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.

Who Ordered the Code Red on Wilson?

Maybe one of the best movies of modern day cinema holds in it what I believe may be one of the most important scenes of any film. Jack Nicholson playing the role of Col. Nathan Jessup, the Big Kahuna at the Gitmo Military Base in Cuba, is testifying in a case where his soldiers are being tried for murdering a fellow soldier who was threatening to disclose some ugly things that go on at the military base. Orders came to discipline this insubordinate soldier, and in the course of that so called "Code Red", the soldier accidentally died. Under cross examination the prosecutor for the Army questioned the Colonel about the "Code Red" and about who gave the order to give the "Code Red" to the soldier. The Colonels response was powerful and moving...
Col. Jessep: Son, we live in a world that has walls, and those walls have to be guarded by men with guns. Whose gonna do it? You? You, Lt. Weinburg? I have a greater responsibility than you could possibly fathom. You weep for Santiago, and you curse the marines. You have that luxury. You have the luxury of not knowing what I know. That Santiago's death, while tragic, probably saved lives. And that my existence, while grotesque and incomprehensible to you, saves lives. You don't want the truth because deep down in places you don't talk about at parties, you want me on that wall, you need me on that wall. We use words like honor, code, loyalty. We use these words as the backbone of a life spent defending something. You use them as a punchline. I have neither the time nor the inclination to explain myself to a man who rises and sleeps under the blanket of the very freedom that I provide, then questions the manner in which I provide it. I would rather you just said thank you, and went on your way, Otherwise, I suggest you pick up a weapon, and stand a post. Either way, I don't give a damn what you think you are entitled to. Col. Jessep: You want answers? Kaffee: I think I'm entitled. Col. Jessep: You want answers? Kaffee: I want the truth. Col. Jessep: You can't handle the truth.

What he was referring to was that the things that are done to protect this great country are not always pretty, moral, or socially acceptable, but they are done for the benefit of the whole...even if someone gets hurt in the process. A Real world example of this unspoken policy could be the Karl Rove incident. In an attempt to keep the American people supportive of The War in Iraq, the Bush Administration felt that former Ambassador Joe Wilson could be sacrificed. And I will hope, for the time being, that the Bush Administration did that for the greater good of the country rather than for their own betterment. Joe Wilson was threatening our War in Iraq policy, and that was endangering the country, so the administration needed to discredit him fast to shut him up.

The fireworks may come if we ultimately find out that President Bush himself had a hand in this "Code Red" against Mr. Wilson, either that he knew about, gave the OK, or actually ordered the smear campaign against Joe Wilson and then vehemently denied knowing anything about it. The truth on that matter is yet to come out.

History being what it is, this silly little pissing match may seem like political folly having no real meaning or point, yet if instead of a media smear campaign against a dissenter, what if we put Joe Wilson in Gitmo (Guantanomo Bay Prison) with the other terrorists...because if your not with us, your against us. Governments that lash back at its citizens for speaking out against its leaders or policies are exactly what we are fighting for in Iraq and other places around the world.

At the end of the movie, Colonel Jessup gets arrested for ordering the "Code Red" even if it was for what he believed was the security of the country.

Nothing Matters to the Optimists ...originally written 7/24/07

Everything that is wrong can be explained away. The list is long and sobering...Record Oil Prices, Exploding Twin Deficits, The Eroding Value of the US$, The Flattening Yield Curve, The Escalating War on Terror, The Bankrupt Social Security System, The Coming Demographic shifts, The Exuberant Real Estate market, and The Consumer Debt Balloon. All of these daunting problems are but mere headwinds for the ever rising potential of the United States.

While each of the above mentioned economic, geopolitical, & sociological problems alone would normally be seen as a major challenge, together they pose what I believe will be the demise of the current economic expansion and will expose the serious underlying structural problems that are now embedded in our financial, political, & sociological systems and need immediate attention.

Over the past few years, the Bush Administration, along with the valiant and patriotic assistance of the Chairman of the Federal Reserve Alan Greenspan, has been able to push off the inevitable economic downturn using tax cuts and historic low interest rates as the tools, yet leaving no repair strategy for the aftermath of the unprecedented campaign which has spawned huge imbalances in the economy. The result will be a downturn that will rival that of the Japanese.

Each problem listed above has been rebutted ad naseum in the financial media with the various pundits, wall street gurus, political propaganda, and the CNBC cheerleaders proving over and over that people will believe a lie as long as it feels better than the truth.

To the optimists, nothing really matters. The problems that seem so daunting when examined and understood, are so easily explained away with rosy forecasts of ever rising economic health and prosperity. Most of the intelligent and in-depth analysis of these issues is way too much for the average investor who can only really digest buy, sell, or hold.

The only risk that is ever mentioned and elaborated on is that of not being fully invested in the stock market. I mean, you know the mantra, stocks are the best place to be...especially for the long term. What else can you do with your money...earn 2% in a money market or 4% in some bond. Stocks are the default investment. And if stocks are too risky for you, real estate has become the hot IPO. I hear more and more stories of regular guy types liquidating stocks to buy some pre-construction condos and flip them before the Grand Opening!

The Fed, in its effort to support the country, has in fact inflated its biggest and probably most dangerous bubble yet. And this one is going to really hurt. None of this short and sharp correction stuff that can be fixed with some financial engineering. No two year bear market. This slowdown/depression will be long, hard, and deep. Real Estate takes a loooooooooooooong time to correct. Lots of debt will have to be written down and lots of banks will feel the pain. Homeowners and speculators alike will suffer steep losses of equity.

The War in Iraq, aka The War on Terror, continues to rage on with seemingly no end game or exit strategy. Terrorists continue to launch increasingly fatal attacks in Iraq & around the world. Many believe it is merely a matter of time before another catastrophic attack is carried out in the United States. Meanwhile the American people have become angered & frustrated by the war and its costs, and the rest of the world has become more opposed to U.S. policy in the Middle East. Oil has more than doubled in price since the invasion of Iraq proving again that the Bush Administration had no idea of the consequences of the War in Iraq...whether it be the reason for the war, the justifications for the war, the way the war was planned, the way the war was fought, and the way the Iraqi population would react to the U.S. occupation.

Some of the other issues like Social Security and the Deficits are problems that have built for years and the time to rectify what is wrong was a long time ago. Now the fix will be critical and destructive...there is no other way to fix long term structural problems. Politicians and pundits may try to make you believe differently, but the common sense facts are that it is impossible to painlessly and quickly fix these problems.

Yet, the optimists hardly acknowledge the fact that these problems are serious and for the most part being left to resolve themselves. Some will mention the problems, but then they wax into the virtues of the omnipotent United States of America, and the strength of our military forces and our financial systems. To the optimists, none of these real problems matter.

CONUNDRUM- (ku-nun'drum), noun. 1. a riddle, the answer to which involves a pun or play on words, as What is black and white and read all over? A newspaper. 2. anything that puzzles.

That is the word being used by some FED Governors to describe the current relationship between the 10 year Treasury note and the Fed Funds rate. Longer maturity interest rates have fallen sharply since the Fed embarked on its tightening program at the short end of the yield curve. Yields on 10-year notes (US10YT=RR) are currently at 3.90 percent, down from about 4.85 percent in June 2004 when the Fed started raising rates.

The riddle market participants are wrestling with is "why is the interest rate on the 10 year Treasury note declining while the Federal Reserve Bank raises interest rates?" What is most unusual about this conundrum is that there does not seem to be anyone who knows the answer. Some market pundits have tried to explain why this is happening, but no one has good answer to the riddle. The market riddlers have pushed interest rates lower without explanation, which is confounding the very masters that set those rates.

Safety is always a good reason to buy US Treasury notes, so demand due to some kind of fear may answer part of the riddle. Some economist types think that the "flattening of the yield curve", which is what has happened, is signaling the onset of a recession. Others blame hedge funds being forced into or out of tightly wound and very wrong hedges, better known as bets. Still others blame the insatiable appetite that foreigners have for our Treasuries triple A debt.

Most Wall Street veterans find it a bit unnerving that the market is defying the FED actions. Forces being what they are, many very smart and very visible Wall Street gurus have been very wrong on the 10 year Treasury, so things are likely to get even more "conundrummy" before we know the answer to this puzzle.

At some point the answer to the riddle will be known. Federal Reserve Governor Susan Bies took on the "conundrum" of the disconnected long-term U.S. interest rates in comments to reporters after speaking at a Women in Housing and Finance event in Washington. "I honestly don't know what it's going to take. It just appears that long-term rates cannot stay at this low level," Bies said. Governor Bies added "At some point we do believe that the 10-year Treasury (note yield) will rise and take mortgage rates with it," Bies said. Michael Mandel from the NY Times says..."It's like living in a parallel universe. Surprising most economists, mortgage rates have gone down in recent weeks rather than up.”

With the 10 year Treasury below 4 percent and next FOMC meeting being held in late June, and the next 1/4 percent rate rise is forecast taking the Fed Funds rate to 3.25 percent, an inverted yield curve is not far off. For those that do not know, that's not a good thing. All the financial companies that are being affected by this conundrum as interest rates that they pay for their funds rise and they are unable to raise the rates they charge to borrowers due to the market forces that have pushed rates down. Banks will get squeezed and credit risk will rise. Banks and other lenders are being faced with slowing volumes and lower margins, a combination that is very bad for profits.

The big question is how does this conundrum get resolved? Will the FED get more aggressive to get the result it wants? Will the market adjust on its own in an orderly fashion? Will foreign buyers of US Treasuries balk at the low rates being paid? Will hedge funds with huge losses stick around for the answer or will they get forced out against their better judgment? Will any of this matter to the housing market or the stock market?

Stay tuned, because the answer to these and many more questions are sure to be answered in the coming weeks.

Say What?

Did he really just say that? Say it ain't so. Oh man. Bummer. Party's over, turn out the lights. Say it however you like, but last week's comments from the master bubble blower and national chief financial officer was another in a series of warning 'bells'. Fed Chairman Alan Greenspan said he saw signs of "froth" and local bubbles in housing, but no national bubble. Even at 78 Mr. Greenspan still wields considerable power when it comes to liquidity creation. Mr. Greenspan has been in "easy money mode" for over 3 years now, and as a result, the real estate market has done exactly what it should have...become artificially inflated by low interest rates and a lax credit process.

Banks have been forced to 'find what to do with' all the liquidity the FED provided, so standards had to be lowered to force the money out into the system and generate big upfront fees. Appraisers are on board with the program so they continue to get the business.

Even after 2% (200% relative increase) has been tacked onto the FED Funds rate the market doesn't believe. The 10 year treasury is at the same place it was when the FED started raising rates a year ago, and the real estate market has not even tapped on the brakes. So, last week The FED chairman decided harsher and more direct words were necessary to forewarn the speculators and homeowners, that this cannot continue, and probably shouldn't continue. Greenspans comments were followed by no less than 2 of his fellow FED Governors making similar comments.
A recent Fortune cover story discussed the frenzy of housing speculation. The story detailed several “investors” as they raced around the hot markets to purchase homes or even just contracts to purchase homes under construction. Other anecdotal facts that point to increased speculation include “the number of chapters of the National Real Estate Investors Association has jumped from 44 in 2002 to 170 currently.” The number of homebuyers in Phoenix that labeled themselves as investors doubled since last year to 2,703 and they purchased 18% of all the home sold in Phoenix last year. Eighty-six books on real estate investing were published last year, three times as many as in 1998. According to the article, only 1.6% of mortgages were interest-only in 2001. Three years later in 2004, a whopping 31% were. One investor said he was not worried that he was losing $3,500 per month on his investment houses since he is not renting them all out because he is “in it for the appreciation.”

The FED seems to be heeding the warning signs of previous asset bubbles and trying to jaw bone the rampant speculators and the banks that provide the financing to beware, as they slow the liquidity and raise the cost of money at the prescribed measured pace. In fact, Fed Governor Furgeson had this to say last week "Clearly central bankers would benefit from a better understanding of asset price movements --- particularly more extreme movements - so that we do not mistakenly facilitate in some way potentially harmful outcomes," Ferguson said.

It may be hard to stem the flow at this point, since so much money has been made and many 'exciting' deals are firmly in the pipeline, so the warnings seem to be falling on deaf ears, especially so since the real estate bubble concept has been talked about for so long now that most do not subscribe to the possibility of it existing.

We all are experiencing the appreciation, using the equity to fund our lifestyles, and counting it as part of our net worth. Its great having an appreciating asset that you not only can live in but you can live off it too. Home equity has been and continues to fuel the American consumer and the all the new real estate tycoons. But, as rates rise, even at a measured pace, the cost to carry those inflated assets rise. The values of those assets will surely slow in their appreciation, and in fact might even go down in value. Similar to bond yields and bond prices, there is an inverse relationship between rates and prices. As interest rates on the funds used to purchase the assets rise, the cost to carry the asset rises. Those forces will combine to undermine the real estate market and values of real estate.

Finally, unlike many other financial assets, real estate has an economic value. It is an asset that has a very important use. Their is a cost to that use which is paid in the form of either rent or carry costs of the house. While the appreciation of that asset is nice, the costs associated with the utility of that asset are critical to its valuation.

In many areas, the costs to own a home has doubled and tripled over the last 5 years. Clearly that cannot continue as the end user of the home will not be able to afford to live there. Speculators and investors must either rent or sell their appreciated assets in order to realize the profit. Valuations have gotten to a very uneconomic and overly inflated level, which will undoubtedly prevent the realization of those profits. And dare I say may even cause the unthinkable...a loss of capital in a real estate investment.

Going Ga Ga Over GOOGLE

Give me a break. If you don't hear the bells and smell the coffee then you are going to miss the next great internet, techno-boom, transformational company blow-up of the bear market rally, "after bubble" stock market. The all-neutral, all the time analysts jumped all over themselves to revise estimates, multiples, growth & valuation models and re-evaluate their ratings on the stock.

Jim Kramer gave the "buy, buy, buy" (thats his triple buy call) recommendation on his show and all but called out the other analysts to challenge him to an arm wrestle about it. Kramer also mocked the technology fund managers who he says continue holding the has-beens like Cisco, Microsoft, Intel, and Sun micro, saying that they are the "flat liners" while Google is on its way to $318!

All I can say is that a wierd form of the bubble is back, and Google will be the next great internet stock disappointment (disaster). By the way, I think that the supposed "smartest guys in the world", that would be all the insiders and venture investors who created this company, would not be selling their Google shares at the incredible pace they have been of late, if they thought the stock was undervalued.

And just for kicks, I will be the antithesis of Kramer and put a $75 price target on Google. Thats a long-term price target but I wouldn't be shocked if it was in the short term.