Geithner Weighs Leaving Treasury Post

Treasury Secretary Timothy Geithner is considering stepping down from his post once policy makers agree to raise the government's borrowing limit, which is an excellent move.  I agree wholeheartedly.  As a matter fact, I, here and now, volunteer to assist him in packing and moving his personal articles from his office.

Mint to Start Selling 2011 American Eagle Silver Coins at 75% Premium to Paper Dollar

That is what our government thinks of the dollar.  Tomorrow, the U.S. Mint will release the much anticipated 2011 American Eagle edition, with a strict limit of 100 coins per household at the low, low price of just $59.95!  As stated, the price is just a 75% premium to the DOLLAR.  This is just like the "Captain and Crew" jumping ship and the leaving the passengers to defend for themselves. 

What am I Missing Here?

President Obama rips Congress for taking vacations during the debt level crisis; however, he makes plans for Martha's Vineyard vacation.  Then, he is bewildered when people say he should be involved in debt level discussions.  Mr. President, it is all about perception; and the perception is that you are totally aloof to this entire process.  Please show some leadership during this financial crisis.

Stupidity Reins Once Again: This Time with the U.S. Navy

"Last year, the U.S. Navy bought 59,000 microchips for use in everything from missiles to transponders and all of them turned out to be counterfeits from China."  (First, what are we doing, especially our military, buying chips from China?)  Now, it gets even more stupid.  Wired reports the chips weren't only low-quality fakes, they had been made with a "back-door" and could have been remotely shut down at any time.  If left undiscovered, the results could have rendered useless U.S. missiles and killed the signal from aircraft that tells everyone whether it's friend or foe.  (Second, where is the uproar from the media? This is something that should be one of the top stories of the day!  However, I doubt that anyone will be discussing this on the evening news.)

Money-Market Mayhem, or Stupidity Reins

In today's Wall Street Journal's "Review & Outlook," the Journal writes: "U.S. regulators are worried about the "systemic risk" posed by the exposure of American money-market funds to European bank debt."  In other words, we have learned absolutely nothing from the debacle of 2008.  To serve your memory correctly, that was the year the feds felt obliged to guarantee all money-fund assets after they let the Reserve Primary fund pile into bad Lehman Brothers paper.  The Reserve Primary Fund broke the $1 net-asset value, and in the following days, some $400 billion fled prime money funds. 

Yet now, we learn that since 2008 U.S. money funds have been allowed to pile into European bank debt even as everyone knew those banks had stocked up on bad European sovereign paper.  (Read as Greece paper!)  Half the assets of all U.S. prime money market funds were invested in European banks as of the end of May 2011, according to Fitch Ratings.  (Yes, that is 50% of all money market funds are invested in paper that just maybe worthless!!)  Apparently, our regulators were too busy writing 2,300 pages of Dodd-Frank law and thousands of new rules to notice the systemic risk that is right before their eyes. 

The "systemic risk" problem, according to the Wall Street Journal, is that money funds are perceived as being bank savings accounts by investors, because they seem to be all but guaranteed against loss, even though they aren't.  Investors have come to expect that money funds will never "break the buck," never decline in value. 

We all know that stocks and bonds rise and fall without our government having to guarantee against losses, and if investors understood that money funds could decline like the securities that they are, investors would be more likely to accept that these investments are not a risk-free investment.

In 2010, the SEC, realizing the potential for disaster and wanting the money market funds to be more transparent, issued a rule requiring that funds publish the actual market value of their assets, but only on a 60-day delay.  Sixty days, by the then, all money market funds could be deeply underwater. 

What should investors in "money market funds" do?  You may want to move all such funds to a money fund, such as American Century's Capital Preservation Fund, that invests exclusively in short-term money market securities issued by the U.S. Treasury.  

Who Says White Collar Crime Does not Pay?

Geithner: Taxes on Small Businesses Must Rise So Government Doesn’t Shrink

Treasury Secretary Timothy Geithner told the House Small Business Committee on Wednesday that the Obama administration believes taxes on small business must increase so the administration does not have to “shrink the overall size of government programs.”  Now, small businesses create something like 64% of all new jobs in the US. Yet, he supports a tax policy that kills the "golden calve," which is the engine for overall economic growth in this country. In addition, our government has a spending problem that it must get under control, which I just don't see happening as long as you have someone like Geithner at the Treasury.

S&P 500 Update for June 23, 2011

College Statistic: Median Starting Salary

"The median starting salary for students graduating from four-year colleges in 2009 and 2010 was $27,000, down from $30,000 for those who entered the work force in 2006 to 2008, according to a study released on Wednesday by the John J. Heldrich Center for Workforce Development at Rutgers University. That is a decline of 10 percent, even before taking inflation into account.

Of course, these are the lucky ones — the graduates who found a job. Among the members of the class of 2010, just 56 percent had held at least one job by this spring, when the survey was conducted. That compares with 90 percent of graduates from the classes of 2006 and 2007. (Some have gone for further education or opted out of the labor force, while many are still pounding the pavement.)"

Wow, from the report, 44% of college graduates do not have a job.  However, I would bet to say that they have debt.  Ok, let's assume that you do have a job at the median salary of $27,000. (Remember that the median is the middle value.  That is, 50% will have a salary above the $27,000 and 50% will have a salary below the $27,000.)  But, you have $60,000 in student loans, which is very realistic. 

Let's analyze the numbers.  If you make $27,000, your monthly gross income is $2,250.  If we amortize the $60,000 in student loans over a ten-year period at 5%, your payment is $636/month.  In other words, close to 30% of your gross income is consumed by your student loan payment.

Your imputed pretax income (that is, the effective purchasing power of your "degree" when you subtract out the debt service) is $19,368, which is $9.31/hour.  (Minimum wage is $7.25/hour.)  Worse, your debt cannot be discharged in a bankruptcy.  (By the way, I don't advocate bankruptcy.)  A high school graduate who takes on debt like this and gets in trouble can file a Chapter 7 and eliminate it.  You, as a college graduate, no such luck.  You are saddled with the $60,000 debt; and if you lose your job, you are immediately in more trouble, as that $60,000 will have penalties and interest immediately added to it.

Now, I still believe that a college education is usually a good investment; however, not if you have to indenture yourself for life.

First Presidential Forecast

In making any kind of forecast is definitely a risky business, but to forecast the 2012 Presidential election is insane.  However, I feel that I maybe on to something, insane or not.  Now, if the stock market is higher in 2012, President Obama is more than likely to win.  (So far, Bennie has been Obama's best friend, and I would expect Bennie to do whatever he can to make Obama the winner.)  If the market is declining in 2012, he will lose by a significant margin. 

The strategy that I will be using is simply my S&P 500 EMA Strategy of the 15-week EMA to 40-week EMA.  If the 15-week EMA is above the 40-week EMA, Obama wins.  On the other hand, if the 15-EMA is less than the 40-week EMA, he loses.  Currently, President Obama wins, because the 15-week EMA > 40-week EMA.  However, the key is what will the EMA strategy be saying in 2012.  Stay tuned.

Further, it is interesting to note that in 2012 major stock market cycles turn decisively lower, which should be confirmed if the the 15-week EMA is lower than the 40-week EMA.  What does this mean?  A powerful bear market should ensue that takes all major stock market indexes to lows below March 2009.  In other words, whomever is elected under this scenario will end up being one of the most despised Presidents ever and lose in a landslide in 2016. 

Illinnoyed by Higher Taxes?

The line of businesses looking for tax relief in Illinois keeps growing, with the latest plea coming from the owner of the iconic Chicago Mercantile Exchange and Chicago Board of Trade (CME).   CME Group Executive Chairman Terrence Duffy told a shareholders meeting last week that Illinois Governor Pat Quinn's 30% hike in the corporate tax rate enacted in January 2011 will cost the company $50 million this year.   Dozens of major Illinois firms—from Caterpillar to Motorola to Sears—are in open rebellion in the wake of Springfield's $6 billion revenue short fall.  Oh, Indiana and Wisconsin would welcome all the aforementioned companies.  My advise, which is still the same as yesterday, is "MOVE" out of Illinois before it is too late.

Is Higher Education Worth It?

According to the National Bureau of Statistics, there is only one job for every five applicants in America today. And with most jobs in the U.S. being off-shored to the Far East and Latin America, it’s a safe bet that this statistic is not changing anytime soon.

The outlook going forward is very bleak for college graduates.  The typical seventeen year old seems dying (literally) to sign their life away to JP Morgan, Citi Bank, and Wells Fargo in exchange for $80,000+ in student loans.  Now, don't get me wrong, I consider education is extremely important.  Everyone needs to have a skill-set.  What I am saying is that I don't see a positive ROI (Return-on-Investment) when one has to assume such a mega-debt loan.  Therefore, students and families should find ways to finance education without taking on such a tremendous debt loan that will take a lifetime to repay.  Just don't do it!

Illionis is Broke!

Illinois is so hard up for money that it's studying the possibility of selling ads on state license plates.
The idea is to offer special corporate-sponsored plates. Drivers would get a discount on the price, and businesses would put their logos on the plates.  State Senator John Mulroe of Chicago says he hopes the corporate plates will bring Illinois more money without raising taxes.  Good luck on that one.  My advice to Illinois residence, MOVE!

2012 Chevy Volt Gets Price Cut

Would-be Volt buyers who decided to wait for a bit are about to be rewarded. The 2012 Chevy Volt will start at “just” $39,995. That’s down just over $1,000 from $41,000 for the 2011.

Sure, when I am talking about forty thousand dollar car, which a grand isn’t that significant but a start. However, it does show that Chevy is serious about making this thing affordable. A twenty more years of price drops and Volts could potentially sell for the low-mid $20k rang.  By then, Government Motors (GM) will have decided to cease it production.  For me, I will stick with a Honda Fit (fossil fuel), which gets approximately 40 MPG and has a price differential of approximately $25,000.  With that $25,000, I can purchase a lot of "GASOLINE."

Jim Rogers: "Bernanke Is A Disaster"

Rogers: "Since the first day Mr Benanke went to Washington I knew he was going to be a disaster. He has never been right about anything in the 7 or 8 years he has been there. I hope he doesn't come back with QE3 but that's all he knows. The only thing he knows to do is to print money. He doesn't understand finance, he doesn't understand currencies, he doesn't understand economics. He understands printing money. It's the wrong thing to do but that's what he'll do."  

I will say amen to that. 

DJIA Update for June 7, 2011

Sole Catalyst of GDP Growth: Deficit Spending (Sad But True)

American is so dependent on "DEFICIT SPENDING" that it has been the sole factor in GDP growth since 2007.  See the following graph.

Buy A GM Car? You Might be Voting for $6/Gallon Gas

GM CEO Dan Akerson wants the federal gas tax boosted as much as $1 a gallon to nudge consumers toward more fuel-efficient cars.  That is, so he can get rid of all those Chevy Volts that no one wants at $40,000. 

The Treasury's Plunder Of Retirement Accounts

The Treasury has been dipping into the G-Fund and the Civil Service Retirement and Disability Fund (CSRDF).  Tim Geithner has replaced one IOU (that of the Fed) with another (that of the Treasury) in the G-Fund to the tune of $57 billion and in the CSRDF of about $22 billion.  I thought you retirees should be aware of what Mr. Timmy is up to.  But, of course, don't worry, Timmy promises it shall all be well.

The Scariest Jobs Chart Ever Looks HORRIBLE

Take away the “Birth/Death Adjustment” of 206,000, and the NFP is a negative 150,000 jobs for May 2011, which is probably closer to the real number.  Why?  The "Birth/Death Adjustment" is a statistical number that at best is nothing more than a guess.  For the US to return to its December 2007 unemployment, when factoring in the natural growth of the labor force of 90,000 people a month, the economy will need to add 250,000 jobs a month for the next 66 months.  What are the odds of that happening?  I would say one big fat ZERO.

China Has Divested 97% of Its Holdings in U.S. Treasury Bills

China has dropped 97% of its holdings in U.S. Treasury bills, decreasing its ownership of the short-term U.S. government securities from a peak of $210.4 billion in May 2009 to $5.69 billion in March 2011, the most recent month reported by the U.S. Treasury.

White House: Poor Jobs Numbers Are Just Bumps on the Road to Recovery

Boy, I am so very glad that I have that reassurance from the White House! Now, I really feel a whole lot better.  Don't you?  Thank you, Mr. President.

$5,000,000,000,000 Failure

So this is what we get, America, after $1.7 trillion in deficit spending for this year, $600 billion in QE2, and over $4.5 trillion in deficit spending in aggregate over three years – A Big Fat Nothing!  Massive collapse just occurred in the May American employment situation.  A quick overview of the data is as follows:

1. May Non-Farm Payroll (NFP) at 54,000 down from 244,000, and not only below consensus of 165,000, but also below the lowest economist prediction of 65,000.  So much for those high-priced economists!!   
2. Take away the “Birth/Death Adjustment” of 206,000, and the NFP is a negative 150,000.  
3. The unemployment rate was 9.1%.  (The absolute number of unemployed increased from 13.747 million to 13.914 million.) 
4. For the third month in a row the Labor Force Participation rate remained flat at 64.2%. 

H.R. 1489: Return to Prudent Banking Act of 2011

What does this bill do?  Put Glass-Steagall back in force.  The bill is sponsored by Representative Marcy Kaptur (D-Ohio).  America needs this bill to pass.

"To repeal certain provisions of the Gramm-Leach-Bliley Act and revive the separation between commercial banking and the securities business, in the manner provided in the Banking Act of 1933, the so-called Glass-Steagall Act."

The bill is succinct, which is a novelty in itself coming from Congress.  But, where are the Republicans? Only two have Republicans have signed on to it, not Ron Paul nor Bachmann.   Sorry Paul and Bachmann, you have just lost my vote in regard to your Presidential aspirations!!!

For the full text of the bill, see H.R. 1489.

S&P 500 Update

Oh, To Be a Federal Employee!

More than 77,000 federal government employees throughout the country — including computer operators, more than 5,000 air traffic controllers, 22 librarians and one interior designer — earned more than the governors of the states in which they work.  These are the  findings from the Congressional Research Service.