Republican strategy = distort the facts & scare the voters
Republicans are doing this continuously with regards to the war on terror & the economy.
On the war...they are saying that the proposed democrats policies will endanger our safety here at home & destabilize the middle east...if we pull out of iraq it will be disasterous for iraq, allow al qaida to declare victory, takeover iraq & threaten security/stability in the middle east (funny, but that’s exactly what our war of choice has done) & "the terrorists will follow us home" (haha...they are here already & will attack us at a time & place of their choosing).
On the economy... now the big thing is republicans saying that the democrats will hurt the economy...the fear talk is that if democrats get the white house it will be disasterous for our countrys economic situation...they will raise taxes, increase govt spending, hurt corporations, etc...all of which was already done in the last 8 years ...(almost 8 years into bush-it & the economy is in worst condition since great depression, bush admin oversaw howzing bubble, credit bubble, lax financial oversight, many corporate disasters, huge increase in govt spending & deficits, rising unemployment, destruction of the middle class, 30% decline in US$, & inflation... including 300% increase in oil w/out any initiatives to address energy independence)....now they are going to try to blame that on the incoming president & democratic congress... the spin, deception, misinformation, & outright lies are truely incredible.
If the electorate can overcome the republican spin machine it will be an amazing accomplishment....and then they will go to the fail safe "he's hussien obama...a black supremacist, anti American, "wolf in sheeps clothing" who will destroy America...yikes.

The FED..."You're on your own kids" >>>--->
Based on the recent (three week old) information from the FOMC minutes as well as current economic data, it seems that the FED is out of the game till after the November presidential election. Barring another financial crisis or obvious & severe economic downturn, the FED will not act to lower or raise interest rates. The reasoning behind this conclusion is that the FED all but said as much in the FOMC minutes & they are very concerned about inflation. They won’t change rates right before the election as they wouldn’t want to be seen influencing the presidential race, and they have said the markets need time to heal. So, essentially the FED is saying to the financial markets…”you’re on your own kids”.
That’s a scary thought in an environment of sluggish or uneven economic growth combined with generally obvious inflationary forces, or what I will call, ”slugflation”. I like that word better than stagflation, as it crystallizes what that economic enviroment does to businesses & consumers. Slugflation, as the word implies, will slug businesses with higher costs & slower sales, while at the same time it will slug consumers with higher prices & fewer jobs or stagnant incomes.
The prospect of no further FED action, except for the rolling TAFfys, TSLFys, & SLAFfys, is quite a new investment environment for most who have begged for & relied on FED & government interventions to defend their investment ideas & strategies. Allowing the free market to actually operate free from all the artificial supports & government interventions could pose a problem for the majority of investors, mutual fund mngrs, & hedge fund managers, especially with the ongoing belief that the market will be saved if any trouble comes along.
Looking ahead to a relaxing Memorial Day weekend with my family, I can’t help but be concerned about the current economic predicament====$4+ gas, high food costs, an ongoing how-zing collapse, an impaired financial system, a tight lending environment, a hotly divided electorate, & a sluggish economic environment. We have been told there are no silver bullets & that time is the remedy for many of the problems. I guess I can put my hope in the Treasury Secretary’s words “that relative to other developed nations around the world the US economy is fundamentally strong, flexible, & resilient”.
Or I could sell in May & go away.

Spring of Discontent
By the looks of the first few high profile Q1 earnings reports & warnings... the next few weeks will probably be chock full of more earnings misses & lowered guidance from all corners of the economy... Not just the banks, brokers, & builders. In fact... The big writedowns have become boring... Now a writedown has to beat UBS' $31 billion before it will even make the newsbug. What will be most disconcerting to the market will be the reports from the big diversified multi-nationals that will begin to show the slowing & contracting effects of the ongoing howzing & credit crisis. By the recent retail snales data, there can be no doubt that the US consumer is being impacted (even at the upper end, the rich... As lots of the wrenching financial distress is hitting lots of high earner areas... Banks, brokers, builders, financial engineers (masters of the universe)... Consumer confidence @ 26 year low confirms the sales data... or vice versa. Howzing pretty much has no hope anymore... So the earnings reports & incremental new bad data points will be basically ignored... Unfortunately for the rest of the mkt... especially financials & banks.. The continued bad howzing, as well as commercial real estate(CMBS... learn it) data due to come... will force more multubillion $ writedowns as the credits deteriorate with the asset values... as Paulson & Bernanke have said "a necessary & painful adjustment", it will continue. some signs also appeared in the last few weeks that CC & auto will deteriorate with the overleveraged consumer further straining the credit derivative mkt. Liquidity will remain dysfunctional until the financial system heals itself...read "unwinds the 30x leverage". Most Mngt will be well served to lower expectations &/or guidance for the Q2 earnings as well as talk down 2H guidance... If for nothing else than to set up a potential for a beat going into 2009. M&A has been all but dormant(except for msft/yhoo, and that starting to get weird)... and deal after deal has been abruptly or gradually called off... undoing billions in mkt cap & upcoming liquidity events. The unusual & herculian efforts being put forth by the FED & the federal govt(haven't seen congress cooperate & get more legislation passed ever) have helped to control & slowdown the adjustment in leverage & price, but both those adjustments will still take place, just slower & over longer period of time. The best part of the interventions is that it has taken systemic breakdown risk off the table. There will still be more hugely dilutive capital raising transactions as well as some reasonably high profile bankruptcies but no total financial collapse... and for what it worth that is a good thing. Unfortunately, as this process plays out, growth will be constrained as credit contracts & companies downsize(repair balance sheets & recover from losses), adjust cost structures, & resize for a slower growth enviroment. Difficult economic & corporate news will continue through this environment. Many taxing authorities (local municipalities, counties, cities, states, & federal coffers) will see, & start to whine about, a marked decline in tax reciepts as economic activity stalls. In some places... NYC tax revs could drop by 20% due to the high concentration of tax revs from investment banks. It is very obvious that Inflationary pressures have & will persist, whatever the causes, and there are good causes, commodity prices, soft, hard, & energy have stayed persistently high... No sharp spikes & dropoffs... just high & higher, as the slowing of the adjustment process allows for the economic activity to stay moderate, rather than a more sudden & abrupt slowdown. A stagflationary economic period could lead to an even more difficult enviroment for business & the consumer, but that wouldn't be seen till into the 3Q. If that developes 2009 will look to be worser... but lets not go there. For now the focus should be on the next few weeks... I know this isn't fashionable, but I don't think the "bottom" is in place. As a stream of bad news comes out the mkt will herk & jerk lower... In hopes of setting up a possibility for a year end rally... albeit from lower levels but rally nonetheless. The market has its best rallies on the heels of bad news events...so we should hope for more of those as it spurs the FED & govt to attention.
As we get there investors should raise cash, hedge longs positions, buy inverse index etf's(speculative), buy Gold & energy... Green & Agritrade.

If the Market is forward looking...what was it seeing in March?

Just 11 weeks ago, on March 17th, "Mr Market" took a look into the future & screamed...holy @#$%!! That Monday we all watched in amazement as Bear Stearns was taken under by JP Morgan @ a token $2/share and the broader market made new lows. While a full fledged financial collapse was averted, thanks to heroic & unprecedented actions by the FED & Treasury, the beginning of something bad was upon us. The market put in a "bottom" on that day, yet we all should have taken heed to what the market was seeing for us in September?

Was the market seeing the credit contraction ending, or the how-zing market recovering, or the banks restoring their capital, or the investment banks getting through the losses & deleveraging, &/or a robust economy?

If the market is supposed to be forward looking & a forecaster of future economic activity, then maybe the market was warning us about what was about to & is continuing to happen.... more losses in all parts of debt market, more dilutive capital raising, more wrenching corporate restructurings, & a stagflationary economy.

The "rally of hope" that all was well after the Bear Stearns event, was based on the belief that the worst was behind us & recovery was ahead... yet the facts are now showing otherwise... We are still in the midst of the problems & have yet to see the end of the crisis. The financial markets are in the throes of an unprecedneted credit contraction that will take time...maybe a long time. If Lehman's debt can get downgraded after all the fed support & fresh capital raising, they didn't need, then how can the problems be behind us when its clear they are ongoing?

The credit losses continue, the capital raising continues, the corporate restructurings continue, and there are still unknown losses & issues to resolve like CMBS, consumer/auto credit, municipal debt, ARPS, how-zing forclosures, unwinding of all the various FED TAFy's that is holding the bad debts, the GSE's risks, the rating agency nonsense, the bond insurer situation, and inflation & the economy.

To think the credit crisis is over & we are on our way back to a normalized investment enviroment, while nothing we are currently seeing indicates that the crisis is over, is simply more hope.

One of the best written & clearly stated explainations of what has transpired , what we are experiencing, & what we could expect going into the later half of 2008 & into 2009.

Credit Hurricane To Make Landfall

Bennet Sedacca...Minyanville
Jun 02, 2008

I don’t enjoy paying nearly $100 to fill up a tank any more than do people who are less fortunate than me. It is a tax those over-leveraged consumers don’t need as they face foreclosure and potential layoffs. It's no surprise, then, that consumer confidence is plummeting to a 28-year low, with a distinct difference this cycle. In the recent past, cyclical lows in consumer confidence have been accompanied by cyclical lows in equities. But again, the unwinding of credit is something we have not seen the likes of since the 1930’s and it is my belief that consumer confidence will go down and stay down. The key takeaway from all of this is that unless the loans that the alchemists used to put together the esoteric garbage that resides on balance sheets of brokers and banks perform, the brokers and bankers (and other investors embroiled in this mess) will not perform either. The daisy chain has begun; the hurricane is approaching our shores. Since I operate under the principle of ‘you cannot be too cautious with other people’s money’, I'm as cautious as ever.Inflation Adjusted West Texas Intermediate Crude (WTIC) Click to enlarge (Copyright 2008 Bloomberg L.P.) It's no surprise that oil crises have led to both recessions and lower stock prices. In the chart below, note that when oil rises dramatically, GDP growth slows or turns negative. Again, since this cycle is so unprecedented in so many ways, the economy is likely to stay weak for a protracted period of time. One of the big questions going around Wall Street these days is not if we are in a recession, but how long will it last and what shape will it take. Will it be a quick "V bottom"? I find this highly unlikely. A "W" bottom, or a "double dip," which some critics of President Bush find to be fitting? I don’t buy that either. The nastiest possibility is an "L-shaped" recession where we go into recession and stay in recession, much like the 1930’s experience here and the post-bubble experience in Japan. I'm not a proponent of that as well. I am looking for a sawtooth pattern where the economy drifts in and out of recession for many years until many of the excesses are wrung from the system. This should not be a great time for long only equity investing. Rather, an absolute return approach with capital preservation at the core, which includes credit risk avoidance for the most part. Inflation Adjusted WTIC versus Quarter over Quarter GDP (Annualized) Click to enlarge (Copyright 2008 Bloomberg L.P.) Non Farm Payrolls versus Gasoline Futures Click to enlarge (Copyright 2008 Bloomberg L.P.) Inflation Adjusted WTIC versus S&P 500 Index Click to enlarge(Copyright 2008 Bloomberg L.P.) The stresses on the economy are really being felt with the price of gasoline heading north of $4.00 per barrel. The longer prices stay up here, in oil and/or unleaded gasoline, the longer the economy will have a drag on it, and the more pronounced the change in the consumer’s buying habits. There were points along the line, at $2 per gallon and then $3 per gallon, where consumers continued to spend. For the longest time, consumers were using their house as an ATM machine, then credit card usage spiked, and now finally, gasoline consumption is dropping, and dropping rapidly, We are now at the point that the vicious cycle has begun—when higher prices lead to less spending which leads to less job creation (or job destruction) all at a time when the consumer is strapped. This will likely make the recession more protracted than almost anyone believes. The chart below which plots unleaded gas against Non Farm Payroll changes says it all. What is The Fed’s Next Move?One thing is for sure. The Bernanke-led Fed has its hands full cleaning up after ex-Chairman Greenspan, who is slowly going from hero to villain. The Maestro certainly didn’t create the whole problem by himself, but his legacy likely won’t be what he had hoped for. I've been critical for years as the Fed from 1995-2005 was clearly targeting asset prices. Like they say, "You know you are in an asset-based economy when the stock market has more of an impact than the real economy does on the stock market." We are there for sure. While Bernanke has been very imaginative in his policies, there is a sense of desperation in the air. I believe that the Fed will keep at it and simply try to slow down the unwinding process. Note the Federal Funds Futures graph below, which for the first time in a long while the market is pricing in a Fed tightening or rate hike by year-end. I'm betting the opposite way and will be adding duration and convexity to portfolios over the next month as I think inflation fears will switch to deflation fears; this is because we are in a period of debt destruction and periods of debt destruction are usually accompanied by bouts of deflation. I don’t buy the theory that the falling dollar will result in skyrocketing rates as some do. The U.S. is certainly in trouble, but we aren’t alone—we may just be ‘the best house in a bad neighborhood’. We are all in this together and emerging markets, after a nasty correction, will likely lead the next economic leg up. Demographics, in terms of birth/death rates and deficits for as far as the eye can see are a miserable back drop for our economy. Had the Fed left the business cycle alone and not targeted asset prices, we likely would not find ourselves in this mess. If would be nice if we could just click our heels and make it all go away. It will take time and some pain to pay off all these debts. Longer than most "hopers" are hoping for.Federal Funds Futures Curve Click to enlargeSummary: It’s Time to Buy the Storm Shutters Anyone that has a place on the beach in Florida or other hurricane-prone locales knows all about hurricane shutters. I had them at my beach place, but we always laughed that if a real hurricane hit, the shutters and the building would be swept into the ocean. One thing we never did was to tempt Mother Nature—we always take over "just in case." Such is the environment now. While I would love to take loads of risk (like hanging out at the beach and hoping the hurricane misses me), I'm not. There are days, weeks and months that we're humbled by the market’s ability to shake off bad news. I think there will be four words that many will hope they had heeded—full faith and credit. I even believe that while Fannie Mae and Freddie Mac (FRE) have an implicit guarantee from Uncle Sam (Ginnie Mae also has an implicit guarantee), I think that Fannie and Freddie, before it is all over (as their balance sheets may possibly be the worst of all as they soak up all the unwanted loans from defunct lenders and originators) will also have the explicit guarantee of Uncle Sam. What happens to the common shareholders is anyone’s best guess, but my thoughts are that the preferred shares are likely money-good (even though we have recently pared back those positions), the mortgage pools will likely end up like Ginnie Mae. It is why I, in 99% of cases, do not take credit risk. In the first place, I don’t think I'm being properly compensated. In the second place, given what I know about the balance sheets of everyone from consumers to banks/brokers to the U.S. government itself, I find leverage and way too much of it. I'm humble enough to say that I could be wrong and the fears I have could be overblown, but that is something I can deal with. What I can't do is to recklessly take risk in the face of what will likely go down as the greatest unwind of our lives.

Barak Obama Fear Mongering

...a learned response from the Bush Administration

As the inevitable democratic nomination of Barak Obama gets closer & closer, the fear mongering about what will happen to the United States (& Israel), if he becomes President, has reached a fever pitch...even I am starting to get scared!

The fear mongers want us to believe that Barak Obama is an anti-American, anti-Semitic, "wolf in sheep's clothing", black supremacist that will put policies in place which would alter our country's moral & cultural beliefs, or worse, threaten our safety & our democracy. They want to convince the American electorate that Barak Obama has his sights set on somehow sabotaging our very existence. Are we to believe he could actually do that?

Thankfully, we still have a democracy made up of three branches of government with checks & balances to prevent any one branch of government from being to powerful. Unfortunately, for quite sometime, our government has not operated that way.

The country has become accustom to being ruled by a secretive, overbearing, our way or the highway, fear mongering Bush administration. I think there is very little chance that congress or the American people will allow the next president (or hopefully any future president) to govern the country that way.

President George W. Bush & his administration have ruled the United States via subversion, deception, coercion, and various other undemocratic, & in some cases illegal ways. They have systemically & methodically violated the constitution, the bill of rights, & the federal penal code (not to mention the Geneva Convention) all the while favoring their friends & business associates with the spoils of their efforts. And with complete disregard for the wishes of the American people.

They have justified their actions by telling the American people, usually way after the fact (& after they have been caught, denied the charges, & subsequently been uncovered), that it was for national security purposes & if they told us we would have been in danger.

President Bush has ignored the advice of his senior advisers all the while claiming the moral high ground or authority, regardless of expert & layman advice to the contrary.

The fear mongers think that they can scare the American people out of voting for a person they trust & believe would do a good job running the country using the very tactics that they used to lead us to war. Ramp up the fear, question your patriotism, & accuse you of aiding & abetting the enemy.

The fear we should all have is of another president like George W. Bush & the people who were his accomplices during the past eight years. All of which has threatened our democracy & our safety.

Vote your wallet, vote your religion, vote your conscience, vote your morals, vote for who you think will look out for your best interests or the best interest of the country, vote for who you think will improve the world. If we knew what George W. Bush would have done during his time as president, many Americans would have cast a different vote.