department Commissioner Thomas R. Sullivan said he couldn't comment publicly on such requests or the department's analysis.

"The Connecticut Insurance Department takes seriously its obligations to monitor and review the financial positions and solvency of insurance companies licensed to do business in this state. We will continue to be vigilant on this front and be guided by balancing what is in the best interest of the consumer and the companies while also maintaining a sound and competitive marketplace," he said in an emailed statement.

Last month, the National Association of Insurance Commissioners turned down a request by life insurer groups to cut regulatory capital requirements."

"Going forward, Hartford will refashion its variable annuity offerings to present less risk. A new product it will launch in May will offer much-valued lifetime income, but will come with less features and a lower price than what some competitors are offering."

Interesting. Looks to me now that "money doesn't always grow at X%" the math's not adding up. Lets check back in on this idea in two more months and see where we are by then. My guess is that our friend Tom Sullivan and his industry will have taken much more than a body blow because as of now there is a red dot squarely on their foreheads.

It's Friday!

2009-02-06T08:59:00.006-06:00

If you've been a reader for any amount of time you know that I like to keep Friday's for good news and encouragement. I can think of nothing more dastardly than what the media does to the American public by publishing bad news every single day. So here goes nothin'

Legendary women's basketball coach Pat Summitt from Tennessee got her 1,000th win last night, a first for any basketball coach in NCAA history. I'm not a particularly huge fan of Women's college basketball but Summitt is a class act and I'm very happy for her. In her tenure since 1974 the Vols have won 8 national titles and have been to 18 Final fours, both NCCA records for both Men and Women's sports. This makes Summitt arguably the greatest coach in NCAA basketball history as she surpasses Bobby Knight, Dean Smith, John Wooden and many other...well all, other coaches in NCCA History.

The SEC and FINRA are finally getting what was long over due as Harry Markopoulos has finally brought to light abuses kept under wraps for years. Specifically Markopoulous has accused the SEC, in a congressional forum no less, of Colluding in the Madoff Ponzi Scheme. He has released many of his filed complaints to the SEC publicly and identified individuals, regulatory body's, and companies that he feels were involved in hiding the fraud for decades. A copy of Markopoulous's initial complaint to the SEC is here. This is no surprise to me as I have written at length on the Madoff topic over the past two months. What is surprising to me however is that someone has finally said enough is enough and been able to speak out on a serious injustice publicly. I applaud Mr. Markopoulos for doing the right thing and shining light on the darkness at the SEC. It does however make me seriously question President Obama's selection of Mary Shipiro to the head of the SEC. A couple quick things on Shapiro 1) Obama is talking about compensation packages on Wall Street yet Shapiro was paid $5 million to leave FINRA for the SEC, so much for setting an example and getting paid for performance. 2) Shapiro appointed Mark Madoff (his son) to the National Adjudicatory Council. The council is the board that oversees securities disciplinary actions at FINRA, Madoff's investigative regulator. Three cheers to accountability!

Visa, McDonalds, and Kellogg's reported gains over the past week. This is good for these companies and their employees so we should be happy about it. However lets not forget that this is an overall indicator of things to come. Visa can only profit if more people turn to debt and credit to survive which I speculate they are. This means more defaults are coming down the line on credit cards if people cannot find new employment. Both McDonalds and Kellog's are companies that produce low cost foods, a traditional beneficiary of hard economic times. To end on a good note though, Kellogg, head quartered in Battle Creek, MI is succeeding in one of the states hit hardest by this down turn.

This week a group of Hackers was able to get into the Texas Highway Authorities computer systems to change some of the state's road signs. The signs read "Nazi Zombies, Run!!!", "Caution Zombies Ahead", "The end is near, Head North", and "Zombies in Area! Run". Quite honestly this is hilarious to me. Yeah you could make the argument these signs not reflecting proper traffic information might be dangerous but lets get serious. When was the last time "Construction Zone Ahead" or "Injure a highway worker, $7,500 fine 15 years in prison" changed your driving habits?

Lastly in an attempt to stir a smile and start your weekend off right check out this picture:

Have a great weekend everybody!

Bear Flag and Pennant

2009-02-05T22:37:00.008-06:00

The following chart was provided to me by a colleague with whom I discuss market events, and economic trends. He goes by the nick name "String", and he has crazy charting skills.

Chart from www.stockcharts.com

As people always do, many are looking for a direction in the stock market right now. Discussion is a buzz about when we'll break out of the recession and start our recovery. Naturally there are literally thousands of opinions on when that may happen, but who's right? If you have read this blog for any period of time you know that I think the recession is going to be deep and long lasting. I have even referred to the period we are working through as a depression (we're getting there U6 unemployment figures here).

In a Bear Market (and a Bull Market) there are various technical theories that suggest pennants and flags can be created through the use of historical data to interpret where the market may move next. The S&P 500 is setting up perfectly for two of these theories right now and I wanted to touch on both Pennant's and Flags as many people don't know what they are.

Pennant and Flag Illustration taken from www.chartpatterns.com

Pennants
Pennant patterns usually appear in markets after substantial moves either up or down. As a result they can be seen in both bull and bear markets. Pennants are thought to be one of the most reliable technical indicators for traders and in some cases indicate trends to come. Typically when a pennant pattern sets up, a big move will occur. After this the market will pause for a period of time to catch it's breath, determine a direction, and then move again in nearly equal severity to the initiating rise or fall, and heads the same direction it was originally going. Pennants also typically have pricing trend lines which appear to be converging. In the graph of the S&P above I have identified in Yellow where I believe a Pennant is setting up.

Flags
A flag is also a technical indicator which is commonly seen as being quite reliable as a tool to indicate future direction. Flags very from Pennants in that they represent an opposing trend relative to the over all market direction. For example in a bull market they would be represented by an overall drop in market prices. In a bear market, as we are in now, flags are typically representative of bear rally's. A flag is also different from a pennant in that it's pricing trend lines appear to run parallel with a slight slope. The break out movement after the brief parallelism of price is considered the "mast" or "pole" hence the idea of a flag. In the graph of the S & P above I have identified a flag pattern with green lines and did not draw in the pole.

Whether or not you follow technical trend analysis one has to consider the pennant and flag scenario which appears to be in the chart above. Unfortunately, by doing so, it looks like things are going to get worse before they get any better.

"Setting The Scene" Has Been Made For TV!

2009-02-05T15:29:00.005-06:00

Today a story was published in the Wall Street Journal that read (The full reprint is available here for free):

"The Bank of America Corp. chairman and chief executive had agreed to buy brokerage giant Merrill Lynch & Co. in September, possibly saving it from collapse. But by early December, Merrill’s losses were spiraling out of control. Internal calculations showed Merrill had a horrifying pretax loss of $13.3 billion for the previous two months, and December was looking even worse.

Mr. Lewis had had enough. On Wednesday, Dec. 17, he flew to Washington, ready to declare that he was through with Merrill, people close to the executive say.

“I need you to know how bad the picture looks,” Mr. Lewis told then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, according to accounts of the conversation by people inside the government. Mr. Lewis said Bank of America had a legal basis to abandon the deal.

Messrs. Paulson and Bernanke forcefully urged Mr. Lewis not to walk away, praising the bank’s earlier cooperation — but warning that abandoning the deal would be a death sentence for Merrill. They said the move also could undercut confidence in Bank of America, both in the markets and among government officials. Despite the blunt talk, Bank of America executives interpreted the comments as a signal that the government was willing to work out a compromise.

Two days later, in a follow-up conference call, federal officials struck a harder tone. Mr. Bernanke said Bank of America had no justification for ditching Merrill, according to people who heard the remarks. A Federal Reserve official warned that if Mr. Lewis did so and needed more government money down the road, Bank of America could expect regulators to think hard about their confidence in management. Mr. Lewis was told that the government would consider ousting executives and directors, people close to the bank say.

The threats left no doubt: The federal government saw itself as firmly in charge of U.S. financial institutions propped up since October by infusions of taxpayer-funded capital.

During the four weeks that followed Mr. Lewis’s conference call, federal officials and Bank of America hashed out a deal to salvage the Merrill takeover. The government agreed to provide $20 billion in additional aid for the Charlotte, N.C., bank, and to provide protection against losses on $118 billion in troubled assets."

Now what do you think of how I Set the Scene January 26th?

I like my version better.

Picture Time

2009-02-05T04:50:00.006-06:00

History Repeats Itself

2009-02-04T10:02:00.004-06:00

A friend of mine sent this to me earlier today; I don't think any comments or thoughts are really necessary. Could this period, ladies and gentlemen, be the fall of the new Roman Empire?

"A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.

"The average age of the worlds greatest civilizations from the beginning of history, has been about 200 years. During those 200 years, these nations always progressed through the following sequence:

1. From bondage to spiritual faith;
2. From spiritual faith to great courage;
3. From courage to liberty;
4. From liberty to abundance;
5. From abundance to complacency;
6. From complacency to apathy;
7. From apathy to dependence;
8. From dependence back into bondage "

-Alexander Tyler, (1787), Scottish history professor at the University of Edinburgh

The United States is square in the middle of points 6 and 7; someplace between complacency and apathy. As I've said before WE are the ones who got ourselves into this mess, WE have to be the ones to get ourselves out. The government cannot do that, only people working together for one common goal: to restore the economy and not move further towards step 8 and be dependent on it.