LookyThis...

If they say "This Time It's Different" take the other side...

2011-07-28T10:46:00.000-05:00

You would think that with the number of people who have business degrees and experience corporate failures would be isolated events. Sadly, many of these practitioners of management skipped their classes concerning capital financing, research and development, competition and human resource development. They've managed to take good businesses and drive them into oblivion.

The remnants of Blockbuster have been absorbed by Dish Network. Borders book store is closing its remaining stores and liquidating its inventory. Both companies initially were successful in their respective niches. But with a change of ownership and management operational success turned to failure.

There were several reasons for the collapses.

The acquisitions were financed with an inappropriate amount of that, calculated with projections that were overly optimistic. Management apparently believed their own B.S.

The markets that both companies were serving were evolving, but Blockbuster and Borders did not, or did so much too slowly to satisfy their customers can keep up with the competition.

Management was unwilling to redesign their operational framework until it was too late

The drop in revenues and new customers reduced cash flow to the point both companies had difficulty making the interest payments on their debt, meeting payroll, and providing products to their stores. As the deteriorating condition of Borders and Blockbuster became public knowledge, the lack of consumer confidence reinforced the negative downward spiral that carried them to the point of no recovery.

Borders is in the process of closing its remaining stores. Blockbuster, which at one time had over 5000 stores, is struggling to retain the last 500 locations.

Trying to continuously expand using highly leveraged debt over the course of multiple economic cycles without adapting to new market conditions is business suicide. The result is catastrophic, a terrible waste of financial and human capital. When senior management commits successive errors in vision, judgement, and execution you need to remove them from their positions of power in order to stop and repair the damage.

Our elected "professional" politicians are squabbling about how to reduce the bloated spending of the federal government, and holding our capacity for debt hostage so they can use the control of that debt as leverage with the voters. They are reluctant to change the spending for 'fear' of upsetting their constituencies, even while acknowledging the system will collapse, and soon. The majority of these politicians are concentrating their efforts to defend their political positions and spending , and have no clue as to what the effect of their current actions will have on the economy in the next three to six months.

The following is my personal opinion, but here goes:

The housing market for sale of existing homes will contract by 5-8 % due to higher interest rates and lower demand.

Food, clothing, a consumer product will increase by 5 to 10% due to inflation forces, further reducing personal disposable income.

Businesses will be forced to raise prices to cover commodity cost, regulatory fees, new taxes, and personnel costs (if they can). Profit margins will suffer, because of businesses maintain the same profit margins, their total business will contract due to less people been able to afford the purchases.

Equity markets will reflect this action with lower prices, further shrinking federal and state tax receipts due to lack of capital gains.

Interest rates will begin to rise substantially. That debt markets will start to more accurately reflect the risk/reward profile of the cash flows from capital assets.

Our Gross National Product will struggle to stay positive due to lack of demand and increased costs.

A description of the above is something like "this will not be pretty". The most disgusting part of the circus will be the stampede of politicians trying to avoid blame for their extravaganza with the help of the mainstream media sycophants. The entire situation is so revolting it makes one want to throw up.

If there is any upside to the situation (based on the above scenario) is that this type of debacle results in the replacement of the sitting politicians with a new set of elected officials that are a bit more pragmatic when it comes to fiscal conservatism - or at least we can hope.

Until next time

The Instigator

P.S.

Dow Jones Industrial Avg. - 12, 304
S & P 500 - 1,305
10 yr Treasury Bond Yield - 2.97%

Watch for the stock markets to rally before the unemployment report next week. It's a recovery from the oversold condition. Some people will attribute it to the action in Washington over the weekend, but in reality I believe its a setup for more seriously disappointing news in August and September.

"I'm going to call my brother..."

2011-07-19T14:15:00.026-05:00

Snowstorms, Heat Waves, Bubbles and Crashes It takes some effort to recall that just 5 and a half months ago the Chicago area was buried by a huge snowstorms so severe it closed Lake Shore Drive. Our current heat wave looks to last all this week and most of next. It's time to retreat from the heat, stay hydrated and wait for cooler times to work on the outdoor projects.

Since the financial “storm" that froze our financial system it's now been a little over three years. Domestic equity indexes have doubled in valuation. Commodities have increased much more. Gold, silver, copper, cotton, the grain complex - nearly all are 2, 3 or more times their price of just a few years ago. We have a commodity asset bubble, and it’s huge. The price patterns and volatility illustrate an overheated situation, and these never end well.

Our political officials and advisers are so busy defending their actions and protecting their turf they are failing to see the cliff at the horizon that we are approaching with increasing speed. The Federal Reserve, with help from the European and Chinese central banks have flooded the world with paper money and artificially low interest rates. The fuel to overheat commodity prices is already in the system. What's going to happen is kind of like this story about the apprentice yardmaster.

Once upon a time an apprentice was taking his final exam to become the yardmaster for a major railroad. The examiner described the final scenario: two trains were entering the rail yard from opposite directions at a high rate of speed. What do you do?

"I'd throw the switches in the control station and route them to two side tracks."

"Good answer" said the examiner. "But what would you do if the switches were stuck?"

"I grab the red flags, run down to the tracks and try to wave off the trains."

"That's the right thing to do, but what if they don't see you?"

"Then I'd call my brother" said the apprentice.

"Call your brother? What could he do?" asked the examiner.

"Nothing, but he loves to watch train wrecks!"

It's a lot safer to watch a train wreck from the sidelines than to be in one. Commodity prices as an asset class are going to correct-and sooner rather than later. Bubbles never end well. Here are some steps to take between now and mid-September.

Don't be greedy-if you own commodities now, scale out of your positions. If you must stay in, liquidate 80 percent of your position, and get back and after the prices break down, and at least 30 days after you close on your positions. But remember Jesse Livermore was right about the market going down but got back in too early and lost a fortune.

Stay liquid-don't take new positions. Put your money in short-term money market instruments that are safe and insured if possible.

Price inflation bad, price deflation good. For those that guard their capital, the reduction of commodity prices will produce investment opportunities for the prudent. Exercise patience and you will find the right investment for you.

Stay away from long term bonds. As long as real interest rates are below the rate of inflation bonds yield a negative return.

August, September and October look to be a time when most commodity assets will be drastically repriced- be careful when you hear people saying this time it's different-it never is. If I'm wrong you will have sacrificed a percent or two in exchange for the peace of mind that comes from protecting yourself from the price contraction of a burst asset bubble. You will be able to re-establish long-term investment positions with a better identified base. If I'm right you're looking good!

Until next time

The Instigator

Where was I? Oh yeah, look out below...

2011-07-12T08:59:00.002-05:00

It's been a while: recoveries take longer than most people think. I finally feel good enough to start writing about my observations with (hopefully) some clarity.

The inflation machine is in second gear worldwide, and maybe shifting into third gear. National governments, led by the U.S., have flooded financial systems with paper money. The results can be seen in the rise in commodity prices (gold, silver, food, metals) and the reduction of disposable income because households and businesses must pay more for essential needs.

The next stage involves shortages. As world supply chains have converted to just-in-time practices to reduce invested capital, inventories (read cushions) have been reduced to minimal levels. Any disruption in supply due to shortages will result in delivery interruptions. Lack of essential goods causes the prices of existing goods to rise as users offer more money to secure those goods.

This stage's effect on prices is more severe and price moves are faster and more dramatic. The prior attitude of complacency and control is replaced with concern, anxiety, and eventually panic.

Having to pay a lot more for essential household goods will eliminate what disposable income most families have. The general economy shrinks, causing a contraction in the GNP (Gross National Product) and tax receipts, further weakening the U.S.'s ability to service its debt and fund its programs.

The above situation is clearly global. Our country has the capability to counteract this phenomenon, but while our President and Congress entertain us with their version of a Punch and Judy show don't expect conditions to change.

We'll get into prescriptions, cures, preventions and opportunities in the next missives.

Until next time

The Instigator

P.S. The general markets (D.J.I.A., S&P, Russell 2000) are headed lower for now (based on weekly measurements). Don't expect a changing direction for the time being.

When the numbers add up...

2010-04-20T12:30:00.002-05:00

Having endured April 15th, American taxpayers find themselves looking into the future asking "what's next"? and "how much worse can it get"? Both questions point toward rather negative answers. The burdens of entitlements (Social Security, Medicare, Medicaid, and the new health care), property taxes, and ballooning national and state debt are growing at a rate that will soon overwhelm the private sectors' ability to service the interest due plus current liabilities, much less pay down any principal. Our Congressional leaders can manipulate their "budgets" only so much, and then the sheer magnitude of their spending is going to be nakedly exposed (given those members of Congress, a truly terrifying visage) for all to see, with the signature of their votes permanently engraved in the mass of indebtedness.
One of the little "ways" that the politicians have minimized the capability of the American taxpayer to fully comprehend their tax burden is to spread out the payments, making the amount seem much less than it really is. Our income, FICA, and state income are examples.

Consumption taxes are much the same. Sales taxes, gasoline tax, hospitality, travel, parking, amusement, liquor and others are all paid on transactions. People almost never really know their total tax burden.

Perhaps it's time for the American taxpayer to become fully informed as to the taxes they are paying. To do this, all we need is a little computing power, the internet, and a few small modifications in existing software code.

Every taxpayer would have a small software application that would be able to record every expenditure that involves payment of a tax of any kind. Bar codes would make this very easy to do (by scanning) or by receipt over the internet. Every type of tax, be it federal, state or local, would be coded and recognized by personal finance programs. These programs would keep a running total of the taxes paid.

A taxpayer would be able to see, at any time, how much they have paid to federal, state and local governments in each category of tax. These numbers could be shown as raw totals, a percentage of taxable income or percentage of total income.

There's a classic management maxim that says that what gets watched gets managed. What do you think will happen when the American taxpayer knows, in real time, how much money is going to the government? Might the issues of accountability and prudence become decidedly prominent priority?

Our democratic leaders have decided that it's within their 'right' to mandate citizens pay several thousand dollars a year for health care. Here's a better idea:

For about $100 a year every taxpayer gets a recording device and the software to privately track the taxes they pay. We'll know how much in taxes we've paid, gain greater control as to how and what our taxes are spent on, and hopefully whether we should be paying certain taxes at all.

Till next time

The Instigator

I think I'll go back to sleep...

2010-04-15T08:46:00.000-05:00

There's an old joke about a man who falls into a coma, and finally wakes up 100 years later. Remembering he had a bank account with $10,000, he goes to the bank to find out what happened to his money. Low and behold the balance is now over $10, 700,000. Ecstatic, he withdraws $1,000 and leaves the bank. Wanting to plan his next steps, he stops for a cup of coffee. He is shocked out of his good mood when the cashier says "That will be $2,150 for the coffee, please".

Markets are recovering around the globe. The valuations of securities are reflecting the efforts of managers to control costs and do more with fewer resources. Governments, meanwhile, have done little to control their costs. In fact, they've spent more and expanded both their fixed and variable costs. To do this they've borrowed more money, expanding the money supply far beyond its normal bounds.

All that paper money is now finding a home. It's moving into commodities and equities, seeking fungible assets that reflect value magnified by liquidity, or lack thereof.

Yes, the major stock indices are up 65 to 90%. But crude oil is up 165%. Food commodities are up 50 -100%. Residential real estate is not rising much, if at all due to the lack of demand (check the unemployment rate) and stagnant personal income levels. Emerging market countries are growing much faster than the US, and their appetite for resources is voracious.

Inflation is very much like a tsunami:

Starts with a violent shift or upheaval (banking crisis).

Initial movement is underneath the surface (consumers don't experience the 1st price increases).

Covers great distances and large areas.

Becomes overwhelming as it approached the mainland and large populations.

Engulfs everything as an irreversible series of waves.

The inflation wave is on its way, and we will feel its effect for the next one to three years. Since it is unstoppable, prepare now to survive.

Commodities will do well - pick what you're confident in.

Get out of long term bonds, unless you can hold them to maturity.

Figure out who makes money when inflation is high. (I'll have more on this subject in future blogs).

Summer Oil

I've suggested the price of crude oil would rise going into the summer. It's up 3 to 4 dollars since then, and looks to move up more in the near future. Odds are still good that we'll see $90 - 95 before the July 4th holiday this year.

Till next time,

The Instigator

Headines for Today

2010-04-01T09:37:00.006-05:00

Obama call for repeal of health care

President Obama today announced that he is calling for the repeal of the health care legislation he just signed into law. Stating “ I never realized this was going to cost so much. Once you read this I understand why people are so upset. We need to re-think this whole thing” He’s asking Congress to bring him legislation limited to less than 100 pages, written in language “that a fifth-grader could understand”.

Pelosi switches to Republican Party

Speaker of the House of Representatives, Nancy Pelosi, at her morning press conference, confirmed her switch to the Republican Party. “I just can’t go along with this senseless spending anymore. If we keep taking money away from the people who have rightfully earned it through hard work and intelligence, pretty soon there won’t be anything left”.

Mayor Daley admits he’s been wrong for years

Chicago’s Richard Daley today admitted he’s been entirely off-base with his financial decisions for years. “I can’t believe I set my friends up and they still couldn’t keep the deals hidden. And I never should have done the parking deal. Boy, did we get ripped off!”

Rush Limbaugh buys New York Times

New York woke up today to a new owner of the New York Times. Rush Limbaugh, the conservative talk show host has bought 100% of the New York Times. Limbaugh said he has exciting plans for the newspaper, and indicated he has a consulting agreement with Rupert Murdoch to bring in ‘new talent’.

Jay Leno gives back “Tonight Show” to Conan O’Brien

Saying he didn’t realize how much work the show had become Jay Leno is giving “The Tonight Show” back to Conan O’Brien. “Conan was really doing a great job. I can’t do this anymore. Oh yeah, he can keep the severance package too”.

Democrats to allow honest vote in Illinois

Illinois House Speaker Michael Madigan, Governor Pat Quinn and Mayor Richard Daley jointly announced today that from now on when people vote in elections for public officials the results will be honored by Democratic officials and the will of the people will be respected. They all agreed that “all this stuff done behind closed doors stops here and now!”

Hugo Chavez asks to be annexed to the United States

Standing before the United Nations General Assembly, Venezuela’s Hugo Chavez announced he has negotiated an agreement with the United States to be annexed. Stating that “I just can’t have my people suffer any more, I, I mean we need help. This socialist – dictator stuff is tougher than it looks!”

Oh yeah,
April Fool’s!!!

The Instigator

So Much Material, So Little Space...

2010-03-30T13:23:00.004-05:00

My, your camel has a big nose!

More than 2700 pages of health care law and now we’re told that it has to be “fixed”. Does anyone who voted for this legislation know how it’s supposed to work as written? And how much is this going to really cost? Perhaps we should ask them now, write down their answers and check back with them in a few months.

Give my voters what they want – someone else is paying for it.

As Congress continues to extend vast sums of money to the constituencies that are dependent on its largess (unemployed, bureaucracies, minorities, environmentalists) it continues its efforts to extract (excuse me, ‘redistribute’) funds from individuals and companies that do not require government’s “help”. The naked action of taking funds from the independent to buy the votes of the dependent is said to be a sure sign of degradation in government. The negative spiral of a higher tax burden per paying individual to support ever-growing entitlements that reinforce dependency on the government officials that ‘protect and defend’ those entitlements. Less reinvested profits lead to less taxes paid, which will cause those same politicians to raise taxes more to make up for the shortfall. This type of cycle never ends well.

Go ahead and vote – will let you know who won later!

In the last 18 months the State of Illinois (land of Daley and Obama) had an elected official and the Democratic Party pick a Senator and a candidate for Lieutenant Governor without a vote, or in spite of the vote of the general public. It seems that the Democratic leadership doesn’t believe that the people of Illinois can be trusted to select who should represent their party. Stalin would be so proud!

Fill it up, it’s getting warm outside.

We’re approaching Easter and before long, summer. After the less than spectacular season of 2009, this year looks to be reasonably better. Seeing that the economy has bounced off the canyon floor of the abyss, people will travel more this year. Crude oil is $15 to $20 dollars higher than it was this time last year. The probability of crude oil rising from its current price of $82 to the $85 to $95 range before July 4th is better than 2 to 1.

Until next time,

Instigator

As We Return to the Scene of the ...

2010-03-16T12:52:00.000-05:00

With due apologies (along with a trip to the medical providers of vascular stents) I'm returning to the blogging community on hopes of contributing to the public debate. My column will resume soon, along with a few enhancements. Let the entertainment resume!

Until next time,

Instigator

Your Actions Are So Loud I Can’t Hear What You’re Saying

2009-06-01T16:00:00.000-05:00

Government and Organizations - “Doesn’t Pontiac make the Phoenix?”

Hope and car manufacturers spring eternal. After many months of ‘bankruptcy is not an option’ General Motors filed for Chapter 11 in Bankruptcy Court today. The federal government is becoming the majority shareholder and primary creditor for two of the three major North American auto manufacturers. It says it doesn’t want to be in the auto business.

Recent comments and events remind me of the 1973 book by Robert Ringer, “Winning Through Intimidation”. In the book he states there are essentially three types of people to deal with:

Type Number One – the person who wants all your chips, tells you they want your chips and their actions are aimed at taking your chips.

Type Number Two – says they don’t want your chips, but they really DO want your chips. They do everything in their power to take your chips while trying to make you believe they would never take your chips.

Type Number Three – says they don’t want your chips, and they are sincere about not wanting your chips, but do to “circumstances beyond their control” they do what they have to grab your chips.

Ringer said that as long as you keep these identifiers in mind you could deal with almost any situation concerning your chips.

We’ve been told the government’s going to spend a lot of money on healthcare, education, job creation (and retention) and alternative energy. To finance those goals it is going to raise taxes – a lot. The direct consequences of these actions will affect the financial market to an order of magnitude commensurate with the size of the debt and its financing cost. The absorption of the financing will decrease the amount of private equity available for investment, and the interest expense will retard profits and reinvestment.

The US economy is 70% consumer – based. Business expansion depends on the bottoming and recovery of personal income (both essential and discretionary). With employment and credit availability still contracting the economy’s resurgence it will take longer and cost a lot more than what most analysts are forecasting.

· Markets – Happy days are here again (already?)

3 months and 40% later, major markets are up without a hiccup. Late believing money managers are scratching their heads and frantically filling out buy tickets, not wanting to be caught with an empty long position summary for the second quarter which ends June 30^th.

Good old Jesse Livermore observed that professionals had the greatest success in raising capital and distributing stocks by first marking them up on light volume, then selling the bulk of their holdings when the prices went down. Their reasoning was straight-forward: the public (that is, those unaware) were eager to get into stocks going up, and looked at the dip or pullback as an opportunity, not realizing they were giving the pros the window they needed to get out of their positions.

There are many companies that have been issuing huge amounts of stock recently – I wonder what the buyers of that stock have been doing?

Remember that Jesse gave back the great fortune he made in the ’29 Crash when he got back in the market too early and too often. He should have listened to his own advice.

Till next time

“What do you mean, shift to a lower gear…”

2009-05-25T19:13:00.000-05:00

· Government and Organizations

Truckers out west are familiar with the mountainous terrain encountered on Interstate 70 between Denver and Grand Junction, Colorado. They’re cautiously aware as they pass the crest of each great hill they climb; the trip down must be made slowly and under control, not letting the trucks’ momentum increase the acceleration. If the truck doesn’t shift to a lower gear to keep the vehicle’s speed slow, the trucker ends up with a runaway projectile, leaving a trail of devastation.

Congress’ agenda seems intent on pushing into law (or equivalent) as many projects as can be voted on and signed by the President. En masse “fait acompli” has never been successful in guiding positive changes in civilizations previous to now. Has something happened that we Americans aren’t aware of? Congressional leadership still seems to believe that their elected majority constitutes a mandate of sorts (don’t you get uncomfortable when our elected officials forget what one of the framers of the Constitution said “…There is no maxim, in my opinion, which is more liable to be misapplied, and which, therefore, more needs elucidation, than the current one, that the interest of the majority is the political standard of right and wrong.” Bonus points if you know who it is. Since when does skill in ‘creating’ an electable candidate equate to the talent of common sense versus political expediency? A better guess is that there is a negative correlation.

Be careful of the prevalent assumption expressed by the Democratic leadership about “we have the momentum now”. It may be better to remember that with many possessions the 1^st day you own it, but from then on it owns you.

Every trucker knows you never want to miss that downshift. The question is, do the Democrats?

· Markets – It’s Memorial Day, let’s go on vacation

Graduation ceremonies are the event de jour. Shouldn’t the markets feel special too? After all, they’ve avoided apocalypse (or at least going to zero) and have rallied some 30 to 40% (domestically) during the last 2 months. Let’s give them a round of applause, a pat on the back, some TARP funds (or PIPP or whatever) and send them off for the summer

Trouble is, they’ve gotten out of their last semester with a lot of new debt, cut allowances (diminished cash flow), summer jobs aren’t as abundant (no rising employment here), no new credit cards (talk to Congress and the President about that one), and the prices of gas, movies and snacks are higher.

For the next 6 to 8 weeks look for the markets to go lower. Blame the usual suspects: financials, tech, industrials, and retail.

Maybe after the July 4^th holiday stocks indexes may resume their uptrend. After all, the Chinese love to export fireworks, and after the 4^th, they’ll be on sale. Lord knows we can all use a bargain. Just be careful of short fuses.

Till next time

The Slope of Hope (But I don’t want to be the 2nd derivative, I want to be 1st)

2009-05-17T17:58:00.000-05:00

• Government and Organizations

With four months in the rear-view mirror (seven if you count the election) the audacity of hope has been redirected to the new Administration and Congressional agendas. Choosing to act with all possible speed because “the stars are aligned” (who knew our President was an astrologist? Is that a course at Harvard Law?), or just because like Commodore Vanderbilt said “I got the power, ain’t I?” our nationally elected officials seem committed to expanding the deficit to a size never before seen in this country, and doing it for several years to come. Yet governments’ estimation of revenues are as naively optimistic (let’s give them the benefit of public school grading on the curve) as their plans for health care utopia. You certainly don’t want to think they would miss estimates on purpose so they would have this as an excuse(I mean rationale) to raise taxes more to ‘fix’ their (oops, the) mistake of lower receipts.

Little substance has been directed toward the real drivers of the American economy. Small businesses have been an afterthought in the economic strategies thus far articulated. On the other hand, these same businesses are (and will) being told it is their “patriotic duty” to pick up the burden so that ‘all’ may share in the profits of capitalism.

The trouble is profits are shrinking and will continue to shrink further as overhead costs of labor, capital and materials rise. Our new political engineers aren’t aware that hope is not a strategy.

Be wary of the new national edifice being erected in Washington. The building blocks are being appropriated and there are wonderful plans for the grand opening. But the architects have never been certified, nor do they have successful experiences on their resumes. Construction itself is not taking place on a firm, proven foundation, and the structural framework is theory only, the mortar of success is nonexistent. And remember, they’re building a skyscraper, not a shed.

• Markets – Deflating the Instant Gratification of Inflation

The financial press keeps describing how multiple government actions by multiple countries are fanning the flames of inflation. The only air being moved are the hot winds coming from the pundits and promoters. The reality is inflation is alive but is currently a collection of glowing embers (we’re trying to keep the analogy consistent).

These embers of inflation are real and they are growing. It will take the better part of a year for the various components (monetary excess, diminished material supply and/or shortages, living wage pressure, investor sentiment rotation) to combine and exert a much greater than normal long-term upward force on prices. Once started, this will be a 4 to 5 year event. For now, the water in the big pot the frog is in is still cool. But the burner is on and it's being turned up. After the first of the year don’t be surprised if that pot of water is starting to resemble a hot tub.

Till next time

Put the Backseat Driver Behind the Wheel - A modest proposal (with apologies to Jonathan Swift)

2009-05-10T15:06:00.000-05:00

Government and Organizations

Much has been made of the concerted actions of the Administration and Congress to “save” the domestic auto manufacturers.

Current plans indicate the UAW (BTW, where are electricians, plumbers and other unions?) and Congress will have controlling interest in both Chrysler and General Motors. The UAW and the government (which legislates safety, economy and taxation) controlling the means of production.

Why use halfway measures? Since they want control, give it to them.

· Let the government and the UAW buy 100% of the companies.

· Let the government buy out the white collar employees with severance packages equal to the pensions that the unions are getting.

· Then the management and private capital can form new companies, pay competitive wages, build world-class autos in right-to work states, free of the of the legacy costs and restrictive work rules.

The government will have to be diligently monitored to make sure a level playing field for all car manufacturers is maintained, and favoritism is not used to “protect” one group at the expense of another. Also, no more injections of capital from the government. Make the “new” Chrysler and GM deal with the cost of capital AND the cost of labor. Make them pay the government money back and raise capital just like everyone else has to, that is, based on performance and profits.

Markets – Vanna, can I have a letter please?

Economists of all stripes are trying to elbow their way to the front of the prognostication line by identifying the kind of recovery our economy will have with a letter: L’s and W’s and V’s oh my!

What’s a letter among investors? Perhaps if we consider the circumstances of the times and the contestants our vision will become somewhat sharpened.

The general market picture is one of relief: we’ve stopped going straight down. Volatility is reduced, and investors no longer feel like the animals in a whack-a mole arcade game.

Keep in mind the A.D.D. nature of the Baby Boomers and their propensity to magnify economic pressures. As they come out of shell shock and get past Memorial Day look for investors of all sizes trying to get “position” for the recovery. Prices may well move up during the summer as they all try to get in to make up what they have lost.

They may well succeed in pushing indexes past their fair value during the summer. When reality arrives in the fall (along with inflation, high unemployment, impending tax increases in 2010, and declining discretionary income) equity prices may well race the geese to the south. Remember there are an increasing number of Boomer’s trying to retire and downsize. Caution may well be the virtue of choice for the fall and winter of 2009.

Till next time

Rescued by the Junior Geniuses

2009-05-03T16:05:00.000-05:00

Sunday, May 03, 2009

Rescued by the Junior Geniuses

· Government

Have you noticed that time has a way of exposing truth, copycats and frauds? It seems the current politicians in the majority are reinforcing their opinion the voters gave them a mandate for the enactment of Democratic polices. And now it seems those polices are assuming a 21^st century –type of manifest destiny. Yet when you examine the proposed actions, two facts stand out: not one of the people proposing these changes has ever had any success in prior attempts in what they are suggesting we do on a nationwide basis, and that each of their proposed actions have been attempted before, in much the same way, and have not only resulted in failure, but the correction of the “experiment” took a long time and cost much more than if the original position had been improved instead of dismembered.

Each of the proposals being worked on is recycled from prior attempts. The difference this time is the voting control – not the quality of the act or its potential for success. Perhaps the voting public needs better information regarding what is being proposed, and how it will affect individuals, families, businesses, and the country as a whole. Information that is more factual (less ‘branded’). Information that is provided from the documents themselves, not from “media” or “public relations” or “press secretaries”.

Another little point to keep in mind is that most of these politicians are promoting ideas from staff or selected “authorities in their field”, most of whom have been academians and have never actually built or run for- profit organizations. Given the opportunity to prove their theories on a national basis is exciting to them. They see tremendous upside for themselves if successful. On the other hand, if they are wrong, someone else will clean up the mess. I believe there may be major problems in the not-to –distant future simply because I see very few people asking “but what if you’re wrong?”

· Finance

If everyone received a penny for all the articles written about the major banks in the last 18 months there wouldn’t be a recession. Since that’s not possible, let me offer this. From the 3 year highs of the major banks and bank indices (at 30 –to 1 leverage) to the proposed 10-to -1 leverage that these institutions should operate, bank stock prices are about were they should be. Yes, some banks are better (or worse) than others, but as we all know, the market, such as it is, is forward looking. So give a 16% variation in price, based on the old 8% average return of the good old S&P 500, add in a little positive slope because we are not going to zero, and most of us should stop worrying about the banks and pay attention to the real problems.

Till next time