President TRUMP...we may have to get used to it?!

So here we are 14 months away from a Presidential election that currently has no less than 19 total combined great Americans vying for the top spot with a couple more waiting in the wings.  Each wants to be the leader of the free world...unfortunately, none of them have a chance.

As it stands right now, a brash, out spoken, unapologetic, rude, semi conservative, reality TV star, billionaire, is in the lead and pulling away from the pack.  Donald J. Trump...who would have thunk it?!  The Donald that's who.

Mr. Trump has insulted politicians, women, Mexicans, John McCain, Meghan Kelley, hedge fund managers, with more to come.  And the more people he insults and upsets, the more popular he becomes.  It's obvious that his 'popularity' is unrelated to his likability or political skill.  We all love that he says what he thinks and doesn't care what who takes exception to it.  And that there is why we all want him to be the next President!

Me personally, I want to see him build the wall he talks about..."it'll be a great wall" he says. And you know what, I bet it will be!!  It will be called "The Great Wall of TRUMP" and it will have his name emboldened on it in big gold letters.

I think the Howard Stern Syndrome is at play here...more than half of the people who listen to Howard hate him...but they listen because they want to hear what he says next, they want to hear how crazy he will be, or what whacky stunt he will do.  

We all like that Trump answers to no one, can't be bought, tells it like it is and we want to see what he does next!  Even if we don't agree with him or what he is saying, and even if he insults us, we like that he says it without any spin or double talk.  

The country is sick and tired of the same old political bullshit that has gone on now for the better part of 50years...we are all ready for something new and different and real, the last few promises we got for that were not kept.

Maybe a President Trump will do some whacky things...ok, lets see how it works?  What we have been doing has not worked very well for the vast majority of the country...that is why we just actually might put Trump in charge.

President Donald J. Trump...we may have to get used to it?!

Blast from the past....


The Worst Is Upon Us

I might be jumping the gun by a few days, but GM is going to be reorganized under a chapter 11 bankruptcy filing. Ironic as it may sound, whats good for GM is good for America...and maybe many many Americans will file bankruptcy soon as well. For GM & those unlucky Americans, the failure is a cathartic happening & will allow for a repair & recovery withoit the burden of past financial misteps. GM's viability plan, submitted to the Congress & Treasury (Mom & Dad) today essentially explained that the company needed an additional $16billion in order to remain viable. That would bring the government bailout to $30billion & no viability plan for what happens when that money runs out. I guess by viable they meant that they could keep losing billions of dollars a month making & trying to sell cars & they might need billions more if cars don't sell at a much faster pace. Being that the recession will prevent any significant pickup in auto sales, GM will indeed file for bankruptcy protection with DIP financing provided by the US government (taxpayers). This may very well mark a turning point, not sure which way we will turn, but if nothing else it will be a psychological event that will once again highlight the risks of investing.

As Realistic as I was before...

Its been awhile since I wrote...6 years or so.  Had to stop because rules and regs of the wall street firm I worked for didn't allow me to have an opinion, other than that of the firms...at least not one that we could express.  So now that I am unencumbered by that restriction, I am back.

So much has happened since the crazy days of Bear Sterns, Lehman Bros, AIG, Bernie Madoff, the Iraq War, $150 oil, $1,900 gold, first Black president, GM bailout, couple of major US cities declaring bankruptcy, and I almost forgot about those "save the world" emergency 0% interest rates. Where are those interest rates now?

God bless the FED.  What was that for again?!?  Who were they helping?  Which socio economic class was the government aiding & abetting?   Capitalism's 'invisible hand' doing what it does best?  Greece is going bankrupt again...Puerto Rico declared it can't payback its debts and student loans are heading for disaster as nearly 65% are delinquent.  Jeez things have changed...Naht.

Give me some 100x revenue technology cloud visionary delusionary valuations and I will feel right at home. FitBit, GoPro, Tesla, any number of cyber security plays, or drone dreams, solar silliness, and how could I forget BIOTECH.  Holy wow!

All I hope is that these drug companies have what they say they have & can keep me alive forever in no pain.  problem is, most of the breakthrough drugs will keep us alive way longer then we want or is necessary.  There is a cost benefit analysis even when it is about living.

I am happy to be able to write again as we head towards another historic presidential election.  After the black president experiment, it seems like we are headed back to the WASP standard bearer.  We may even get the dynasty family thing going on in the greatest democracy in the world.  Sure we have open and free elections...which are bought and controlled by the elite monied aristocrat class, I know there is a name for that but it escapes me?!  Still should be quite the media circus, lets all hope we pick the right guy or girl this time?

I will do my best to inform and entertain...kind of like Cramer.  Looking forward to what this crazy world has in store for us...never a dull moment.

The pattern continues

Don't count on "Change" to help the Stock Market

The pattern continues. Just a few days before a long weekend & the presidential inaugural, the banking system came close to another meltdown, only to be saved by the Federal Government, again, another in the ongoing, rolling, systemic failure of the financial system. Its now clear that CitiGroup has failed & has essentially been nationalized. BofA must have notified Treasury that the Merrill deal was in jeopardy as the losses would be too big for it to absorb, or just decided it was the right time to play its hand for a government deal like JPMorgan got for Bear Stearns, so Ken Lewis got the Jamie Dimon package of government guarantees & backstops in order to takeover Merrill Lynch & its rotting debt portfolio. Neither is a good thing & neither will spur demand for borrowing.
Both incidents point to the unmistakable fact that the financial system is still fragile & all the efforts to date have NOT resolved what is wrong. The government has again stepped in front of the market right in the nick of time to defend against further equity market declines. The only difference this time is that they did it during normal working hours rather than on Sunday night....probably a scheduling conflict with the upcoming inauguration.
Now market players are focused on Tuesday's inauguration of President Obama. While that event will be inspiring & exciting, it will not spur a pick up in economic activity, except in Washington DC. Many 'hats' are being hung on the change that is coming, especially the economic recovery plan, hoping that the bulk of the change comes in the value of stocks & homes.
The unfortunate reality is that the new president will be hard pressed to create robust economic activity, regardless of how much change he ushers in. The dismal economic situation will endure for quite sometime, probably six months minimum. The economy is in a downward trajectory due to all the bad things that have occurred & that will not reverse quickly. President Obamas first 100 days, which ends May 1st, will be filled with historically weak economic & corporate reports, ongoing municipal & corporate downsizing, & continuing consumer retrenchment.
If congress acts with urgency, it will also be punctuated by a trillion dollar stimulus plan, the equivalent of a defibrillator electric shock blast for a heart attack victim. When economic activity does stabilize, stop declining, the recovery will be a long process that will not lend itself to a sharp & steady upturn. Rather it will be slow & laborious, starting & stopping many times as the various government assistance, supports, rescues, bailouts, zero rates, & stimulus work there way into the broader economy. The repair & recovery of our impaired economy will take a very long time & to expect anything different is just hopeful.
Don't count on President Obamas promise of Change to alter the facts & reality of our economic predicament or to make the stock market rally, especially in the nearterm.

Shoes To Drop In 2009

2008 was a very eventful year filled with many manmade & natural disasters. Stock market participants suffered torrential shoe storms, getting hit on the head many times throughout the year with so called 'shoes' dropping, sometimes they came in pairs. After each historic shoe event, the question was... will more shoes drop & from what closet will they come?

I'm here to give fair warning that there are more shoes to drop, some coming from closets we aren't even paying attention to. Arguably, we should all be prepared & ready for these shoe showers, as the economic data & corporate reports are foreshadowing more weakness that will last for a longer time. With that backdrop, here is my 2009 shoe drop forecast.

1) Commercial Real Estate is going to face the same challenges that the residential housing market went through & continues to go through...except it will be worse. This shoe has implications for banks & insurance companies as well as the commercial real estate developers, both public & private.

2) There will be at least one automobile manufacturer(GM) bankruptcy by early spring. If this shoe drops, a second automobile bankruptcy (Chrysler) should follow shortly thereafter. And, a European automobile manufacturer could also go into Administration as well.

3) Corporate pension plans will show a big problem. Specifically, most if not all corporate pension funds are significantly underfunded & will require companies to shore up those pensions using up vitally needed cash.

4) Private Equity will suffer severely as funding continues to be very difficult & operations of the businesses will be impacted by the recession & will require capital. In addition, the IPO market will provide no relief for P/E to monetize investments & exit businesses.

5) Hedge Funds will continue to face redemptions & underwhelming performance. This will continue to pressure the markets & reduce liquidity. It will also impact the brokerage industry.

6) Municipalities all across the country will face huge budget deficits & will be forced to cut services & raise taxes. A major municipal default will occur before year end.

7) More small & mid-sized bank failures will occur...these will be the flip flops of the shoe storm.

8) The housing depression will conitinue as prices continue to fall & demand for homes does not materialize even with all the government programs being put forth. Housing inventory will rise to historic levels. at least one major homebuilder will go bankrupt.

9) There will be at least one, more likely many, major retail bankrupcty and at least one major commercial retail landlord, REIT, will go bankrupt.

10) Warren Buffets Berkshire Hathaway will face the slings & arrows of the ongoing economic weakness & financial crisis. The stock will be cut down to size...maybe $50,000/share or so. The legendary CEO Warren Buffet, having just won the CEO of the year award for 2008 will be unable to defend his empire from the current economic situation. As with many other pillars of the financial markets & wall street, it would only be fit for the company to show its vulnerabilities and succomb to the forces that have impacted every company in every business that Berkshire Hathaway owns or operates.

As you can see, the closet is full & the shoes are ready to drop...heads up.

Frugality is the New Black

Thrift & savings are back in style. No longer will you look at others in envy of their luxury & excess. Most will want to hide, and preserve, whatever wealth they have hoping it's enough for their later years in life. Whether you have (had) money or not, you won't be questioned about your thriftiness, you will be acknowledged & admired for it.

There is a SECULAR change happening. The theory of "if we advertise it they will buy it" is being challenged. The common notion that Americans will continue to consume at a rate well beyond their needs & ability is being forcibly changed.

The American psyche about how & what they need, want, desire...consume is changing. The concept of ever growing prosperity & entitlement has been replaced by a fear of having less & living a lower 'standard', maybe even not keeping up with the Jones'.

The damage of a generation of profligacy & excess is done. It is apparent that the baby boom generation, for all its good, has left an indelible mark on our country's financial health & has jeopardized its own retirement years. The next generation is watching & hoping the financial damage can be fixed before they retire. And, the younger generation is watching in horror & preparing carefully to make sure they don't end up with an even worse financial situation.

None of these 'generations' has lived "like their grandparents" did. I remember my grandparents always asking why we needed this or that or why we weren't using something longer or more thoroughly...you know, to "get the most for your money". That wasn't part of our thinking. IN fact, most of the time we were getting very little for our money, and didn't really care much about it. We thought their would always be "more where that came from".

My grandparents were always trying to "get the most for their money". We would mock them for their thrift & frugality...joking that they should stop being so cheap & enjoy their money (spend it). Well thank goodness they didn't listen to us, because when the passed away they had something left, which we got & enjoyed (spent) in short order.

The current economic situation has created a new dynamic. Wealth has been destroyed & careers have been interrupted. Every socio-economic class has been impacted. The government is trying everything to fix the situation, but we all know what has happened & that the future is going to be different. Changes are being forced upon the entire American population. Consumption behavior has changed & will be very different going forward.

The implications of this secular change in consumerism are enormous. One good implication is that in 5-10 years, we will have rebuilt our savings & financial security. Near term, this will cause considerably more economic damage in order to resize our retail complex.

The boom times have created a hugely overbuilt retail complex...from the manufacturing & supply chain to the marketing & store base...all of which will have to be 'downsized', some wiped out completely. The days of relying on the all mighty US consumer are over. Frugality is the new black.

On A Slope Of Hope
Its the bear markets version of the wall of worry, which most financial pundits point to for a bull market to climb higher. As with most bull market mantras, there is an opposite, and sometimes more destructive, bear market version. That would be the "Slope of Hope"...which we seem to be on. As investors enjoy the recent stock market bounce, a dangerous calm has set in. All the new & improved stabilization actions taken by the government have again slowed the decent in stocks, but the damage is upon us & will continue to be reflected in the data & the healing is far from done. While it 'feels' like the market has stabilized & is shrugging off some pretty difficult economic & corporate newsflow, this stabilization is tentative at best. Real bear markets, and that's what we are in, tend to drag a bit...rather than spike down & rebound sharply, only to begin rising steadily. Instead, each tumble lower is met with a bounce followed by a bit of stability, before lurching lower...and then repeating. Disenchantment, disinterest, & disengagement sets in...CNBC might even stop asking you "Is Your Money Safe?" & "Do You Know Where Your Money Is?"...that would be a tell of sorts. Then it goes dead for awhile as investors recover & readjust to a new economic reality & net worth. I think we remain firmly on a slope lower...with a crash only prevented by the hope that the worst is behind us & the leaders are going to be able to reverse the economic slide. That hope may soon be replaced by worry followed by despair.

Madoff Fraud Fallout...Emotional, Psychological, & Financial, not necessarily in that order
From Manhattan to Long Island to Greenwich to Palm Beach to Aspen to London to Zurich, high society has lost billions of dollars & an immeasurable amount of faith & confidence. When belief in something gets shattered, it takes time & double the amount of proof to restore it. The Madoff Scam, ponzi scheme, fraud, whatever you want to call it, has destroyed decades of belief in not only mr. madoffs investment operation but in the confidence of the entire investment & hedge fund industry. Only time will tell the consequences of this latest blowup, but this could certainly mark an important point in the financial industry's history.
It harkens back to the great depression period when secretive & profitable Investment Trusts were all the rage & boasted high returns with seemingly little risk. They were designed for & catered to the wealthy, but towards the end of their greatness they opened their doors to all investors. Their demise was a part of the financial collapse of that period.
Today, With fund of funds now getting the regular guy involved in the big guys game & all the major brokerage houses & investment banks having 'alternative investment vehicles' (driving the investor to who knows where) to help smaller investors get access to previously closed hedge funds, most everyone is involved or exposed to the hedge fund world. The hedge fund industry has grown exponentially over the past few years & some have pointed to the possibility of a hedge fund bubble. Who knows, maybe its bursting as we come to the end of 2008?
Whatever the case, it is clear that this is another severe blow to investor psyche & wall streets credibility. With huge losses in most all investor portfolios, adding the revelation that an enormous fraud has been going on at one of the most well regarded & long established investment funds will certainly create further problems.
Investors large & small must question all their financial relationships & investments. Investors must now redouble there due diligence efforts in an attempt to insure & assure that their money is safe. Fiduciaries will be questioned & challenged to provide proof positive that all is well with client investments. Clearly the madoff news proves that nothing can be taken at face value & no investment is safe.
Investors continue to watch small banks fail, while the government injects life preserving capital to the large, too big too fail, banks, which would have failed without the government intervention, questioning the safety & soundness of the financial system almost on a daily basis. Now they are seeing the best known & most highly regarded hedge funds report astounding losses & gating investors from their money. Now this madoff madness. How can investors not question all the belief, faith, & confidence they have in the markets, their advisors, & their investments?
There is amazment & outrage. This is terrible for investor psyche, very very damaging to investor confidence on top of huge loses everywhere, in what investors think & hope are legitimate operations. The next round of redemptions could be multiple times what we have seen through year end. This could be another serious & ominous headwind for the stock market.
And it won't help the economy either. The wealthy are being damaged irreparably by the magnitude of the wealth destruction taking place and it is not going to reverse anytime soon. Whenever the recovery comes, it will not replace what has been destroyed, the money or the confidence.
The economic weakness is going to intensify from the very top. The wealthy will 'withdraw', literally & emotionally, from investing & consuming in a significant way for a significant period of time. The 'trickle down' impact will be devastating to the overall economy. The ripples that are sent out from the from this part of the economy touch many parts of society. The wealthy are industrial consumers & do the majority of the risk taking investing. Damaging their ability or desire to do those things will have far reaching implications. From luxury retail to charitable organizations, the wealthy have an important economic impact. And must, pardon the phrase, maintain their standard of living so that the economy doesn't implode.

THE AMAZING DEPRESSION
I always wondered why they called the depressionary period in the early 1900's "the great depression" as it was a horrible period of time. I just figured it was one of those oxymoron things. Yet, after learning about the the depth & breadth of the financial collapse & subsequent economic downturn I came to understand why it got the name & why it was appropriate, even if it was an oxymoron. The Great Depression was just that...great in its devastation of the economy & its impact on Americans lives & the country at large.
It seems apparent to me that we are currently on the precipous of the next deep & long period of economic distress & weakness. What we call it is yet to be determined as we are just first acknowledging it. As of early last week the NBER, which is charged with the duty of calling & marking recessions, its official that we are in & have been in an extended period of economic weakness...sometimes referred to as a recession. Others are still waiting for the text book example with two consecutive quarters of declining GDP, to admit the obvious, but statistics aside, we all know where we are & what is happening.
Now for the naming of it. So far, the best I've seen is "The Great Recession", which is referring to the fact that this economic weakness is now being seen to have began in December 2007, making this recession a full 12months in duration (so far we have only Q3 2008 at a down 0.5%, hardly a decline at all according to the data)& most are looking for it to intensify this quarter (Q4 2008)& for it to last through at least the middle of 2009 (Q2 2009). That would make it an 18+ month long recession, which is much longer than the average 10 month recession & longer than the 16 month weakness of the longest recession on record.
While I am in agreement that the weakness will last longer then usual, I am not so sure when it will end or how we will emerge from this extended period of weak economic activity. In fact I see many things that could make for an even worse forecast, something like a depression, defined as an 'extended' period of declining GDP growth lasting longer than two consecutive quarters.
If that were to happen, everyone would be amazed. Amazed that it could happen again even though we have learned from the past & have experts in charge looking out to prevent just such a scenario. I think its very possible that this generation is about to experience the biggest "come down" in the country's history. And I offer what it should be called... The Amazing Depression.
It will be amazing from many standpoints not the least of which will be how could this happen even with all expert knowledge of the first depressionary experience. Amazing that it occurred even with all the heroic efforts of the FED, Treasury, regulators, & congress trying to prevent it from happening. With Bernanke being the depression historian & having the hindsight to be proactive & learn from past mistakes. With Paulson's wall street smarts, unorthodox & inventive actions he has initiated to halt the momentum towards the abyss. With Congress nationalizing entire industries while doling out trillions to arrest the financial collapse. With regulators on the job with creative tools to manage the market participants. And the president continuously pointing towards positive & productive resolutions to the economic malaise. Still we head towards further economic weakness & uncertainty with the financial system seemingly broken.
As hard as it is for us to believe & accept, we may very well be in for that dreaded extended period of declining economic activity, also known as a depression. The powers that be are on the job & working feverishly to prevent that. Much of what is being done has never been done before & so the results & consequences are unknown. It is painfully obvious that so far at least, all that has been done has not worked to arrest the economic weakness from getting worse.
Going into the year end of 2008, a historic year on many fronts, not the least of which will be the crash of the equity markets here & around the world. 2009 will be greeted with further terrible economic data & corporate downsizings. Hopefully Barak Obama will be able to lift our spirits enough to overcome the financial hardship that looks poised to impact rich & poor alike. Businesses are bracing for the most significant economic reorganization of the last century & government is prepared to put in place rules & regulations to make sure this will not happen again...another really bad thing.
The trillion dollar stimulus of the new millennium will be set forth & the US will try to lead the world from the brink of financial & economic collapse. If it doesn’t work, we will be in the midst of what may be called..... The Amazing Depression.

WORKING FOR FREE

How long will the smartest & richest guys on wall street work for free? Well, not exactly free, but without the lucrative 20% incentive fees hedge fund managers get paid for investing profitably for their wealthy investors. Their regular management fees just aren't enough to make ends meet, and those ends are big.

Hedge fund managers are some of the highest paid people in the world. A good years bonus is like winning the lottery, in some cases the powerball lottery.

With 2008 shaping up to be the worst year on record for hedge funds; average long short equity fund is down approximately 20%ytd and many down 30%+, hedge fund managers will go without bonuses this year & they face a very high 'hurdle' in 2009.

In order for hedge funds managers to get their 20% incentive fee in 2009, the average manager will need to produce returns in excess of 25%. That would get their investors even... back to the high water mark, the high value of their investment prior to the recent decline. Above that, the incentive fee would kick in. Not impossible, but not easy.

So the question is, how long will these guys work for free? 2009 is looking increasingly more uncertain & risky...even with a trillion dollar infrastructure plan, bailing out the auto industry, backing up the financial & banking system, trying to support housing prices, employment still weakening sharply & consumers not consuming, businesses playing defense & in many cases contracting operations reducing spending & lowering capital expenditures, unknown new & ownerous regulatory environment to address recent failures, investors withdrawing from risk & in capital preservation mode...all in all a very difficult economic enviroment to develop investing themes & pick stocks. Not impossible, but certainly not easy.

Why not pack it in for 2009? Lower stress level, reduce risk of losing more wealth, watch things from the sidelines, & spend some time with the family.
Take some time to recharge the batteries, review the events of the past year & a half. Try to understand what has happened & what the implications are for the future. We have just been through & are still in the midst of an extraordinary historic period & its hard to really understand whats happening when you are immersed in it everyday & trying to react to all the news & data.

Why risk another down year, creating a further hole to dig out of? Why risk any further wealth destruction in such an uncertain environment that noone alive has any experience dealing with? Why risk being exposed to ongoing unprecedented & unknown financial & economic events? You aren't really being compensated for the risk or the responsibility.

Not many would fault you for making the decision. Our financial system has been completely changed. Our government has intervened in the markets in unprecednted ways. The FED & Treasury are actively trying to stabilze the system utilizing untested methods with consequences, both good & bad, that are yet to be fully understood. We have a new administration & congress headed to washington with plans to make many sweeping changes. Not exactly the enviroment one can expect to achieve 25% returns on stocks.

With that as the backdrop, it seems to make much more sense to come back in 2010-2011...a little time off might be a good thing.

Kali-phonia Governator Declares Fiscal Emergency

Don't Be Economic Girlie Men!
http://www.youtube.com/watch?v=SUzUbtIptqQ

In 2004, Governor Arnold Schwarenegger, declared that economic prosperity was alive & well, even while the very beginning of the financial stresses were starting to show up. The Governator quipped that the fiscally concerned were being "economic girlie men" making light of their warnings about housing bubbles & economic weaknesses that were popping up in various areas of the economy. Fast forward four short years & look at who's turned girlie governor? Seems that all that free market capitalism combined with lax regulations was a strong enough brew to turn even the toughest economic strong men... girlie. Governor Schwarzenegger, saying his state is going broke, declared a fiscal emergency and ordered the incoming class of lawmakers into a special session to fix a widening $11 billion deficit.
Schwarzenegger, a Republican, wants lawmakers to raise taxes and cut spending to narrow the gap that is projected to swell to $28 billion over the next 18 months. He invoked powers granted him in 2004 to declare a fiscal emergency, which gives the Legislature 45 days to plug the shortfall. If they fail to find a solution in that time, they are barred from doing any other legislative work until they do.
“Without immediate action, our state is heading for fiscal disaster,” Schwarzenegger told reporters today in Los Angeles. “I’ve had to make tough choices that I wish I didn’t have to make, and I know this is a terrible time to raise taxes, but it’s also a terrible time to make cuts to very important programs. But in an emergency like this, we have to take quick action to avoid even worse problems, even if they include decisions that we don’t like.”
“I compare the situation we are in right now to that of finding an accident victim on the side of the road bleeding to death,” Schwarzenegger said. “We wouldn’t spend hours debating over which ambulance to use or which hospital to send him to; we would first stop the bleeding, and that’s exactly what we have to do here.”
To fix the problem, Schwarzenegger has proposed increasing the sales tax to 8.75 percent from 7.25 percent for three years, as well as raising motor-vehicle fees. His proposal also would expand sales and use taxes to include appliance, furniture and vehicle repairs; golf greens fees; amusement-park admissions; sporting-event tickets; and veterinarian services.
His proposal would add a 9.9 percent-per-barrel severance tax on oil drilled in the state. The plan also envisions charging 5 cents for every alcoholic drink sold in the state. In all, taxes and fees would increase $4.7 billion while spending is cut $4.5 billion.
Democrats proposed a plan to cut $8.1 billion from the budgets of schools, colleges and other programs and raise another $8.1 billion by increasing vehicle license fees and freezing income-tax brackets at 2007 levels.
‘Not Blind Ideology’
“This is not blind ideology on the part of Republicans, but our sincere belief that higher taxes will hurt the economy and lead to more uncontrolled spending,” said Assembly Republican Leader Mike Villines.
The state sold $5 billion of short-term revenue anticipation notes Oct. 16 to help avert a looming cash shortage. California Treasurer Bill Lockyer was tentatively set to sell another $2 billion last month. He scrapped the loan and said the state can’t ask investors for more money until lawmakers trim the deficit.
Schwarzenegger is traveling to Philadelphia tonight for a meeting the National Governor’s Association is hosting with Barack Obama, at which the group will press the president-elect to boost construction spending and aid cash-strapped states.
Schwarzenegger said he wouldn’t ask Obama for a federal bailout as long as lawmakers refuse to pass a package of cuts and tax increases to narrow the state’s gap. “I would never ask the federal government to help us until we straighten out our own mess,” he said.
Schwarzenegger also called a separate special session today for lawmakers to consider a package of economic stimulus proposals to put people back to work, such as speeding up the spending of bond proceeds for public-works projects.
He also asked lawmakers to act on proposals to shore up the state’s unemployment insurance fund, which is projected to run out of money in 2009. Schwarzenegger has proposed cutting benefits from 50 percent of a worker’s weekly pay to 45 percent, while businesses would be asked to pay more for each worker. Currently, businesses pay into the fund on the first $7,000 a worker earns. Under Schwarzenegger’s plan, that would increase to $10,500.
Schwarzenegger wants lawmakers to consider a 90-day stay on home foreclosures and other efforts to help troubled homeowners modify loans.

How Did That Feel?

If you invest $10,000 & the investment declines by 75%...then increases in value by 100%...how much are you down? ...50%...ouch!

$10,000 x 0.75 = $7,500. $10,000 - $7,500 = $2,500. $2,500 x 1.00 = $2,500.

$2,500 + $2,500 =$5,000...still down 50%.

How does that feel? How realistic is it to expect a double in an investment that was so impaired or damaged? Hoping for this outcome seems fruitless & unlikely to happen.

Many investors are not only hoping that they get this or a better result from their existing longterm investments, they are making the decision to invest more in these impaired assets looking forward to doubles & triples as the stock market will surely recover & surges to new heights...at least according to many pundits on CNBC.

A quick look at the 'Japan Experience' & its 'Lost Decade', which is turning into two decades, shows quite clearly that further asset destruction is possible & may even be likely, based on recent US government efforts that look alarmingly similar to what Japan did which perpetuated the economic malaise.

I have a few clients that decided to ride on Warren Buffets coattails in mid-October. They read Warrens Op-Ed, "Buy America. I Am" which was published in the NY Times on October 17th & that was enough to put their fears to rest & allow them to ignore their devasted portfoilos for just long enough to encourage them to say "buy me some of what Warrens buying". That has proven to be a very poor decision...to the tune of 30-50% in many hiqh quality blue chips stocks including GE, Goldman Sachs, American Express, & Wells Fargo...all Buffett favs.

So I ask again...How does that feel? And whats the likelihood that you will do that again?

U.S. auto sector bankruptcy would devastate: GM CEO...So you better help us!

"This is an issue of the whole auto industry, if that becomes under severe pressure, the impact on the whole U.S. economy will be devastating," Wagoner said in an appearance on a NBC-affiliated television station in Detroit.

This is going to hurt me more than its going to hurt you?!?! Or is it the other way around??

Or maybe its..."Help me, to help you".

Either way, it seems that GM management is trying to scare the political leadership into saving them. GM will not stop making automobiles if it has to be reorganized in chapter 11 bankruptcy. Under reorganization, GM would be able to rework its labor & supply contracts, be relieved of its ownerous legacy pension & medical benefits cost (those will be taxpayer obligations either way), GM would be able to offload GMAC & ResCap lending operations to the TARP, and then they could compete effectively in the automobile manufacturing business. That is what should happen & that would be best for GM & America. Millions of jobs wont be lost in this process...unless that is what the excess capacity & waste is. Hundreds of suppliers won't go bankrupt...unless that is why the supply chain costs are so uncompetitive. And the US economy won't crash any more or less than it would if GM didn't file chapter 11, unless that is how important they are & how much they have been propped up for the last 10 years, even while being uncompetitive & mismanaged. All this talk about how important GM Is to the overall economy is just fearmongering... taught to them by the Bush administration...the same tactic just used in the $700 billion Paulson Bailout Plan. Bottom line is what's good for GM is not good for the America. GM is just plain old not good for America anymore. The legacy workers will be saved by the US taxpayer & the equity & much of the debt used to fund a failing enterprise will be lost. As for the number of jobs we will lose or how much it will hurt the overall economy...all that will happen whether we throw more money at the problem now or not.

"This idea that you just go into Chapter 11 and hang around for three months and agree to reduce your debt obligations and don't pay your retirees, this is a fantasy," Wagoner said. "Most people will stop buying the cars of a bankrupt company."

...Hey Rick...most people aren't buying your cars now!

Expecting A Crash

There is no denying that the stock market has been volatile. That volatility has been quite a bit more extreme & completely unpredictable. The weekly, daily, & most especially hourly swings are unprecedented & there is less & less reasoning behind the movements. Dismal economic data, disappointing & downbeat corporate reports & outlooks, confusing recovery plans & signs from our financial leadership...both corporate & political, are all combining to cause the market to be dysfunctional. Investors & money managers are simply confused. FEAR is the only motivation...fear of further losses & fear of missing the next 10% rally. Valuation, fundamentals, prospects for the future, understanding the current economic weakness & knowing that all the powers that be are doing everything they can to fix it all seem irrelevant to the movement of stock prices. We are experiencing hourly swings that used to take months or years. Numerous Fortune 400 billionaires have lost vast amounts of wealth. Many S&P 500 companies & Dow Jones Industrials have been reduced to mere fractions of their former valuations. Pillars of our country's corporate strength have been decimated & are doing all they can to survive the severe credit crisis & economic weakness. Government intervention after government intervention has failed to provide even temporary stability to the markets & has clearly not stopped the systemic failures from continuing to occur. Leadership has tried to assure & reassure the markets, corporate managements, & investors that they can contain, control, & rectify what is broken, yet to no avail & certainly to no success. Its obvious that the market is headed lower. While that path lower may be uncertain, it seems inevitable. Even as many put forth valuation as a reason for the market to stabilize & in fact move higher, that is just not enough anymore. Confidence is shattered. Fear is pervasive. Leadership seems powerless. And people cannot accept the risk of losing any more of their wealth. The stock market has demonstrated that it can destroy wealth swiftly & sometimes for reasons unknown until too late. The market & individual companies have shown that nothing is unusual anymore. Movement in the market & stock prices has become completely random. A huge rally or devastating decline would surprise noone at this point & could be seen as nothing but expected. While most continue to hope for the market to rally sharply in order to stop their financial pain, what should be expected is a crash.

Closing Out 2008...

Heading Into 2009

With about 8 weeks left in the year, 36 trading days to be exact, I have become more nervous, anxious, & concerned about the market action.

Nervous that the economy is in even more trouble than most believe & that stock valuations haven’t fully discounted that. Anxious that the market is fluctuating (volatility) more than most can handle, both retail & professional players, creating a very unstable investment/trading environment, where neither rallies nor sell-offs can be "trusted". And concerned that the dreaded 'black swan' event (dislocation/crash) is yet to happen.

Bailouts all around. Unprecedented rate cuts. A new & improved president & congress commited to doing anything & everything to fix what is wrong... regardless of the consequences. Capital injections into the banks, backstops for important industries & companies, and a middle class stimulus in the works should all set the stage for a recovery going into 2009. So why wouldn't the stock market be anticipating a much better economy & corporate profits 6 months from now?

Clearly, the end of 2008 will continue to provide dismal economic data & weak corporate earnings reports with cautious guidance going forward (this is now widely expected & anticipated), yet the news will almost certainly improve, at least relatively, in the early part of 2009.

The new president & congress will act quickly & boldly to do things to address the most important & critical problems and will pass a stimulus package ASAP. That could happen shortly after the Jan 20th innauguration & be implemented before the end of the 1st quarter. Getting from here to there, the market will have to get through the next 8weeks of gloom & caution, portfolio rebalancing, tax loss selling, & hedge fund liquidations(closures).

The holiday season will be muted by the overall economic bad mood (which is headlined in the news), layoff announcements, & stressed consumers. With this as the backdrop, I think the stock market will bottom sometime in early to mid December... volatility will hopefully subside & investors will come to terms with the new, lower stock valuations.

I am also anticipating an increase in trading volume...maybe a sharp increase. Dollar weighted average volume must increase dramatically in order to accommodate for the much lower stock prices across all equities. That increased volume could be problematic for the market to handle as investors/professionals continue to withdraw (lower exposure & reduce leverage) from the stock market.

Early January could be the time to begin setting up portfolios for a better market in late 2009. I'm not exactly calling for a new bull market to begin, rather a sustained bear market rally that would coincide with the new administration & its bold plans & policies to fix the economy. An exhaustion of bad news & data which will become "boring" & uneventful (anticipated & expected), and possibly some relatively better news &/or economic data.

Bullish I am not. Less bearish...ok.

WHAT'S NEXT

I have looked over the market (wreckage) & I have come away with some ideas for what to expect next. It seems that the equity markets, both here & abroad, have effectively crashed & last week we had what is nothing other than a dead bull bounce. World markets have declined precipitously, precious metals have fallen sharply, oil had its worst weekly decline ever. Herculean efforts & programs have been put into place & are being set in motion, albeit slowly, and the governments all around the world have effectively agreed to not let the system fail, regardless of the consequences of what they do to prevent that failure, not sure which is worse, but the sales pitch is that what they are doing is better than the alternative, can't disprove that, but we will see what the results of the fixes are in the coming years, but I digress. System saved, where do we go from here?
The economy is showing clear & ominous signs of weakness, and most do not believe this will be a "V" recovery. In fact, some are now looking towards a deeper & more protracted recession, with some even murmuring depression. I anticipate, and now others do as well, that the economic data & corporate reports will continue to be bad for the next few months, maybe quarters. The housing & mortgage problems are being addressed by the treasury & the FED, yet the general economic fallout is starting to pick up steam & there really are no quick fixes for the general economy ... rates are already very low, consumer stimulus has been tried & failed, more consumer & business stimulus will be tried, but consumers are frozen & businesses are in contraction mode to cope with the weakening economy & forecasts for a slower recovery than most would hope for. Lastly on the general stuff, Credit has been changed dramatically, for both borrowers & lenders it will be harder & more expensive to get it…for consumers & businesses and the demand for it is even in question as businesses & consumers make a secular change to utilize less leverage/debt/credit.
Going forward it will be critical to determine if an industry or individual company will be deemed too important to fail & thus deserves a government bailout. The good news about that is that you know the enterprise will not fail. The bad news is that the government is your partner & your business model will be different & probably less profitable.
Once you determine that an industry or company will be allowed to fail, normal fundamental analysis of the industry & business prospects will be similar to previous efforts to determine value, with some additional emphasis on avoiding businesses that require credit or debt to operate.
Here are some additional financial issues that could have a significant influence in determining the valuation of companies.
1) Determine if the company has investment losses embedded in the corporate cash reserves & investment portfolios.
2) Determine if the company has goodwill writedowns.
3) Determine if the company has unfunded pension obligations that will require cash infusions.
4) Determine if the book value of the company has to be reduced.
Bottom calling on the market or individual stocks is an exercise in futility. I think the best we should hope for is stabilization...sideways trading for a few weeks. At that point, we will have had enough time to determine new valuations with consideration for the weakened economy and more restrictive capital/debt markets, That's when the bottom will form & a new recovery phase for the equity markets can start to develope.

I think the market is "broken"

The volatility & confusion & fear is creating a trading environment that is dysfunctional. Most if not all trading/investing decisions are being motivated not by fundamentals, but by fear of unknown loss, sometimes in a different asset. For example, if you are losing money in a low priced or illiquid asset, then you sell whatever is liquid & worth more, just to reduce risk & shore up capital, for future losses in the illiquid stuff. This is playing out in a very violent fashion in the equity markets, as literally hundreds of hedge funds are all liquidating portfolios, without regard for fundamental valuation. We are quite literally seeing floods of stocks being sold into a market that has no appetite for the supply. So, it looks as though the whole thing is essentially broken, unable to function properly. Investors & managers of capital will naturally withdraw from this type of environment, just to protect & preserve capital. The trading ranges have been expanded in a magnitude that will create a distrust in market selloffs or rallys. We will need to see a period of relative calm before the market can truly stabilize. And even when we get that settling in & reduced volatility, investors trust will be hard to regain. Nothing will be trusted again. No corporate leader, no government official, no financial intermediary, no selloff & no rally... The market is broken. The perception & now the reality is that financial markets are dysfunctional, risky, & not to be trusted. We have entered a new phase/period where investors large & small, rich & poor, long term or shortterm will have an aversion & fundamental distrust in the financial system & equity mkts.

Boy was I wrong...
I guess all the kings horses & all the kings men couldnt put the market or the economy together again.
It now seems that the forces of contraction, especially with credit, are overwhelming even the most dynamic & unconventional efforts to stop it. The economic data will continue to reflect a very weak economy & plenty of uncertainty about the near & intermediate termoutlook. Corporate reports will also reflect the weakness & serious economic challenges to their businesses going out 3-9 months. The election will add further uncertainty to the situation...and lets hope its a clean election with no uncertainty about the outcome, i.e. contested election. While it looks as though the financial system will survive, the resulting economy & business enviroment will remain highly uncertain & risky for the next few months & quarters.
Suffice to say...I'm alot less bullish.


Bear Market Bailout

Don't Fight The Treasury, especially if they are backed up by the FED, SEC, Congress, & The President

After watching the Sunday morning news programs, I have completely rethunk my macro thesis...most importantly for the short term.

It has become increasingly obvious that the Treasury secretary, Ben Bernanke, Congress, & the President have gotten together & decided that they will not allow free markets to be free, that freedom would do bad things, so the financial super heros have come together & agreed to use all their powers to stop the free markets from being free.

Their reasoning & purpose is irrelevant. Fear is the motivation. They have the powers & tools to do what they want with no checks or balances....at least thats what they want.

Bazooka...haha, we are about to use the equivalent of a nuclear bomb to recapitalize the entire banking & financial system of the United States. The collateral damage is secondary to the task at hand.

We are also going to help out China, Japan, Saudi Arabia, & many other foreign governments & corporations...this is vitally necessary in order to get them to lend us more money in order to have enough money to execute the bailout plan.

The urgency & cooperation is scary, and seems to suggest that it's a done deal.

If this goes forward, banks are fine. The consumer will get a break in the form of easing credit & another stimulus package. Housing will most certainly get some more help. The automobile industry already begging, will now get its bailout.

I wouldn't be at all surprised if the FED decides to add its two cents by cutting interest rates adding even more power to the bailout punch.

Finally, the focus on & demonizing of the evil short sellers seems to have a lot of popular support, so maintaining short positions or viewpoints will be at an even greater disadvantage than they usually are.

While I am still convinced that the general economy has its problems, all this artificial support & stimulus will have an immediate & important impact on the general economy & probably the mood & confidence of the public. Bear market rallies can be quite strong & powerful.

Perfect timing to make sure the election is a happy one & the holiday shopping season is a profitable one.In short, I'm bullish on America!

Fundamentally Sound...


We have been told over & over & over & over & over & over & over by administration officials, three treasury secretaries, two FED chairmen, congressional leadership, & the president that our financial system is strong & our economy is fundamentally sound.
Something must have changed this week. Based on the most recent events, which we are told almost caused a collapse of the banking system, there can be no doubt that our financial system is NOT strong. And there is a very good argument that the economy is NOT fundamentally sound.
If the government has to rescue or bailout the entire banking system in order to avert a systemic financial collapse, that is not good, strong, or sound. Whatever the new & improved resolution is, it cannot be done with ease or inexpensively. There will be huge & mostly negative repercussions resulting from the things that are being planned in order to fix or save the system. Doing nothing & allowing the problems to play out would be worse, much worse, than doing what our leadership is telling us we must do to prevent the natural course from happening.
Trust & confidence is in tatters. Foreign investors cannot be looking upon this as good or leading to a better investing environment in the US. Since we rely on foreign “generosity” in order to fund everything we do, that will prove to be a very bad thing. Interest rates will rise dramatically & the US dollar will decline in value. Gold will rise in value. Our financial health will continue to deteriorate whether or not the bailout proceeds.

Systemic Financial Breakdown...IT's HAPPENING

The long feared & often talked about systemic financial failure is occurring.
The financial system is currently experiencing the results & consequences of a systemic financial breakdown which is whats causing the various financial disasters that are reported every few weeks on CNBC.
The financial stresses are rolling through the system in a systemic wave of financial failures. Many are not newsworthy or large enough to jeopardize the system, but they are occuring with more frequency.
The FED, US Treasury, SEC, & Congress in coordination with selected foreign central banks & governments are desperately trying to control & contain the damage to the overall financial system.
The nature of the the system; electronic settlements, counter party risks, leverage, securitizations, & derivatives makes for a difficult situation & frankly makes for a much less predictable situation & outcome.
The enormity of the financial leverage & embedded counter party risks along with the electronic settlement systems may very well set in motion an uncontrollable "event"...crash?!
In fact, I think that the system will need to be temporarily shutdown to prevent a financial meltdown.
Financial armageddon aside, the result of this systemic financial stress will be sharply higher interest rates, tighter lending standards, a weak economic environment, & a slower recovery.