Tuesday, May 31, 2011

QE 2.5 Anyone?

Oh the dilemma; step in with QE3, maybe call it QE 2 1/2... or step aside and perhaps even turn the screws a little (raise rates, bank reserve requirements, sell treasuries, etc.) to ward off the inflationary effects of trillions in stimulus money??

If Bernanke's beard wasn't already grey, well, it'd already be grey... I assure you, this is the stuff of sleepless nights for a sitting Fed chair. The timing stinks... He's got to be thinking "we tighten now and we probably screw the very folks who kept me my job."

While autonomy is supposedly the Fed's; common sense, given that the President appoints and the Senate approves its leaders, suggests otherwise...

Thus, with November 2012 just around the corner, don't expect the Fed to play rough with inflation anytime soon. And that's good news for myopia-stricken Wall Street (it loves easy money)... As for the long-term, hey, don't sweat the bubbles, interest rates, inflation, etc. Like John Maynard Keynes, the pied piper of present policymakers, always said; "In the long-run we're all dead..."

The thing is, Keynes never had kids...

Monday, May 30, 2011

We Know Better

So your best friend needs advice... Her 25 year-old son is struggling to complete his freshman year in college, parties like mad, won't get a job and crawls out of his Batman bed around 2pm every day...

You of course don't tell her you're thinking "My God, your son's been sleeping in the same bed since he was 5, it's all your fault, you never let/made him grow up. My (16 year old) Jimmy will never get away with that crap!" Instead you gingerly lecture; "Honey you're enabling him. If he knows you're there to take care of him, he'll never stand on his own. You think you're helping, but you're only getting in his way"...

Fast forward 9 years, it's 3pm on a Saturday, your Jimmy, the 25 year-old City College Sophomore, is still in bed... And you knew better!!

The over-confident conservative Ivy-League brown-noser with the gift of gab easily wins a seat in Congress on his articulate yet blazing critique of incumbents - on his smaller government, balanced budget, personal liberty, "let's-take-back-our-nation" platform... He's not a bad guy going in, heck, he even kinda believes his own words.

But now he's in, and he's hit with the deepest recession in three-quarters of a century: Sheer panic + his (and his fellow butt-kissers') cluelessness + a not-on-my-watch mentality = $trillions spent, debt/deficits ad infinitum, and regulations out the whazoo. I.e., everything he campaigned against! And he knew better!!

Coddling, placating, spending and regulating is no better for our economy than it is for our kids... We know this intuitively. So how about we vote our intuition?

Sunday, May 29, 2011

Entitlement Mentality at its Finest

In 2004 Bernard and Jane von Bothmer (one of whom is a college professor) discovered the home of their dreams

Saturday, May 28, 2011

The Back of the Pack

Dr. Feelgood

Just listened to a respected economist, and outspoken advocate of present fiscal/monetary policy, make the following statement: "It's I think false to say what is troubling the economy right now is the debt and deficit level. That is a problem for 2015, it's a problem for 2020. I don't personally see it as an issue that is troubling the economy today."

And Dr. Feelgood says:

Monday, May 23, 2011

How to Spot Trends in Commodities Prices

So you believe the money-printing-leads-to-inflation story and want to fully exploit it... Google "how to hedge inflation" and you'll learn very quickly that commodities are every guru's favorite... But what do you buy, gold, silver, soy beans, wheat, pork bellies? I pulled the following stats from U.S. Global Investors' Periodic Table of Commodity Returns* to help identify the key trends in commodities prices. Read this and you'll know precisely where to place your bet...

Friday, May 20, 2011

Down Days

If there's been one constant (pretty much) on the down days of late (Dow's off 80+ as I type) it's been a rising dollar... There's a clearly negative correlation, at the moment, between the market and little green pieces of paper...

I.e., a weak dollar is bullish for U.S. exporters (their wares are cheap in foreign markets) and commodities prices... Bad however for you and me, when we're talking gas and granola...

Therefore a strong dollar is bearish for U.S. exporters (although their input costs [the components they import] go down) and commodities prices... Good however for you and me, when we're talking gas and granola...

So, considering that your money in equities is long-term (right?), while you may not appreciate your next account statement, long-term a stronger dollar is an all around very good thing...

But, alas, while I can make a near-term case for the dollar, unless we see a dramatic shift in U.S. fiscal and monetary policy, longer-term I wouldn't hold my breath...

Thursday, May 19, 2011

Confession of a Self-Centered Capitalist

I am a greedy son of a gun... I am out for number one... I want my business to make loads of money and I want thousands to follow my blog so they'll buy my next book!!

So how do I pull this off? For starters, if my business is to "succeed", particularly being that our model is fee-based (as opposed to commissions), our clients must stick with us long-term. They thus have to know that we are uncompromisingly ethical and have their best interests at heart. That we know what we're doing and that they receive great value for their money...

As for the blog; I have to be creative, concise, and fair in my assertions. My readers have to receive great value for their time...

Like Adam Smith wrote in The Wealth of Nations;

"Every individual is continually exerting himself to find the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of the society which he has in view. But the study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to society..."

Ironically, there's no system that better serves mankind than unadulterated, self-centered, free market capitalism...

But you know, the preceding notwithstanding, there's just something special about seeing a client to retirement... It's a feeling that charging a fee just can't compare to. And the funny thing is, I don't think even Adam Smith, The Father of Free Markets, would condemn that admission. As he wrote in The Theory of Moral Sentiments;

"How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it." Hmm...

Take two minutes and watch Milton Friedman educate Phil Donahue on the transformative power of the free-market...

http://www.youtube.com/watch?v=RWsx1X8PV_A&feature=youtube_gdata_player

Gas and Granola

If banks hadn't held back on foreclosures (no shadow inventory), would we have already seen the bottom in housing?

If the taxpayer hadn't bailed out Bear Stearns, would Lehman have gotten its house in order and/or accepted bids from private investors? Would the credit disaster of '08 therefore been (somewhat) averted?

If Alan Greenspan

Monday, May 16, 2011

How About Unplaced Workers Assistance?

In White House Threatens to Hold Up Trade Pacts, yesterday's Wall Street Journal reports that pacts with South Korea, Columbia and Panama will stall without an agreement to extend assistance to displaced U.S. workers...

The administration, along with a few rust-belt Republicans, support the renewal of the expired [$800 million a year] Trade Adjustment Assistance Program - an entitlement for workers displaced by foreign trade... U.S. Trade Rep Ron Kirk says "we will not submit the pacts without an agreement."

Oh well, no big deal - if TAA isn't renewed and the trade pacts die on the shelf, we won't have to worry about it, since we won't be losing jobs due to increased foreign trade...

Then maybe, when we get our fiscal house in order, someone will propose the PAA - Protectionist Adjustment Assistance Program - to provide assistance and training for the thousands who won't be going to work anytime soon, since the trade pacts, that would've been worth $13 billion annually in U.S. exports, were never signed...

By the way, a pact between South Korea and the European Union goes into effect in July....

If you're our client, don't worry, we'll absolutely exploit the obvious benefits of foreign trade, even when it happens, alas, outside our borders...

Sunday, May 15, 2011

Debt Ceiling, Shmet Ceiling

So there's this drunken-sailor-of-a-spender, his cards are maxed, he robs Peter to pay Paul, and, believe it or not, the bank's about to increase his credit limit... And what lender would be so profoundly stupid?

That would be us my friends... Remember, it's "of the people, by the people"... We the people elect the spendthrifts and, alas, as voters, our due diligence leaves much to be desired... The problem is today's ELECTED officials, understanding the political expediency of entitlements (etc.), take Lincoln to have meant; "of the people, buy the people"...

The Next Bailout
The U.S. Postal Service lost $2bill last quarter, is about to exhaust a taxpayer-funded $15bill credit line (we'll never see it) and projects that it'll lose $42bill over the next ten years...

Now of course we're talking pay cuts, layoffs, etc., right? I mean, according to their employer, postal workers are way over-paid compared to their private-sector counterparts, and they contribute substantially less than private workers to healthcare, etc... HAHA.... We're talking a 3.5% pay raise, a new four-and-a-half-year contract, automatic cost of living increases and expanding no-layoff protections...

But not to worry, the Postal Service and unions are pushing for a pay-as-you-go system, like California's... And there's a senate bill in the works that'll saddle the taxpayer with another $50-$75bill to insure retired employee pension obligations...

I hope you appreciate your snail mail - cause it's costing you a hell of a lot more than forty-four cents a letter...

Thursday, May 12, 2011

Tit-for-Tat With China

U.S. negotiators are working to convince China to bring down the barriers to American direct investment into industries such as telecommunications and financial services... We know that cross-border free-market capitalism can be huge for both countries...

Now if we could only get Chinese companies to make a few U.S. acquisitions, like Japan (who currently employs 700,000 Americans with an annual $50 billion payroll) has over the years... Seriously, wouldn't it be great if they would do something other than lend all those U.S. dollars to the U.S. government?

I have great news! According to this excerpt from yesterday's Wall Street Journal article America Gains From Chinese Investment, that's precisely what they intend to do:

"In 2010 alone, Chinese firms spent more than $5 billion in America on a combination of 25 "greenfield" projects built from scratch and 34 acquisitions of existing companies. While China still accounts for only a tiny share of total foreign direct investment in the U.S., Chinese firms are today invested in at least 35 of 50 states and an upward trend is clearly underway."

And of course China growing businesses and creating American jobs, as opposed to American government debt, is music to the ears of all the pundits and politicians who worry over our foreign obligations, right?

Well it ought to be, but of course it isn't. According to WSJ there's a political firestorm a brewing:

"Recent controversies have flared around various investments by telecommunications equipment supplier Huawei, as well as steelmaker Anshan in a Mississippi rebar plant, and the acquisition of small aircraft maker Cirrus by a Chinese state-owned company."

I'm telling you folks, tit-for-tat when it comes to foreign direct investment would be a very destructive game to play... Chinese companies need to set up shop abroad, and they will. If not here, trust me, Canada, Mexico, etc. will welcome all that job creation with open arms...

Wednesday, May 11, 2011

Here's How It Works

Commodities:
Higher prices beget lower demand, lower demand begets lower prices, lower prices beget higher demand, higher demand begets higher prices, higher prices beget lower demand... and so on...

Supply chases trends - production increases when producers can fetch a higher price... The higher supply brings prices down... Falling prices inspire lower production... The lower supply pushes prices higher.... and so on...

Then the exogenous forces...

Speculators attempt to exploit the trend and push prices using futures... Prices therefore discount some future supply/demand theory... Weather changes, shots fired, civilians demonstrate - fear over potential supply disruptions, faulty theory, speculators react, price adjusts violently...

Monetary/Fiscal Policy... Here's where things get screwy... The economy slows; demand for everything naturally wanes... Prices should therefore contract... Politicians and Fed officials fear recession, deflation, re-election/appointment prospects... Solution; create money, pump it into the economy - stem the tide (as if lower prices are a bad thing)... Circumvent nature so to speak... Short-term result; a Fed-dependent market... Long-term; the bubbles that result from synthetically stimulating sectors that lack the capacity to efficiently absorb the excess capital...

At a minimum; the pumping of new money into the system decreases the value of all circulating currency (think supply) which results in higher prices for everything... Net benefit - nada!!

The good news; more people are waking up to these facts... *China, India, Europe, etc., are at least addressing inflation in their respective economies... We'll be there before you know it (maybe)...

*Although they wouldn't need to intervene had they let the market work to begin with...

My Advice: Don

Here's How It Works

Commodities:
Higher prices beget lower demand, lower demand begets lower prices, lower prices beget higher demand, higher demand begets higher prices, higher prices beget lower demand... and so on...

Supply chases trends - production increases when producers can fetch a higher price... The higher supply brings prices down... Falling prices inspire lower production... The lower supply pushes prices higher.... and so on...

Then the exogenous forces...

Speculators attempt to exploit the trend and push prices using futures... Prices therefore discount some future supply/demand theory... Weather changes, shots fired, civilians demonstrate - fear over potential supply disruptions, faulty theory, speculators react, price adjusts violently...

Monetary/Fiscal Policy... Here's where things get screwy... The economy slows; demand for everything naturally wanes... Prices should therefore contract... Politicians and Fed officials fear recession, deflation, re-election/appointment prospects... Solution; create money, pump it into the economy - stem the tide (as if lower prices are a bad thing)... Circumvent nature so to speak... Short-term result; a Fed-dependent market... Long-term; the bubbles that result from synthetically stimulating sectors that lack the capacity to efficiently absorb the excess capital...

At a minimum; the pumping of new money into the system decreases the value of all circulating currency (think supply) which results in higher prices for everything... Net benefit - nada!!

The good news; more people are waking up to these facts... *China, India, Europe, etc., are at least addressing inflation in their respective economies... We'll be there before you know it (maybe)...

*Although they wouldn't need to intervene had they let the market work to begin with...

My Advice: Don

May 11, 2011 Market/Economic Report (video)

And Other Purposes

On February 17, 2009, ARRA (American Recovery and Reinvestment Act of 2009) was born. Here

Monday, May 9, 2011

To the Scammer go the Spoils

You've heard the commercial; "Cachingo! bull, bear, I don't care"... The stock-trading genius with a hard New York accent promises that if you'll follow his system (which, from the goodness of his heart, he'll give you for free) you'll make money no matter what the market does... He's made "millions!"

Tempted? Now think about it; the stock market is an auction - the seller needs a buyer, the buyer needs a seller. Thus, for the fool-proof strategy to work there has to be a willing fool on the other end of the trade - time after time after time...

Ask yourself, is there a dunce who'd be willing to lose trade after trade? And in this information age, will a new dunce emerge as the old wises up (or goes broke)?

The only fool-proof system is the one that continually fools fools into believing they're not fools for believing...

To the scammer go the spoils...

P.s. same goes for commodities, currencies, real estate or any other tradable item...

Thursday, May 5, 2011

Half-Minute Read on Today's Market

The headlines read, Jobless Claims Surge, Commodities Prices Plunge, Double-dip for U.S. Housing Prices, Dow off 140...

My assistant asks me,

What We've Learned About Obama (and power)

Candidates, of every stripe, will say whatever sounds good, and I suspect will even mean half of what they say... Oh but when sincerity collides with reality... Check out this cafehayek.com post by Russ Roberts, Econ Prof at George Mason University...

What we've learned about Obama (and power)

What We've Learned About Obama (and power)

Candidates, of every stripe, will say whatever sounds good, and I suspect will even mean half of what they say... Oh but when sincerity collides with reality... Check out this cafehayek.com post by Russ Roberts, Econ Prof at George Mason University...

What we've learned about Obama (and power)

Wednesday, May 4, 2011

May 4, 2011 Market/Economic Report (video)

The Illusion of Wealth

Times are good for me. Clients come in toting smiles, portfolios are up, valuations look good (i.e., stocks by traditional metrics are not yet pricey), we do a little rebalancing and bid a happy see-you-in-six-months farewell...

Watching wealth build is a wonderful thing... Our portfolios rise and we're richer, right? Well perhaps, but only to the extent that our increased paper value equates to a greater supply of goods/services at the end of the period measured...

Now don't look, just take my word, the coffee cup from which you sip, the mouse you just clicked, the monitor you're reading, the chair you're sitting on and the desk on which you rest your elbows are all foreign-assembled goods (not the problem) that made their way to your abode via a trade for a U.S. buck or two.

Year-to-date the S&P 500 Stock Index is up around 8%... Year-to-date the U.S. Dollar Index (thanks largely to Fed policy) is down around 8%. Yes, you have 8% more money, but, alas, it buys 8% less stuff. Net result (not counting taxes), no real increase in wealth...

Just saying....

Monday, May 2, 2011

What a Bubble Smells Like

What would happen if we decided the sun should shine longer in the winter? That cold, rain and snow are to be circumvented at all costs? What if we delegated the management of the seasons to a team of crack scientists and assigned them the mandate of maintaining the temperature within a range between 65 and 72 degrees, 24/7, 365 days per year? And what calamities would result if, for any extended period, they pulled it off? A ludicrous notion indeed...

Yet that