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.