Thursday, October 30, 2008


As reported in The Financial Times via The Drudge Report Michael DiGiovanni, head of global marketing and industry analysis at General Motors is calling the market bottom.

His reasoning, in part, is that GM's sales in Latin America rose 3.4% and 2.6% in Asia in the third quarter. Never mind that North American sales fell 18.9% and 12.3% in Europe during the same time period. Also left unsaid was that GM is currently blowing through their $25 billion gift from us consumers to the tune of $1 billion a month, just to stay afloat. Or, that they are planning to lay off 25% of salaried and contract workers by the end of the year, so they can afford to buy Chrysler.

Mr DiGiovanni went on to state the obvious; "Once we start growing again, productivity will be greatly enhanced". Well, yes. Productivity and growth do tend to move in tandem.

Mr DiGiovanni might want to take a look at the sales numbers of Spam, crackers, ammunition and silver ingots. You know, the things we consumer/taxpayers buy to stash under our floorboards and bury in our backyards instead of buying new cars that get 12mpg. Just a thought.

Tuesday, October 28, 2008

New Blog Start-Up

A week or so ago, my friend Elizabeth Crum at E!! The True Conservative Story invited me to join her on a community blog she started at All American Bloggers. Elizabeth is one of those "real" writers, who actually knows what she's doing, so of course I jumped at the chance. I'll be posting there about three times a week, covering business, investing, and economic news in Nevada.

All American Bloggers is an organisation of fifty state blogs. Although there is a definite conservative/libertarian slant to the group, it is meant to be fact-based with opinions kept to a minimum. Elizabeth is looking to recruit more bloggers so if you have an area you're interested in, and don't mind a few rules, you can email her at either of the above links.

I'm really looking forward to digging into the Nevada economy, and have already found some things of interest. One thing I hadn't realized is the effect of the credit crunch on the mining industry. They're heavily dependent on up-front financing, so they're getting hit pretty hard.

I'm also really looking forward to working with Elizabeth. (I'm not just sucking-up to the boss here either). She will be the editor, and I've already received some patiently delivered writing lessons. Hopefully, over time, we'll see some improvement in my use/abuse of the language here as well.

I'm not sure what effect this will have on this blog. I expect I'll be posting a little less often in the near future. I'm currently up to my eyebrows in watchlists, spread sheets, and previously unknown websites. But, rest assured of two things:

1) You can always find my philosophical ravings, smart-ass comments, and completely biased world view right here.
2) My philosophical ravings, smart-ass comments and completely biased world view will be slipped in at every possible opportunity there. (Subject to editorial review, of course).

So, what started as a lark one Sunday afternoon has turned into a pretty serious hobby. I'm not sure what to call myself now. Volunteer reporter? Is it too early to start dreaming of one of those 5 cents a word deals I've heard about? Anyway, it's going to be fun, interesting, and educational for all.

Sunday, October 26, 2008

What is Conservatism?

Aside from being the idea that limiting government promotes freedom, stout defenses prevent war, and our rights are gifts from a creator, conservatism is also the unwelcome task of having to point out the obvious to those too blinded by ideology to see it for themselves. Victor Davis Hansen provides one example from this never ending election season:

Had Gov. Sarah Palin just been a mother of a single child at Vassar rather than of five in Alaska, married to a novelist rather than a snow-machiner, an advocate of pro-choice, who shot pictures of Alaskan ferns rather than shot moose — feminists would have hailed her as a principled kindred soul, and trumpeted her struggles against Alaskan male grandees.

So there was something creepy about droves of irate women, in lock-step blasting Sarah Palin from the corridors of New York and Washington, when most of them were the recipients of the traditional spoils of either family connections, inherited money, or the advantages that accrue from insider power marriages. Indeed, very few of Palin’s critics on their own could have emerged from a small-town in Alaska, with an intact marriage and five children, to run the state of Alaska.

Of course, it's not just the women. The point is that for all their talk of intelligent rational thought, and appreciation for nuance, Democrats seem to be completely ignorant of anything outside their accepted group dogma. They don't seem to realize that republican and conservative are not the same thing. Unseen, is the fact that the Republican party has many factions competing for dominance, and conservatism has many nuanced thinkers. I suppose we could blame this on a fractured media. When all they're news comes from CNN and the Huffington Post, can they be blamed for having a jaundiced view?

No, but they can be called hypocrites when they claim intelligence. Passing off the entire right side of the political spectrum as gun toting, bible thumping racists is the height of unthinking religiosity. Joyously accepting campaign cash from 2 out of 3 New York bankers while celebrating the end of capitalism, union chiefs claiming to be for the common man while riding in limousines and staying in 5 star hotels, requires a willful blindness to the world as it is.

One thing that has become clear to me over the past several months is that unlike Democrats, the Christian right, with their acceptance of the presence of sin, are far less superstitious. While the left places their faith in the hollow hope of free money and the forgiveness of debts, my hope is that Democrats will develop an interest in how things really work. "There's no free lunch" and equal treatment aren't just bumper stickers.

Saturday, October 25, 2008

Mr. Main Street

There's an excellent article in today's Wall Street Journal about Fred Smith, CEO of Fed-Ex. It brings up an important point regarding tax policy and the flow of capital. Something we all need to think about as different solutions to the financial mess are bandied about:

...national policies that favor what he calls "the financial sector over the industrial sector."

"Rather than in our business where you have to have a dollar of equity for, 10 cents or 15 cents of debt," he explains, "it's exactly the opposite in the financial sector where you have one dollar of equity for 10, 25, 50 times risk."

"Not too many young people coming out of school are studying to be production managers at General Motors." He says that most of FedEx's first line managers come not from the top flight universities, but out of community colleges and the military.

He has come to hold the get-rich-quick Wall Street financiers in more than a little disdain. He views the heroes of the U.S. economy as the companies that actually produce real goods and services. He sees the Wall Street collapse as an inevitable byproduct of investment bankers building multitrillion dollar debt pyramid structures.

So how do we fix this problem and retool our industrial sector in a pro-competitive fashion? "We've got to reduce the taxes on equity. Let companies expense their capital purchases."

This is how the "tax the rich, spread the wealth" mentality serves to hurt producers and enrich companies that don't add value to the economy. At a bank, the liabilities are the assets. Although the bank itself adds value by holding the debt, there is little to tax under the current system. Meanwhile, companies that actually make things have to claim revenue in order to buy capital equipment. They are then taxed at 38% on their revenue.

Fed-Ex employs 290,000 people, mostly blue collar, community college graduates and former military. Who do bankers hire?

Thursday, October 23, 2008

The November Rebellion

No, I'm not talking about the race riots almost sure to break out if "The One" blows his lead. This is about the conservative rebellion taking shape regardless of the elections outcome. A Democratic victory will cause a much more open revolt, but even a Republican win will not stop a general move away from the neo-conservatism that has been infiltrating the movement since the end of the Reagan era. Alvaro Vargas Llosa writing in The Independent Institute, identifies the battle lines:

The Republican Party has indeed deviated from conservatism as it is understood by those who consider Edmund Burke the founder of the conservative idea, William F. Buckley the intellectual midwife of modern-day American conservatism, and Barry Goldwater the flint that sparked a vast political movement in favor of small government in the United States.

This deviation expresses itself in different ways. First, in the confusion between Jeffersonian populism—a salutary mistrust of economic power allied to political power—and class-based populism, which is what Republican leaders promote when they scorn America’s coastal and big-city culture. Second, in the contradiction between a low-tax, low-spend policy and an interventionist foreign policy that, by definition, is costly—as every empire in the history of mankind eventually and painfully found out. Last, in modern-day Puritanism, which started, perhaps understandably, as a reaction against the cultural excesses of the 1960s but ended up turning into what H.L. Mencken described decades earlier as “grounded upon the inferior man’s hatred of the man who is having a better time.”

I'll admit that the philosophy of Edmund Burke is "above my pay grade", as they say. Of the three pillars of modern conservatism, the populist mis-trust of economic/political power and adherence to traditional modes of conduct, seem to be pretty well rooted in the Republican party. It's the small government versus strong defense problem that is the biggest obstacle to a coherent modern conservatism. Eisenhower's nightmare scenario of the "military/industrial complex" has not only come to pass, it has left the country behind.

A stout defense is essential in the modern world, but since the end of the cold war we have found ourselves with few adversaries to defend against. The current war against the Jihadi movement has proven to be an expensive undertaking with little to show for it. Killing a few terrorists with a multi-million dollar satellite guided smart bomb is just not cost effective. Meanwhile, NATO expansion and military commitments defending wealthy client states proceeds unabated.

What is needed to complete a Republican inter-party revolt is the recognition of the limits of military power. Either the hawks will need to find a new home, or the libertarian right will. With the neo-cons seemingly in full retreat, there is an opening here for the limited government/limited military option to recreate the third pillar.

Wednesday, October 22, 2008

The Road to WW III?

Karl Denninger at The Market Ticker notes some strange happenings between Treasury and the 9 banks receiving bail-out money. It seems the $250 billion was never intended to help the credit squeeze. The banks will not be lending it to other banks. They'll be hoarding it to improve their own bottom lines. So, what was the point of it all, besides letting Paulson's friends keep their jobs?

F. William Engdahl at 321 Gold adds some interesting history to our current situation. In 1931, the Bank of England, together with JP Morgan (the bank) combined in a hostile take-over bid of the German commercial banks. The result was that the German banks collapsed, leading to a severe recession and high inflation. The German government at the time had to cut social programs and raise taxes, leading to the unfortunate rise of Adolph Hitler.

Fast forward now, to our own time. After Treasury's $750 billion grab was OK'd by congress, Paulson was set to play the game by the standard set of rules. On Oct. 8th the British government abruptly nationalized 8 banks, including the Bank of Scotland. This move may have been as much about thwarting Scottish independence as saving the British banking system. Two days later, the Germans announced they would follow England's lead.

Since the whole credit mess started in the US, that left $68 trillion in debt sitting on the American table. Paulson, forced to play defense, had no choice but to socialize the 9 largest US banks. Not doing so would have left them sitting ducks for a European take-over.

It's an interesting theory, and the facts and timing seem to fit. Two things we can say with certainty: (1) there is a very high stakes game being played that has little, if anything, to do with Main Street, (2) the government story, echoed in the press, is not the real story.

Thursday, October 16, 2008

Sub-Prime Explained

If you don't mind some obscenities, this explains the sub-prime situation pretty well.

The Wells Fargo Non-Plan

I'm on vacation this week, and hanging out with mom for a few days before heading off for the races this weekend. We were watching CNBC yesterday and a guy from Wells Fargo was being interviewed. They asked him what they were going to do with the $50 billion in taxpayer money that they're getting.

He said he didn't know because they really don't need it. Even after buying Wachovia for billions, their balance sheet was still in good shape.

Who's doing their homework over at the Treasury Dept.? Anybody?

I wonder if the stocks have already been bought? If so, we're getting a pretty good haircut today.

Tuesday, October 14, 2008

The Right & Proper Way To Cover A Debt

California is selling bonds as high as 4.5% tomorrow reports Bloomberg via The Drudge Report. Seeking cash until tax revenues start arriving next spring, Governor Schwarzenegger is even buying an undisclosed amount.

Bank of America is offering the 2 sets of notes, one due May 20, 2009 yielding 3.75 to 4.0%, and one due June 22, 2009 yielding 4.25 to 4.5%. The yield will be finalized on Thursday. Even 4.25% ain't bad for a 8 month loan, and you know California won't be nationalized. California notes have the highest possible ratings from Moody's, S&P, and Fitch.

This is a good example of why the Federal Reserve should not be setting interest rates. Buyers and sellers are perfectly capable of finding an agreeable deal by themselves. So far, less than half the notes have been sold. If the state can't sell them all, they will simply raise the rate of return to attract other buyers.

If a guy in his underwear in Reno Nevada can figure this out, what's with the boys in New York having problems? This is not rocket science.

The Gravy Train Rolls

If you have a few hours, here's the plan. It looks like we're going to put off the inevitable and the party's still on, for the time being anyway. Sell on the peaks. Cash will be king again shortly.

Monday, October 13, 2008

Socialists Run Amok

There were some interesting statements coming out of the "Boss of Bosses" meeting at the White House yesterday. It seems that the banking crisis is about to join forces with the climate change crisis. World Bank President Zoellick had this to say:

"Expanded help for energy-deficit countries to improve energy efficiency and improve domestic production to reduce their vulnerability to future price shocks.
Playing a stronger role in helping countries deal with the causes and effects of climate change, and the recent launch of the new Climate Investment Funds to which 10 countries recently contributed over $6 billion."

Let me guess, the US put up $5.9 billion and the other 9 countries chipped in the other $0.1. But, it gets worse. As we nationalize the banks worldwide, we're also going to nationalize energy production.

"The events of September and October have underscored that we need to modernize multilateralism and markets for a new global economy. Our publics expect no less.
The architects of Bretton Woods laid the foundations for the future, even as they still fought the armies of the past. We need concerted global action now not just to deal with this crisis, but to put in place new architecture, new norms, and new oversight...We must build a better system for the future."

Where do I sign up for the "armies of the past"? And, what did the Treasury Secretary for the Beacon of Freedom have to say about it?

"The next year will be a critical one for the Bank on issues of environment and climate change as we move toward a climate agreement in Copenhagen . The United States supports the Bank's increasing focus on climate change as it is clear that the issue must be addressed in the context of development financing."

Rather than have the crowd who's mismanagement caused this mess give us a "better system for the future", shouldn't we be finding new people to recreate the old system? You know, the system that used to work. The only system that has ever led to prosperity anywhere at any time. It seems to me, the last thing we need now is these clowns building us "new architecture, new norms, and new oversight".

Sunday, October 12, 2008

Announcing the "Piss-Pot Index"

As I've mentioned before, I've been all but living on the finance pages lately, most notably at The Big Picture. There is a lot of speculation on where the bottom of the market will be. I spent the early part of the week putting together what I was tentatively calling "The Doomsday Index". It would be a way to know when the market has truely hit bottom. On Wednesday, I found this post. It's about how new finance-related blogs are popping up on the internet with various doom and gloom themes. It's an indicator that investor sentimemnt is nearing the point of capitulation. The point at which those who are going to get out have left, and conversly, the point that those who have been out get back in.

In the comment section was this little gem:

"Posted by: jdamon Oct 8, 2008 12:50:37 PM

BTW, just because most of you who frequent this site don't have a pot to piss in, doesn't give you the right to gleefully run spout your mouths off that everyone deserves what is happening.

I for one have paid my house off long ago. So, I'm getting the sh*t kicked out of me because these asshats in Cali and Florida and even Manf*uckinghatten bought homes/condos they couldn't afford. Who suffers the most - f*cking fly-over country that's who."

As you might imagine, the liveliness of the comment thread picked up considerably after that one.

I've also been reading "Strategic Index Investing" by Richard D Romey. It's about Exchange Traded Index Funds (ETIF), a subset of ETF's. Aside from being a good way to diversify, they are a good indicator of where to look for individual stocks. If (like me) you're too unsophisticated to play anything but the long game.

And, it led to an evolution in my thinking. Why not the Piss-Pot Index (PPI)? It would be more direct, and to the point, to call it the IPP, but think of the PPI as a more poetic way of expressing the same thought. It will be unscientific (like me), unsophisticated (like me), and of questionable value in the overall sceme of things (well...).

There are 2 things I think we can say with some degree of certainty.
1) At some point the dust will settle.
2) When it does, things are going to be very different.

I'm looking at 5 different sectors of the economy, any one of which might do well, or even lead the recovery. They are:
1)Consumer Staples-food, soap, and booze
2)Energy-we'll still need some
3)Health Care-it's not in the news anymore, but we're all still getting older
4)Technology-still our strong point
5)Commodities-always a good barometer

With 4 index funds per sector, we get "The Piss Pot Twenty".I'm still working on the spreadsheets and graphics, but until then, here's a look at the carnage:

SymbolCurrent Price1 week % G/(L)4 Week % G/(L)

Sunday, October 5, 2008

Wall St. Slush Fund

I've practically been living over at The Big Picture, as well as my own IRA account the last couple of weeks. The Treasury Give-Away Act of 2008 has gotten me off of politics and looking out for number one. It doesn't matter who wins the election, it's time for survival mode.

Over on Market Edge where I do my research, they divide the market into 92 groups (sectors). Every single one of them is down. Two pages of nothing but red numbers. It's been that way every day for 2 weeks. When President Bush said "You can run, but you can't hide.", I thought he was talking about Bin-Ladin.

What really set me off today was this, courtesy of Financial Sense. It's an actual investigative report, the kind the old media used to do before they became TV celebrity game show hosts. It details how former Goldman Sachs CEO and current Treasury Secretary, Hank Paulson, funneled $138 billion to JP Morgan/Chase (JPM) to cover their Lehman Bros (LEH) losses after Lehman was already in bankruptcy court.

Here's how it worked: A few weeks ago, LEH owed JPM $138 billion for mortgage debt obligations. When LEH declared bankruptcy, that left JPM holding the bag. The Treasury Dept. then manufactured $138 billion out of thin air, at taxpayer expense, and forwarded the money to JPM who then passed it on to LEH. LEH then asked the judge to grant JPM "special status" as a first served client. The judge agreed and LEH then sent the $138 billion back to JPM. LEH has $138 billion subtracted from their bankruptcy debt obligations, JPM unloads $138 billion of toxic paper at the original purchase price, and we taxpayers get the bill. Thanks to our congress granting the Treasury Secretary "discretion", it's all perfectly legal. Nice work if you can get it. And oh BTW, JPM has another $8.1 Trillion of this paper. Yes, TRILLION!

I try to be optimistic. I really do. And, patriotic too. I've never shorted anything, and I especially wouldn't short the dollar. It just wouldn't be right. I skipped the whole China stuff just because they're authoritarian. I rarely buy gold, but I bought some last week. I'll probably be buying more.

I started this blog thinking it would be partly about investments. Investing used to be fun, even when I lost. I followed the market like some guys follow the NFL. It was interesting and mostly profitable. But, now it's rigged. It's rigged against us. Today I feel the same way I did when I found out pro wrestling was fake, or that roller derby wasn't a real sport. What did the average Roman do when Nero fiddled and their city burned?

Saturday, October 4, 2008

The Bank Bond Approach

I've been doing a lot of reading this week trying to follow this finance mess, and more importantly, trying to see where we're headed. Now that we taxpayers have loaned ourselves a $700 billion line of credit, what do we do with our new found "wealth".

Rather than buy toxic paper of unknown value, a better idea proposed by Judge Richard Posner suggests we play a little hardball with the banks. Buying a bond with a long maturity date issued by a troubled bank stands a good chance of providing a win/win situation.

With the Mortgage Backed Securities (MBS's) seeming to be the root of all evil, let the banks keep them. Instead we taxpayers would offer to let the banks issue us a bond with transparency rules and enforcement procedures attached. It would be a take it or leave it proposition. If they're really in such trouble, then they're in no position to bargain.

With their new liquidity, they could begin making loans again. This would also give them time to untangle themselves from the MBS's at an orderly pace. Meanwhile, we taxpayers would be earning interest on the bonds, and after the bank gets its affairs in order we would have the choice of putting the bonds on the open market, holding them to maturity, or selling them back to the bank. Whichever is best for us.

It may already be too late for something like this. Secretary Paulson, now having virtually unlimited power, has little to no incentive to do what is best for the taxpayers. The good news and bad news in all this is that it's a long way from over. Keeping the heat on our representatives is as important as ever.