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mr freddo

mr freddo
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  • Obama (Should Say) to California: Drop Dead [View article]
    I agree with Peter that California needs to solve its own problems and not be saved by the federal government with a bailout.

    Anyone who has run an organization knows that when hard times come, cutbacks in spending must occur. In good times, spending can be increased on priority items but carefully, and only after the organization's financial health has fully recovered. The memory of the previous crisis should be a strong teacher.

    I recommend that The Governator consider the following mix of solutions to the budget crisis:

    1. Lay off 15% of the state work force in all administrative departments. No layoffs for first responders.

    2. Cut pay for the remaining workers by 15%.

    3. Bring back the automobile license tax which would generate $5 billion.

    4. Legalize pot and tax it. If run properly, this would generate $5 billion.

    5. Change sentencing laws to make non violent criminals more self-sufficient. It costs the state $60,000 a year to lock someone up.

    6. Reduce retirement benefits and increase years of service for government workers. Who in the private sector is able to get the type of gold plated retirement benefits that government workers receive? We simply cannot afford it.

    7. Increase cigarette and liquor taxes by 500%.

    8. Legalize and regulate prostitution and gambling.

    9. Sell off shore drilling licenses.

    10. Reduce pay of legislators by 50% during crisis periods.

    11. Reign in the voter initiative process which only serves to mislead and confuse votors.

    12. Reform campaign financing so that the influence of lobbyists is reduced.

    If the state gets a bailout, the politicians will continue to take the easy path which is to avoid painful cuts and continue to spend money that isn't there.
    May 31, 2009. 12:04 PM | 17 Likes Like |Link to Comment
  • What's Holding the Gold ETF Back? [View article]
    You asked the question, but I don't believe that you answered it. What is holding the gold ETF back?

    Goldminers (GDX) have advanced smartly over the past month and gold has moved up but still seems stuck in the 900 - 970 trading range.

    Initially, investors moved into gold positions as a hedge against Armageddon. The fear of a total meltdown has now been replaced with the fear of inflation. But gold still seems to be lagging.

    SLV is also moving upward. Perhaps it is a better play as it is selling at a very cheap price right now in relation to the price of gold.

    Disclosure: Long GLD, GDX, SLV
    May 28, 2009. 04:04 PM | 8 Likes Like |Link to Comment
  • Is There Any Limit to Bank Arrogance? [View article]
    Is there any limit to bank arrogance?

    In a word... no.
    May 28, 2009. 03:42 PM | 5 Likes Like |Link to Comment
  • U.S. Hyperinflation: Is Faber's Prediction Realistic? [View article]
    Inflation is coming but not 231 million percent inflation. Expect that, as the economy recovers, inflation will start to move toward the 5% level. The Fed will clamp down, sending the economy into a second recession but whipping inflation.

    Faber is predicting that the Fed will essentially lose control of the process due to political pressure. That could happen, considering the huge deficits that are projected this year and on into the future. But it probably won't.

    Protecting your portfolio with inflation hedges is a good idea in any event. Whether the inflation rate peaks at 5%, 10%, or higher, inflation is coming...
    May 28, 2009. 12:05 PM | 3 Likes Like |Link to Comment
  • Be Prepared for S&P to Hit 350 by June 2010 [View article]
    As a former small business owner, I would have to agree with the author that shutting off credit will kill many of these businesses that are the engines of employment in our economy.

    But it won't bring down the economy. The weaker businesses will close and the stronger businesses will pick up the slack. Consolidation will occur which will raise overall productivity.

    In boom times, small businesses proliferate and overcapacity becomes a problem. Well run businesses have to compete with poorly run businesses that don't understand how to cost their products or services and often undercut the market price to get business, driving profits down for everyone.

    Well run, conservatively financed small businesses will survive and prosper.
    May 28, 2009. 11:55 AM | 7 Likes Like |Link to Comment
  • Buy and Hold Is Alive and Well [View article]
    Buy and hold is really the only sane approach for most investors. The alternative, buy, sell, buy, sell, will leave the vast majority of investors with losses. In addition, with a buy and hold strategy, you can turn off Cramer and Fast Money and start reading some good books.

    If you are still employed, the best way to invest is to commit to buying index funds and ETF's every month and then concentrate on keeping your job, cutting your costs, and enjoying your precious family.
    May 28, 2009. 11:41 AM | 12 Likes Like |Link to Comment
  • Get Ready for Rising Interest Rates [View article]
    Your article asks the question that is on everyone's mind.

    With the economy showing at least some signs of a "moderation" in it's decline, we are left to wonder if the worst of the storm has past or if we are simply in a lull stage as the eye of the hurricane provides us with temporary relief.

    If the worst is over, it would make sense that long term rates would begin to move toward normalcy as investors pull out of their safe haven and begin looking for better returns.

    On the other hand, rising rates may signal that the worst is yet to come. Are we looking at a return to horrendous stagflation where we lose our jobs, lose half the value in our 401ks, and gas costs 9$ per gallon?

    The Fed is playing a dangerous game of inflating the economy with easy money to breath life into our economic system while believing that it can still control inflation when it rears its ugly head.

    Investors must protect themselves from future inflation by moving out of fixed income and into assets that will appreciate with inflation. Gold and Silver come to mind. Big tech, materials, and emerging market stocks should also do well.

    The author states that "rest assured, the money game is about to change in more than a trivial way." Hold on to your hats.

    May 28, 2009. 11:26 AM | 10 Likes Like |Link to Comment
  • How Should We Improve Seeking Alpha's Comment Rating System? [View instapost]
    Here is the problem. The higher your rating, the more you generate negative votes from other top rated commenters who wish to keep their position. The system is open to blatant ballot stuffing and also blatant negative voting.

    So I wouldn't get too excited about being a top rated commenter as a result. I could be the number 1 commenter tomorrow if I really wanted to go to all the trouble to give John Lounsbury 1182 negative votes on all of his comments.

    For those who wish to have highly rated comments, here are a few tips:

    - say that gold is going to $5000
    -say that we will be living in caves in 6 months.
    -say that AIG executives should be imprisoned.
    -say that Geitner should be fired
    -say that all Wall Street bonuses should be confiscated.

    For a low grade:

    -say that things are getting better
    -say that everything is going to work out fine
    -say that the market will rise to 10,000 by year end
    -say that Cramer is a genius.
    -say that gold is going to $300 per ounce
    -say that our system actually is working wel.

    Personally, I have decided to write what I please and not worry about the rating.

    May 14, 2009. 05:58 PM | 24 Likes Like |Link to Comment
  • Want a Pension Over $100,000? Be a Government Worker in California [View article]
    You have hit the nail on the head squarely. We simply cannot continue to offer such rich retirement benefits to government workers. I believe that we will have to increase years of service and reduce benefits for all government workers. We cannot afford to pay 3 or 4 workers for every active worker we have on the job and that is where we are headed now.

    I have been tempted to tell my children to get a job with the state for just this reason. The private sector has become a gigantic crap shoot with little or no pension waiting at the end of a now shortened career. No one over 50 is wanted or needed in the corporate world. Too expensive. Better to hire young and promote with no promises as to the future.

    If we want to fix state government in California, we are going to have to take on the unions and fix our bloated pension system.
    May 5, 2009. 01:00 AM | 6 Likes Like |Link to Comment
  • The Worst Case Scenario (Someone Has to Say It) [View article]
    What, no flesh eating zombies?
    May 5, 2009. 12:48 AM | 16 Likes Like |Link to Comment
  • The Impending Mother of All Oil Shocks [View article]
    Thanks Andrew for an interesting article about Oil.

    It seems we have been down this road several times before. Oil goes up, alternatives are in vogue, oil goes down, alternatives get scrapped.

    The difference now, as the author points out, is that market forces are about to come into play for the first time. With demand surging ever upward, and supply constrained by the diminishing returns of existing oil wells and the cancellation of new projects due to the current downturn, we are clearly headed for another run-up of oil prices once the world economy begins to turn around.

    I say bring on $200 oil. At that price, we will finally start to take alternative green fuels seriously, like solar, wind and geothermal. And we will begin to reshape our lives to cut down on the long commutes which will become too expensive.

    Personally, I have cut my gasoline usage by 70% in the past 3 years by riding a bicycle, and trading in my V8 guzzler for a 4 cylinder with a modest appetite for gas.

    The upcoming surge in oil prices is unstoppable if one assumes any scenario of economic vitality. The question, as always, is when? My guess is $100 in one year, $200 in 2 years.
    Apr 26, 2009. 08:34 PM | 10 Likes Like |Link to Comment
  • Equities Are Likely Heading Lower: Resist the Temptation to Short Them [View article]
    I agree with the author on several points:

    1. The stock market will start to move forward in nominal terms because of inflation, but will continue to provide negative returns as compared to the inflation rate.

    2. Gold and Oil will increase in value relative to inflation as investors seek out safe havens to protect their capital. You can add all commodities and materials to this list as well as emerging markets rich in materials like Brazil and China.

    3. It is a treacherous time to be seeking income as you may get stuck in a Pfizer-type situation. Better to just cut spending to the bone and focus on capital preservation.

    I disagree with the author about the pace of inflation and the magnitude of real losses. Inflation will increase, perhaps to the levels of 10% per year for several years. The Fed will begin to raise rates at this point, possible causing a double dip recession, and inflation will be tamed. The end result will be a long period, perhaps 5 years, of stagflation.

    Although their is much evidence to support the thesis that we are now engaged in a bear market rally and that March lows will be tested again and tested sooner rather than later, the prudent investor shouldn't be shorting.

    But then, I believe that shorting is not investing but gambling and is not productive in the long run. Ask yourself this question the next time you short something. What if everyone did this? Shorting is basically immoral. If everyone did it, we could drive every public company in the world to 0 and destroy the entire world economy. If you are making money this way, you should think about doing something more productive with your time and money.
    Apr 26, 2009. 08:04 PM | 11 Likes Like |Link to Comment
  • Are Gold Funds a Buy Again? [View article]
    I am a believer in gold over the next year or 3, primarily because of the inflation that is bound to come once a recovery gets underway. I am holding GLD, SLV, and GDX as alternatives to cash.

    I don't see a huge rally in gold any time soon however. The jewelry market has fallen off with the down turn and the financial apocalypse buying will taper off and reverse to selling once investors are convinced that there is, in fact, a future for the world economy.

    Inflation will drive the gold market to spectacular new highs but that could be a year down the road. But when we start to see a recovery, inflation will start to roar and then gold will be a great way to retain value.

    Until then, it will trade in a range as it is right now.
    Apr 7, 2009. 12:19 PM | 6 Likes Like |Link to Comment
  • So, When Will This Rally End? [View article]
    The author brings up an interesting question about human nature. Why is it that we (the herd) love a sale price on lawn mowers, but turn our heads away when stocks are on sale?

    The lawn mower, when purchased, will not lose 90% of its value in 3 months, while WAMU and other banking stocks did just that. So we trust our judgement on the lawnmower while we want the security of the herd when buying stocks.

    Our education system is based on reading, studying, and then coming to a conclusion. Often times, our conclusion is based on what we have determined is the consensus opinion. This approach works well in politics and business. As we read, learn, and become educated, our decision making improves.

    I have yet to see this approach work well for making investments. The more we read, study, and listen, the more we assimilate ourselves into the herd. We may be at the front of the herd, but we are still traveling with the crowd.

    Even though many on this site have proclaimed the death of "buy and hold," it is the only strategy that an average investor can hope to win with.

    Look at the recent market activity. When the Dow hit 6500, didn't you have that fear that everything was going to hell and you better get out before it went to 1000? Later, when we recover to 8000, greed kicks in and we are looking at buying in before it is too late.

    Or take a particular stock. You hear about it. You start to research it. Someone recommends it. Your ears perk up. More research. Then you hear about it again. Time to buy! Then Cramer recommends it. Well that stock is now a herd favorite and the sharpies are all unloading.

    But the last two years have been fairly simple when I look back at my own personal buy and sell decisions. When I bought I was proven to be an idiot, and when I sold, I was a genius ( at least in terms of preventing additional losses.)

    Apr 7, 2009. 10:39 AM | 4 Likes Like |Link to Comment
  • Worst Is Yet to Come for Banks - Mike Mayo [View article]
    The Fed is providing cheap money to banks to fatten there operating profits. Mark to market rules are being eased which will allow banks to push losses into the future where they may, in fact be less. As mentioned in the article, there are still a mountain of losses to be absorbed and many banks will fail.

    The strategy is to stall the crisis until banks can grow operating profits sufficiently to generate capital for the balance sheet. A very similar approach was used in the early 80's with the foreign debt crisis. Banks were given time to heal themselves.

    In the mean time, the government is prepared to soak up the toxic assets on bank balance sheets thus freeing the bank's capital for more productive uses.

    With the Damocles Sword of derivatives hanging over the market, where one bankruptcy could rupture the system and bring down the entire network, it is questionable whether the old system can be saved.

    The US government is flooding the market with money and debasing the currency in an effort to kick start the economy.
    The strategy is to give the economy an electro shock jolt to revive it.

    Inflation can be addressed later and would be a symptom of recovery, therefore, a sign of hope, a good problem to have versus having an economy with a heart that isn't beating and blood that isn't flowing.

    Once we establish a more rational, sane regulatory structure for the derivatives market, we will begin to remove the threat of this crisis repeating itself in the future. The return of Glass Steagal in some fashion will also be necessary so that bankers get out of promotion and sales, and go back to banking.

    In the future, look for a strong, bull market recovery that will be fueled by inflation. Commodities, materials, precious metals, oil, and agriculture will soar as will big tech companies that are adept at passing through price increases.

    I don't know when that future starts, of course but the cancellation of many mining and exploration projects during this downturn means that when the economy starts to recover, demand will outstrip supply for metals, materials, and oil and their prices will skyrocket accordingly.

    The treasury department and the Fed are "all in" now and throwing everything they have at this crisis. The big question still unresolved is whether even the mighty US can stand up to the losses created by this financial disaster.

    I'm betting we make it to the other side but not without another year of shock and awe.
    Apr 6, 2009. 04:10 PM | 12 Likes Like |Link to Comment