Goodies for Trial Lawyers

The health care bill recently unveiled by the House is over 1,900 pages for a reason. It is much easier to dispense goodies to favored interest groups if they are surrounded by a lot of legislative legalese. For example, check out this juicy morsel to the trial lawyers (page 1431-1433 of the bill):

"Section 2531, entitled “Medical Liability Alternatives,” establishes an incentive program for states to adopt and implement alternatives to medical liability litigation. [But]…… a state is not eligible for the incentive payments if that state puts a law on the books that limits attorneys’ fees or imposes caps on damages."

Lies, Damn Lies, and Statistics

The Obama administration said Friday that the government's fiscal stimulus program has helped create or save 640,329 jobs as the result of the of the $787 billion stimulus package. The administration says that puts it on track to meet its goal of creating or saving 3.5 million jobs by the end of 2010, when the two-year stimulus has run its course. (Does anyone really believe that will happen?)

"One can search economic textbooks forever without finding a concept called "jobs saved." It doesn't exist for good reason: how can anyone know that his or her job has been saved?" Allan Meltzer, economics professor at Carnegie Mellon University, wrote in a memo. "The Administration can make up any number it pleases. The number has no meaning."

Third-Quarter GDP: Quick Overview

How much of the third-quarter GDP growth of 3.5%, which will be revised several times, is due to the “Federal Stimulus” money?

First, consumer spending contributed 2.36% to GDP growth. (Economists said the massive stimulus injected by the U.S. government, such as the cash for clunkers program that lifted car sales, helped boost consumer spending.) That leaves 1.14%.

Second, U.S. business inventories added 0.94% to GDP, because inventories decreased $130.8 billion, compared to $160.2 billion in the second quarter. That is right, a negative is a positive. That leaves .2%.

Third, business spending reduced GDP by 0.24 percentage points. Business spending would have been an even greater drag on GDP if not for housing. (Residential fixed investment grew by 24% thanks to the $8,000 first time homeowners tax credit.) See, housing is a component part of business spending in the calculation for GDP by the expenditure approach.

Fourth, one can deduce that Federal Spending increased GDP by the remaining .2%.
There you have it. The preliminary 3.5% GDP growth was due almost entirely to the cash for clunkers program, which by the way simply brought demand forward to the third quarter, first-time homeowners tax credit, and government spending.

What bothers me the most about the GDP numbers was the decline in personal and disposable incomes for the third quarter. Current-dollar personal income decreased $15.5 billion (0.5 percent) in the third quarter, in contrast to an increase of $19.1 billion (0.6 percent) in the second. Disposable personal income decreased $20.4 billion (0.7 percent) in the third quarter, in contrast to an increase of $138.2 billion (5.2 percent) in the second. That amounts to a major reduction in consumer purchasing power going forward.

Job Creation Miracle: Another Lie

GMAC Asks Treasury for More Money

The "Wall Street Journal" reports the Treasury Department is likely to inject another $5.6 billion of new capital into GMAC. These billions are on top of the $12.5 billion that GMAC has received since December 2008.

In addition, Treasury officials also are moving to shore up GMAC's ability to fund its daily operations, with the FDIC guaranteeing an additional $2.9 billion in GMAC's debt. The FDIC backed $4.5 billion in GMAC debt earlier this year.

So, GMAC, after its third bailout, will have received (directly and indirectly) $25.5 billion in our money.

By the way, GMAC posted a second-quarter loss of $3.9 billion amid rising loan delinquencies and the continued weakness in the U.S. auto market.

When will this madness stop? And, where in our Constitution does it provide for an infusion of financial capital to the private sector by the U.S. Treasury?

Health Insurance Companies: Rapacious Profiteers Making "Immoral" and "Obscene" Returns?

Private health insurance companies have been demonized recently for making "obscene" profits, allegedly because of mergers, lack of competition, and monopoly power.

Since I am a numbers guy, let's look at the "facts," not lies or distortions. Health Care ranks 86th by net profit margin (Profits/Revenues) at 3.3%. That is, measured by after-tax profit margin, there are 85 industries more profitable than Health Care Plans. That is the fact!

I guess if you say something long enough and no one challenges those lies, it does become believable.

Cash for Golf Carts Fiasco

Just when you think that you have heard it all, along comes the government with another program. If you thought that "Cash for Clunkers" was a boondoggle, wait until I tell you about the golf-cart fiasco.

Thanks to the federal tax credit to buy high-mileage cars that was part of President Obama's stimulus plan, our infamous "Cash for Clunkers," Uncle Sam is now paying Americans to buy that great necessity of modern life, the golf cart. Yes, you read it correctly.

The Wall Street Journal reports that our government provides tax credits from $4,200 to $5,500 for the purchase of an electric vehicle, and when it is combined with similar incentive plans in many states the tax credits can pay for nearly the entire cost of a golf cart. "The purchase of some models could be absolutely free," Roger Gaddis of Ada Electric Cars in Oklahoma said earlier this year. "Is that about the coolest thing you've ever heard?"

In South Carolina, according to the Wall Street Journal, sales of these carts have been soaring as dealerships alert customers to Uncle Sam's giveaway. "The Golf Cart Man" in the Villages of Lady Lake, Florida is running a banner online ad that declares: "GET A FREE GOLF CART. Or make $2,000 doing absolutely nothing!"

Golf Cart Man is referring to his offer in which you can buy the cart for $8,000, get a $5,300 tax credit off your 2009 income tax, lease it back for $100 a month for 27 months, at which point Golf Cart Man will buy back the cart for $2,000. "This means you own a free Golf Cart or made $2,000 cash doing absolutely nothing!!!"

The golf-cart fiasco has followed an IRS ruling that golf carts qualify for the electric-car credit as long as they are also road worthy. These qualifying golf carts are essentially the same as normal golf carts save for adding some safety features, such as side and rearview mirrors and three-point seat belts. They typically can go 15 to 25 miles per hour.

The IRS has also ruled that there's no limit to how many electric cars an individual can buy, so some enterprising individuals are stocking up on multiple carts while the federal credit lasts, in order to resell them at a profit later.

Isn't our country great. Where else can you live and receive tax credits and loopholes for everything from cash for clunkers, plug-in cars to fuel efficient appliances, home insulation, and vitamins? If this keeps up, it will soon make more sense to retire and play golf than work for living. Bless America!

Source: "Wall Street Journal" (October 17, 2009)

Shanghai Stock Exchange ($SSEC)

Shanghai Stock Exchange has been a leading indicator of our domestic markets over the past two years. Recently, it has diverged from our domestic markets. See the following Point & Figure chart. Also, notice that the double-top formed within one price box of the top of the page. Why is that significant? That is my "contrarious indicator" that indicates a potential top if it occurs on the top of the page, or indicates a potential bottom if it occurs on the bottom of the page. Could this be a harbinger that the bear market rally is coming to an end?

Bullish Signal Reversed to Bearish Signal?

Is the DIA developing a "Bullish Signal Reversed to Bearish Signal" on a Point & Figure Chart? Critical support at $96, which would be a three-point reversal or $3. A price below $96 support ($95) would indicate that the "Bear Market" rally from March 2009 is over.

Note: To enlarge the chart, double-click inside of it.

S&P 500 Weekly Update

Our SPY position closed Friday at $107.26, which is up 2.9% from our average cost of $104.29. So far, so good.

Note: To enlarge the chart, double-click inside of it.

Since the market bottomed in March, the Dow has gained more than 50%, the S&P 500 up 58%, and NASDAQ up 68%. Wow, which is definitely an understatement. Ok, what has all those insiders (officers and directors) been doing? These are the individuals that should have a better notion of the present circumstances and likely prospects of the companies they run. Well, in the third quarter according to Insider Score, which keeps tab on buying and selling by officers and directors, total purchases by these individuals were $410 million. However, sales by officers and directors were nearly $7.4 billion. Or, to put it another way, for every $1 spent by insiders to acquire stock, they sold more than $18 worth. What do they do that we do not know?

Indispensable Man

I have been very quiet with my posts here and on Twitter this week. I am just sitting back and watching the "Bulls and Bears" go after each other with the Bulls having the upper hand for now. As General Charles DeGaulle once remarked: "The graveyards are full of indispensable men." I don't consider myself indispensable, because I don't like graveyards.

S&P 500 Weekly Update for October 2, 2009

The exponential moving average strategy continues in the bullish column. Saying that, I am cautiously optimistic that the bullish trend will continue. The average cost of the SPY's holdings is $104.24. Given today's close of $102.49, the portfolio is down 1.67%.

The following chart depicts the weekly 15 and 40 EMAs of the S&P 500
Note: Double-click inside of chart to enlarge it.

The next chart depicts the daily price along with the 50 and 200 EMAs for the SPY for the past year. What the daily chart is indicating is that the current weakness may carry the SPY down to its 50-day EMA ($101.64), which we are there now. If that price support level is penetrated, the next support level is the 200-day EMA at $96.50.

Note: To enlarge the chart, double-click inside of it.

Why am I illustrating the daily chart for SPY? Let me explain it this way. The weekly EMA strategy provides me with the long-term trend for the market. Currently, the long-term trend is bullish. Therefore, investment dollars and any additions are allocated to the bullish positions. I use SPY's daily EMAs, stochastics, and CCI to determine when to make such purchases. Since these indicators are currently negative, I will hold off making any additional purchases until these indicators turn positive.

Cruel September for Autos

Now that the "Cash for Clunkers" is a forgone conclusion. What have we learned? First, as I stated in previous posts, the "Cash for Clunkers" program simply brought demand forward for the purchase of new cars. Second, it amounts to a "one-hit-wonder." It definitely helped the third-quarter GDP numbers at the expense of the forth quarter and the first half of 2010.

Let's look at the evidence for September 2009 from September 2008: GM's sales fell 45%, Chrysler's sales fell 42%, Honda's sales fell 20%, and Toyota's sales fell 13%. The only auto maker whose sales fell in the single digits was Ford, whose sales fell 5%.

Double-debt recession, anyone?