Normalized Paranoia

If Stock Market Analysts seem to be wrong, why do we believe them?

Published December 28, 2008 thrift 3 Comments

I am just wondering if we all have some sort of sick pathology. For crying out loud, why do we believe people who are perpetually wrong. I read a story on Yahoo news, where they quote the chief strategist from Wachovia Bank. Wachovia is at $5.45 a share. In February of 1989, as far back as the yahoo charts will go for me, they were at $11.31. Remind me again whey these guys are such good strategists? If the best financial advice you can offer is, “Take the company that I am the chief strategist for, and short it”, you shouldn’t be offering too much advice.

The equivalent of this would be my brother coming to me and telling me he was broke because , and asking if I had an extra few k lying around. Then, after he takes the loan, he tries to give me financial advice. Aren’t these brilliant strategists the same ones that asked for a mere 700 Bil? That is over $2,000 for every man, woman, and child in America. Wow. They certainly have some cojones.

I guess I look at all these people saying that we are going to have a recovery in the next six or so months. That is what they were saying about a year ago. And things definitely aren’t better. I guess we will have to see, but I think we should still see the inflation riding back on the “we love the printing press” policies of the of the Fed.

Good luck

Auto Bailout Crash

Published November 21, 2008 economics Leave a Comment
Tags: bailout, GM, Government Waste, Waste

Well, we have another example of people wanting a buck. Or maybe $25 Billion. This seems like a really small figure compared to the magnitude of the Big three problems. They ran through $18 Billion in the last quarter. The last quarter included July, and we didn’t see the big downturn until August. What that is saying to me is that it took two months plus a bit of horrible economy for them to lose $18 Billion.

Compare this with what they are asking for. Wagoner said they could be bankrupt by Christmas if they don’t get cash. If the economy stays where it is at now, no better or worse, the Big Three will burn through that money by the end of March. Does anyone think that we will have a massive economic turnaround by then? I don’t. $25 bil will just ward off bankruptcy for 3 months.

GM has been losing market share to the Japanese for a long time. When the economy was flush, they were just getting by. How can the UAW president say the company and the union are fine, it is just a tough economy? GM has been stumbling down the street dead drunk for years. The fact that it is falling is not the curb’s problem. They have a program that is like AA for business. It is called chapter 11. The Unions rode steel into the ground, and now the Big Three are crumbling also. Nucor came out of the steel collapse. Hopefully we will see something similar come out of this disaster.

By the way, I don’t own an American car. There is a great non biased magazine called Consumer Reports. When GM’s cars come up on the reliability reports favorably for a few years, I will be interested. Until then, sorry.

Traditional IRA’s looking better and better.

Published October 15, 2008 economics , finance , inflation , money , mortgage crisis , Personal Finance 2 Comments
Tags: finance, financial crisis, IRA, Roth IRA, stock market

When you look at whether you would like a traditional IRA or a Roth there are basically three considerations.

Do you expect to be in a higher or lower bracket when you retire (making more or less money)
Do you expect overall taxes to be higher or lower when you retire
Do you have extra money to put in (putting in dollars after tax effectively lets you put in more)

Lets look as these issues one at a time, based on the current financial disaster

Will you be making more

In this instance, I am looking at what the feds are doing as far as monetary policy. By injecting huge amounts of dollars, they are going to cause massive inflation. It is economics 101. According to this story, we are already into it about $1.8 Trillion. Assuming a population of 300 Million, we end up with about $6,000 for every man, woman, and child. Um, Mr. President, could you exclude me from the plan and just send me the $30k for my family? Especially seeing the spectacular results so far, I wonder how much more money we will send in with questionable results. All of these dollars are going to inflate our currency. Result? Inflation and earnings (not real earnings) go up.

Will Overall taxes be Higher or Lower

I will give you a hint. We were already looking at a mess when we had social security and medicare with a healthy economy. With the coming economic crisis, taxes will have to go even higher just to keep the leviathon from tumbling. The other part is that next year they will try to lower taxes on middle and lower income people. This might be your chance to put in money at very favorable rates before the spike.

Do you have extra money to put in

This is all up to you. I would just recommend having a nice nest egg in case things get even worse. We thought things wouldn’t get worse a couple weeks ago. Good old Cramer called the bottom of the market at 11,500. Looks live we have slipped a bit since then. It can always get worse, but if you are prepared, it isn’t all that bad.

Good luck, and take another serious look at the traditional IRA. Due to shifts, it could be right for you.

You Were Right to be Worried

Published October 15, 2008 economics , Government Waste , inflation , money , Personal Finance , politics , taxes Leave a Comment
Tags: finance, National Debt, Stoc Market

My son just came up to me and told me he hurt his bum. He wanted me to kiss it better. Does anyone else feel like this is what we have done for the banks? Why would we do something that doesn’t seem to be making the banks feel any better and seems to be making us about 700 Billion poorer.

I don’t know if anyone else has taken a look at the situation, but the market is getting crushed again today. I remember the happy days when 3% was a steep decline. The S&P, the broadest measurement, is down over 9%. That isn’t a steep decline. That is falling off a damn cliff. It is carrying the senior citizens down with it. The suicides are starting up. It is tragic, and I can see it getting worse. The news today was that retail sales took a massive dip. This is not the time to be working at the Buckle.

Everyone is looking for the big event around the corner, be it rising unemployment, more welfare for the banks, more welfare for everybody. Mccain and Obama are going to have a real treat when they are done with the campaigning. The prize is to be at the helm of of a ship that is on the rocks. I know that my retirement funds have dwindled down to pitiful levels. I am 29, and it is not a huge problem. But this could be the end of free enterprise as we know it.

The time has finally come for the US to pay the piper. It is going to be tough for the baby boomers, and there are only so many Walmart greeter jobs out there. The next 5 years are going to show massive changes to welfare. I hope we can handle the increase in tax rates.

Pelosi hosed it up

Published September 29, 2008 economics , finance , mortgage crisis , politics 2 Comments
Tags: bailout, economy, frank, pelosi

Let’s be clear right away. I am not saying that the bill would have passed if Pelosi hadn’t spoken, but the chances would have been better and the excuses even flimsier. First of all, let’s get some facts straight.

The bailout reeks of big government, and the republicans are supposed to be against that, and some of them truly are deep down inside. Another problem is that it removes the moral hazard (idea that poor consequences follow poor decisions). The last of all, a lot of people don’t even think it will work. I know I think we are in huge trouble, and a big painful cleanse might be what we need.

On the other side, how much can we risk. If the banks go downhill, Detroit, the home market, and utilities will follow, along with many businesses that need credit to operate smoothly (almost every decent sized business). That is a lot of layoffs and a lot of problems.

I am willing to bet that there were some representatives that were weighing the two sides in their minds, and had trouble deciding. They got a call from the minority leader and were told, “This is a bipartisan thing. Let’s join hands and do it. It is a good chance for us to rise above the fray.” They weren’t really sure what to do (constituents were calling at and emailing against it), but they decided that it would help things run smoother in DC, and there is a lot of work to do and they might be able to call a favor in.

Then Pelosi gets up and ends any idea of bipartisanship. Meanwhile the representative is getting more pressure from his constituents. Those two things do not push anyone to vote for a bill if they are on the fence, especially when both factors are pushing one way.

If Pelosi could have kept here partisan mouth shut there would have been two possible outcomes.

1. Bill passes.

2. Bill fails and Republicans look more like obstructionists and very politically motivated. (although they do a lot already)

She spent some political capital with her venting that she did not have to spend.

By the way, Barney Frank’s comments were brilliant. They framed the problem just as the Democrats wanted. After hearing that republicans were offended, he said, “I’ll make an offer. Give me those 12 people’s names and I will go talk uncharacteristically nicely to them and tell them what wonderful people they are and maybe they’ll now think about the country.” When you mumble so badly it is hard for me to understand you, you have to be endowed with incredibly quick wits to get as far as Frank is.

New column at my new blog

Published August 2, 2008 thrift Leave a Comment

Just posted another post on the Housing bill, link here.

I am writing from a new address now

Published July 21, 2008 thrift 2 Comments

Here it is.

I’m from the government, and I am here to help.

Published March 24, 2008 thrift Leave a Comment
Tags: business, commodities, depression, economy, inflation, politics, recession, stocks, welfare

Clinton has continued on the popular democratic theme, rob from the rich and give to the poor. This time it is in the form of mortgages.

The thing that concerned me most was found at the bottom. Clinton proposed that we freeze the mortgage rates of those who have borrowed using sub-prime mortgages.

Let’s say that you had a CD at a bank, and you were given a 3% rate for the first year, and told that the rate would go up to 8% for the next 5 years. Well, the bank ran into financial straits because of poor decisions, and could not pay you back the 8%. Can the government allow the bank to freeze the rate at 3%? “Sorry, they can’t afford any more. I guess you will have to start eating rice and rats. It is for the public good.”

That is what Clinton wants to let people do to the banks. These banks make money on very small margins, but because they move so much money, they can make it happen. When we destroy these margins, we destroy the banks.

The other thing she brought up was forbidding lawsuits between financial companies. The people who do the negotiating on the loans are expected to do all they can to ensure that the terms on the loan are honored by the investors (who actually end up lending the money). Now Clinton want to remove the only method that the investors have to ensure that the contract is honored. Nice.

Politicians continue to put a band-aid on the infection instead of letting the burning disinfectant permanently clean out the would. We need to address real concerns, or we will just have a deeper trough.

I also saw an article that did not make me feel secure about the inflationary pressure we are facing. In China, service stations are running out of fuel. The subsidized resource is falling short, because businesses can’t make enough, and don’t have any reason to expand because prices are held in check.

One solution they are looking at is importing more fuel. The price of goods in the US is influenced strongly by the price of diesel. China is looking to import diesel directly. Not going to be helpful to our trucking industry.

Despite this downturn in commodities prices, I still see the prices continuing to rise. Railroads are going to get more popular as an efficient shipper of goods. We will have ot see how much they can grow.

Good luck

Market Meltdown averted- For now

Published March 23, 2008 thrift Leave a Comment
Tags: depression, derivatives, economics, economy, inflation, politics, recession

The fed has helped in averting a chain reaction that could have caused a meltdown in the markets.

Bear Stearns made a lot of very risky investments in the derivative markets. About 14 Trillion worth. Holy crap. $14,000,000,000,000. Apparently, the fed pumped in the money to stabilize those investments. The fed encourages risky behavior, and then proceeds to rescue big business from the results of that behavior. All you have to do is put yourself in a position that if you go down, you take others with you. It has almost become an art. Who ever has the connections and the best sob story is insulated from disaster. We are in what is becoming an Aristocracy of pull (thanks frisco). It will be painful to live through the results, but we continue to placate the foolish, putting off the crisis, but ensuring that it will be worse. I read that this happening after the S & L crisis in the 80’s proves that people don’t learn. On the other hand, I think it proves that people learn very well. Get deep into risky business, and tie others to you, and you are set.

Trading derivatives was once a vehicle that people used to eliminate future risks. Farmers and food manufacturers traded corn and heat futures. Miners, smelters, and steel companies traded metal commodities. People used these to plan for the future, and make deals in advance.

Today, there is over $500,000,000,000,000 (not a typo) worth of derivatives in existence. That is greater than the world’s wealth. Instead of the stock market beign a place for people to enjoy partial ownership of large companies, it is the worlds largest casino. Commodities markets are often worse.

We have been shuffling money around long enough, it is time for us to get back to producing wealth.

$1000 Gold, $110 Oil, $4.00 gas, and low inflation. I promise.

Published March 17, 2008 economics 3 Comments
Tags: commodities, depression, economy, inflation, investing, politics, recession, stagflation

Philadelphia Fed President Charles Plosser said he doesn’t think stagflation is a developing problem. How does that work?

The first question is, what is the situation on inflation. To calculate core inflation, government does not include food and energy. How does this work for your average American family? How long can you go without driving or eating? When we look at true inflation, at what prices have been actually doing at the grocery store and gas station, we find a much higher inflation.

One question is, how high is inflation. The inflation of the Euro is around 2.5% per year. In 2002 the it took $.8578 to buy a euro. Now it takes $1.5904. This means that the value of the dollar relative to the euro has dropped 10.8% per year, on average, over the past 6 years. Combine these two facts and you end up with inflation of 13.3% per year. I am getting slaughtered right now in the market. The commodities are showing a lot of weakness based on the fact that the market is going to hell in a handbasket. I still like real resources. The full faith and credit of the US government does not do it for me. The credit score of the government is dropping, and I hate to be holding too many of their checks. Some one (Hulia) recently asked me what I think of keeping cash. I still think you ought to set some aside to cover basic living expenses for 6 months, but I wouldn’t do too much more than that. Holding an asset that seems to be depreciating at over 10% a year seems like a bad plan. Gold and silver never really grow, but at least they have some intrinsic value.

Bear and Stearns is a pretty scary portrayal of what is going on in the market place. People have made bad choices. We think that the market owes us 15% a year. Now we are seeing that if we demand those returns, the market gives them to us, but they turn out to be an illusion. I had a rough day today finacially, but it does not even compare to the poor guy who lost a billion.

Anyway, another amazing thing that happened is that I found myself agreeing with Harry Reid. These big companies are in an interesting position. If they crash, they will cause massive financial disruptions. They then take aggressive risks, and if it pans out, they pocket the money. If it doesn’t pan out, they tell the government that they have to survive. A crash would be bad for the economy. The taxpayer ends up insuring the big businesses. Democrats believe in welfare for the poor (the projects worked out really well), Republicans believe in welfare for corporations (we sure learned our lessons from the savings and loan crisis).

This money the Fed is pumping into the market is inflation happening before your eyes. It is scary when we use fake economics to prop up the system. Manufacturing continues to decline. We can not consume more than we produce long term. We have tried.