Stock Logic

If it we make it through December

2012-01-11T04:56:00.000-08:00

Merl Haggard once sang a song, 'If we make it through December', and that really seems to be the case for the US economy. The Fed is more than eager to hit the QE button to blast out of the jobless slump, but it does not want to intefere in the election. Also, the US economy has been running pretty well for a three legged dog. The market even saved itself from the crashing pattern of 2008. However, there is a game changer. Europe, including Germany are warning of lower GDP growth, and with there insistence on Austerity, a recession is just a quarter away. It really seems that the Euros want a recession as a 'restart', however this time without flooding cheap money into the lesser nations.
The one bonus the US has is all the businesses are saturated with cash, so even a Euro recession will be temporarily dampered. Now Germany wants to make a transaction tax on all Bank transactions, which is a sure recipe to collapse the Euro if it was to ever go through. However, a collapsing Euro is what Europe needs right now, since at least that would actually be doing something to fix the problem.
So, the US is stuck with political deadlock and an impotent Fed, Europe is doing it's typical 'let's suffer and punish each other' routine as they have done for hundreds of years, and China will keep messing up the markets with flooding speculative cash which they do not know what do with. Essentially, all the current investments are saturated since the same thing has been happening for so long.

Strong rally an example if Lehman Brothers had been bailed out by W. Bush

2011-12-03T12:50:00.000-08:00

I have been writing about the parallel between the US Housing crash of 2008 and the Euro Crisis crash we are currently in. The trends were nearly identical until this week when the Central Banks announced they were slashing the lending rate for US dollars. This gave the market confidence that the there would not be a crash at all, and with stocks being cheap, people poured money in and stocks rallied 7% in a week. What is very interesting about this rally is that it demonstrates that if Tea Party extremists like President Bush had not been so Laissez Faire and had prevented Lehman Brothers from going bankrupt, we might have seen a rally much like we saw this week. The housing market was clearly a mess, but by providing immediate stimulus it would have put out the smoke before the fire got out of control, so to speak. Now, to be clear the Central Bank coordinated move is not stimulus, but it is showing a willingness to do what is necessary. Therefore, under the current situation such an action could be viewed that the entire recession, the 40% loss in retirement for many people, the millions of unemployed was perhaps preventable. Clearly changes had to happen, but in an orderly way.
The problem is when looking to Europe, it is like watching Bush II all over again. Italy is going bankrupt, and Germany insists it is not up to them to bail them out. That is why Germany only will allow the bare minimum funding, since it wants Italy and Spain and so on to pay their tab over time instead of a one time Stimulus package. Therefore, Germany is playing a risky game with the Euro debt, just like President Bush did with the collapse of Lehman Brothers, so forget support levels. The higher the rally goes, the farther it may fall.

Germany's EU

2011-12-03T11:52:00.000-08:00

Just to summarize what is going on with the EU crisis, Germany is insisting that each EU country is independently responsible for it's own fate, while trying to alter the EU treaties to demand caps on debt and inflation to prevent one country having to borrow from another (namely Germany). Since Germany is the creditor that controls the EU and the ECB (by providing the most funds), nothing will pass without their support. Germany does not mind private investment and IMF money because that is not their money at stake. Until the IMF and Private investors realize they are being essentially conned (how else would you describe Germany's insistence on private investment on Greek bailouts, and then a demand for a 50% haircut on that 'voluntary' investment), and force Germany to make concessions on behalf of the entire EU, such as allowing QE by the ECB, the the Euro has no hope. Germany's version of the EU means too much recession which will change Government parliaments that will reject the EU demands and break up the EU.
However, Germany, much like Tea Party Republicans, have a way of getting their way. The problem is they are then proven wrong when reality sets in (austerity growth shows society is dumbing down), and by that time things get even harder to fix.
However, he naive 'Austerity Growth' Believers have a lot of money, so they will put money in the markets no matter what is announced, which is what makes this such a volatile market.

Bank of America: buy low sell high

2011-12-02T14:21:00.000-08:00

Just an update on that BAC stock, I sold at $5.74, since it was clear the markets were getting a bit overenthusiastic, and sure enough as we approach the weekend the stock has backed off to $5.64 and the Dow is even negative. Piggy backing break outs works well with so many major announcements coming, some adding to the crisis others supposedly fixing the crisis. One rumor to the downside is Spain getting it's rating cut, which was similar to the downward spiral of Greece and would be a major drag on banks. However, there is so much stimulus money that has been cautious on the sidelines waiting for the QE buy in, and that makes any movements gain too much momentum and take time to reverse.
It is key to stay away from greed in this market. Now I must consider buying in at the lower price or really help out the economy and go Christmas shopping with the profits.

Banks. Where the money is at

2011-12-02T03:05:00.000-08:00

A while back I mentioned a good strategy is to be a scavenger, and pick stocks that gurus, like Warren Buffet chose, but at cheaper prices. Just for the transparency, I did buy Bank of America at $5.42, a few hours too early, but a profitable trade already. One of the reasons I got it was to catch the impatient traders who saw cheap stocks and were desperate to buy in, and a lot of big names are buying Bank of America (Nanci Pelosi, Donald Trump, Warren Buffet...). It was sort of a Scavenger trap trade, I guess you can say. I did not expect the joint Central Bank announcement with the Black Friday sale on US Dollars, and although it does not change any economic outlook since the problems are all still the same, just like Black Friday deals bring out more shoppers, the action will increase bank activity.
The other thing that we learned from a crisis is banks benefit first. On top of that, bank stocks have been suffering significantly from higher regulation and tougher market conditions.
As the economy teeters, bank stocks can be a huge win or loss. If Italy goes bankrupt, then they will crash. If the printing presses start up, banks will be where the money is at, literally.

Bernanke vs. the Bear

2011-12-01T01:01:00.000-08:00

There is a lot of money out there people are eager to spend. QE put the money in their pockets and low interest rates have been driving them crazy. Also, people have learned when the Fed moves, jump in with both feet, which is why there was such a big stock market jump yesterday. Basically, the market is pricing in the expectation for QE by all Central Banks. China is now saying they need stimulus after copying the Volcker Inflation killing strategy. The Central Banks cleared the cholesterol out of the SWAPS market in preparation for the crisis to come.
That is just the point, the full crisis is not even here yet. When Italy declares bankruptcy, the moves that happened yesterday will mean nothing. This is no different than President Bush declaring victory in Iraq when in reality the war was just beginning.
The Central Bank and move by China are an indication they are putting on their battle armour so they can be prepared for a giant bear attack. The enthusiasm and confidence in the Fed is admirable, but perhaps it is better to see the first round between Bernanke vs. the Bear to see if is wise to go all in on stocks right now.

Panic and Profit

2011-11-30T14:22:00.000-08:00

Today was an intersting day with the joint announcement that the major Central banks are going to work together to keep the European Crisis contained by reducing borrowing costs for dollars. That was also joined with China loosing banking regulations. It is the same Central Bank group that has kept the Euro from falling, so it is a powerful bunch, but I interpret their actions as not solving the problem. Everyone except Germany is doing everything they can to save the EU, but the problem is Germany has not changed anything, so austerity is still choking the Italian Giant to death, seen by yields staying over 7%. Also, higher jobless rates in the EU suggest they are now in a recession. What it also shows is the world is in an absolute panic. Therefore, if you believe in buy high, sell low this could be a good time to take profits and then buy in again as markets get some reality that this is not Quantitave Easing, this is just admission that credit markets are frozen and Italy is about to go bankrupt.

How to lose the Euro in ten days: A true Lola rennt story

2011-11-30T02:29:00.001-08:00

Lola rennt (1998) or Run Lola Run in English, is a German film about a girl who made some bad decisions has to come up with 100000 Deutsch Marks in 20 minutes before her boyfriend robs a supermarket. Right away Lola (think Greece, Italy and so on if you are not catching the analogy) tries to ask her rich father (Germany) for the money and he refuses, so she keeps running to find the money in time. Doesn't this sound just like the EU as they delayed any financial decisions for 10 days?
One thing that I find interesting with the Euro Crisis is since the problems began Europe has gladly taken money from the IMF, China, the US and private investors. They are so eager to take other peoples money, but refuse to print their own. Now, as the crisis deepens, and private investment is drying up with private investors and foreign countries demanding high interest rates and assurances for loans, the EU is getting pinched into doing what it should have done from the beginning. The problem is, the kick the can strategy just make things more expensive for them. If the EU would have used Greece as a model for reform of the EU treaties, they would be through the crisis already and working on growth. Since they chose the wrong economic model, they are now becoming desperate for money.
Run EU Run!

2008 Crash parallel holds

2011-11-29T04:12:00.000-08:00

The anatomy of a market crash has continued to be very similar between the 2008 crash, and the one we are almost in now in 2011. If the pattern is parallel, we are currently in May 2008. That is where the market hit support levels and bounced a bit. Clearly things could pick up if everything gets solved, but everyone speculated on the same thing while the banks were failing in 2008. Do not forget, yields have gotten comfortable over 7% in Italy, and Germany's flat out rejection of Euro bonds is no different than Bush not bailing out Lehman Brothers. Should be interesting if the pattern holds.

Volatility of Expectations

2011-11-29T02:28:00.000-08:00

Black Friday has now priced into the market with an impressive 3%, however, that is perhaps the last positive market perk that can be expected unless Europe get it's act together. Already the markets are back to focusing on Europe, and it is all the same bad news but on a larger scale. Before the rating agencies threatened downgrades for the debtor nations like Greece and Portugal, but are now threatening downgrades for France and all the banks. The German 5 year Breakeven indicating expected inflation keeps dropping, now at .84%, so if there is no growth even in Germany, the rest of the EU are simply on their way down the toilet. The world has been extremely supportive of Europe, proof of which can be seen in the stability of the Euro. There are rumors of the currency breaking up, and yet it barely budges compared to the dollar. However, the world is also sending a clear message that they are getting impatient with Europe's stubborness to do relatively little to fix their problems. Germany doesn't care, because the pressure lands on the shoulders of those who are in debt since they will have to go through extremely hard times if they exit the Euro, while Germany would not even mind having the Deutsch Mark back, so that increases the pressure on even the big contries like France, who are about to lose their AAA rating, to sign off on German demands.
However, Europe is a bit like Apple in that they like to make big market moving announcements, and with the Confidence Fairy, to use Paul Krugman's term, is punishing European bonds, it is likely that Europe will make yet another announcement that will chase off the Confidence Fairy for awhile while actually accomplishing very little to nothing.

Taking a bite out of Apple

2011-11-28T12:24:00.000-08:00

Apple is a great product, and has used genious marketing tactics. Steve Jobs even died at the right time to boost Apple stock, ensuring another great quarter. However, as black Friday has come and gone and holiday shopping is in full swing, Apple products have had to share the stage with companies such as Samsung, Google, and Amazon. The Kindle Fire is really the main stage item. Since they are selling the units at a loss, it is best to wait a quarter, and let Amazon stock drop a bit, but then it is really a bigger growth stock than Apple, since it is copying it's success strategy. Talking about copying, Samsung has now been given the title of being of equal quality to Apple. I had always expected the competition to catch up faster, but now it seems to be really happening.
That means Apple has pressure from a good product which is cheaper for the budget shoppers from the Kindle Fire, and has to compete with Samsung at the high end. Therefore, the problem with Apple being the same great product is just that, it is the same, and the consumer is starting to have options. If Apple does not keep innovating, and quickly, it could just be another Microsoft.

Rumors of QE mean it is time to prepare a buy in

2011-11-28T11:14:00.000-08:00

The US is preparing itself from a shock from a Euro collapse, including arming the nucluear weapon of economics, Quantitave Easing. Right now it is just rumors, but rumors are a way for markets to avoid shocks and test the public for acceptance. If the ECB is given power to do QE, and does it along side with the US, it is not an opportunity you want to miss.
It was the announcement of the QE program which reversed markets from crashing to booming. It was the extension of QE that kept the markets pushing higher without any job or economic growth. Most investors know that, and QE is not priced in to the market since the Republicans seemed to have scared the FED, but the FED is getting it's confidence back, and already movion billions of dollars around secretly to try to stabilize Europe, so QE is quite possible.
Therefore, it is important to review which stocks will benefit most and to prepare an investment savings for some high risk but high gain Quantitave Easing stock growth (but only invest one day before the announcement).

US Financial crisis of 2008 is now Euro Crisis of 2011

2011-11-28T11:05:00.000-08:00

Like the flu, Europe has come down with extremely similar symptoms of a financial crisis. Obviously, Europe was also caught up in the 2008 recession, which could be argued was what spread the flu virus to Europe. As we have learned from Krugman the Euro Crisis began with the bond spreads due to an inflation hawk interest rate hike by the ECB in April 2011. We know that interest rate hikes lower demand for banks and that began to create a credit squeeze as banks that needed easy money were just barely surviving to pay the debts they had suddenly had increased fees. These extra costs made them more desperate to secure financing, and that desperation caught the eye of the rating agencies who downgraded them as the money flowed to safety, i.e. Germany, causing a wider spread.
If we compare this to Lehman Brothers, it began with an institution that was hiding it's losses until it was bankrupt, like Greece, exposing a systematic problem creating a lack of trust which froze credit markets. Those frozen credit markets are where we are now, except it is the Euro markets which are frozen. The difference though is the EU is not a stable union like the US, which is why their is such concern that the whole system could fall apart.

Will the Christmas spirit last until Christmas

2011-11-28T06:56:00.000-08:00

As people go out shopping and the ECB talks a lot but does exactly the same self destructive things as it has in the past, stocks could have a brief rally since none of that is necessarily bad news on the surface. The problem however is that if people are going into savings to buy presents it just means they will cut back in the next cycle if there is no stimulus, or worse yet if there are Government cuts. The same with the EU, as we learned with Greece, propping a country up with emergency loans as it falls into deflation is no different than medically awakening a prisoner to torture him more. With the IMF on board to sustain the EU Sovereign Debt waterboarding, Europe can do some real old fashioned suffering like the Inquisition or the plague.
However, looking at the bright side, the consumer, the ones who have been beaten and bruised throughout this recovery and neglected by those in charge of the money, are out doing their part to keep the economy rolling by purchasing. This would be a very good year for big business to watch A Christmas Carol. A little Christmas spirit could keep the economy from dying.

How to know when we are in a recession

2011-11-28T00:42:00.000-08:00

Since the recovery all we ever hear about is double dip, recession this, looming recession. The problem is recessions tend to sneak up on an economy since the money has to be spent, then calculated and by that time a few months have passed. However, there is a quicker indicator by simply looking at initial jobless claims. The following chart clearly shows that every recession since 1965 begins with a exponential spike in jobless claims. That makes sense sinse companies are the first ones to see people are not buying, and they react with layoffs to cut costs. By the time the Government processes what the businesses are doing, it is second hand information. Therefore, what we see is we can be comfortable that right now there is no recession, and by monitoring the initial jobs claims, if there is sudden mass layoffs, it is the first indicator that the feared recession has finally arrived.

Capital Gains tax increase could pressure stock over the next year

2011-11-27T03:51:00.000-08:00

Many investors will be watching the US elections even more than usual since one of the major issues is the expiration of the Bush Tax Cuts, which would include an increase in the Capital Gains Tax. If the Democrats win, they will most likely let the tax cuts expire, meaning many investors would be eager to exit their stocks at a high price to avoid the extra taxation. If a Republican wins, the tax cuts would most likely be extended which would create a different investment strategy. With the Government currently gridlocked, which does not allow any decisions in either direction, this is a very important issue that could really push stocks.
Overall, history shows, though, that the most important thing is Government receipts have to increase without burdening the fragile areas of the economy. You can put the burden on the middle class and poor like Reagan, or tax the rich like Clinton, but in the end the Government needs to be actively bringing in money and spending it as fast as they get it in order to stimulate private sector growth. The choice of policies will determine where to invest.

EU Preamble: We the banks of the EU, in order to make a more perfect Union...

2011-11-26T13:18:00.000-08:00

Only taking public statements, there are two things we can gather from Germany's stance on the EU. 1. Germany is fighting hard to keep the gains and influence that it has achieved since the recession. This would be like Virginia blocking the House of Representatives from being added to the Connecticut compromise. The Germans have good economists, they know the EU is headed for a recession, and have said so publicly, but immediately follow it up with how necessary it is to stay discplined. This 'discipline' helps them keep their advantage over the rest of the EU. If Germany was to accept EU Bonds, for example, everyone would win except Germany, who would lose billions in having to pay for higher bond yields than they currently do. Why would they want this, when a recession can help them renegotiate the EU treaties making them more favorable to Germany.
2. Germany has claimed it is acting as a 'role model' in the defecit reduction, but this move can be viewed similar to the big banks paying off their bailout loans as quickly as possible. In getting rid of their debt, they are simply preparing now for hard times to come, so when a recession starts, they can get out of it quickly. The other advantage, with overinvestment in the periphery EU nations, the best way to break unions, lower wages, and bring prices down is a recession.
Now that the EU is dusting off the treaties, it gets especially interesting, because it will be pure negotiations, and Germany has a lot to negotiate with so that they can influence the EU in a way that ensures Germany's best interest are sealed in a contract.
Therefore, to understand the EU, you cannot view it as if it was America, and if you do, you can only understand it as though it was America under the Articles of Confederation. However, the Merkel and Sarkozy's are no founding fathers, and they will not be drafting a US style Constitution. Even if they do, the Preamble will read something like this:

We the Banks of the European Union, in order to make a better system for commerce, establish debt and inflation controls enforcable by our courts, insure the domesticians pay their taxes, deploy the military to uphold our austerity measures, promote high unemployment, and secure the selfish benefits for each individual nation within the EU, do ordain and establish this Constitution for the European Union under the Guidance of Germany

2011-11-25T04:11:00.000-08:00

As the markets start working their way down, there is no reason to panic since, if the bear rally follows the current trend as it has up to now, their will be one more rally as stocks look cheap, and Christmas is just about the right time for such a rally. After all, it must be remembered that things are not bad yet in the US. However, the current strategy is buy at lows with pocket money and then find the exit door at highs to save savings. Save the big cash for a big buy investment cash when stimulus starts.

Euro reason why you don't want the Gold Standard

2011-11-24T13:37:00.000-08:00

Everything that is happening to Greece and Italy and all the countries struggling to pay their bills in Europe is the exact reason you do not want the gold standard. Forget about yelling about 'out of control' money printing, the suffering from having an economy crash but a currency which is expensive causes actual suffering among people, and with limited amounts of gold, which could be manipulated by other countries without any control. China could control the US currency just as Germany is keeping the Euro inflated when the best thing for Greece would be to devalue it's currency so the people could by food and basic goods. The typical showing of how gold has risen in value as people flood into the 'safety' of gold proves even more how volatile and terrible gold would be as a currency. Imagine as gold has doubled in price how inflation would be out of control, and that is exactly the case in Switzerland which is on the Gold Standard, but with a small population. What if the gold price drops, automatic deflation pressure and recession. In an advanced economy it is better to learn how to make money work so it benefits everybody and prices stay stable, which is a Fed mandate basically because the Gold Standard failed to keep prices stable.
As an inflation fighter investment and as jewelry gold is fine, but essentially any calls to return to the gold standard are coming from people that yearn for a world we do not live in aymore.

European Crisis Stategy: Shhhhhhhhhhhhhhhh!!!

2011-11-24T03:54:00.000-08:00

After a tough day for stocks yesterday due to a bad bond sale by Germany, today it looked like a rebound erasing most of the losses... That is until Fitch lowered the credit rating of Portugal to junk status. Europe will grumble about it, but since the EU and ECB aren't really actively doing anything, the drop in rating seems justified. Imagine a dying patient on a table, and if the doctor was the EU, he would tell them how to fix it, but would not touch the patient for fear of getting it's hands dirty.
The rise before the fitch rating truly shows the European politicians simply hope if there is no news, nothing bad can happen, and they are right. Revelations about the whole 2008 recession reveal that, instead of informing people that the banks were struggling, everyone kept quiet until it was too late. MF Global is another classic example. If they would have been transparent about losses, they would not have risked so much that they would have bankrupted themselves (markets have been relatively stable, remember). Also, the markets could have adjusted so investors would have taken losses, but not have 1.2 billion dollars stolen from them.
The moral is, Europe needs to live up to it's problems in order to adjust and grow again. Cursing at the ratings agency that claimed Greece was likely to go bankrupt just shows the danger of Governments hiding their finances. Not to forget it was individuals who hid their money and did not pay taxes in Greece that caused them to go bankrupt in the first place. If the ECB is so interested in price stability, it would be demanding transparency, and not hidden purchases of bonds from troubled countries.

Waiting for the Euro Camel back to break

2011-11-23T13:17:00.000-08:00

The Euro is like a camel. It is carrying a huge amount of downward pressure, and yet surviving quite well. That is until, a last feather breaks it's back. Strangely enough, a collapse in the Euro is just what the EU needs to recover. The Euro volatility has made for some big yields, attracting a lot of investment especially in Germany. However, now China and the US are taking shelter from a possible breakdown to prevent getting sucked into the abyss. Europe needs money bad, and that also means they have been pulling in all the money they can own and all that they can borrow, but their snobbish stubborness to try to grow is making investors shake their head as they watch them sink in a recession of self pity. Germany already tricked the private sector into taking on Greek bonds and then made them take a 50% cut so they would not have too. Italy took a bailout and then reversed promises and Berlosconi had another nice house party. They finge point, bicker, come up with plans and reject them, do closed door deals, blackmail signatures to force policy. How much can the camel take? Throw in China slowdown, US not eating enough turkey, stock charts breaking support.
What do we see from all this? The Euro just a blanket artificially supported by previous Government agreements to portray confidence. What lies below is chaos equivelant to the economic chaos of World War.

Preparing for crisis, not growth

2011-11-23T02:51:00.000-08:00

Everything I read currently is all about preparing for a further crisis, which is a shame since if everyone was working together to create growth, like the did at when they turned a huge recession into growth, growth was happened. The problem is, though, politicians around the world are using the hardship to carve out policies that benefit them. China does not want to let the yuan float, so it is better to choke off growth. Germany does not want to pay bailouts, so it is better to force austerity. Republicans want a Republican President so it is wise to support unwise deficit cuts. The suffering is unnecessary, but the fight for power is forcing a higher threat of recession.

Investor Risk: Proof that QE + rasing interest rates beats Keynes QE + lower interest rates

2011-11-22T13:05:00.000-08:00

I want to immediately note that the concept I describe will only work during aggressive Monetary Expansion. I do not believe in Austerity growth or European style rate hikes and Austerity. I do think there have been clear effects of Quantitave Easing that can be analysed to determine a better system to create growth in a Liquidity Trap.

A lecture by Nouriel Roubini and David Backus provided me with the necessary guidance to argue that Monetary QE expansion AND Higher interest rates could be the necessary combination to get out of a Liquidity trap.

The paper I am referring to is ‘Lectures in Macroeconomics; Chapter 8. Money, Interest Rates and Exchange Rates. The Collapse of Fixed Exchange Rate Regimes. The Asian Currency Crisis of 1997.’:
http://people.stern.nyu.edu/nroubini/NOTES/CHAP8.HTM

The Fed looks at Monetary policy from a Banks perspective, not surprising because that is who they deal with all the time. However, in a Liquidity Trap, the most important thing to look at is creating investment (demand, demand, demand as Krugman put it). When looking at the effects of interest rates, the error of economists and the Fed seems to be that they are looking at the effect the interest rates have on Bank lending. Lower interest rates increase lending, higher interest rates result in lower lending. Simple, but it clearly has not worked in any country in a Liquidity Trap. Even with rates at 0% lending is low, as is investment. Why? This is where the Roubini/Backus lecture gives us the solution.

In the lecture it describes the effects of interest rates on business and consumers by describing whether an investor would choose cash or make an interest bearing investment. Using this perspective we find the solution to what the hold up is:
To quote directly from the paper:

'1. Interest rates. An increase in the interest rate will lead to a reduction in the demand for money because higher interest rates will lead investors to put less of their portfolio in money (that has a zero interest rate return) and more of their portfolio in interest rate bearing assets.'

To make the connection, the Fed lowered interest rates to 0% and flooded the market with money, which means Cash interest = Investment interest, both being around 0%. The Fed killed demand for investment by those who want loans from the banks (it must be remembered that banks even said they had pleanty of money to give out loans, just nobody to give loans to). Ironically, giving banks money for so many loans has killed demand for taking out loans.
This can be further seen in the housing market. We have seen low interest rates, but there are very few homebuyers since there is a larrge supply, buyers are not provided with liquidity, and houses values have been declining, so cash has been an equal or better investment for an investor. It is the same as bank loans. There are pleanty of housed to buy, but nobody buying them.

To change this trend, I offer a comparison of the Krugman/Keynes approach and the QE high / interest rate high approach.
Scenario 1. If QE provided liquidity to a potential house buyer, and higher interest rates devalued the cash, the investor could be pressured into investing in a house since it has the higher potential return on the investment.
Scenario 2. If QE provided liquidity to an investor, and interest rates are low, the investor will be nervous about investing in a house, which could turn out to be a negative return on investment, and is more likely to choose instead to keep cash since the investor is not losing any money buy staying in cash with interest rates at 0%.
My argument is the Fed overlooks that it has to provide enough incentive for investors to take investment risk, which make Scenario 1 the better choice.

We also see how investors took little risk throughout the whole recovery after the 2008 crash. As anyone watching Occupy Wall Street will tell you, businesses got lots of cash, but then they just stored it (stock buy backs, executive raises, cash, etc.). Remember the reports that companies had and have record amounts of cash storages. Remember how the President was asking banks to lend. This lack of investment is simply because the Fed took away the demand for Investors to borrow from the banks (because the Fed was focused only on the banks loaning to investors) as a proven result of lowering rates too low.
However, this theory of opposites only works if Monetary Expansion continues! If monetary expansion ends, the rates need to come back down to continue growth. Balancing these two instruments is really the key to the Fed actually being able to achieve it’s dual mandate in a depressed economy.
During Monetary Expansion, the Fed needs to reduce the demand for money and increase the demand for investment. Raising interest rates during Monetary Expansion is the tool do this, also allowing the Fed to avoid ‘bubbles’, stabilizing the dollar, keeping commodity prices and debt levels in check, and to provide post Monetary Expansion by giving room to lower rates further if needed.

If the Fed would raise interest rates, to quote Roubini/Backus again, ‘higher interest rates will lead investors to put less of their portfolio in money (that has a zero interest rate return) and more of their portfolio in interest rate bearing assets’ (investments).

Summary
Therefore, the entire problem with the sluggish economy and high unemployment is the Fed is making it’s Monetary Policy based on what banks would like, but once the banks are saturated with cash the Fed just has to get the money moving and businesses spending and hiring by raising interest rates while continuing Monetary Expansion to maintain growth and bank confidence.

Chance of a lifetime... again

2011-11-22T04:27:00.000-08:00

One of the things that make this such a tough market is for decades the market only trended upwards. Therefore, if a stock had losses, a patient investor could wait for the stock to recover and profit again. You have to remember, though, for four over four years now, the market remains in a downward trend since it has not regained the former highs of October 2007. Someday that trend could be broken, but at least since the 80's, investors have never had to deal with such strong corrections.
However, there is another group of people who missed the 'buy in' and as the market corrects, people are hungering for that day again where they can get the huge percentage profits in short periods of time. Every drop brings us closer to that, the problem being that for that to happen we need more Fed cash and buying lows that go lower is no better than losing money at the casino.
The moral of this story is, the buy in point is when you believe with your whole heart that the markets will break the October 2007 high. Until, buy into lows but get out as soon as they are profitable. This market is feeding on Greedy Geckos.

Irony: Unemployed soldiers who fought to protect the top 1%

2011-11-22T04:13:00.000-08:00

If the Democrats are smart, and usually when put up against the Republicans they are not, they would stick to the failed Supercommittee automatic cuts, including the military cuts. Why should just a portion of the country suffer from cutbacks. If we are an economically weaker country, the military is a perfectly reasonable organization to cut back on. After all, military spending can be reversed immediately and with full support if need be. The more important point for Democrats though, is the spending cuts was the one things the Republicans did not think through when they got out the red pen. Therefore, it is the way that the Democrats can remind the voters that the chaotic inflexible political stance was a result of extremism of the Republican ranks. As the troops come home from Iraq and Afghanistan and are congratulated with unemployment checks, the voters can have a monumental reminder that the troops that served to protect 100% of the people are now the 'lazy bums', as the top 1% like to refer to the unemployed, that are being locked out of employment purely because of Republican recklessness.
Is protecting the wealth of the top 1% really more important than providing jobs for our troops?

Big Bear pattern on track

2011-11-21T10:13:00.000-08:00

For those following the Big Bear pattern, this recent market turmoil fits in perfectly with the same pattern we had during the 2008 crash. For those that want to check the charts, we are in the June 2008 phase. If the Dow drops below it's safety net of around 10,771, S&P safety at 1123 and 1023 if things get really bad, then there will be one final moment where everybody has lost a lot of money and wondering if they should capitulate or jump in the rally. That is most likely the time when the recession sting will push stocks off the cliff. That is, of course, speculative but the way politicians are working, it is as if they want this to happen.

Euro Credit Crunch demonstrates Liquidity Trap problem

2011-11-21T06:10:00.000-08:00

Europe is falling into a credit crunch. Things are so bad that they do not want to lend to each other, that is normal in hard times. However, when the ECB prints up some fresh money and sends it to the banks, the banks store the money at the ECB since it is the only place safe and interest rates are so low. This is exactly the problem that needs to be solved in order to fix Liquidity Traps. When the ECB or FED print money, they want them to spend it on the economy, not save it with them. Therefore, although low rates are known for allowing higher growth, they also create the glut problem that requires such huge bailouts. If the ECB printed money and made it financially unnattractive to park the money back with them, then the banks would search for higher yields in riskier investments which is the whole point. For this to work though, the ECB/Fed has to keep printing money as almost a guarantee that those loans will not go bad or the bank can at least cover it's losses. The ECB/FED and economists need to stop being such wishy washy wimps when it comes to business. Use the printed money or take the money back and let them go bankrupt. Once the Government and ECB/FED quit being a butler to the banks they will find that Liquidity Traps are the result of their own insecurity.

War and Recession

2011-11-21T03:53:00.000-08:00

There is an overwhelming mentality around the world that maybe a recession will solve all the problems. China has blatantly said they will keep rates high and raise further until housing prices drop, so a very safe investment is that housing prices in China will drop. The US is content that it is not going towards a recession, never mind it has done nothing about unemployment, and just wait until the military and budget cuts take effect to make that unemployment number even stronger.
However, it is really Europe that is the most interesting. Here the politics are much more serious, and similar to those after World War II when Britain, the US, and Russia where dividing the spoils. What makes it especially interesting now is that Germany clearly wants the Euro cards reshuffled. The overall lack of any sort of emergency meeting or plan for Italy yields or Spain, or even France indicates there is nothing that anybody can or is willing to do, and they will have to go through an entire restructuring, but that can only be done when the Governments are suffering more than they are now, enough to sign off on deals they would never accept right now.
Essentially, with the failure and recession of the Euro, Britain can be pushed out of the Euro zone, the debtors can be forced to restructure their Governments so, for example, they actually pay taxes, and Germany obviously sees that it would be stupid to throw their money away on a failing system, so it is better to take advantage of the situation and come out much stronger politically and fiscally in the end. Do not be too harsh on the Germans though, every other Euro zone country would do and has done the same if they could find the way to do so. If it was not for self interest, there would be no Euro Crisis. The whole reason of having a Federal system is to take away the self interest and get everyone to work together.
Therefore, like after war, it is hard to tell what Europe will look like after the coming recession.

October stock bubble bursting

2011-11-17T11:31:00.000-08:00

Stock by stock, the October bubble is drifting back down to it's takeoff level. These are not small stocks either. Even the mighty Apple is drifting down, as is GE, and take your pick of bank stocks. Even Buffet's IBM is looking topped as is Catepillar. This could mean that some stocks are nearly buyable if you believe in Santa Claus and Christmas stock rally.

12,000 is the new 11,000

2011-11-17T05:25:00.000-08:00

I like chartology and identifying trends, which makes the latest longterm trends interesting. Everybody saw the big head and shoulder pattern in July and sold in August. Then the market went into a day trader paradise trend of volatile and in the end, flat growth, followed by an October surge, and we are back to day trader scribbling again. Nobody wants to give up the gains and nobody wants to trade ahead and get sold beck to base level. Everybody is waiting for a sign to take the next step. However, the most important trend to be aware of is that the current trend is playing out exactly like the 2008 crash. At that time the market was stuck on the day trader paradise baseline of 12,500, then there was a short rally, and then came the one two punch that knocked out the US economy. If the pattern holds, and the market does crash, it should confirm the huge head and should bear pattern which will push down the market to levels not seen since the 90's. If that happens, I will jump up and down and say 'Hurray, Hurray, I can predict the future' You can choose between either me or Warren Buffet on the market direction, because the sideways pattern will not hold for very long, that I can assure you.

Fixing Paul Krugman's Liquidity Trap Problem using the Fear of Inflation

2011-11-15T04:50:00.000-08:00

Dr. Paul Krugman is much smarter than me. I cannot prove anything he says is wrong. However, I truly feel his ideas for getting out of a liquidity trap are undeveloped. The problem is he has to fight so many critics, 1. that we are in a liquidity trap and 2. that monetary expansion will not cause runaway inflation. His solution to getting out of a liquidity trap is to do everything to increase demand. However, think of interest rates as an indicator of the expectation for growth. Like a submarine, if the Fed does not point interest rates higher and hit the monetary expansion engines to push up the economy, the economy will stay flat with little investment. As for Europe raising rates, they did so with Austerity, not monetary expansion, so they pointed the nose into an abyss.
The psychology of doing everythinging to stimulate the economy is wrong because it gives money to the businesses, but the low rates give no motivation for the businesses to spend farther. In a depressed economy with already low inflation, lowering rates further does not substantially create more demand. At 0% interest rates it shows it actually slows demand by creating hoarding since it is safer to hold cash than to invest. However, speculation that investing at 1% now or waiting and having to pay 5% later when inflation hits is a big motivation for people and businesses to get the money moving. Stagnant money or low velocity of money is what keeps an economy in a liquidity trap, and this is the solution.
The big fear throughout the entire recovery from the recession was that all the money printing would create runaway inflation. The Fed kept reassuring everybody that this would not happen in order to protect it's reputation. The Fed was right and it didn't, but on in the other hand, if people had been convinced that inflation was going to happen and interest rates would be rising then businesses would have invested fearing it would be their 'last chance' to get such low rates. Just look at China, and the investment boom that came inflation (and the preliminary higher interest rate give confidence that the Fed has things in control).
Fear of inflation is an effective economic tool, for example, in Argentina when a bout of inflation was expected, the stores were packed full of people buying everything they could before inflation came. The point is, this is the key to getting out of a liquidity trap.
Japan is known for being in a liquidity trap and that everybody saves most of their money. If the Government convinced them that inflation would make their money worthless, they would get out and spend it quickly and growth would return.
This is where Krugman is right about the Fed needing to be reckless. However, Krugman is wrong in disregarding the inflation fear. The correct Fed approach would be to Raise interest rates saying it expects to print so much money that inflation will reach a higher target (say 4%) and once it hits that target it will raise rates again. Then it should print money until it hits that target. Businesses will not sit on the money then, since doing so will lower the value of their investment since the fear of inflation will eat at their profits.
As a note, the higher interest rates will actually keep commodity prices in check, a big problem of monetary expansion, which gives the consumer more spending power.
Therefore, as counterintuitive as it sounds, monetary expansion and higher interest rates in order to target a higher interest rate are the solution to a liquidity trap.

Scavenger Investing

2011-11-15T04:21:00.000-08:00

There are very few people who actually do investment analysis deep enough to make a truly informed decision about investing. Even those that do are not always rigth, which is why it is quite common to trade like a scavenger and choose stocks that stock gurus have already chosen. Warren Buffet has a strong scavenger following, as he should. As the market tumbles a bit from the ongoing Euro worries, it is a good time to review which stocks to consider buying if there is a market correction, and Warren Buffet style stocks could be a good choice. Buffet is a value investor, relying on companies with a good long term outlook. Buffet has also recently shown that the time to buy is whenever the market dips, which is just about every other day. Therefore, for example, Buffet bought IBM at an average price of $170 per share. If you catch a dip at a price of $169, you are a better investor than Buffet is, and have proven scavenger investing is really effective.

Euro failure will sink US stocks

2011-11-14T12:55:00.000-08:00

There is a pretty direct and simple correlation between a falling dollar and raising stocks. It makes sense too, as the dollar weakens, companies can export at cheaper prices. The same concept has made China rich. It is the reason Germany is doing so well vs. the rest of the Euro zone, since Germany is an export driven nation. However, as many Euro nations toe the 7% line of no return, where they are essentially bankrupt, the time will come where the Euro investors will start to get nervous and the Euro will start dropping in value. So far, the Euro is clearly being propped up (and you thought China was the only currency manipulator... everybody does it). However, things are getting serious now, to the point that the ECB has to choose between devaluing the Euro or bankrupting the PIIGS. Either way the Euro will fall as Europe enters it's austerity recession from Bulimia pushing Germans. This at the moment is the biggest concern for the US, since if the Euro really tanks, the US dollar will skyrocket, and that will radically reduce exports (since they will become more expensive) and the recovery. Therefore, the solution by all nations is let the indebted nations suffer for as long as possible until hopefully some day the markets will forget about them.

Wall Street is bored

2011-11-14T07:03:00.000-08:00

Wall Street misses the days when Governments would announce trillion dollar plans to get the economy back on track, or big blockbuster buyouts. China is slowing, the US is slow, and Europe is slowly dieing. The gradualness of it all is too slow for Wall Street. Even Christmas is taking forever, or more accurately, Christmas shopping, which also comes right around the time of the death, I mean debt sqad announcing what will be cut from the US budget. The October rally was a big enthusiastic step, and without knowing whether people are going to go crazy shopping this Christmas, it is hard to say if another big step is warranted. Until then, the volatility will remain.

If he has a beard, listen to his economic advice. And Housing will save the economy

2011-11-10T08:50:00.000-08:00

Ben Bernanke was scratching his head a few months ago saying he thought there would be a pickup in growth towards the end of the year. Paul Krugman jumped up and down yelling like Laocoon saying that increasing the money supply would not increase inflation in a liquidity trap. Yale professor Robert Schiller warned everyone about the housing bubble.
The point is, in these extremely volatile times where there is no safe haven, it is best to rely on the outlooks of the wise men. The problem is educated outlooks do not match short term movements. The markets react on current news and trend towards future outlook. However, with markets swinging wildly day to day, trend investing is the way to go. Where are the trends? A good example is if the experts say there will be no growth, then do not invest for growth. If the market is volatile, buy when the market crashes and sell whenever it hits a profit (since we are staying in a 70's style sideways cycle.
My wisdom:
Europe minus Germany will hit a hard recession, making German exports even more popular until the breaking point is reached. Since there has not been a European war in the normal 60 year cycle, they want to do some self inflicted suffering.
China will tame inflation with their 'Thump, Thump' methods. Who cares about the people anyway. The extremeness of their credit crunch will prove too harsh though, since it is becoming public that some of their huge projects are now being abandoned. Until rates ease again, China is a dead dragon.
The US will ironically be saved by housing (just a prediction since the FED and the White house are both working on it), and there could be a reworking of the debt debate since it includes too much military cutting. Don't forget about Nuclear war with Iran, that should be an economic booster.
However, read and trust in the wise men.

Repatriation Holiday happening naturally

2011-11-08T08:14:00.000-08:00

Corporations have been bringing up the idea of getting the Government to lower the tax rate on money held overseas, claiming brining that money back to the US will act as a stimulus. Thankfully, the Government has not been foolish enough to fall for that scheme, since the last time that happened under Pres Bush, the companies used the money to buy back stocks, give themselves raises, but not create jobs. This is now what can be proven as a true effect of stimulus on the economy, since the last stimulus was used for the exact same purposes.
However, interestingly since things have gotten really bad in Europe starting in October, and the stock market in the US had it's best October rally ever, even though earnings were not that great indicating only slow growth, so if we put 2 + 2 together we find that people are taking money out of Europe and investing in the US. That means Europe's loss is turning into our gain, and just like the top 0.1%, the US is benefiting from the failure of other nations.

Governments Determined to Not Grow

2011-11-07T05:45:00.000-08:00

As time progresses, it is becoming clear that leaders around the world are not at all focused on the possibility of a slowdown or a recession. In fact, they are actually forcing a worldwide slowdown. China has spent the past year raising interest rates hoping to calm down housing prices, and the prices are quickly calming prices and credit. Thankfully China does not really care about it's people so such actions are simple enough for them. Europe's problems are now spreading into Italy, and interestingly, while Greece has to announce more cuts and austerity to get it's 8 billion Euro loan, Germany is cutting 6 billion dollars in taxes since it found the extra money in an accounting error. The German success story will add to the Italy spreads causing more problems, as France Austeritizes itself into it's own depression. As for the US, cuts are coming, it is just a matter of where as the budget committee prepares it's recommendations.
The only thing stabilizing everything is China is buying European bonds, the US is still high on Monetary expansion, and Europe is getting taken over by Germany via the Financial market (or did you think the toppling of the Greece Government happened voluntarily). Once we get to the point that the mega-rich have to start backstopping their businesses from a recession, we will know that they are going to make the calls to their puppets, I mean their Congressmen, to start stimulating the economy and the markets will surge.

Worldwide Russian Roulette

2011-11-04T14:17:00.000-07:00

Normally people assume Governments know what they are doing. However, lately it is becoming clear that the Governments around the world are playing a sort of Russian Roulette. By that I mean they are looking at their economies, making up some half thought out policies that even someone like me could think of, and then they pull the trigger and hope for the best. Take 'Austerity growth' for example. There was a bullet in that chamber. China's hard landing, the US debt reduction, Greece plan B. Round and around it goes.
It all really is not necessary though, and a lot of people are suffering simply because there are selective groups seriously benefitting from the repressive policies. Examples are, the Republicans who have a chance at the White House just as long as the Economy is bad; The Germans who are getting rich off of exporting their product as the broke countries keep the price of the Euro relatively weak, much as the Chinese manipulate their currency to keep the Yuan weak.
Perhaps the game will end and things will go back to normal, but that does not seem likely since the extreme measures have yet to take effect. That means these are the good times.
It is all fun and games until somebody gets hurt.

Man and Democracy suffer great defeat to the Corporate Monster

2011-11-04T14:07:00.000-07:00

I have written the biggest danger to mankind are Corporations enslaving the population. It sounds ficticiously sci-fi, but the reality is becoming all the more real as was put on display in Greece this past week.
It surprisingly passed by most people's recollection that Greece is the birthplace of Democracy. Therefore, when a referendum vote was called to see if the Greeks wanted to choose between being broke or suffering Germanic Austerity, it was a bold move to empower the people. However, in a radical display of how far we are from true Democracy, the powers that be literally toppled the Greek Government, including the Prime Minister, and plan to put 'Finance Experts' in charge of the transitional Government.
Essentially, the Capital of Democracy has fallen, and all people think is hopefully they will get things figured out so the stock market will rise again.
2011 is clearly the year of Democracy, and the people have toppled many Governments in a short time. However, the world of Finance and business is flexing it's muscle now as well. As big business gets it's claws around the politicians and the Financial sector, the measly vote of the people will be nothing to match them.

Krugman, Keynes, and the Oligarchs

2011-11-01T16:06:00.000-07:00

Paul Krugman has been doing an excellent job of demonstrating how the top 0.1% have been taking all the money lately while the 99.9% have been stagnant and the 99% have been worse off simply considering higher gas prices. Obviously the increase in Oligarch pay came from somewhere, since huge sums of money that Oligarchs need to raise their money has to come from somewhere. The pay raise has obviously not come from middle class spending or Economic growth. It obviously came from Government stimulus, and this makes sense since Oligarchs are Oligarchs because they control the flow of money and take a large percentage for themselves which they put in savings and do not pass on. This is just like a corn farmer having all the corn he wants for breakfast, lunch and supper and can leave some left over in the barn.
Therefore, my grudge is that Krugman does not accept that Keynesian Monetary expansion, in the form that was done to get out of the 2008 recession, goes into the pockets of the Oligarchs and relies on Reaganeconomics to trickle down to the public. This is because Keynes believed in a laissez faire mentality of Monetary expansion, simply throwing money into the public and who cares where it goes. Krugman supports this by using an example of building up a defense against an alien attack. However, the clear problem was people did not have money to pay their house loans, yet very little stimulus money reached them to do so, instead paying off the banks to cover the loan defaults. Obviously, the economy would be better off if the stimulus would have reached the homeowners instead of the Oligarchs, but how can the Oligarchs be bypassed? If Krugman could create a modified Keynesian stimulus policy where the stimulus would be targeted to fix the economic problem and keep the Oligarchs from hoarding the money (and money hoarding is a big problem of Keynesian stimulus). Therefore, I would like to throw out an scenaria to Krugman: Using the exact same amount of stimulus and knowing everything we know now, could a better integration of the stimulus money have been made to create more jobs or stimulate the housing market and to create growth? In other words, was the amount that the top 1% and especially the top 0.1% hoarded from the stimulus enough to get us out the liquidity trap?
I have shown early on that the stimulus money created 'shadow inflation' among the rich due to stimulus, and Krugman's article itself demonstrated this is clearly a problem. The fear may be that accepting this problem may give fire to anti-Keynesians, however if Krugman supports Bank regulation and responsible Governement and is the defender of the lower 99.9%, then why does he support Laissez Faire money printing that is simply scooped up by the top 0.1% that have first access to the money. Until Krugman fixes this problem, there will always be criticism of Keynes, and Government will always be hesitant to use his stimulus policies. Obviously.
Reference: http://krugman.blogs.nytimes.com/2011/11/01/graduates-versus-oligarchs/

The blame game

2011-11-01T15:07:00.000-07:00

You know things are bad when people start playing the blame game. Via Paul Krugman's blog, http://krugman.blogs.nytimes.com/2011/11/01/michael-bloomberg-ignorant-yahoo/, it quotes Michael Bloomberg blaming the Government for handing out houses during the Clinton years that caused the housing bubble and crash. I have been through this before, but to review, the Government did create a policy of handing out houses which caused a bubble, however, that bubble would not have burst had it not been for the deregulation and lack of transparency of the banking system and the shift of wealth to the wealthy and raising oil prices during the Bush administration. Therefore, it was the Government shift in policy that created this problem. Had the houses never been sold, obviously there would not have been a housing bubble. Had the loans that had been given out been done legally and properly and the 99% not been pinched by higher costs and given less of the pie then the bursting of the bubble would not have happened. Therefore, the lesson here is Republicans and Democrats need to do what is best for the country first, and that can start by stop finger pointing and finding the truth out of what happened instead of finger pointing.

FED Indecision

2011-10-30T09:47:00.000-07:00

The Fed, in all it's wisdom is trapped. The acceleration in the 3rd quarter that pushed the market is unlikely to continue in view of the coming Government budget cuts. However, under the current conditions the Fed is not allowed to act and will most likely be 'closely monitoring the situation'. Until the actual economic downturn happens, the Fed cannot expand the economy, even though that is what it needs. That means until there is actual proof that we are in a recession. If the Fed is the life guard of the Recession, they are basically watching until our economic heads are underwater before they think about coming to the rescue and that creates volatility. For an organization that prides itself on price stability and jobs, one would think they would use there speculative powers to stabilize the economy (which is why they are supposed to be independent from Congressional politics). This is truly a key moment.

3 Pilllars of America: Government, Business, People. Shrink one, all Shrink

2011-10-29T13:28:00.000-07:00

One thing to keep in mind as the talk will increase of Government cuts is that 'bloated' Government is also the engine that create most of America's greatness in cooperation with strong Corporations and a strong consumer. Think of it as the 3 pillars of Capitalism, Government, Business, People (Consumers). Even the Republicans are realizing that shrinking the Government will shrink business and weaken the consumer snce they are all interlinked. Take the military, a very Government enterprise that is supported by big Business such as Boeing, GE, Lockheed Martin, Haliburton and so on (probably a safe bet to short these companies if military spending is cut). Do not forget the people are soldiers so the Trilogy of pillars has been proven. Now smaller Government, military in this example, means less soldiers and less contracts for planes and tanks and building military infrastructure. Therefore, America the super military power becomes weaker.
Another example is Education. The Government clearly subsidizes education, and that flooding of money makes Tuitions go up. The Tea Party reaction is to cut the funding, but the educated effect of these cuts is that it will lower the level of education in America. Maybe the Government should subsidize some common sense for the Tea Party, so they do not make idiotic claims that austerity will create growth (the only two options are they are stupid or lying about that claim.) Yes, education is expensive, however, you also have to look at the level of education students come out with. When you have Professors that are Nobel Prize winners, and students that can create websites that change our entire society, perhaps that bloated Government is not so bad afterall.
Therefore, Government has done a pretty tremendous job of advancing society. Therefore, is it really wise to shrink that pillar of our society that benefits both Republican and Democratic programs. My suggestion is anyone suggesting austerity should first take the money out of the own wallet and tell us how it works out for them before they start tinkering with the Government.

Flat tax is anti-Capitalism

2011-10-29T11:04:00.000-07:00

Wouldn't it be simpler if the Government was split into 50% Republican and 50% Democrat. That way voting can be avoided all together since it is such a discomfort and so much effort. Wouldn't that be nice? The problem is it would be terrible since the Government could no longer reflect the will and needs of the people.
Keep that logic for a moment and think of the flat tax. Once the Government takes away it's ability to adjust raising and lowering taxes for different groups, whether it is business tax, income, low income, and so on, the Government is also taking away it's ability to adjust the economy to keep a fair and balanced system. Flat taxes would create inbalances that would not be correctable which could ultimately do permanent damage to the economy and well being of Americans.

Santa bringing coal for Wall Street stockings

2011-10-28T17:31:00.000-07:00

Speculation about a report that earning are flat (and lower inflation adjusted), yet consumers are spending more on big ticket items confirm a recessionary trend in the market. Some believe this is because with interest rates at zero, people would rather save than spend. However, the proper logic is that big ticket items are at zero percent interest and the consumer is taking advantage of that.
However, either way you look at it, the consumer is losing money and having more payments to make going into 2012 as they pay off those big ticket items. When people are dipping into savings, it means they are on a fixed income, and being on a fixed income usually means conservative spending for 'luxury' items such as Christmas gifts. Last Christmas the market was being flooded with money and people were tired of the bad news and falling markets and wanted to have a nice Christmas which led to a huge rally. The reality is different this year because reality is setting in. There is no prospect for wage growth or economic growth, quite the opposite with Republican Austerity getting ready to shoot the American Economy in the foot. Therefore, even if people do spend for Christmas, it is actually creating more of a danger that they are going to run out of money.
Perhaps the rich can put their Christmas celebrations on webcam or prime time tv, so we can at least enjoy the sight of prosperity. However, Santa has been watching who has been naughty and nice and he may not take a favorable view of the rich man's greed this year.

CNBC also speculates on market crash

2011-10-28T17:21:00.000-07:00

Anyone doubting my chart technical analysis can simply view the latest CNBC talking numbers, http://custom.yahoo.com/talking-numbers/?sec=topStories&pos=9&asset=&ccode=, where it goes more in depth about a repeating pattern for a crashing market where we are currently in a bear correction. The one thing it did not point out, is if the market crashes to the 2008 levels, then it confirms a huge head and shoulders pattern that could push the market to low levels we have not seen since the 90s.

Repeating pattern of 2008 crash: Charts indicate HUGE head and shoulders pattern

2011-10-26T21:15:00.000-07:00

A Chinese Hard landing, Europe falling apart, a US Recession that spins out of control. These are several relevant issues that could wake the biggest sleeping bear Wall Street has ever seen. Everybody got excited when a clear head and shoulder pattern revealed itself between November 2010 to August 2011. The pattern confirmed and the markets dropped accordingly, and then found support for a significant rally, which is where we are now. However, looking at the market trend around March 2007 and January 2008 there was nearly an identical Head and Shoulders pattern, which was followed by smaller crash, then a steep rally between March to May 2008, just like the rally we have had now, and then the floor dropped out from underneath Wall street and the Great Recession began. If this pattern repeats itself, and the market plunges to the 2008 lows, it will confirm the biggest head and shoulder pattern the market has ever seen, and which was predicted by my first entry in this blog. If the market were to reach the 2008 lows, it means a further crash would be likely, probably bottoming out around the 1994 levels, which ironically enough, is right around when the housing boom started. This is still pretty speculative, but with so much Austerity obsession, it is a realistic scenario. I am not sure if this entire 1995 - present stock market rally can be credited to the babyboomers buying housing and taking loans off their houses to expand the economy, but perhaps now would be a good time to look at worst case scenarios in order to come up with solutions to prevent them if that is the case.

No Flat Tax without Equal wages for all

2011-10-26T14:30:00.000-07:00

Here is a little Tea Party slogan that could be used:
No Flat Tax without Equal wages.
Now, I know the idea is completely communist and outrageous to suggest the big boss earn the same salary as the janitor. However, it should be just as outrageous to suggest that the mega rich should be paying the same amount as the poor who are struggling just to get by (remember, the goods and services are equal for both the rich and poor, so there is good reason for the rich to pay in taxes to support a higher standard of living for the betterment of the entire country). The Government needs to do what it can to keep a balance in society. It is pure idiotic arrogance for big business to think that the bums simply need to get a job, when especially in the past few years they should have learned it has been business friendly policies from the Government that have made them rich, not necessarily their uncanny brilliance. The Government could just as easily take the money from them and distribute it out to the people. That creates problems of it's own, which is why we have seen the failure of many Communist systems. However, the point is pulling to the other extreme of giving all the money to big business could just as well mean a collapse of our own system.
The American dream can only exist as long as every American can have the possibility to become rich through innovation and hard work. Policies such as the flat tax make the American dream nearly impossible, creating an aristocracy in our society much like jolly old England during the Revolutionary days. We fought bitterly hard to remove ourselves from that system, swearing we would never let such a group of snobs take control of our country again. So any businessman who is not helping his fellow Americans to achieve the American dream, does not belong in our political system.

HARP will be a muse for the Economy

2011-10-24T21:05:00.000-07:00

High unemployment is more a symptom of the economic uncertainty. The true illness in the economy, though is housing. Yale Professor Robert Schiller (as in the Schiller of the S&P Case- Schiller Index) actually made the proposal to refinance all Mortgage loans to a lower percentage as the cure to the housing crisis. As the foremost expert in housing, this could be the economic fix. As I previously posted, from my analysis the housing crisis resulted because a glut of homebuyers got their salaries pinched by the Bush administration, which did not leave enough money for paying the mortgage. Now, Obama forcing banks to refinance loans with the Harp, freeing up money to make those payments and the higher gas prices, the housing market will find it's bottom, and that will allow a foundation for a recovery to begin. The key is, the Republicans cannot block the program, which is very bad for their conspiracy to sink the economy into a recession.

The misrepresentation of the title 'Tea Party'

2011-10-23T08:27:00.000-07:00

The Tea Party were marketing geniuses when it came to creating a name for their movement. It touched on one of the proudest and bravest American movements that changed the world. However, now with deeper understanding of what the Tea Party actually wants, it is clear that they are not anything like the brave men throwing the Tea into Boston Harbor. In fact, they are just like the repressive Government that wanted to increase taxation on the consumer with the Tea Tax. This is no different than Tea Party Presidential Candidates Rick Perry and Herman Cain trumping tax plans significantly raising sales tax so businesses can make more profit. What about how they want to get rid of Enviromental regulations, making people sick in order to increase profits. Were the Boston locals throwing tea in the water to insist on higher business profits? No! The Government of England wanted higher profits and more deregulation and the public be damned.
Therefore, the Tea Party is completely misreprensenting one of the most important moments in American History, and even bringing a negative connotation to that moment. The original Tea Party would not be raising the sales tax and shifting the wealth from the middle class and poor to the rich. The original Tea Party demanded more representation, oversight, and control over what was being done in their back yard. The original Tea Party would be throwing these fake Tea Party people into Boston Harbor for misrepresenting their ideals.

Short Selling Occupy Wall Street

2011-10-23T08:11:00.000-07:00

As Wall Street rallies, suddenly Occupy Wall Street is facing the challenge of losing it's luster. It's longevity, which made it established, is now looking a little more like a group of zombies. They even pride themselves in their leaderless revolution, believing that hanging out on doorsteps is going to change the world. If Wall Street keeps making gains, this movement will be crushed into submission. Ironically enough, many of them will probably not even vote, which could actually do something.
This is really a shame, because the Occupy Wall Street group is necessary for our Government to maintain it's balance, especially defending the rights of the people. However, their lack of organization makes them completely inneffective. Has Occupy Wall Street made any changes in Environmental regulation, or even tried for changes? Have they submitted any plans backed by leading economists more than willing to help that would create a fairer system of job growth, wage growth and fairer taxation? The lack of Occupy Wall Street to make legitimate demands with the full force of the 99% who support those demands just shows the group is unable to take on the responsibility of Governing the US, which leaves no alternative but the same corrupt politicians and Wall Street greedos, who are organized, to keep leading the country. This is unfortunate, since as the Tea Party closes it's claws deeper into the core of Government, the Protestors will realized it would have been easier to get organized before this Presidential election.

One last dollar. People vs. Business

2011-10-22T21:34:00.000-07:00

Imagine President Obama had one last dollar, you were on one side and a business man on the other, and the President had to decide who to give it to. In todays society the business man would say if he got the dollar he would use it to hire you. You would say nothing, he would get the dollar and walk away, and President Obama would scratch his head wondering what to do with you now.
However, why were you silent? Why didn't you say if you got the dollar you could spend it so the businessman would make profit and be able to hire you, so President Obama would give you the dollar.
Who President Obama gives the dollar to in the end is trivial, what is important is to understand you have every right to every dollar just as much as anyone else. Fighting for that right, especially in these times, is very important merely for survival.

Republican witchcraft: job creation

2011-10-22T21:26:00.000-07:00

I have mentioned this before, but one of the tricks Republicans use, for example with tax cuts, is they say everybody will get a tax cut, but in reality on will just get a very small cut while another group gets a disproportionatly large cut. The Republicans use the same spin for jobs. Their goal is to deregulate and cut taxes for corporations, and by giving corporations so much extra free money some jobs will be created, however, relative to the higher cost of living from the higher taxes for the poor and middle class (since somebody has to pay for the National Debt)the tradeoff is a bad deal for everyone except the rich business owners. Why would people do elect politicians that intend to harm them by lowering their standard of living.
The important thing to search for is True Intention. A true Democracy would demand disclosure of a parties True Intention in order for people to judge it with their vote. Unfortuneatly, there is no such provision in our Constitution, so each individual has figure it out, and more unfortunately most people do not have the time or interest to realize that the people they are protesting against with signs and peace rallies are often the same ones they voted for in the booth.

The Government is not a Business, nor should it be

2011-10-22T21:13:00.000-07:00

Before we get into this, let us start with an analogy. Think of the Government as a Referee, and the players as Businesses. They are both in the field involved in the same game and their actions determine the outcome, but they serve very different functions. One of the biggest mistakes that many Governments have been making since the Great Recession is they try to solve the Governments problems with Business solutions, i.e. they are treating the referee as though he was just another player. Paul Krugman's latest article, http://krugman.blogs.nytimes.com/2011/10/22/meanwhile-greece/ demonstrates this point pretty well of why confusing apples and oranges is quite dangerous. In hard times, businesses cut back spending, lay off workers, and improve efficency. That is the exact Republican mantra we have been hearing as of late. The business comes first, so there is little social regard for the people involved. Even wages are paid to maximize productivity, not because it is the right thng to do.
Now the test question, in hard times should the Government work to increase it's own profits by cutting spending, cutting services, and laying off public employees. This does not make sense at all, because the Government should not be printing money to make itself rich, it should be printing the money for the people to raise their standard of living. Perhaps I should have asked that as the next test question, Why does the Government print money?
Now another question for any of those who think Government should work like a business, if that is so, why can't the Government use the militar if necessary and create a monopoly, or is the Republican view that there should be no Government at all and Business should rule the people under some sort of martial law agreement.
What I hope comes from the questioning is the realization that the Government is not a player in the field, it has responsibilties similar to the referee to make sure the game proceeds fairly and by the rules. When using that basic understanding of the role of Government, suddenly austerity during a period of stagnant growth and high unemployment sounds rather foolish. Business survives off of being selfish and greedy. That is why when they claim they are being stifled by high taxes and regulations it is just like those soccer players falling dramatically to draw a foul call. A good Government should have the oversight over the entire situation and not favor individual influence, which leads to the final question of the evening, is our Government a good Government, fairly balancing the needs of the people while giving business an environment to be internationally competitive?

EU negotiations destabilizing Governments

2011-10-21T17:09:00.000-07:00

Slovakia's surprising initial rejection of the Greek bailout is just proof of a growing trend throughout Europe. Minority parties in essentially every EU country are using the EU stability to their own political gan, and successfully so. The German liberal FDP party is so unpopular they would not even be in Government right now if an election were to take place, so when the elections do come up it will be hard to stop a shift in Government towards anti-bailout policies. Obviously, the EU is meeting about these issues, but politically they cannot do any more without sacrificing themselves at the elections. Already there has been a clear no to further bailouts from mulitple countries, and already poor countries that have been suffered through fiscal discipline ruled by the iron fist of the ECB are wondering why they aren't getting their fair share of financial support. What you see in the end is a bunch of individuals throwing out ideas, but no ruling authority to effectively implement any of them, which is why up to now the creditors (Germany and France) have had the last word. You would think representatives of the people could make more informed decisions than bankers who just want profit or to at least get their money back. That is why it is impressive the US has come so far, and how important the Revolutionary war actually was.

Herman Cain (aka Tea Party) wants an Industrial America

2011-10-21T07:00:00.000-07:00

I have been going on awhile about how the Republicans want to Industrialize America by seperating business and Government, eliminating the minimum wage, and driving wages down. Now Herman Cain has publicly acknowledged these goals to surpress the worker into lower wages, less benefits, and much higher taxes. To top it off, he is leading many polls to get the Republican nomination.
This begs the question, who are these people that support Cain? Sure, we here about the top 1%, but are there really that many people who think they will truly benefit from Cain's plan, or is the public being duped? The duping may be because of Fox News and political twists such as 'simple taxes are better' (even though most would pay more), however, the policies that Cain proposed are surprisingly open and relatively transparent about what he is trying to do.
I can understand that many business owners must see the opportunity to make more profits by paying their workers less and paying less taxes (and these are the pawns of the Business monster that is becoming stronger than the people), however that is not a strong enough majority. That means there must be enough people out there that are willing to inflict harm on themselves in order to implement a policy that they either do not understand or are following blindly. This is the cancer of Democracy. Obama is no role model for this. Instead of Representing the people who believe what Democrats believe, he compromised and did what the Republicans want. Now the people are doing the same and instead of electing politicians that would defend their rights, benefits, and wages, they are choosing Cain, who openly says he is going to take everything away from the people.
Therefore, in this case, Herman Cain is not the problem, he is representing what he believes in. It is the people who are following him, but would be hurt by his policies that are the problem. It is a problem that we all may pay for.

Cyclical cycle of wealth: An analysis of Reagan success and Bush failure using the same policies

2011-10-16T13:54:00.000-07:00

I have been continuing my research on my theory that stable growth is made by a higher level of taxation that maintains the credibility of the government, plus investment by the Government, and if needed, monetary expansion. One of the phenomenon's of growth was under President Reagan. I already showed that President Bush made a major mistake using Reagan policies to shift wealth away from the middle class and poor to the rich because under President Clinton the Government had already urged everybody to buy a house, so when wealth was reduced nobody could make the payments and they went underwater. This I see as truth. However, it begs the question, why did the shift in taxes towards the wealthy work under Reagan? It did not take long to figure out that, as painful it is for some to hear it, under the circumstances, it was the correct thing to do. What were the circumstances? The cold war and technology were booming, but the research and development of those technologies were extremely expensive and needed credit and revenue. Therefore, shifting wealth to the big business allow them to make advances that never would have happened if the Government had not made the rich so rich. Of course the argument is, why don't we do that now, however, as I keep repeating, it is according to the circumstance. Big business showed they have reached a top, and no longer able to innovate much farther than they already have. If companies had ideas, they would not have such large stockpiles of cash, they would be inventing and innovating. In our current situation the problem is not finding ways to defend against Communist Russia, it is to get housing and jobs. The best way to do that is shift wealth to the poor and middle class so they can make payments and buy new homes and cars. It really seems that simple.
It is important to take Democratic and Republican bias out of this analysis, although it always makes it more entertaining, but once the bias is taking out it is possible to identify that steady sustainable growth requires a shifting of wealth back and forth between businesses and the consumer. This has traditionally been done with ambition vs. ambition between Republicans vs. Democrats (Tea Party gets elected and do crazy pro business policies, then Occupy Wall Street in order to demand shutting down the banks). However, the electoral method is rather crude, especially if the formula for good growth is proven, so perhaps someday in the future all the arguing will become unneccessary and a cyclical shifting of wealth model will be implemented to created sustained growth for all Americans.

Economic Hindsight

2011-10-15T15:29:00.000-07:00

I get a certain sense there is a run on the stock market, as though this is the last chance to make money before the inevitable happens. After all, how long can 0 growth last? Earnings season is showing all continuing trends, tech rallies, banks struggle, an nothing else has budged much. With the House controlling the veto, the economy is left on it's own. It's like a Mexican standoff between the US, Europe and China to see who is going to fail first. Although it is nearly a calmness with only 150 point swings in the dow each day, it is a probably a good time to look back at the system we have had, because what comes next could change everything.

Republican magic trick: Shifting of wealth

2011-10-13T17:47:00.000-07:00

One thing that has always bothered me about the Republican party is they never reveal their true intention. I imagine if they actually did they would lose mainstream appeal, but it is impressive how they are able to get the public to focus on the one hand while the other hand takes money out of their wallet. A perfect example is the 9-9-9 plan from Presidential Candidate Caine. Watching a Fox interview with a former Reagan advisor, I noticed that in defending the plan he did what both Reagan and Bush did. He claimed that the middle class and poor would get tax cuts, and they point to simplifying taxes. If given a choice between a complicated system where a person pays less taxes or a simple system where the person would have to pay much more, which would the person choose. That choice is the problem with America right now, because most do not have the intelligence to figure out how much more or less they pay in the end, their attention span only lasts through the terms simple or complex, so they choose simple.
However, the true lesson that can be learned from the 9-9-9 plan is how the Republicans have the same tax receipts but shift the wealth towards the rich. (I mentioned this in the last blog how Reagan did not cut taxes, he did a tax shift to maintain receipts.)
First, the Republican promise is that everyone gets tax cuts. Using the 9-9-9 plan, which comes from the Tea Party, by the way, they say the Payroll tax would be eliminated (doesn't help the unemployed, but whatever), they can prove 'everyone' benefits, but do not advertise how much everyone benefits.
Second, they assure the public it will either stimulate the economy, or for example, the 9-9-9 plan will not affect price levels since eliminated Corporate taxes will be offset by a huge sales tax (much more than 9%). In translation, this is saying that instead of the money taking money from Corporations from taxes, the Government will take money from the consumer as they purchase the product. Think about this a moment. Corporations would become richer, Consumer would become poorer.
Now going back to the Republicans being so secretive about their intended purpose, which is very anti-democratic by the way, since the 9-9-9 plan would completely free Corporations of any Government influence and the individual citizens would have the entire tax burden, we have a debtor-creditor scenario where Corporations could have more control over the individual citizens since the Corporations would be the creditors and the Government essentially a debtor. Is that what the people want when they simplify the system. Now, usually there is a counter force to stabilize such extremes from happening. That used to be the Democrats, but these days it is the starving anarchists of Occupy Wall Street (Extremism always battles extremism, so Tea Party vs. OWS is just the natural order). If they get hungry enough, the rich could throw them some bread crumbs to get them to vote for plans like the 9-9-9, and the trend of these days is showing that just may happen.

Liquidity Trap Growth= QE Stimulus > taxation/austerity + higher Government income from Tax Receipts + Monetary Expansion/Curreny Devaluation + Capital Gains Tax >50%

2011-10-13T13:34:00.000-07:00

There has been a lot of experimentation on how to grow an economy since the 2008 recession, and that experimentation has created some positives and negatives that make it possible to determine the best way to create sustained growth, even in a Liquidity Trap. The key is the Goverment has to
1. Raise higher revenues from higher taxes,
2. Encourage long term investment (low risk taking and market volatility) by increasing the Capital Gains Tax,
3. Monetary Expansion and Stimulus greater than the revenue raised to have positive growth but with market confidence that any debts can be paid back (thus the higher taxes)

Many argue right away that higher taxes lower growth, but that is only true if all other variables are the same. If Government stimulus is higher than the taxation, then stimulus funds get cycled, so funds get spent instead of saved. Saving money is what keeps economies in a Liquidity Trap (since all motivation to spend or invest the money is gone and Cash is King). Therfore, the Government creates a monetary circulation system by pushing the money into the open market as stimulus spending and then taking it back as tax revenue and pushing it out again as more stimulus plus some extra printed cash to go along with it.
This is how a Government operates already, but I am suggesting on a much larger scale (think Reagan Cold War Spending meets Obama stimulus package doubled meets Clinton higher taxes). Imagine if someone was dying, and the doctor turned down the amount of electricity each time he shocked the patient. The patient would die. The same goes when the Government lowers it's tax receipts and does austerity, it does not have as much power to stimulate the economy. This is a new concept because previously everyone thought that Governments could print as much money as they want. Now, since Paul Krugman proved the existence of Liquidity Traps to those intelligent enough to listen, it is clear the markets have a threshold of confidence until the LM of the IS-LM curve goes flat. That means a Government there is a limiting ratio between the size of the Government and how much stimulus it can provide before the market says, 'How stupid do you think we are, you are just printing money, not growing.'
Now in the attempt at growth since the 2008 Recession, the open Market got saturated with cash, and that led to the Liquidity Trap. However, with 9% unemployment and lower working wages it is clear there is huge potential for growth. That is why Krugman has been jumping up and down pulling out his hair (by the way, doesn't he look like the Economists version of Freud) saying the stimulus is not enough. But this exposes the flaw in Keynesian Stimulus, that flooding the market with cash at 0% interest rates creates money hoarding by the people who get the money first (banks and businesses and the rich). Inflation has been rampant among the rich, including housing and luxury goods. This should be clear proof the model needs modification instead of fundementally sticking to the system. Sadly, this is necessary to avoid the critics who benefit from the glut of cash who want to throw the model away completely. The rich should be jumping for joy over the Keynesian model because it benefits them the most. That is why the Government needs to maintain a high level of taxation in order to keep the money flowing. The benefits of higher taxation during stimulus:
1. Higher Velocity of money which increases growth
2. Dollar stability in order to keep market confidence and comodity prices lower
3. More money for the Government to invest back into the economy
4. Money does not get stored as savings, but invested in order to avoid taxation (look at Goldman Sachs changing it's status as a Bank, or not a Bank, in order to avoid taxation. Money would not still still like it has if there were higher taxes to contend with)
The historical base for this argument when the Keynesian stimulus began the charge in 2008, but with too much doubt and tentativeness so the stimulus managed only to give flat growth. Krugman has KO'd the critics who thought the stimulus would cause (hyper)inflation, and now the world is waking up to the solemn reality of not knowing what to do. That is because the Republicans took advantage of the economy to push smaller Government. Nobody can convince me they did not know that austerity would put the country on the verge of a recession, especially with the Presidential election coming up, where it will be very tough for Obama to win with a bad economy. A ruthless but effective Republican strategy.
Here are the guidelines for growth:
1. The economy cannot grow without the Government maintatining or increasing it's tax receipts. Investment needs Profits. This also is true for the US Government. Remember, Government is the collection of all people which live within the land markers. Therefore, if the profits of that population is shrinking, the market will lose confidence in the Government's ability to grow and pay it's bills, and that is why austerity does not work, and that is why tax cuts during a liquidity trap do not work (as President Bush famously proved, but nobody noticed).
2. In order to achieve growth in liquidity trap, the Government must show it is capable of paying it's stimulus debts after the crisis passes, and higher taxes gives that confidence. However, it is important that the revenues and printed money exceed the taxation to achieve maximum stimulus. With a Government higher income the Government can make larger 'believable' stimulus that markets will be confident in.
3. High Capital Gains taxes are necessary for long term continuous growth. Every time the Captial Gains tax was lowered, the market bubbled and popped. Encouraging short term - maximum profit investing creates an unstable market, and a Government should theoretically want continued growth without that volatility.
4. Unchecked Monetary expansion causes commodity inflation. Core inflation stays low, but since Monetary expansion devalues the dollar and commodities are based on the dollar, this is a nasty side effect of stimulus, as was found out in the 70's and after the 2008 stimulus. Yes, commodity prices are going down now, but there is no more stimulus, so one has to look at the markets as being accurate on that point. Since higher commodities block the intended stimulus purpose, here again higher taxation counters the effect of feared inflation that could occur from low interest rates and loose monetary policy, and has a stabilizing effect on the currency enough for the consumer to get out shopping.
The biggest problem with the current situation is there is no cooperation. Even Reagan worked with a Democratic Congress and raised taxes (he lowered them first, saw it was a mistake, then raised taxes, then lowered tax for the rich but raised taxes for the poor and middle class to stabilize the tax receipts), while making Government more efficient, and stimulated the economy. Now, Republicans and Democrats are so imbittered, that they cannot do the right thing. An example, as I mentioned in the last post, Presidet Bush tried to do as Reagan, except with pure tax cuts mainly for the rich, but overlooked that most middle class and poor households had just bought homes and needed more revenue to make their payments. During the recovery, if instead of the bankers getting bonuses working wages had risen, there would be a housing reversal and the economy would be on it's path to recovery. However, that is only if we wanted to keep the system we have had. If we want to get rid of the minimum wage, and get the Rockefellers of the US back in power the US will be the new China of Industrialization and Irish working wages. Therefore, the universal growth model I have suggested is relatively worthless since it does not accomplish the goals of special interest.

My own rating agency

2011-10-12T15:55:00.000-07:00

If we look at the main world markets and give them a rating between -1 to 1, it is pretty logical to give the following ratings (stand aside Moody's):
0 for the US. Stagnant growth is now the reality with no growth in sight but no recession. The Republicans will block any stimulus (except the tax holiday) just waiting for the US Presidential election. It should not be suprising that growth is so slow with 9% of the population out of work.
+1 for Europe. Greece will default, but at least all the corrupt officials and Govenment agents can collect their paychecks out of the EU bailout funds for another few months. Markets will rally shortly now that the current problems are solved, and with the Bank of England doing QE programs, the scales are tipped to positive. However, it should be noted basically all of Europe is simply preparing for the coming recession based on all the Austerity, and recessions are usually not good for stocks.
0 for Asia. On Chinese Government paper +2, but the risk of expanding to fast are starting to show worrisome cracks

That gives us a temporary +1.

How the Government created the Great Recession.

2011-10-11T04:03:00.000-07:00

Ask anybody why the Great Recession of 2008 happened, and they will quickly telling you it was caused by a collapse in housing, the selling of subprime mortgages, and/or corrupt banking practices. This is obviously true, but in order to learn from history in order not to repeat it, it is important to look a little deeper and farther back how our current problems since the Great Depression started.
To get a better idea of what happened we have to go all the way back to 1995. This was the time when President Clinton and Fed Chairman Alan Greenspan wanted to stimulate the economy by loosening lending standards and getting everybody into a home. Clinton’s policies also pushed working wages for the poor and middle class much higher, so people became confident in buying a luxury home for themselves and another one or two on the side for speculation as prices continued to increase.

Just a quick review, a huge wave of poor and middle class Americans just bought new homes with long term mortgages, and often variable interest rates.

Come along President George W. W was worried because the economy was stalling. Therefore, he did everything he could to stimulate the economy with a twist on the policies President Reagan used in the 80’s. First W expanded the Monetary base to drive down the dollar and improve exports. Expanding the monetary base has two side effects which negatively effect the economy: 1. it raises inflation (except in a Liquidity Trap, as Krugman has taught us) which raises interest rates since the market is flooded with dollars, 2. it especially raises commodity prices, even in a liquidity trap since commodities are based on the dollar. The higher oil price especially acts like a tax on the consumer since they have to fill their gas tank instead of purchasing economic boosting items.
W. was not worried though, because he had a plan to cut taxes to compensate for the higher inflation. The key mistake here though is, W was using the Reagan tax concept of giving the rich huge tax breaks, and giving the middle class and poor a very small tax cut just so he could call it universal, but essentially it was a shift of wealth from the middle class and poor to the rich.

Let us review the situation again. A whole population bought houses under the Clinton administration, and now under the W administration, interest rates are higher, oil prices are higher, and the poor and middle class have little tax relief so they are getting pinched and they are starting to have trouble making payments.

Unfortunately we have to stay with W, who attacked Iraq as another way to boost the economy. However, the war went longer than expected and the Government, with less tax revenue from tax cuts began to feel the strain of lower revenue. This, added with deregulation for businesses, caused the markets to force poor and middle class wages significantly lower.
This all proved too much for the homeowners, and they began missing payments defaulting and the housing market fell apart.
Interestingly enough, if President Bush had recognized that their was a huge influx of new homeowners that needed wage stability and low interest rates to make their payments, instead of focusing on big business and shifting wealth to the rich, the Great Recession may not have happened. On the other hand, if Clinton would have acted with more moderation instead of flooding the market with homeowners and speculative buyers, the people could have afforded having less money under President Bush and the Great Recession may not have happened.
Therefore, it is clear to see that the housing bubble was Government induced, and that the Government has a lot to learn how to appropriately stimulate the economy without accidentally dragging down the entire system. Understanding what actually happened is the first step.

Occupy Wall Street: Greed is not good!

2011-10-09T08:30:00.000-07:00

I have been writing that the biggest danger to the US is not robots or war with Russia or China, but rather the people getting enslaved by US Corporations. The lack of outrage, accepting the rich taking all the money as the American way, was surprising. Now with the Occupy Wall Street protests beginning, the outrage is being spoken, but so is the confusion of what they are trying to accomplish. In a CNN interview early on in the protests, the reporter asked why the organisor had an IPad, since Apple is a part of the problem. The answer... basically she did not know what to say against the accusation. The movement should be even stronger than the Tea Party movement, since the Tea Party represents 1% of America, and the Occupy Wall Street represents about 95%. However, the protests will fade if it does not find direction soon, and the direction is obviously logical.
1. Choose a leader, and that leader is clearly Paul Krugman. He has been pulling his hair out to help American workers and attack policies that hurt the American people. He is obviously well respected, Nobel Prize and goes toe to toe with the Republicans on mainstream t.v., so he should be at the forefront representing the Occupy Wall Street demands.
2. Choose a purpose. The lack of direction is simply because there is an animal sense that something is wrong, but a lack of understanding of how to change things to make them better. Big Corporations have direct access to Politicians and even the FED to make policy changes, but the average voter does not, which makes it tough for them to make specific demands. Basically the problem they is, why is real estate over a million dollars booming while under a million dollars is still crashing? Why are Executives getting raises while workers are getting laid off (or hiring is stagnant would be more accurate to say at the moment)? Therefore, logically, the all encompassing purpose of Occupy Wall Street is to get Corporations to give back to America. Corporations have been getting a essentially a free ride from the Government. Why doesn't Apple contribute a portion of the $40 billion in cash it has to improve the IT education in primary and secondary schools of it's future work force? Why do the oil companies take the profit from everyone who gases up at the tank, but does nothing to contribute to the building of roads? Because the Government takes care of all of this for them so they are not required to, and this is paid for by the tax payers, so they are getting billed twice. However, the Government is now broke, and there is nothing that says that The message of Occupy Wall Street is clearly (and should start making it clear) Corporations need to pick up the slack and increase services which are traditionally 'Government' services. Republicans have been talking about small Goverment, and it is possible as long as private Corporations take their place. Therefore, Occupy Wall Street should focus on forcing Corporations to give back to the people and communities they serve on a much larger scale.
That means no free money by giving tax cuts without matching investment in Non-profit, Education, or Charitable projects. That means no Government contracts if the Business does not reach certain criteria such as Employees per income ratio, or if Companies are overly outsourced. That means higher taxes on companies that hoard money.
Therefore, I want to go back to the question of why it is OK for an Occupy Wall Street protestor to own an Apple. Apple is an American company, innovative, employs Americans, and produces great products. Such a company should be supported. However, the buck should not stop at the sale. Once a consumer purchases an Apple product, there is a social responsibility for Apple to reinvest that dollar back into America, and not just through taxes, but through emplying people, donations and public works projects. Teaching and Requiring Social Responsibility (which does not even need to include the Government for all the Ant-Gov people out there) is the way to perfect the Capitalist system. Otherwise, if the protests fails, we are on our way back to getting rid of the minimum wage and working as surfs and slaves again.

Fed failing at both of it's dual mandates

2011-10-09T08:25:00.000-07:00

Price stability and jobs are the Dual mandate of the Fed. The Fed has openly acknowledged they are failing at maintaining jobs in the US, due to the political atmosphere. However, they are also failing at price stability. The Fed looks at overall inflation to determine whether it is doing a good job or not, however, if the Fed would look at the difference between rich and poor, they would see it is irresponsible to simply take the average. The spread between the rich, as the are getting richer and the poor as they are getting poorer is an imbalance of Price Stability which the Fed and politicians should constantly analyse and adjust to keep in line. The failure of the Fed to monitor the Rich/Poor Spread and not address it is the reason money is being hoarded, jobless rates remain high, and the recovery has stalled. If the Fed and the US Government address the Rich/Poor Spread, the recovery will grip.

Jobless Recovery just a bubble

2011-09-25T14:00:00.000-07:00

When I heard that this was going to be a 'jobless recovery' as some people claimed, I was skeptical. It made no sense taking such a larg population out of the consumer market and thinking everything is going to chug along like before. The only way for that to happen would be for someone to do the spending for them. As we have found out, the rich save there money and businesses do stock buy backs and give themselves raises making them richer taking us full circle back to the rich people saving not spending. Then there was the Government that kept the jobless recovery theory alive, but now the Government is stopping spending, and we see the theory is not true at all. So the next time someone says a recovery will be jobless, you can now confidently say they are wrong, or fools, or scam artists, or rich.

Republican Economy Killers latest victim: The Fed

2011-09-22T00:33:00.000-07:00

The Fed's action to shuffle money and kill time until a full collapse of the economic system is a true sign of the times. 1. The Fed is nervous about the Republicans dismantling it's powers. This was magnified by the Republican letter to the Fed, which sounded like a grade school student writing the principal about how to improve the education system. The Fed actually knows the numbers, they actually study the numbers, and know the effects of the work they have done. Such a simpleton letter should really not have any effect, but unfortunately was very effective at influencing the Fed decision. This further demonstrates (2.) a weak Democratic party that does not put the Republicans in there place. Where was were the Democrat Outrage for that letter being written, and the counter debate that the Republicans should not try to influence the Fed since it is an independent organisation.
Why not go public that it is irresponsible for the Republicans to try an manipulate them for their own political game, or at least, send there own letter with an opionion how to steer the economy? Now that the market reaction is and most likely will remain negative, why not label the Republicans as 'Economy Killers', which they very much openly are.
Come on Democrats! At least pretend to put up a fight. Boehner is a nobody, yet he is tossing the Democrats and the President around like they are pudding. Wait till the Republican nomination is chosen.

US greed is China's gain

2011-09-21T14:26:00.000-07:00

Everybody knows that China steals everything. From Gucci bags, to the top secret crashed helicopter used to carry US troops that killed Osama Bin Laden. I have long wondered why companies deal with criminals that steal there ideas and product? Obviously because they can produce the products so cheap it is impossible be competitive without being made in China. Also, there is the obvious greed of calculating getting just one dollar out of each Chinese citizen. However, let us look at a case example. American Semiconductor was doing great business with China expanding windfarms with a partner called Sinovel. Suddenly, Sinovel stopped making orders and suddenly AMSC had no Chinese trading partner anymore. Now it is coming to light that Sinovel stole the AMSC technology and is simply implementing it without them.
There is a rather creative solution to the problem, though. Businesses could unionize. I know just the term makes them sick, but think of it like NATO, if one NATO country gets invaded, all the others will come to help. In the same way, foreign business could put China in line. Therefore, if China steals a patent from GE, for example, then McDonald's, Apple, Citibank, Gucci, and all the others would close shop until the dispute is resolved and theft is punished. Naturally, uniting the biggest businesses would create a monster that would threaten human civilization, but at least it would teach China to behave. Remember, one company, even the mighty GOOGLE is not strong enough to take on the Chinese Government (who obviously is behind most of the theft), but a unionized group of Company that could push China's economy off a cliff if they so wish certainly would be listened to. Companies in the US can manipulate elections and lobby decisions in US Government, why don't they step up there game a bit and take on China?

Increasing Taxes on People and businesses with Cash Surpluses could save the economy

2011-09-21T00:50:00.000-07:00

I have a theory that growth can happen, and the velocity of money can actually increase if taxes are raised. It is true, on one perspecitive, that higher taxes slow growth and investment since, just like higher gas prices, money has to go to the taxes (or filling the tank) instead of some other expenditure. There is an exception, though. What if the money does not go towards another expenditure? Consider, instead, a person puts the extra money from lower taxes into savings? Then you have a very common scenario where the velocity of money would dramatically slow down, especially since the Government, as we all know, would have re-spent the money it collected in higher taxes.
This proves a grand flaw in the 'Taxes hurt growth' claim, especially for the rich. Therefore, For people who are just getting by, such as the poor and middle class, higher taxes would slow growth because they need to keep spending to maintain their lifestyle. For the rich, however, they are rich because they save money, even hoard it, if you will. Therefore, taxing the rich, in particular the top 1% would put money back into the system instead of into personal savings accounts. From an economic perspective of the overall economy, this would be a good thing.
My point is, higher taxes work to improve the economy and increase the velocity of money where there is a surplus of cash. After the past QE cycles, there is a lot of surplus cash being stowed away which could act as further stimulus through higher taxes.

Golden Apple

2011-09-20T09:33:00.000-07:00

Apple has achieved gold status. Investors wishing a 'safe' investment first buy Apple, and it has been successful. However, with the recent rally, Apple has gone exponential. That means Apple stock is getting ahead of itself, and will have to correct back to it's normal growth trend, eventually. It could rally to $1,000 for all I know, but what I do know, is when a stock curves goes exponential it is bubbled. Just to note, gold also went exponential around July 2011, and has not returned yet, but that is the problem with bubbles, they make or lose a lot of money.

Fed will stay the course

2011-09-20T09:23:00.000-07:00

The Fed will do everything it can to keep the economy from falling into an recession, but it does not want to upset the political balance and battles. Therefore, the Fed will most likely stay the course with doing everything it can without QE. Basically, it with the Fed sending a blank check to Europe, perhaps they hope with European stability the US can get back to the business of growing. As we know of the Euros though, they can go on battling for years.

Tea Party Jocks vs. FED Nerds

2011-09-18T13:51:00.000-07:00

I feel really bad for the FED. Bernanke wants to help so much, but the Tea Party has beaten him down so now he is like Piglet. The proof of how wrong our Economic leaders think the actions of the US are were portrayed as the US got involved in the European debt crisis. The FED agreed to give unlimited funds to the European banks, what you can call QE X for the European banks. This was done perhaps to protect from China wrapping it's claws around Europe. As a token of appreciation, Treasury Secretary Timothy Geithner was invited to the EU debt crisis meetings. Mostly he argued with Germany's stance that countries must continue drastic austerity measures until their debt is paid, arguing that the crisis cannot be solved using austerity measures alone.
I ask for a moment of reflection at this point. Remember over the past months how the talk of the US has been all about Austerity, and how it will solve our problems? What this statement says is that at this moment the sword is mightier than the pen, the nerds are getting their heads swirled in the toilets, the bullies are stealing the lunch money and telling them not to tell anybody. In other words, we are econmy is not being led by the intellectualls who are trying to grow the economy, but instead by political bullies who are acting out of self interest.
For example, doesn't everybody know that the Republicans are trying to force a recession before the election so they can win the Presidency and then start QE Infinity? Or are the 99% of Americans who would not benefit from the Republican plans just blind fools (no offense to those 99%, I am one of you)?
Do not feel bad though, Timothy Gheithner's wise advice was openly rejected by the Euros with disdane that the US was trying to meddle in their private affairs. It just shows this economy is being run by jocks, so the Gheithners, and Bernankes of the world can only settle with 'I told you so'. At least Krugman is fighting back, and hopefully the Fed does the same this week.

The European Confederation

2011-09-18T13:24:00.000-07:00

It took a civil war to get the US to come together. Imagine if the US had stuck to the Articles of Confederation, with Virginia rejecting the Connecticut Compromise. Then you would have the EU. The storybook 'founding Father' stories every American schoolkid learns about is playing out live in the EU right now. Strangely enough, nobody seems to have learned any lessons from history. Perhaps you could compare Angela Merkel's cry 'Without the Euro, Europe will fail' to Ben Franklin's 'United we stand, Divided we fall.' But Ben Franklin truly wanted the US to be united, while it it is questionable whether Germany truly wants the EU to succeed. Just to simplify my point, Germany is running the EU since it is the 'Virginia of Europe', big and rich. It will not accept Eurobonds, for example, because Germany would lose money and pay higher interest rates, and they are getting away with making the debtors suffer. If the EU countries truly believed in the EU, they would give up their individual priveleges, and come together and become essentially as strong and powerful as the US. However, what you see and hear is the people want the benefits of the Euro and open trade without giving up their independence. All the countries are acting in selfish and self serving ways, and strangely enough, that is the glue of the EU.

Predicted Crash upon us

2011-08-08T17:54:00.000-07:00

It is a good feeling to predict something and have it come through. If the market tumbles to the 2008 level of Dow 7000, then it confirms the biggest head and shoulder pattern the market has ever seen, and the next support would be at Dow 4000. There would probably be intervention before that, and mostly this is a correction from investors getting overly enthusiastic about the big Christmas shopping season last year and just now they are waking up to the reality of a much tougher path to growth than expected. The foolish austerity and S&P rating cut are bad news, but so far there are no actual numbers to confirm that growth has slowed from these actions. Therefore there will be volatility as markets appear cheap, but once the higher jobless and lower revenue numbers come out as spending freezes from people worried about losing their money, the real fun should start.
This was the part of the story the Tea Party was not telling the public (they wanted and created this crash- most likely the S&P Board had Republicans tied in to the debt debates and are doing this to manipulate Government policy and the Presidential election). This is why people should have been nicer to Fed Chief Ben Bernanke. This is why every economist on earth should be fired except for Paul Krugman.
The sad thing is, after the embarrassing haggling over the debt debate, the US is left without a leader who can say what to do and have power and influence enough to do it.
That is all bait for the BIG, BIG Bear.
The positive thing to look at is there are some huge buy in opportunities either here or coming.

Going Underground

2011-08-01T19:07:00.000-07:00

It is clear that the economy is exactly at the tipping point to recover or go back to a recession. With the budget deficit vote, it is now looking like a recession. Invest accordingly.

The Evolution of the Democratic Party

2011-07-31T18:03:00.000-07:00

After weeks of intense negotiations, Democrats can come away from the negotiations for raising the debt ceiling extremely pleased because Republicans have to finally acknowledge that Evolution does exist. They had undeniable first hand proof as Democratic leaders and President Obama are coming away from the debt ceiling debate showing that they are completely lack a spine, much like their microorganism ancestry.

The idiocrocy of what they are doing is shocking. The Government is sending the country into a self induced recession right before the election. This will of course greatly favor the Republicans since Obama looks and is a complete failure right now. As a bonus, once Republicans take over everything they will repeal Health Care, increase tax cuts to the rich "job creators" since unemployment will be raging high, increase taxes on the poor and middle class since somebody has to pay the debt, but they will not replace any social services. Do not forget Collective Bargaining is also not allowed anymore so say goodbye to Unions. It will be an new age of Industrialism, especially once regulatory groups such as the EPA and SEC are gone, and people will be working for nothing or just plain homeless.

Anyone who believes this fight is just about balancing the budget is not far along in evolution either.

Osama Bin Laden and the Tea Party

2011-07-30T13:42:00.000-07:00

As even some Republicans now are starting to point fingers at the extreme right Tea Party members for being the true reason behind the blocked votes to raise the debt limit which is threatening to destroy the country, several lessons are being learned.
1. The media's attempt to remain unbiased is not allowing for the truth of the Tea Party radicalism to be revealed.
2. Fundamental beliefs are dangerous for a Democracy. President Obama has an unwavering belief in compromise. That unwavering par is as much to blame for destroying the country as much as the Tea Party. It makes him a terrible negotiator and leader. He could have stopped this nonsense a long time ago or even now (a simple threat to get rid of the debt ceiling would do it) but instead he gives in to more demands of the minority leaving the majority and the people he represents shocked and helpless. If Obama would have been at the tragic shooting in Norway, he would have negotiated with the psychopath how many people should get slaughtered. Too harsh? Then get the point, the Tea Party needs to be stopped, not negotiated with. Wait until people see the effects of losing their Medicare and Social Security checks which they were relying on Obama to defend.
3. The Tea Party is no different than Osama Bin Laden. They both had the idea to bring down the country through collapsing the financial system. Osama flew planes into the World Trade Center to destabilize the markets and tear America down. The extremist Tea Partiers also believe that the market should have crashed in the Recession, and probably see the default as a way to cause a crash so they may come in to power, just as Hitler did, by the way. Why else would they demand to tamper with the Constitution?
4. The masses are fools. In theory, balancing the budget is a good logical idea, but people do not understand what is required of them to do so. Would anyone agree to these spending cuts (especially after we just extended the Bush Tax Cuts just 6 months ago) if they knew they were going to lose their job, their retirement, lose their benefits, have no more new roads, schools, and if they go to the hospital they will be denied services? They have been given candy and lured into the witch's house to be eaten.

And as for the people, where is their outrage? But as Mephisto said
"What do they want from me now? After all, I am just an actor."

Republican strategy to bankrupt government working

2011-07-29T17:52:00.000-07:00

Read the headlines. GOP cannot even pass their own budget bill, and President Obama's ratings are at an all time low. Nobody is blaming the tea party, the are blaming the collective government. Mobs have never been known for their rational intelligence. With Obama's ratings at an all time low, Republicans have a better chance at the Presidency. However, it is also becoming apparent that the extremist Republicans see bankruptcy as the solution to the problems in the US. I am sticking by my prediction that the Republicans are dragging there feet and trying to get past the deadline while pinning the blame on Obama. It is sad that they have been so successful up to this point.

Debt limit will not pass by August 2

2011-07-26T19:46:00.000-07:00

I am going to make a prediction. The debt ceiling will not pass by August 2. Why? The Republican strategy of tangling Obama in the debate has successfully dragged down his popularity, which paves the way for a Republican President. The Republicans are not watching the stock market, they are watching the pole numbers as the debate rages on, and those poles are showing a huge loss of popularity for Obama, and Boehner is just a sacrificial pawn in this game that is also losing popularity, but who cares about Boehner? Once the debt limit is not reached, people will blame Obama and Congress, but Congress is also mostly Democrats.
There are several keys to identifying this is the Republican strategy. 1. Constant delays and rediculous proposals that have no chance of passing. 2. All Republican Presidential Candidates have been very quiet and the Republicans have been careful to let Boehner take down the ship so a fresh new candidate can campaign on how they rise America out of the ashes. 3. the Republicans are ruled by extremists, and the best way for extremists to take power is through a depression (for example, like the Nazis rose to power in Germany as an effect of the economic problems caused by WWI). 4. There have been "test articles" where reporters, most likely controlled by the Republican party, have downplayed the effect if the debt ceiling is not reached by August 2.
Most of all, again, the Republicans will have a chance at the Presidency if they can drag President Obama down by failing to raise the debt ceiling. The question is, I am an idiot blogger and I get it, why doesn't Obama get it?

Investing after the Debt Crisis: It will be raining gold

2011-07-18T13:40:00.000-07:00

I like how people believe in gold as the investment choice if the US fails. I actually predicted a gold price of $1,800 in a bet with my Grandpa, but that was for last March when I thought the debt debate would be going like it is now (I did not know about the delay tactics the Treasury had at it's disposal, and I doubt you did either). We are now at $1,600 and the debate is not done yet, so my 'debt crisis gold price' is not too far off. Once a decision is made, though, it is a whole new ball game and all the people who have flocked to the 'safety' of gold, could be wishing they had sold before the bubble popped.
If there is no debt deal, gold could be a good investment still, but that is no longer a safe investment, it is a speculative one. All the politicians say there will be a deal, so it is really a bet against the market. Also, both Democrats and Republicans have already agreed to huge spending cuts and and debt reduction. That policy will clearly strengthen the dollar, giving confidence in the dollar, especially compared to the Euro which looks very unstable. Gold will devalue just with the stronger dollar, and people would rather have safe dollars than safe gold.
The debt debate is very tense and reads like a novel, so the fear and flock to gold is understandable, just as the panic and sell to get out of it will be once the debt ceiling is raised with debt reduction measures put in place.

Surfing Stocks

2011-07-14T14:11:00.000-07:00

Friday will be a day of resolution. The EU leaders are meeting in a more organized way about EU debt problems, and the US has a tentative debt agreement as well. There are even a few good earnings reports, demonstrating how stocks continue to get polarized into all-in or all-out. The fools rally bubble has passed, and the market has shown it wants to go up despite all the bad news. Therefore, I am optimistic for another rally. However, none of the problems are solved, and the resolution to the problems will most likely be lethal for stocks. Even Ben Bernanke had to comment that the US cuts cut derail the Economic growth.
This is a not a 'get rich' market, but buying the good news and bad news seem to keeping the market going up and down along an even axis, so buying lows as there is now and selling surges (just look for exponential stock gains above a 45 degree angle) is a good way to beat the interest for cash in a savings account. There is a lot of potential for a stock fall out, so stop losses are wise and watch the news plus one day, meaning let the news come out, see how the market reacts for the day and then trade on it. Just recently the Dow did three major reversals in one day based on the EU and US debt news. Panic reactions will lose money. Just like surfing, ride the waves and get out before the crash.

A further note against the Trickle Down Theory and the reason for China's boom

2011-07-13T12:57:00.000-07:00

Obviously disproving the Supply-Side-Economic theory takes more than a blog entry, but on the other hand, the theory is so illogical, that I am going to do just that. In fact, I will start with the conclusion. Supply Side Economics is only good for the SUPPLIERS of products. That is because most businesses use tax breaks to produce more products, increasing demand for the parts needed to make the product, but essentially creating price dumping and lower wages when selling the product. Since China is nearly a universal supplier, tax cuts are a direct benefit to the Chinese, and does surprisingly little for the US.
The problem in disproving it has been the lack of a clear understanding of the flow of money. There are no tracking devices on money to see how it passes through society, and transactions take place all the time, so it is easy to assume that everybody gets a fair share. That is not the case though.
Money is used to serve a self interest of a person or business. If a company makes a product, for every $1 the company spends, the company has to earn more than $1 to be sustainable. The flaw in Trickle Down is us simpletons got convinced that the company will pass on all it's profits after the company sells it's product, and each person benefits from that dollar as it flows. However, those who do not have access to a high flow of dollars, such as the poor receive little benefit from this process. Anyone with Google Adsense understands the concept that low traffic flow brings in little money.
The reality is, most of that dollar has to be reinvested into building the next product to make and sell. Supply Side Economics, just in the name, is encouraging tax benefits in order to create more products which create more profit.
Who benefits most if a company wants to sell more products? Clearly the companies producing the parts for the products since there is a much higher demand. The Consumer on the other hand suffers because over oversupply causes a lower demand and therefore a lower price, dragging down wages, which is bad for the (US) Economy.
With low demand on the consumer side from higher supply, and high demand from the suppliers of the product components this creates a flow of dollars away from the Consumer towards the Supplier (money flows towards higher demand).
Who has been the biggest producer of US products over the past 30 years since the US started systematically using Supply Side Economics? China.
Whose Economy has boomed incredibally over the past 30 years? China.
Who has benefited from the Trickle down Theory? China.
Who loses out since a major portion of US tax break stimulus has gone to China and abroad? Everyone who is not a big business executive.
China's growth began in 1980 and follows stock market growth very closely. It is this Chinese growth that created the deficit we are facing today. The Trickle Down Theory did benefit the poor, but the poor in China, not in the US. Get my point?

Fiscal discipline means you will be poor

2011-07-13T12:22:00.000-07:00

The talk of fiscal discipline is all well and good, and it is fun to talk about how we are going to make America great by becoming suddenly fiscally responsible. The problem is that fiscal discipline is going to hurt, a lot. It is going to create lower growth, stress about not having a job, stress about lower wages, stress that the rich are make.
The people of Greece protest every day about their loss of services. Overnight, the people of London found out they have to work 5 years longer before the can retire. Once the decisions are made and services are lost, they are extremely hard to get back, which is why it is unfortunate we have a weak negotiator at the front who cannot even get a marginal tax rise to save services that a generation of workers fought hard to get.

EU and US ratings agencies at war

2011-07-13T10:27:00.000-07:00

The EU is frustrated. They would like to keep their debt problems and bankrupt countries secret in order to buy time and hope someday things get better. To their credit, the EU has demanded every cent from every citizen of the PIIG, but what they just do not get is from an outside perspective, what they are doing is just making things worse. The ratings agencies keep pointing this out by lowering the respective credit rating, which makes it even tougher for the countries to pay their loans. The EU is working to strike back, saying they want to create their own ratings agency or at least put restrictions on how the ratings are made (no independent ratings allowed). Obviously the politicians are frustrated, but without the helpful hints of the raters, the EU would have fallen apart already.
The last ratings drop of Ireland was merely to send a message to the EU leaders who will meet on Friday on what to do about the bankrupt countries will take the hint and do something about the debt problem.

Republican debt ceiling offer

2011-07-13T10:20:00.000-07:00

Just to make it clear, the debt ceiling is not debatable. It is a deadline that everyone expects to be met, but is being used as a tool to create political advantage. The Republicans have taken it a step farther though, but trying to confuse the Democrats and offering to raise the debt ceiling instead of raising taxes (before they said they would not vote to raise the debt ceiling unless taxes were raised - an important rhetorical difference. If you don't get it read it again.
I admire the Republicans because they are real professionals at this stuff. The offer to give the President power to raise the debt ceiling as long as it has an equivelant amount of cuts is a crafty trick. I mentioned how the solution to the debt crisis would be to use the $3/$1 ratio between cuts and tax hikes that Reagan used when the raised taxes in the 80's. The Republicans tweeked it so instead of tax hikes, they say they will allow raising the debt ceiling. The offer is a bad deal, since raising the debt ceiling has to be done but has no real effect on the economy, where raising taxes has a real effect.
Reagan would be proud.

Liquidity Trap solution: Stimulus for the Unemployed

2011-07-12T14:06:00.000-07:00

From my research, the biggest problem with Liquidity Traps is the Velocity of money slows as people and businesses hoard money. Therfore, instead of spending the money that would accelerate the economy, the economy gets bloated with pools of sticky money not moving at all. This could be seen as Japan’s problem for the past decade, dramatically exemplified when in the recent earthquake aftermath, hundreds of safes full of money washed ashore since they have a strict ‘save don’t spend’ culture and massive problems because of it.
The unanswered question is how to get out of a Liquidity Trap. The Supply Side Economics idea is to give the rich tax breaks and force the middle class into wage reductions (watch out minimum wage) to the point that workers are so cheap it is profitable to hire again.
Keynesians believe providing broad base stimulus, which unfortunately slows the velocity of money and can create unintended consequences.
The solution; it is better to targeted stimulus directly to the struggling portions of the market. This keeps the markets from bubbling when they are saturated with enough cash to function properly, and then moving the funding to the sections of society still struggling. Stimulus spending was very effective with bailing out the banks and the car companies, so it is just logical that housing and jobless could also benefit from stimulus.
It is an especially interesting concept to provide stimulus to the poor. People do not like the concept since they reject the idea that people should get money for not working. On the other hand, businesses did not do any extra work to earn the stimulus. However, the important point is that the poor need money to upgrade their standard of living, which makes them the most likely members of society to spend stimulus money and break the Liquidity Trap by providing direct stimulus to the economy.
This is in stark contrast where it has been proven that providing stimulus to the rich simply means adding to their fortunes and stock buy backs which has no effect on the economy. Therefore, stimulus to the poor would add growth, while stimulus to the rich creates a liquidity trap.
Would stimulus to the poor create a Moral Hazard? Since people could earn more being unemployed, why would anyone work? This argument can be countered simply since if people leave their jobs to become unemployed, it creates a demand for jobs, raising wages which is also good for the economy. The problem, after all, is that no jobs are available, and therefore, stimulating the unemployed would have no negative effect on the job market. If they economy grows through their spending, more jobs would become available, so the theory is that it would help the job market under the current market conditions.
Finally, stimulus is temporary (or else it would not be stimulus) so as money ran out the people would go back to job searching in a more efficient market.
A strange concept, but one that could be surprisingly effective.

Disproving Reaganomics / Supply side economic theory / Trickle down Economics

2011-07-12T13:38:00.000-07:00

As the debate over the deficit rolls on, and Obama gives in to more and more demands of the Republicans, it is now evident the Republican agenda is to move the economy more towards Supply-Side Economics, commony known as the Trickle Down Economics or Reaganeconomics. Simply put, tax cuts are provided to the wealthy and businesses, so that they can to increase the amount of goods they produce and increase their wealth which theoretically increases the wealth of the US. The initial side effect can be seen immediately where hourly wages dropped in 1980 and never recovered once Supply Siders got control. That means the rich were not only able to flood the market with their products (essentially government subsidized by lower taxes), they were able to keep the profits. The Theory breaks down with the claim that the profits will trickle down from the rich who benefit from the tax cuts, all the way to the poor, as the Supply Side Republicans claim. While the first part can be substantiated, the part that it benefits all members of society is completely Bogus. Money is sticky and it is not logical for money to flood from the rich to the poor.
An example: The Supply Side theory thinks that a rich man will pass on his wealth by, for example, buying a burger. The purchase helps pay the burger flipper wage, and a portion of that money goes to the farmer of the cows, and so on. That is just not the reality.
Say the rich man has $1,000,000 and buys a burger for $1. That does not even pay an hours wage for the person taking the order, and there are many persons working in the restaurant, not to mention the big bosses outside of the building. That leaves $999,999 which is left out of the Trickling Down effect. The benefit for the rest of the Trickle down chain is far less than a penny, which has to be again split between the burger workers, farmers, delivery chain, and the poor. A completely bogus theory and a complete scam to give the system political acceptance.
For Trickle Down to actually work as they claim, the rich man would have to buy a couple of hundred or thousand burgers to make any real effect, or the cost of the the burger would have to be based on the person's salary. The hidden side of Supply Side Economics is choking off wage growth in order, again, to increase profits.

Therefore, Trickle-Down-Economics causes deflation and lower growth for the consumer, while creating inflation and higher growth for Business. I call this shadow inflation because is not seen by the general public and economists. Comparing consumer growth to Business growth using Supply Side Economics would reveal that the Theory has a NEGATIVE effect on the consumer.

So why do people accept the theory? Simply because the model does increase business profits and raise the stock market, which people see as good. It is arguably one of the key reasons (along with growth in China) that the stock market has soared since 1980 when Reagan implemented the first waves of the Trickle Down Theory.
However, money is far stickier than most economic models assume. People, especially the rich, want to make sure they have enough for the rest of their lives. Business wants as much as possible to keep growing. Studies have shown that money given to a specific business or group does not wander away from that group and has no effect on the overall economy (more on that in another article). That means if the Government gave the tax breaks to, for example, new home owners, the new home owners would have more wealth and be able to pay their Mortgages.

Here is the 1. lesson of the day. Government stimulus, in any form, ONLY benefits the party receiving the stimulus!

That is why the solution to the current crisis is not to give more benefits to groups that are already flush with cash. It would be far more effective to raise taxes on business and target tax cuts on homebuying and homebuilding to stabilize that market. That is not the reality though, since the poor do not understand that they have an equal right to 'free' Government money just as much as the rich. Unfortunately, Obama's pathetic negotiating skills are giving that right away.
Now that we have historical reference with Reagonomics, it is pretty easy to see the outcome if the Republicans get there way: Worker wages will fall, the rich will get richer, stocks will go up, benefits to the unemployed poor will be reduced, the middle class will destroyed since they will have to foot the deficit bill. It is hard to believe that is, in the Republicans view, the best case scenario, but in the business world I suppose it is.

Collective depression; The Estonian Model for Austerity

2011-07-12T11:40:00.000-07:00

Estonia worked very hard to get the Euro. First it had to cut sevices, save money, keep the deficits in line, and that for many years. This scenario sounds like a model for what the US would like to accomplish. The Estonian Government is admired for it's financial discipline, and was rewarded by gaining access to the Euro.
However, when you actually look in on the Estonian people, you see something relatively common; The people do not have very much money. The cuts in services and high taxes have put them about as low as the Communist System. So why do they put up with it? Certainly the Euro gives them stability and protects from Russian influence, but essentially the Capitalist system offers less than the Communist system for the people. Why it has worked is they got poor collectively. As long as nobody has any money, there is nothing to get jealous or envious about and the cuts can be accepted. Do not believe me? Contrast that to Egypt, for example, where a corrupt Government made themselves rich at the people's expense, and rather spectacularly, the people overthrew the Government.
This is an important lesson as the US goes into it's saving mode, and as people lose their services and gradually or quickly, depending on the program, become poor. If everybody helps foot the deficit bill, people will accept it. If the wealthy and big business gets out of their share, the system will fall apart, and rightfully so.

Hard working Markets

2011-07-12T11:27:00.000-07:00

You got to give it to the Markets, they are really working hard to keep moving forward. The belief truly is 'We will get through this', which is good, because if we do not get through this... well, it is just better to stay optimistic.

Hedging through the volatility

2011-07-12T03:59:00.000-07:00

The markets are extremely volatile at the moment, and for good reason. If a debt ceiling/spending cut deal is announced the markets will most likely soar since the conflict will be over (but the problems not solved or made worse). If the EU falls apart the markets will crash.
A pretty easy way to get through the volatility is to a 50/50 split between stocks and Treasury Bonds. Every time there is a flight to safety, it is to Treasuries and stocks fall. Every time things get quiet and confidence builds Treasuries fall and stocks rise. People are betting on Treasuries as an investment of last resort (if EU fails or market crashes), but it is a risky bet if the markets recover. Knowing this, you can play the volatility. You are not losing because losses in stocks, for example, are hedged by gains in Treasuries. If one of the options gets profitable, go cash and sit on the sidelines until another volatile wave creates another buy in. Simple.

Aren't Big Businesses a Common Public Good?

2011-07-12T03:48:00.000-07:00

Phones, televisions, cars, electricity are all things that are extremely important for our society, and I would argue could be called public services. Since the Government is talking about slashing services, and there are radical arguments to reduce the role of Government, the logical step would be to argue that any company that serves a large population (such as Google, facebook, Apple, GM, Boeing, and so on) are essentially benefiting from Public products, and therefore the public could legitimately request public services in return. Clearly that is what taxes are for, but what about a more direct system. What about a system where if I purchase an IPhone, I would essentially become an Apple 'Member' that would receive benefits such as insurance. The concept is too radical to ever be implemented, but the point is if businesses are making profits from a large population, doesn't the company have a social responsibility to that population beyond the product. Is the consumer getting a bad deal under the current system? If the Government slashing spending but does not raise taxes on the rich, Economically the consumer is not getting a good deal at all.

Republican gods of the jobs. aka: 'Job Creators'

2011-07-11T05:13:00.000-07:00

'War on terror', 'Stay the course'. There are certain terms politicians use to push their mandate forward, in order to sugar coat what they are really doing.
'Job Creators' is the latest term Republicans are using, including House Speaker John Boehner and House Majority Leader Eric Cantor. They are trying to paint the image that these Job Creators need to be massaged, pampered, perhaps a human sacrifice or a virgin could be thrown in the deal, so that these godlike Job Creators might actually start hiring.
The reality is that the rich and big business do not want to pay higher taxes and they have hired politicians to prevent them from doing so. This is fine and the way things are. However, just so the Hansels and Gretels of the world do not get lured into believing the sugar coated terminology, the Republican agend is not going to boost the economy. They see the ship sinking and are reserving places on the life raft for the rich.
It is true that the economy will slow with higher taxes, but if reducing the budget is truly the goal as the say it is, everybody should do their part, rich and poor and middle class, or will some get a get-out-of-bailing-out-America card. At least everybody should stand together with a sense of pride instead of jumping ship faster than the rats.
The reason why I find the 'Job Creator' term nearly offensive is that the gods of the jobs have not been hiring when they already were given a perfect scenario to do so. That should make the people angry, which the gods and the Republican politicians defending them should be careful of.

Don't let bankers run the EU

2011-07-11T04:40:00.000-07:00

'We cut 'em in half with a machine gun and give 'em a Band-Aid.' That is a quote from Apocalypse Now (1979), and quite fitting for the current EU policies. It is a bit strange that EU raised rates when so many countries were at the tipping point of bankruptcy. It is strange that Egypt style protests were completely ignored as the EU demanded tearing away more social services from the Greeks, raising their taxes, and putting them deeper in debt. Then as the tight fisted policies send countries to bankruptcy, they offer loans - not stimulus - loans that need payment with interest.
However, when you look at how Banks run the Mortgage market, it is not strange at all. The policies are simple, Greedy with giving out the money, highest interest rates as possible to maximize profit, defaults are expected.
That is the problem with the EU, since the ECB is the only major centralized governing body the EU really has, and that has been allowing Germany, which has the most influence on the ECB, to manipulate the EU market to their favor. Who is going to say anything against the ECB without leaving the EU? It is no secret the Euro glues the EU together, so instead of political EU leaders sitting around figuring out what to do with the debtor nations, including now Italy which is too big to fail, bankers are doing the job, and bankers are not qualified to govern, which the EU (not including Germany) will suffer for.

Bush/Obama tax cuts and the Debt Cieling

2011-07-11T04:29:00.000-07:00

The sky is not falling, we are just quickly approaching the roof, but the feeling is the same. Just to put in a little 20/20 hindsight, if the Democrats would not have wimped out on negotiations for extending the Bush tax cuts by just shrugging their shoulders and saying 'OK', they could have gotten the debt cieling debate issue done with. At that time they had playing cards, namely, the deadline for the tax cuts to expire, so they were in the driving seat. Now the debt ceiling is a deadline that works against the Democrats because they have proven so weak that the Republicans are sure they will blink first and give in to in the the demands.
Just a note, I would like to note that it was in fact a fool's rally that happened last week, I was right about that.

Problem with paying off debt

2011-07-05T06:46:00.000-07:00

Do not be afraid of the debt ceiling. Everyone is expecting a deal, and it is better to invest towards a deal, which is smart because if there is no deal, then there is no safe place for your money anyway. However, taking so much money out of the system means money that is not being spent. Anyone who has made payments on anything knows that you cannot use the same money to make purchases, meaning growth will slow, and as growth slows markets will adjust to the lower growth. Look on the bright side, the spending cuts are supposed to last for ten years, which means sometime in the next ten years there should be a good buy in opportunity for the markets again. Until then, enjoy the last rally as the QE2 spending fades out of the market and the spending cuts finalize. Oh, and do not forget that China is preparing to bail out it's banks from bad loans. Moral of the story, watch your basket.

1933 WPA, 1982 Cold War job recovery vs. 2011 lack of jobs

2011-07-04T12:55:00.000-07:00

Taking a very generic look back at how the US got out of two of it's major recession and high unemployment problems, there is one thing in common: Huge Government spending. However, there was huge spending under QE1 and QE2, so there is an important lesson to learn on how the money should be spent. Under the WPA and New Deal of the 1930's the spending was in infrastructure including roads, bridges and even culture. This meant a need for workers to build the roads, bridges, and expand culture. In the Reagan 1980's everyone knows how he outspent the Russians and won the Cold War. This spending was also expansionary in building a military infrastructure, which also required workers.
Therefore, the flaw in the current QE1 and 2 spending is that it was not targeted on EXPANSIONARY AND WORKER BASED PROJECTS. The money was spent to prop up the current system, not to expand a new one. Had the US created an entirely new Grid for Wind and Solar energy, for example (not that the oil lobby would have allowed it), there would have been a need for more workers to build that infrastructure.
Jobs are created only in times of expansion to fill a need that is vacant. A company that had negative growth is not expanding when it is working it's way back to zero.
That is why high jobless rates have continued for so long.

Reagan's $3 to $1 Solution to current US debt Ceiling debate

2011-07-04T12:42:00.000-07:00

Usually it helps to use historical precedence to decide important matters of law and Government. A good example, at the beginning of the Reagan Administration in 1981 the US Government made significant tax cuts to try to stimulate the economy. However, that created major deficits, so the Government did a 180 degree turn and raised taxes in 1982 under the tax equity and fiscal responsibility act of 1982. Reagan agreed to this only under the condition that for ever $1 tax cut, there would be a $3 in spending cuts. So there you go folks, a historical precedence by the Patron Saint of Republicans. A $3:$1 ratio would be very appropriate to the current negotiations on how to bring down the deficit. If Presidenet Reagan agreed to such a deal, why can't Republicans in Congress also agree to raising taxes in times of need. Not agreeing to anything is spoiled, destructive, and unAmerican.

The god Zeus and Ex-IMF Chief Strauss-Kahn

2011-07-04T08:53:00.000-07:00

Goldman Sachs CEO Lloyd Blankfein was quoted saying banks do 'God's work.' I initially thought the statement was arrogant, but after the allegations against former IMF Chief Dominique Strauss Kahn, I realized Blankenfein meant god's work, that being god with little g. The god's that looked down at the mortals from Mount Olympus with a mix of fascination and disgust. The god Zeuss in particular comes to mind with Strauss Kahn. He held perhaps the most important position from a worldwide perspective, and could change people's lives with a simple word in an interview or stroke of the pen. What really drives the analogy home are the allogations against Strauss Kahn for his forceful relationships with women. Are you catching on to the Zeus parallel? Read some Greek mythology if not. Just to drive the point home, he is most likely to get out of all the charges.
Therefore, Mr. Blankfein makes a good point. We have enpowered the banks and businesses so much that they have nearly complete control over us. Unlimited donations have allowed them to take over our politicians, unlimited money has allowed them to take over our spending habits, and looking up to the rich as the 'Achievers of the American Dream' (at the expense of the American worker) has solidified them as modern day gods.
In the movies we see fights between man and machine (think Terminator and Transformers) but machines are not the problem, the Business gods are what you should be afraid of, very afraid.

More proof I am right. Shadow inflation and raising stocks and the debt bubble

2011-06-29T02:32:00.000-07:00

Here is an article from marketwatch.com, which confirms my statement that the stimulus money went towards business spending and inflating stock prices and business value without any effect to the general public. Here is the story.
http://www.marketwatch.com/story/the-real-story-behind-the-market-boom-2011-06-29
This is important because it shows what businesses do with their money, and hiring is not one of those things, which means the jobs slump will be very difficult to climb out of.
Another interesting point is made regarding the amount of debt companies are carrying. Debt is extremely cheap with record low rates, so it makes sense businesses are piling up with it, but it is an indication of another bubble resulting from the stimulus programs.
Just to keep track of the trend, first businesses hoarded cash, and now have taken large credits for their infrastructure, bonuses, and stock buy backs. It will be interesting what happens next.

Republicans hoping to crash market. (conspiracy theory)

2011-06-28T12:34:00.000-07:00

Republicans really cannot lose with the debt ceiling debate. They will either convince Democrats to eliminate the idea of raising taxes on the rich and therefore label Obama as a weak leader, or they will not convince the Democrats and therefore crash the market by missing the debt ceiling deadline.
Think about it. Realistically, Republicans have no chance of winning the Presidential election right now. At best, maybe there will be an entertaining Fox pay-per-view debate between Palin and Bachman, but when it comes down to votes, as of right now, there are more for Obama. So what to do? Destabilize the economy, say it was Obama's fault and that the Republicans will fix the problem, which they claim they were elected to do.
It is an interesting strategy, and relies on convincing everybody that they really will not vote for raising the debt ceiling. Notice they demanded doing the negotiations directly with Obama. That is important so they can try to pin the blame on him. Obama is notorious for caving in, but in this case he already has, and cannot really go any farther without becoming Republican himself, and letting the tail wag the dog (which the Republicans would use against him)
The irony of the situation is that the Republican debt limit talk is dragging down the dollar, which is keeping the economy alive right now. If an agreement had been made by now, the Euro would be dead, and that would choke off growth in the US, the little that is there anyway.
What would be interesting to know is if the Republicans are invested in the market they are about to crash with their All-in push. They sure like to gamble, which makes things fun to watch except when you remember they are playing with people's lives.

Panic selling of individual stocks a sign for the overall market

2011-06-28T01:22:00.000-07:00

TomTom is the latest of growing numbers of stocks that issued profit warnings, and were hit with drastic drops in their stock value. This is an indication of 2 possibilities or possibly both, 1. the stock was in a bubble and is correcting, 2. Investors are very nervous and these 'heavy correction' stocks are just cannaries in the coal mine.
However, I still think the release of strategic reserve oil was an effective strategy for raising consumer confidence and that Greece will get the loans and that will rally the market (although not end the problems) preparing the market for a steeper decline as the Fed easing ends and the deficit fight intensifies.