Chinese Steel for Bay Bridge: Why?

Officials from the Toll Bridge Program Oversight Committee, which oversees construction of the new $6.3 billion San Francisco-Oakland Bay Bridge (see picture below), traveled to Shanghai at the end of August to investigate recent delays in steel deliveries from the Zhenhua Port Machinery Company. The problem was diagnosed as welding problems at the China-based steel fabricator. The welding issues on the steel were first discovered last year but everyone thought the issue had been resolved; instead, it now appears the problems are even more serious than originally thought. The welding issues are not the only problems that have occurred with Chinese construction products in the recent past. Last year, the residential construction industry had been hard hit with lawsuits over faulty Chinese drywall, which may have been used in as many as 100,000 homes in the U.S., especially in Florida.

Whatever happen to buy America, especially something so basic like steel? Also, why are we using Chinese steel to build the bridge when our nation's steel plants are operating at 63%? Our steel industry is quietly shrinking into oblivion; because, as a nation, we have sold our soul to the Chinese.

Dubai Quotes of Interest

"U.K. Prime Minister Gordon Brown said he and Financial Stability Board Chairman Mario Draghi are confident that Dubai’s debt troubles are “containable.”

"Sheikh Ahmed bin Saeed al-Maktoum insisted that 'unprecedented growth,' in Dubai and across the (United Arab Emirates), over the past decade has helped lay the foundation for what is now a broad-based sustainable economy beyond just natural resources."

"Wall Street Jounal: The credit problems of a unit of Dubai's state-owned investment company have given financial markets a scare, but put us down as thinking the event is left-over business from the mid-decade mania more than it is a sign of immediate new economic troubles."

Does anyone remember the infamous 2007 statement by Fed Chairman Bernanke who said the subprime mortgage problems was contained? Oh, I know this time is different. (How many times have I heard that statement.) We are only talking about $3.5 billion, which is nothing more than a pimple on good Sheikh's camel. Nothing to worry about, so let's just use this as a "golden" buying opportunity, as we did in 2007. (LOL)

The Forgotten Depression of 1920

The "Forgotten Depression of 1920" is a must read article for anyone, especially those who believe our federal government is the panacea for our economic woes.

Excerpts:

"The economic situation in 1920 was grim. By that year unemployment had jumped from 4 percent to nearly 12 percent, and GNP declined 17 percent. No wonder, then, that Secretary of Commerce Herbert Hoover — falsely characterized as a supporter of laissez-faire economics — urged President Harding to consider an array of interventions to turn the economy around. Hoover was ignored.

Instead of "fiscal stimulus," Harding cut the government's budget nearly in half between 1920 and 1922. The rest of Harding's approach was equally laissez-faire. Tax rates were slashed for all income groups. The national debt was reduced by one-third.

The Federal Reserve's activity, moreover, was hardly noticeable. As one economic historian puts it, "Despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction."[2] By the late summer of 1921, signs of recovery were already visible. The following year, unemployment was back down to 6.7 percent and it was only 2.4 percent by 1923."

Zero Interest Rate Policy: Insidious Tax on Retirees

The Fed's zero interest rate policy is really an insidious tax on savers of this nation, usually the retirees. It takes income from savers, usually those on a fixed income, and redistributes it to borrows in the form of direct subsidies as directed by the federal government. It also funds the fiscal deficit policies of the federal government by making its borrowing cost lower than what it normally be without such a monetary policy. (Isn't the Fed suppose to be an independent body, free from any political pressure, to protect the value of our currency)

See, the standard for a tax is that it must be fair and it must be evenly distributed. This tax of a zero interest rate policy by the Fed fails the aforementioned standard. This tax takes the interest income from savers and hands it to government, who redistributes it to over-extended borrowers, to banks, to Wall Street, to real estate developers, and to the auto industry. In other words, simply penalize savers and reward those who caused our underlying financial crisis.

Savers should be asking the following questions of the federal government: Who decided that a homeowner who bought a home priced beyond his or her means must be subsidized by a retiree who had saved for those golden years? Or, why must a bank have access to zero cost of funds, while the saver, who in my opinion is the true responsible member of society, can not earn enough income to survive.

What is happening here in the U.S. to our savers (retirees) is not only immoral but also totally unfair.

Oh, How the Mighty Has Fallen

Debt-laden Dubai said it would restructure Dubai World, a conglomerate spanning real-estate and ports, and announced a six-month moratorium on paying any of the company's debt. The moratorium comes as Dubai struggles to meet payments on maturing portions of a combined $80 billion in outstanding obligations.





Dubai's economy has been hit hard as the global credit crunch saw an end to a six-year boom in the region and sent the emirate's once-flourishing real estate market into decline. The main problem with Dubai is that Abu Dhabi has all the oil reserves within the United Arab Emirates. Since Dubai does not have such major oil reserves, it sought to make its mark by becoming the main commerce center of the Middle East. And, of course, it financed its growth with debt to the tone of $80 billion.

Missouri Proposed Plan Would Pay a Year of Property Taxes for Homebuyers

Governor Jay Nixon and State Treasurer Clint Zweifel are proposing another incentive that encourages people to buy a home: the payment of the first year of property taxes for income-eligible people who buy a new or existing home after January 1, 2010. Nixon and Zweifel will ask the Missouri Housing Development Commission at its December 18, 2009 meeting to approve a plan in which Missouri families making less than $98,000 a year who buy a home would have their property tax paid up to $1,250.

Why just target a specific group of individuals, Governor Nixon? The best solution to stimulate your economy is to let the people of the state of Missouri decide how to spend their own money. That is, give a tax cut to everyone, not just to those who buy a new home.

How is the Economy Doing? Watch the Tax Receipts at All Levels of Government.

For the 2009 third quarter, the Bureau of Economic Analysis (BEA) claims that the Personal Consumption Expenditure (PCE) had a change of +1.2%. On the other hand, the Rockefeller Institute of Government reports that overall sales tax collections in the third quarter were down 8.2% from last year's levels, and this is the fourth quarter in a row that year-over-year declines were posted. For the 44 states reporting third-quarter results, overall tax revenues declined 10.7 percent, compared to the same period a year earlier. The most significant decline occurred in the corporate income tax category, with a drop-off of 19.4 percent.

Ok, someone is not telling the real truth. One is an count of money remitted by businesses in satisfaction of taxes collected from real consumers processing real retail transactions. The other, if you read the BEA methodology, has the word estimate throughout the report. My money is on the actual count, not the estimate provided by the BEA. Folks, it is all about the "confidence game" with the government. I, for one, want to know the truth, which I believe our government is incapable of providing to its citizens.

Climategate: Greatest Scandal in Science?

Move over Watergate, welcome Climategate. Emails that reveal an effort to hide and manipulate the truth about climate science. If true, this group of scientists, at least, should loose their covetous tenure positions or endowed chairs.

I, for one, would be in favor of a Congressional investigation (if emails are proven accurate) to this potential scandal, since billions (maybe even trillions) of our taxpayer dollars are at risk.

Nearly One in Four Home Borrowers Is Under Water (Negative Equity)

Nearly 10.7 million households (23%) had negative equity in their homes in the third quarter, according to First American CoreLogic, a real-estate information company based in Santa Ana, CA. First American reports that home prices have fallen so far that 5.3 million U.S. households are tied to mortgages that are at least 20% higher than their home's value

Homeowners in Nevada, Arizona, Florida, and California are more likely to be deeply under water, according to First America. In Nevada, for example, nearly 30% of borrowers owe 50% or more on their mortgage than their home is worth.

What state has the largest percentage of underwater homes? Answer: Nevada with 65%, which is followed by Arizona (47.6%), Florida (44.7%), and California (34.7%). Where does Missouri fit into the scheme? Answer: 13.8% or 1 in every 7 homes (negative equity).

Source: "Wall Street Journal"

Revised Third Quarter GDP

Real Gross Domestic Product (GDP) increased at an annual rate of 2.8 percent in the third quarter of 2009, which is down from 3.5% (first estimate), according to the "second" estimate released by the Bureau of Economic Analysis (BEA). We will have one more estimate by the BEA, which will be the final one. When everything is said and done, I am looking for the third quarter GDP to be closer to 2% than the original estimate of 3.5%.

China's Vacant City

How do you grow an economy? Build a city with government money and hope people come.

Don't Fight the Tape: The Trend is Your Friend

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

Recovery Accountability and Transparency Board

The "Wall Street Journal"reports that the Recovery Accountability and Transparency Board charged with overseeing the economic-stimulus program says it doesn't plan to change its position that the package directly created or saved 640,329.17 jobs through September, despite its own admission and statements from the White House that the number is not accurate. By the way, how does one come up with ".17 job?"

It is interesting that the Government Accountability Office (GAO), which is the investigative arm of Congress, issued a report last week saying there were "significant issues to be addressed" in the accuracy of reports. However, Ed Pound, spokesman for the Recovery Accountability and Transparency Board, said that the number would not be changed. Period!!! End of story!!!

Dr. Paul Joseph Goebbels made the following statement: "A lie, repeated often enough, will end up as truth." I tend to agree with the doctor. Do yourself a favor and do a Google search on the good Dr. Goebbels.

Cash for Caulkers

Step aside “Cash for Clunkers,” make way for “Cash for Caulkers.” Reuters reports, "The White House is reportedly considering rolling out a two-year, $23 billion program to encourage homeowners to undertake weatherization projects such as adding air sealing, insulation and energy-saving light bulbs."

Wait a minute! I thought that was something that a homeowner should be doing in the first place. And, where is the government going to get the $23 billion in the first place to finance this fiasco? I know this is just a rhetorical question, but I had to ask it anyway.

Pollution in China

We can make all the excuses that we want, but this is what we are supporting every time we buy anything made in China. I am just as guilty as anyone.

The following picture is just one example of the pollution that we have created because of our insatiable demand for cheap consumer goods. View the entire pictorial at China Hush and weep.

Business Week Has Spoken

FCC Ponders Additional Fees to Your Land Line

The "Wall Street Journal" reports that Federal regulators (FCC) are considering whether the government should take greater control of the Internet and ask consumers to pay higher phone charges in order to provide all Americans with cheaper access to broadband Internet service. (What doesn't the government want to control?)

The FCC staff will float possible solutions in December and make formal recommendations in February 2010, when it is set to release its National Broadband Plan, a blueprint for improving broadband speed and access. Congress asked the FCC for the plan earlier this year. FCC officials estimate it could cost $350 billion to connect all American households to high-speed Internet service, depending on speed offered.

Now, let me get this right. The government is proposing that to expand internet service to everyone that current phone customers will have to pay higher phone charges
through the Universal Service Fund. This fund subsidizes phone service for low income Americans. Let's see. There are currently approximately 400 million cell phone and land line customers in the United States. At a cost of $350 billion, that amounts to an increase of $875 to your phone bill! Skype, anyone?

The American Dream

Note: Double-click inside to enlarge.

S&P 500 Weekly Update for November 13, 2009

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

Transfer of Cash to the Rich

President Obama on November 6th signed the "Homeownership and Business Assistance Act of 2009," which sounds nice, doesn't it? It provides for: "Extending unemployment benefits yet again by 20 weeks and Extending first-time home buyers a tax credit of $8,000 until May 2010." So, we have taxpayers handing over dollars to either those not working, or those who are buying a home and getting $8,000 that you and I never enjoyed. Saying that, I can see how from one's "normative" economic perspective that providing extended unemployment benefits is the moral thing to do.

However, much worse is the following: The Act provides for homebuilders to use losses in 2008 and 2009 to offset profits booked as far back as 2004, creating a $33 billion windfall for these organizations.

The administration piously spoke of how this bill would help "struggling businesses." Once again, let's look at the "FACTS" to see how poor some of these homebuilders really are.

1. Pulte Homes(PHM), which will receive refunds of $450 million, has $1.5 billion of cash in the bank.

2. Hovnanian Enterprises (HOV) is getting back $275 million and has $550,000,000 in the bank.

3. Stanford Pacific Homes (SPF) will get a $80 million check to deposit into its account that already has $523,000,000.

How did these companies pull this off? Lobbying, of course (And, I thought this administration was going to stop the practice of lobbying in Washington, DC. How naive was I!)

How much did Pulte's $450,000,000 refund cost? $210,000 in lobbying. That's about $2,100 returned for every $1 invested in lobbying! The entire industry spent $8.2 million lobbying that yielded $33 billion extraction of cash from you and me to the homebuilders. Therefore, the overall return is even better, which amounts to approximately $4,000 in tax refunds for every $1 of lobbying expense. By the way, I wonder how many new jobs were created with that $33 billion.

So as you gaze at your paycheck, with close to 50% of the money extracted by various government organizations (federal, state, and local), at least you know now where it's going. So, if this administration is not going to be transparent, I, at least, will be for them.

Source: Tim Knight

Ford Unveils New Car for "Cash-strapped Buyers"

Ford Unveils New Car For Cash-Strapped Buyers: The 1993 Taurus

How Deflation Creates Hyperinflation

A great "short" read on hyperinflation.

Unsecured Debt Limits

First, what is an unsecured loan? Answer: An unsecured loan is a loan for which you don't have to offer any collateral (credit cards), like a car or your house, to secure the loan.

Second, what is the unsecured legal lending limit for nationally chartered banks? Answer: 15% of a bank's capital and surplus.

Third, why is such knowledge relevant? Answer: Our financial system can not operate efficiently if financial institutions and investors assume that government will protect them from the consequences of failure. That is a complete anathema of a market economy. The only way to secure a viable financial system is to change that limit to 100%. That is, "$1 of bank capital for each $1 of unsecured debt."

Bullish Signal Reversed to Bearish Signal?

The following chart on DIA illustrated the potential for this bearish signal. The signal demonstrates a false sense of security by the succession of "rising lows and highs" that occurs in the bullish signal. When that sequence is interrupted by a breach of the previous lows, which would be at $96, it can drive prices significantly lower. Critical-mass price is therefore at $96.
Note: To enlarge the chart, double-click inside of it.

Strong Dollar Policy???

Treasury Secretary Geither said:"I believe deeply that it's very important for the U.S. and the economic health of the U.S. that we maintain a strong dollar," he said at a roundtable discussion with Japanese reporters. We bear special responsibility for trying to make sure that we are implementing a policy in the U.S. that will sustain confidence not just among American investors but investors around the world."

I would consider that statement to be a bold face "LIE." Geithner and Bernanke have created policies that have destroyed the value of the dollar, driving it lower since March 2009 from 89.6 to 74.8, a decline of almost 16.5%, which on an annualized basis is approximately 25%. Those are the facts!

The collapsing dollar is a policy, inspite of what Geithner has said about wanting a strong dollar. What is a weak dollar policy? Keeping the fed funds rate at “Zero.” And as long as this policy continues, the dollar will only get weaker and weaker. It is the means by which the stock market has been propped up by an attempt to "instill confidence" in the American people. The economy is clearly not in a recovery mode. Unless, you consider the “cash for clunkers, which added 1.5% to GDP and the $8,000 first time home owner tax credit, which added approximately 1% “ to the GDP numbers for the third quarter. These two boondoggles have simply brought demand forward from 2010. As a consumption-based economy (70% of GDP is derived from consumption), we cannot recover until we create jobs!

Instead our politicians are engaged in a confidence game, trying to convince Americans that "things are getting better,” because their 401K’s have recovered from their devastating losses of 2008, which must mean the economy is improving. The rally in the stock market has nothing to do with the economy and the outlook for it. It is tied to one and only one thing, a declining dollar.

But the market rising on the back of skyrocketing energy prices (oil has doubled since March and gasoline is now back to $3 or higher in many parts of the country) doesn't create a single job. In fact, rising energy prices destroy consumer purchasing power through reducing one’s disposable income

CIT Files for Bankruptcy

Kiss that $2.3 billion taxpayer bailout extended by Bush and Paulson to CIT late last year good bye, which is more than likely to occur in bankruptcy.

Where is the public outcry? Then again, maybe they just don't have a clue on what is happening to them. I am beginning to believe that we have educated a generation of individuals that are completely illiterate when it comes to economics and finance.

S&P 500 Weekly Chart Update for October 30, 2009

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

"Wall Street Journal:" Mission Statement

"We speak for free markets and free people, the principles, if you will, marked in the watershed year of 1776 by Thomas Jefferson's Declaration of Independence and Adam Smith's "Wealth of Nations." So over the past century and into the next, the Journal stands for free trade and sound money; against confiscatory taxation and the ukases of kings and other collectivists; and for individual autonomy against dictators, bullies and even the tempers of momentary majorities."

I could not agree more!