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Politics (8/29/08)

Category: Politics and the Economy

After President Truman retired from office in 1952, he was left with an income consisting of basically just a U.S. Army pension, reported to have been only $13,507.72 a year. Congress, noting that he was paying for his stamps and personally licking them, granted him an "allowance" and, later, a retroactive pension of $25,000 per year. When offered corporate positions at large salaries, he declined, stating, "You don't want me. You want the office of the president, and that doesn't belong to me. It belongs to the American people and it's not for sale."

Even later, on May 6, 1971, when Congress was preparing to award him the Medal of Honor on his 87th birthday, he refused to accept it, writing, "I don't consider that I have done anything which should be the reason for any award, Congressional or otherwise." We now see that other past presidents, have found a new level of success in cashing in on the presidency, resulting in untold wealth. Today, many in Congress also have found a way to become quite wealthy while enjoying the fruits of their offices. Obviously, political offices are now for sale.

Good old Harry Truman could have been correct when he observed, "My choice early in life was either to be a piano player in a whorehouse or a politician. And to tell the truth, there's hardly any difference. I, for one, believe the piano player job to be much more honorable than current politicians."

Question asked on 08/29/2008 at 06:49 AM :: Comments to date: 0

Taxes - Candidates Proposals (8/24/08)

Category: Politics and the Economy

DATA ON TAXES
Proposed changes in taxes after the 2008 General election:

CAPITAL GAINS TAX

MCCAIN
0% on home sales up to $500,000 per home (couples). McCain does not propose
any change in existing home sales income tax.

OBAMA
28% on profit from ALL home sales
How does this affect you? If you sell your home and make a profit, you
will pay 28% of your gain on taxes. If you are heading toward retirement and
would like to down-size your home or move into a retirement community, 28%
of the money you make from your home will go to taxes. This proposal will
adversely affect the elderly who are counting on the income from their
homes as part of their retirement income.

DIVIDEND TAX

MCCAIN 15% (no change)

OBAMA 39.6%
How will this affect you? If you have any money invested in stock market,
IRA, mutual funds, college funds, life insurance, retirement accounts, or
anything that pays or reinvests dividends, you will now be paying nearly
40% of the money earned on taxes if Obama becomes president. The experts
predict that 'Higher tax rates on dividends and capital gains would crash
the stock market, yet do absolutely nothing to cut the deficit.'

INCOME TAX

MCCAIN (no changes)
Single making 30K - tax $4,500
Single making 50K - tax $12,500
Single making 75K - tax $18,750
Married making 60K- tax $9,000
Married making 75K - tax $18,750
Married making 125K - tax $31,250

OBAMA (reversion to pre-Bush tax cuts)
Single making 30K - tax $8,400
Single making 50K - tax $14,000
Single making 75K - tax $23,250
M arried making 60K - tax $16,800
Married making 75K - tax $21,000
Married making 125K - tax $38,750
Under Obama, your taxes could almost double!

INHERITANCE TAX
MCCAIN 0% (No change, Bush repealed this tax)
OBAMA Restore the inheritance tax
Many families have lost businesses, farms, ranches, and homes that have
been in their families for generations because they could not afford the
inheritance tax. Those willing their assets to loved ones will only lose
them to these taxes.
NEW TAXES PROPOSED BY OBAMA
New government taxes proposed on homes that are more than 2400 square feet.
New gasoline taxes (as if gas weren't high enough already)
New taxes on natural resources consumption (heating gas, water, electricity)
New taxes on retirement accounts, and last but not least....
New taxes to pay for socialized medicine so we can receive the same level
of medical care as other third-world countries!!!

You can verify the above at the following web sites:
http://money.cnn.com/news/specials/election/2008/index.html
http://www.cnn.com/ELECTION/2008/issues/issues.taxes.html
http://elections.foxnews.com/?s=proposed+taxes
http://bulletin.aarp.org/yourworld/politics/articles/mccain_obama_offer_different_visions_on_taxes.html
http://blog.washingtonpost.com/fact-checker/candidates/barack_obama/
http://blog.washingtonpost.com/fact-checker/candidates/john_mccain/

Question asked on 08/24/2008 at 07:45 AM :: Comments to date: 0

Taxes - Candidates Proposals (8/24/08)

Category: Politics and the Economy

DATA ON TAXES
Proposed changes in taxes after the 2008 General election:

CAPITAL GAINS TAX

MCCAIN
0% on home sales up to $500,000 per home (couples). McCain does not propose
any change in existing home sales income tax.

DIVIDEND TAX

MCCAIN 15% (no change)

INCOME TAX

Question asked on 08/24/2008 at 07:45 AM :: Comments to date: 0

Penalties for Success (8/1/08)

Category: Politics and the Economy

"People who make more are taxed more. That’s being punished for being more productive. And then you’re being rewarded for being a parasite. If you don’t do anything, if you’re just a bum, why, you can go on relief. You get something for nothing. That’s a violation of rationality and morality in the short run too. The less you do, the more you get. The more you do, the more you’re punished. That’s a fine standard for a culture! The most productive people are punished the most for being productive; the ones who produce the least are rewarded for being parasites. Now, if I tried to design an irrational structure of a society, this is exactly what I’d pick."
Andrew J. Galambos

Raising taxes to 60% are aimed exclusively at high-income earners. This money will supposedly go to equalize the low incomes of the subsidized underclass. The late economist, Murray Rothbard, had this to say about this tax gouging. "The modern welfare state, highly touted as soaking the rich to subsidize the poor, does no such thing. In fact, soaking the rich would have disastrous effects, not just for the rich but for the poor and middle class themselves. For it is the rich who provide a proportionately greater amount of saving, investment capital, entrepreneurial foresight, and financing of technological innovation, that has brought the United States to by far the highest standard of living – for the mass of the people – of any country in history."

Rich people and people attempting to get rich create the jobs. Unemployment will rise when taxes are increased. If you want to impoverish the populace of a country, tax the rich out of existence. In that way you can turn the country into a third world hellhole. There are no millionaires in Bangladesh or similar economic backwaters. The more million-aires and billionaires in a country, the higher the standard of living. All the former communist countries have learned this lesson. They continue to push tax rates lower towards 10%. Their economies are on fire. Eventually their standard of living will pass ours.

Question asked on 08/01/2008 at 03:03 AM :: Comments to date: 0

Inflation - The Goveernment's Statistics (7/20/08)

Category: Politics and the Economy

Consumer prices rose 1.1% in June, the biggest monthly inflation swing in 26 years. Not unlike yesterday’s PPI report , today’s release of the latest consumer price index was a doozy… the annual rate of inflation has now risen to 5%, the worst yearly rate in 17 years.
All measures of inflation blew past consensus expectations in June, even the precious “core rate,” which rose only 0.3%. Energy was the driver of higher consumer prices yet again… prices rose 6.6% in June and are up 24% this year. Gas costs rose 10% in the month, up 32% over the last 12 months. Food and beverages are up 5.2% year over year, another eyesore of an altogether nasty report.
There is one bright spot: personal computers. If you’re in the market for a new PC, you can rest easy… prices fell 1.4% last month, and nearly 12% from a year prior. Feel better yet?

Until 1983, the inflation rate kept respectable pace with M3, the fullest measure of U.S. money supply. But then, alas, came the BLS adjustments. Independent analysts tell us that M3 is now increasing 12% per year, but the inflation rate magically stays at 2-3%.
These changes to the CPI equation have ushered in an a golden era of ‘silent inflation.’
“Most Americans have been numb to this trend, for several reasons. They've paid more to keep up, at the expense of saving less. They fueled their consumption by borrowing off the very roofs that cover their heads. They've been convinced the golden train of American prosperity hasn't passed them by. They believe this myth despite the strikingly negligible increase in real median weekly earnings over the past 25 years.
“The changes to the CPI calculations certainly served Washington's best interests. They use the inflation rate to index the annual payment increases in everything from your weekly paycheck to government programs such as Medicare and Social Security -- the very same programs millions of Americans depend upon every day.”
Ben Bernanke affirmed before Congress this past week about inflation “seems likely to move temporarily higher,” and “an unwelcome rise in actual inflation over the longer term,” is possible.
Bernanke testified this week in a semiannual get-together with Congress. The Fed chief issued a sober forecast, suggesting that housing prices might take a year or more to turn around and that high energy prices were likely to persist.
I still say the governments statistics are a conflict of interest. The BLS has to keep adjusting the formula to keep up with the times. As they do that they are trying to keep the price adjustments down to keep the fed from paying oout more for the increase in Social Security. Think about it. You feel it in your pocket book more than the government says it really is. Therefore inflation will continue to roll on.

Question asked on 07/20/2008 at 07:37 AM :: Comments to date: 0

Why Washington is the way it is. (7/19/08)

Category: Politics and the Economy

A Washington, DC, airport ticket agent offers some examples of why our country is in trouble !
1. I had a New Hampshire Congresswoman ask for an aisle seat so that her hair wouldn't get messed up by being near the window. (Onan airplane!)

2. I got a call from a candidate's staffer, who wanted to go to Capetown. I started to explain the length of the flight and the passport information. Then she interrupted me with, "I'm not trying to make you look stupid, but Capetown is in Massachusetts ." Without trying to make her look stupid, I calmly explained, "Cape Cod is in Massachusetts, Capetown is in Africa ." Her response - click.

3. A senior Vermont Congressman called, furious about a Florida package we did. I asked what was wrong with the vacation in Orlando. He said he was expecting an ocean-view room.. I tried to explain that's not
possible, since Orlando is in the middle of the state. He replied, "Don't lie to me. I looked on the map and Florida is a very thin state!" (OMG)

4. I got a call from a lawmaker's wife who asked, "Is it possible to see England from Canada ?" I said, "No." She said, "But they look so close on the map." (OMG, again!)

5. An aide for a cabinet member once called and asked if he could rent a car in Dallas. When I pulled up the reservation, I noticed he had only a 1-hour layover in Dallas. When I asked him why he wanted to rent a car he said, "I heard Dallas was a big airport, and we will need a car to drive between gates to save time."

6. An Illinois Congresswoman called last week. She needed to know how it was possible that her flight from Detroit left at 8:30 AM and got to Chicago at 8:33 AM. I explained that Michigan was an hour ahead of Illinois, but she couldn't understand the concept of time zones. Finally, I told her the plane went fast, and she bought that.

7. A New York lawmaker called and asked, "Do airlines put your physical description on your bag so they know whose luggage belongs to whom?" I said, "No, why do you ask?" She replied, "Well, when I checked in
with the airline, they put a tag on my luggage that said 'FAT', and I'm overweight. I think that's very rude!" After putting her on hold for a minute while I looked into it (I was laughing), I came back and explained the city code for Fresno, CA is 'FAT' (Fresno Air Terminal), and the airline was just putting a destination tag on her luggage.

8. A Senator's aide called to inquire about a trip package to Hawaii. After going over all the cost info, she asked, "Would it be cheaper to fly to Califo rnia, and then take the train to Hawaii ?"

9.. I just got off the phone with a freshman Congressman who asked, "How do I know which plane to get on?" I asked him what exactly he meant, to which he replied, "I was told my flight number is 823, but
none of these planes have numbers on them."

10. A lady Senator called and said, "I need to fly to Pepsi-Cola, Florida. Do I have to get on one of those little computer planes?" I asked if she meant fly to Pensacola, Fl. on a commuter plane. She said, "Yeah, whatever, smarty!"

11. A senior Senator called and had a question about the documents he needed in order to fly to China. After a lengthy discussion about passports, I reminded him that he needed a visa. "Oh, no I don't. I've been to China many times and never had to have one of those." I double checked and sure enough, his stay required a visa. When I told him this he said, "Look, I've been to China four times and every time they have accepted my American Express!"

12. A New Mexico Congresswoman called to make reservations, "I want to go from Chicago to Rhino, New York." I was at a loss for words. Finally, I said, "Are you sure that's the name of the town?" "Yes, what flights do you have?" replied the lady. After some searching, I came back with, "I'm sorry, ma'am, I've looked up every airport code in the country and can't find a Rhino anywhere." The lady retorted, "Oh, don't be silly! Everyone knows where it is. Check your map!" So I scoured a map of the state of New York and finally offered, "You
don't mean Buffalo, do you?"
The reply: "Whatever! I knew it was a big animal."

Now you know why the Government is in the shape that it's in.

~Ron Evans, Ticket Agent~

Question asked on 07/19/2008 at 03:41 AM :: Comments to date: 0

The Fed - How It Works (7-8-08)

Category: Politics and the Economy

By: RICHARD RUSSELL

If the American people ever realized or understood how the Fed operates and how money is created in the US, there would probably be a ten million man and woman march on Washington and more specifically a march on the Federal Reserve Building. The Fed is a private banking monopoly that has "grabbed hold" of the money-creation of the United States. Who controls a nation's money, controls that nation.

The US needs money to pay for building roads, for buying war planes, for fighting wars, for paying Congressmen, for paying IRS and Post Office employees, for a thousand different items. For this the government turns to the tax payers or it turns to the Federal Reserve. The Fed is nothing more than a group of private banks that charge interest on money that never existed before.

How does the system of money creation work? A simplified but true explanation. The government needs ten billion dollars (aside from what it takes in income taxes or from what it borrows). So the government then prints ten billion dollars worth of interest-bearing US government bonds. Next, it takes the bonds to the Fed. The Fed accepts the bonds, and then places ten billion dollars in a checking account. The US government then writes checks to the tune of ten billion dollars against their checking account. But where was that ten billion dollars before the Fed issued the money? The money didn't exist. Can you believe it, the money was created by the Fed "out of thin air."

In other words, the Fed lends the US government the money -- and the crowning irony is that the Fed then charges the government interest forever on the bonds that the US government sold to the Fed in the first place. And the debts build and build and the national debt grows ever- larger.

How about the interest that is owed on the national debt, which has now grown to a choking $500 billion a year? That's part of where our income taxes go. The government taxes our sorry asses partly to pay for expenses incurred by our very own government. And a further crowning irony -- the government taxes us to pay for the interest on the ever-expanding national debt.

Question asked on 07/08/2008 at 05:25 PM :: Comments to date: 0

Oil and Congress (7/6/08)

Category: Politics and the Economy

Eeconomic factors that are affecting our oil prices are much simpler and easier to read than the conspiracy theories and anti-capitalist thinking we hear coming from our lawmakers. Do you think that Congress has any clue how to get us out of this crisis, or are they simply pandering during an election year?
A few weeks ago we witnessed a political act of such unimaginable stupidity, it is hard to not choke at the mention of it.
A cursory review of the details is worth a minute of your time. May 20 — The U.S. House passed, by a vote of 324 to 84, a bill that would create a new oil antitrust task force within the Department of Justice. Supporters of HR 6074, which also would give DOJ authority to sue foreign oil cartels for violating U.S. antitrust laws, included 103 Republicans, according to its sponsor Rep. Steve Kagen (D-Wis.).

“‘Until we finally have an energy policy other than drill-and-burn, this bill will begin to set things right for the American people. We cannot drill or grow our way out of this energy crisis. We must begin to think differently in America. That includes loosening the stranglehold other nations have on our economy and exploring new forms of energy,’ he said following the vote.
“The new ‘Petroleum Industry Antitrust Task Force’ would be charged with determining the existence and extent of gasoline price gouging, anticompetitive price discrimination by refiners, actions to inflate prices by constraining supplies, and possible oil price manipulation in futures markets, Kagen said.
“The bill, which would amend the Sherman Antitrust Act, also requests a Government Accountability Office study on the effects on competition of prior oil industry mergers and divestitures, he indicated.
“‘This legislation will address the loopholes and exemptions that oil companies exploit at the great expense of our citizens,’ Kagen said. ‘By passing the Gas Price Relief for Consumers Act, the House agrees that it is time to give US authorities the ability to prosecute the anticompetitive conduct committed by international cartels that restricts supply and drives up prices.’”
Oil is a global market and the members of OPEC include the world’s largest suppliers to that market. In a world of increasing demand bumping up against flattening global production, these are not the people one wants to alienate — that is, if we want to drive our cars and tractors and heat our houses with something other than broken bits of heirloom furniture.
Threatening to sue them, or worse, actually suing them, is unlikely to bring a warm response. Can you imagine the oil sheiks being made to present themselves in the docket in a U.S. Court? (If Homeland Security would let them through the airports, that is). Oh, what a fine media circus that would be! Frankly, if subpoenaed, I think they’ll just refuse to show. And what then?
Secondly, it also reinforces the fiction that the members of OPEC can actually do something to increase their production, as opposed to just talk about it. It reminds me of Saddam’s pledge to unleash the “Mother of All Wars” against the U.S. Forces…which turned out to be more like the “Mother of All Foot Races to the Rear.”

The way the OPEC quotas are assigned, the bigger the reserves a member state reports, the more production the member is allowed to sell. Which is why, since the upward reserve adjustments of the late 1980s - made in anticipation of the revision to the OPEC quota system — there have been virtually no reserve declines reported by OPEC members. It’s as if a magic oil genie resides under the ground, providing oil in unlimited quantities with a twitch of the nose or a nod of the head over crossed arms.
Put more directly, the current reserves are a fantasy, and the ability of OPEC to actually raise production is greatly constrained.
But there is more in this legislation to dislike. Much more. For one, it contains the implicit assumption that all levels of the energy business are corrupt, and the executives of all these firms spend long hours in cigar smoke-filled rooms plotting and scheming to take every advantage of hard-working Americans.
In other words, it declares legal open season on every layer of the energy distribution network. That, of course, means millions of dollars of legal fees, wasted time and, worst of all, more hand-tying regulation…the net result of which will be fewer, not more, energy resources being made available to North American markets.
Do I have a problem with the large energy companies making “obscene” profits?
Not at all. They are going to need all the money they can muster to replace their declining reserves and to fight off fierce competitors from the rest of the world. Competitors, it must be pointed out, unhindered by the perfect-worlders and political panderers that are now playing so effectively to democracy’s weak suit.
Twenty years ago, which was seven years after the link between the U.S. dollar and gold was severed in 1971, oil was selling, on average, for $13.38 per barrel. Adjusting for inflation — using the Shadow Stats and not the government’s laughable CPI — in today’s dollars that same barrel of oil would cost $124.
That it is trading for slightly over that amount, at $143 per barrel, is entirely explainable based on supply/demand constraints, war in the Middle East and the fear of a widening conflict.
In other words, blaming evil-eyed Middle Eastern potentates or bloodless speculators is attributing blame in the wrong direction. If you want to hit the right target, start with the fiat currency system which has systematically reduced the purchasing power of the U.S. dollar and all of its similarly unbacked peers to the level of Monopoly money.
Unfortunately, I don’t see any new legislation on the horizon calling the Fed and the Treasury to account for their role in the higher prices now getting so much attention.

Question asked on 07/06/2008 at 07:54 AM :: Comments to date: 0

History for Today (6/29/08)

Category: Politics and the Economy

It was on this day in 1956 that President Eisenhower set pen to paper and signed Public Law 84-627.
This was the law that dedicated the federal motor fuel taxes to highway use, increased the federal contribution to certain transportation projects to 90%, and launched what is known as the Interstate Highway System.

Question asked on 06/29/2008 at 04:57 AM :: Comments to date: 0

Fannie Mae and Mortgages (6/3/08)

Category: Politics and the Economy

"Fannie Mae Drops Policy Over Down Payments," says the Wall Street Journal.
"Fannie Mae confirmed it is scrapping a policy that required higher down payments on home mortgages in areas where house prices are falling." Hmmm... I only know a little bit about Fannie Mae's business, but what I know scares me to death. Fannie directly owns around $723 billion worth of mortgages, including many of very dubious value, such as $215 billion of "interest-only" loans, $268 billion of mortgages with loan-to-value ratios in excess of 90%, and another $25.2 billion of subprime residential mortgage-backed securities (RMBS) – better known on Wall Street as "toxic waste." It holds these assets with only $43 billion of core equity – a little more than 16 times leverage. Thus, a 7% decline in the average value of its mortgage assets (a $50 billion loss) would wipe out shareholders. That's about 10% of the risky paper it owns... an amount that's almost certain to be lost.
And that's not the real problem. The real problem is, off-balance sheet, Fannie provides a principal guarantee to another $2.25 trillion (yes, trillion) worth of mortgage securities. These securities make up a large chunk of the reserves of the world's financial institutions. But... damn the torpedoes. Who cares about risk? Americans always pay their mortgages. Real estate prices always go up. Starting today, borrowers will only have to put 3% down to qualify for a Fannie Mae guaranteed loan.

Question asked on 06/03/2008 at 07:10 AM :: Comments to date: 0

The Woes of the USA Are Spreading (5/31/08)

Category: Politics and the Economy

Home prices in the U.K. fell by 2.5% in May -- their steepest monthly decline in at least 17 years. According to the Nationwide Building Society, the drop in May was the worst since it started keeping track in 1991. Year over year, U.K. homes are down an average 4.4%… the worst decline since 1992.
The housing bubble that popped in the USA last year causing the financial problems which rippled throughout the world has finally showed up in the UK.
So remember there was was an old saying when the US sneezes the world catches a cold. Now when the US catches cold the world catches the cold also.
The US is starting to rebound but the world will play catch-up now.

Question asked on 05/31/2008 at 06:50 AM :: Comments to date: 0

Quote of the Day follow up From Yesterday (4/25/08)

Category: Politics and the Economy

"My friends, we live in the greatest nation in the history of the world. I hope you'll join with me as we try to change it." -- Barack Obama

Why does he want to change the greatest nation in history? To what?

Question asked on 04/25/2008 at 06:40 AM :: Comments to date: 0

How The Fed Works It's Power (4/22/08)

Category: Politics and the Economy

The recent troubles involving investment banks, J.P. Morgan and the Federal Reserve are not understood by most people in the media, on Wall Street, in the banking industry, at
colleges or by private investors. There has been more wrong information and wrong comments about what recently
transpired than I can recall ever hearing about any similar event in the past 40 years. I want you to understand the full information needed to fully grasp the meaning of what has been going on. So here goes:

The root causes of recent problems have been visible since last August. Then in September the Fed held its annual
gathering of financial leaders at Jackson Hole, Wyoming. Axel Weber, president of Germany’s Central Bank, told the
gathering that: “The current turmoil in the financial markets has all the characteristics of a classic banking crisis, but one that is taking place outside of the traditional banking sector.”
A review of the gathering by Knishna Guha appeared in the London Financial Times. It included these observations:
“Some Federal Reserve policymakers privately see comparisons between the current distress in credit markets
and the bank runs of the 19th and early 20th Century, in which savers lost confidence in banks and demanded their
money back, creating a spiraling liquidity crisis for institutions that had invested this money in longer-term assets. The scenario ultimately led to the creation of the Federal Reserve System as a lender of last resort. However, the tools that modern central banks possess to address liquidity problems can only address such runs inside the traditional banking system, and do not directly touch the NON-BANK FINANCIAL SECTOR which has been hardest hit by the current credit crisis. Mr. Weber’s analysis highlights the dilemma facing central banks, which cannot channel funds directly to the non-bank financial sector.” (End quotes,)
The Federal Reserve System does in fact have powers to lend money to the non-bank financial sector. Dr. Ben Bernanke had discovered them years ago while reading the fine-print of the 1913 enabling Act for the Fed.
BEFORE I GO INTO HIS ACTIONS, I THINK IT IS NECESSARY TO GO BACK IN HISTORY TO EXAMINE BRIEFLY THE FACTS THAT LED THE PRIVATE BANKING INDUSTRY AND THE CONGRESS TO CREATE TODAY’S FEDERAL
RESERVE SYSTEM, WITH ALL OF ITS POWERS.
Place yourself back in time, to New York City on October 21, 1907. Another of the periodic runs on
banks that had plagued the U.S. since before the Civil War had just been digested and apparently stopped by a
committee of Bankers, led as usual by J. Pierpont Morgan.mind to a task few if any dared oppose him. Late that day,
a brilliant young banker named Benjamin Strong, whom Morgan had borrowed for the occasion from Banker’s Trust
Co., reported back to him that the books of Knickerbocker Trust – the key player in the dangerous run unfolding –
were in such poor shape that Strong could not tell whether Morgan should move to save that Trust Company.
But Strong had learned that the directors of the Knickerbocker Trust had assembled that evening at one of
the city’s premier restaurants, and had left the door of their private dining room wide open. Observers had gathered at the open door to listen as the directors loudly bragged about their wild speculative gambles, using depositors’ money. Word of this dinner party spread fast in New York City. By the time the Knickerbocker Trust opened its doors the next morning, double-wide lines of depositors waiting to withdraw their money spread out for blocks in two directions. The Trust directors, in panic, made a phone call to Pierpont Morgan, begging for cash loans so they could stay open. He told them he would not help them. And he didn’t. It took just three hours of a run to snuff out the life of that huge Trust Company.
Trusts had once been the most conservative of financial institutions. They were not banks and really had no claim
for support by banks. But on that day, Strong and Morgan discovered that there were interlocking directorships between Trusts and Banks. That was only the beginning. The trusts had become deeply involved in new kinds of investment schemes involving gigantic leverage, something previouslynot customary in the banking world. The downside risk uncovered by Morgan was frightening to all whom he let in on it. He kept the news away from the New York Times, which was poking around the fringes of the story and running front-page articles. He was afraid panic could quickly spread like an out-of-control forest fire and threaten to destroy the U.S. banking system.
So Morgan chose the soundest Trust Companies and immediately set in motion a rescue operation. He pledged
millions of dollars to guarantee their deposits, but in return he extracted a promise that they would get out of any
speculative ventures and not go into new ones. At first the news of his actions only frightened more people into rushing to get their money out of their bank accounts. Morgan put out a call for assistance. John D. Rockefeller responded with millions. So did President Theodore Roosevelt, who directed the Treasury Secretary to draw down the government’s stock of small bills and deliver them to Morgan. But the Panic refused to end. The Rockefeller cash was soon gone and so was the Treasury’s supply of bills. Morgan dipped deeper into his own pockets (he had a
fortune worth $400 million) and he successfully talked other bankers into supporting every Trust Company that Benjamin Strong decided was a good risk. The runs broke out here and there for a number of weeks. The amounts withdrawn kept getting smaller. The stock market was rising again (It had crashed to a low on the day the Knickerbocker Trust went broke). And by March of 1908 the Panic was fully and finally over. But the nation’s financial structure had been threatened in ways never seen before. Private Bankers and Congressmen began to hold discreet meetings to discuss creation of a lender of last resort — a new bank that could save the system from collapse in an emergency.
They all knew two things: One, the new bank would have to be very powerful in order to replace the great Pierpont
Morgan, who had been protecting America for years but was no longer a young man. It would have to be granted
substantial day-to-day power to regulate, control and even issue money. But the larger overall power and control was to be left in the hands of Congress. That is because the founding American constitution placed full and total power over money in the hands of the Congress and ONLY the Congress. This government-chartered private bank would have to be empowered as a lender of last resort, which meant that it had to be allowed to create money. That feature was missing in 1907 and had been desperately needed. And two, it would have to be a private bank sheltered under the protection of the federal government but still mostly independent of the government and especially beyond the reach of the Treasury and the President. That is one fear that had been in America from its founding days. And so the Federal Reserve System was conceived.
It was to be decentralized, another American feature. There would be twelve regional Federal Reserve Banks, each independent in most ways but tied into an interlocking system.The New York Fed was to be given the most power and the President of the New York Fed would in fact preside over the system. (Benjamin Strong was given that job and title, and served until an illness took his life at a young age in 1928, leaving the Fed leaderless as it stumbled into the Great Depression. Without Strong’s steady hand, Wall Street in 1929 had broken out into an orgy of speculative lending and borrowing, with tragic results. It has to remind you of the way, under the permissive Greenspan, Wall Street firms – especially non-bank investment banks – left their traditional roles and traded with gigantic leverage on their own account, and everyone plunged into speculative devices unknown only a half-dozen years earlier.)
The final touch in 1913 was purely American. The twelve private regional Feds were to be owned by the commercial banks in their territory. The boards of directors to be divided into three groups. The first was to be chosen from the biggest banks in each district. That would mean that in Texas Oil Money might dominate. In the Midwest it would be farming. In the Northeast it could be financial affairs. There were two more groups of directors, with small banks having directors’ seats reserved for them. The Congress set up a small Board of Governors in Washington, led by a Chairman. That Board was not considered important in 1913, the year the Fed opened for business. One year later, World War One broke out in Europe and Washington began a climb in power that has carried us to the situation today. Ironically Dr. Ben Bernanke, as chairman of the Board of Governors in Washington, is a big fan of Benjamin Strong, and through Strong and now Bernanke the anti-speculative, anti-leveraged finance ideals of Pierpont Morgan still live,
That is why Bernanke dared act as boldly and decisively as he did when he had J.P. Morgan acquire Bear Stearns. Just as the Trust Companies were not banks, neither are investment banks. And just as Strong discovered that an interlocking series of directorships meant that the collapse of one bank in 1907 could pull down the whole banking system, so too did Bernanke come to realize that derivatives had sent Bear Stearns tentacles reaching out to so many banks and investment banks in America, Europe and Asia that were they allowed to fail the bankruptcy court might be forced to take actions that threatened the whole Western World.
In stepping into the world of Investment Banking, which Congress may now add to his regulatory domain, Bernanke
was able to send the word out across the country – he would protect them against their enemies who wanted them
to fail, but in return they had to pull back from the long list of dangerous speculative activities that had been growing
fast in the years of Greenspan. Thus I feel the bottom is in place - marked by the closing of Bear Stearns, and
very soon we will witness a new Age of solid growth in America, possibly led by the most conservative finances
since the 1950’s.

Question asked on 04/22/2008 at 03:26 AM :: Comments to date: 0

The Bottom of the Economy (4/21/08)

Category: Politics and the Economy

I am a businessman who loves the stock market and trading. There are highly paid consultant economists out there that predict what is happening. The press picks up on it and adds a flair to sensentationalize the worst or sometimes the best. Remember the press is publishing what sells newspapers and magazines. That is the extraordinary sensationalized high profile happenings. When people are hurting due to the economy the press picks up on it after there are all time new highs of bankruptcies or foreclosures. Don't you think the people that are part of that statistic already know that which they have been personally through for the past year.
So I am a business man who sees a soft economy in my business but it is not in a total recession. The economy is adjusting to higher raw material prices and passing on the costs which is causing inflatiion. The Fed is doing everything it can to keep the economy from going into a depression caused by the housiing bubble bursting and the sup=prime mess and the credit problems.
More on the Fed - A LOT OF MONEY HAS BEEN CREATED BY DR. BEN S. BERNANKE, CHAIRMAN OF THE BOARD
OF GOVERNORS, FEDERAL RESERVE SYSTEM. YOU WILL SEE HOW BERNANKE, WHO IS THE SKIPPER OF AMERICA’S ECONOMY, HAS RESPONDED TO PANIC CONDITIONS BY PUMPING IN $200 BILLION OF M2 MONEY SO
FAR THIS YEAR. THE M2 UPTREND IS ACCELERATING. IF WE ARE RIGHT, DR. BEN PROBABLY INTRODUCED ANOTHER $200 BILLION OF MONEY IN THE SHAPE OF M3 MONEY. THIS IS NOT USUALLY AVAILABLE TO THE PUBLIC OR SEEN BY THE PUBLIC. IT IS IN THE FORM OF LARGER CD’S, WHICH CAN BE USED AS BANK
RESERVES. (OR A BACKING TO THE JP MORGAN BAILOUT OF BEAR STERNS) IT IS PART OF THE UNDERLYING
STRENGTH OF THE ECONOMY. THIS BRINGS US TO THE FIRST PART OF DR. BEN’S TERM IN OFFICE. HE HAS CREATED A TOTAL OF ONE TRILLION DOLLARS OF M2. QUITE LIKELY THAT IS BACKED UP BY ANOTHER TRILLION DOLLARS OF INVISIBLE M3 MONEY. THIS IS WHY I BELIEVE THE BOTTOM IN THE ECONOMY IS IN.
DON'T LET THE PRESS MOKE YOU WORRY ABOUT A WORLD-WIDE MELTDOWN.

Now what I want you to do to help everyone in your close contact is let them know that the world and the USA is going to come out of this recession soon and be prepared for it. Pass on to your inner circle of friends who invest in the maeket this web site and recommend they read this blog.

Now is the time to be adding to your metals because of all the money that has been created has to go after goods which causes inflation.

BERNANKE IS ON THE JOB – AND WILLPROTECT YOU!
INCIDENTALLY, BERNANKE HAS BEEN A BIT
MORE CAUTIOUS WHEN IT COMES TO
CUTTING INTEREST RATES. DR. BEN HAS
WRITTEN EXTENSIVELY ON THE
INTERACTION BETWEEN INTEREST RATES
AND THE ECONOMY. MY CLEAR IMPRESSION
IS THAT HE FEELS MONEY SUPPLY IS FAR
MORE CRITICAL THAN INTEREST RATES
WHEN IT COMES TO PROMOTING GROWTH.

Question asked on 04/21/2008 at 02:49 AM :: Comments to date: 0

The Fed and the Economy (4/19/08)

Category: Politics and the Economy

Every recession we’ve had in the last 95 years was due, at least in part, to the Federal Reserve.
The explanation is simple really. The economy is far too complex and dynamic for the Fed to accurately project where it will be a few years from now.
And to make matters worse their most effective tool for controlling the economy – interest rate adjustments - can take six to eighteen months to work their way through the economy. In other words, the only way the Federal Reserve can save the economy from a recession is to know it is coming at least six to eighteen months in advance.
Even with the tools the Fed has, this is virtually impossible. And it’s the main reason why they’re so late responding to the economic cycle. Here’s a quick scenario:
If the Fed thinks the economy is growing too fast, they’ll keep interest rates high. The longer they keep rates high, the more the economy slows down. In fact, the Fed usually won’t lower rates until they see signs of an economic downturn. By the time they see these reports, the recession is almost completely underway and the Feds first interest rate cut won’t be felt for another six to eighteen months!
The best way to think about how the Fed can help us in an economic downturn is like this: They try to make sure recessions don’t turn into depressions.
So don’t get lured into making bullish bets because you think the Fed can save us from a recession. They just don’t have the power to do that.
The last lowering of the interest rates is adding gasoline to the fire. The fire of inflation. The Fed has done the right thing 8 months ago starting on 8/16/07. They kept pumping money and lowering interest rates to keep the mortgage and bank companies from imploding like 1930. So I have to give them great thumbs up. But the piper we will pay this timie is inflation. Where in the 1930's the Piper was deflation and contraction. So what do you put your money in now to make inflation work for you? Gold and Silver.

Question asked on 04/19/2008 at 07:26 AM :: Comments to date: 0

It's Tax Time (4/14/08)

Category: Politics and the Economy

Since it's Income Tax time, here's something about your Taxes.
This is interesting. Just compare the taxes.
Source: www.taxfoundation.org/publications/show/151.html

Taxes under Clinton 1999 Taxes under Bush 2008

Single making 30K - tax $8,400 Single making 30K - tax $4,500

Single making 50K - tax $14,000 Single making 50K - tax $12,500

Single making 75K - tax $23,250 Single making 75K - tax $18,750

Married making 60K - tax $16,800 Married making 60K- tax $9,000

Married making 75K - tax $21,000 Married making 75K - tax $18,750

Married making 125K - tax $38,750 Married making 125K - tax $31,250

If you want to know just how effective the mainstream media is, it is amazing how many people that fall into the categories above think Bush is bad for them and Bill Clinton was the greatest President ever.

Question asked on 04/14/2008 at 06:04 AM :: Comments to date: 0

Food for Thought (4/6/08)

Category: Politics and the Economy

Is The Fed Making A Bigger Problem Than It's Solving?
When the 1990s boom came to an abrupt end, the U.S. appeared to be heading for a tough recession. To prevent it from happening, Alan Greenspan pushed interest rates all the way down to 1%. It was a close call, but the economy pulled back from the brink and started a slow recovery.
Some economists are not happy that the recession was avoided. They argue that downturns are needed to correct the abuses and bad investments that accumulate during booms. The critics say that by keeping the recession at bay six years ago, the problems continued into the current upturn and became much worse.
If the critics of the Fed's actions are correct, the current bailout will push our economic instabilities ahead once again, and make the next downturn an even bigger threat. At some point, the problems will become so bad, the Fed won't be able to put them off anymore and we will have a very serious downturn.
The argument that the Fed is creating more problems than it's solving has some merit. However, it doesn't have much immediate value for investors. As the current economic slowdown comes to an end, there will be a lot of money to be made. The best plan is to get your share of the loot and evaluate the future when it becomes easier to see.
I feel the problems will surface in the year 2009 because of the elections. It doesn't matter who is elected President because the economy still moves along with or without the Fed intervention.

Question asked on 04/06/2008 at 06:44 AM :: Comments to date: 0

Henry Ford Soybeans and Ethanol (3/14/08)

Category: agricluture

Some of Henry Ford’s ideas were way ahead of their time. In fact a few ideas were so far out that they went nowhere, but not for lack of merit. For example, Ford was always looking for ways to save money on the costs of materials but without sacrificing quality, design integrity or safety. From his childhood background on a farm, and because many of his customers were farmers, Ford was deeply interested in agriculture. Ford often commented that crops could grow quickly, “as compared with lumber or especially iron ore.” So Ford funded a laboratory to assist farmers to find a way to use crops in industrial applications. Ford hired a highly regarded chemist named Robert Boyer to run the lab, where dozens of workers researched industrial uses for farm crops such as cantaloupes, carrots and beets.
Among other crops, Henry Ford was a great promoter of soybeans. In one marketing effort that Ford intended to impress his farmer-customers, every vehicle that Ford sold came with a bushel of soybeans on the front seat. And during the Great Depression, Ford entertained visitors at luncheons in which every course contained locally grown soybeans. The Ford menu included tomato juice with soybean sauce, soybean cookies and soybean candy for dessert.
But Ford used soybeans to do more than just amuse visitors at lunch. Ford was looking for projects that combined industry with the output of agriculture. Among other things, Ford had an abiding interest in developing soybean-based plastics. Throughout the 1930s Ford pioneered the use of soybeans in plastics that he used in his automobiles. The soybean components included plastic parts (even body panels), seat covers and paint. Ford’s soybean-automobile project culminated in August 1941, when he patented an automobile made almost entirely of soybean plastic, attached to a tubular welded frame.
Ford’s soybean-car weighed 30% less than a car made of steel. Even better, the plastic panels did not rust. And an array of experiments concluded that they were ten times as durable as steel. Ford claimed that plastic panels made the car safer than traditional steel cars because the car could roll over without being crushed. Ford hoped that the new soybean plastic would replace metal, which was in short supply in the years just before World War II as the U.S. government was building up the country’s navy. Furthermore, Ford’s soybean-car ran on grain alcohol — yes, ethanol — instead of gasoline.
Ford’s engineers were building a second soybean-based car when the U.S. entered World War II in December 1941. Because of the war, the federal government suspended all U.S. automobile production for the duration of the conflict. Thus Ford’s soybean-based car experiment languished. Almost all of the Ford Company’s resources were directed towards war-related production. Indeed, in one gigantic undertaking Ford converted the massive facility at Willow Run, Michigan to building B-24 bombers. At one point during the war, the Willow Run plant rolled a brand-new B-24 — made of over 140,000 separate parts — off the assembly line every hour. This was a far cry from building automobiles — made of soybeans or otherwise. By the end of the war in September 1945 the idea of a soybean car had simply fallen through the cracks.
Henry Ford died in 1947, aged 84. And we can only speculate about what might have happened if Henry Ford and his company had continued to pursue the idea of a car made out of soybeans, and powered by ethanol

Question asked on 03/14/2008 at 06:36 AM :: Comments to date: 0

Quote of the Day (3/13/08)

Category: Quote of the Day

Pride goeth before a fall.

By Mr. Eliot Spitzer.

Wall Street cheered on Monday when the news came out.
Mr. Spitzer did good in the beginning but later became a victim just like all of his old targets.
A perfect case where money doesn't corrupt but power eventually corrupts.

Question asked on 03/13/2008 at 05:39 AM :: Comments to date: 0

Reccession will be Over (2/7/08)

Category: Politics and the Economy

On Thursday, Richard Russell from Dow Theory, noted that the cover of the latest issue of BusinessWeek has recession all over it. The magazine-cover indicator says if an idea is popular enough to make the cover of a national magazine, it's either over already or it's not going to happen. This sounds a little flimsy, but it's not to be taken lightly, especially when it comes to the big, overarching trends.
People will see that the recession will be over in March. Another reason, it is a political voting year. Politicians are doing all that they can to stimulate the economy to get it out of the reccession.

Question asked on 02/07/2008 at 07:13 AM :: Comments to date: 0

Quotes of the Day (2/1/08)

Category: Politics and the Economy

"Public opinion always wants ‘easy money,’ that is, low interest rates."

Ludwig von Mises

"Almost all the fathers of socialism were members of the upper middle class or of the professions."

Ludwig von Mises

"The more ‘adequate’ we make relief, the more people we are going to find willing to get on it and stay on it indefinitely. The more we try to make sure that everybody really in need of relief gets it, the more certain we can be that we are also giving it to people who neither need nor deserve it."

Henry Hazlitt

Now what is the government trying to do? Save us from the excesses of our greed. Hard work and the sense of accomplishment allows people to create wealth and happiness. Being given money debases the drive to work hard and sets a stage for more dependence upon hand outs. This is the continuing evolution of debased currencies and inflation by governments for the benefit of the masses. So the only hard asset that keeps it value relative to the other goods and services is gold and silver.
This is a parallel to the 70's. Gold will continue to go towards the $2000 mark before it is finally tamed to settle back to the new bench mark of $1000. Hang onto your metals and stocks.

Question asked on 02/01/2008 at 07:45 AM :: Comments to date: 0

Did the Fed Overreact? (1/27/08)

Category: Politics and the Economy

In The Financial Times this week the inside headline is "Markets ask if the Fed was duped?" It seems that a rogue trader (interesting how a lone trader who loses a lot of bank money is always a rogue) lost Societe Generale $7.1 million (4.9 million euros). Seems he knew how to override the risk control systems, had other employees' passwords, and built up a massive long position which was down about $2.2 billion by the time SocGen management found out. He produced the losses in just a few weeks. SocGen started selling everything to cover the loss on Monday morning, and the markets moved away from them, growing the loss to the $7.1. That constitutes a bad day at the trading desk.
Some suggest that it was the very selling by SocGen, which was 10% of the market trades, which caused the downside volatility. It seems the European Central Bank knew early on about the problems at SocGen, but the Fed got caught by surprise. The Fed holds an emergency FOMC meeting ahead of the scheduled meeting this week, and makes a shock and awe 75-basis-point cut. I can tell you that shocked a lot of very sophisticated traders and managers that I talked with here in Europe.
Everywhere I went I was asked, "Why an inter-meeting cut?" The Financial Times wrote, "The question being asked now by some in the markets is: was the Fed duped into a clumsy and panicked move by the clean-up operation for Jerome Kerviel's [AKA rogue trader at SocGen] mammoth losses for the French bank?"
Barry Ritholtz was on CNBC with Steve Lissman and Rick Santoli and they suggested that the Fed responded to the volatility in the stock markets with the rate cut and that the Fed is now responding to the traders in the S&P futures pit.
Let's read Barry's take when he finds out that the volatility may have been the result of our rogue trader, in a blog entitled "Fed's Folly: Fooled by Flawed Futures?":
"Was it a misunderstanding of their mandate, inexperience, or just plain hubris?
Regardless, it took only 2 days to learn just how ill-considered the Fed's emergency market rescue plan was: To wit, a fraudulent series of losses led to a major European bank unwinding a huge trade: Societe Generale Reports EU4.9 Billion Trading Loss.
SG's $7.1Billion dollar unwinding led to panicked futures selling on Monday and Tuesday.
"Hence, we quickly learn what sheer folly and utter irresponsibility it is for the Fed to use its limited ammunition to intervene in equity prices. Their panicky rate cut was not to insure the smooth functioning of the markets, but rather, to guarantee prices.
As we have been saying for the past two days, this is not the Fed's charge. They are supposed to be maintaining price stability (fighting inflation) and maximizing employment (supporting growth) -- NOT guaranteeing stock prices.
"I guess the European Central Bank has it easier: Their only charge is to fight inflation: 'maintain price stability, safeguarding the value of the euro.' Tuesday's panicked 75 basis cut will prove to be an historical embarrassment, a blot on the Fed for all its days. Failing to understand what their responsibilities are is bad enough; allowing themselves to be bossed around by futures traders is inexcusable.
And, having been rewarded for their past tantrums, the market will now be screaming for another 75 bps next week. As Rick Santelli appropriately observed, the Pavlonian training is now complete."

First, for years one of my central premises has been that we have to remember that when a normal human being is elected to the board of the Fed, he is taken into a secret room where his DNA is altered. Certain characteristics are imprinted. Now, he does not like inflation and hates deflation even more. He sees his role as making sure the financial market functions smoothly. He does not care about stock prices when thinking about rate cuts.
Then what was the reason for the cut if not stock prices? Why an inter-meeting cut much larger than the market was expecting next week, just seven days later? What was so urgent that we needed a shock and awe rate cut a week early?
I am not sure if panic is the right word, but I think very deep concern is also a little understated. It has to be something serious for an inter-meeting cut.I believe the monoline insurance companies like Ambac and MBIA are in worse shape than most realize, the counter-party risk in the $45 trillion Credit Default Swap market is much worse than we realize, and the exposure by various banks to their problems is much larger than currently understood. The Fed understands this, and realizes that they have been behind the curve but need to catch up.
If you are a bank or regulated entity, and you have mortgage-backed securities that have been written by a AAA company, you can carry that debt on your books as AAA. But as the companies get downgraded, you have to write down the potential loss. Quoting from a recent note from Michael Lewitt:
" 'MBIA's total exposure to bonds backed by mortgages and CDOs was disclosed to be $30.6 billion, including $8.14 billion of holdings of CDO-squareds (CDOs that own other CDOs, or mortgages piled on top of mortgages, or, to quote Jeff Goldblum's character in Jurassic Park again, 'a big pile of s&*^'). MBIA was being priced as a weak CCC-rated credit when it issued its bonds last week; it is now being priced for a bankruptcy. MBIA's stock, which traded just under $68 per share last October, dropped to under $10.00 per share.
" 'The bond insurers' business model is irreparably broken. In HCM's view, it will be all but impossible for these companies to raise capital at economic levels for the foreseeable future and certainly in enough time to work out of their current difficulties. The performance of MBIA's 14 percent bond issue will prove to have been the death knell for this business. The market needs to come to the realization that the so-called insurance that these companies were offering is not going to be there if it is needed. The fact that these companies were rated AAA in the first place will remain one of the great puzzles of modern finance for years to come.'
"You can bet that the $8 billion in CDO-squareds is gone. It is a matter of time. MBIA's market cap is about $1 billion [it is now at $1.74]. Current shareholders will be lucky if they only get diluted 75%."
Think this through. MBIA is still rated AAA. Ratings downgrades are just a matter of time. Banks that raised $72 billion to shore up capital depleted by subprime-related losses may require another $143 billion should credit rating firms downgrade bond insurers, according to analysts at Barclays Capital.
Banks will need at least $22 billion if bonds covered by insurers, led by MBIA Inc. and Ambac Assurance Corp., are cut one level from AAA, and six times more than that for downgrades by four steps to A, as Paul Fenner-Leitao wrote in a Barclays report published today. Barclays' estimates are based on banks holding as much as 75% of the $820 billion of structured securities guaranteed by bond insurers. (Source: Bloomberg)
The stocks of MBIA and Ambac have risen on speculation of take-overs or a rescue. But MBIA is going to have to cover that $8 billion of CDO squareds. With what cash? MBIA makes about $5 billion a year. It will take almost two years' earnings just to deal with the losses from CDO squareds. Not to mention the subprime mortgage exposure.
But what if the above-mentioned are downgraded to junk, as was ACA when it could not raise capital? As the downgrades on various mortgage assets and the CDOs continue to increase, the ability of these companies to deal with the problems is going to come under increasing question. The losses at major banks could be much worse than $122 billion if they are downgraded to the same junk level that ACA was.
And that is just the credit default swaps (CDSs). What about the trillions that are guaranteed by banks and hedge funds? There are a total of $45 trillion CDSs outstanding.
No one is really sure who owes what and to whom, and what is the risk that there may be no one to pay that CDS when it comes due? The entire mess is going to have to be unwound in the coming quarters. It may take a year or more.
I think the concern that there is the potential for a much worse credit crisis than we are currently experiencing is what is driving the Fed. They are looking at the problem from the inside, and realize that they simply have to engineer a much steeper yield curve to allow the banks to make enough profits so that they might be able to grow their way out of the crisis over time.
If I am wrong and the Fed was responding to the stock market, then we will likely not see a cut this next week. But if we get another 50-basis-point cut, as I think we will, then it means the Fed is responding to concerns about the credit crisis. And we will get another cut the next meeting and the next until we get down to 2% or below.
A 50-basis-point cut takes the rate to 3%. It they had cut the rate by 1.25% next week, the market would have collapsed. Better to do it in two leaps is what I think they are thinking. We will see. And it is not just the Fed that is concerned

Question asked on 01/27/2008 at 06:32 AM :: Comments to date: 0

Income Taxes (11/29/07)

Category: Politics and the Economy

Please do me and yourself a favor. Pass this article or website on to your friends and relatives so that when you start to lilsten to the next year of political BS you will know the truth about taxes and who pays what.

The Tax Foundation recently released an analysis of the Internal Revenue Service's income tax data for 2005 (latest available). Let me repeat just a small part of that Tax Foundation analysis:
America's richest 25 percent of taxpayers paid about 86 percent of all federal income taxes in 2005, despite earning only 67 percent of the nation's income... The highest-earning 1 percent alone - those earning more than $364,657 - paid a staggering 39.4 percent of all federal income taxes... That means the top 1 percent of tax returns paid about the same amount of federal income tax as the bottom 95 percent of tax returns combined.
This data for 2005 is not really new. The top income brackets have always paid the majority of income taxes.

Here is the data from the IRS for 2005:
Taxpayer
AGI Brackets Average %of AGI Paid Share of Total
Income Taxes Paid
Top 1% 23.13% 39.38%
Top 5% 20.78% 59.67%
Top 10% 18.84% 70.30%
Top 25% 15.86% 85.99%
Top 50% 13.84% 96.93%
Bottom 50% 2.98% 3.07%

[Note: The Average Percent of AGI paid in taxes for each of the Taxpayer Brackets listed above is calculated by taking the sum of all income tax paid by individuals in each bracket in 2005, and dividing it by the total adjusted gross income of all such individuals. For example, based on 2005 income tax data from the IRS, the top 50% of taxpayers had total adjusted gross incomes of $6.544 trillion, and paid total income taxes of $906 billion. Thus, $906 billion divided by $6.544 trillion equals the 13.84% tax rate shown above.]
Based on the Internal Revenue Service's own data, the rich do in fact pay a higher percentage of their adjusted gross income in income taxes, by far, as compared to those in the lower income brackets. The top 50% of taxpayers pay 4.6 times the percentage paid by those in the bottom 50% on average. Someone in the top 10% pays 6.3 times the percentage paid by those in the bottom 50% on average.
Keep these numbers in your head for the next time a liberal tells you that the rich don't pay enough in taxes. The top 50% already pay almost 97% of all income taxes paid, whereas the bottom 50% pay only about 3%. And let us not forget that the top 50% create virtually all of the jobs in this country, and make the economy strong, yet the libs want to tax them even more!
If you want to see the 2005 IRS income tax data and tables, click on the following link to see the full story from the Tax Foundation: http://www.taxfoundation.org/research/printer/250.html.

Democrats Plan To Hike Top Tax Rate To 65%

The three leading Democrat candidates for president - Hillary Clinton, Barack Obama and John Edwards - have all made it known that, if elected, they will consider raising taxes on "the rich" in order to fund their various programs, including nationalized health care. And as discussed above, the rich are now defined as any individuals making $150,000 or families making $200,000 or more per year.
In the recent Democratic presidential debates, Hillary has avoided stating just how much she would raise taxes on the rich, but candidates Obama and Edwards have told us what they plan to do, and you're not going to like it. They have done so in discussions on the subject of how to save Social Security.
Both Obama and Edwards have rejected the notion of cutting Social Security benefits or raising taxes on the middle class to fix Social Security's unfunded costs. Instead, both Obama and Edwards have actually proposed plans for raising the income tax paid by those making over $200,000. To many moderate voters, this probably makes plenty of sense.
The question is, how much would taxes have to go up on the rich ($200,000 or more in annual income) in order to fix Social Security going forward and fund the Dems' plans for national health care? According to a front-page article in last Thursday's Investment Business Daily:
"To bring in enough money to close Social Security's shortfall and make good on the $2 trillion in IOUs in the trust fund would require an annual tax increase in excess of 25 percentage points on those earning over $200,000... [Emphasis added, GDH.]
Combining this tax hike with the reversal of President Bush's tax cuts for high earners - as all of the top Democratic contenders have called for to help pay for their health care plans - would raise the top rate on work income from 35% to about 65%."
What, you haven't heard of this? Of course you haven't. The mainstream media is not about to tell us that the three leading Democrat candidates plan to skyrocket income taxes on those making over $200,000. Heritage Foundation senior fellow David John reacted to the Dems' proposed tax increases as follows:
"It's easy to say, 'We'll just assess a small tax on the rich. But when you start to add up the cost of (Democratic plans for) health care, Social Security, the (elimination of) the alternative minimum tax, you run into some astonishing tax increases." [Emphasis added, GDH.]
I suggest you start paying more attention to these Democratic presidential debates and be aware of just how deeply these liberals plan to raid our pocketbooks. Even worse, if the Dems are successful in hiking taxes to such levels, there will be no guarantee that they will actually use the money to fix Social Security - they might just spend it.
Finally, can you imagine the negative effects that a top tax rate of 60-65% would have on the economy and job creation? History has shown that at such excessive tax rates, high income earners find ways to limit or reduce wage and salary compensation. Some wealthy individuals will actually work less, or not at all, rather than pay 60-65% tax rates.
I know some conservatives who are so disgusted with the Bush administration that they say they will vote for a Democrat in 2008, just to send a message. I hope they're ready to see their income taxes almost doubled if they do!

Question asked on 11/29/2007 at 03:14 AM :: Comments to date: 0

Why Are We Going Green (11/26/07)

Category: Politics and the Economy

Iraq May Cause USA to Go Green
EVERYDAY, AMERICANS FOCUS ON COUNTLESS problems that have arisen due to the war in Iraq. One of the clear problems we’ve come across has been the supply and price of the world’s oil. No matter what side of the issue you’re on, it’s hard not to notice the effect this conflict has had on our number one source of fuel.
Iraq, under Saddam Hussein, was one of the world’s largest oil producers. Many experts predicted that with Hussein out of power, Iraqi oil production would only rise. This has not been the case. If anything, the war with Iraq has significantly harmed the production of oil and raised the price to record levels. Tensions in the area continue to grow, and recently the threat of an invasion by Turkey sent the price to its highest mark.
So that’s the bad news. Despite what many people think, there actually is good news coming from Iraq. This is news that should delight the very people who have been opposed to the war from the beginning. According to Gallup, the majority of Americans who oppose the Iraq war are Democrats. The same can be said for the majority of Americans who believe global warming to be a major problem. Based on those facts, it may be safe to assume that the same people who oppose the war are the ones asking for changes when it comes to global warming. Many of these people want the government to do something significant about this problem, but the free market should be figuring it out for them.
As more and more people talk about global warming, millions are looking for alternative forms of energy that are cleaner and more environmentally friendly than oil. The technology for alternative fuels is there. The solutions are just way too expensive.
Take hybrid cars, for example. Right now, the Honda Civic sedan starts at $15,010. The popular family vehicle gets 36 miles per gallon. The hybrid version of the Civic starts at $22,600. The hybrid operates at 45 miles per gallon. Clearly, owning a hybrid will have you fueling up fewer times a year and is better for the environment. But are the savings in gas consumption and environmental effects worth it for the average customer to pay over $7,000 more for the “green” vehicle? Based on an average of 12,000 miles driven per year and paying $3.09 for every gallon of gasoline, the savings you get by choosing the hybrid car are only $207 per year. It would take over 33 years to make up for that extra cost. That hardly sounds worth it to me.
One of the only ways these hybrid cars will become more affordable and then be used by more people will be if oil prices begin to rise. The higher oil gets, the more affordable by comparison environmentally friendly alternatives will become. Not only will rising prices balance the differences between oil and alternative energies, but the more expensive oil gets, and the greater a national emergency it becomes, the more incentives to improve energy technology rise.
The incentives will also rise when further political pressure is put on the government. When that happens, subsidies for alternative energy programs will increase. If political unrest continues in the Middle East and the countries that control OPEC refuse to step up production, Americans will have no choice but to curb their use of oil and will then be forced by the market to become part of the ecological solution.
You can already tell that the issue of government subsidies for alternative fuel is one that companies in the energy business are pushing for. According to the National Venture Capital Association, startup companies that focus on clean technologies attracted more than $800 million in venture capital last quarter alone. That shows that there are plenty of investors willing to put up their money hoping the winds are changing toward clean products.
In fact, just last week, the world’s most famous environmentalist, Al Gore, became a partner in Kleiner Perkins Caufield & Byers, a successful venture capital firm that backs many eco-friendly startup companies. Kleiner Perkins claims that Gore will be an integral part of the running of the firm, but many believe that he will be used for his vast connections in Washington. If Gore can help get more subsidies from the government, the money that a firm like KPCB stands to make could be huge. And of course, the politicians that will provide those subsidies will also be answering to the concerns of their constituents. If the price of oil becomes the biggest problem facing Americans, you can be sure that Congress will attempt to do something to appease the voting public.
What stands in the way of these companies is the threat that oil could somehow become cheap again. What if the U.S. leaves Iraq and tensions in the world begin to ease? What if that led to Iraqi oil production on the levels we saw before 2003? If such a thing would happen, then the American people would continue to drive their gas-guzzling cars and polluting the environment. That is the exact opposite of what many global warming activists want.
Of course, this rationale sounds absurd when compared with the money that could have been saved had we not gone to war. That money could have been used by the government to directly subsidize alternative energies sooner. But would they have used it that way? Probably not. Governments usually tend to respond to problems only when they become a crisis.
This goes to show you that by creating an oil crisis, the government may finally be able to solve it. It may be hard to swallow, but believe it or not, people interested in America cutting down on its use of oil and stepping up cleaner initiatives may have George W. Bush and the Iraq war to thank.

Question asked on 11/26/2007 at 06:40 AM :: Comments to date: 0

Asia and their Culture (11/3/07)

Category: Politics and the Economy

Here's a new reason to be wary of investing in Asia...
The preference of Asian families to have male children will eventually lead to the downfall of the economy. That's what the United Nations is arguing. Many Asians see male offspring as a type of insurance policy that will help support them in old age. In China, 120 boys were born for every 100 girls in 2005. Men are on pace to outnumber women by 23 million in India and 26 million in China by 2030.
The UN fears better technology will only increase sex selection, and leave millions of sexually repressed men with no outlet. The UN believes the societal imbalance will lead to human trafficking and prostitution, which is already on the rise. This will lead to the Mafia infiltrating the Chineese and Indian power structure. When that becomes too corrupt yoou will end up in anarchy. This is a very long time frame but inevitable.

Question asked on 11/03/2007 at 03:56 AM :: Comments to date: 0

Inflation is still Coming (10/30/07)

Category: Politics and the Economy

By Richard Russell

We're dealing with a situation that has no precedent in world history. We have a situation where 20 central banks on the planet are all under political pressure to keep their respective currencies competitive. No nation (despite what they may state for publication) wants a strong currency. A "cheap" currency allows for competitive exporting. A cheap currency also places a nation's assets on the bargain table. And that, of course, is the case with the US today. The "bargain" dollar has turned the US into a veritable "candy store" for much of the rest of the world. In terms of real estate, corporations, tangibles located in the US, everything looks like a bargain to a businessman or an overseas investor.

The fact that the world is now operating on a fiat currency basis has placed the planet on an endless inflationary escalator. The culprit is the phenomenon of "competitive devaluations." If a given nation's currency becomes noncompetitive ("too strong"), that nation's central bank creates more of its own currency and with that newly created currency -- it buys dollars. This strengthens the dollar in terms of the nation's own currency, rendering that nation's currency competitive again, at least in terms of dollars.

However, this process has no automatic brake which would serve to bring this endless currency production to a halt. As a result, the world has become an ever-expanding ocean of fiat currency. The term for this process is well-know in financial circles, it's called -- monetary inflation. If this process continues (and it is continuing), monetary inflation always produces price inflation. Today we are experiencing both monetary and price inflation. We see indications of price increases everywhere --from the price of bread to the cost of a college education, from the price of a man's shirt to the cost of a hotel room in New York or London or Paris or Dublin.

I believe the cheap-dollar phenomenon has a great deal to do with the fact that the Dow and the leading US stocks are rising while the secondary stocks and the advance-decline lines are lagging. However, I also note that the majority of US stocks, as gauged by the various advance-decline lines, are now heading higher. Thus, the advance-decline lines are still lagging, but like the Transports they've been moving IN THE RIGHT DIRECTION, and that is bullish.

Aside from the US government's ridiculous manipulations and lies, the true inflation rate in the US is probably running at about 7%. With the yield on the bellwether 10-year Treasury note at 4.67%, US interest rates are now negative. Negative interest rates are bullish for investors. They mean that borrowing has become both cheap and profitable. Negative interest rates also tend to be inflationary.

The world trend now is to move out of fiat currencies and into something tangible, something of essential value that can't be printed or created by pressing a button. Thus, the dollar (fiat currency) cost of everything from gold and silver to diamonds to platinum to classic art to collectibles to coast real estate is rising.

Thus hard assets.

Question asked on 10/30/2007 at 06:16 AM :: Comments to date: 0

Taxes and Income (10/16/07)

Category: Politics and the Economy

Read the following Quote

Don't "cut" my taxes anymore. I can't afford it.

According to the IRS, Americans coughed up a record $2.568 trillion in taxes in 2007, or 6.7% more than in 2006. The Wall Street Journal places this figure in historical perspective: Federal receipts have climbed by $785 billion since the 2003 investment tax cuts, the largest four-year revenue increase in U.S. history.

So the tax cuts allowed Americans to make more money so they could pay more taxes.
Tax cuts are good and they stimulate the economy.
Anybody that believes that we need higher taxes is wrong.
What we need is less government spending.
When you go vote this fall remember to vote for the candidate that believes there should not be any tax increases because it is better for the economy.

Question asked on 10/16/2007 at 06:36 AM :: Comments to date: 0

More Background (10/15/07)

Category: Politics and the Economy

In the 1930s. The Great Depression kept taking its toll. The U.S. economy kept limping along, like a wounded foot soldier graveling through the mud and blood-soaked barbed wire, inching his way home to the trenches along the Western Front under the ill-fated cover of a cold, blustery February night.
The world's newest empire kept clinking and clanking. Americans were broke, and they didn't know why. They wanted answers…they wanted a solution. These were desperate times. They called for desperate measures.
Like the Lord to Moses, Lord John Maynard Keynes caught the frequency of Grandpa Franklin's ear. The oracle of modern economics believed the policy prescription destined to save the modern market economy lay in the provident hand of government - more specifically, monetary policy (increasing the money supply) and/or fiscal policy (increasing government spending). Emphasis on the word "and."
FDR quickly swallowed the pill. He then passed the bottle down Pennsylvania Avenue. The distinguished gentlemen of Capitol Hill caught wind of the cure. However, Roosevelt (and just about everyone else) forgot to digest the second (crucial) part to Keynes' magic prescription. Governments fully embraced the idea of running deficits during economic down times…They just conveniently neglected to run surpluses (pay back the debt) in good times.
But who can blame them? What elected official in his right mind stands up before his Washington brethren and demands we turn off the spigot? Who in their right mind does not want to encourage more business expansion - and a greater illusion of fiat prosperity - than would otherwise be justified? And who knows or cares that a 1940s dollar is only worth roughly 5 cents today?
As Bill Bonner points out, "The goal here - as with all government programs - is to produce the desired benefits while pushing the costs onto someone else. That's how politics works. You promise something…and you force someone else to pay for it. You rob one Peter voter…and spread the loot among the Pauls."
Rene A. Wormser once wrote, "No government can operate with a monetary system consisting only of fiat money without sustaining gross economic turmoil and eventually facing a tragic day of reckoning. A fiat money system prompts legislative profligacy and, inevitably, produces inflation."
Wormser had a point. He had a very good point. Deficit financing and government intervention have taken their tolls. Less we forget, 50 or 60 years, which in a man's life means a good bit of existence, are only the blink of an eye in the life of a nation. Fifty or 60 years is even less so in the life of an empire…at least a successful one.
So here we are 60-odd years later with our sweat-soaked American wages, adjusted for inflation, tangibly lower than they were in 1970. We not only make less, but we spend more…much, much, more. From 1999-2007, household debt went up more than all the debt that households had previously accumulated in the 220-year history of the United States.
If that wasn't enough, by the end of 2005 the most recent Bush administration had borrowed more from foreign governments and banks than the previous 42 U.S. presidents combined.

The Government's broke… It's citizens are broke.
It's a sad fact, but today, approximately one-third of all Americans have no savings at all. The typical baby boomer holds a total of $60,000 in net worth. At a 5% after-tax fixed-income return, Johnny baby boomer will earn $3,000 a year, or $250 a month, or $8.33 a day. McDonald's must have seen this coming. The dollar menu may be all he has. So goes the true "McDonaldization" of America.
But wait! There's always Social Security. Whoa, Johnny gasps…Thank goodness Washington took care of that.
It's no wonder we find ourselves here. Americans' total spending last year alone exceeded their earnings by a mere $41.6 billion dollars. And that's not the most difficult task when one considers that the average number of credit cards per U.S. household is now 12.7.

The Real "American Dream"
It didn't used to be this way. Some 60-odd years ago, keeping your head above water meant saving a dollar.
In the 1940s, when my grandfather bought shares of companies such as General Electric and Alcoa Aluminum, his main goal never involved generating a fortune overnight - only making sure he had enough income for tomorrow.
You see, my grandfather was the child of a dying generation… A group of people for whom the Great Depression was much more than a chapter or two in the 13th edition of some unmarked high school history book.
Today, most kids in America will learn the basic facts of the Great Depression, but the most valuable piece of knowledge - a realization that's essential to all Americans today - won't appearin their textbooks, not even as a footnote.
My grandfather emerged from the Great Depression humbled…his "American Dream" intact, but tempered by the precious wisdom that nothing material in this world is infinite. For every "dream," there also exists the opposite, equally possible, scenario.
That's what we're facing today, dear reader. With each passing day, we add $2.43 billion to our record-high national debt, and the dollar continues to fall in value, further eroding our already insufficient retirement savings…
What are most Americans doing about it?
They're consuming even more, even if that means dipping into their savings or taking on debt they'll never be able to repay.
Why?
Because it has to do with an economic struggle… an innate and uniquely American fear of being left behind (or, even worse, completely left out)…It has to do with an individual's fight for their particular piece of the proverbial American pie.
Our political icons constantly remind us of achieving the "American Dream" and becoming an "ownership society," as if to say you can do better, achieve more and, thus, find happiness.
Its roots go back to the great bull market that followed World War II. That glorious economic expansion gave birth to America's first legitimate middle class…a group of people whose last names were scribbled onto university rosters for the very first time.
Every American family could now have a house with a yard, a new Oldsmobile or even a Cadillac Coupe de Ville…The "American Dream" was reborn and recast, unfettered by the cautionary tale not even one generation old.
If you couldn't keep up with your neighbors, then new companies such as Visa and MasterCard could help you out.
Madison Avenue hit its stride and showed the "Joneses" where to use their new plastic…And here we find ourselves today, back where my grandfather and his peers found themselves 60 years ago…blindly teetering on the precipice of another American nightmare.

Paying Uncle Sam's Tab
But there are a select few in the current generation…a handful of Americans with plenty of money for Washington to get its hands on. They're an elite group…They're the top 1%. They hold membership in the club of Americans who control 90% of the nation's total wealth.
So it's no wonder that the proposal to rescind America's "estate tax" fell three votes short on the Senate floor last summer.
It's true that the estate tax generates a little more than 1% of all tax revenue. Furthermore,the tax only affects 0.5% of Americans. Most Americans probably never think of Uncle Sam's majority stake in Granddaddy's estate.
But those affected care a great deal. They potentially face a 55% levy on transferable assets. And a majority of this money has already been taxed in one form or another.
Think of it this way… Warren Buffett, whose net worth is estimated at $52 billion, faces a $28.6 billion dollar bill from the IRS at some point in the not-so-distant future (we note Buffett plans to donate the bulk of his fortune to charitable organizations sans tax). Now, it's pretty well known that Buffett frowns upon the practice of passing great fortunes from one generation to the next. Steel magnate Andrew Carnegie also supported the notion.
President Theodore Roosevelt, cousin to FDR, instigated the whole idea. He argued that the transmission of vast fortunes between generations threatened to create a permanent aristocracy and, moreover, ruined the characters of the undeserving heirs.
He may have a point.
But many of the world's wealthiest families fail to share this sentiment. In fact, they spend great sums of money avoiding "the bill." According to the Joint Economic Committee, "The $23 billion in revenue it raises is illusory, since estate tax avoidance activities likely generate equally large revenue losses under the income tax."
Say what you want. I sometimes tend to wonder if those Americans who ardently support the tax would feel the same way if they were the ones about to cut the $20 million check. Most Americans wince having to cut the $2,000 dollar interest-only mortgage check.
Anyhow…While the 20th century history books exalt the purveyors of active government intervention…names like Atlee, Wilson, Monnet, Roosevelt and Lord John Maynard Keynes, I'm offering you this: the legacy of the other Sir John…Sir John James Cowperthwaite.
Thanks to our Sir John, not all governments profess the noble virtues of massive wealth redistribution. Some governments simply can't afford to. They lack the abundant natural resources to effectively pull off the stunt…they lack the proverbial amber waves of grain that support inefficient, activist government agendas.
Ducking the Estate Tax
Money will always flow where's it's treated best. And I think you'll be hard-pressed to find any other place in the world that treats money better than Hong Kong.
The highest tax bracket doesn't surpass 17%. Individuals are assessed on only annual employment income. Dividends and capital gains are not taxed. And like many progressive tax systems, Hong Kong grants allowances for certain deductions like charitable contributions.
When you consider Hong Kong provides arguably the world's greatest municipal services in a relatively crime-free environment, you'll be challenged to find a more favorable tax policy anywhere in the world.
And in a similar fashion to low personal tax rates, Hong Kong's estate tax holds a maximum rate of 15% on assets exceeding US$1,350,000. So when Li Ka-shing, the world's 10th richest man, looks to pass his $18.8 billion and growing, he'll do so under very favorable circumstances.
And here's the kicker.
Hong Kong recently repealed its inheritance tax on property. Consequently, many Hong Kong property owners (unfortunately, U.S. citizens who own Hong Kong property are still taxed under inheritance laws) are now able to pass down real estate assets without any tax liability whatsoever.
Let me say that again.
Real estate assets may be passed down generations without any tax liability whatsoever.
It's no wonder 21 billionaires call Hong Kong home. And I would venture to guess that it won't be long before many more do the same.
Hong Kong is the land of the rich. And I'm not just talking a few scattered billionaires. One in seven adults living on Hong Kong Island can claim the exclusive title of being a HKD millionaire. In fact, according to a Citibank-commissioned survey reported in the South China Morning Post, Hong Kong millionaires have roughly $4 million ($512,821 USD) in liquid assets, on average. And of those assets, one-third of that amount sits in common low-yielding bank accounts.

Hong Kong will become a tax haven for the new class of super rich. Its skyline competes with Manhattan, its weather is comparable with Miami's, public safety and infrastructure outclass anything you'll see here in the United States. Disney has just moved in across the harbor on Lantau Island, and Macau, the Las Vegas of Asia, is just a 45-minute boat ride away. What's not to love?

Prime locations in Central, Admiralty and Causeway Bay, the heart of Hong Kong, will only continue to command premium prices for years to come.

It's Time to Buy

As we stated in the Aug. 24 weekly alert, Beijing just announced that it would permit mainland Chinese citizens to invest in the Hong Kong stock market. The proposal allows Chinese citizens to open accounts at the Tianjin branch of the Bank of China and then sell renminbi (RMB) and buy Hong Kong dollars without limit for the purpose of buying shares in Hong Kong.
This is probably the most important financial development in China since its entry into the World Trade Organization in 2001.
This policy will release roughly $2.2 trillion in Chinese household savings from the depths of mattresses and low-yielding savings accounts ona path to find better returns. And that path goes in one direction only: Hong Kong.
As we said before, talk about a windfall for the Hong Kong market. As Zhao Xiao, a professor of Beijing's University of Science and Technology, said, "Remember, if all Chinese money can go to Hong Kong, then many global firms will favor listing in Hong Kong."
Countries have no friends, only interests

Beijing's decision to restrict mainland savings to the Hong Kong market should not come as too much of a surprise. This should go a long way in easing speculative pressure on the Shanghai A-share market while simultaneously keeping Chinese wealth with Chinese companies. This is the natural step as Beijing gradually begins releasing capital account control toward the eventual full convertibility of the renminbi.

Some of the world's greatest stocks call the Hong Kong stock exchange home. These multibillion-dollar companies have offices all over the world. Their names may be foreign, but their products and services certainly aren't. These are the companies that bring the "Made in China" label to a Wal-Mart near you. These are the companies that own some of the world's greatest real estate. These are the companies that plan to build the infrastructure that will service more than one-third of the world's population.
And if that weren't enough, most of these stocks currently trade at bargain basement prices. The reasons vary…In many respects, Southeast Asia still carries the "emerging market" risk label. Remember, the region has been forced to hurdle one major setback after another. In addition to Japan's prolonged economic recession, Southeast Asia has faced a crippling financial crisis as well as the 2003 outbreak of severe acute respiratory syndrome (SARS). Each event has been a major drag on Asian economies.

Feeding the World's Next Real Estate Boom

Right now, Asia is building…It's orchestrating a building boom like none other. It's building the essential roads, bridges, tunnels and skyscrapers its economies will require to prosper.
Buying commercial real estate in Asia today is a lot like investing in American real estate at the end of World War II.
You may (should) remember the Levittowns that shot up across the United States over 50 years ago. These carefully planned neighborhoods provided affordable housing for the thousands of young soldiers returning home from the war. But more importantly, these planned neighborhoods served as the new model for America's booming middle-class suburban lifestyle.

The expanding Asian middle class continues creating a similar demand. Except Asian countries aren't peppering the landscape with tree-lined streets and two-and-a-half bedroom, one-and-a half story ranch houses. High-rise apartment complexes are the new Levittowns of Asia.
Asian developers are utilizing this high-rise housing model for one specific reason: Land is scarce. It's very scarce.
Most Asian economies lack the expansive terra firma we in the West find so readily abundant.
Take Singapore, for example…It's roughly 3.5 times the size of Washington, D.C., with an economy greater than New Zealand's and a growth rate double that of the United States.
Land is and always will be the most valuable asset in places like Kuala Lumpur, Shanghai, Tokyo, Taipei, Hong Kong and Singapore. These Asian cities lack the land for urban sprawl we in the U.S. see in places like Chicago, Washington, Houston, Los Angeles, Charlotte and Atlanta.

So when you can't build out, you build up. And that's exactly how these Asian economies are making their magnificent growth possible. And the property development groups will be the ones turning this necessity into a reality.

Question asked on 10/15/2007 at 07:32 AM :: Comments to date: 0

Technology - Far Away Thoughts (10/7/07)

Category: Politics and the Economy

Technology to enable a mind-machine interface. It’s just taken a great leap forward.
This is a new step for the future of a new technology. Just like computers wer started in 1930's but IBM didn't get big untill 1960. Thirty years just to get it profitable.

But a new technology shows the promise of enabling true machine-assisted telepathy. That’s pretty extraordinary in itself.
Scientists at Wadsworth Center have developed a "brain computer interface (BCI).” It can identify brainwave patterns precisely enough to translate them into letters.

Team member Peter Brunner recently demonstrated it at the European Research and Innovation Exhibition in Paris by spelling "B-O-N-J-O-U-R" purely through the power of thought.
Potential beneficiaries include 16 million sufferers of cerebral palsy and five million victims of spinal cord injury. Stroke victims are another group who may benefit.

Eventually, it will allow users to control machinery, such as wheelchairs, via thought, perhaps even ultimately pilot vehicles such as cars.

It takes about 15 seconds to type a single letter (or select a command). Though very slow by normal standards, this represents a major advance for persons such as Stephen Hawking, who are literally prisoners in their own bodies.

The system works by displaying a menu of choices. It highlights each in succession. When a particular brainwave shows heightened attention or interest, it interprets that as a selection.

Over time, the system adapts to the particular brainwaves of the user. Future versions may perform faster.

Already, it is finding practical application. One neurobiologist reportedly uses it to write grant proposals.

Although true instantaneous telepathic communication of thoughts is still years away, we can see the first glimpses in this technology. Meanwhile, I expect licensure of this technology to give a competitive advantage to some wheelchair maker and an innovative manufacturer of consumer products such as electronics.

Question asked on 10/07/2007 at 03:38 AM :: Comments to date: 0

Inflation Troubles Are Just Starting (9/30/07)

Category: Politics and the Economy

The downside of the interest rate reduction is rising inflation. It will take a few months for the problem to show up but it appears to be inevitable. There is simply no way to add billions of dollars to a slow economy and not expect them to have an impact.

One way the rate cut is making inflation worse is by reducing the value of our dollars. Within two days after the Fed's action, the dollar fell sharply against most foreign currencies. The lower purchasing power of the dollar will soon begin to push prices up for nearly all imported goods.

Prices of Chinese imports are likely to go up the most due to that country's rising production costs. Soaring energy and commodity prices are behind most of the increases. Higher labor costs are also having an impact. The bottom line is countless consumer goods are becoming more expensive.

I was looking for a down market but this will give the market one more boost. Then when inflation kicks in the market will fall again like it was in July and August. The market does not like inflation.
Still hang on to your metals stocks because with inflation that is the way to play the commodity market.

Question asked on 09/30/2007 at 06:44 AM :: Comments to date: 0

What's Next (9/29/07)

Category: Politics and the Economy

The dollar reaches new lows. The housing market shows no sign of a bottom. Oil almost touches $84 before backing off. Interest rates go up after the Fed cuts. So naturally the stock market keeps climbing. But then, consumer spending came in strong, employment looks like it may be ok, inflation (at least by one measure) came in below 2%.
This is a quick summary of this past week. Sounds very ominous and confusing. The government tries to tell you there is not much inflation. Try stretching your dollar today. A kid out of Law school today starts at $140,000 to $160,000 on the East and West Coast. If that is inflationary I don't know what is. Oh yeah that loaf of bread for $2.00 and it isn't even a special kind.
Investing is looking at the overall economy and determining where to put your money for the future.
Now there are alot of cliches and sayings out there which are true.
History repeats itself. True but not exactly. So if you study history and look at the causes and the effects of certain happenings you can become familiar with the potentential outcome of events that happen which cause a reaction that affects the market. Very logical and very easy. Right.
The other cliche is "Buy low and sell High". Another very true statement about how to make money in the stock market. On the street they say they don't ring a bell when the market tops or bottoms to tell you when the market turns. But there are a lot of chart patterns that will tell you historically what has happened and you can play those technical indicators. One of the best technical indicators in the chart patterns is the double and triple top.
The Spx and the Dow are setting up for that. So that is the game plan. You are either going to be pro-active or reactive in your trades. Proactive now is to sell your stocks and short the market. This is also imprudent for 99% of all investors, because investing is a long term strategy of methodically building wealth over time due to compounding. Being reactive is selling when the pain is too great and you don't want to lose your investments. Either method is used by everyone other than a long term investor like Warren Buffet. He still owns his Coke stock that he bought in 1955.
So what does this all mean today. This decade is about asset inflation. Invest in long term inflationary assets which are gold and silver now. Do it now before you wish you had a year from now. As I emphasized on the first sentence of todays news, the low dollar, is the cause of the gold in dollars to inflate. Gold and silver will rise in dollars relative to the other currencies due to the weak dollar.
Tired of reading about gold and silver? I just want to let you all make some money.

Question asked on 09/29/2007 at 07:34 AM :: Comments to date: 0

The Worst Of The Credit Crunch May Be Over (9/28/07)

Category: Politics and the Economy

It's too early to break out the party whistles, but it appears the bottom of the liquidity scare has passed. The September 18 reduction in interest rates from 5.25% to 4.75% is already filtering through the economy. The cost of everything from mortgages to credit cards is starting to come down.

Of course, there was never really a shortage of money. What went missing for awhile was the confidence to loan it out. The Fed's rate cut helped as much on that score as it did financially. That's particularly true since Mr. Bernanke let it be known that further cuts will be forthcoming if they are needed.

There is still going to be clean up from the credit crunch but the idea that the Fed is willing to take care of the problem builds confidence in the business leaders.

This will allow them to go forward with plans and spend capital budgets. This will continue to feed the inflation fires.

Question asked on 09/28/2007 at 06:36 AM :: Comments to date: 0

Remember Today (9/11/07)

Category: Politics and the Economy

I only feel it fitting to remember 6 years ago today how the world stood still watching the horror of destruction by the terrorist.
No one new what or why it was happening. The terrorists are committed to destroying our way of life.
It is hard to comprehend why anyone would think that they are not our enenies.
The USA was attacked and thousands of unsuspecting civilians lost their lives.
We must remember this and remember and thank the military for their continued dedication for making our shores safe. Since 9/11/01 the US has not been attacked due to our security efforts, commanded by the President of the USA, George Bush.
He is a very unpopular President due to the war. He still has no choice but to continue the on going battle.
It won't matter which President comes to power the threat of terrorism will always try to destroy our way of life.
God Bless America and all who defend it.

Question asked on 09/11/2007 at 08:21 AM :: Comments to date: 0

The China Syndrome (8/26/07)

Category: Politics and the Economy

You get what you pay for.
What a true saying. China has always been cheap.
They can produce cheap. They have come a long ways but the backlash for recalls will be painful for them and a bonus for American industries.
An article in a New England paper listed all the recalls of products made in China and then they interviewed a number of people who said that they now scan the box for each product to see if it was made in China. They refuse to buy it then. One US toy manufacturer says that they are swamped with orders. I believe this is going to be a growing trend for awhile.
Starting with affluent consumers the story will be buy American.
The next decade will not belong to China after all. It will belong to a resurgent and strong America.
Wall Street will eventually catch up with this reality and then you should be into the large cap American stocks.

Question asked on 08/26/2007 at 04:44 AM :: Comments to date: 0

What is going to happen? (8/24/07)

Category: Politics and the Economy

Donald Trump went on TV and warned that we may be heading into something worse than a recession unless Fed Chairman Bernanke cuts interest rates very deeply. The impression Trump left was that he wants Greenspan back.
That, of course will not happen. Bernanke has dealt with this by cutting the rates 1/2% which is a big cut.
Bernanke will deal with the situation in a responsible manner.

The economy will stagger a bit, then stablilize, then grow again. This process will take about 1 year.

The population of 21 to 28 is growing and these are the people that will start to buy the houses and bring this real estate slump back out of the doldrums. They will be the people that will spend more as the baby boomers go into retirement.
So for the long term don't panic.

Question asked on 08/24/2007 at 04:27 AM :: Comments to date: 0

Subprime Worries (8/14/07)

Category: Politics and the Economy

The following is an article about what the fed did back in 1998 when there was another crisis in the credit market.

How will the Fed address the looming liquidity crisis stemming from the subprime debacle primarily, and from the abused Yen carry-trade, lax lending practices, and excess liquidity, generally? Asha Bangalore, Vice President and Economist at the Northern Trust Company, believes that given the actions taken by the European and Japanese banks in response to credit and liquidity concerns in the markets by an infusion of €200 Billion, and ¥600 Billion, respectively, the Fed will also take the customary action of cutting interest rates to assuage the market at the October 30-31 Fed meeting.

There have been two major events during the week -- the FOMC meeting and the global liquidity crisis. Starting with the FOMC meeting, the Fed left the federal funds rate unchanged at 5.25% on August 7 as expected. The policy statement acknowledged the turmoil in credit markets but abstained from hints about the next move. The FOMC continued to present inflation as the predominant risk but at the same time noted that "downside risks of economic growth" have risen. Our most likely scenario with regard to the federal funds rate has not changed. We continue to predict that the next move is a lower federal funds rate at the October 30-31 FOMC meeting. Incoming economic data such as the July employment report, declining auto sales, and soft consumer spending are early signs of weakening economic conditions. Economic conditions per se have not deteriorated substantially to bring about an emergency action from the Fed but there is a small chance the global liquidity crisis will translate into an emergency federal funds rate cut.

Moving on to the global liquidity crisis, central banks have taken appropriate action to provide liquidity to financial markets in the last two days of this week. The wide reach of the subprime mortgage turmoil in the U.S. was visible on August 9 when three hedge funds of a French bank had problems and triggered a liquidity crisis. The European Central Bank put out this small fire by providing funding of over $200 billion to ensure adequate liquidity in the financial system and it issued a formal announcement indicating that it stands by to provide funding at the current policy rate. The Federal Reserve's participation was comparatively small on August 9 and it made a formal announcement on August 10 noting that it stands willing to provide funds through its discount window.
Historically, the Fed has lowered the federal funds rate for economic-growth reasons and to manage financial market crises, which could spillover into economic activity. The 1998 Long Term Capital Management bail out is the most recent crisis when the Fed lowered the federal funds rate to prevent instability in global financial markets. At this time, credit spreads widened sharply. The yield spread between junk bonds and the 10-year U.S. Treasury note shot up around 200bps in a short span.
This credit spread rose from 469 basis points in the last week of August 1998 to 661 basis points in the week ended October 16. The Fed lowered the federal funds rate 25 bps to 5.25% on September 29, 1998 at the regularly scheduled FOMC meeting citing that "the action was taken to cushion the effects on prospective economic growth in the United States of increasing weakness in foreign economies and of less accommodative financial conditions domestically." The Fed cut the federal funds rate once again on October 15, 1998, an unscheduled event, to 5.00% indicating that "growing caution by lenders and unsettled conditions in financial markets more generally are likely to be restraining aggregate demand in the future. Against this backdrop, further easing of the stance of monetary policy was judged to be warranted to sustain economic growth in the context of contained inflation." The Fed eased monetary policy conditions once more by cutting the federal funds rate another 25 bps cut to 4.75% at a scheduled FOMC meeting on November 17, 1998. The FOMC statement after this rate cut read as follows: "Although conditions in financial markets have settled down materially since mid-October, unusual strains remain. With the 75 basis point decline in the federal funds rate since September, financial conditions can reasonably be expected to be consistent with fostering sustained economic expansion while keeping inflationary pressures subdued." Following the 75 bps cut in the federal funds rate, the Fed held the funds rate unchanged until June 30, 1999, when it raised the federal funds rate to 5.00%. Of importance to note at this juncture is that the economy was growing at a robust clip with no imminent threat to economic growth.

Fast forwarding to the present time, credit market spreads have widened in the past few days. The yield spread between junk bonds and the 10-year U.S. Treasury note has risen from 326 bps on July 10 to 403 bps on August 8. There is a liquidity problem at hand that central banks are addressing in an appropriate manner.

However, there is a major difference in the economic situation in 2007 compared with 1998. The economy has grown below potential for four quarters with temporary factors providing a boost to economic growth in the second quarter of 2007. We expect the economy to grow at a 1-1/2% pace in the second half of 2007. The market consensus is for slowing economic conditions in the rest of 2007 compared with a 3.4% increase in the second quarter. In addition, households are financially strapped to maintain consumer spending, early signs of which were seen in the anemic 1.3% annualized increase in consumer spending in the second quarter. The housing market recovery is not visible on the horizon and business capital spending is unlikely to add significantly to GDP. This leaves government spending and exports to offset weakness in the other sectors. Economic growth in the rest of the major economies is impressive but their respective central banks are tightening, which is not supportive of strong growth in exports of the U.S. economy. In other words, betting even for a moderate expansion in business activity in the U.S. is far fetched.
Considering the difference in economic circumstances in 2007 and 1998, the Fed is in a tough spot to maintain economic growth at the current federal funds rate.
The Fed response, whatever it may be, will be indicative of how Bernanke and company view their role. Will we get a Bernanke put or a return to a more orderly business cycle without the encouragement to constantly take on more risk, knowing the Fed will come to the rescue if there is a problem. Stay tuned.

Question asked on 08/14/2007 at 07:40 AM :: Comments to date: 1

Bankruptcies are Going to Hit (8/12/07)

Category: Politics and the Economy

According to Robert Sheehan, the managing partner of the law firm of Skadden, Arps, Slate, Meagher & Flom, there is a tsunami coming in the bankruptcy arena. Mr. Sheehan made his comment before the recent stock market gyrations of the past couple of weeks, but he was merely looking ahead to what he, apparently, views, in his legal opinion, as the inevitable outcome of what has been going on in the U.S. economy these past several years.

The New York Times article to which I am referring profiled an attorney named Richard Levin, who practices primarily in the field of bankruptcy law. Among his other accomplishments, Mr. Levin served from 1975-1978 as counsel to the U.S. House Judiciary Committee, where he helped to draft much of the present U.S. Bankruptcy Code. Mr. Levin has had a distinguished career in the bankruptcy field and was recently hired away from his previous law firm, Skadden Arps, where he had been a partner for a decade, to join the old-line New York firm of Cravath, Swaine & Moore. This is symbolic, if not significant, for reasons we will discuss below.

The Ultimate Go-to Firm

In a profile published on July 25, 2007, the authoritative Dow Jones’ Daily Bankruptcy Review described Cravath as “the ultimate go-to firm,” and further noted that Cravath “has perhaps the most demanding hiring standards” of any New York law firm. So it says something loud and clear that Cravath is hiring the guy who literally “wrote the book” for modern bankruptcy practice in the U.S., to include drafting the 1978 amendments to the U.S. Bankruptcy Code. Combine this with the fact that Cravath previously had no significant bankruptcy practice in recent decades (actually, Cravath reorganized Westinghouse after the Panic of 1907 and assisted with many railway reorganizations over the past century), although many of its fine attorneys have appeared often in the bankruptcy courts of many federal and foreign venues and jurisdictions. But it is fair to say that Cravath was not known lately as a “bankruptcy firm” in any respect. Rather, Cravath focused much of its large-caliber legal effort on what is called “transactional” work, such as putting together large merger and acquisition deals, or dealing with matters before the U.S. Securities and Exchange Commission (SEC) and similar foreign entities. The blue chip client list of the white-shoe Cravath law firm includes such powerhouse organizations as IBM, Xerox, Merck, Novartis, the board of directors of TXU, Credit Suisse and the Carlyle Group.

A Continental Shift

The New York Times article noted that “Cravath’s move, in the words of one bankruptcy lawyer in New York, was ‘a continental shift,’ a recognition by an old-line firm, however belatedly, that bankruptcy had moved beyond the days when it was the purview of collection lawyers chasing debtors to the courthouse.” Having practiced a good deal of bankruptcy law in my misspent youth, I take exception to that last characterization. Bankruptcy law is far more complex than just “chasing debtors to the courthouse.” Still, the point is that within the past decade, many law firms like Cravath did not offer bankruptcy services to their clients. (There are lots of client-conflict issues, among other reasons.) Top-line firms likely would have referred the bankruptcy work out to other firms.

But things change. Bankruptcy has become a serious, and certainly respectable, form of law practice now, and can be a large moneymaking part of a major law firm. For large-scope bankruptcy cases, billing rates at some law firms are in the realm of $750 (and more) per hour of attorney time. Yes, that is quite pricey. And the bankruptcy judges seem to approve the fees, too. So let’s put 2 and 2 together. Large mainline, white-shoe law firms are building up their bankruptcy practices because they expect a lot of that kind of “debtor-chasing” business to come through the doors in the near future and pay out big fees. And what else does the future hold?

Loaded up With Debt

First, let’s catch up to the present. During the past few years, there has been a major change in corporate reorganizations. Prompted by the availability of easy -- if not cheap -- credit, many companies have loaded themselves up with debt. The debt was used for everything from making acquisitions and alliances to paying bonuses to managers to buying back stock options and outstanding shares. (On rare occasions, U.S. firms even use the borrowed money to build a new plant or factory, or to buy new equipment. Really, it has been known to happen.) At many business schools, they refer to this process of financial decapitalization as “the discipline of debt.” (And no, we won’t go there just now.)

Much of this new debt was then repackaged by the loan underwriters into other forms of financial instruments and flipped, sold and resold down the line to a myriad of buyers who may or may not have understood the nature of the risks they were assuming. There are few ironclad guarantees in this world, but I can almost surely guarantee you that when the loans go bad and the time comes to litigate over who is not getting repaid, the jilted creditors will deny up and down at depositions that they understood the nature of the risks. The creditors will claim, with straight faces, that they were lied to, misled, defrauded. Don’t believe me? Want to bet?

Enter the God of Insolvency

As with many things in life, it is nice when all goes well. But then again, things do not always go well. So when the god of insolvency enters upon the stage and drops his thunderbolts upon these deeply indebted firms and they “breach a material covenant,” as the saying goes, they often wind up attempting a financial workout or visiting the clerk’s office of a U.S. bankruptcy court to file their petition and the utterly critical first day motions. And just so you know, filing for bankruptcy is not something that you do when you have “no money.” It actually requires quite a bit of money for a business corporation to operate successfully in bankruptcy. Thus, strange as it seems, it helps to file for bankruptcy with money in the bank and receivables coming in (called “cash collateral”), or at least some sort of backup lender who is bold enough and willing to fund your operations after the bankruptcy petition is filed.

Welcome to the Future

So welcome to the future, where the smartest of the smart law firm money is betting that many more business firms will be visiting the bankruptcy courts of the land. This is why the big law firms are beefing up their bankruptcy rosters. This is part of the takeaway point for this week’s update. But how do these law firms think that they will get paid?

In many ways, hedge funds and private equity firms have turned the corporate bankruptcy process into another form of return-driven market. Among other things, these cash-rich entities have come to view the bankruptcy process as a marketplace for assets they can purchase at distressed prices, although many of the higher-quality assets have tended to command premium prices in bankruptcy sales of recent vintage. For this reason alone (and there are others), the presence of hedge funds and private equity firms has significantly transformed the process of bankruptcy. They have brought new money to the table, and deep pockets.

But in a world where you have debtors in possession of bankrupt corporations, and creditors getting stiffed up and down the line, and lawyers and related professionals charging large fees, and deep-pocketed buyers waiting at the fringes to buy assets or participate in recovery plans, you will have many new and previously unexplored legal issues. Professor Douglas Baird of the University of Chicago Law School recently noted that “We are about to go into a period of bankruptcy history where there are going to be lots and lots and lots of really unclear issues.”

Lots and Lots and Lots

Note that Chicago’s professor Baird said there will be “lots and lots and lots” of those “really unclear issues.” That sounds to me like a lot of unclear issues, and a lot of headaches for people who are standing too close to the coming bankruptcy tsunami. And that is why you, as investors should stay away from indebted companies with poor cash flow. That is why we have companies like Goldcorp (GG: NYSE), with no debt. I like well-managed companies with real assets in hand, such as ore in the ground or oil and gas reserves, or companies that make real things in real plants and factories. And I like to see little or no debt, certainly in this economic environment.

Finally on this topic, I hope that none of you ever has to see the inside of a bankruptcy court. The big bankruptcies are raw and brutal, and proceed in a meat-grinding sort of way. It reminds me of the case of Jarndyce v. Jarndyce, if you have ever read Charles Dickens’ great book Bleak House . Don’t go there if you don’t have to.

Question asked on 08/12/2007 at 06:18 AM :: Comments to date: 0

Inflation Thesis (8/8/07)

Category: Politics and the Economy

(Wallich was no latecomer to this view. He served on President Eisenhower’s Council of Economic Advisers. After stepping down, and having seen a stream of opportunist Ivy League economics professors convince Washington that economic “growth” was America’s patriotic duty, Wallich wrote a short book. The Cost of Freedom recognized growth as a very good thing, but not when government boosts the growth. Such a “forced draft economy” compromises individual freedom.)

Authoritarianism can be invisible. The government’s employment of the substitution effect in the consumer price index is an affront to the people it represents. The clandestine nature of such maneuvers should not be overstated. The unread Boskin Commission Report makes its methodology clear: “Pork and beef are two separate CPI item categories. If the price of pork increases while the price of beef does not, consumers might shift away from pork to beef. The [CPI] is designed to account for this type of consumer substitution between CPI item categories."

The American people have been forewarned of this duplicity. Yet it is still impossible for a nongovernment employee to calculate the effect of substitution. The Bureau of Labor Statistics does not reveal which items are jettisoned. For all we know, the government may be substituting peanut butter cups for pork. In a tangential sense, it already is. The biggest single cost in raising a pig for slaughter is feed. Corn, part of the traditional meal, is too expensive. According to The Wall Street Journal , pigs now feast on a diet of trail mix, licorice, peanut butter cups, cheese curls, Cocoa Puffs, and Tater Tots.

Such substitutions as beef for pork are crystal clear compared with another Boskin Commission CPI-shrinking maneuver: “Just as consumers change the goods they purchase in response to changes in relative prices, as in the beef and [pork] example, so do they change the location where they make their purchases. The opening of a new discount store outlet may give consumers the opportunity to purchase at a lower price than before.” The consumer may -- and certainly does, in the government’s calculation -- choose to drive an extra 10 miles to save 30 cents for a gallon of milk (this lower price no doubt programmed into the CPI), but the time wasted is not an explicit cost. Nor the cost of gas.

The diminishing dignity of the American people cannot be calculated. Kathleen Parker wrote in the Chicago Tribune about call center hell (not her description). She spoke to someone in India “named Kapil pretending to be Karen…Anglicizing names is one of the tricks of the trade these days as more and more customer services are outsourced to other countries.” History may not repeat, but Parker describes what Wallich observed in the 1920s and the 1970s. Once again, the strong are smart enough to understand that inflation “introduces an element of deceit into most of our economic dealings.” Contracts are no longer made to “be kept in terms of constant values” but one party understands this better than the other. Here is a concrete example of Wallich’s abstract description of monetary inflation as an “unpredictably shifting [measure] of weight, time or space…”

Parker goes on: “The corporate insult of hiring foreigners is compounded by the pandering of passive-aggressive non-Americans. Between robots and foreign operators -- and the powerlessness most consumers feel -- American business has robbed its citizen-customers of their dignity.” Hopelessness also demeans the shopper who stares at the butcher’s counter in despair -- personal character wobbles from constant disorientation, but the government is here to help.

The companies employing Indian call centers cannot be wholly faulted: Costs have soared. There seems to be a common impression that “offshoring” is a recent phenomenon. Yet the corporate flight has been a nonstop, one-way transfer since the gold standard entered its death throes. (Readers may decide whether this is coincidental or not.) By 1969, many wage settlements called for 30-35% increases over a three-year contract period. As dollar devaluation whipped into high gear, Time magazine reported: “Manufacturers decided long ago to serve foreign markets by building plants overseas, rather than by exporting. The multinational corporations will profit from devaluation.” From manufacturers to call centers -- and now security analysts in India make buy-and-sell recommendations for Wall Street firms -- first, blue-collar workers fell behind. Then, the middle class gasped for breath. Now, the money class is suffering. The team from Gavekal -- they of the acclaimed platform company -- noted, “It has never been so expensive to be rich.” Costs for the rich have been “bid up to astronomical prices.” This is their Brave New World.

The current debate about the rising divide between the rich and poor may be an argument whose time has passed. Maybe a forward-looking presidential candidate could upstage the competition by asking: “Are we all getting poorer together?”

“Lenin was certainly right,” affirmed John Maynard Keynes. “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

The invisible costs of inflation may be more ruinous than prices we can read at the butcher’s shop.

Question asked on 08/08/2007 at 06:16 AM :: Comments to date: 0

Inflation Thesis (8/7/07)

Category: Politics and the Economy

Inflating the Substitution Effect
Inflation is reported -- and thought of -- as the percentage increase in prices or the declining value of money. This is visible. But it is only one side of the story. What follows is an exploration of inflation without reference to prices.

On June 28, 1978, Federal Reserve Governor Henry C. Wallich addressed the graduating class at Fordham Graduate School of Business in New York. Inflation was on everyone’s mind and Wallich was forthcoming. “Inflation,” he informed the young and idealistic graduates, “is a means by which the strong can more effectively exploit the weak. The strategically positioned and well-organized can gain at the expense of the unorganized and the aged.”

How is this so? Wallich explained inflation, “is technically an economic problem. I mean the breakdown in our standards of measuring economic values, as a consequence of inflation.” The strong are smart enough to understand that inflation “introduces an element of deceit into most of our economic dealings.” Contracts are no longer made to “be kept in terms of constant values,” but one party understands this better than the other. Contracts during a period of inflation are made with monetary terms “unpredictably shifting measures of weight, time or space…”

General Mills understands this. The maker of Wheaties and Lucky Charms has passed on the rising cost of grains without raising retail prices. It tried to increase prices in early 2005, and sales of some cereals fell by 5%. This time around, it is attempting if not a deceitful maneuver, one that is clever. According to the Minneapolis StarTribune.com: “Customers will actually see lower prices per box, but the boxes will be smaller, so the effect is a price increase of a few percent.” The price increase is murky, but evident.
Wallich grew up in Germany and survived the 1923 hyperinflation (excellent training for any central banker). In his adopted country, Wallich watched the deterioration of product quality during the inflationary 1970s. A 1966 Lou Harris Poll found that 75% of respondents thought American goods were of “good” or “excellent” quality. By 1971, this had fallen to 47%. In 1977, 27% would not buy the products they made. And so it is today. In May, The New York Times submitted a pier-front report from Madeira Beach, Fla., the “grouper capital of the world.” Its reporter found that “seven of 24 [restaurants] were passing off cheaper imported fish -- tilapia…hake…painted sweetlips [and other fish with names too gruesome to mention] -- as grouper.”

Fishing restrictions are one problem, but more so are higher fuel costs and condominium development that is “taking over the waterfront.” Here we find the nexus of higher energy costs, cheap money, bad food, and exploitation. Since unlimited credit gave every Florida fisherman the wherewithal to buy a waterfront condo, there is no place to moor a boat. This is not just a local problem. The Holbrook Community Foundation in Harpswell, Maine, is raising money to save Holbrook’s Wharf, a fishing pier for decades. The foundation was “fearful the property would be sold and converted to what locals call a ‘McMansion.’” This is not an idle fear. The Portland Press Herald reports: “Just 20 miles of Maine’s 5,300-mile coastline is classified as ‘working waterfront,’ and much of that is vulnerable to development that could limit access further.” From personal observation, poorly constructed condominium projects have replaced former Maine fishing villages that fade from memory.

Wallich warned that inflation substitutes government for liberty: “Inflation becomes a means of exploiting labor’s money illusion.” Among the winners, from the mouth of this public servant, is government. “It allows the politician to make promises that cannot be met in real terms, because, as the government overspends trying to keep those promises, the value of the benefits it delivers shrinks.” This creates a “diminishing ability of households to provide privately for their future…One may indeed ask whether it is not an essential attribute of a civilized society to be able to make that kind of provision for the future.” Wallich went on to emphasize that “the increasing uncertainty in providing privately for the future pushes people who are seeking security toward the government.” So we have the public panic concerning Social Security and health insurance today.

Wallich continued. Inflation “creates a vacuum in the private sector into which the government moves.” Today, the tendency is to expect government to solve the health insurance dilemma. Yet the visible effect of greater government involvement in health care has been higher costs and a suffocating bureaucracy of paperwork. The Federal Reserve governor worried that the consequences of inflation would be “a shift also in the third dimension, away from democracy and toward authoritarianism.” Wallich’s question was more than theoretical. The German, post-World War I hyperinflation wiped out the middle class, the consequences of which were not Arcadian.

Continued Tomorrow.

Question asked on 08/07/2007 at 06:14 AM :: Comments to date: 0

The Trade Deficit (8/2/07)

Category: Politics and the Economy

A quick chat about trade deficits seems timely. Starting with the notion that they are inflationary, right?

Well, technically, they don't have to be. That's because, in the absence of government intervention, all a trade deficit should mean is that the people of one country are willing to trade their money for something on offer by the people of another country.

In the 1800s, the U.S. ran big deficits and did quite well because our country was full of opportunity and promise, so foreigners invested here, more than we invested there.

The problem comes when a government, say China, steps into the picture and deliberately suppresses its currency to attract businesses to certain sectors of its economy--for instance, city dwellers. That causes an aberration, the result being a lot of U.S. dollars shipping out to China in exchange for all manner of consumer goods... dollars that the Chinese have then turned around and invested in U.S. Treasuries.

It's All Political... and Politics Are Fickle

The massive deficits with China are unstable because, rather than being the result of open trade, they are based largely on political decisions made by a handful of people in the Chinese government. In time, those people--or their successors--may decide that there is more advantage to spending the dollars. Or they will be forced to do it. Say, to appease other segments of the economy now penalized by the higher cost of foreign goods. Or they might have to spend the dollars to pay the cost of a war or to bail the country out of a financial crisis.

Regardless of the reason, at some point the political advantage of spending those dollars, rather than hoarding them--which the Japanese did to their detriment in recent decades--will reach a tipping point after which those greenbacks will come flooding back to the market, devastating the value of the dollar on foreign exchange markets.

The dollar has already, since 2002, lost about 26% of its value. Of course, a good deal of the pain that depreciation has caused to the wallets of foreigners has been offset by the interest they earned on their Treasuries. But treading water is one thing, and standing by while your pile of cash starts to go up in the flames of a monetary crisis is another.

Viewed from another angle, over time it isn't the trade deficit that is inflationary. Rather, the trade deficit is effectively a subsidy provided to the U.S. by China ... a subsidy that comes from the Chinese having used the river of dollars provided by U.S. consumers to buy the unbacked paper of the U.S. government. That has allowed U.S. interest rates to remain artificially low and forestalled inflation in the U.S. It is as if China is building up a big bank of inflation points. Sooner or later, they are going to spend those inflation points.

Make no mistake, we are in uncharted water; it is unprecedented that the claims represented by the fiat currency of one government--that of the U.S.--have been accumulated in such massive quantities for the reserves of other governments. And we're not just talking China but virtually the world. And the world is getting nervous.

To quote Thai Finance Minister Chalongphob Sussangkarn in his recent address to the annual meeting of the Asian Development Bank in Kyoto:

"Should the financial markets lose confidence in the U.S. dollar, huge capital outflows from the U.S. could lead to a rapid depreciation of the U.S. dollar, and thus dramatic appreciation of other currencies."
The whole matter of trade deficits is, unfortunately for investors not paying attention, just one of far too many aerosol cans now roasting in the fire. When they start exploding, you'll want to be safely hiding behind a wall of gold and silver.

In the final analysis, every day gold goes up and gold goes down, with the movements based on any number of inputs. To avoid being panicked one way or the other, a long-term perspective is required to see these fluctuations in their proper perspective. And, despite all the jagged fits and starts these past few years, and all the nay saying along the way, three years ago, gold was trading for $393 an ounce... 40% lower than it is today.

And the better gold shares have offered exponentially higher returns than that.

While now is the time to begin accumulating your gold and gold share positions--if you have not already started doing so--how will you know when things are about to get really "interesting"? The observation that it is not when the trade deficit is rising that you should be concerned, but when it starts to contract... because that is a sign that the flood of greenbacks is starting to return home.

Question asked on 08/02/2007 at 06:40 AM :: Comments to date: 0

Predictions are just that. (8/1/07)

Category: Life

Nassim Taleb's new book, The Black Swan is a remarkable work and suggest that any serious student of the market read this book.

A few thoughts on this book follow.

"The inability to predict outliers implies the inability to predict the course of history, given the share of these events in the dynamics of events."

"But we act as though we are able to predict historical events, or, even worse, as if we are able to change the course of history. We produce thirty-year projections of social security deficits and oil prices without realizing that we cannot even predict these for next summer - our cumulative prediction errors for political and economic events are so monstrous that every time I look at the empirical record I have to pinch myself to verify that I am not dreaming. What is surprising is not the magnitude of our forecasts errors, but our absence of awareness of it. This is all the more worrisome when we engage in deadly conflicts: wars are fundamentally unpredictable (and we do not know it). Owing to this misunderstanding of the casual chains between policy and actions, we can easily trigger Black Swans thanks to aggressive ignorance-like a child playing with a chemistry kit.

"...To summarize: in this (personal) essay, I stick my neck out and make a claim, against many of our habits of thought, that our world is dominated by the extreme, the unknown, and the very improbable (improbable according our current knowledge) - and all the while we spend our time engaged in small talk, focusing on the known, and the repeated. This implies the need to use the extreme event as a starting point and not treat it as an exception to be pushed under the rug. I also make the bolder (and more annoying) claim that in spite of our progress and growth, the future will be increasingly less predictable, while both human nature and social "science" seem to conspire to hide the idea from us."

So, the above quotes will help put the later predictions into context. By definition, we cannot know the future. Yet we go through the exercise. And even though we should know that we will probably be wrong, there is a value on the process if done with the proper amount of cautious optimism tempered by reality.

I think about the future not just to look for opportunities to invest but primarily as a thought process to assess wherein lies the risk. The first task of an investor is to manage risk and only then to seek attractive returns. We make predictions about the future so as to think about risk and to seek places for opportunity. And then every so often, we re-assess our predictions in the light of new information and adjust our risk controls and objectives.

So as you read my predictions they are nothing but a gathering of historical data analyzing the data for a best fit scenario for historical repeatability. This is known as experience with knowledge.
Therefore with knowledge you use it for the experience and with experience you gain wisdom about all that you been through. The more you read and learn about other peoples experiences the better you can make judgements about what to do.

My favorite Quote is ;

"That which has been is that which will be. And that which had been done is that which will be done. So there is nothing new under the sun...." Solomon.

Question asked on 08/01/2007 at 06:56 AM :: Comments to date: 0

The Newest Old Idea in Energy- Geothermal (7/22/07)

Category: Politics and the Economy

There is one ancient technology that could provide clean, renewable energy for the planet’s 6.6 billion people.

Geothermal energy has been used for centuries. It helped provide the Vikings with heat and hot water when they settled in Iceland, and it is still a widely used energy source. Geothermal energy produces more than 25% of the power in Iceland, and is used to heat a majority of the homes in the Scandinavian nation.

But that’s in Iceland. For the rest of the world, it will take a little innovation. A 2006 report issued by the Massachusetts Institute of Technology claims that it would be possible to affordably generate 100 gigawatts of electricity or more by 2050 with a $1 billion investment. But it will take a technological boost to make this possible.

For the rest of the world where volcanic activity is minimal, there are two options to extract steam from the earth: water pumping and drilling. Water mixed with chemicals can be pumped into the ground to enlarge the natural cracks and passageways, creating big enough steamholes to effectively run large turbines.

Then there’s drilling. Thanks in part to our never-ending quest for oil, drillers have developed the equipment and techniques to drill farther into the Earth’s crust than ever before.

If we can tap into the deep geothermal wells all over the world, the result will be clean, cheap, reliable power. And that’s an old technology we can live with.

California’s New Energy Boom

Meanwhile, a little closer to home… The state of California and electricity love to make headlines together. It seems there’s never enough juice to go around on the West Coast. But all of this could soon change, thanks to a renewed interest in an efficient, green energy source.

Geothermal energy accounts for about 9,300 megawatts of the world’s electricity. That adds up to 60 million people in 24 countries who are getting their power from the Earth’s heat.

In the United States, more than 2,800 megawatts of electricity from geothermal plants supplies four million people in Alaska, California, Hawaii, Nevada and Utah. Six percent of California’s power comes from geothermal sources, where 15 new projects are under development.

Progressive, nuclear-free California is the perfect place for geothermal expansion. The state of California will require 20% of electricity sales to come from renewable resources by 2010. In 2006, 15% of all electricity used in California came from geothermal, wind, solar and small hydro.

On top of this, The Geysers in Northern California is the largest geothermal development in the world. And there’s one small company that’s paving the way for geothermal expansion.

You may be familiar with Calpine Corp. (CPNLQ: OTC BB). Calpine became the world’s biggest geothermal power provider in the late 1990s after completing the largest IPO ever for an independent energy provider in 1996.

This alternative energy star declared bankruptcy in 2005 and was eventually de-listed from the NYSE. And as this former giant rebuilds the competition is lining up to take Calpine's place. These companies are all start up companies and are too risky to make an investment in yet because they would go bankrupt if oil drops to $50 a barrel over a long period of time. You say how will that happen? Oil is now $76 a barrel.

Well remember oil was $10 a barrel in 2000. It was $36 a barrel in the late 70"s. It was $3.00 a barrel in the early 70's.

Question asked on 07/22/2007 at 07:33 AM :: Comments to date: 0

Middle East Update (6/19/07)

Category: Politics and the Economy

We haven't had too much in the news from the Middle East. The media must be getting bored of the constant grind. It is too everyday now. Once in a while there is a small outbreak that would have made alot of news. But the same old problems are festering and the factions are regrouping to make their move for power when the US Presidential elections start up in full force.
The following is from a summary in a British newspaper.

Fighting between Hamas and Fatah, the Palestinian National Authority's two dominant factions, has culminated with Hamas gaining control of the Gaza Strip. Fatah and Hamas, along with Israel, have strategic goals they will work to achieve in the days ahead.
The latest bout of intra-Palestinian fighting culminated June 15 in the Gaza Strip, where at least 200 Fatah police fled, the Egyptian diplomatic mission was evacuated, and Hamas forces gained de facto full security control.

Hamas and Fatah, the two dominant factions within the Palestinian National Authority, have been struggling for supremacy for years. Hamas is the newcomer, having been an Islamist militant organization that gradually eased into political life; it managed to take control of the government in elections in early 2006. Fatah, formed by the late Yasser Arafat, is the more established and secular of the two factions. Hamas has always been stronger in Gaza -- and Fatah stronger in the West Bank -- and now Hamas' control over Gaza is complete.

The political strategies and organizational quirks of all of the players in this drama are as complex as they are convoluted, but luckily, there are some clear points available for digestion. The three major players -- Hamas, Fatah, and Israel -- have their own sets of very clear strategic goals they will be working to achieve in the days ahead that will shape the political future of the southern Levant for years.

Hamas needs to achieve undeniable control over the Gaza Strip, which means a full purge of all Fatah security personnel -- and, by extension, a full seizure of control over all Palestinian facilities in the Gaza, particularly the security facilities. Fatah has long frustrated Hamas by using its presidential authority -- Fatah controls the presidency, Hamas the government -- to insert its own senior security personnel into the Hamas-dominated government. Hamas feels that once Fatah security personnel are removed from the Gaza Strip, the legitimacy and power of Hamas' military arm will be ensured and the faction can then choose whether it wants to follow a diplomatic or militant path. But first, Hamas must have unassailable control of its own domain.
Hamas must then establish independent lines of economic support. Neither the European Union nor the United States (much less Israel) will send a dime of financial support to a Hamas-run Gaza Strip seized by force of arms. Since Gaza is, in essence, a refugee camp with little to no local economy, Hamas must canvass the Islamic world for the state equivalent of welfare payments. The No. 1 donor will almost certainly be Iran.

Finally, Hamas must attempt to bolster its position -- both among the Palestinians and the international community -- but assert its influence beyond Gaza. That means it will try to seize control of a portion of the West Bank as well. It obviously is a difficult task, since the West Bank is Fatah's stronghold, but it is the next logical step if Hamas is to leverage its recent successes.

Fatah's game plan is much simpler. It will, of course, resist Hamas' final march to full victory in Gaza, but it knows that it's fighting a rear guard -- and ultimately futile -- battle. Any Hamas attempts to extend influence in the West Bank will, of course, be fought tooth and nail.

But Fatah will focus its efforts on the negotiating table. Every dollar sent to or statement of support for Hamas critically damages Fatah's domestic and international legitimacy, so Fatah must do everything possible to garner all international support for itself. This should not prove overly difficult; most Western states already oppose all things Hamas, and the end of the Hamas government should send a surge of long-delayed funding Fatah's way. The (perhaps impossible) trick will be convincing countries such as Saudi Arabia and Iran that supporting Hamas is not in their interest.

Finally, there is Israel, which is thrilled to see the Palestinians fighting each other. After a bit of quiet celebration, the issue will be how to reinforce this new division by working with Fatah and Hamas.

Parallel efforts with Fatah will begin by seeking full political and financial isolation of Hamas and the Gaza Strip. If that can be achieved, the next step will be to seal Gaza off behind a barrier bearing a striking resemblance to the one that once graced Berlin. Any such barrier cannot be airtight because of the Gaza coastline, but security can be ratcheted up considerably.

But there is more in this development for Israel than killing the idea of a single Palestinian state; there also is the opportunity to fracture the Palestinians even further. The Israeli settlement and separation wall programs have aimed to fracture the West Bank into a half-dozen noncontiguous pieces in order to inhibit the creation of a unified Palestinian polity and economy.

All of these enclaves are Fatah-dominated, but if Hamas were to challenge Fatah's control in just one of them, Fatah's power in the West Bank -- and, with it, its international stature -- would at the very least be humiliatingly cracked. For Israel -- which controls the highways and byways connecting all of the West Bank enclaves -- that outcome is attractive enough to warrant some blind-eye-turning for Hamas' upcoming West Bank activities. The trick, of course, would be to make sure that any Hamas progress in the West Bank does not actually end with Hamas control. Israel would like to stir the pot and weaken Fatah and Hamas both, not empower Hamas with a West Bank enclave that could be used as a springboard for launching attacks into Israel proper.

Question asked on 06/19/2007 at 07:52 AM :: Comments to date: 0

Political Humor (5/29/07)

Category: Politics and the Economy

The Ant and Grasshopper Story

*OLD VERSION*:

MORAL OF THE STORY: Be responsible for yourself!
************************************************************

*MODERN VERSION:*

The ant works hard in the withering heat all summer long, building his house and laying up supplies for the winter.
The grasshopper thinks the ant is a fool and laughs and dances and plays the summer away.
Come winter, the shivering grasshopper calls a press conference and demands to know why the ant should be warm and well fed while others are cold and starving.
CBS, NBC, PBS, CNN, and ABC show up to provide pictures of the shivering grasshopper next to a video of the ant in his comfortable home with a table filled with food. America is stunned by the sharp contrast.
How can this be, that! In a country of such wealth, this poor grasshopper is allowed to suffer so?
Kermit the Frog appears on Oprah with the grasshopper, and everybody cries when they sing, 'It's Not Easy Being Green.'
Jesse Jackson stages a demonstration in front of the ant's house where the news stations film the group singing, 'We shall overcome.' Jesse then has the group kneel down to pray to God for the grasshopper's sake.
Nancy Pelosi & John Kerry exclaim in an interview with Larry King that the ant has gotten rich off the back of the grasshopper, and both call for an immediate tax hike on the ant to make him pay his fair share.
Finally, the EEOC drafts the Economic Equity and Anti-Grasshopper Act retroactive to the beginning of the summer. The ant is fined for failing to hire a proportionate number of green bugs and, having nothing left to pay his retroactive taxes, his home is confiscated by the government.
Hillary gets her old law firm to represent the grasshopper in a defamation suit against the ant, and the case is tried before a panel of federal judges that Bill Clinton appointed from a list of single-parent welfare recipients.
The ant loses the case.
The story ends as we see the grasshopper finishing up the last bits of the ant's food while the government house he is in, which just happens to be the ant's old house, crumbles around him because he doesn't maintain it.
The ant has disappeared in the snow. The grasshopper is found dead in a drug related incident and the house, now abandoned, is taken over by a gang of spiders who terrorize the once peaceful neighborhood.

MORAL OF THE STORY: Be careful how you vote!

Question asked on 05/29/2007 at 03:09 PM :: Comments to date: 0

The USA by Jay Leno (5/12/07)

Category: Politics and the Economy

I sent this to a friend and he of course likes to check things out and emailed back, "Snopes stated that only the last paragraph was said by Jay as part of his monolog and the rest was added by a unknown source and passed on. It is still good reading though.

Jay Leno wrote this; it's the Jay Leno we don't often see....

"The other day I was reading Newsweek magazine and came across some poll data I found rather hard to believe. It must be true given the source, right?

The Newsweek poll alleges that 67 percent of Americans are unhappy with the direction the country is headed and 69 percent of the country is unhappy with the performance of the president. In essence 2/3s of the citizenry just ain't happy and want a change.

So being the knuckle dragger I am, I started thinking, ''What we are so unhappy about?''
Is it that we have electricity and running water 24 hours a day, 7 days a week? Is our unhappiness the result of having air conditioning in the summer and heating in the winter? Could it be that 95.4 percent of these unhappy folks have a job? Maybe it is the ability to walk into a grocery store at any time and see more food in moments than Darfur has seen in the last year?

Maybe it is the ability to drive from the Pacific Ocean to the Atlantic Ocean without having to present identification papers as we move through each state? Or possibly the hundreds of clean and safe motels we would find along the way that can provide temporary shelter?

I guess having thousands of restaurants with varying cuisine from around the world is just not good enough. Or could it be that when we wreck our car, emergency workers show up and provide services to help all and even send a helicopter! to take you to the hospital.

Perhaps you are one of the 70 percent of Americans who own a home. You may be upset with knowing that in the unfortunate case of a fire, a group of trained firefighters will appear in moments and use top notch equipment to extinguish the flames thus saving you, your family and your belongings.

Or if, while at home watching one of your many flat screen TVs, a burglar or prowler intrudes , an officer equipped with a gun and a bullet-proof vest will come to defend you and your family against attack or loss. This all in the backdrop of a neighborhood free of bombs or militias raping and pillaging the residents. Neighborhoods where 90 percent of teenagers own cell phones and computers.

How about the complete religious, social and political freedoms we enjoy that are the envy of everyone in the world? Maybe that is what has 67 percent of you folks unhappy.

Fact is, we are the largest group of ungrateful, spoiled brats the world has ever seen. No wonder the world loves the U.S. , yet has a great disdain for its citizens. They see us for what we are. The most blessed people in the world who do nothing but complain about what we don't have , and what we hate about the country instead of thanking the good Lord we live here.

I know, I know. What about the President who took us into war and has no plan to get us out? The President who has a measly 31 percent approval rating? Is this the same President who guided the nation in the dark days after 9/11? The President that cut taxes to bring an economy out of ! recessio n? Could this be the same guy who has been called every name in the book for succeeding in keeping all the spoiled ungrateful brats safe from terrorist attacks?

The commander in chief of an all-volunteer army that is out there defending you and me? Did you hear how bad the President is on the news or talk show? Did this news affect you so much, make you so unhappy you couldn't take a look around for yourself and see all the good things and be glad?

Think about it......are you upset at the President because he actually caused you personal pain OR is it because the "Media" told you he was failing to kiss your sorry ungrateful behind every day.

Make no mistake about it. The troops in Iraq and Afghanistan have volunteered to serve, and in many cases may have died for your freedom. There is currently no draft in this country. They didn't have to go.

They are able to refuse to go and end up with either a ''general'' discharge, an ''other than honorable'' discharge or, worst case scenario, a ''dishonorable'' discharge after a few days in the brig.

So why then the flat-out discontentment in the minds of 69 percent of Americans? Say what you want but I blame it on the media. If it bleeds it leads and they specialize in bad news. Everybody will watch a car crash with blood and guts. How many will watch kids selling lemonade at the corner? The media knows this and media outlets are for-profit corporations. They offer what sells , and when criticized, try to defend their actions by "justifying" them in one way or another. Just ask why ! they tri ed to allow a murderer like O.J. Simpson to write a book about how he didn't kill his wife, but if he did he would have done it this way......Insane!

Stop buying the negativism you are fed everyday by the media. Shut off the TV, burn Newsweek, and use the New York Times for the bottom of your bird cage. Then start being grateful for all we have as a country. There is exponentially more good than bad.

We are among the most blessed people on Earth and should thank God several times a day, or at least be thankful and appreciative."

"With hurricanes, tornados, fires out of control, mud slides, flooding, severe thunderstorms tearing up the country from one end to another, and with the threat of bird flu and terrorist attacks, "Are we sure this is a good time to take God out of the Pledge of Allegiance?"

Jay Leno

Question asked on 05/12/2007 at 05:16 AM :: Comments to date: 0

Energy and Uranium (5/2/07)

Category: Politics and the Economy

Uranium prices rose 19% April 6, to $113 per pound (up from $95 per pound a week earlier), the largest single percentage increase on record since price monitoring began in 1968. Though this could point to a short-term supply shortage, the longer trend of rising uranium prices (they have risen 57% since the beginning of 2007) will not abate. Behind this surge are myriad developments attributable to increasing concern about rising petroleum prices; a belief that nuclear energy development can aid domestic energy security, as natural gas and oil supplies from unstable countries increasingly are seen as risky; and current and expected regulations on fossil fuel energy sources. Those regulations on fuels that emit greenhouse gases (GHG), which contribute to climate change, will make fossil fuel more expensive compared to nuclear energy, which emits no GHG.

These factors are contributing to an increase in nuclear energy development and demand for nuclear materials -- primarily uranium. Industrialized countries currently dependent on nuclear energy want to secure uranium supplies in the face of rising global demand, particularly from developing countries such as India and China. Meanwhile, a renewed push for nuclear energy in the United States could lead to even more global competition for uranium and a boom in nuclear energy investment worldwide.

A Needed U.S. Breakthrough

While the rest of the world pushes ahead with nuclear energy, its future in the United States is less certain. Over the past 20 years, safety concerns arising from incidents like Three Mile Island and Chernobyl halted nuclear industry growth, while a relative abundance of coal and natural gas made nuclear energy both politically and economically unpopular. More recently, fears of a militant attack on a nuclear energy facility have abounded.

Moreover, the U.S. government is still unable to develop a popular plan for nuclear waste storage. A proposed national depository near Yucca Mountain in Nevada remains stalled due to state opposition and concerns surrounding waste transport. U.S. Sen. Harry Reid (D-Nev.), who is also the Democratic majority leader, steadfastly opposes the plan. In response, the Bush administration initiated the Global Nuclear Energy Partnership (GNEP) in 2006, which promotes the reprocessing of nuclear fuel (a common practice in Japan and France) and its export to other nations, primarily developing countries. GNEP could significantly reduce the amount of spent fuel headed to depositories, but there are abundant concerns that the reprocessed fuel shipments could be vulnerable to militants. Another option -- onsite storage of nuclear waste at nuclear facilities -- is technologically feasible, but faces large local opposition.

The United States has not had to rely significantly on nuclear power, because energy from the abundant U.S. domestic coal supply (reserves are estimated at 520,494 million tons) is much cheaper than nuclear energy, which requires significant initial capital investment. However, from an economic perspective, energy suppliers are taking a second look at nuclear energy, since expected GHG regulations and requirements for coal plants to use cleaner technology will make coal-powered energy more expensive.

Other factors will add to the growing support for nuclear energy development in the United States. First, Americans too young to have seen the effects of nuclear plant disasters are much more open to nuclear development than the previous generation, particularly as younger citizens grow more concerned about climate change. Second, the notion of energy independence and security is popular with politicians and the public, who view nuclear development as a way to make the country less dependent on petroleum from politically unstable regions. Further, environmental groups are beginning to come around to nuclear energy because of its potential role in slowing climate change; some environmentalists have come out in support of nuclear energy as a viable option (though most still prefer alternative energy and energy efficiency measures). A convincing argument for a repository like Yucca Mountain or a successful implementation of GNEP could certainly add to the growing support for nuclear energy development in the United States.

Merely replacing the existing U.S. fleet of nuclear reactors could be worth as much money as all of the planned expansions in France, Russia, and China combined. Such a development would not only revolutionize the U.S. domestic nuclear industry, but would also lead to expanded nuclear technology research and development worldwide. Also, U.S. acceptance of nuclear energy likely will lead to a quick increase in nuclear operations in other industrialized countries that have been hesitant to pursue further nuclear activity because of safety concerns. In the long term, geopolitical struggles for uranium supplies could emerge, with Central Asian countries and Russia becoming increasingly important players in world energy markets.

Global Uranium Surge

There is a worldwide boom in uranium exploration, from Canada to Kazakhstan, while countries with few domestic energy supplies -- such as France and Japan, who are economically dependent on nuclear energy -- scramble to secure access to uranium reserves before global competition heats up precipitously.

Japan, the third largest nuclear power generator, negotiated April 10 with Kazakhstan and Russia (which have the second- and third-largest uranium reserves, respectively) to discuss securing uranium supplies. As China and India increase their uranium demands, Japan wants more control over and access to uranium mines in Russia and Kazakhstan.

Last year, Kansai Electric Power Co. and Sumitomo Corp. became the first Japanese companies to invest in uranium mines in Kazakhstan, and Japan's Mitsui & Co. plans to explore in Russia with Russian state-owned nuclear company OAO Techsnabexport. Further, Japan will send approximately 100 government officials and business representatives to Kazakhstan on April 29 in an attempt to further solidify Tokyo's relationship with this increasingly geopolitically significant nation.

Nations with abundant supplies of fossil fuels and uranium -- most notably, Australia and Russia -- can export uranium, develop their own nuclear industries or pursue a combination of both. Russia is choosing the third option, looking to export more uranium while increasing its own reliance on nuclear energy. In March, Russian First Deputy Prime Minister Sergei Ivanov said Russia plans to create a new government enterprise, Atomenergoprom, to increase uranium extraction and nuclear power plant construction. Russia plans to build 40 nuclear power plants, adding to its 31 existing facilities, with a goal of boosting its nuclear power production to 25% of energy consumption by 2030. Russia's motive is not to increase its energy security through nuclear development, but to decrease domestic consumption of other energy sources, particularly natural gas. Russia views nuclear development as an effective means of diversifying its inefficient domestic energy use so that its natural gas supply for export remains robust.

Pressure is mounting inside Australia, which does not have a nuclear industry, but likely has the world's largest uranium reserves, to develop a nuclear industry (which could include power generation) within the next 10 years. Australia, which has massive coal supplies, is more likely to develop nuclear energy in response to carbon regulations, rather than out of a desire to bolster its exports of other energy supplies.

In Europe, the strong environmental lobby and green parties continue to campaign against increased nuclear facility construction. However, most governments realize that in order to meet their Kyoto and likely post-Kyoto emissions-reduction targets, and to reduce their dependence on Russian energy supplies, they cannot avoid discussing increasing nuclear development.

U.S. Developments

In the United States, no development better exemplifies the coal-to-nuclear paradigm shift than the TXU Corp.'s plan to scrap the majority of its proposed coal plants and continue instead with plans to construct two-five new nuclear facilities in Texas. The highly publicized private equity takeover of the energy utility company and its deal with national environmental groups, which dropped their lawsuits against the TXU's proposals to build 11 coal plants, was a major symbolic turning point. Whether TXU decided to stop coal expansion in response to environmental campaigns or for purely economic reasons, it bolstered environmentalists' belief that attacking coal expansion is an effective way to force companies to pursue cleaner energies. As coal plants continue to come under attack, nuclear energy will only grow more attractive.

There are more than 20 proposed nuclear facilities in various stages of regulatory review, and many in the industry and the Bush administration act as if increased nuclear development is a reality. However, even though TXU and other U.S. energy companies hope to build reactors, they must still contend with disposal problems. As long as Yucca Mountain is sidelined, with no immediate solution in sight, the risks involved in developing nuclear facilities will prevent a significant boom in the industry.

The industry hopes that if one new facility is built in the United States -- perhaps by TXU in Texas, or perhaps on the site of an existing facility, which would be politically easier since reactors are there anyway -- other nuclear facilities will quickly follow. Most U.S. reactors are nearing the point of abandonment; if the industry can get at least one new plant built, that will break the ice and many old plants will likely be replaced.

Question asked on 05/02/2007 at 06:31 AM :: Comments to date: 0

Did You Know? (4/16/07)

Category: Politics and the Economy

Did you know that 47 countries' have reestablished their embassies in Iraq ?

Did you know that the Iraqi government currently employs 1.2 million Iraqi people?

Did you know that 3100 schools have been renovated, 364 schools are under rehabilitation,
263 new schools are now under construction and 38 new schools have been completed in Iraq ?

Did you know that Iraq's higher educational structure consists of 20 Universities,
46 Institutes or colleges and 4 research centers, all currently operating?

Did you know that 25 Iraq students departed for the United States in January 2005 for the re-established Fulbright program?

Did you know that the Iraqi Navy is operational? They have 5-100-foot patrol craft, 34 smaller vessels and a naval infantry regiment.

Did you know that Iraq's Air Force consists of three operational squadrons, which includes 9 reconnaissance and 3 US C-130 transport aircraft (under Iraqi operational control) which operate day and night, and will soon add 16 UH-1 helicopters and 4 Bell Jet Rangers?

Did you know that Iraq has a counter-terrorist unit and a Commando Battalion?

Did you know that the Iraqi Police Service has over 55,000 fully trained and equipped police officers?

Did you know that there are 5 Police Academies in Iraq that produce over 3500 new officers each 8 weeks?

Did you know there are more than 1100 building projects going on in Iraq? They include 364 schools, 67 public clinics, 15 hospitals, 83 railroad stations, 22 oil facilities, 93 water facilities and 69 electrical facilities.

Did you know that 96% of Iraqi children under the age of 5 have received the first 2 series of polio vaccinations?

Did you know that 4.3 million Iraqi children were enrolled in primary school by mid October?

Did you know that there are 1,192,000 cell phone subscribers in Iraq and phone use has gone up 158%?

Did you know that Iraq has an independent media that consists of 75 radio stations, 180 newspapers and 10 television stations?

Did you know that the Baghdad Stock Exchange opened in June of 2004?

Did you know that 2 candidates in the Iraqi presidential election had a televised debate recently?

OF COURSE WE DIDN'T KNOW! WHY DIDN'T WE KNOW? OUR MEDIA WON'T TELL US!

Instead of reflecting our love for our country, we get photos of flag burning incidents at Abu Ghraib and people throwing snowballs at the presidential motorcades.

Tragically, the lack of accentuating the positive in Iraq serves two purposes:
1) It is intended to undermine the world's perception of the United States thus minimizing consequent support,
2) and it is intended to discourage American citizens.

(---- Above facts are verifiable on the Department of Defense web site. http://www.defenselink.mil/ )

Question asked on 04/16/2007 at 01:46 AM :: Comments to date: 0

100 Years Ago Statistics (4/11/07)

Category: Politics and the Economy

The year is 1906. One hundred years ago. What a difference a century makes! Here are some of the U.S. statistics for the Year 1906

The average life expectancy in the U.S. was 47.

A three-minute call from Denver cost eleven dollars. There were only 8,000 cars in the U.S., and only 144 miles of paved roads.

The maximum speed limit in most cities was 10 mph. Alabama, Mississippi, Iowa, and Tennessee were each more heavily populated than California.

With a mere 1.4 million people, California was only the 21st most populous state in the Union.

The tallest structure in the world was the Eiffel Tower!

The average wage in the US. was 22 cents per hour.

The average U.S. worker made between $200 and $400 per year

A competent accountant could expect to earn $2000 per year, a dentist $2,500 per year, a veterinarian between $1,500 and $4,000 per year, and a mechanical engineer about $5,000 per year.

More than 95 percent of all births in the U.S. took place at HOME-ninety percent of all U.S. doctors had NO COLLEGE EDUCATION! Instead, they attended so-called medical schools, many of which were condemned in the press. AND the government as "sub-standard." Sugar cost four cents a pound.

Eggs were fourteen cents a dozen. Coffee was fifteen cents a pound. Most women only washed their hair once a month, and used borax or egg yolks for shampoo. ?? (EE-EWW)? Canada passed a law that prohibited poor people from entering into their country for any reason.

The five leading causes of death in the U.S. were:
1. Pneumonia and influenza
2. Tuberculosis
3. Diarrhea
4. Heart disease
5. Stroke
The American flag had 45 stars. Arizona, Oklahoma, New Mexico, Hawaii, and Alaska hadn't been admitted to the Union yet. The population of Las Vegas, Nevada, was only 30!!!!

Crossword puzzles, canned beer, and ice tea hadn't been invented yet.

There was no Mother's Day or Father's Day.

Two out of every 10 U.S. adults couldn't read or write. Only 6 percent of all Americans had graduated from high school. Eighteen percent of households in the U.S. had at least one full-time servant or domestic help.

There were about 230 reported murders in the ENTIRE U.S.A.!

Question asked on 04/11/2007 at 06:53 AM :: Comments to date: 0

Andy Rooney Says it Best (3/17/07)

Category: Politics and the Economy

Right on, Andy Rooney!
Andy Rooney said on "60 Minutes" a few weeks back:
I don't think being a minority makes you a victim of anything except numbers.
The only things I can think of that are truly discriminatory are things like the United Negro College Fund, Jet Magazine, Black Entertainment Television, and Miss Black America.
Try to have things like the United Caucasian College Fund, Cloud Magazine, White Entertainment Television, or Miss White America; and see what happens... Jesse Jackson will be knocking down your door.
Guns do not make you a killer. I think killing makes you a killer. You can kill someone with a baseball bat or a car, but no one is trying to ban you from driving to the ball game.
I believe they are called the Boy Scouts for a reason; that is why there are no girls allowed. Girls belong in the Girl Scouts!
ARE YOU LISTENING MARTHA BURKE?
I think that if you feel homosexuality is wrong, it is not a phobia, it is an opinion.
I have the right "NOT" to be tolerant of others because they are different, weird, or tick me off.
When 70% of the people who get arrested are black, in cities where 70% of the population is black, that is not racial profiling; it is the Law of Probability.
I believe that if you are selling me a milkshake, a pack of cigarettes, a newspaper or a hotel room, you must do it in English! As a matter of fact, if you want to be an American citizen, you should have to speak English!
My father and grandfather didn't die in vain so you can leave the countries you were born in to come over and disrespect ours.
I think the police should have every right to shoot your sorry ass if you threaten them after they tell you to stop. If you can't understand the word "freeze" or "stop" in English, see the above lines.
I don't think just because you were not born in this country, you are qualified for any special loan programs, government sponsored bank loans or tax breaks, etc., so you can open a hotel, coffee shop, trinket store, or any other business.
We did not go to the aid of certain foreign countries and risk our lives in wars to defend their freedoms, so that decades later they could come over here and tell us our constitution is a living document; and open to their interpretations.
I don't hate the rich I don't pity the poor.
I know pro wrestling is fake, but so are movies and television.
That doesn't stop you from watching them
I think Bill Gates has every right to keep every penny he made and continue to make more. If it ticks you off, go and invent the next operating system that's better, and put your name on the building.
It doesn't take a whole village to raise a child right, but it does take a parent to stand up to the kid; and smack their little behinds when necessary, and say "NO!"
I think tattoos and piercing are fine if you want them, but please don't pretend they are a political statement. And, please, stay home until that new lip ring heals. I don't want to look at your ugly infected mouth as you serve me French fries!
I am sick of "Political Correctness" I know a lot of black people, and not a single one of them was born in Africa; so how can they be "African-Americans"? Besides, Africa is a continent. I don't go around saying I am a European-American because my great, great, great, great, great, great grandfather was from Europe. I am proud to be from America and nowhere else.
And if you don't like my point of view, tough...
I PLEDGE ALLEGIANCE TO THE FLAG, OF THE UNITED STATES OF AMERICA, AND TO THE REPUBLIC, FOR WHICH IT STANDS, ONE NATION UNDER GOD, INDIVISIBLE, WITH LIBERTY AND JUSTICE FOR ALL! AMEN!
I was asked to send this on if I agree or delete if I don't. It is said that 86% of Americans believe in God. Therefore I have a very hard time understanding why there is such a problem in having "In God We Trust" on our money and having "God" in the Pledge of Allegiance. Why don't we just tell the 14% to Shut Up, lay down and BE QUIET!!!

Question asked on 03/17/2007 at 05:26 AM :: Comments to date: 0

The Modern Day Manias! Part 4 (3/14/07)

Category: Stocks

In all the previous investment booms the bull market was interrupted by severe corrections. Gold corrected by more than 40% between December 1974 and August 1976, equity markets corrected violently in 1987 (Taiwan and Hong Kong dropped by 50%), and bonds corrected sharply in 1983–1984, in 1986–1987, and in 1994. In the high-tech mania, technology stocks corrected sharply in 1995–1996 and in 1998. Between its 1997 high and its 1998 low, the Russian stock market gave back almost all its previous gains.

In the current asset bull markets, we have, not had a concerted and strenuous correction phase à la 1987 and 1998 (and certainly not in US equities) excepti (copper, zinc, oil, and sugar) have had some corrections.

As the advance in previous investment manias matured, its leadership tended to narrow considerably. At the end of the 1970s’ commodities bull market, only oil, copper, precious metals, and energy and mining shares were still rising. In Japan, most of the listed equities peaked out in 1987–1988, but financial stocks, including insurance companies, banks, and brokers, drove the index up until the end of 1989. In the rolling emerging market bubbles of the 1990s, most markets peaked out between 1990 and 1994 but some markets such as Hong Kong still managed to make a final high in 1997. In the dotcom boom, the advance became extremely concentrated after 1999, with many tech issues only making marginal new highs in March 2000 or failing to better their 1999 peak prices.

In the current asset boom, we haven’t yet seen any significant narrowing of the asset markets’ advance (although Middle Eastern markets tumbled last year). Aside from a few commodities and US home prices and housing-related stocks, most asset prices are still rising, although admittedly with varying intensity.

A feature common to all great asset booms is that they were born from either an extremely low valuation in real terms, an extended base-building period, or from a lengthy and pronounced underperformance compared to other asset markets. In 1970, the gold price was no higher than in 1933, and down in real terms by 70% from its 1897 high. The Japanese asset boom, which had in fact begun back in the 1960s, led to the entire Japanese stock market having a stock market capitalization in 1970 lower than that of IBM. In other words, in 1970, Japanese equities were very inexpensive compared to the US stock market.

In 1982, US stocks had declined by more than 70% in real terms from their 1966 highs. And although, at the time, US equities were, adjusted for inflation, no higher than they had been in 1899, to be fair their total real return (including dividends) was far higher. Still, by 1982, including reinvested dividends, US equities were no higher than in 1961. Also extremely depressed were US bond prices, with bond yields at their highest level in the 200-year history of the US capital market. Taiwanese and Korean equities in 1984 were at about the same level they had been in the early 1970s and, adjusted for inflation, dirt cheap.

In the late 1980s, Latin American stock markets were, in US dollar terms, no higher than they had been in the late 1970s and far lower than in the early 1970s and early 1980s. In 1990, US high-tech stocks were selling for about the same prices they had reached at their 1973 peak and for around ten times earnings. Compared to the valuation of the Japanese stock market in 1990, US high-tech stocks were then extremely depressed.

The 2002 asset price increase in all asset classes also included some asset classes that started to rally from extremely low inflation-adjusted prices or low valuations compared to some other asset prices. Particularly low inflation-adjusted prices were evident for commodities (which bottomed out between 1999 and 2001). And whereas the Nikkei had massively underperformed US and European equities in the 1990s, and was therefore relatively inexpensive compared to these markets, emerging markets had both underperformed US assets since 1990 and were, adjusted for inflation, very depressed. However, not depressed (adjusted for inflation) or compared to other asset prices, were US equities. Moreover, following their 20-year bull market, US bonds — and especially Japanese bonds — were by no means depressed!

Every epic investment boom lifted prices far higher than anyone could have imagined. An example ( Japanese stocks sold for 70 times earnings in 1989, so as a predictor the US equities would also sell in future for 50 times earnings (2000). In 1970, no one dreamt that precious metals would increase by more than 20-fold. In the early 1980s, it would have been considered heresy to forecast that the Dow Jones would double and bond yields would decline to less than 4%! And investors certainly didn’t expect the Japanese stock market, which had already quadrupled in the 1970s, to rise by almost another six-fold between its low in 1982 and its high of 1989. In the late 1980s, few people expected the Latin American markets would ever recover; and in the early 1990s, no one (including myself) expected US high-tech stocks to become the best performing asset class in the 1990s.

So what is the asset class that will shine in the future that hasn't made a tremendous move yet.
You all know what I believe. Silver.
I am bold today.

Question asked on 03/14/2007 at 05:19 AM :: Comments to date: 0

The Modern Day Manias! Part 2 (3/13/07)

Category: Stocks

COMMON FEATURES OF PREVIOUS INVESTMENT MANIAS AND THE DIFFERENCES TO THE CURRENT INVESTMENT ENVIRONMENT.
A bull market in one asset class was accompanied by a bear market in another important asset class.
Precious metals soared in the 1970s, but bonds collapsed. Equities and bonds rose in the 1980s, but commodities tumbled. In the 1990s, we had rolling bubbles in the emerging markets, but Japanese and Taiwanese equities were in bear markets while commodities continued to perform poorly.

Finally, the last phase of the global high-tech mania (1995–2000) was accompanied by a collapse of the Asian stock markets and Russia, as well as a continuation of the Japanese and commodities bear markets. By the late 1990s, most emerging markets (certainly in Asia) were far lower than they had been between 1990 and 1994. In the 1990s, emerging markets grossly underperformed the US stock market.

Currently, looking at the five most important asset classes — real estate, equities, bonds, commodities, and art (including collectibles) — I am not aware of any asset class that has declined in value since 2002! Maybe realestate has peaked from 2002 and has come down in most parts from 2005 but it is still higher than in 2002. Admittedly, some assets have performed better than others, but in general every sort of asset has risen in price, and this is true everywhere in the world.

In the early phases of all previous investment booms, investors failed to recognise that the “rules of the game” had changed and continued to play the asset class that had been the leader in the previous investment mania. In the 1980s, every increase in gold and silver prices was perceived to be the beginning of a new bull market in precious metals (after silver prices collapsed in January 1980, prices doubled three times between 1980 and 1990 — all within a downtrend), while investors maintained a very sceptical view of bonds. In the early 1990s, investors failed to recognise the emergence of a high-tech sector uptrend, although, as explained above, high-tech stocks were already performing extremely well between 1990 and 1995. Global investors continued to believe in the merits of Asian stocks right to the end and actually stepped up their buying in early 1997!

Similarly, in the current asset inflation, investors have continued to focus on the high-tech bull market and have largely missed out on the huge increase in price of commodities, and of Indian, Latin American, and Russian equities.

At the end of each investment mania, investors believed in some sort of “excess liquidity” that would drive the object of the speculation forever higher. At the end of the 1970s, the “excess liquidity” related to the OPEC surpluses; at the end of the Japanese stock and real estate bull markets, “excess liquidity” centred around the enormous Japanese current account surpluses; during the 1990s emerging markets mania, “excess liquidity” was perceived to come from foreign buying and the Yen carry trade; and at the end of the high-tech boom the investment community believed that “excess liquidity” would come from record mergers and acquisitions, a reallocation of funds from bonds to equities, and easy monetary policies by the Fed (a belief that was fostered by the Mexican and LTCM bailouts and money printing ahead of Y2K).

But as Albert Edwards so eloquently explained in a recent scathing report entitled “Lies, rhubarb, poppycock, bilge, utter nonsense, caravans and liquidity” (see Dresdner Kleinwort Global Strategy Report, January 16, 2007), “liquidity is the hocus pocus of the investment world. It means totally different things to different people but is often cited as being a major driver for buoyant markets”.

Most presciently, Edwards explains that with respect to investment manias, “when markets are rallying but seem expensive, when new issues fly out of the door and when fundamental analysis often appears to fail to explain events, the safe haven for the market commentator is often to rely on the explanation that there is lots of liquidity

What is peculiar to the current investment environment is that liquidity is supposed to come from not just one or two sources, but from everywhere! From OPEC surpluses, from the US Fed and other central banks, from the Asian current account surpluses (excess savings), from the Yen and Swiss Franc carry trade, from the large size of money market funds and bank deposits, from rising asset prices, leverage, and a tidal wave of private equity funds, and from artificially low interest rates. It’s no wonder that, given such beliefs, asset markets are all flying High.
Continued Tomorrow.

Question asked on 03/13/2007 at 05:05 AM :: Comments to date: 0

A Tale of Predictions (3/11/07)

Category: Visionary

It was autumn, and the Red Indians on the remote reservation asked their new chief if the winter was going to be cold or mild. Since he was a Red Indian chief in a modern society, he couldn’t tell what the weather was going to be. Nevertheless, to be on the safe side, he told his tribe that the winter was indeed going to be cold and that the members of the village should collect wood to be prepared.

But, being a practical leader, after several days he got an idea. He went to the phone booth, called the National Weather Service and asked, “Is the coming winter going to be cold?”

“It looks like this winter is going to be quite cold indeed,” the meteorologist at the weather service responded.

So the chief went back to his people and told them to collect even more wood.

A week later, he called the National Weather Service again.

“Is it going to be a very cold winter?”

“Yes,” the man at the National Weather Service again replied, “It’s definitely going to be a very cold winter.”

The chief again went back to his people and ordered them to collect every scrap of wood they could find.

Two weeks later, he called the National Weather Service again.

“Are you absolutely sure that the winter is going to be very cold?”

“Absolutely,” the man replied.

“It’s going to be one of the coldest winters ever.”

“How can you be so sure?” the chief asked.

The weatherman replied, “The Red Indians are collecting wood like crazy.”

Continued-

The answer to: "A Tale of Predictions (3/11/07)"

Question asked on 03/11/2007 at 08:39 AM :: Comments to date: 0

Nothing Changes - (2/27/07)

Category: Politics and the Economy

"Prices on the New York Stock Exchange are affected by French politics, German banking conditions, wars and rumors of war in the Near East, the Chinese money market, the condition of the wheat crop in the Argentine, the temper of the Mexican Congress, as well as by a host of domestic influences."

-- Philip Carret, The Art of Speculation, 1931

I thought this was interesting.
The above was written in 1931 duriing the depression.
Has anything changed as far as speculation or investing since then? No.
There is nothing new under the sun when it comes to people. They make the markets.

Question asked on 02/27/2007 at 06:44 AM :: Comments to date: 0

War of the Nerds XI (2/11/07)

Category: Politics and the Economy

Ferguson’s narrative of the countdown to war is a splendid chronology of how quickly the world can change:

It was not until 22 July [1914] – more than three weeks after the Sarajevo assassinations — that the possibility of a European political crisis was first mentioned as a potential source of financial instability in the financial pages of The Times. A plausible inference is that continental markets were anticipating the belligerent tone of the Austrian ultimatum to Serbia, published on 23 July, which demanded official cooperation with an Austrian inquiry into the Sarajevo assassinations. This was the signal to investors that war was a real danger.

The 2-1/2% British consols rose from a 3.30% yield on July 7 to 3.31% on July 22 — a single basis point of fear. If investors now foresaw real danger, they must have believed their portfolios received a personal exemption. Tensions rose on the exchanges and grew acute on July 27 when the Vienna and Budapest exchanges closed. The Sarajevo incident could still be interpreted as a local affair, but trading slowed on the other European exchanges. Now consols rose to 3.45%. The St. Petersburg exchange closed on the 29th and The Economist considered the “Berlin and Paris bourses closed in all but name”.

It was by no means clear who would fight, or even if there would be a war. Nevertheless, British exchanges suffered a two-fold crisis. In Ferguson’s words:

First, foreigners who had drawn bills on London found it much harder to make remittances; those British banks that had accepted foreign bills suddenly faced a general default as bills fell due. At the same time, there were large withdrawals of continental funds on deposit with London banks and sales of foreign-held securities. London became, as The Economist put it, “a dumping ground for liquidation for the whole Continent of Europe”.

A wholly unanticipated domino effect now engulfed London. The bond market didn’t seem to acknowledge this vaporisation of liquidity:

Even these developments had a remarkably limited impact on great-power bond yields. Between 22 July and 30 July (the last day when quotations were published), yields on consols rose by 26 basis points; yields on French rentes by 22 basis points; and yields on German bonds by 17 basis points. The rises were twice as large for Austrian and Russian bonds, yields on which rose by nearly half a percentage point.... The Economist was especially struck by the widening of the bid–ask spread for consols (the gap between buyers’ offers and sellers’ asking prices) to a full percentage point, compared with a historic average of one-eighth of 1%….

The London market started to close on July 29. London clearing banks concentrated on funding their stock-exchange clients, eight of which failed by the end of the day. On July 30, the Bank of England raised its discount rate from 3% to 5%. On July 31, the Stock Exchange was closed and the Bank of England raised its discount rate from 5% to 8%. The week before, The Economist was preoccupied with the “continual suspense over Ulster”. (Northern Ireland dominated newsprint during the summer of 1914. It made better copy than another Balkan Crisis.) What a difference a week makes — from the August 1, 1914 Economist:

The financial world has been staggering under a series of blows such as the delicate system of international credit has never before witnessed, or even imagined.... Nothing so widespread and so world-wide has ever been known before. Nothing … could have testified more clearly to the impossibility of running modern civilisation and war together than this closing of the London Stock Exchange owing to a collapse of prices, produced not by the actual outbreak of a small war, but by fear of a war between some of the Great Powers of Europe. [My italics.]

Did The Economist or the Bank of England consider the international credit system “fragile”, under any conceivable circumstances, a year before? Five days before? Ferguson writes:

The key phrase here is “fear of a war”. Although Austria had declared war on Serbia on 28 July, it was still far from certain that the other great powers would join in; it was not until 31 July that Russia, after three days of indecision, began general mobilization, prompting the German government to issue its ultimatums to St Petersburg and Paris. The Germans did not declare war on Russia until 1 August; their declaration of war on France came two days later. Britain entered the fray only on 4 August (an event readers of The Economist had certainly not been led to expect). What happened between 22 July and 30 July was therefore no more than a sharp rise in the perceived probability of a great power war on the continent; it was still not considered a certainty when the markets had to close.

Oh, but that was the Stone Age. They didn’t have the Internet! It is worth considering though, despite the technological innovations and wonders of the Information Age, that this week’s celebrities of Wall Street are more inert than the better minds in the City a century ago. Ferguson found “even to the financially sophisticated, as far as can be judged by the financial press, the First World War came as a surprise. Like an earthquake on a densely populated fault line, its victims had long known that it was a possibility, and how dire its consequences would be; but its timing remained impossible to predict, and therefore beyond the realm of normal risk assessment.” So it goes with any probability model, designed in the head of a Rothschild or by the math nerds at JP Morgan.

As to how much we can trust the Greenspan “put”: “[T]he British and Continental financial authorities pulled every trick.” The author furnishes a list of clever, arbitrary, and confiscatory manoeuvres, but “systematic central bank interventions to maintain bond prices” only worked for a time. Government assistance “could only disguise the crisis that had been unleashed in the bond market; it could not prevent it”. Hank Paulson should forward that paragraph to The President’s Working Group on Financial Markets.

Ferguson scrapes up the debris:

For all save the holders of British consols, who could reasonably hope that their government would restore the value of their investments when the war was over, these outcomes [for Continental sovereign bond holders] were even worse than the most pessimistic pre-war commentators had foreseen. The fact that investors do not seem to have considered such a scenario until the last week of July 1914 surely tells us something important about the origins of the First World War. It seems as if, in the words of The Economist, the City only saw “the meaning of war” on July 31 — “in a flash”.

Aside from the origins of World War I, the last week of July 1914 surely tells us something important about investors today.
Finished

Question asked on 02/11/2007 at 03:38 AM :: Comments to date: 0

War of the Nerds X (2/9/07)

Category: Politics and the Economy

If convinced THIS IS IT, what would he do? He’s not sure. He loses a night’s sleep. He goes to the office the next morning and pulls out a faded, 1978 clipping from U.S. News and World Report:

The mountain of debt has grown so high in this country that many economists fear the United States is unusually vulnerable if a recession occurs…. [S]ome fret that a load of personal debt will make a recession more severe than it otherwise would be. In only 3-1/2 years since the end of the last slump, Americans have added a trillion dollars to their financial obligations. Today, government, corporations and individuals owe more than 3.5 trillion dollars, equal to nearly $16,000 for every man, woman and child in the country…. The question now being raised is whether a day of reckoning is at hand.

Our Serious Investor relaxes. Yes, all of this is still true and now we add a trillion dollars of debt every three months. We have accumulated US$90,000 in debt for every man, woman, and child in the country. A day of reckoning will come. But there’s no point worrying about it. The entire credit structure and gutted economy is a shambles, but we inflated our way out of a 1978 reckoning; we may muddle through again. The emperor wears no clothes, but the architects of economic consensus and market wisdom constructed a bunker that excludes the dissidents. Official opinion is like Lenin’s tomb. The iconic face demands intensive care as the skin decays. The deception of eternal embalming grows less convincing as the emperor’s face erodes. The best minds are diverted from biotechnology labs and mathematical discoveries to design a cosmetic cloak for a dead corpse.

US financial chicanery is similar, with a twist. It bloats and must continue to do so. US engineers and mathematicians (in such demand they are now imported from China and India) must not only disguise blemishes, but perform artistic feats to match the finest trompe-l’æil artists. The asymmetrical cheekbones and mutations of the cranium demand optical illusions. Our Serious Investor knows the suspension of judgment on the part of the viewing public could dissipate in a flash, but trading rooms still watch CNBC, quote Gentle Ben, and are preoccupied with football betting pools. We will be free of thought at least through the Super Bowl.

Investors who held government bonds prior to World War I probably didn’t give much thought to the alternative investments. Financial markets had expanded by leaps and bounds over the past generation. This multiplied the ingenuity, nationality, and variety of securities, but railroad bonds issued in Vienna or London carried their own baggage. Gold was the only solution, but a poor one. (Even that was often repatriated in the war effort. US stocks might have seemed an escape hatch, but the British and French governments confiscated their citizens’ securities held in New York accounts. Taxes soared on property, and wrought iron fences were nationalised. And this was in Britain — where no battles were fought.)

Our Serious Investor holds one trump card not available to his ancestors. The derivative world offers such an extraordinary range of insurance products — puts on indexes, on stocks, even puts on puts; credit derivative protection against defaults; mutual funds that leverage short positions on bond and stock indexes — and they are extraordinarily cheap. They are cheap because volatility has disappeared from markets, and protecting the downside risk in a portfolio is generally considered a waste of money. It is also a risk to one’s career, since clients want every cent of their money chasing higher returns.

Continued tomorrow

Question asked on 02/09/2007 at 03:34 AM :: Comments to date: 0

War of the Nerds IX (2/8/07)

Category: Politics and the Economy

This might be similar to the climate after the Eastern Crisis – the rumpus in the Balkans that nearly sucked in most of Europe. Ferguson runs through some flare-ups after 1880 that could have engulfed nations, but did not. Since 1971, we have lived through a series of financial crises that could have turned climactic, but did not. He cites the British occupation of Egypt in 1881 [Citicorp’s emerging market loans, circa 1980], the Afghan Crisis of 1885 [Continental Illinois, 1984], the Bulgarian Crisis of 1886 [stock market crash, 1987], the Russian and German standoff between 1888 and 1891 [Savings and Loan crisis, 1989– 1991], the Fashoda Incident in 1898 [money centre bank crisis, early 1990s], the Boer War, 1899–1902 [derivatives meltdown, 1994], the Moroccan Crisis of 1905 [Mexican peso bailout, 1995], the Anglo- German antagonism, 1906–1908 [Asian meltdown, 1997], the Balkan Crisis, 1908–1911 [Russia, 1998], the Balkan Crisis, 1912–1913 [LTCM, 1998], the British and German naval construction buildup, leading up to the War [derivatives compounding and still bursting with innovation today], and another Balkan Crisis in the summer of 1913. To offer a possibility: a fourth Balkan Crisis in the summer of 1914 may have been greeted with the same weariness as notice that Amaranth Advisers, the Greenwich-based hedge fund, lost US$6 billion in the summer of 2006. News of the collapse vanished as quickly as it appeared; other funds absorbed the derivatives positions in a matter of hours. Long-Term Capital Management was only half the size; therefore, we needn’t worry about another derivatives crisis. Q.E.D.

The Naval race between Britain and Germany sold newspapers and books in the 1890s. Aside from the prospect of war, shipbuilding programs expanded government spending. British and German bond yields rose, but not significantly. Fears still simmered and haunted in the decade before the War (Norman Angell’s The Great Illusion was a bestseller), but the popular imagination had grown accustomed to the debate. Likewise, the US survived the portfolio-insurance meltdown in the stock market crash of 1987. The theorists who devised portfolio-insurance derivatives — a prime cause of the meltdown — discovered this crash was a 20- standard deviation event and concluded: “a day like this wouldn’t be expected to happen during the lifetime of the universe.” The implosion of Long-Term Capital Management in 1998 was also dismissed as a once-in-the-history-ofthe- universe event. In May 2005, after some hedge funds were caught on the wrong side of the General Motors downgrade, this eightstandard deviation movement in prices was ignored. Considered so remote a probability in the history of human existence, it wasn’t worth considering in future derivatives modelling. Alarm turns to security with the lapse of time.

It is 2006. Our Serious Investor (Columbia, B.A. 1965; Yale LL.B., 1968) has grown calloused to once-in-the-history-of-the-universe events. Martin scared him to death. Our Investor understood the dollar was the weak link in the international payments system. Surely, the American Century was at an end. Our Investor survived the dollar crisis, the stock market collapse and deep recession of 1973–1974, the Business Week “Death of Equities” front cover, the US$250 billion federal budget deficits of the 1980s, the frequent financial and derivative crises of the past 20 years (far more prevalent than between 1950 and 1970), the current US$500 billion federal budget deficits, and the (prospective) US$1 trillion trade deficit. Our Serious Investor has prospered. He gradually learned to shrug off the deteriorating macro world. He grew accustomed to the “Greenspan put” (that is, central banks will bail out any-and-all financial meltdowns), the risky adventures of hedge funds, the abandonment of debt covenants by bond issuers, the private-equity moon shot; he has, by now, grown so accustomed to the warnings that he keeps his head down, plugs away, and diligently watches for signs that THIS IS IT.

Continued tomorrow

Question asked on 02/08/2007 at 03:28 AM :: Comments to date: 0

War of the Nerds VIII (2/7/07)

Category: Politics and the Economy

Then, too, the question arises how the Bretton Woods arrangement held together as late as 1968. Like today, the arrangement survived through plenty of smoke and mirrors. Government, central bank, and money-centre bank manoeuvres manufactured an illusion. The London Gold Pool (divined in 1960 to halt gold speculation) spawned, in 1968, a parallel London Gold Pool (conjured to subdivide official trading from the market price); Special Drawing Rights introduced finance to the magical derivative world — gold was no longer to be transferred; only the “right” to do so remained. Other Rube–Goldberg measures attempted to fix what could only be fixed by fiscal and financial rectitude on the part of the US government and its citizens. This wasn’t going to happen. Yet, there was little awareness on the part of investors that US$35 gold and the purchasing power of the dollar were doomed — unless we permit the supposition that such a possibility was better ignored if you were in the market.

Then, as today, there were plenty of warnings. Martin, who spoke as the transmission of the world’s financial engine, warned the world in a well-publicised 1968 speech: “We have been living in a fool’s paradise. We face a financial crisis that is not understood by the public.” The Fed chairman said he had tried to make himself heard, but “there is no disposition on either side of the aisle in Congress to face up to the problems”. Martin apologised several times during the speech for appearing too emotional. He was cracking under the pressure.

How could he have made it clearer to sell the dollar? Yet, the charade went on for another three years before President Nixon officially closed the gold window on August 15, 1971. Gold rose to over US$800 an ounce by the end of the decade, and paper assets were an easy avenue to lose a life’s savings. Commodities, rare stamps, and Rembrandts were the assets to hold during the 1970s; Americans abroad found that Italian and Belgian hotels wouldn’t accept dollars; wages and prices were frozen by federal decree; likewise, the annual inflation rate of goods (CPI) rose to 18%, short-term Treasury bills traded at 17%, and the 30-year bond rose to a 15.49% yield. (European bond holders of the 19th century never sold off the tottering Austrian Empire to such a level.)

It was a bad decade for America. Nixon was impeached; Vietnam was lost; the Soviet Union was winning; the US federal deficit rose to US$53 billion in 1975. President Carter was elected; he donned his cardigan sweater to enliven the chagrined and the deficit rose to US$73 billion.

Yet, the currency of choice remained the US dollar. As the economy and financial markets turned up, the perfectly human tendency was to kick up one’s heels, think the world’s financial system had survived — and flourished — after gold convertibility collapsed. Those who still fretted over deficits and the paper monetary system were dismissed as cranks and lumped with the Michigan Militia.

And what was there to fear? As the various financial and economic balances wobbled farther from their gold anchor, financial crises became commonplace. We learned to take them in stride.

Continued tomorrow

Question asked on 02/07/2007 at 07:24 AM :: Comments to date: 0

War of the Nerds VII (2/6/07)

Category: Politics and the Economy

Let’s turn to a mythical, prototypical Serious Investor. A rookie in the late 1960s, he fears rising budget deficits, out-of-control consumption, waning physical production, an economy that survives from financial transactions and the mysterious yet oppressive influence of derivatives on the financial markets. This investor watches credit mushroom; bubbles pop and move on. He sees no-interest, no-downpayment, optional-monthly-payment mortgages hibernate in hedge-fund side pockets, which recycle the central-bank, commercial-bank, prime-broker, credit-inflation pool. Reading Professor Ferguson’s study, he won’t find the post-1880 atmosphere puzzling.

If the 1878 Russian–British showdown was the climactic event in draining Napoleonic worries from the investing conscience, the 1971 split with gold served the same function for our enlightened financial era. A clear sign of impending financial breakdown lit the trading screens in 1959. (Please forgive the anachronism.) The US balance-of payments deficit had deteriorated throughout the 1950s. In 1959, the London bullion market broke through the official trading ceiling of $35 and surged to $40.60. Gold hadn’t risen above $35 for 11 years. Fears abated after government reassurances (and not much more), but anyone with a sense of proportion knew the math didn’t work. Unless the US reversed its spendthrift ways, gold at $35 an ounce was doomed.

In 1964, Fed chairman Martin told President Johnson and Secretary of Defense McNamara that US military commitments overseas would cause a devaluation in the dollar. Their reaction reflected both their maturity and sense of responsibility: they shouted and screamed at Martin, then lied about expenditures to Secretary of the Treasury Fowler and the leaders of Congress. This made it all the easier to run the ship of state on to the rocks in a very short time. The vessel splintered so quickly it was difficult to comprehend.
The federal spending deficit was US$1 billion in 1965. By 1967, with nearly half a million US troops in Vietnam, the defence budget was expected to grow to $5.8 billion. In mid-stream, growth was recast at US$13 billion. The 1967 fiscal year deficit widened from a US$4.5 billion forecast to US$11.9 billion in August 1967. The 1968 fiscal year deficit was now expected to be US$19 billion — larger, even on a percentage basis, than during World War II. (Larger, even on a percentage basis, than today.) In October 1967, Secretary of the Treasury Fowler told Johnson the deficit could go to between US$23 and US$28 billion. The First National City Bank projected that net government borrowings could be US$20 billion in the second half of 1967, compared to US$5 billion in 1966. Institutional Investor predicted the “Death of Bonds” on its front cover just before bond traders embarked on their road to fortune.

The question remains whether this collapse of fiscal discipline was made possible by the loosening standards of the leading economists of the day. Reading through the memos and discussions over the course of the decade — particularly the first half, economic advice to the Oval Office grew less authoritarian as political circumstances (that is, elections) dictated lax standards. What alarmed investors and the general population in 1959 (through the press) went unnoticed by 1965. Alarm turns to security with the lapse of time. Yet, the problems were indeed worse. The immediate results, though, if not benign, were certainly not catastrophic — the Martin market passed and new stock market highs weren’t long in coming. Parallels to the new millennium are obvious.

Question asked on 02/06/2007 at 03:22 AM :: Comments to date: 0

War of the Nerds VI (2/5/07)

Category: Politics and the Economy

Then markets turned a deaf ear to bedlam. In Ferguson’s summation:

Repeatedly between 1845 and 1880, then, not only war, but even the mere possibility of war pushed up the risk premia and therefore the yields on great power bonds. The puzzle is that after around 1880 the threat of war seems to have counted for much less. Indeed, the magnitude of financial responses to political crises apparently declined even as 1914 approached — the reverse of what traditional historical accounts would lead us to expect. That, at any rate, is one possible inference to be drawn from financial market data. In the decades before 1914, there was a marked convergence in the longterm interest rates of most major economies.

Ferguson discusses practical reasons why sovereign bond yields fell and converged after 1880: the widespread adoption of the gold standard, the deepening of markets and liquidity, and the rise of local savings banks lassoed to the (general) requirement that deposits be backed by government bonds. Each explanation has its virtues, but flaws persist. The gold standard, the author explains, was seen as a commitment to fiscal rectitude, but gold “was a contingent rule, or a rule with escape clauses” which could be suspended “in the event of a well-understood, exogenously produced event, such as war”.

Ferguson offers an analysis of post- 1880 bond spreads:

Spreads between British consols and approximately equivalent French, German, Russian, and Italian long-bond yields all tended to fall. For example, Italian yields, which were close to double British yields in 1894, had fallen to just 54 basis points above them by 1907. Part of this convergence was because of the rise of consol yields from their all-time nadir of 2.25 in July 1896 to 3.6 per cent in July 1914. However, the main cause was the decline in yields on the bonds of the other great powers. Even more strikingly, the magnitude of short-run fluctuations in yields also diminished. Volatility in the bond markets has also disappeared today.

We saw compression of sovereign yields in Europe when countries cooked their books in anticipation of the Euro. The wide government deficits of 1993 converged on solvency and even persist, at least in official figures. Sovereign credits of Greece trade at approximately the same yield as German debt. Even such a successful domestic investor as Sophocles would forego the local and buy the foreign bond. This willingness to invest in an illusion may find an analogue in the “contingent rule” of gold “with escape clauses”: an inconvenient truth is better dismissed in a bull market.

Continued tomorrow

Question asked on 02/05/2007 at 03:20 AM :: Comments to date: 0

War of the Nerds V (2/4/07)

Category: Politics and the Economy

(For purposes of orientation, a note on 19th-century bond yields: The British consol is the standard by which to judge other sovereign issues. The 3% consol was introduced in 1751 at a par value of £100. It remained the benchmark bond until 1914. Three-percent consols were perpetual issues with covenants that authorised the government to redeem if the price reached par. During the Napoleonic Wars, it traded as low as £50-1/2 to yield 5.98%. Waterloo was distant enough by 1880 that the consol finally traded at £100 and fell below the 3% mark. The perpetuals traded at 2.25% (above £113) by the mid-1890s. The British government didn’t redeem the issues, but the possibility prevented yields from dropping further. Eyeing Ferguson’s data (painstakingly retrieved from every issue of the Economist between 1848 and 1914), the non-British bonds were generally issued with a 5% coupon until 1880; from 1881 some French rentes (which were also perpetual) and Russian issues paid 3% and 4% (respectively). More importantly, except during crises, yields rarely rose above 5% during the entire 1848–1914 period. The exception was Austria; the imperial credit traded at around 6% or 7% during good times and soared into double-digits during crises. By the 1890s, the four other sovereign issuers traded at yields of 3% or below. The trend for the following 20 years was of higher yields, rising by 0.5% to 1.0%.)

Particularly notable, given the later somnolence, was that after King Louis Philippe gave a “disappointing speech to the Chamber of Deputies” in January 1848, the French market suffered a “depression” [“panic selling”, to hazard a guess]. Following the February 1848 revolution in France, the price of British consols fell 7.6%. This was an overreaction in Britain, as was General Motors trading at a price-to-earnings ratio of 5:1 with a dividend yield of 11% in 1949 — American investors who survived the Great Depression could only look back, and British investors schooled in the Napoleonic Wars could only anticipate the long-feared, cross-Channel invasion.

European bond investors suffered similar panic attacks at the outbreak of the Crimean War in 1854, at the impending Franco-Prussian War of 1870–1871, and during the Eastern Crisis of 1876–1878. Russian bond yields rose 5% in March 1878 in fear of a full-scale war between Russia and Britain. This fear, The Economist wrote, was of a “new campaign [that] would lead to a financial disaster. Although the risk of this is very small, this has, nevertheless, depressed Russian stocks.” In modern parlance, the risk-pricing models took unlikely events seriously. But, as is true today, the pricing models weigh recent events most heavily. The world knew these splendid little wars could have turned Napoleonic, but none did. The revolutions of 1830, 1848, and 1871 could have spread like wildfire across Europe, but none did.

Continued tomorrow

Question asked on 02/04/2007 at 05:17 AM :: Comments to date: 0

War of the Nerds IV (2/2/07)

Category: Politics and the Economy

Martin’s fears were too horrible to believe. Bond prices continued their multi-decade swoon, but didn’t anticipate catastrophe. Yet, all of Martin’s warnings came to fruition. The United States went off gold and would only redeem paper dollars for paper dollars. The currency spent a decade in the doghouse but rehabilitated itself in the world’s view to a respectable enough status. We have since weathered any number of financial catastrophes, made possible through the free-floating dollar and unlimited ability to pump credit into the financial system. We have done this so many times — and to no lasting ill effect — that, even the most pessimistic must ask, “Why should this happy circumstance end now?”

Ferguson found that “midnineteenth century investors tended to infer future changes in fiscal and monetary policy from political events, which were regularly reported in private correspondence, the newspapers, and later through telegraph agencies. Among the most influential bases for their inferences were four assumptions: (1) that a political move to the left would tend to loosen fiscal and monetary policy; (2) that a new and radical government would be more likely to pursue an aggressive foreign policy; (3) that any war would disrupt trade and hence lower tax revenues for all governments; and (4) that direct involvement in war would increase a state’s expenditure as well as reducing its tax revenues, leading to substantial new borrowings.”

Most important, as a parallel to our times, “All these assumptions owed much to the experience of the period between 1793 and 1815.” Investors weigh the recent past most heavily in their estimations. The French Revolution and Napoleonic Wars produced, or spawned (in future wars and revolutions), the product of these fears. In this rough estimation, investors between 1848 and 1880 sold sovereign bonds in proportion to how badly bondholders had fared. Ferguson concludes: “Indeed, the experience of the 1790s — when revolution, war, default, and inflation had sent the yields on French securities soaring from 6% to 60% — echoed, like the Marseillaise, for nearly a century. Each time Paris sneezed, to paraphrase Prince Metternich, the European markets caught cold, most obviously in 1830, 1848, and 1871.”

Ferguson goes on to describe the “biggest crisis in the European bond market in the nineteenth century”. This “occurred during the two months after the outbreak of the 1848 revolution in Paris. Austrian and French bonds were both severely hit, with yields on the London market rising by as much as 662 basis points in the former case, and 505 in the latter.”

Continued Sunday

Question asked on 02/02/2007 at 05:13 AM :: Comments to date: 0

War of the Nerds IV (2/2/07)

Category: Politics and the Economy

Martin’s fears were too horrible to believe. Bond prices continued their multi-decade swoon, but didn’t anticipate catastrophe. Yet, all of Martin’s warnings came to fruition. The United States went off gold and would only redeem paper dollars for paper dollars. The currency spent a decade in the doghouse but rehabilitated itself in the world’s view to a respectable enough status. We have since weathered any number of financial catastrophes, made possible through the free-floating dollar and unlimited ability to pump credit into the financial system. We have done this so many times — and to no lasting ill effect — that, even the most pessimistic must ask, “Why should this happy circumstance end now?”

Ferguson found that “midnineteenth century investors tended to infer future changes in fiscal and monetary policy from political events, which were regularly reported in private correspondence, the newspapers, and later through telegraph agencies. Among the most influential bases for their inferences were four assumptions: (1) that a political move to the left would tend to loosen fiscal and monetary policy; (2) that a new and radical government would be more likely to pursue an aggressive foreign policy; (3) that any war would disrupt trade and hence lower tax revenues for all governments; and (4) that direct involvement in war would increase a state’s expenditure as well as reducing its tax revenues, leading to substantial new borrowings.”

Most important, as a parallel to our times, “All these assumptions owed much to the experience of the period between 1793 and 1815.” Investors weigh the recent past most heavily in their estimations. The French Revolution and Napoleonic Wars produced, or spawned (in future wars and revolutions), the product of these fears. In this rough estimation, investors between 1848 and 1880 sold sovereign bonds in proportion to how badly bondholders had fared. Ferguson concludes: “Indeed, the experience of the 1790s — when revolution, war, default, and inflation had sent the yields on French securities soaring from 6% to 60% — echoed, like the Marseillaise, for nearly a century. Each time Paris sneezed, to paraphrase Prince Metternich, the European markets caught cold, most obviously in 1830, 1848, and 1871.”

Ferguson goes on to describe the “biggest crisis in the European bond market in the nineteenth century”. This “occurred during the two months after the outbreak of the 1848 revolution in Paris. Austrian and French bonds were both severely hit, with yields on the London market rising by as much as 662 basis points in the former case, and 505 in the latter.”

Continued Sunday

Question asked on 02/02/2007 at 05:13 AM :: Comments to date: 0

War of the Nerds III (2/1/07)

Category: Politics and the Economy

Derivative models are constructed in the mind — elaborate but treacherous probability estimates. The convergence of debt on production is a mathematical fact. As the wise man said: “It is an economic axiom as old as the hills that goods and services can only be paid for in goods and services.” This is no less true today, though we have done a good job of evading the consequences and concealing the axiomatic convergence: either the nonproductive debt defaults or the paper inflates to meet our production. The closer we approach this unattractive prospect, the less we seem to care. Europe produced a parallel 35-year illusion that, with the passage of time, was erased from investors’ mental probability models, yet was recognised “in a flash”.

The historian Niall Ferguson (The Cash Nexus, War of the World ) has written a paper on the risk imbedded in sovereign bond spreads between 1848 and 1914: “Political Risk and the International Bond Market between the 1848 Revolution and the Outbreak of the First World War”. Published in the Economic History Review earlier this year (available on www.blackwell-synergy.com ), his exhaustive study of weekly great-power bond prices (United Kingdom, France, Germany, Austria-Hungary, and Russia) comes to a surprising conclusion — the closer Europe edged towards war, the less the financial markets cared. Ferguson sees two distinct periods: from 1848 through 1880, the markets were anxious. Sovereign bonds were sold at the slightest scent of war. After 1880, the response to international tensions grew less and less pronounced.

The post-World War II period of fearful consciousness ended in 1971. Armageddon was the intolerable consequence should the US sever its obligation to sovereign states. That obligation was established at Bretton Woods towards the end of World War II. The salient feature of the Bretton Woods system was the United States’ promise to pay out one ounce of gold for every 35 US dollars presented by a foreign government. As the budget deficit, interest rates, and inflation spun out of control, Federal Reserve chairman William McChesney Martin offered the public fair warning. The Columbia University commencement speaker on June 1, 1965 instructed the graduates of unnerving similarities to 1929: private domestic debt was soaring, the supply of money and credit increased as gold was depleted, international indebtedness had risen, “and the payments position of the main reserve money center … the United States … was shaky in the extreme”. The stock market fell 10 points that day and 60 points over the next three weeks to its lowest level in nearly a year. This was known as the “Martin market”. Seeming to reserve his worst for college campuses, the Fed chairman’s speech at Yale University in 1968 foretold of the doom. In Robert P. Bremner’s biography of Martin, the author recounts: “Martin described the economy as ‘living on the edge of an abyss’ if taxes and spending were not addressed. He then observed that if nothing were done, ‘the first trouble would be some basic questions about convertibility of the dollar…. [T]he government will be forced to consider imposing direct control on wages, prices and credit.’”

Continued tomorrow

Question asked on 02/01/2007 at 05:10 AM :: Comments to date: 0

War of the Nerds II (1/30/07)

Category: Politics and the Economy

Illusions today are such that financial imbalances and debt creation have grown to impossible proportions. Impossible, if the anchor of a gold standard still existed. In 1970, among the US, Japan, and European countries, only two (Italy and Sweden) posted government deficits greater than 0.3% of GDP. By 1994, the governments of France (–5.6%), Japan (–4.8%), Italy (–9.7%), the UK (–7.8%), Canada (–7.3%), Belgium (–7.5%), and Sweden (–12.3%) could thank their lucky stars the gold tether no longer existed. They could make fatuous promises and deliver something for nothing. The world’s bond market expanded from US$800 billion in 1970 to over US$62 trillion in 2006. In 1970, most corporate bonds were still backed by a power plant, a large construction project, or oil production. Today, corporate raiders often issue bonds (that is, new debt) to pay themselves a dividend or buy back stock to boost the value of their stock options. Financial derivatives were spawned by the rout of the gold standard. Currency hedging and interest-rate hedging moved from the blackboard to the trading pits. Thirty-five years later, the financial derivative markets top US$350 trillion — when the world’s GDP is US$43 trillion.

It is surely an illusion that derivative markets are connected to economic activity — the derivative markets are nearly ten times the volume of the world’s annual production. The most unwieldy imbalance of all grows in the US. Not the US$800 billion trade deficit or the US$500 billion federal budget deficit, but the amount of debt created compared to the amount of goods produced. Between 1920 and 1980, every dollar of growth was supported by about $1.40 of new debt. The ratio is $7.00 of borrowing to a dollar of growth today. This is economically unproductive but financially remunerative.

Continued Tomorrow

Question asked on 01/30/2007 at 05:08 AM :: Comments to date: 0

War of the Nerds (1/29/07)

Category: Politics and the Economy

War of the Nerds by Fred Sheehan.

Financial markets owe much to illusion. Absolute values don’t exist. Prices are relative and changing. We create our own references. Gold-topaper currency conversion served that purpose. Yet, the US snookered the world into broad acceptance of the dollar standard after severing its relationship to a tangible object. Until 1971, a foreign bank handed $35 to the US government and received an ounce of gold in return. After that, banks handed 35 dollar bills to the US government and received 35 dollar bills in exchange. That was hardly sporting, but it was honest in one respect. Secretary of the Treasury John Connally was refreshingly blunt: “[T]he dollar is our currency but your problem.” That is as true today as then.

Every generation suffers its particular fantasies. So it was a century ago. Investors had grown so immune to the consequences of war that bond markets from London to Vienna didn’t flinch after the assassination that provoked World War I. Three weeks later, in that summer of 1914, the fear premium amounted to a total of one basis point. Then, in quick order, European markets ceased to function. A notable feature of this paralysis is that nothing of substance had changed — war had not been declared by any of the parties, but by now, minds were hyperventilating.

Continued tommorrw

Question asked on 01/29/2007 at 01:06 PM :: Comments to date: 0

Inflation or Deflation? (1/25/07)

Category: Politics and the Economy

There is without a doubt a bubble in credit. Money is being "swept" out of checking accounts and lent out. Bank reserves are nonexistent. Fannie Mae and Freddie Mac have been creating debt out of thin air. That is what happens when money is no longer backed by anything. But the question is not, "What happened?" The charts clearly show what happened. The pertinent question is, "What happens next?" As long as asset prices keep rising, the bubble can keep expanding. Consumers can then keep borrowing against the rising value of their houses and stocks, which in turn supports current consumption.

Is the ability to expand that credit bubble infinite?

I think not. Therein lies the problem. Every bubble sows the seeds of its own demise. Wages are not keeping up with ability to service debt. Global wage arbitrage and outsourcing ensures that trend will continue. Housing is not affordable and has risen several standard deviations beyond wage growth and rental costs. People purchased homes they could not afford just because someone was dumb enough to lend them money. The result is rising bankruptcies and foreclosures at a massive annual rate of growth.

Can the Fed keep expanding the bubble?

Once again, the answer is no. Debt bubbles end when the central bank is no longer able or willing to extend credit and/or when consumers and businesses are no longer willing to borrow because further expansion and/or speculation no longer makes any economic sense.

Here is an alternative reason: Debt bubbles implode when the ability to service the debt can no longer be maintained. Bankruptcies and foreclosures are two ways to measure inability to service debt.

Foreclosures

Foreclosures are actually at a fairly low rate. It is the rate of change, however, that is alarming. See “Foreclosures Increase 51% Nationwide”:

“Foreclosures increased 94% last year, to 157,417 homes in California, as homeowners struggle with fast-rising home payments and a slow-selling market, according to a Fair Oaks real estate investment advisory firm on Monday.

“California had the most foreclosures filed nationwide, while Nevada had the largest percentage increase, at 175%, last year compared to 2005, according to Foreclosures.com.

“Nationwide, almost 971,000 foreclosure filings were reported last year, 51% more than the 641,000 in 2005, according to the annual report.”

Faith in the Fed

Right now, there is enormous faith in the ability of the Fed to keep the bubble inflated. Inflationists fail to see that much of that credit borrowed into existence can never be paid back.

Yet somehow everyone thinks the Fed will expand money enough to matter if a credit bust happens. It has never worked that way in history. Take a good, hard look at monetary base versus M3. Interest rate policy at the Fed cannot fuel that expansion forever.

The Treasury Department has massive ability to print money, but it cannot force banks to lend. It is important to understand the difference. Credit lending standards can only go so far before bankruptcies and foreclosures force a change. That change is finally upon us, and a huge secular reversal is now under way.

The Fed simply does not have the power to deposit money into consumer accounts so that bills can be paid. It probably would not do so even if it could, because it would be to the detriment of banks and creditors. Will the Fed react to a debt implosion by cutting interest rates? The Fed will likely attempt anything it can to help consumers service debt. History proves it, and history proves gold will benefit, as well. But the Fed cannot create jobs or revive housing, and neither can the Treasury.

Willingness to Lend

The Mortgage Lender Implode-O-Meter is reporting, “Twelve lenders have now gone caput since December 2006.” This number has been increasing at a rate of one-two a week since December. Two of those lenders were among the top 20 subprime lenders. One of them was Ownit Mortgage, the other was Mortgage Lender Network. Ownit Mortgage and MLN both went bankrupt.

As I stated before a recession is in the works. Be prepared.

Question asked on 01/25/2007 at 06:16 AM :: Comments to date: 0

Recession is coming. (1/16/07)

Category: Politics and the Economy

Statistics and the economy are great for mathimatical analysis.

I am reading analysis about the recessions that are coming.
By comparing interest rate spreads and the money supply, economic recessions occured after certain correlations were observed from the spreads of these data systems.

No false signals have been given by the 10-year bond minus the three-month T-Bill spread since 1970.

No false signals were given by a combination of real monetary base, M2 CPI adjusted, and the 10-year minus the FF rate spread .
Pretty heady stuff.

I can't print these charts but since 1970 every recession occurred after there was correlation to the above statements.
The charts are pointing to a recession in the near future - next 6 months.
Maybe you should protect yourself in some of your investments so they don't deteriorate with price.
Use stops like a 10% trailing stop from any high on some of your trading stocks.
Infaltion is here, the stock market doesn't like inflation.
The Feds want the $ to weaken to help exports. They have to fund the war and that's inflationary. They pay off the future with cheaper dollars.
This sounds like the 70's all over again.

Question asked on 01/16/2007 at 06:51 AM :: Comments to date: 0

THINK ABOUT THIS FOR A MOMENT (12/28/06)

Category: Politics and the Economy

Weather Bulletin - North Dakota
North Dakota News
This text is from a county emergency manager out in the western part of North Dakota state after a snowstorm.

WEATHER BULLETIN

Up here, in the Northern Plains, we just recovered from a Historic event--- may I even say a "Weather Event" of "Biblical Proportions" --- with a historic blizzard of up to 44" inches of snow and winds to 90 MPH that broke trees in half, knocked down utility poles, stranded hundreds of motorists in lethal snow banks, closed ALL roads, isolated scores of communities and cut power to 10's of
thousands.

FYI:
George Bush did not come.
FEMA did nothing.
No one howled for the government.
No one blamed the government.
No one even uttered an expletive on TV.
Jesse Jackson or Al Sharpton did not visit.
Our Mayor did not blame Bush or anyone else.
Our Governor did not blame Bush or anyone else, either.
CNN, ABC, CBS, FOX or NBC did not visit - or report on this category 5 snowstorm. Nobody demanded $2,000 debit cards.
No one asked for a FEMA Trailer House.
No one looted.
Nobody - I mean Nobody demanded the government do something.
Nobody expected the government to do anything, either.
No Larry King, No Bill O'Reilly, No Oprah, No Chris Mathews and No Geraldo Rivera.
No Shaun Penn, No Barbara Striesand, No Hollywood types to be found.
Continued.

The answer to: "THINK ABOUT THIS FOR A MOMENT (12/28/06)"

Question asked on 12/28/2006 at 06:28 AM :: Comments to date: 0

The Dollar and Inflation (12/14/06)

Category: Politics and the Economy

“All this credit has created a series of ‘bubbles’ in asset prices. The Fed is disingenuous when they say they don’t try to prevent them, but manage the aftermath. They actually consciously create them as a means to continue speculation and debt growth. The last was supposedly the real estate bubble, because it is the largest asset market. But it turns out that the last one might not need one large asset class to ‘get liquidity into consumers’ pockets.’ It may not even be based on generating consumption.

“Perhaps the last bubble involves all asset classes and is being accomplished through monetization. The Fed creates credit and then borrowers take that credit and buy Asian goods. They need an asset class, like real estate, as collateral for that borrowing. Then they spend any excess liquidity driven by higher asset prices and spend it.

“Those created dollars are being sterilized by foreign central banks accomplished by their creating more credit and then buying U.S. securities. Perhaps we are now seeing that last bubble: foreign central banks buying all kinds of private assets like corporate bonds, mortgages, and, yes, even stocks with that credit.

“So the last bubble morphs from a consumption bubble to a speculation bubble.

“This does not seem to bother some as it does me. What happens when governments buy private assets and crowd out private investment? You get excessive risk-taking, of course; everyone goes into debt even more.

The answer to: "The Dollar and Inflation (12/14/06)"

Question asked on 12/14/2006 at 07:45 AM :: Comments to date: 0

History of the US and Today (11/16/06)

Category: Politics and the Economy

THIS IS HISTORY THAT HAS BEEN LEFT OUT OF OUR TEXTBOOKS. MOST OF YOU ARE NOT OLD ENOUGH TO REMEMBER THAT NEARLY EVERY FAMILY IN AMERICA WAS GROSSLY AFFECTED BY WWII. MOST OF YOU DON'T REMEMBER THE RATIONING OF MEAT, SHOES, GASOLINE, AND SUGAR. NO TIRES FOR OUR AUTOMOBILES, AND A SPEED LIMIT OF 35 MILES AN HOUR ON THE ROAD. NOT TO MENTION, NO NEW AUTOMOBILES. READ THIS AND THINK ABOUT HOW WE WOULD REACT TO BEING TAKEN OVER BY FOREIGNERS IN 2006.

Sixty-three years ago, Nazi Germany had overrun almost all of Europe and hammered England to the verge of bankruptcy and defeat, and had sunk more than four hundred British ships in their convoys between England and America for food and war materials.

At that time the US was in an isolationist, pacifist mood, and most Americans wanted nothing to do with the European or the Asian war.

Then along came Pearl Harbor on December 7, 1941, and in outrage Congress unanimously declared war on Japan, and the following day on Germany, which had not yet attacked us. It was a dicey thing. We had few allies.

France was not an ally, as the Vichy government of France quickly aligned itself with its German occupiers. Germany was certainly not an ally, as Hitler was intent on setting up a Thousand Year Reich in Europe. Japan was not an ally, as it was well on its way to owning and controlling all of Asia. Together, Japan and Germany had long-range plans of invading Canada and Mexico, as launching pads to get into the United States over our northern and southern borders, after they finished gaining control of Asia and Europe. America's only allies then were England, Ireland, Scotland, Canada, Australia, and Russia. That was about it. All of Europe, from Norway to Italy, except Russia in the
East, was already under the Nazi heel. America was certainly not prepared for war. America had drastically downgraded most of its military forces after W.W.I and throughout the depression, so that at the outbreak of WW2, army units were training with broomsticks because they didn't have guns, and cars with "tank" painted on the doors because they didn't have real tanks. And a huge
chunk of our navy had just been sunk or damaged at Pearl Harbor. Britain had already gone bankrupt, saved only by the donation of $600 million in gold bullion in the Bank of England, that was actually the property of Belgium, given by Belgium to England to carry on the war when Belgium was overrun by Hitler (a little known fact). Actually, Belgium surrendered on one day, because it was unable to oppose the German invasion, and the Germans bombed Brussels into rubble the next day just to prove they could. Britain had already been holding out for two years in the face of staggering slipping losses and the near-decimation of its air force in the Battle of Britain, and was saved from being overrun by Germany only because Hitler made the mistake of thinking the Brits were a relatively minor threat that could be dealt with later, and first turning his attention to Russia, at a time when England was on the verge of collapse, in the late summer of 1940.

Ironically, Russia saved America's butt by putting up a desperate fight for two years, until the US got geared up to begin hammering away at Germany.

Russia lost something like 24 million people in the sieges of Stalingrad and Moscow alone... 90% of them from cold and starvation, mostly civilians, but also more than a MILLION soldiers.

Had Russia surrendered, Hitler would have been able to focus his entire war effort against the Brits, then America. And the Nazis could possibly have won the war.

All of this is to illustrate that turning points in history are often dicey things. And now, we find ourselves at another one of those key moments in history.

There is a very dangerous minority in Islam that either has, or wants and may soon have, the ability to deliver small nuclear, biological, or chemical weapons, almost anywhere in the world.

The Jihadis, the militant Muslims, are basically Nazis in Kaffiyahs --they believe that Islam, a radically conservative form of Wahhabi Islam, should own and control the Middle East first, then Europe, then the world. And that all who do not bow to their will of thinking should be killed, enslaved, or subjugated. They want to finish the Holocaust, destroy Israel, and purge the world of Jews. This is their mantra.

There is also a civil war raging in the Middle East -- for the most part not a hot war, but a war of ideas. Islam is having its Inquisition and its Reformation, but it is not known yet which will win -- the
Inquisitors, or the Reformationists.

If the Inquisition wins, then the Wahhabis, the Jihadis, will control the Middle East, the OPEC oil, and the US, European, and Asian economies. The techno-industrial economies will be at the mercy of OPEC -- not an OPEC dominated by the educated, rational Saudis of today, but an OPEC dominated by the Jihadis. You want gas in your car? You want heating oil next winter? You want the dollar to be worth anything? You better hope the Jihad, the Muslim Inquisition, loses, and the Islamic Reformation wins.

If the Reformation movement wins, that is, the moderate Muslims who believe that Islam can respect and tolerate other religions, and live in peace with the rest of the world, and move out of the 10th century into the 21st, then the troubles in the Middle East will eventually fade away, and a moderate and prosperous Middle East will emerge.

We have to help the Reformation win, and to do that we have to fight the Inquisition, i.e., the Wahhabi movement, the Jihad, Al Qaeda and the Islamic terrorist movements. We have to do it somewhere. And we can't do it everywhere at once. We have created a focal point for the battle at a time and place of our choosing........in Iraq.

Not in New York, not in London, or Paris or Berlin, but in Iraq, where we are doing two important things.

(1) We deposed Saddam Hussein. Whether Saddam Hussein was directly involved in 9/11 or not, it is undisputed that Saddam has been actively supporting the terrorist movement for decades. Saddam is a terrorist.

Saddam is, or was, a weapon of mass detruction, who is responsible for the deaths of probably more than a million Iraqis and two million Iranians.

(2) We created a battle, a confrontation, a flash point, with Islamic terrorism in Iraq. We have focused the battle. We are killing bad people, and the ones we get there we won't have to get here. We also
have a good shot at creating a democratic, peaceful Iraq, which will be a catalyst for democratic change in the rest of the Middle East, and an outpost for a stabilizing American military presence in the Middle East for as long as it is needed.

World War II, the war with the German and Japanese Nazis, really began with a "whimper" in 1928. It did not begin with Pearl Harbor. It began with the Japanese invasion of China. It was a war for fourteen years before America joined it. It officially ended in 1945 -- a 17 year war -- and was followed by another decade of US occupation in Germany and Japan to get those countries reconstructed and running on their own again ... a 27 year war.

World War II cost the United States an amount equal to approximately a full year's GDP -- adjusted for inflation, equal to about $12 trillion dollars. W.W.II cost America more than 400,000 killed in action, and nearly 100,000 still missing in action.

The Iraq war has, so far, cost the US about $160 billion, which is roughly what 9/11 cost New York. It has also cost about 2,200 American lives, which is roughly 2/3 of the 3,000 lives that the Jihad snuffed on 9/11. But the cost of not fighting and winning W.W.II would have been unimaginably greater -- a world dominated by German and Japanese Nazism.
The real world is messy, uncertain, and sometimes bloody and ugly. Always has been, and probably always will be.

The bottom line is that we will have to deal with Islamic terrorism until we defeat it, whenever that is. It will not go away if we ignore it.

If the US can create a reasonably democratic and stable Iraq, then we have an "England" in the Middle East, a platform, from which we can work to help modernize and moderate the Middle East. The history of the world is the clash between the forces of relative civility and civilization, and the barbarians clamoring at the gates. The Iraq war is merely another battle in this ancient and never-ending war. And now, for the first time ever, the barbarians are about to get nuclear weapons. Unless somebody prevents them.
Continued.

The answer to: "History of the US and Today (11/16/06)"

Question asked on 11/16/2006 at 04:56 AM :: Comments to date: 0

Globalization Good or Bad (11/14/06)

Category: Politics and the Economy

Chances are there is an iPod in your family -- perhaps more than one. If you do not own one, a younger-generation relative just might. The iPod is a wonderful invention; it has improved the musical quality of life for millions. As with other wildly successful technologies, those of us addicted to our iPods cannot imagine life without them.

Musical bliss aside, Apple’s manufacturing process is a testament to free trade realities — for better and for worse. With apologies to Blaise Pascal, the iPod is both the glory and the shame of globalization.

In a 2004 Wall Street Journal piece entitled “We Think, They Sweat,” ex-hedge fund manager Andy Kessler uses the iPod as a centerpiece for a pro-globalization, pro-technology, America-takes-all argument. Kessler calls Apple “the worst offender in the decline of U.S. manufacturing,” and means it as a high compliment.

On the back of every iPod, Mr. Kessler reminds us, the words “Assembled in China” are juxtaposed with “Designed by Apple in California.” The cost of labor and parts means that, by importing millions of iPods assembled in China, billions of dollars are added to America’s trade deficit. Yet Apple, an American company, reaps the lion’s share of profits, which, in turn, pass through to Apple’s stockholders.

Kessler thus uses the iPod to paint the trade deficit as a Chicken Little issue. After all, how can the sky be falling when U.S.-based companies are making money hand over fist on deals like these? Apple’s profit margin on iPods could run above 40%, based on production cost data from Wedbush Morgan Securities, whereas Kessler estimates the China-side profit to be in single digits, quite possibly below 5%. It is clearly much better, then, to “think” and profit handsomely…than to “sweat” for hardly any margin at all.
You get the point.
This leads to the reason why we have a trade surplus - we are exporting our low end manufacturing jobs to a lesser cost base for the corporations to stay competitive in the Market Place.
Continued

The answer to: " Globalization Good or Bad (11/14/06)"

Question asked on 11/14/2006 at 06:04 AM :: Comments to date: 0

Politics (11/05/06)

Category: Politics and the Economy

Tuesday is the Election.
Vote, it is your right.
People in the armed services are serving you for the freedom you have.
Whether you believe it is good or bad they are still putting their lives on the line everyday for you.
If you have friends or family in the armed services pray for their safe return.
Thank you all for our freedoms.

Question asked on 11/05/2006 at 02:37 AM :: Comments to date: 0

Trick or Treat (10/31/06)

Category: Politics and the Economy

I was doing a job interview for a hotel clerk and their were two women who came in together to apply for the jobs.
Everything was going along fine until they asked what the holiday schedule was. So I told them that a hotel is open 365 days a year and that we rotated the days our employees worked holidays so it is fair to everyone.
They wanted their holiday schedule to be every full moon and halloween, along with other witches sacred holidays. Then they started preaching about freedom of religion.
Obviously I didn't hire the witches not due to discrimination against religion but because they could not fullfill the job requirements of scheduled times.
This is what makes the world go round.

Question asked on 10/31/2006 at 07:45 AM :: Comments to date: 0

Inflation (10/10/06)

Category: Politics and the Economy

Inflation -- defined as excess money printing -- feels good to almost everyone in its early stages. Everyone in this new “ownership society” comes to believe they are getting rich by trading stocks and houses with each other. Academic economists eventually develop entire new branches of research dedicated to the idea that saving, investing, and producing no longer matter as long as stock and housing assets can be traded in unencumbered markets (and the multiplier effects of spending capital gains trickle down to the working class through the “service economy”). Continued

The answer to: "Inflation (10/10/06)"

Question asked on 10/10/2006 at 05:06 AM :: Comments to date: 0

What about Cuba? (10/9/06)

Category: Stocks

If you believe that Cuba will do better once Castro is gone then invest in ( cuba ) a portfolio that invests in companies in Cuba and the Carribean.
It has had a slow growth over the past 3 years, nothing stellar but steady.
But maybe the momentum will start to pick up and then turmoil and power struggles will evolve.
Who knows, but as Castro passes on, the media will bring the Cuban history to the American public and investors will be actively looking to invest which will create more demand for the stock CUBA.

Question asked on 10/09/2006 at 03:53 AM :: Comments to date: 0

A False Sense of Insecurity? (10/07/06)

Category: Politics and the Economy

Historical Record

It should be kept in mind that Sept. 11 continues to stand out as an extreme event. Until then, and since then, no more than 329 people have ever been killed in a single terrorist attack (in a 1985 Air India explosion). And extreme events often remain exactly that -- aberrations, rather than harbingers.

A bomb planted in a piece of checked luggage was responsible for the explosion that caused a Pan Am jet to crash into Lockerbie, Scotland, in 1988, killing 270 people. Since that time, hundreds of billions of pieces of luggage have been transported on American carriers and none have exploded to down an aircraft. (And millions of passengers who checked bags at hotels and retrieved them before heading to the airport have routinely lied to airline agents when answering the obligatory question about whether their luggage had at all times been in their possession.) This does not mean that one should cease worrying about luggage on airlines, but it does suggest that extreme events do not necessarily assure repetition any more than Timothy McVeigh’s Oklahoma City bombing of 1995 has.

Since its alarming release of poison gas in the Tokyo subway in 1995, the apocalyptic group Aum Shinrikyo appears to have abandoned the terrorism business, and its example has not been followed. Some sort of terrorist inoculated Tylenol capsules with cyanide in 1982, killing seven people. However, that frightening and much-publicized event (it generated 125,000 stories in the print media alone and cost the manufacturer more than $1 billion) failed to inspire much in the way of imitation.

Continued

The answer to: "A False Sense of Insecurity? (10/07/06)"

Question asked on 10/07/2006 at 06:20 AM :: Comments to date: 0

Housing (10/2/06)

Category: Politics and the Economy

First-time home buyers, who represent the slow-burning fire stoking the ‘move-up’ phenomenon from the ground up, cannot afford houses at current asking prices with traditional 30-year fixed mortgages in most area of the country. Sellers must cut prices to clear the market and so far, most have been reluctant to do so, remaining psychologically anchored to the gains that they ‘earned’ over the past five years. So housing is following the traditional post-bubble playbook, at its own pace, while daily economic life as we know it will mostly be affected by the inverse ‘wealth effect’ and the loss of construction and real estate-related jobs.”
Several Wall Street strategists are making a bullish case for the broad stock market based solely upon a “Fed is done tightening” scenario. They are likely to be disappointed when they discover that the foundation of their case is sinking sand; conditions that have prompted the Fed to enact a rate-cutting campaign are not good conditions in which to be holding stocks. These conditions are characterized by falling confidence in the economy, delays of capital investment projects, and hesitance on the part of those providing loans to the most borderline credit risks. Credit spreads, or the premium that lenders require in return for taking on greater default risk, are widening. Fixed income investors appear to be battening down the hatches for a recession by piling into the one income investment that guarantees return of principal and interest:
Continued.

The answer to: "Housing (10/2/06)"

Question asked on 10/02/2006 at 06:31 AM :: Comments to date: 0

Copper and the Economy (10/1/06)

Category: Politics and the Economy

Copper is often referred to as "Dr. Copper" because of its unique ability to forecast economic trends.

1. One of the biggest uses of copper is in housing, and housing has clearly fallen off a cliff.
2. Copper went into contango.

The bull in copper would end as soon as copper went into contango. Although I was very aware that much (but not all) of the backwardation had worn off, I did not have a graphical presentation of it.

It seems I am not the only person watching copper.

The answer to: "Copper and the Economy (10/1/06)"

Question asked on 10/01/2006 at 06:13 AM :: Comments to date: 0

Social Security (9/28/06)

Category: Politics and the Economy

Franklin Roosevelt, a Democrat, introduced the Social Security (FICA) Program.
He promised:
1.) That participation in the Program would be completely voluntary,
2.) That the participants would only have to pay 1% of the first $1,400 of their annual incomes into the Program,
3.) That the money the participants elected to put into the Program would be deductible from their income for tax purposes each year,
4.) That the money the participants put into the independent "Trust Fund" rather than into the General operating fund, and therefore, would only be used to fund the Social Security Retirement Program, and no other Government program, and,
5.) That the annuity payments to the retirees would never be taxed as income. Continued.

The answer to: "Social Security (9/28/06)"

Question asked on 09/28/2006 at 06:28 AM :: Comments to date: 0

How is your local economy? (9/27/06)

Category: Politics and the Economy

“I had to meet with an associate for lunch across town, so we agreed to meet at an intersection where we knew that there were a number of chain restaurants. We agreed to meet at the Olive Garden.
“We got there and the Olive Garden was closed down, shuttered, and the sign removed. Next door, there was supposed to be a Cracker Barrel; well, the last time I looked, there was one. No Cracker Barrel, no building, just an empty lot. We drove over to the Coyote Grill, closed. Finally, found that TGI Friday's was open. I'm not a fan of Friday's, but when you are hungry, you take what you can get. You would expect that Friday's would be packed on the lunch hour, since the three local competitors were closed. But there was plenty of room and quick service. My associate knew the hostess, who said that there were a lot of patrons coming in from the other restaurants, but it was still slow.

“This is a busy intersection right off the freeway exit near plenty of office buildings. Prime location. These restaurants have been in business for at least a decade. They are well-capitalized national chain restaurants. That they all closed in such a short period says a lot about the state of the industry.

“P.S. Just went past a freshly closed Outback Steakhouse. Once again, it was in a prime location on the freeway in an affluent suburb. It too was shut down.
Continued.

The answer to: "How is your local economy? (9/27/06)"

Question asked on 09/27/2006 at 06:05 AM :: Comments to date: 0

Commodities (9/25/06)

Category: Politics and the Economy

We are long-term commodity bulls for the most part, but it has been time to take a breather, especially in the face of what we believe will be a U.S. recession and worldwide slowdown that is likely to further cool commodity prices. For now, Short term traders are out of commodities or short and long term traders are still waiting on the sidelines for adding totheir positions in gold, silver and platinum.
Net capital flows into the United States fell to $32.9 billion in July, from $75.1 billion in June. This amounted to the lowest for monthly capital inflows since May 2005.
Let's see why there is going to be a slowdown in the economy
A decline will be led due to the decline of private foreign investors, who bought $31.8 billion in Treasury bonds and notes, down from $82.4 billion in June. This was also the lowest amount of purchases since May 2005.

Treasury bonds and notes saw the greatest month-to-month weakness. Private investors sold $1.7 billion of Treasury bonds in July after having purchased $31.4 billion in June.

By contrast, foreign central banks increased their holdings in July, buying $22.7 billion of U.S. long-term financial assets, up from $2.3 billion in June.
Another reason for a downturn in the economy.
Compared to a year earlier, August housing starts were down 19.8%, from the August 2005 pace of 2.075 million units. Continued.

The answer to: "Commodities (9/25/06)"

Question asked on 09/25/2006 at 06:50 AM :: Comments to date: 0

Here’s to your own wealth. (9/16/06)

Category: Character

What is the seventh wonder of the world?

Compound interest.

If you have very small kids or grandkids, they can benefit from the miracle of compounded interest. Justin Ford, wrote a brilliant book called Seeds of Wealth. It is all about saving just $1 a day for your kids so they have a substantial nest egg by the time they are young adults.
Continued.

The answer to: "Here’s to your own wealth. (9/16/06)"

Question asked on 09/16/2006 at 06:01 AM :: Comments to date: 0

9/11/06

Category: Politics and the Economy

Please join us in FLYING THE FLAG campaign
THE PROGRAM IS THIS:

On Monday , September 11th, 2006 , an American flag should be displayed outside every home, apartment, office, and stor e in the United States. Every individual should make it their duty to display an American flag on this fifth anniversary of our country's worst tragedy. We do this in honor of those who lost their lives on 9/11, their families, friends and loved ones who continue to endure the pain, and those who today are fighting at home and abroad to preserve our cherished freedoms.

In the days, weeks and months following 9/11, our country was bathed in American flags as citizens mourned the incredible losses and stood shoulder-to-shoulder against terrorism. Sadly, those flags have all but disappeared. Our patriotism pulled us through some tough times and it shouldn't take another attack to galvanize us in solida rity. Our American flag is the fabric of our country and together we can prevail over terrorism of all kinds.

The answer to: "9/11/06"

Question asked on 09/11/2006 at 06:29 AM :: Comments to date: 0

Housing, Greed and Economy. (8/30/06)

Category: Stocks

Toll Brothers, Aug. 23, 2006

“Housing Slump Proves Painful for Some Owners and Builders”:

“‘It would be difficult to characterize the position of home builders as other than in a hard landing,’ says Robert Toll, chief executive of luxury home builder Toll Brothers Inc., which reported that net income fell 19% in the third quarter ended July 31.

“In his 40 years as a home builder, Mr. Toll says, he has never seen a slump unfold like the current one. ‘I've never seen a downturn in housing without a downturn in employment or... some macroeconomic nasty condition that took housing down along with other elements of the economy,’ he says. ‘This time, you've got low unemployment, you've got job creation, you've got a stable stock market, and relatively low interest rates.’ ”

It seems a dose of reality is needed for Robert Toll as well. The macroeconomic connection missed by Robert Toll is that housing was and is in a bubble and bubbles pop. As for “low unemployment and job creation,” it should now be obvious to everyone that the reason they were low was because an overheated housing bubble was creating jobs until the bubble popped. The reason you have not seen a downturn like this before is because you have not seen a national housing bubble like this before. Let's now turn our focus to the Question of the Day.

The answer to: "Housing, Greed and Economy. (8/30/06)"

Question asked on 08/30/2006 at 06:04 AM :: Comments to date: 0

A False Sense of Insecurity? Continued (8/27/06)

Category: Politics and the Economy

Know Your Audience

It is easy to blame politicians and the media for the distorted and context-free condition under which terrorism is so often discussed. In many respects, however, that circumstance arises not so much from their own proclivities, but rather from those of their customers. Hysteria and alarmism often sell.

The record with respect to fear about crime, for example, suggests that efforts to deal responsibly with the risks of terrorism will prove difficult. Fear of crime rose notably in the mid-1990s, even as statistics were showing crime to be in pronounced decline. When David Dinkins, running for re-election as mayor of New York, pointed to such numbers, he was accused by A. M. Rosenthal of The New York Times of hiding behind “trivializing statistics” that “are supposed to convince us that crime is going down.” New Yorkers did eventually come to feel safer from crime, but that was probably less because crime rates actually declined than because of atmospherics as graffiti, panhandlers, aggressive windshield washers, and the homeless were banished or hidden from view. So it may have made sense in the months after the Sept. 11 attacks to have armed reservists parading around in airports. It is not clear how they prevented terrorist attacks, and pulling them from productive jobs hardly helped the economy. But if they provided people with a sense of security, their presence may have been worth it.

In the end, it is not clear how one can deal with the public’s often irrational -- or at least erratic -- fears about remote dangers. Some people say they prefer comparatively dangerous forms of transportation like the private passenger automobile (the cause of over 3 million American deaths during the 20th century) to safe ones like commercial airliners because they feel they have more “control.” But they seem to feel no fear on buses and trains -- which actually are more dangerous than airliners -- even without having that sense of control and even though derailing a speeding train or crashing a speeding bus is likely to be much easier for a terrorist than downing an airliner. And people tend to be more alarmed by dramatic fatalities -- which the Sept. 11 crashes certainly provided -- than by ones that cumulate statistically. Thus, the 3,000 deaths of Sept. 11 inspire far more grief and fear than the 100,000 deaths from auto accidents that have taken place since then. In some respects, fear of terror may be something like playing the lottery, except in reverse: The chances of winning the lottery or of dying from terrorism may be microscopic, but for monumental events that are, or seem, random, one can irrelevantly conclude that one’s chances are just as good, or bad, as those of anyone else.

The communication of risk, then, is no easy task. Risk analyst Paul Slovic points out that people tend greatly to overestimate the chances of dramatic or sensational causes of death, that realistically informing people about risks sometimes only makes them more frightened, that strong beliefs in this area are very difficult to modify, that a new sort of calamity tends to be taken as harbinger of future mishaps, that a disaster tends to increase fears not only about that kind of danger, but of all kinds, and that people, even professionals, are susceptible to the way risks are expressed -- far less likely, for example, to choose radiation therapy if told the chances of death are 32% rather than that the chances of survival are 68%.

But risk assessment and communication should at least be part of the policy discussion over terrorism, something that may well prove to be a far smaller danger than is popularly portrayed. The constant, unnuanced stoking of fear by politicians and the media is costly, enervating, potentially counterproductive, and unjustified by the facts.

Continued.

The answer to: "A False Sense of Insecurity? Continued (8/27/06)"

Question asked on 08/27/2006 at 06:30 AM :: Comments to date: 0

A False Sense of Insecurity? Continued (8/26/06)

Category: Politics and the Economy

Politicians and the Media

A problem with getting coherent thinking on the risk of terrorism is that reporters and politicians find extreme and alarmist possibilities so much more appealing than discussions of broader context, much less of statistical reality. That is, although hysteria and alarmism rarely make much sense, politicians and the media are often naturally drawn to them.

There is no reason to suspect that President Bush’s concern about terrorism is anything but genuine. However, his approval rating did receive the greatest boost for any president in history in September 2001, and it would be politically unnatural for him not to notice. His chief political adviser, Karl Rove, [in 2003 said] that the “war” against terrorism will be central to Bush’s re-election campaign. The Democrats, scurrying to keep up, have stumbled all over each other with plans to expend even more of the federal budget on the terrorist threat, such as it is, than President Bush.

This process is hardly new. The preoccupation of the media and of Jimmy Carter’s presidency with the hostages taken by Iran in 1979 to the exclusion of almost everything else may look foolish in retrospect, as Carter’s secretary of state, Cyrus Vance, conceded in his memoirs. But it doubtless appeared to be good politics at the time -- Carter’s dismal approval rating soared when the hostages were seized. Similarly, in the 1980s, the Reagan administration became fixated on a handful of American hostages held by terrorists in Lebanon. At the time, Reagan’s normally judicious secretary of state, George Shultz, was screaming that we needed desperately to blast somebody somewhere “on a moment’s notice” -- even without adequate evidence -- in order to avoid looking like the indecisive “Hamlet of nations.” He apparently preferred the King Lear approach. Normally, however, only lunatics and children rail at storms; sensible people invest in umbrellas and lightning rods.

Since Sept. 11, the American public has been treated to endless yammering about terrorism in the media. Politicians may believe that, given the public concern on the issue, they will lose votes if they appear insensitively to be downplaying the dangers of terrorism (though this fear does not seem to have infected Sen. McCain). However, the media like to tout that they are devoted to presenting fair and balanced coverage of important public issues. I may have missed it, but I have never heard anyone in the media stress that in every year except 2001, only a few hundred people in the entire world have died as a result of international terrorism.

Continued.

The answer to: "A False Sense of Insecurity? Continued (8/26/06)"

Question asked on 08/26/2006 at 06:28 AM :: Comments to date: 0

A False Sense of Insecurity? Continued (8/24/06)

Category: Politics and the Economy

Poor Results

For their part, biological and chemical weapons have not proven to be great killers. Although the basic science about them has been well known for a century at least, both kinds of weapons are notoriously difficult to create, control, and focus (and even more so for nuclear weapons).

To this point in history, biological weapons have killed almost no one. And the notion that large numbers of people would perish if a small number of chemical weapons were to be set off is highly questionable. Although they can be hugely lethal when released in gas chambers, their effectiveness as weapons has been unimpressive. In World War I, for example, chemical weapons caused less than 1% of the total combat deaths; on average, it took a ton of gas to produce one fatality. In the conclusion to the official British history of the war, chemical weapons are relegated to a footnote that asserts that gas “made war uncomfortable...to no purpose.” A 1993 analysis by the Office of Technology Assessment finds that a terrorist would have to deliver a full ton of sarin nerve gas perfectly and under absolutely ideal conditions over a heavily populated area to cause between 3,000-8,000 deaths -- something that would require the near-simultaneous detonation of dozens, even hundreds, of weapons. Under slightly less ideal circumstances -- if there were a moderate wind or if the sun were out, for example -- the death rate would be only one-tenth as great. The 1995 chemical attack launched in Tokyo by the well-funded Aum Shinrikyo (attempted only after several efforts to use biological weaponry had failed completely) managed to kill only 12 people.

Thus far at least, terrorism is a rather rare and -- in appropriate, comparative context -- not a very destructive phenomenon. However, the enormous sums of money being spent to deal with the threat have in part been diverted from other, possibly more worthy, endeavors. The annual budget for the Department of Homeland Security, for example, now tops $40 billion, while state and local governments spend additional billions. Some of that money doubtless would have been spent on similar ventures under earlier budgets, and much of it likely has wider benefits than simply securing the country against a rather limited threat. But much of it, as well, has very likely been pulled away from more beneficial uses.

Continued

The answer to: "A False Sense of Insecurity? Continued (8/24/06)"

Question asked on 08/24/2006 at 06:26 AM :: Comments to date: 0

A False Sense of Insecurity? Continued (8/23/06)

Category: Politics and the Economy

Responding to Terrorism

Frantz Fanon, the 20th-century revolutionary, contended that “the aim of terrorism is to terrify.” If that is so, terrorists can be defeated simply by not becoming terrified -- that is, anything that enhances fear effectively gives in to them.

The shock and tragedy of Sept. 11 does demand a focused and dedicated program to confront international terrorism and to attempt to prevent a repeat. But it seems sensible to suggest that part of this reaction should include an effort by politicians, officials, and the media to inform the public reasonably and realistically about the terrorist context, instead of playing into the hands of terrorists by frightening the public. What is needed, as one statistician suggests, is some sort of convincing, coherent, informed, and nuanced answer to a central question: “How worried should I be?” Instead, the message the nation has received so far is, as a Homeland Security official put (or caricatured) it, “Be scared; be very, very scared -- but go on with your lives.” Such messages have led many people to develop what Leif Wenar of the University of Sheffield has aptly labeled “a false sense of insecurity.”

Continued.

The answer to: "A False Sense of Insecurity? Continued (8/23/06)"

Question asked on 08/23/2006 at 06:23 AM :: Comments to date: 0

A False Sense of Insecurity? (8/21/06)

Category: Politics and the Economy

By John Mueller
Ohio, U.S.A.

DETERMINING HOW TO respond to the terrorist challenge has become a major public policy issue in the United States over the last three years. It has been discussed endlessly, many lives have been changed, a couple of wars have been waged, and huge sums of money have been spent -- often after little contemplation -- to deal with the problem. A sensible policy approach to the problem might be to stress that any damage terrorists are able to accomplish likely can be absorbed, however grimly. While judicious protective and policing measures are sensible, extensive fear and anxiety over what may at base prove to be a rather limited problem are misplaced, unjustified, and counterproductive.

Throughout all this, there is a perspective on terrorism that has been very substantially ignored. It can be summarized, somewhat crudely, as follows:

--Assessed in broad but reasonable context, terrorism generally does not do much damage.

--The costs of terrorism very often are the result of hasty, ill-considered, and overwrought reactions.

The answer to: "A False Sense of Insecurity? (8/21/06)"

Question asked on 08/21/2006 at 06:03 AM :: Comments to date: 0

How safe is China and India outsourcing? (8/7/06)

Category: Politics and the Economy

Let's look at what Japan is doing, their auto plants in America are so efficient and produce such high-quality cars and trucks that they have begun to export from here back to Asia. Makes me wonder why General Motors is closing plants in America and laying off tens of thousands of workers here while they open eight factories in China. The next year is going to be a real test in my opinion of the Wall Street near-fanatic obsession concerning Chinese manufacturing growth. China says that they want to move into the high end of manufacturing and to develop their own advanced products. That might be possible if it were not for the major deficiency of their educational system.

Their children are taught to learn by rote and never ask questions. That helps make for an orderly communist-run State. But I just showed you how vital the ideas contributed from experienced workers at the American Airlines facility in Oklahoma have been in improving efficiency and productivity. Chinese factories do not have that edge. They substitute manpower for imagination, and as that manpower increasingly has begun demanding raises of up to 30% per year their once-great cost advantages are fading fast.

I feel I must also take note that India – also seen as a nation due to replace America as a world power – is bedeviled with problems. No one in the Wall Street controlled national media wants to talk about it, but communist radicals that have probably come over the mountains from China, by way of Nepal, have infiltrated Indian cities and villages. Perhaps half the country is now moving into the hands of democratically elected communists.

The answer to: "How safe is China and India outsourcing? (8/7/06)"

Question asked on 08/07/2006 at 03:16 AM :: Comments to date: 0

What is the future for America's Manufacturing? (8/6/06)

Category: Politics and the Economy

What is happening at American Airlines is being replicated in America. We are lean and mean. That makes profits and growth!

Even when American costs are brought down by efficiencies, there is still the matter of an uneven playing field. China, as you know, forced its money down 40% more than a decade ago. That let them attract companies like Wal-Mart, which I seem to recall now buys 10% of China’s exports. They have set their prices below the cost of production, in violation of agreements. What’s more, in an age of open borders and zero tariffs, they have slapped 100% tariffs on auto parts imported from America, forcing U.S. companies to make parts in China in order to build cars there. That fascinates me. A year ago the Chinese government griped about the 33% defect rate at Chinese plants making car parts, so speaking for myself I am not going to be heading to any showroom next year to see the new cars being made in China. The Chinese factory losses are being made up by funds coming in from the U.S. I am not hopeful about that flood of money to China being sopped or slowed, now that a leading Wall Street investment banker who is a passionate friend and promoter of China is the new N.S. Treasury Secretary.
(Continued)

The answer to: "What is the future for America's Manufacturing? (8/6/06)"

Question asked on 08/06/2006 at 05:02 AM :: Comments to date: 0

Joke of the Day (8/2/06)

Category: Politics and the Economy

The Pope is visiting Washington, D.C., and President Bush takes him out for an afternoon on the Potomac, cruising on the Presidential yacht, the Sequoia. They're admiring the sights when, all of a sudden, the Pope's hat (zucchetto)
blows off his head and out into the water.
Secret Service guys start to launch a boat, but President
Bush waves them off, saying, "Wait, wait. I'll take care of
this. Don't worry."
Bush then steps off the yacht onto the surface of the water and walks out to the Holy Father's little hat, bends over,
picks it up, and then walks back to the yacht and climbs aboard. He hands the hat to the Pope amid stunned silence.
Continued

The answer to: "Joke of the Day (8/2/06)"

Question asked on 08/02/2006 at 07:01 AM :: Comments to date: 0

The daughter of a Soldier (8/2/06)

Category: Character

This a true story.

This may put a lump in your throat and a tear in your eye. (Hopefully, it will.) I recieved this as an email.

Last week I was in Atlanta, Georgia attending a conference. While I was in the airport, returning home, I heard several people behind me beginning to clap and cheer. I immediately turned around and witnessed
one of the greatest act's of patriotism I have ever seen.
Moving thru the terminal was a group of soldiers in their camo's, as they began heading to their gate everyone (well almost everyone) was abruptly to their feet with their hands waving and cheering. When I saw the soldiers, probably 30-40 of them, being applauded and cheered for it hit me. I'm not alone. I'm not the only red blooded Aerican who still loves this country and supports our troops and their families.
Of course I immediately stopped and began clapping for these young unsung heroes who are putting their lives on the line everyday for us so we can go to school, work and home without fear or reprisal. Just when I thought I could not be more proud of my country or of our service men and women a young girl, not more than 6 or 7 years old, ran up to one of the male soldiers. He kneeled down and said "hi," the little girl then she asked him if he would give something to her daddy for her. The young soldier, he didn't look any older than maybe 22 himself, said he would try and what did she want to give to her daddy. Then suddenly the little girl grabbed the neck of this soldier, gave him the biggest hug she could muster and then kissed him on the cheek.
Continued.

The answer to: "The daughter of a Soldier (8/2/06)"

Question asked on 08/02/2006 at 06:31 AM :: Comments to date: 0

Inflation Dilutes Savers’ Purchasing Power (7/23/06)

Category: Stocks

Loss of purchasing power directly parallels inflation diluting savers’ future purchasing power. Inflation can be measured by dividing the amount of money and credit created in a given year by the total existing supply of money and credit. Holding the supply of goods and services constant, the added supply of money and credit will exert pressure on asset prices, goods, and services in fairly unpredictable fashion. A U.S. dollar is a claim on the current and future supply of goods and services. As the government creates more money (an increasing money supply and an increasing deficit) it chases the same amount of goods and services, therefore inflation.

The answer to: "Inflation Dilutes Savers’ Purchasing Power (7/23/06)"

Question asked on 07/23/2006 at 10:00 AM :: Comments to date: 0 :: TrackBacks to date: 0

Oil and the Middle East (7/19/06)

Category: Stocks

It is well known that Syria and Iran have for years been ardent financial and political supporters of the terrorist organization Hezbollah. These countries recently signed a mutual defense pact, so if Israel targets Syria in its retaliation, there is a risk that Iranian leaders could take actions that destabilize the entire region.

While Iran’s military may not yet have the capability to project force on Israel, the mullahs could foment a Shiite uprising that would destabilize the fledgling democracy in Iraq. Or they could use missile batteries to disrupt the flow of Iraqi, Kuwaiti, and Saudi oil to world markets. This involves threats of the shutting down of the Strait of Hormuz, one of the most critical chokepoints in the crude oil supply chain.

The answer to: "Oil and the Middle East (7/19/06)"

Question asked on 07/19/2006 at 05:12 AM :: Comments to date: 0 :: TrackBacks to date: 0

Globalization has just begun. (7/17/06)

Category: Politics and the Economy

“Medical Tourism India” is a developing concept whereby people from world over visit India for their medical and relaxation needs. The most common treatments are heart surgery, knee transplant, cosmetic surgery, and dental care. The reason India is a favorable destination is because of its infrastructure and technology, which is in par with those of the USA, U.K., and Europe. India has some of the best hospitals and treatment centers in the world and the best facilities.

On Sept. 4, 2005, 60 Minutes did a documentary entitled “Vacation, Adventure, and Surgery?”:
“This summer, millions headed out to foreign lands for vacation, adventure, tourism, or just a beautiful beach.
“But how about hip surgery or a multiple bypass or a facelift? (continued)

The answer to: "Globalization has just begun. (7/17/06)"

Question asked on 07/17/2006 at 06:00 AM :: Comments to date: 0 :: TrackBacks to date: 0

How your tax Dollars are spent. (7/14/06)

Category: Politics and the Economy

Zero Gravity

When NASA first started sending up astronauts, they quickly discovered
that ball-point pens would not work in zero gravity. To combat this
problem, NASA scientists spent a decade and $12 million developing a pen
that writes in zero gravity, upside-down, on almost any surface including
glass and at temperatures ranging from below freezing to over 300 C.

The Russians used a pencil.

Notice the turmoil in the middle east again and who is bashing the dollar.
When there is war on the horizon money flows to the most stable currency, the dollar, no matter how hard our government tries to debase it. We are still the safe haven for the money of the world. That's due to our freedoms and security that we provide.
Even if we didn't use common sense on the pencil, NASA's little inventions are being used in new technology today that would not have been developed if it were not for the mistakes made and learned from little mis-spendings such as this. Even Thomas Edison made 1000's of mistakes or experimentations before he perfected his inventions.

Your extensions on your taxes are coming due again--enjoy paying them.

On a final note I am proud of our troops defending our freedoms throughout the world so that we can still be the safest free country in the world.

Question asked on 07/14/2006 at 06:52 AM :: Comments to date: 0 :: TrackBacks to date: 0

THREE CHEERS FOR AUSTRALIA (7/12/06)

Category: Politics and the Economy

I wish the leaders of our country would take a stand like Australia.....

Muslims who want to live under Islamic Sharia law were told on Wednesday to get out of Australia, as the government targeted radicals in a bid to head off potential terror attacks.
A day after a group of mainstream Muslim leaders pledged loyalty to Australia at a special meeting with Prime Minister John Howard, he and his ministers made it clear that extremists would face a crackdown.
Treasurer Peter Costello, seen as heir apparent to Howard, hinted that some radical clerics could be asked to leave the country if they did not accept that Australia was a secular state and its laws were made by parliament.
"If those are not your values, if you want a country which has Sharia law or a theocratic state, then Australia is not for you," he said on national television.
"I'd be saying to clerics who are teaching that there are two laws governing people in Australia, one the Australian law and another the Islamic law, that is false. If you can't agree with parliamentary law, independent courts, democracy, and would prefer Sharia law and have the opportunity to go to another country, which practices it, perhaps, then, that's a better option," Costello said.
Asked whether he meant radical clerics would be forced to leave, he said those with dual citizenship could possibly be asked to move to the other country.
Education Minister Brendan Nelson later told reporters that Muslims who did not want to accept local values should "clear off".
"Basically, people who don't want to be Australians, and they don't want to live by Australian values and understand them, well then they can basically clear off," he said. Separately, Howard angered some Australian Muslims on Wednesday by saying he supported spy agencies monitoring the nation's mosques.

The answer to: "THREE CHEERS FOR AUSTRALIA (7/12/06)"

Question asked on 07/12/2006 at 06:28 AM :: Comments to date: 0 :: TrackBacks to date: 0

Historical View of Democracy

Category: Politics and the Economy

A democracy can not exist as a permanent form of government.

The answer to: "Historical View of Democracy"

Question asked on 05/31/2006 at 06:34 AM