Ford Burns $5.5 Billion in Cash During the 2008 Fourth Quarter

Bloomberg reports that Ford Motor, the only U.S. automaker shunning federal loans, burned $5.5 billion in cash in the fourth quarter; and said it will tap a revolving credit line after the worst annual performance in its 105-year history.

Now, I had wondered how Ford could shun all that government money that GM and Chrysler had taken so willingly. My original thought was that maybe Ford did have a "better business model in play." I should have knew better. Ford's business model is no better, might be worse, than GM and Chrysler. The reason why Ford managed to forgo all that governmental money is that its CEO, Alan Mulally, decided to borrow $23 billion in 2006 by securitizing ALL of Ford's assets, including its trademark "blue oval logo." Oh, that was a brilliant strategy to hock anything, even the logo, by going further into debt!

Enron and the Treasury Department: What do they have in common?

An excellent post by Tim Knight over at the "Slope of Hope" is quoted below for your reading enlightenment. He states that there is no way to for you and me to sell these toxic assets that the Treasury will be acquiring for us as taxpayers. I believe there is a way for investors through buying the following inverse ETFs: UDN (Dollar Short Position), TBT (TSY Bond -- 20-Year Maturity Short Position, and PST (TSY Bond -- 10-Year Maturity Short Position). And, of course, the purchase of gold and silver, either the bullion or the ETFs, GLD and SLV.

"Even though seven years have passed, Enron is probably a company whose scandal you remember. The simplified version is something like this: you had an organization which:

1. Had some performing assets and some very bad investments;
2. Set up some "off-balance partnerships" into which they could move the bad investments;
3. Propped up an untenable situation by leaving only the good stuff, thus creating the illusion of prosperity

So I ask you this: what is the difference between what Enron did and what the US Government is about to do with the "bad bank" proposal? Remember, people went to prison or put bullets through their own heads because of Enron.

Indeed, I would say what Enron did was actually better than what the Feds are proposing, because at least those who suffered due to the fraud did so at their own choosing. In other words, they elected to buy (and hold on to) Enron stock. ENE was falling a long, long time before the scandal broke and the stock truly collapsed. Anyone with even the most basic knowledge of a chart would have exited ENE safely.

The bad bank, however, forces the entire country to be saddled with toxic "assets." There isn't a way to sell.

I don't imagine anyone is going to wind up going to prison over this one. It's a million times worse than Enron ever was."

Look at the following chart of Enron.

Doesn't the chart look a whole lot like many of the current financial charts?

Marcus Tullius Cicero: Dated 55 B.C.

The following quote illustrates how wise we've become over the ensuing two-thousand year. "LOL"

"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance."

Two-thousand years and "nothing" has changed. "Those who cannot remember the past are condemned to repeat it." -- George Santayana, The Life of Reason, Volume 1, 1905

What Is an American Car?

"Could there be a more American vehicle than a "Jeep Patriot?" Nothing on four wheels says American more proudly than Jeep, the rugged brand that helped America win World War II, and has ferried millions into our wild, Western spaces since. Yes, in fact, there could be a more American SUV than a Jeep Patriot. A Toyota Sequoia would be one of them. The Sequoia is 80% "domestic" according to the National Highway Traffic Safety Administration, while the Jeep Patriot is only 66%.

Once you put down the flags and shut off all the television ads with their Heartland, apple-pie America imagery, the truth of the car business is that it transcends national boundaries. A car or truck sold by a "Detroit" auto maker such as GM, Ford or Chrysler could be less American -- as defined by the government's standards for "domestic content" -- than a car sold by Toyota, Honda or Nissan -- all of which have substantial assembly and components operations in the U.S.

GM, the most global of the companies with headquarters in Detroit, has highlighted to investors that it now sells more cars (and has more employees) outside the U.S., and that its best opportunities for growth -- assuming the company's restructuring is successful -- are in China, Latin America and other developing markets.

So what should you buy if you want to buy a truly American-made car? For the 2008 model year, the government says the Ford Crown Victoria has the highest percentage of U.S./Canada content at 90%. The only hitch: It's assembled in Canada."

For the rest of the article go to the Wall Street Journal. Make sure you take the car quiz and see if you are smarter than a fifth grader.

Lending Drops at Big U.S. Banks

The "Wall Street Journal" reports that "lending at many of the nation's largest banks fell in recent months, even after they received $148 billion in taxpayer capital that was intended to help the economy by making loans more readily available.

Ten of the 13 big beneficiaries of the Treasury Department's Troubled Asset Relief Program, or TARP, saw their outstanding loan balances decline by a total of about $46 billion, or 1.4%, between the third and fourth quarters of 2008, according to a Wall Street Journal analysis of banks that recently announced their quarterly results."

What is happening is deleveraging. That is, financial institutions are writing off toxic loans; businesses are paying off loans; and consumers are paying off loans. In other words, no loan demand. Further evidence that deleveraging is alive and well is that CNN reports that 87% of respondents to a recent poll would pay down debt or save it if they would receive a $500 tax credit. Bottom line, no one wants to take on additional debt!

Ownership of Treasury Debt and Its Potential 2009 Impact on the Dollar

The following comments are from the January 21 post of the “Contrary Investor,” whom I have quoted from in previous posts. I totally agree with his hypothesis that the 2009 financial story will be the dollar. And, it has all of the potential of being a horror story. At the end of the article, I will provide several investment vehicles, which would enhance your financial portfolio in a dollar-weakening environment. Of course, I will be monitoring these investments over the course of 2009.


“Without question, the most important foreign buyer of US Treasuries decade to date has been China. Although Japan is a meaningful holder, it has been a much lesser force in supporting Treasury prices decade to date than has China. We’ve told you in the past that we believe UK numbers are in large part petro money floating through one of many global financial centers that is London. Secondly, London in part and the Caribbean in better part comprise hedge fund territory. The folks currently trying to front run the Fed? Maybe. As we’ve also discussed in the past, OPEC, Brazil and Russia have one very important characteristic in common with their main land Chinese brethren – they have been on the other side of the massive US trade deficit during the current decade that is now beginning to contract. Very important recipients of trade related US dollars that have so obligingly recycled those dollars back into US Treasuries, as well as US agency and corporate debt until recently (for very obvious reasons). Looking forward, two issues stand out as we question, “who’s the next buyer?” As we question how the US will fund itself in the wholesale global capital markets, if you will. The table above shows us directly how the US funded itself decade to date. How about looking ahead?

Simply stated, we believe the question of how and at what cost the US government funds its debt expansion ahead is quite the relevant watch point in 2009. China holds a very key seat at the decision-making and ultimate outcome table. Recent Treasury yields (or lack thereof) have already reached an extreme, and as such are unsustainable. Bernanke is on record stating the Fed will buy Treasury debt if need be. Clearly, whether he realizes this or not, the markets will hold him to that statement. In fact, this may become one of Bernanke and Company’s most meaningful “tests” in the year ahead. Choosing to inflate/reflate, the Fed cannot allow nominal Treasury yields to climb meaningfully, as such we believe the financial market relief valve by default will ultimately be the US dollar. The path appears very clear. It’s only the acceleration along the path that remains in question if you ask us.

Trading Places...As we mentioned above, we need to keep a sharp eye on China as we move ahead. You know we'll be monitoring their activities in terms of capital flows, especially their Treasury purchases. But this data comes to us with a multi-month lag. So as we look ahead, we need to be mindful of combining data anecdotes in trying to anticipate change in global capital flows. Again, the reason we've spent so much time on this topic in this discussion is that any meaningful change in global capital flows into Treasuries will hopefully allow us to time a point at which Fed Treasury monetization becomes a significant reality. We know they are already monetizing alternative assets such as mortgage backed securities, commercial paper, etc. But we simply cannot see how global debt and currency markets will not sit up and take meaningful notice when Treasury monetization begins.

We hope you've noticed recent "comments" being made in the Chinese press. A number of differing officials from a number of differing Chinese government departments have alluded to dollar weakness going forward. We suggest this is no coincidence. The Chinese are "telling us" this is what they expect. Like their US official brethren, the Chinese government is "encouraging" domestic banks to increase lending. And we know full well a Chinese stimulus package has already been delivered. Record US Treasury issuance is meeting up with a potential period of falling foreign demand for Treasuries, and we suggest China will be the key watch point in terms of this change in 2009.”

The following securities are ETFs that would be benefit in a dollar-weakening environment:
1. U.S Dollar Index Bearish Fund (UDN)
2. Short 20+ Treasury Bond (TBT).

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Asinine, Asinine, Asinine

Obama's "American Recovery and Reinvestment Plan" states this in Appendix 1 of the plan: "We considered multipliers for the case where the federal funds rate remains constant, rather than the usual case where the Federal Reserve raises the funds rate in response to fiscal expansion, on the grounds that the funds rate is likely to be at or near its lower bound of zero for the foreseeable future."

Please tell me this is a joke. Does Obama really believe that the Fed can hold interest rates at zero for four years, and the federal government can spend, spend, spend like there is no tomorrow, while the bond market blithely looks on at $1-2 trillion federal deficits annually and the economy will begin to recover? Obama, you are kidding, right? Unfortunately, he is not kidding, yet that premise forms the foundation of his economic and recovery plan.

Rates are going up. It's just a manner of time. Treasury securities are just another bubble waiting to burst! That is why I believe in either shorting TLT or buying the double inverse ETF, TBT. I will have more information on TBT in a future post.

Source: The Market Ticker

Porn Industry Seeks Federal Bailout of $5 Billion

According to CNN, another major American industry is asking for assistance as the global financial crisis continues: Hustler publisher Larry Flynt and Girls Gone Wild CEO Joe Francis said Wednesday they will request that Congress allocate $5 billion for a bailout of the adult entertainment industry.

“The take here is that everyone and their mother want to be bailed out from the banks to the big three,” said Owen Moogan, spokesman for Larry Flynt. “The porn industry has been hurt by the downturn like everyone else and they are going to ask for the $5 billion. Is it the most serious thing in the world? Is it going to make the lives of Americans better if it happens? It is not for them to determine.”

Francis said in a statement that “the US government should actively support the adult industry's survival and growth, just as it feels the need to support any other industry cherished by the American people."

“We should be delivering [the request] by the end of today to our congressmen and [Secretary of the Treasury Henry] Paulson asking for this $5 billion dollar bailout,” he told CNN Wednesday.


Flynt and Francis concede the industry itself is in no financial danger — DVD sales have slipped over the past year, but Web traffic has continued to grow.

But the industry leaders said the issue is a nation in need. "People are too depressed to be sexually active," Flynt said in the statement. "This is very unhealthy as a nation. Americans can do without cars and such but they cannot do without sex."

"With all this economic misery and people losing all that money, sex is the farthest thing from their mind. It's time for congress to rejuvenate the sexual appetite of America. The only way they can do this is by supporting the adult industry and doing it quickly."

So far, there has been no congressional reaction to the request.

Social Security and Madoff

Source: Michael Covel

2008 Performance Reflection

2008 has come and gone and here it is 2009. Most investors are glad to see 2008 behind them and look forward with optimism to 2009. Since this is the beginning of a new year, let’s reflect on overall performance for 2008, which turned out to be a disastrous year, third-worst year in more than a century, for most investors of our generation. Many investors are angry and confused. They are hoping for a turnaround in 2009, but considering the pain that has continued for more than a year, they are reluctant to bet on it. It was the DJIA worst year since 1931. The broad S&P 500 did even worse, down 38.5% for 2008, its worst year since 1937. However, those of you that followed the Exponential Moving Average (EMA) Trading Strategy were kept out of harms way. On January 8, 2008, the EMA strategy turned bearish; and investors should have switched from equity investments to money market instruments. By implementing this strategy on January 8, 2008, investors would have kept intact 35% of the their investment capital (1/08/08 S&P 500 at 1390 and 12/31/08 S&P 500 at 903). In other words, for every $100,000 invested as of January 8, 2008, one would have $65,000 as of 12/31/08, as measured by the S&P 500. Ouch!!!



At some point, the stock market will hit bottom and move higher. Some experts believe it happened in November. Others believes stocks will decline again and won't bottom out until later, perhaps some time in 2009 or 2010. From my perspective, that is the beauty of following the price trend and, of course, the EMA Trading Strategy. I will let the price action of the market decide when to redeploy financial assets back into the equity market.

Next week, we will look at our EMA Trading Strategy along with some individual ETFs that may have significant profit potential for 2009.

APPALLING!!!!!!!

GMAC President Bill Muir said in a statement today: "The company won’t finance “higher-risk transactions,” instead concentrating on prime customers who are more likely to repay using “responsible credit standards.” The relaxed policy “will allow us to return to more normal levels of financing volume, and should help in efforts to stabilize the U.S. auto industry.” Sounds good, doesn't it? Now, according to GMAC what constitutes a "prime" customer? This means that only the best credit risks will get financed at a reasonable rate, right? Well, no. Matter of fact, GMAC reduced the credit score necessary to get a loan from 700 (very good) to 621 (not very good.) Do you believe this? I am loathed at how they are wasting my money as a taxpayer. Everyone that reads this blog should send a copy of this posting to his/her Representative and Senators demanding accountability. By the way, the median (average) FICO score in the United States is 723.

Worse, here was what GMAC did: "Within hours, GM was offering no-interest loans for as long as five years to counter this year’s 22 percent drop in sales, caused in part by the inability of its customers to get financing." Oh, and the terms? GMAC will pay an 8 percent dividend on the Treasury’s $5 billion of senior preferred equity. The company will also issue warrants in the form of additional preferred equity that will equal 5 percent of the preferred-stock purchase and pay a 9 percent dividend if exercised."

So let me see if I understand this correctly. The government "buys" preferred equity that pays an 8% coupon. GMAC must pay that 8% coupon (9% if the government exercises the warrants. GMAC turns around and loans out money at 0% that it has to pay 8% to acquire, and at the same time decides that it will make loans to people with credit scores significantly worse than average, when before they would make loans only to people with scores that were slightly better than average. Loaning money out at a lower rate of return than it costs you to acquire - isn't that kind of like "we'll lose something on each sale, but make it up on volume?"

Oh, and then while we're at it, let's make lots of loans to people who have credit significantly worse than the average credit score in the United States, instead of just making loans to those who are at least average in their handling of credit."

Source: From the Karl Denninger's blog at the Market Ticker.

GMAC Bailout: The Sky is the Limit

According to the "Wall Street Journal," the federal government Monday deepened its involvement in the U.S. automotive industry by committing $6 billion to stabilize GMAC, a financing company vital to the future of struggling car maker General Motors Corp.

In a sign the government's role in the industry could become open-ended, the Treasury Department said Monday it had set up a separate program within the Troubled Asset Relief Program, a fund originally designed to help banks, to make investments directed at the auto industry. A Treasury official said the new program didn't have a specific dollar limit. In other words, the Treasury is saying that we don't know how much money it will take to save the financing arm of GM; but we will provide as much money (taxpayers money of course) as it takes.

The agreement opens a new rescue program for the auto industry as part of the Treasury’s $700 billion TARP. Keep-in-mind that the bailout was originally designed to buy troubled assets from banks and has instead become a fund for Treasury to prop up all kinds of lenders, insurers, car makers, and now auto-finance companies.

I am here to say that "we, as a nation, will reap what we sow." That is potential for hyperinflation and the total destruction of our currency.

GMAC: One-bank Holding Company

Question: Does having a "piggy bank" allow one to seek one-bank holding company status from the Fed? This a question that I sent to my Representative in Congress. You may want to do the same, since it seems everyone is becoming a one-bank holding company.

Shocker!!! The Wall Street Journal reports that the "Federal Reserve's decision to make GMAC LLC a bank-holding company throws the unit a desperately needed lifeline, but further entangles the federal government in areas of the economy it once considered beyond its purview.

In a Christmas Eve decision, the Fed gave a present to GMAC, a finance company controlled by private-equity fund Cerberus Capital Management and General Motors Co., to qualify as a bank. As a federally regulated bank-holding company, GMAC potentially gets access to billions of dollars of Treasury funds dedicated to recapitalizing banks."

Christmas Hiatus

I want to wish everyone who has been part of this blog over the past year a very "Merry Christmas."

2008 was not a kind year to investors of all shapes and forms who remained fully invested in this "Bear market." Most equity indexes for 2008 will be down anywhere from 40% to 50%. The S&P 500 is trading at approximately its same level as ten years ago. That really does hurt. And, keep-in-mind that just to get back to the price levels of January 2008, the market has to appreciate by 80% to 100%. However, those of you that heeded the sell signal on January 8, 2008 have been kept out of harm's way. On January 8, 2008, the exponential moving averages (14-Week in relation to the 40-Week) generated a sell signal, whereby investors were suppose to exit all equity investments and redeploy the proceeds to money market investments. For those of you that did execute the strategy, thank your blessings and be generous this Christmas with those that are truly in need.

2009 will probably not be that much better than 2008, especially the first half. However, saying that, I will let the market tell me when the trend changes from bearish to bullish through the exponential moving average strategy.

I intend to post again immediately after the New Year in which I will reflect on 2008, and look at some investment vehicles that could enhance your financial well being for 2009.

With Economy in Shambles, Congress Gets a Raise

"A crumbling economy, more than 2 million constituents who have lost their jobs this year, and congressional demands of CEOs to work for free did not convince lawmakers to freeze their own pay. Instead, they will get a $4,700 pay increase." Enough said.

Source: The Hill

The Mother of All Bailouts: Coming to Your Local Car Dealership

Bloomberg reports that General Motors Corp. and Chrysler LLC would get U.S. loans to stay afloat until March under a Bush administration rescue plan that may be unveiled tomorrow, Friday, December 19, 2008.

The Treasury Department intends to lend to the automakers through their credit arms, GMAC LLC and Chrysler Financial, to avoid having other industrial companies line up for access to the $700 billion TARP. Oh, we are all banks now!

Boston Tea Party, anyone? I am taking reservations for the tax-revolt party.

U.S. Conference of Mayors

CNN has reported that the U.S. Conference of Mayors went to Capitol Hill earlier this month with a report listing 11,391 infrastructure projects proposed by 427 cities. The cost, as reported, is a cool $73.2 billion to pay for all these infrastructure projects that includes plans for a polar bear exhibit, an anti-prostitution program, a water park ride, zoos, museums and aquatic centers to name a view. I don't have enough time or space to delineate the remaining 11,385.

Isn't anyone out there concerned about whom will pay for all this stuff? Then again, what's a billion or trillion or quadrillion or quintillion or sextillion or septillion or octillion or nonillion or decillion or undecillion or dodecillion or tredecillion or
quattuordecillion or quindecillion or sexdecillion or septendecillion or octodecillion or novemdecillion or vigintillion? It is just monopoly money.

Chrysler Shuts Down All Production

Starting this Friday, Chrysler will shut down all production of its vehicles at all of its 30 plants for one month, which is two weeks longer than it normally does at this time of year. Now, this is the real kicker. Workers will receive 95% of their wages during the shut down. Please tell me where is the incentive to change the status quo? Why would the UAW want to change anything when its workers can take a month off, not vacation time, and still get 95% of their salary. And, I thought they were going to remove the job bank. Sign me up, please. I want a deal like that!

The Real Great Depression

I am no longer looking at a 1929 type depression scenario as a possibility for our current financial crisis. That has now shifted to the panic of 1873, which was far worse than the infamous 1929 and included widespread civil unrest. Thanks to Scott Reynolds Nelson, who has written a very interesting article in the "Chronicle of Higher Education," entitled The Real Great Depression.

Please read the article for a good historical parallel to our current economic situation. The parallels of how that 1873 panic occurred are uncanny to today's situation, such as industrial shifts (US >> China) and easy mortgage credit (European in particular) are stunning.

Remember that those who don't know or remember history are bound to repeat it in one form or another.