lorddarley

Show Me Economic Expansion, Chairman Bernanke

It's just history, rhyming away. It happened in Rome. It happened in Europe. It's inevitable in the US.

Don't count on a self-interested Republican to be any better than a self-interested Democrat. None can keep their position in a democracy by saying "no" to spending borrowed money for voter entitlements. Whether it's Bush with Part D Medicare, or Obama with whatever comes from Harry and Nancy, you can only be a hero in a democracy by spending money to buy votes.

What's non-unique in the current crisis is as natural as the tides. National wealth has encouraged the import of affordable goods and affordable immigrant labor. That makes it harder for local working people to compete, so the state subsidizes. Whether it's bread and circuses, or cradle to grave welfare, the politician-rulers are required to provide these nets for political stability. In the process, these politician-rulers -- elected by the donees -- make a great life for themselves.

The result, of course, is that these nations decay from within. An external crisis, which could have been blunted by a strong-minded citizenry, eventually topples the thing, because people will not sacrifice to save their entitlements. Don't moan. This is just history and it cannot be prevented.

It's probably best, for people who can afford it, to emigrate once you retire. You need to plan. It's no big deal to forfeit social security payments of depreciated dollars, and Medicare is already not worth the money, and it will be less valuable with time. They already charge over $300 monthly for Part B if you make a good income, so who needs it, when you also have to shell out for drugs and a private medicare supplement?

Neutral countries which are not superpowers are the best candidates. You can still keep ties here, but it's crazy to keep assets within the borders. Eventually, you will lose the freedom to keep what you have earned.

And Bernanke Didn't Think Unemployment Would Reach 10%

There is nothing in all this stimulus from Washington that would induce me or any of the businesses I work for to hire a single individual.

In fact, the IRS seems to be th big winner. It got ovr 2/3 of a BILLION extra, and with its enhanced audit budget it is already wreaking mischief through audits. The goal is to catch employers on technicalities in our obscenely complex employee benefits laws, and to grab penalty taxes. Better not to provide benefits is my advice quite often.

This is not a friendly country for employers, so unemployment should be no surprise, except to those who spin theories and do not have to deal with the real world.

How Low Can the Dollar Go?

This will be a long term and painful process.

It is inevitable due to our decision (I don't remember voting, but I own a foreign car, so I guess that's a vote) to integrate within the world economy.

US labor is being repriced, and politicians are spending money like mad to shelter labor from the truth. Things won't get better for most private sector people until foreign wages go up, or until we decline further, in the name of "competition." Even privileged civil "servants" will start to feel the sting, but most of them are protected.

It's a sad state of affairs. Americans without jobs and prospects will not be good Americans. We should cut off the oil imports, and limit the junk we buy from Asia. Our favored political class, in Washington and the states, are incapable of solving this as they pursue their own self-interest.

It's Rome, redux. The collapse of a dedicated citizenry caused by imports and a corrupt ruling class. Until its final days, most Romans still thought they were living in a "republic."

This Recession Isn't Over: Now for the Hard Part

Fooey on green shoots.

To get job growth, you don't throw money at failed businesses, make-work projects, pie-in-the sky "green" industry, and safety nets of long duration that discourage work at affordable rates.

You don't get job growth by imposing more federal and state mandates, and 15.3% employment taxes, on business that have proven models, which provide jobs, and which can still compete in overseas markets. All that reglation and tax just encourages employers who could provide jobs to lay off and relocate operations.

Is anyone surprised the first stimulus failed to stem unemployment?

We need to rebalance trade and promote export growth, and that means we need jobs at companies that are good enough to make and sell product that other countries want. And, let's get serious about "retraining." What we lack in this country is affordable labor. No politician will say the obvious. The rest of the world does not want to pay middle class wages for much of the US labor pool.

We can compete, but our best companies should be the ones getting the stimulus and encouragement from washington, not thefailures. Instead, the government keeps adding weight to employers. As they say in horse racing, enough weight will stop a train.

A Real Green Shoot - The Dakotas

The Dakotas' biggest asset is that they lack big city mayors, and the migrant votes and overpaid civil "services" that keep them in power. It's easy to be prosperous, if tax dollars are spent for people who have lived in a state and paid taxes. I was in South Dakpta recently, and it was a breath of fresh air after the political corruption of the Northeast.

A Rally of Historic Proportions

Always bet on people who are at a lower rung, and want to move higher and who are in a country which permits that. I've written before that I have a strong bias for Brazil, a former Portuguese colony. Much of the Portuguese culture remains.

I've observed Portuguese immigrants in the US (from Azores and the main country). Culturally, Portuguse are different than Hispanics.

Each group will work hard. However, the Portuguese have more of a desire to acquire property. There are a MILLION exceptions to generalizations. But forget being politically correct. We are not running for office when we invest money in emerging markets. We seek predictable trends.

The Portuguese work ethic in Brazil, combined with the inherited desire of the average Portuguese to acquire property, makes me very, very bullish about Brazilians and the companies in BRF. Ten years from now I expect my investments in Brazil to have outperformed others in my portfolio. South America is the unsung continent with the most potential for investors.

Is Gartman Right About Shorting the Dow and Gold?

Asset prices were high because of an extraordinary "velocity" of money. All of this printed money is replacing high hopes, and is geared toward restoring the make-believe asset values of the last 10 years.

We have not even begun to experience the deflation which will be cause by state, local, and foreign country defaults on government debt. Commercial real estate, which has lost its key tenants (the financial industry and those who service it) is not talked about in the official circle of optimists, but the square foot asking price (necessary to service mortgage debt) is totally unrealistic.

Wages, in real terms, are going down, and anyone who mistakes government job growth for real job growth is smoking good stuff.

Someday, there will be inflation again, but even the mighty Fed cannot replace the asset values which were artificially inflated by an unprecedented binge of borrowing and speculation.

I keep stock of the gold miners (not the hard stuff) for diversification. There is really no long asset which is a good investment at this point except for high yielding utilities. The trend is down, and investments should be in instruments which will benefit from the trend.

New Bull Market or a Bear Market Rally?

Bill,

Good post.

LD


On Apr 12 11:11 AM William Cowie wrote:

> PPIP is another driver of the rising market. Whereas TARP money had
> to be repaid, PPIP money builds banks' capital by letting them show
> artificial profits by trading toxic assets among themselves. The
> mechanics are too long to spell out here, so I show them in an instablog
> here
> seekingalpha.com/insta...
>
>
> How does this affect the market? Banks show earnings which are significantly
> inflated by our taxpayer dollars (hello, WFC). Several of them are
> Dow components, so our taxpayer dollars inflate the Dow. As the Dow
> rises, trading programs kick in and buy other stocks. In this way,
> our tax dollars inflate the stock market. Remember how everyone beat
> on Obama for driving stock prices down since his inauguration? They
> have now figured out how to cure that. Don't expect them to lift
> their feet off the deal any time soon.
>
> The amounts are huge, and may dwarf any other signal which might
> have driven the market down, as so many experts predicted. As another
> commenter posted elsewhere, this is the new Enron. The only difference
> is, it's our government doing it... with our money.
>

New Bull Market or a Bear Market Rally?

US investors may as well bet with the house. On a fundamental basis, there is another positive trend for banks which is not mentioned (yet), so get ahead of the curve.

There will be legislation which legalizes the people who are here illegally. Their money and puchasing power, already substantial, will "come out of the closet."

I see it as a huge boost for the low end of the housing market, and an enormous prop for banks.

Obviously, this is morally unsettling for those who scrimped, saved, and followed the law. Much of this recovery is going to be based on their hard-earned labor,savings, and future tax receipts.

Being a fan of the ants rather than the grasshoppers, I find this morally reprehensible for politicians with guaranteed wealth to make these judgments. However, as investors, we need to be dispassionate. Banking is the "can't lose" industry with this Administration, and the new immigration laws will abet that.

LD

New Bull Market or a Bear Market Rally?

I can think of a million reasons why "the market" won't go up. However, there are also a million stocks that seem too low based on cash generation capabilities, so maybe it's wrong to be pessimistic about "the market" and to focus instead on buying into "can't miss" companies.

Banking is at the top of the "can't miss" list. The Federal Reserve is clearly going to give free money to the banks until they are recapitalized. The Federal Reserve will get the capital by depreciating the savings of depositors with low interest rates, and by borrowing against future tax receipts (until the year 2200, by my reckoning). It's gross and unfair policy, but it's clearly telegraphed.

So, what's not to like about bank stocks when you know now that banks can borrow for 0% and lend at 4-9%? Add in some franchise businesses to "banking", and the stocks become even more attractive. I am thinking especially of Bank of America, with Countrywide, Merrilll Lynch and, of course, the incredible ATM network.

The Administration will not let Bank of America go broke. The company can be back in the mid 20's within a year. It could go back to 3 or 4 for a short spell, but there's a great risk-reward ratio here.

There are plenty of micro-negatives (brokers leaving Merrill, credit card exposure, etc.), but the loss reserves are so great already, and the Administration is so friendly, I'm not worried about B of A, or any of the major stocks in the "can't miss" banking sector.

LordD

The Rally, When It Comes, Will Be a Doozy

We would all love a flashback to the euphoria of a 15,000 point DOW. What's missing from this post, and many other writings, is a realistic appreciation of demographics.

This horrible market is simply anticipating the deluge of baby boom retirements which will start within a few years.

On the government side, each civil servant (local, state, or federal) with a full career pension requires anywhere from $600,000 - $3,500,000 of liquidation of securities. That's just the public sector.

Add in the private sector with the lucky ones who still have defined benefit pensions (not busted-out defined contribution plans) and the liquidation scenario is too awful to contemplate. Even the 401(k) bunch will need to sell in a few years to pay bills for basic needs. Those poor folks who worked hard, but without the cynicism to be "smart," must resign themselves to a work until death scenario.

Money on the sidelines will not cover this demographic catastrophe: old folks will sell investments, directly or indirectly, because of retirements. There are too few productive younger persons to flll the gaps.

This crisis is bigger than Bush, or Obama. It's a once in our history event.
A huge mass of persons hopes to liquidate stocks (by direct sale from defined contribution plans or simply because they retire from defined benefit plans and someone else sells).

What is happening in the stock market today is a prescient realization of the future.

LordD

It's Not a Recession, It's Reality

Whenever I read the prase "lost decade", I wonder what was "lost" in the Japan of the '90's.

Clearly, Japanese stock prices decreased, and stayed low. However, the average Japanese citizen (aka/ Main Street) does not seem to have suffered.

Worthwhile or not, Japanese jobs were preserved and social dislocation was kept at a minimum after a bubble founded on the myth that the Japanese would rule the world.

During the "lost" '90's, Japanese industry continued to produce profitable exports and to establish profitable beachheads in their client countries. Although there are unsolved problems in Japan today, its currency is the world's safe haven.

My own views on this are not well-formed, so please don't blitz me with a bunch of "nays" for thinking the unthinkable. Was the decade of the '90's really lost to Japan citizens, or just to stockmarket speculators?

We live in interesting times. We have been taking social stability for granted. The Japanese of the '90's took no chances, and prioritized stability over the stock market. That might be the choice for our upcoming lost decade.

LordD

Cramer's Mad Money - Building Long-Term Wealth (1/19/09)

Does 'diversification' really work?

It does. However, very few small investors have access to real diversification.

For example, did you have access to investments which bet against CDOs? Were you able to bet against declining real estate in Las Vegas suburbs? Can you own collectibles in your retirement account? Can you own Swiss Francs? Are you able to own a tenancy in common in a cattle farm in Hokaido?

Answer: you either did not have access, or you would have been taxed (collectibles) if you did.

What poses as "diversification" for most investors is a variety of long positions in registered securities or high maintenance open end funds. That's not diversification.

LordD

Paul Krugman + Al Gore = The Way Forward

This really isn't hard, except for the Protestant belief by many of us non-Protestants that you are supposed to work and save, and be punished if you do not.

We better grow up.

Work and savers made their money in an economy where others borrowed and spent. How else could a thrifty shop owner make money? We all inadvertantly abetted this wastrel lifestyle, even if we were savers.

Objectively, it's just money. How it is processed is more about lifestyle and religious bent, rather than hard facts.

The truth is that because of the contraction in lending -- there are not enough willling lenders, and not enough able borrowers -- our money supply has contracted wildly. We need to expand it again, or we will have a cataclysmic contraction.

Print the money. It will not cause inflation. The printed money will replace the money which is not circulating through the system. Without printed money, we will return to an era where doctors earned $25,000 per year, lawyers earned less, and a good factory worker earned about $7,000. It sounds poetic, but that's a recipe for a 15 year disaster.

Print the money.

LordD

The Shallowest Generation

This was an extraordinarily superficial article. People are people. The boomers, like every generation, have heros and villains. For the most part, of course, they are just plain average, caring more about self and family than "the common good." That's human nature, not a character flaw.

The boomers were the first to create the politics of youth, which stood up to an older establishment. They resisted the Viet Nam (of Kennedy, Johnson, and Nixon). They bled in Chicago. They were murdered in Ohio. They then grew up, put on suits, and went to work.

Throughout their careers, they have paid vast sums into social security to support their parents, the "great" generation," in comfort well beyond what they had saved. They also support millions of immigrants and people of different ages who can't (or won't) work.

They now are told there is nothing for them, except what they have saved. So they will keep working, because hard work --they should be called the workaholic generation -- is a trait of the boomers. They cannot retire at 62 with a fishing pole like so many of their parents, or like so many of the government workers who are humorously called civil "servants."

No one generation can take credit or be blamed for the present, which is a product of centuries. Nostalgia about the past is silly, and a flaw of every current generation since the beginning of time. We should focus on the present and how to make it better. Whether there is a place in our future for the ideals of the previous "great generation" -- patriotism and love of God-- is a question for Generations X, Y and Z.

LordD