Carlos Lam

Kudos to Wal-Mart CEO

NYT: General Growth Properties Files for Bankruptcy

Ouch! I'm curious: what sort of "investment thesis independent of the overall economy" does GGP have? GGP's business was highly dependent on consumer spending. With household debt at 100% of GDP, the consumer HAS to cut back on buying clothes, books, CDs, and electronics. I will admit that GGP actually has assets (real estate) but it is also highly leveraged.

Is Big Government Necessarily a Bad Thing?

Here's the problem: Government bureaucrats are agents of the taxpayer; they are not looking out for their personal wealth. As a result, a classic agency problem develops; the bureaucrats begin looking out for their own interests instead of the interests of their principals, the taxpayers. A purchaser at the Dep't of Defense, for example, has no problem overpaying for toilet seats because of the relationship he has with the vendor; he may even consider the possibility of a lucrative consulting contract with the vendor after he retires from government service! This agency problem exists at government at all levels, including the education system which the author seems to praise.

Why Jim Rogers Still Favors Commodities

Jim is right about agriculture. Pork consumption in China, for example, rose 20% between '02 and '06. In the next 20 years, a good chunk of the billion or so Chinese will join the ranks of the middle class and be able to buy more food (long-term, though, China will have a demographic problem caused by the foolish one-child policy). Conversely, supply IS declining:

* The average age of the American farmer is 55
* There are only about 2 million farms left from a peak of about 7 million in 1935

Ben Bernanke Will Bring Back the 70s Inflationary Economy

Of course Ben Bernanke will be hesitant to decrease the money supply; he's up for re-appointment in 2010! Furthermore--as the article states--the Fed has given up even the appearance of independence; many Americans now view the Federal Reserve as merely an arm of the great leviathan central government. We're about to embark on yet another round of moral hazard creation: punish the savers by cutting their purchasing power out at the knees and reward those who over-borrowed by allowing them to pay their debts with ever-cheaper dollars.

It's a Recovery, Jim, But Not as We Know it...

Very acute observations, Sean. The debt accumulated by households has to be worked off, and that will take time. With household debt at 100% of GDP, the American consumer is simply tapped out. Moreover, I don't see lenders throwing credit at shoppers at the level that they did during the bubble years. I think you omit a very important observation: the "shine" on the U.S. dollar has dimmed considerably given the fiscal and trade deficits along with the Federal Reserve's zero-interest rate policy and quantitative easing. Such policies are inflationary inasmuch as they devalue the U.S. dollar, causing any given quanitity of a resource to require more individual dollars for its purchase.

The Unexpected Retail Decline

Consumers are over-leveraged. They have no savings, houses that have fallen in value, and credit lines that are being cut. The American consumer simply cannot consume right now, so it's no surprise that retail sales are slipping. Until their consumer debts are paid off, Americans SHOULDN'T buy any more plasma TVs, iPhones, or netbooks.

Even the most optimistic scenarios don't play well for China, Nouriel Roubini says. "The world where the U.S. was the consumer of first and last resort... and where China was the producer of first and last resort... is changing."

On Apr 10 06:53 PM Brent C. wrote:
> Give an American a half arsed stable job, a rising credit limit,
> and in a few years he'll be spending at the same levels as 2007.

I doubt it. Household debt is at about 100% of GDP. The average household has about $8,000 in credit card debt. How can the American consumer go back to 2007 levels, particularly with banks having gotten spanked after making such foolish lending decisions?

Stock Market Rally for Suckers as Credit Destruction Lingers

"The consumer will not save the day as he remains focused on balance sheet repair and cash savings."

Absolutely correct. Household debt is at about 100% of GDP. The American consumer is, to put it plainly, tapped out. The debt has to either be paid down or discharged in bankruptcy. In the former, the consumer/debtor must reduce current consumption. In the latter, the creditor must internalize the loss.

8 Reasons ETF Investors Go for the Gold

On Apr 10 12:04 AM bcncv wrote:

> I can think of another asset that holds its value over the long term.
> It rises in value with inflation, but unlike gold, it actually serves
> a useful purpose.
>
> That asset is housing.

It is true that over the long run real estate closely tracks the rate of decline of purchasing power. Remember, however, that when one owns a home one also has "carrying costs" such as insurance, property taxes, and repairs. This is not to "put down" home ownership (I'm "long" my own home), but one has to realize (as many Americans now know) that owning a home is not a way to "get rich." Moreover, real estate is -- by definition -- not portable.

Gold's chief virtues are its worldwide acceptance as a store of value and medium of exchange (yes, one can obtain food, firearms, and fuel with gold, particularly in other countries) and its portability. Gold may be money, as J.P. Morgan said, but it is also "insurance," as many different persons have learned throughout history when law and order begins to break down. On the flip side, gold doesn't provide one with heat, food, or protection.

The important thing to realize is that every asset class has its pluses and minuses. It's up to the individual investor to weigh those benefits and costs and create his own investment mix.

Wells Fargo (WFC) reports it earned $3 billion, or 55 cents a share, in the first quarter - well ahead of market estimates. Revenue rose an estimated 16% to $20 billion. Futures jumping on the news.

I do WANT to be a bear because I think the fundamentals of the economy (i.e. unemployment, household debt levels) are dismal. However, news like this gives me pause. I certainly understand the thinking that Wells Fargo is somehow inflating its earnings, but wouldn't the market discount such folly? After all, Wells isn't a tiny local bank but a national giant. There are certainly a lot of analysts following it.

More Correction on the Way in This Bear Market

With household debt at about 100% of GDP, there is no going back to the "goldilocks" economy at this time. Indeed, families will have to work to pay down their debt. Of course the Fed and federal government are doing their part to ensure that Americans take on MORE deb, not less. The Fed is adding "facilities" to allow banks to give out more credit to consumers. The U.S. government is trying to get people to take on debt to buy real estate by giving away $8,000 in tax credits to first-time homebuyers. We simply cannot keep spending money that we do not have and expect to prosper. Sooner or later, the debts come due.

Fed's Expansion of Balance Sheet No Cause for Inflation Worries

Mr. Pease, you write that "When it comes time for the Fed to unwind their balance sheet, those dollars will be in effect 'unprinted' and taken back out of the money supply." Your view is either incredibly naive or tenaciously optimistic. First, if and when the economy gets moving again, the Fed is going to come under extreme political pressure from Congress and the Executive Branch to not move too quickly lest economic improvement cease and imperil their re-election efforts. While the Fed is supposed to be independent, the close coordination between the Fed and Treasury has been on display since the beginning of this morass. Finally, Chmn. Ben Bernanke's term expires in 2010; if he wants to be re-appointed, then he has an incentive to listen to the politicians' pleas.

Second, the same Fed with which you clothe such acumen is the same body that has behaved so ineptly during this entire episode. On Oct. 7, 2008, Fed Chmn. Bernanke told an NABE audience that the $700 billion TARP was "an authorization to purchase financial assets" even though the TARP was then used to re-capitalize banks. Chmn. Bernanke eschewed transparency (in a republican form of government, no less!) by stonewalling Bloomberg's FOIA request. He is a man who claims to be a student of the Great Depression and Japan's Lost Decade yet is repeating the same mistakes made during those eras without cogently explaining WHY this time the results will be different. This Fed Chairman has been monumentally inept at every turn. His prior ineptitude should lead us to question his ability to make the correct decisions at this time.

One Way to Invest in Social Unrest

While I am a gun enthusiast, I don't buy the idea that Pres. Obama is somehow going to ban certain types of guns. He doesn't have the votes in Congress to do so, at least at this point. As a marketing idea for gun companies, though, the gun-ban theme is brilliant. It has "legs" because Pres. Obama is not known as a Second Amendment stalwart.

From a consumer perspective, I can assure would-be investors that both Smith & Wesson and Ruger make very trusty, good-quality firearms. Ruger's rifles are durable and accurate; Ruger's handguns are solid and well-performing. Smith's revolvers, of course, are legendary, and a revolver is a great first gun for those who have never owned a firearm before.

I don't disagree that we MAY see social unrest. However, I do not believe that we will see unrest to the extent that Peter Schiff and Gerald Celente predict (though I respect both of them immensely). Moreover, I think such incidents will be focused in urban and/or impoverished areas. While the government's official unemployment rate for the nation is 8.5%, for example, Detroit's is about 14%.

A different question will be what the market will do IF we see a major civil disturbance. For example, if there are riots in Flint, Michigan (13.8% unemployment), how will the market react? How will the government (both State of Michigan & federal) deal with the situation?

I have thought about what incidents of civil disturbance really had a national following that could've affected the market and could come up with only one: the 1992 Los Angeles Riots (April 29, 1992 thru May 7, 1992). During those days of rioting, the DJIA didn't move too much. While I realize that there have been other incidents (Cincinnati 2001, Miami 1980), I do not believe that the nation was as captivated as it was during the LA riots. Given the current financial morass, however, I think that the markets could move precipitously to the downside if we see a major incident of the scale of the LA riots.

One Way to Invest in Social Unrest

While I am a gun enthusiast, I don't buy the idea that Pres. Obama is somehow going to ban certain types of guns. He doesn't have the votes in Congress to do so, at least at this point. As a marketing idea for gun companies, though, the gun-ban theme is brilliant. It has "legs" because Pres. Obama is not known as a Second Amendment stalwart.

From a consumer perspective, I can assure would-be investors that both Smith & Wesson and Ruger make very trusty, good-quality firearms. Ruger's rifles are durable and accurate; Ruger's handguns are solid and well-performing. Smith's revolvers, of course, are legendary, and a revolver is a great first gun for those who have never owned a firearm before.

I don't disagree that we MAY see social unrest. However, I do not believe that we will see unrest to the extent that Peter Schiff and Gerald Celente predict (though I respect both of them immensely). Moreover, I think such incidents will be focused in urban and/or impoverished areas. While the government's official unemployment rate for the nation is 8.5%, for example, Detroit's is about 14%.

A different question will be what the market will do IF we see a major civil disturbance. For example, if there are riots in Flint, Michigan (13.8% unemployment), how will the market react? How will the government (both State of Michigan & federal) deal with the situation?

I have thought about what incidents of civil disturbance really had a national following that could've affected the market and could come up with only one: the 1992 Los Angeles Riots (April 29, 1992 thru May 7, 1992). During those days of rioting, the DJIA didn't move too much. While I realize that there have been other incidents (Cincinnati 2001, Miami 1980), I do not believe that the nation was as captivated as it was during the LA riots. Given the current financial morass, however, I think that the markets could move precipitously to the downside if we see a major incident of the scale of the LA riots.

Faber and Schiff: Inflation Inevitable (So Here's What to Do)

On Apr 06 09:10 PM Sudhakar2k wrote:

> There is too much warning of inflation going around. I mean is inflation
> really a bad thing right now? Yes inflation will be a problem down
> the road like in 5 or 7 years (if we are lucky). Right now were
> are in the middle of the greatest deflationary cycle in 80 years.
> I welcome some inflation. It'll help fix the banks balance sheets
> and overly debted consumers, which have been the underlying problem
> for our declining economy. So you want to plan for inflation now,
> basically ignoring the deflation that going on for the next year
> or two or longer?

Inflation punishes savers and rewards spenders. It destroys the purchasing power of our savings because the same quantity of goods costs more to purchase. It discourages savings and encourages spending; why wait to purchase something if it will cost more in the future? Sure, inflation rewards debtors (assuming that wages go up too), but that merely creates even more problems by encouraging persons to take on more debt.