Bear Cross!

We have a "Bear Cross" in place today on the 15/40 EMAs.  That is, the 15-week EMA < 40-week EMA. However, since this is a weekly indicator, we must wait until Friday's close to officially declare that the primary trend has changed from "Bullish to Bearish."  Stay in touch.

Close But No Cigar!

GM: Bankruptcy Excuses Us From Impala Repairs

Government Motors (GM)is seeking to dismiss a lawsuit over a suspension problem on more than 400,000 Chevrolet Impalas from the 2007 and 2008 model years, saying it should not be responsible for repairs because the flaw predated its bankruptcy.  In a recent filing with the U.S. District Court in Detroit, GM noted that the cars were made by its predecessor General Motors Corp, now called Motors Liquidation Co or "Old GM," before its 2009 bankruptcy and federal bailout.  The current company, called "New GM," said it did not assume responsibility under the reorganization to fix the Impala problem.  Now, this is exactly why I refuse to every purchase a GM vehicle. 

Another Day, Another 400+ Point Decline on Dow and 50+ Point Decline on S&P 500

Bernanke's Question

Now, that Hewlett Packard is getting out of the PC business, "ZeroHedge" reports that Bernanke wants to know if they are still going to be making printers.

Payback Time, Justice Department Investigates S&P

Well, that didn't take too long.  The Justice Department is investigating whether S&P, the nation’s largest credit ratings agency, improperly rated dozens of mortgage securities in the years leading up to the financial crisis.  Now, to give the Justice Department its due, this investigation began before S&P cut the AAA credit rating this month.  But, it has definitely gain momentum since the downgrade by S&P.  Now, will the Justice Department go after the Bankers and Wall Street who knowingly bundled these troubled mortgages and sold them to the investment public?  My answer to my rhetorical question is absolutely NO!

Fitch Downgrades New Jersey Munis From AA To AA-

I believe we have a "good cop, back cop" scenario going on here.  Remember all the heat that S&P took for the U.S. debt downgrade (bad cop), while Fitch (good cop) decided to stay the course with its AAA rating.  Well, now Fitch downgrades the General Obligation (GO) Munis of New Jersey, while S&P has not changed its ratings of New Jersey.  If I was a conspirator, I would say that the rating agencies got together and decided who was going to be the good cop and bad cop in dealing with the U.S. debt.  Of course, S&P came up on the short end.  (LOL) As a matter of fact, I agree with both downgrades.  In fact, states are in a worse financial bind that the U.S. government.  The reason is simply that states can not print money, but the U.S. can through the Federal Reserve System.  By the way, look for a whole lot more muni downgrades, just not limited to Fitch, over the next two years.

The BUS!

Now, don't get me wrong.  I am not against the President having a $1.1 million bus, or for that matter, two buses, which he ordered for a total cost of $2,2 million.  The buses were ordered by the Secret Service in July 2010 and delivered two months ago.  The feds bought the two coaches from Hemphill Brothers Coach, based in Tennessee.  But, here is the "kicker!"  The contract lists the country of origin as Canada and place of manufacture as "outside U.S. - Trade Agreements," a possible reference to the North American Free Trade Agreement.  That is my objection.  With our unemployment rate in excess of 9% for U3,  (By the way, I consider a better measure of worker misery is U6, which is 16%.)  I would have thought that this Administration would have insisted that the bus and all work done on it be completed here in America by Americans. 

China's Ghost Cities and Malls

China's GDP is based on recorded production activity rather than being a measure of the GDP expenditure approach, as U.S. data are, (sum of consumption, business investment, government spending and net exports).  In other words, it permits funds allocated for production to count as de facto outlays by end users, as well as to record shipments to retailers as sales.  That is how you give the impression of exceptional growth, which is the beauty, of course, of running a command economy, where if you say loan, the banks lend like mad, and if you say produce, production rises.  Like China’s ghost cities and malls.  Where is Wall Street in pointing out how China measures its GDP?  Go figure!

Fiat $'s Birthday

Forty years ago today on August 15, 1971, the President Richard Nixon, declared the inconvertibility of the dollar into gold.  As a result, the dollar became a fully fiat currency, backed not by gold but by the promise of the U.S. government.  This meant the end of a historical and monetary rule.  The Federal Reserve System can now print any amount of money. 

How has it worked?  Well, subsequent to Nixon’s decision 40 years ago, the U.S. dollar has fallen from 1/35^th of an ounce of gold to 1/1750^th of an ounce of gold today!  This is not the fault of the market or speculators; rather it is the fault of profligate governments and central bankers. 

The Wealth Effect Experiment by the FED

The Fed's QE2 experiment, which began last September, ended on June 30 with little to show for it.  Asset prices rose as the Fed's bond purchases pushed investors into riskier assets (stocks and commodities).  But the prices of those assets have since fallen back down to what investors think they're worth.
The Fed had hoped that boosting asset prices would create "wealth effects," or an increase in spending that accompanies an increase in perceived wealth.  But the Fed can't dictate which asset prices would rise, and liquidity flowed into commodities as well as stocks. 

Thus, any wealth effect was offset by negative "income effects" as Americans suffered a decline in real income from paying more for food and energy because of the commodity-price bubble.  Economic growth has decelerated over the past year despite QE2, so what good does Mr. Bernanke thinks it did?  The reason I ask the question is that the focus of his monetary policy was on the “wealth effect.”  Therefore, one would expect that this focus would be to benefit the average American.  If this was your assumption, you would be wrong, based on equity ownership.  81% of equities are owned by the top 10%, and 91% is owned by the top 20% of households.  (See the following chart.)  A severe decline in the "wealth effect," caused by a bear market, would probably adversely impact the spending habits of those top 10%, which accounts for some 40% of the nation's consumer spending.  Thus, one can conclude that QE1 and QE2 only benefited 11.7 million out of the nation's 117 million households.  

Two out of Three Parts of the Puzzle in Place

So, Is This the New Norm?

Press Secretary Carney: Unemployment Benefits Could Create Up To 1 Million Jobs

You know there is stupid and then there is stupidity.  Press Secretary Carney fits both categories.  If you recall, the Administration put forth the logic that the trillions of dollars infused into the economy "saved something like 2 to 3 million or so jobs," not create jobs.  The 2 to 3 million or so figure was pulled out of thin air. There is not one economics text that has ever incorporated this "saved job concept."  Then again, if your policies are not creating jobs, a good spin would be to say that such polices saved jobs.  In other words, who can refute it?

Well, now we have statements being made that unemployment benefits will create up to 1 million jobs.  You gotta being kidding me.  No, I am afraid not, because Carney is now talking about the creation of jobs with unemployment benefits.  The sad fact is that there are individuals out there that will believe such logic. 

Picture of Beauty for Investors

What the Market Giveth, It also Taketh!

So much for that one-day rally yesterday.   Monday’s 10,809 closing level did not even hold.  As I indicated earlier today, that level is significant.  A more significant level is the inter-day low of Monday at 10,650.   If the 10,650 level was to be taken out (See the following chart.), that would generate another “bearish signal.”  Please be mindful of that level over the next few days.

I still would not be surprised to see an 8-9% rally from these levels, which would bring the Dow to the 200-day EMA.   However, saying that, 10,650 on the Dow must not be taken out.

What's Up with the Market?

It appears that a retest of Monday's close is in progress.  (See following chart.)  I would say for the "bulltarts" out there that Monday's close better hold!

The "FED"

In today's "Opinion Section" of the Wall Street Journal, entitled, "Doubling Down on Zero," is a succinct narrative on the Fed's continuation of its "Zero Interest Rate Policy."  An excerpt from the article is as follows:
  
"The Fed's QE2 experiment, which began last September, ended on June 30 with little to show for it. Asset prices rose as the Fed's bond purchases pushed investors into riskier assets (stocks and commodities).  But the prices of those assets have since fallen back down to what investors think they're worth.

The Fed had hoped that boosting asset prices would create "wealth effects," or an increase in spending that accompanies an increase in perceived wealth.  But the Fed can't dictate which asset prices will rise, and liquidity flowed into commodities as well as stocks.

Thus any wealth effect was offset by negative "income effects" as Americans suffered a decline in real income from paying more for food and energy because of the commodity-price bubble.  Economic growth has decelerated over the past year despite QE2, so we wonder what good Mr. Bernanke thinks it did. We're hard-pressed to see what good QE3 would do as well.  But, we will probably find out when QE3 happens that the outcome is the same."

Unions Lose in Wisconsin

 A stand by Wisconsin Republicans against a massive effort to oust them from power could reverberate across the country as the battle over union rights and the conservative revolution heads toward the 2012 presidential race.

Exchanges Invoke Rule 48 at Open

"Because Monday seems so long ago.  And to think, the market surged over 3% yesterday on something... what exactly was it? Oh, yes, idiot momentum."  Click-on "Rule 48" for its meaning.

Man of the Day, or Every Dog has its Day

Apple is about to Pass Exxon as the Most Valuable U.S. Company

Apple's market capitalization, as of the market's close today, is about $347 billion.  Exxon Mobil's market capitalization is $348 billion.  Does this mean people need iPads and iPhones more than oil?  Now, don't get me wrong.  I love all of Apple's products.  I have them.  But please, Exxon sells a product that people need.  Apple sells a product that people want.

Get That Magnifying Glass Out

Yesterday, the 13/34 EMAs signaled a trend change to "Bearish."  Our 15/40 EMAs is very close to a trend change to "Bearish."  But, since it is a "weekly" indicator, the 15-week EMA must be lower than the 40-week EMA on a Friday close. 

Who's AAA?

Sixteen countries remain with that distinct designation.  They are as follows:

1. Australia
2. Austria
3. Canada
4. Denmark
5. Finland
6. France
7. Germany
8. Isle of Man
9. Luxembourg
10. Netherlands
11. New Zealand
12. Norway
13. Singapore
14. Sweden
15. Switzerland
16. United Kingdom

The Tea Party Did It!

Greece Bars All Short Selling For 2 Months

Like this is really going to work!  Just go ahead and blame it on the "Bears."  When the real culprits are the central banks and their stooges (governments).  But, isn't it interesting that no one complains when equity prices are manipulated by actions of central banks on the upside.  Go figure!

Nothing Goes Down Forever!

Markets are off 3% plus going into the second hour of trading.  For intermediate to long-term investors, I have three trading rules:

1. Follow the relationship between the 15-week EMA and 40-week EMA.  [That is, if the 15-week EMA > 40-week EMA, market trend is up (Bullish).  If the 15-week EMA < 40-week EMA, market trend is down (Bearish).]
2. Follow Rule #1.
3. Don't forget Rule #1 and #2. 

Even though I am very negative (bearish) on our economy going forward, likewise the market, an investor must not let one's emotions take control.  That is why my focus is on the 15/40 EMA strategy. 

American Economy Going Forward

Start preparing yourself mentally; because if you thought 2008-09 was a debacle, 2012-14 will be your worse "nightmare!"

DOWNGRADED!!

The United States of America lost its top-notch AAA credit rating from S&P.  We are now rated lower than bonds issued by countries such as UK, Germany, France and Canada.  A very sad situation for us; however, it is totally of our making.  Hopefully, this Administration and Congress will finally get its act together and do some "real cutting" to government spending.

Economic Data to Ponder

Our economic conditions are not improving.  Ponder some of the following data released today: 

1. Just 58% of working-age Americans has jobs, lowest since July 1983!  
2. Food stamp use rises to record 45.8 million individuals, or about one in every six Americans.
3. Average length of unemployment reached a new all time high of 40.4 weeks in July, up from the previous record of 39.9 in June.  
4. Fannie Mae needs another $5.1 billion in aid from the Treasury.  So far, it has received $103.8 billion.

Market Update

Market-Wide Circuit Breakers

In the event of a 30% decline in the DJIA, regardless of time during trading hours, the market closes for the day.

Pressured by White House, Treasury Secretary Is Expected to Stay at Post

The New York Times reports that Geithner will be staying on as Treasury Secretary.  This is not good news, because it simply means more of the failed economic policies (Read as more spending!) of the past three years.  Then, what economic polices?  Read "The Forgotten Depression of 1920."  

Kick-the-Can Down the Road, Part II

The proposed spending cuts are not true reductions in the federal budget.  These cuts simply slow down the pace of future spending increases.  What does that mean?  Specifically, the federal government had planned to incur $10 trillion in additional debt over the next decade.  Now, the spending increase will just be $7 trillion.  Therefore, instead of the current $14.3 trillion federal debt growing to $24 trillion, the debt will only be approximately $21 trillion. 

Kick-the-Can

Well, the "debt ceiling" has been passed by the House of Representatives.  Now, just the formality of the Senate doing its job tomorrow.  Therefore, we have once again "kicked-the-can down the street."  No debt default this week.  That will come later!

Ok, what does this mean for the next fiscal year by way of increase/cutting federal spending?  In very simple language,  federal spending will go up by at least $256 billion (minimum of an 8% increase) while discretionary spending, which has just been approved, will decrease by $23 billion.  Therefore, total federal spending will increase next year by a "net" of least $233 billion.

EMA Algorithms

A very interesting pattern is unfolding between the relationship of the 2007 EMAs and 2011 EMAs.  Take a look at the following chart.  Very interesting, indeed.  Definitely, I will be tracking this relationship.

Apple Now Has More Cash Than The U.S. Government

According to the latest daily statement from the U.S. Treasury, the government had an operating cash balance of $73.8 billion at the end of the day yesterday.  Apple's last earnings report showed that the company had $76.2 billion in cash and marketable securities at the end of June.

Hiatus: Gone Fishing

The Unabated Bull!

Obama's Own Words

“The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure,” he said. “It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Leadership means that ‘the buck stops here.’ Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt and a failure of leadership. Americans deserve better. I therefore intend to oppose the effort to increase America’s debt limit.”  (Source:  Senator Barack Hussein Obama, March 2006)

Egan-Jones Rating Service

Egan-Jones is the one true "independent" rating service that analyzes the credit worthiness of country debts.  Over the weekend, it down-graded the rating of our Treasury securities.  

For those of you who continue to be believe that our country will not only survive but prosper, take a look at the nine-minute video. 

A Short History of U.S. Credit Defaults

Has the U.S. ever defaulted on its obligations?  Yes.  I am always amazed that individuals not only refuse to learn from history but study it.  Today, the so-called pundits out there are using every type of scare tactics imaginable to get a debt ceiling increase.  Let's look at the facts as recorded by history and what will probably happen if the debt ceiling is not raised by reading the "Short History of U.S. Credit Defaults."   

President Obama: 80% of Americans Want Higher Taxes

Now, I am really confused, because according to the most recent Rasmussen Report just 34% think a tax hike should be included in any legislation to raise the debt ceiling and 55% disagree and say it should not be included. 

I would like to know where the President got the 80% figure.  Of course, during his news conference, no reporters (lemmings) asked the question about where he got his 80% figure.   Since I am against higher taxes, my inquiring mind would like to know.

California Pays Doctor With No Patients Big Bucks for Mail Room Duty

A California surgeon at a state prison who has not seen a patient in six years, because the state is concerned about his medical skills, rakes in a salary that is four times that of the state’s governor.  (Once again, I am not that creative to make stuff up like this.)  Dr. Jeffery Rohlfing is on mail room duty and making $770,000 payout.  No, that is not a misprint.  By the way, according to the Los Angeles Times, the newspaper reports that dozens of other doctors have been assigned similar tasks at prisons when the state is concerned about their skills.  What is the moral of this story?  It is California. Enough said!

Elitist Mindset vs American Public Mindset

I, for one, believe that the American public is a whole lot smarter than what the so-called elitist gives us credit for, especially when it comes to the national debt level.  Sometimes the truth, one's true belief, comes forth when one doesn't realize he or she is saying it.

Option ARMs Explained

Let's say that you were one of the unfortunate ones that took out such an financial instrument back in 2006 during the frenzy of the real estate bubble. Today, you are wondering how your P&I monthly payment just went from $833 to $4,027.  Wonder no more, just read on.

When an Option ARM reaches (typically) some term of years, usually five years, or principal balance (125%) it is forcibly recast to a fully amortizing loan on the original terms. 

Let's say the "Option ARM" is to make a 2% interest payment on a $500,000 loan.  The normal interest rate is 6% and the "full term" is 30 years.  A full P&I payment is $2,953.48.   But a 2% Option Arm, interest payment is $833.33; the rest is "capitalized,” or approximately $2,120/month.

When the loan hits the hard recast limit, whether on principal balance or time, you must then make a fully amortizing payment on the balance over the remaining original term. 

So let's assume you have a 125% negative amortization cap.  At roughly $25,000 ($2,120 x 12) in negative amortization per year, you can make minimum payments for about five years.

Now, you have 25 years to amortize $625,000 @ 6%.  Your home is worth half of the original balance, or $250,000.  And you have a big problem, because the fully amortizing payment on that $625,000 is $4,026.88 or 483% - nearly five times - your "option" payment!

The real problem is that many of the people who received these $500,000 loans had gross family incomes under $100,000.  The fully amortizing recast payment is now nearly $50,000 annually!  Now, how many of these individuals, who took out these Option Arms that I just explained and illustrated, do you believe understand the concept and the ramifications that I just went through?  I know the question is rhetorical.  Therefore, I will give you the answer, which is ZERO. 

Birth/Death Adjustment was Responsible for Over 60% of the Payroll Gains in the Past Year!

Quite remarkable, isn't it?  This "Birth Death" adjustment on actual non farm payroll (NFP) numbers confirms that of the 1 million "job gains" in the past year, well over 60% of these have come from a statistical factor.  (These are not real jobs, folks, just a STATISTIC!)  Do you wonder when anyone in this administration or media will mention that of the 1 million jobs "created" in the past year, 606,000 have been purely the product of statistical models?  Well, I already know the answer to that rhetorical question.

Seven Measures for Economic Growth

From the Heritage Foundation: "Congress and the White House must take immediate action to get America's economic house in order and to foster an environment that encourages job creation. Those measures include the following: (1) repealing Obamacare, (2) its employer mandates and tax increases, (3) preventing the Environmental Protection Agency from regulating carbon dioxide, (4) passing tort reform to reduce the cost of meritless lawsuits, (5) expanding trade agreements, (6) permitting more domestic energy production, and (7) cutting spending to avert massive tax increases. "

Unabridged Disaster

The U.S. economy barely added jobs for the second month in a row in June, and the unemployment rate rose to 9.2%, which is the highest level this year, adding to concerns the labor market will take years to recover.  Total jobs added per the NFP survey: +18,000 on expectations of 105,000.  Also, the Labor Force Participation rate of 64.1% just dropped to a fresh 25 year low.  (Only 64% of the those eligible to work are actually working.  Not a good sign for the economy going into the second half of 2011.)

This is the second complete forecasting disaster for Wall Street's economists in the last two months.  And, these pundits are getting paid the mega-bucks to get it right.  The problem is that the majority of these pundits have been schooled in Keynesian economics, which has finally demonstrated that you can not borrow and spend your way out of recession/depression.  Or, government deficit spending does not create lasting economic recovery, instead it creates asset bubbles (stock market) and a false sense of security.   In other words, I am looking for a few good Austrian economists, like Mises and Hayak. 

Obama Administration to Extend Mortgage-Free Living for America's Unemployed to One Year

The Obama Administration today will announce two programs providing unemployed homeowners twelve months' forbearance on their mortgages.  Isn't America a great "socialist" country?  Why would anyone that has a mortgage be foolish enough to make their monthly P&I payments?  When you can receive twelve months free rent.  Just look at all the things you can buy.  Thank you, President Obama.  There truly is a Santa Claus.

Government Spending ≠ Investment

This whole talk of government investment in infrastructure and whatever is not “INVESTMENT” at all.  Our Federal Government would like you to believe that is the case, because it sounds a whole lot better than government spending.  Therefore, government does not invest; it only “SPENDS.”  And what it spends, it must extract from the private sector through taxation, which by the way is that segment of the economy that actually does indeed create jobs and wealth, or rely on the Federal Reserve System to monetarize our federal deficits, which of course it has through the infamous QE 1 & 2.

God Bless the U.S.A.

Get Your Food Stamps Here!

The clearest indication of just how ineffective the recovery and QE2 has been comes courtesy of the USDA.  The latest update for April participation in Supplemental Nutrition Assistance Program (SNAP), better known as "Food Stamps," shows yet another record, 44.647 million people, an increase from May's 44.587 million.  (That is 1 out of every 7 individuals!)

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.