Money Market Funds: No Longer Guaranteed Liquid

Folks, this is down-right scary; and it is something that is not mentioned much in the media, unless you do your research.

According to the Securities Law Professor Blog, "Suspension of Redemptions: The new rules permit a money market fund's board of directors to suspend redemptions if the fund is about to break the buck and decides to liquidate the fund (currently the board must request an order from the SEC to suspend redemptions). In the event of a threatened run on the fund, this allows for an orderly liquidation of the portfolio. The fund is now required to notify the Commission prior to relying on this rule."

Formerly the fund had to seek permission to suspend redemptions. Now, the fund's board is empowered to do so unilaterally and advise the SEC after the fact.

This is potential a major problem to money market investors. As a money market investor, you could easily find yourself unable to get to your money until the fund liquidates. You have been forewarned.

Apple

To stay the least, I love the Apple toys, iPhone, MacBook, iPod. As a matter of fact, I want to have anything that has Apple produces. Now, we will have the iTablet, which will be unveiled to the world to see at 1 PM (EST). There is an old Wall Street adage that goes like this: "Buy the Rumor and Sell the News."

AAPL has had a great price run since March 2009, going from $78 to over $200. But, IMHO, I think the party is over. The following chart depicts the various cyclical phases for AAPL, just like GS. The stock has definitely been going through distribution, and it appears that the distribution phase could conclude today with the unveiling of the iTablet. The next phase, declining, could take us back to the mid-$80s. Sorry Apple, but I still love your products.

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

Goldman Sachs (GS): Distribution Phase

Goldman Sachs (GS) has culminated its distribution phase at $160 and started its declining phase that could take it back to $88. All stocks generally go through a typical stock cycle. That is, accumulation phase, advancing phase, distribution phase, and declining phase. Take a look at the following chart of GS and see how well-defined the phases of accumulation, advancing, and distribution were since March 2009.

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

What does this all mean? Well, stay completely clear of GS! I have placed FAZ on my radar. FAZ is the financial bear ETF. It moves inversely to financial stocks. In the case of FAZ, it carries leverage of 3X. That is, if financial stocks decline by 10%, FAZ should appreciate by 30%. Likewise, if financial appreciate, FAZ declines by a factor of 3. Stay tuned!

S&P 500 Weekly Update for January 22, 2010

Bad week for the Bulls, good week for the Bears. Is this the start of the decline that the bears have been waiting for since March 2009? I don't know. I will simply listen to the market to tell me by way of the exponential moving averages.

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

S&P 500 Weekly Update for January 15, 2010

Reflecting on the 2009 investment strategy utilizing the exponential moving averages, I became fully invested on Monday, September 21, 2009. On that date, I allocated the final 25% to the purchase of SPY (ETF on the S&P 500). My overall cost basis is $104.24. Given Friday's close for SPY at $113.64, the investment account is up 9.01%. On an annualized basis, the investment account is up 28.1%.

What will the market do going forward? I don't know. I can give you a thousand reasons why this market can not go higher. However, I have learned one thing during my career following the stock market. That is, the market trend is your friend. And, that is why I am a trend follower. As long as the 15-week EMA > 40-week EMA, the trend is bullish (buy stocks). When the 15-week EMA < 40-week EMA, the trend is bearish (sell stocks). It really is that simple. It all comes down to the KISS concept.

This week's update is as follows:
Note: To enlarge the chart, double-click inside of it.

Haiti

We may never learn the precise death toll inflicted by Tuesday evening's earthquake in Haiti. However, it's clear that it may rank with the 2004 Christmas tsunami. That is, 50,000 or even more people may be dead.

This is a nation where life expectancy is 53 and the average per-capita income barely eclipses $1/day. Haiti is the poorest of the poorest countries. These people need help. Please be cautious about what organization you decide to provide that assistance but do give whatever you can. There are many "relief organizations" that waste huge amounts of money, and then there are those that manage to provide nearly all of what you give to the people impacted.

One organization that I like is Convoy of Hope out of Springfield, MO. Check them out. If you can not provide financial assistance, please pray for the victims of the earthquake, especially those who are still searching through the rubble looking for lost loved ones.

Move Your Money

I thought the title would get your attention. In all seriousness, check out the "Move Your Money" site to find a bank and/or credit union near you. Why? If you are fed up with all the lies coming forth from those "too big to fail banks," such as Bank of America and Citigroup, then it's time for us to organize mass-removals of funds from these "too big to fail" banks to "local banks and/or credit unions. So, please check out the site.

The Geithner AIG Story

According to the "Wall Street Journal," House Oversight Chairman Edolphus Towns, a Democrat who represents the 10th District of New York, has asked Treasury Secretary Geithner to testify next week about the taxpayer bailout of $187 billion to AIG. This is a good start in determining why the Fed of New York urged AIG to limit disclosure of its deal to buy out derivative (credit default swaps) trading partners (Goldman Sachs) at 100 cents on the dollar.

But, what is really more disturbing is that Geithner would be the individual who would chair a new Financial Services Oversight Council, under the House regulatory reform package. The council could declare virtually any company in America a systemic risk, making them eligible for intervention on the taxpayer's dime. "The law firm Davis Polk reports that since this council is not an agency, it will not be subject to the Administrative Procedure Act, the Freedom of Information Act or the Sunshine Act, among other laws intended to allow citizens to scrutinize government." That is not a good idea!

AIG – Geithner Cover Up: The Smoking Gun

An article over on Seeking Alpha makes the following assertion via documentary evidence this is Geithner's own handwriting:



If this is Geithner's handwriting on the page. He is going to jail! Why is he going to jail? Specifically, Sarbanes-Oxley added the following to US Code Title 18, Part 1, Chapter 73, S.1519: "Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both."

Maybe Geithner and Madoff will be sharing the same cell. Would not that be interesting? While we are at it, I would like to know how much "Bennie Boy" knew about this cover-up. Also, let's see what Henry Paulson knew, former U.S. Treasury Secretary (Bush Administration) and past Chairman and CEO of Goldman Sachs. Just maybe we could have a "foursome" sharing the cell at the Graybar Hotel.

Great Winter Attire

UPS Plans to Cut 1,800 Jobs

"UPS said it would cut 1,800 staff in the U.S., with a one-time charge offset by savings in its domestic small-package unit. The Atlanta-based company said the cuts were part of a long-planned management restructuring, rather than a reaction to the slow economy. It trimmed about 13,000 U.S. jobs last year, mostly through attrition, in response to the recession and a steep downturn in package volume."

Nice spin UPS. Yet another company trying to boost earnings through cost containment measures of cutting labor cost. I have been saying for some time that it's all about jobs. You can not grow the economy (GDP) without creating jobs. Period. No jobs, no income. No income results in no consumption and a negative drag on GDP. It really is that simple.

Geithner Cover-up Gains Momentum

In yesterday's post, I discussed the cover-up at the Fed of New York under the guidance at the time of Geithner between AIG and Goldman Sachs. I am glad to read that something may come from this revelation.

Data for Junkies

Geithner’s New York Fed Told AIG to Limit Swaps Disclosure

Bloomberg reports today that "The Federal Reserve Bank of New York, then led by Timothy Geithner, told AIG to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show. AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee."

Remember, this was when Geithner was the head of the NY Fed. Who was he trying to protect? American taxpayers? No! AIG shareholders? No! Oh, I see. It was Goldman Sachs. He intentionally crossed off the reference to Goldman Sachs who received 100% on the dollar of the credit default swaps they had with AIG. I suppose this is the sort of thing we should have expected from an admitted tax cheat.

I will be very succinct with what President Obama should do with this information -- fire Treasury Secretary Geithner! Why? Geithner had an ethical responsibility to the American taxpayer and AIG shareholders to do so, not to cover such information up.

Home Affordable Foreclosure Alternatives Program (HAFA)

Does anyone remember Home Affordable Modification Program (HAMP)? I didn't think so. HAMP is the government, more specifically Treasury, program to prevent foreclosures. There are approximately 750,000 homes under HAMP, which 30,000 have converted to permanent changes in P&I, or 4%. That immediately tells me that the other 96% do not qualify under the new, so-called lenient guidelines, because these mortgagees don't have the income to qualify and/or they have significant negative equity in their homes.

So, what does they have to do with HAFA? First, HAFA is a supplemental directive pertaining to HAMP that was promulgated in November 2009 for the some 70 Servicers participating in HAMP. (For a list of these Servicers, click on HAMP Servicers.) Second, for those mortgagees who cannot qualify for a permanent mortgage modification while on a trial program (96%), Servicers "are" required to offer "short sale or deed in lieu" alternatives. HARP goes into effect in April 1, 2010. Keep-in-mind that HAMP servicers must offer procedures to mortgagees for short sales or deed in lieu. That is the law!

Now, come the traditional spring selling season for homes, we are going to see a flood of homes that were in HAMP but failed for permanent changes for whatever reason hit the real estate market. Remember that 96% and basic supply and demand from economics. A flood of close to 3/4 of a million homes have the potential to hit the market. Folks, that is just the HAMP program, not counting the inventory of homes being held in foreclosure at our financial institutions. If you need to sell your home within the next year, take heed. That is, get that thing sold within the next six months. If you are planning on buying a home, I would recommend you wait until the smoke clears (late summer of 2010). I know some of you are saying what about that $8,000 first-time home buyers tax credit. Let me say this about that! That $8,000 tax credit may be the most expensive money you have ever received compared to the housing deal that you would obtain had you waited several months and purchased into the supply of "short sales and deed in lieu" homes. The choice is yours. You have been forewarned.

Bernanke in Denial 2005-2007

This is the man that was so wrong before and will be proven so wrong again! Please listen very closely to what he stated during 2005-07, and then ask yourself if you have any confidence or faith in anything that he says currently.

Are Federal Reserve and U.S. Government Rigging Stock Market?

"The most positive economic development in 2009 was the stock market rally. Since the middle of March, the market cap of all U.S. stocks has soared more than $6 trillion. The “wealth effect” of rising stock prices has soothed the nerves and boosted the net worth of the half of Americans who own stock." Wow! And, this is based on what? Answer: Nothing more than "smoke and mirrors." This is one reason why I do believe that the market since March has been manipulated by the Fed and Treasury.

Keep-in-mind that the U.S. government has spent hundreds of billions of dollars to support the auto industry, the housing market, and the banks and brokers. Why not support the stock market as well? For 2009, the DJIA ended with an 18.8% gain. Still, it is down 26.4% from its all-time high set in October 2007.

Please take the time to read the entire article from the Zero Hedge.

It is hard to believe that 2009 is at its end, but it has. To all those that read this blog, I want to wish you a "Profitable and Happy New 2010!" May the market trend be with you.

The New Price Tag for Fannie and Freddie

The Treasury Department, as reported by the WSJ, announced that it was removing the $400 billion cap from what it believed would be necessary to keep Fannie Mae and Freddie Mac solvent. The reason for the cap removal is that the Treasury has come to the conclusion that $400 billion is far "too" small. That is, think in terms of trillions of dollars, not hundreds of billions.

Let's look at some history of Fannie and Freddie. By the end of 2008, Fannie and Freddie held or guaranteed approximately 10 million subprime and Alt-A mortgages with a total principal balance of $1.6 trillion. These loans are now defaulting at unprecedented rates. Since 2008 (and we know what happen then), these two governmental agencies have continued to buy these lousy mortgages in order to stabilize housing prices. (Insanity. That is to continue to do the same thing and expected a different result. Another example of the ineptness and stupidity of our government at work.)

By the way, there is more to this Fannie and Freddie story. New research by Edward Pinto, a former chief credit officer for Fannie Mae and a housing expert, has found that from the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime or Alt-A. [Sidebar: In general, a subprime mortgage refers to the credit of the borrower. A FICO score of less than 660 is the dividing line between prime and subprime. An Alt-A mortgage is one in which the quality of the mortgage or the underwriting was deficient; it might lack adequate documentation, have a low or no down payment, or in some other way be more likely than a prime mortgage to default.] However, Fannie and Freddie were reporting these mortgages as prime, according to Mr. Pinto. Fannie has admitted this in a third-quarter 10-Q report in 2008. [Outright fraud! What has the government done about this fraud? Absolutely nothing!]

So, once again, the American taxpayer is going to be at risk for over a trillion dollars because of failed governmental policies on housing. I hope it is just a trillion, not a quadtrillion.

Why Are So Many Demonizing America?

Dorothy Rabinowitz, who is a Pulitzer Prize winning American conservative journalist, states it this way in an article in the Wall Street Journal on April 22, 2009, "Five decades of teaching in colleges and universities across the land, portraying the U.S. as a power mainly responsible for injustice and evil, whose military might was a danger to the world (a nation built on fruits of greed, rapacity, and racism) have had their effect. The graduates of this education find nothing strange to quickly condemn the moral failures of America."

Christmas Eve Greetings to ALL

Financial Times Named Lloyd Blankfein Person of the Year

Yes, the title of this post is exactly correct. The "Financial Times of London" has chosen Lloyd C. Blankfein as its person of the year. For those of you that might not recognize the name, Mr. Blankfein is the CEO of Goldman Sachs. During the recent financial debacle, which has been the most testing period since the 1930s, he has become the public face of Wall Street.

This is the company that has faced public anger from American taxpayers during 2009, because not only of the bailouts that it has received but its record profits, making it a symbol of greed and excess. For example, Goldman Sachs will be paying up to $23 billion in bonuses to its 31,700 staff members. Now, according to my math, that is slightly more than $725,000 per individual. Now, don't get me wrong, I am not against making a buck. But, please, given the state of the economy, this was not the time to rub it in the American taxpayers' faces.

Fannie, Freddie to Disclose Millions in Executive Pay

The Wall Street Journal is reporting that the top regulator for Fannie Mae and Freddie Mac is expected to announce millions of dollars in pay packages for top executives at the government-run mortgage finance giants.

"The Federal Housing Finance Agency approved a multi-million pay package for Fannie Mae chief executive Michael Williams, which is expected to be announced as part of the report. Mr. Williams' compensation is expected to be in a range of about $4 million to $6 million, people familiar with the matter said."

Way to go Pay Czar! I thought we were trying to curtail excessive compensation to those entities that received federal bailout money. Oh, I understand. Since these are government sponsored entities, they are exempt from such compensation oversight. I guess it is just like those "special bribes" certain Senators recently received for their votes.

GDP Revised Downward Once Again

On Tuesday, November 24, 2009, I said, "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%."

The final GDP numbers have just been released by the BEA, which shows that GDP growth for the third quarter was 2.2%, which was not too far from my estimate of 2%. This new figure was below Wall Street forecasts. Economists surveyed by Dow Jones were expecting the GDP revision to show growth of 2.7%.

Merry Christmas, Everyone!

S&P 500 Weekly Update for December 18, 2009

Senator Nelson’s Thirty Pieces of Silver

The outright bribe provided by Senator Reid to Senator Nelson is despicable and an outright insult to the other 49 states. Where is the outrage? Where is the shame?

We will have now two Medicaid health care systems in this country; one for Nebraska and one for the other 49 states. In other words, the American taxpayer will be paying tens of millions of dollars a year "FOREVER" in Medicaid funds for Nebraska.

Senator Nelson had complained that the proposed expansion of Medicaid to those earning below 133% of the Federal Poverty Line (FPL) would burden his state. (For those of you that might not be familiar with Medicaid, it is a program whose costs are split between the federal and state governments.) Indeed, this expansion in eligibility does raise costs dramatically for states. Unless that state is Nebraska, because we (taxpayers) will now pay 100% of its Medicaid costs (BRIBE), forever. Other states will be forced to either raise taxes or cut other services to accommodate the forced increase in Medicaid spending. Not, of course, Nebraska. Outrages and shameful!!

What Comes Next in This Series: Hundreds, Thousands, Millions, Billions, Trillions, ....?

Answer: Quadrillions.

Quadrillions will soon become part of your vocabulary, like trillions over the past year. While we are on the subject, I guess it would be a good idea to further your education by continuing the sequence: quintillions, sextillions, septillions, octillions, nonillions, and decillions. Who knows, the U.S. may become the next Zimbabwe. It's not that far fetched! Check out the following table:
Note: To enlarge the table, double-click inside of it.

Fifty Days to Save the World?

"I might listen to the doomsayers if they weren't such ludicrous hypocrites."

Senator McCain Proposing to Reinstate Glass-Steagall

Bloomberg News just reported that "U.S. Senators John McCain and Maria Cantwell proposed reinstating the Depression-era Glass-Steagall Act that split commercial and investment banking to rein in Wall Street firms in response to the financial crisis."

"Under our proposal, too-big-to-fail banks would be forced to return to the business of conventional banking, leaving the task of risk taking or management to others,” McCain said at a Washington news conference." Amen!

However, Wall Street will fight this proposal tooth and nail, because speculating with other people's money and being able to force the American taxpayer to eat and take all the risks but take none of the gains is what they do best. For example, while CEO of Citigroup in 2007, Vikram S. Pandit earned an annualized compensation of $3,164,320, which included a base salary of $250,000, stocks granted of $2,914,320, and options granted of $0. In 2008, he earned a total compensation of $38,237,437, which included a base salary of $958,333, stocks granted of $28,830,000, and options granted of $8,432,911. On February 11, 2009, Pandit testified to Congress that he had declared to his board of directors, "my salary should be $1 per year with no bonus until we return to profitability," having received $10.82 million in 2008 (base compensation and incentives). [Source: Slope of Hope}

Time's Person of the Year

In making the selection, Time Magazine states: "The story of the year was a weak economy that could have been much, much weaker. Thank the man who runs the Federal Reserve." Wait one MINUTE! He is the one that help create the debacle in the first place. Let's also remember what Bernanke said in November 2007:

"There will be no recession"

"Subprime is contained"

"The fundamentals of the economy are strong."

This is one reason why I don't subscribe to Time.

Citi, Wells Fargo to Repay TARP Bailout Funds

The Wall Street Reports that "Citigroup ($20 billion) and Wells Fargo ($25 billion) are the last major lenders to return their TARP money. With the deals announced Monday by Citigroup and Wells Fargo, banks will have repaid $161 billion of the $245 billion in financial capital that was pumped into about 700 institutions as part of the Troubled Asset Relief Program (TARP). J.P. Morgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley paid the government back in June 2009. Last week, Bank of America paid its $45 billion to the Treasury."

What I find very interesting is that all of these major banks that have repaid TARP funds have done so by diluting their shareholders big time. Yet on a fully diluted basis, their stocks are trading at or near where they were before the financial crisis started, with the exception of Citigroup. That is the reason why common stockholders, even though their ownership interest has been diluted significantly, are not crying bloody murder.

Now that everything has been repaid by the big boys. What is the encore? First, these financial institutions will be able to pay those lucrative $bonuses unimpeded. Second, look to see if the insiders (officers and directors) are selling their stock in a larger percentage than normal, since the stocks are back to near pre-panic levels. Third, FASB changes are forcing all off-balance sheet items back on the balance sheet, which will be reflected in next quarter's 2010 earnings (good for transparency but bad for stock prices because of the unexpected -- reason why these items were kept off-balance sheet!)

I don't know about you, but I am not going to be purchasing any bank stock anytime soon! That time has come and gone IMHO.

Communism: A Reminder

As the lure of government involvement in our lives in troubled times grows stronger and stronger, let's remember what more government, more taxes, more regulation, and anti-business is all about! Does anyone remember the Soviet Union? What about China and North Korea? I know what many of you are saying: "It just can not happen here! All what I can say to that is, be careful what you wish for!"



"A single death is a tragedy. A million deaths is a statistic." (Joseph Stalin.)

Update on GDX and SLV: Looking Attractive!

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

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

S&P 500 Weekly Update for December 11, 2009

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

Lies, More Damn Lies, and Government Statistics

Yesterday's post focused on the change in sampling methodology utilized by the Census Bureau in gathering data for its "Advance Monthly Retail Trade Survey." If you haven't read that post, please do so; because it will inform you how the mainstream media and our government use data to mislead the end user of such information (IMHO).

Today, I want to focus on unemployment data. This week the Bureau of Labor Statistics (BLS) stated that the continuing, initial unemployment claims were up slightly to 474,000 on a seasonally adjusted basis, which is down 78,000 from the same week last year. Bear in mind, that is on a seasonally adjusted basis. Everyone, that is mainstream media, celebrated the good news. And, that's presumably months after we've emerged from the recession. [Sidebar: I don't like seasonally adjusted data, because those seasonal factors can be very misleading and, of course, manipulated. When I use data for comparative purposes, I use unadjusted, year-over-year data that does not need a seasonal adjustment. It's the real thing!] By the way, the non-seasonally adjusted number (NSA) of continuing claims for unemployment is 665,000, down approximately 95,000 from last year, which is definitely good, but still a very large number.

Ok, back to the mission at had. Everywhere the headlines this week said continuing claims for unemployment are plunging. Once again, let's look at the facts and reality of what is really happening. The drop was not from people getting jobs but from people rolling over to the extended benefits programs, Emergency Unemployment Compensation (EUC), which are not counted in the continuing claims statistic. Isn't that just great? By the way, states pay for the first 26 weeks, and that is where we get the continuing claims number for unemployment. In regard to EUC, states reported 4.2 million persons claiming compensation benefits for the week ending November 21, 2009. Now get this statistic, which should blow your mind. There were 729,256 claimants in the comparable week in 2008. That's right. We have gone from slightly more than 700,000 claimants to 4.2 million. What is happening is that we are simply moving claimants from one pile to another pile and celebrating because the first pile is smaller than the second pile. Can anyone say "Dummy-Down of Americans?"

Here is another statistic that you will not hear or read from the mainstream media. Currently, we have 5.2 million individuals on the continuing claims for unemployment rolls. But, when you add in the EUC numbers, it increases to almost 10 million individuals.

Finally, we all know that the unemployment rate dropped to 10% from 10.2%. To get to 10%, the number of people looking for work had to decline by 98,000. (Basically, if you have not looked for work in the last four weeks, you are said to be "discouraged" and are taken out of the unemployment statistics.) If you add back in the discouraged workers, the rate goes up to 10.5%. And it is worse than that. If you have not looked for a job in 12 months, you are taken off the rolls completely. I finally figured what the government is up to in regard to managing the unemployment rate. (Its that proverbial light bulb going on.) That is, lower the unemployment rate by moving everyone into the "Emergency Unemployment Compensation Program," and then after 12 months these individuals are completely off the employment rolls. Brilliant! Except these individuals are still unemployed, but the government can report that the unemployment rate is zero! You have to love all this statistical creativity by our government.

Retail Sales Post Broad Increase?

The "Wall Street Journal" reports in its headline that U.S. retail sales rose 1.3% in November, making a broad-based increase that suggested consumers were buying aggressively and supporting the economy. Wow! This is great news. But once again, is it completely factual? Actual Point-of-Sale (POS) data says otherwise, at least with regard to Black Friday. See the following table.

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

Also, the U.S Census Bureau states that these advance retail numbers are the first estimates from a new sample. The Census Bureau goes on to say that the new sample for the "Advance Monthly Retail Trade Survey" is selected about once every two and a half years. (Isn't it interesting that the government decided to change the sampling methodology right now during the critical Christmas buying period. Anyone for cooking the books? Therefore, any type of comparison to previous data is completely suspect and wrong, because we are not comparing "apples-to-apples."

To say the least, I am suspect of those advanced numbers, which will undoubtedly be adjusted downward, especially when you look at the point-of-sale data for electronics during Black Friday. Like I have been saying for months that the spin being put out there is all about instilling confidence in the consumer. As always, check out the facts.

Health Care: Sticker Shock

No, I am not going to blog about the proposed cost of nearly $1 trillion over 10 years to provide coverage to most of the uninsured, nor the more than $400 billion in new taxes and a half-trillion dollars in Medicare cuts to pay for this new entitlement program that is certain to increase the cost of insurance and reduce the quality of our medical care. (Sidebar: Most of the uninsured will be covered, but not all. As many as 24 million people would remain uninsured in 2019, many of them eligible but still can't afford the premiums. Put that in your pipe and smoke it. Wait a minute, I thought the objective was to make sure that everyone gets health insurance. What the heck is going on when this entitlement is going to break the bank - fisc - and people still are without health insurance? Stupidity reins on! It's all about the control and power over our lives.)

I want to discuss the tax impact on the middle-class family. The Senate version (cloak in secrecy) has the middle-class family of four making $66,000 would have to pay about 10 percent of its income in premiums, not counting co-payments and deductibles. What happen to the, then, Presidential Candidate Obama espousing that the middle-class family would not be paying higher taxes under his administration? Good question! Your taxes are going up, either directly or indirectly through higher insurance premiums. (Get used to it, Gary, it is going to happen.)

The Congressional Budget Office says the bill wouldn't have a major effect on premiums under employer plans, now about $13,000 a year. But wait a minute, the Senate version slaps a 40 percent tax on insurance plans with premiums above $8,500 for individual coverage and $23,000 for family plans, among other levies. So, if I am paying $13,000, as an individual, for my health coverage, I am going to have to pay a tax of $1,800 [$13,000 - $8,500 x (.40] in addition to my insurance premiums. You gotta be kidding me! I wish I was, but I am not. Also, let's say that I am a small business person, incorporated as a LLC or Sub-Chapter S, the House version imposes a 5.4% income tax surcharge on individuals making more than $500,000 and families earning more than $1 million. That, of course, is in addition to one's health insurance premiums. The rest of the financing for this monstrosity would come mainly from cuts in federal payments to insurers, hospitals, home health care agencie, and other medical providers serving Medicare. And, our elected officials have the nerve to say that quality of health care will not suffer.

The Senate version would make plans certified by the federal employee system available nationwide to individuals, bringing competition to states in which one or two large insurers now control the market. That is not a bad idea. However, why don't they make such competition available to all such plans? The downside to this component part is that those individuals currently covered under this plan are looking at hefty premium increases next year. Individual coverage under the federal employee system is estimated to be going up 15% next year, and that is not the increase for family coverage, which is yet to be determined. Can anyone say "screwed" to those federal employees currently under this system? I thought you could!

The other new idea under the Senate version is to allow individuals between the age 55 to 64, one of the groups now most at risk for losing coverage during our current economic debacle, to buy into Medicare. That sounds great, right? However, how many in this group would be able to afford to pay $7,600 a year for this type of coverage, not counting out-of-pocket expenditures for deductibles and co-payments?

I don't know about you, but I am sick and tired of this egalitarian movement. Do we need health reform? You bet! But, not to the point that it bankrupts the federal fisc.

Return of Glass-Steagall?

Five House Democrats will call this week for a return of the Glass-Steagall Act, which is a Depression-era law that separated Wall Street investment banking from Main Street commercial banking.

If adopted, the measure would give banks one year to choose between being commercial banks or investment banks. The nation's biggest, which are those now commonly referred to as "too big to fail," would be broken up. The Obama Administration opposes the measure. (Of course, what else is new.)

The amendment's five co-sponsors, all Democrats, are Maurice Hinchey of New York, John Conyers of Michigan, Peter DeFazio of Oregon, Jay Inslee of Washington, and John Tierney of Massachusetts. They want to restore the Glass-Steagall Act of 1933, which prohibited commercial banks from underwriting stocks and bonds. The act was repealed in 1999 at the urging of Larry Summers, now President Obama's chief economic adviser. (Of course, what else is new.) The five congressman all voted against the repeal in 1999.

Why is the return of this act important? Answer: Lending would shift primarily to productive investment. I believe the Glass-Steagall Act was one of the primary reasons for the growth of our economy after World War II. Lending went to finance productive assets (e.g. factories, machines, tractors, combines, etc), instead of financial speculation as it had in the 1920s.

It was that financial speculation that led to the asset bubbles in the 1920s, which resulted in the malinvestment that was responsible for the Depression. It was that very same financial speculation in the 1990s and 2000s that led to the real estate (bubble) malinvestment.

November Unemployment Rate Falls to 10% from 10.2%

On the surface the decline in the unemployment rate is definitely good news, which I will gladly take. Saying that, let’s look at the data, or facts. Where did we add jobs? Jobs were added in the temporary help service by 58,000 (Christmas anyone! These jobs are part time and will be gone after Christmas, if not before.) and health care (21,000 jobs). However, those additions were offset in construction (jobs declined by 21,000), manufacturing (jobs declined by 41,000), and information.

Part time jobs will not propel the economy forward. That is the problem. We have seen no job creation in the construction and manufacturing sectors. By the way, since the start of the recession in December 2007, the number of unemployed has increased by almost eight million.

If you want to grow jobs, give tax credits to employers who create jobs. It really is that simple. There is an old principle called KISS (Keep IT Simple, Stupid). Since stupidity is rampant in Washington, D.C., you would think that our Representatives and Senators would be able to grasp the KISS principle. But no such luck!

Tiger Woods Official Sponsors

What you do with the list of Tiger's "Official Sponsors" is completely up to you. Enough said.

Strong Dollar Policy: Revisited

On November 11, 2009, I quoted Treasury Secretary Geither as saying, "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." I went on to say the following: "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!"

Let's look at some additional facts since March 2009. The Australian Dollar has appreciated 51% against the U.S. Dollar, Euro has appreciated 21%, British Pound has appreciated 22%, and the Canadian Dollar has appreciated 25%. I have saved the best for last. The Mexican Peso has appreciated 26% in value against the dollar. If the trend continues for the peso, it will soon be on parity with the U.S. Dollar within eight months. Can you say, Banana Republic! I never thought that I would ever make a comment about the potential for the peso trading at parity to the dollar. Oh, how the mighty has fallen. This time, I am not making reference to Dubai.

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!

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?