Monday, September 14, 2009

And Now Back to the Stock Market

It has been some time since a comment on the stock market and the state of the economy.

On the surface to many, including CNBC-type pundits and others with professional self-interest, most appears well in the stock market. We've experienced about a 50-percent move up since the March lows, with many stocks far exceeding that. Also on the surface to many, all appears to be on the mend in banking and even in housing in certain regions of the nation. Recent surveys show improvements in consumer confidence and yes, even manufacturing activity. Honestly, I forgot that we manufactured anything here except bad mortgages and creatively packaged financial derivatives products.

The next "big thing" is apparently going to be chopped and repackaged life insurance policies. Talk about "death panels!" We don't want the gubbamint doin' death panels. But hey Wall Street? Just fine with us!

Back to the real subject, though. We live in a consumer-driven economy. Our wallets and credit cards account for something like 70-percent of economic activity in the United States. And no, it is not all accounted for by the wealthiest two-percent. Sorry folks. This pundit does not think that they need even more unaffordable tax cuts, as much as some Republican politicians and pundits might have us believe that is the route to follow.

I could use a tax cut though. How about you? When I see my health insurance premiums increase nine-percent or so in 2010, and my income stagnate, I suspect I will be spending less - again! - or relying on credit cards to fill my material desires. But since people continue to express concern about job security, will they really ring the registers? Perhaps for Christmas. Maybe not. Too early to say, in my opinion, though spending addicts may say, "What the heck" by the time December comes around.

The recovery in the stock market is not unprecedented. However, it feels - and in some ways looks - like it is built on beach sand and not bedrock. To the extent that we are seeing earnings growth - the "bedrock" of the stock market - well it's largely a result of "downsizing." Hey that's you, isn't it! You may be among the millions of people that have lost their jobs over the past year or so, not to mention the millions that lost their jobs during George W. Bush's stewardship of the economy.

Given soft demand for goods and services - slow or no revenue growth - what better way to prop up profits than to fire the people....hmmmmm....that BUY YOUR STUFF. Oh sure, you can have your business rely on the federal government for incentives and bailouts. Worked for a month or so for the auto industry with "cash for clunkers." It's also working for banks, especially the largest banks, you know, the "too big to fail" banks that still plague us.

Remember all the bank and Wall Street "stuff" that precipitated the worst recession since the 1930s? Mortgage-backed securities and derivatives and such? To a great extent, they are still on the books of the largest financial institutions in the nation. Only now, we don't seem to be worrying what they are worth because the feds changed the rules - well at least for a period. With all the foreclosed properties clogging the housing market and with all the potential for millions more down the road, who cares how much those mortgage-backed securities are really worth! Especially since housing prices are predicted to continue to fall in many regions of the country.

Oh, almost forgot. Commercial mortgages and construction loans. With retailers and others continuing to "downsize" and close locations, with corporations consolidating office space and continuing, yes, to ship manufacturing overseas - well we'd rather support a Chinese worker than an American one, being the patriotic Republicans and business managers that many are - what about those loans?

Wall Street must be onto something. Bundling life insurance policies! After all, you recall - or do you - those stories about investment bankers jumping out of buildings during the Great Depression, right? Maybe this economy will slash average life expectancy and those chopped and bundled life insurance policies will pay off handsomely. Who needs jobs? We don't need to build things; we can just kill people off by keeping conditions bad.

But then, we'll have to worry about the actuarial integrity of life insurance companies. I hope they have sufficient reserves to pay everyone off.

Oh yes, the stock market. I got sidetracked worrying about PEOPLE'S JOBS and stuff like that.

I maintain that it is still a challenge to value many companies based on projected earnings because I still see too many uncertainties in the economy. So I must keep a sharp eye on those pesky technical indicators of stock market strength. And they are truly a mixed bag.

A couple of things stick out, though. First, the good old Advance/Decline line. What's that? (# of Advancing Stocks - # of Declining Stocks) + Previous Day's A/D Line Value. It's a cumulative thing. It has been climbing a very steep wall since the March bottom. In fact, it is at its highest value in history, near as I can tell. Looks like a good thing. Investors are accumulating stocks - at least more are increasing in price every day. But the climb seems unprecedented in its scope and time. And it is not like we've been experiencing record volume, day in and day out, to support this advance. Lots of cash remains on the sidelines, in safe havens.

Second, all analysts have their favorite short- and long-term trend lines of the popular stock market indices. I have mine, but you don't need to know what it is just now. In any event, having absolutely nothing else to do with my time, I spent a few moments to go back in time, oh a little more than two decades. Helps to put these trends in perspective.

When the stock market climbs too far too fast, like anything else the law of gravity tends to bring it back down. No, not necessarily back to wear it started, but usually to the soft, warm, cushy support of one or more coveted trend lines.

In our current scenario, the stock market is about 15-percent above trend line. Historically speaking, this is pretty high. In fact, we don't often see the stock market double-digit percentages above this trend line. Going back to, say, 1987, we've seen this about six other times. On average, the stock market has pulled back about nine-percent each time. I tossed out the two outliers of three-percent and 55-percent that began in February 1996 and August 1987, respectively.

True, only two of these declines represented double-digit percentage declines - the 55-percent bubble of 1987 and 18-percent in 1997. The others? "Small potatoes."

So what might we be looking at here? Well, case #1: the stock market falls out of bed and either erases all of its gains since March, or perhaps a third of them or thereabouts. Case #2: not much in percentage decline, but months of treading water, perhaps after an initial decline in the ten-percent neighborhood.

This market is fragile, as is the underlying economy. Without improving prospects for job creation, increasing personal incomes, and stability in housing, unless the United States suddenly becomes a ginormous engine of exports to the rest of the struggling world, a flat U.S. economy will eventually translate into flat stock market prospects, and it is more than likely to begin with at least a small thud.

The slightest disappointment, out of Washington or elsewhere, or perhaps it could be a big disappointment, like, oh for instance how are independent auditors going to do with all those possibly nearly worthless toxic assets on the books of financial institutions at year-end audit time? Can't hide them in plain sight forever, can they?

Citi, JPMorgan Chase, Morgan Stanley, Bank of America, AIG, and lots of small little known banks and other players, are still - pardon my street lingo - full of crap. Answer me this: to the extent that you have not written off billions of dollars of paper whose underlying assets are defaulted mortgages on now or soon to be foreclosed homes and businesses, well just how do you plan to handle that? How do you place a value on non-recyclable trash?

I can't offer up a day or value for this stock market's top. Could the S&P500 advance another 100 points? Sure, why not. But at this point, unless we begin to see some solid fundamental improvement in the economy and not simply a deceleration of its decline, the higher we go from here, the bigger the fall will be. It's gravity.

Thursday, September 10, 2009

Obama's Speech on Health Care Reform - and so?

One thing is clear in the aftermath of President Obama's well-delivered (did we expect otherwise?) speech on health care reform before the September 9 Joint Session of Congress...oh yes, and the American people.

Insurance companies seem to have come out potential winners? The publicly trade stocks of all the health insurers, the usual suspects, are up today and up substantially. As of this writing, with less than one hour to go in today's trading session, the common stocks of Aetna, Cigna, United HealthGroup and Wellpoint are up, for the most part, between two- and five-percent. What does this suggest? That Wall Street expects to see higher profits and solid growth from these companies in the years to come, at least at first blush.

While the President did "mention" a role for a public option, clearly there was no strong emphasis on it. Rather, if legislation does pass, we can expect to see the following benefits - via private health insurance companies:

1. Elimination of pre-existing conditions clauses;
2. No more cancellations based on development of disease, annual or lifetime caps on benefits, or failures to disclose adolescent acne.
3. An "exchange" - still fuzzy on that one - where people can go to find insurance policies and maybe even a public option, too.

There was more, but that was the nut of much of the President's speech.

So we may look forward to all of these wonderful benefits that the health insurance industry will be more than happy to splash upon us. Here's the rub: what about cost controls? Sure, United HealthGroup (United), the largest health insurer in the U.S., will be more than happy to write policies with pre-existing conditions and other cancellation clauses. But at what price?

Did I mention price? If I have a pre-existing condition - which I do (multiple sclerosis) - you mean that United will now be happy to write a policy for me "at a fair price?" Oh, gee, did I say "fair price?" We heard no mention about the effect of these "benefits" on policy pricing.

Several things are likely to happen. First possibility: United raises all premiums in order to recoup or maintain their profit margins in exchange for accepting higher risk customers. Second possibility: United will happily write me a policy if I am willing to pay 50-percent more for it than a healthier person. I just pulled that 50-percent out of my ass. It could be 20-percent or 100-percent, maybe even less. But who knows? No mention of policy cost in the President's speech.

It's kind of like a crack dealer, not that I have firsthand experience, mind you. Based on the dealer's analysis of you when he meets you on the street, he could charge you anything he likes, right? I suppose, anyway.

Car dealers can be the same way, especially if you're a woman, right?

The Republican responses to the President's speech are so far pretty much little changed, as if they really didn't pay attention while he was speaking last night. Even the Louisiana Congressperson's televised response was clearly written weeks ago. Nope, the Republican talking points are little changed. The damned Dems still want a government takeover of the entire health care system. Funny that I didn't hear that last night, nor did I read it in the transcript, nor have I EVER heard it except from a teeny weeny spectrum of legislators.

The Republicans are clearly all gahgah about the possibility of tort reform and the elimination of what they pen as "junk lawsuits," which I personally define as any lawsuit in which a Republican or corporation is not the winner. But that aside, the numbers clearly demonstrate, thanks to work available from AM Best's Aggregates and Averages, that malpractice lawsuits are not the horned devil and deep-pocketed demon cause of skyrocketing health care costs they are made out to be. They are, rather, the proverbial drop in the bucket.

Look. Everyone wants to make a buck and why not? People should be allowed, encouraged and honored to succeed, but succeed fairly, without someone, without millions of people feeling they've been ripped off. I fear, and I suspect I am not alone in this, that we just may be opening the floodgates for health insurance companies, the very same folks that we have worked so hard to paint as villains or at least culprits in this mess, to generate yet greater profits and revenues, charging consumers still higher prices. This time, however, they may have even greater "justification" for it because we will be empowering them to assume greater risk in their underwriting thanks to legislation.

The health insurers may just have succeeded in getting the payoff they've been hoping for through their "investments" in Senators and Congresspersons. So what if insurance companies have been paying out less and less of each premium dollar, the result being increased profits for stockholders and increased salaries and BENEFITS for executives. So what if they haven't felt a huge priority to make their administrative functions more efficient without sticking it to policyholders. They've been investing in a Golden Goose and it just might finally be paying off in the months to come.

Friday, September 04, 2009

Is It Racisim, Pure and Simple?

On Tuesday, September 8, President Obama, yes PRESIDENT Obama, not that "black guy occupying the White House," is giving a speech to elementary school students nationwide.

The subject? "The goal of the speech is to encourage students to set goals for themselves." This according to Heather Higginbottom, deputy director of the White House Domestic Policy Council. In addition, according to Higginbottom, "The whole lesson plan speaks to setting goals in increasing their educational achievement."

So while the United States faces something like a thirty percent dropout rate and we continue to fall behind developing countries, such as China and India, in academic achievement, Right Wing Republicans have their panties burning up.

School districts in at least six states are declining to show the President's speech. Even school districts in a relatively highly educated state like mine, Colorado, are inundating school administrators with phone calls and emails demanding that the speech not be broadcast or parents will keep their children home on Tuesday.

Presidential addresses to school children are far from unprecedented. Gosh golly, even Republican presidents, including George H. W. Bush - the only truly elected Bush - gave speeches to school children, yes broadcast nationwide, encouraging to set goals, to achieve.

So what's different this time around? Must be that damned black man in the White House and all that socialist indoctrination stuff he be indoctrinatin' our keeds wit.

If the "Birthers" didn't get to all "true, white Americans" and the "killin' grandma Deathers" crowd and the "tax the middle class" crowd and the "takin' away our precious guns" crowd and whomever I've missed hasn't "done the job," well let's just put it on our kids. "We gotta protect our precious Right Wing white kids from the evil socialist black man that is livin' in da White House."

Sadly for America, the Republican Party has been more than gleeful to stand back while they allow the organization of every hate group among us to work to destroy this nation's duly elected President.

Wackos, even wackos over the age of 65, do not understand that Medicare is a government program. But Republican cowards have encouraged people to believe that if Obama takes control of health care in the United States, Medicare will be lost.

Yes, even actual members of Congress are spewing daily diatribes of misinformation and lies about the President's agenda and programs. You can't go anywhere on the "Internets" without being bombarded with phony, but really good looking lists of items in the Democrats' health care bills that are, well, phony and non-existent.

The Republicans actually use misinformation from a wholly-owned subsidiary of the second largest health insurance company, United Health Group, aka the Lewin Group, to support and promote false claims about a) what health care reform is all about and b) how beneficial and altruistic the existing system is.

But back to education. Seems like dem same white folk, the macho gun-totin' to political events, the Deathers and Birthers, the Nazis that simultaneously seem to claim that Obama is a Nazi and that is bad and that Obama is a socialist and THAT is bad, not to mention the millions of blue collar, middle-class Americans that have lost their jobs and, at the same time, believe that government should do nothing to restore the economy, now do not care about their children's education and future in a rapidly changing world.

And of course, all of these folks seem to claim to be Christians on top of it all. Yes, I am quite sure that Jesus, not to mention his Father, would be quite happy to support hatred, racism, health care only for the shrinking few that can afford it, and gun rights above anything else. I am pretty sure that I read all of that in the Bible. In fact, I must be certain of it. In fact, for two centuries or more (I am trying to be conservative, hahah), self-described MEN of faith have stood before their congregations and preached hatred and segregation of blacks and whites, support for immoral wars, hatred of the dreaded Muslim hoards that are out to wipe us all out, all the while leaving out Jesus' principle teachings for people that believed in him and his mission - as a Jew, I might add - that we should take care of the poor, feed the hungry, and behaved towards others as we would have others behave towards us, etc. etc.

What drives the "Joe the Plumber" and "Sarah Palin" mentalities in our nation? Really. What drives it? Is it only about Republicans battling Democrats? That has been going on for decades upon decades. But truly, we have never seen such hatred and falsehoods spewing forth from this day's "loyal opposition" party. Elected representatives threatening secession from the country, even threatening revolution. What is this all about? And it is supported by "pulpit occupiers", many of whom are more interested in selling books and DVDs, and raising money each Sunday to support their lavish lifestyles and palace-like mega-places of prayer.

Yes, I am fearful that we may face losing America, not the whites only America, not the gun totin' America, not the tax breaks for the wealthiest America, but the America where opportunities are available for everyone, where education in schools is valued and encouraged, where religious freedom is honored and respected and not institutionalized as part of a government philosophy, as Bush II attempted.

George W. Bush was a major proponent of "looking into a person's eyes and seeing their soul," albeit he obviously needed new prescription glasses. Maybe each of us needs to look into our own soul - if we can.

There IS "right." But it's clearly NOT the "right" of the Right. If this nation cannot rediscover its soul, if it cannot even make room for the President of the United States to have an inspiring conversation with elementary school children about their education, for cryin' out loud! What have we come to?

Friday, August 28, 2009

A Return Home

Last evening, our son returned home to us from his 2nd tour in Iraq,

So now, once again, the transition to back to "real life" begins anew. How many times are we as Americans, not to mention all the other sons, daughters and families affected going to experience this event as a result of immoral and costly - in so many ways - military adventures!? Before we all stand up, at least those of us that are rational and not blinded by the mindless hatred and vitriol of the Right Wing?

We have battles at home to fight, do we not? Battles for fairness and affordability in health care and housing; education; jobs; jobs; jobs.

We have battles to fight to win back spirituality from the immoral leadership of so-called Christianity and Islam and Judaism, etc. in the United States and abroad. At least as far as Christianity is concerned, how out of touch from the loving teachings of Jesus can we stray before divine forces or karma or whatever you choose to call it turns the tables on us?

While self-described leaders of Evangelical and other congregations make millions of dollars through book sales, radio and television programs and guilt-based pandering for contributions, many of them preach violence and hellfire against physicians that operate within our nation's laws, supporting domestic terrorism. Imams in Islam support and encourage the strapping on of bombs for suicide missions, thinking that the Prophet Muhammad's teachings - his original teachings - justify murder and will send their practitioners to heaven for crying out loud.

In the health care battle, where are the religious leaders when it comes to following and preaching Jesus' teachings regarding caring for the least among us? Scripture, it seems, be it Christian, Jewish, Islamic or anything else, is twisted daily to justify selfishness, lack of caring, murder and war.

I'm not so sure that Jesus, in particular, would be similarly inclined.

Our religious communities are led by hypocrites and non-believers. They have infested politics and poisoned the public mind, here and worldwide, with lies and distortions.

I just spent the past hour or so calling many of my elected representatives in Washington. You know, the ones that we elected in November for change? The ones that are supposed to listen to the will of the majority of their constituents and Americans, most of which are in favor of a public option in health care reform legislation, for example, most of which want our troops in Iraq and now in Afghanistan to be returned home, the ones that want the large banks and financial institutions to "PAY" dearly for their bailout as a result of their recklessness in speculating in our financial affairs?

At least here in Colorado, many of our elected Washington representatives seem willing to stand for anything - except re-election, that is. I'm sure it is no different anywhere else.

Isn't it time, really time, that we force the folks that we elected to stand up?

Saturday, August 22, 2009

Returning from What?

Along with dozens or hundreds of our brother, sisters, sons, daughters, fathers, mothers, and friends that return to us daily from Iraq or Afghanistan, with physical wounds and mental/emotional injuries, our son landed in the United States last night. He had spent the last year "serving" in Iraq, his second tour there, and the past eight and a half years serving on active duty and the so-called Reserves for the U.S. Army.

So I ask myself and all of you, "To what country is he/are they returning?"

The normal normal in Iraq or Afghanistan is for well-armed militias and just regular citizens to walk the streets with semi- and automatic weapons strapped to their sides. Patrolling in neighborhoods and markets, you can understand the innate lack of trust and the suspicion that our soldiers had to bare every single day.

The new normal in the United States? Crazy people who think the world revolves around the Second Amendment attending political meetings with what? Semi- and automatic weapons strapped to their sides. Even Presidential events are not respectful enough for these right wing wackos to leave their killing machines at home for a few hours.

If we just reflect on the days of at least my youth, when President Kennedy, Senator Kennedy, Martin Luther King, Jr. and others were gunned down - murdered - by wackos with hidden guns, what can we reasonably expect in a society where law enforcement - police and even Secret Service, and no doubt FBI - thinks it's just an exercise of Second Amendment "rights" to allow well-armed crazies to stand around in proximity to the President of the United States and other elected representatives of "We The People?"

Does their right to openly display arms in a free and democratic society trump the general public's, let alone the President's, right to feel safe?

Having lived through "Columbine" in our own community, having experienced the sorrow of so many other communities that have experienced public school, college, and gun violence even in churches - forget about all the "random" and senseless gang violence and domestic violence - I have seen enough. Haven't you? We can have philosophical and intellectual, even constitutional debates about what the Second Amendment really intended and means. That's democracy at work. But strapping on guns specifically for attending political events? Well, that's just plain inciting and threatening violence.

We have members of Congress, governors, talking about secession from the Union, about revolution, right wing fascist-supporting talk radio and television hosts spewing outright lies and aiding and abetting those who would bring down our government in the name of "news" and "truth." These people, I fear, are powerful yet lack the intellectual IQ to know truth if it bit them in the ass. Further, they hide behind religion, some even suggesting that their belligerent and sometimes violent (the murders at and bombings of abortion clinics) actions are condoned by God, or at least Christianity. No better than the twisted logic that Islam condones living by the sword.

So our son has returned to "civilization." Exactly where is the civility? Where is the acceptance of "the other" in our society?

Pray that our sons and daughters do not experience what so many of us may have experienced - presidents and others murdered in the streets. Sounds like Iraq, Afghanistan or Pakistan, does it not?

No thanks to you, Mr. President

Dear Mr. President,

No thanks to you, we heard from our son, Zachary Reynolds, last night. After a year in Iraq - his 2nd tour - and more than eight years in the Army, his plane had landed in New Hampshire, on their way to Fort Dix, NJ. He expects to be back home in Colorado at the end of the month.

Mr. President, my wife and I - and so many others - voted for you to bring our sons and daughters home from that immoral war. So far, too few have returned home to their families. And now more of them are being committed to an un-winnable war in Afghanistan. This expansion, plus your lack of leadership and clarity on health care and the deep need for an expansion of Medicare or a Medicare-like option, are very sad failings of your Presidency to date. The early returns are in: you are failing us all, not just us progressives.

Get it together, Mr. President! This is my third email to you just this week. Unless you begin to honor your commitments to the majority that elected you, not to mention the 70+% of Americans that are demanding a "public option" in health care reform, you will lose our support for your administration and leadership - or lack thereof. I worked tirelessly on your campaign here in Colorado and committed, between me and my wife, pretty much as much money as was permitted by law. So did many many of my progressive friends. Unless these policies are truly yours, you are being ill-served by many of those that you selected to serve you in Washington. Perhaps it is time to clean house, reflect on your own promises, and delivery for the American people.

Monday, August 17, 2009

A Letter to the President

Dear Mr. President,

Every day that goes by without you honoring your promise to the American people regarding a public option in health care reform is a day that will increase the American people's dissatisfaction with you.

I have read the proposed legislation in both the House and the Senate. Honestly, why does this have to be hundreds, and in the case of the House, over a thousand pages of legislation? Mr. President, you need to keep it simple, yes so that even conservatives in both parties can understand it.

First, open Medicare to everyone. Scale the premiums based on income and structure them in a way in which premiums pay for the program. On the same item, charge higher premiums for seniors whose taxable and/or non-taxable income is above a certain level. Why should someone earning $500,000 in retirement pay the same Medicare premiums as someone who is disabled or earns little more than Social Security? Simple!

Next, require insurance companies to eliminate pre-existing conditions exemptions AND do not allow them to pass along alleged increased resulting costs, or potential costs, in the premiums. It MUST be affordable. The combination of just those two initiatives would put pressure on insurance companies to increase their competitiveness.

Next, insist that Medicare be permitted to negotiate with pharmaceutical companies on pricing. Insurance companies do it. It simply makes no sense that Medicare cannot. Create a public web site where people can readily see, not only pricing of private insurance companies, but their expense payout ratios.

Next, eliminate the ridiculous practice, actuarially unjustifiable, whereby insurance companies can charge lower premiums to large employers while sticking it small employers and individuals. I understand risk pooling to be most efficient when there are more people in a very large pool as opposed to separating those pools into little ones and big ones. This is a practice that is ONLY designed to try to rationalize charging higher prices for the very same product to some people, but not others. And it is obviously those that can least afford it, sole proprietors, entrepreneurs, small businesspersons, that are charged the highest premiums and penalized the most when a single individual in their group encounters health problems.

Mr. President, as a Medicare consumer, a result of being disabled with multiple sclerosis, I also purchase a Medicare Part B supplement and a Medicare Part D plan, both provided by private insurance companies. Having a wider public option, such as the simple one - opening Medicare to all, would also potentially broaden the free market for Medicare supplemental plans. It seems like a potential win/win.

Mr. President, it is time to get off the pot and take control. Senators Conrad and Grassley are not your friends, just to name two obvious ones. And Senator Reid, well he does not deserve to be majority leader. A leader he is not! Take charge, Mr. President.

I have outlined a very simple proposal. Anyone can understand it, probably even my Great Danes. And it can be done in such a way that just may not cost the federal government a dime.

Thursday, August 06, 2009

Lies & Liars

I can't say I have been overwhelmed by comments in various venues in which "Clear The Mist" posts appear. But perhaps I can. And so sadly, it seems that irrational thinkers, people that simply cannot think "out of the box" or act from a place of compassion balanced with some degree of practicality, can too easily overwhelm real democratic speech and social progress.

Oh gee, am I talking about Republican and conservative politicians, whose only ability to speak is derived from someone else's "talking points? You all know the ones. Thems that have money and don't want anyone to share in prosperity? Thems that blindly follow mythically epic blatant lies about proposed health care legislation, including but not limited to "old folks will have to choose how they want to die" or "Medicare is NOT socialized health care" or "the government will step between the patient and physician" - my personal favorite, though the old folks must die canard is picking up points.

Them great thinkers, the same ones that sold us on the Iraq War and cost us thousands of sons and daughters, not to mention tens of thousands (if not far far more) Iraqi lives. The ones that believe that torture is just fine so long as we are doing the torture. And yes, the ones, that have no concept of what it took us in terms of government intervention in the economy to jump-start America and begin to dig us out of the Great Depression, painting FDR as some Great Satan and Herbert Hoover as a hero.

Some people should get over their own narrow-minded, myth-based concept of reality.

Are deepening federal deficits, not to mention state deficits, a good thing? Surely not. But they are necessary and in the long-run can be resolved in many ways.

Is a substantial and comprehensive overhaul of our clearly broken health care system long overdue and necessary for the health of Americans AND the health of businesses? No question whatsoever. Medicare needs some tweaks and not much more. Then it will be "ready for primetime" and can be held up as an example of how health care should be practiced and delivered in the United States.

Those who believe that merely tinkering with the current for-profit insurance industry delivered system will solve the problems are sadly mistaken, be they Republican or Democrat. You want to whine about the myth that government will step between you and quality health care with rationing and whatever else. But you don't whine about insurance companies doing precisely that.

If you actually have health insurance, how many times have you experienced - or even heard from a relative or friend or neighbor - an insurance company denying benefits for a diagnostic procedure or a particular treatment, or even a simple drug? It happens every day!

To the lobbying firms, and those that have hired them, that have been organizing the fascist brown shirt thugs that believe more in disrupting democratic town hall meetings rather than engaging in rational discourse, you won't succeed in turning the United States into 1930s/40s Italy or Germany - unless we fail to take their threat to our freedoms seriously, take a stand and say "ENOUGH!"

These fringe elements do not speak for the great majority of Americans who, poll after poll since before the 2008 election clearly show, want reform. We are finished with neoCON Republican and conservative lies and liars.

Or at least we should be.

Monday, August 03, 2009

B.O. - Backbone & Obama

Well it did not take a recent week of well-needed vacation for this commentator to crystallize his concern about the politics/policies of the Obama administration, the lack of leadership and backbone of the Democratic Party, generally, and the need for substantial reform.

So on Sunday, National Economic Council Director Lawrence Summers suggested that a middle-class tax increase might not be out of the question as part of a solution to reduce the enormous projected federal budget deficits. Really! This after then Senator Obama campaigned so strongly against it during his White House run? Are we receiving mixed signals here? Or are lobbyists for the wealthiest two-percent of Americans and their corporate bosses once again winning the "Battle of Backbone" when it comes to formulating policies that will lead the way for perhaps decades to come?

There is genuine concern among many economists and analysts, including yours truly, that we may see a "double dip" recession. Assuming that we have seen a bottom in terms of manufacturing activity and production generally, having avoided a general collapse of the nation's financial system - for which I largely credit bold action by the Obama administration - we just may not be out of the woods. This should not come as new news to anyone.

Dangers may be ahead.

We must be concerned about the fragility of the commercial real estate market. This multi-trillion dollar market remains fractured as a result of a) a weak office market, b) closings of thousands of retail outlets which affect shopping centers, malls, center cities, not to mention jobs that may be gone for a very long time, c) shuttering of manufacturing plants - domestic of course - that leaves swaths of empty real estate, much of which was "single use" suitable without huge amounts of new investment.

We must further be concerned about the debt burden in the commercial real estate market: Who and how will maturing debt on questionable properties be refinanced? Will banks make necessary funds available?

Next on the list of potential landmines is ever-growing rates of default on credit card debt. These default rates are currently at record levels, the result of continuing job losses, the absence of any real income growth, and last but not least, the outrageous policies of banks increasing interest rates and fees on credit cards, even among their better or best customers. Slashing of credit lines on even good customers is not helping the issue either.

The banks are claiming that they need to raise rates and fees in order to cover increasing losses. But their own cost of money is at record lows, allowing them to increase profit margins. The federal government is largely giving money away to the banks, charging one-percent, two-percent, etc. to the banks while the banks get to increase rates to consumers from nine-percent or twelve-percent to as high as thirty-percent, even more.

Since the Obama administration took the reins in January, nothing has been done to address the "to big to fail" dilemma with financial institutions. Rather, the opposite has occurred. As "smaller" banks continue to fail, they are taken over by larger banks, creating yet more ever larger banks, increasing concentration and reducing competition.

Little has been done in actuality to stabilize the mortgage market, allowing homeowners to successfully refinance. It seems that while programs have been created by the federal government to support refinancing, the banks have no incentive to use them. They believe they can make more money by allowing even more homes to enter foreclosure because the potential fees they can earn outweigh what the government would otherwise pay them as incentives to refi mortgages.

On the surface, all the legislation looked good. But in practice, the special interests were too strong to allow the passing of anything with real teeth.

On the health care reform front, we are following one diluted bill after another through Congress, none of which seem to really have the kind of reform that would financially benefit consumers, let alone the federal government. Will we have a public option similar to Medicare? Will Medicare be permitted to actually negotiate drug prices, saving hundreds of billions of dollars? Will health insurance reform, eliminating pre-existing conditions clauses, etc. actual result in fair premiums? Or will it simply allow the insurance companies to charge even more for the privilege of covering folks with pre-existing conditions? Or even raising rates on EVERYONE as a result?

I, for one, would happily accept a modest increase in the payroll tax - not income tax - to cover both stabilization of Medicare and availability of a Medicare program for people under 65 or not disabled. I, for one, believe that payroll taxes should be paid by EVERYONE that earns above an established minimum income. The fact that people earning say $250,000 or $25 million have not paid a Medicare tax in the past is not an argument for not paying it in the future. They are the people that most benefit from "The American Dream," are they not?

Republicans and conservatives - yes I'm talking about you irrational Blue Dogs, also - like to focus on the currently "unfunded" $12+ trillion 75-year deficit in Medicare. True, this is an audited number. However, if you assume that the size of the American workforce remains unchanged over the next 75 years - how likely is that!? - this unfunded deficit amounts to an average of about $160 billion annually. Again, that amounts to an average of about $1,100 a year in new taxes for every working person.

Realistically, that kind of gap would not be closed by equally taxing every worker, would it? That's not what we want. Those that can afford more should pay more, no? Further, if we had REAL reform of health care, both public and private, we could actually realize savings even if some people saw increased tax rates. I would gladly pay a little bit more in taxes while paying at least that much less for health care. And I thought that was the whole idea about health care reform, beyond covering many millions of people that cannot afford coverage.

And how about either giving people that are forced into bankruptcy as a result of medical bills some type of break - like not destroying their credit scores - or writing off their medical bills above some acceptable threshold, or having a catastrophic loss fund at the federal level? There are dozens of ideas that can be evaluated to address this ever-mounting concern.

And how about putting an end to the Canadian health care system myths once and for all? You know the ones: Canadians hate their system; their taxes are measurably higher as a result (though their medical out-of-pocket expenses are pretty minimal); they must wait months and months for important procedures; they flood across the border to New York or Michigan or Minnesota for health care; on and on. Stop it already. Let's just call lies lies.

Having personally undergone a two-disc spinal fusion, I understand the importance of a strong backbone. But does President Obama and the Democratic majority on the Hill?

Monday, March 23, 2009

As The Market Turns?

February 19, 2008...."A reasonable person cannot simply abandon equities. Once the market turns, it will turn with a vengeance." - Clear The Mist

In response to the Timothy Geithner plan for a partnership between the federal government and private capital pools to purchase "toxic assets" from banks, the stock market soared today.

The DJIA closed at 7776, up more than 497 points, or 6.8 percent. The broader S&P 500 Index closed a tick below 823, up more than 54 points, or more than 7 percent. Even the tech heavy NASDAQ closed at 1556, up more than 98 points, or nearly 6.8 percent. All in one day.

Since reaching its bear market lows earlier this month, the U.S. stock markets are up about 20 percent.

Don't get too excited yet. Equities indices remain close to 50 percent below their 2007 peaks and all-time highs. So if you think the train has pulled away from the station, or the space shuttle has already zoomed away, relax.

A couple of things about the new Geithner Plan ("Plan"). Will private capital show up for the dance? At what prices will banks - if at all - be willing to sell their currently unpriceable assets? AND, perhaps more concerning to taxpayers and our international trading partners, while private investors have the possibility of earning big profits off this scheme, they are protected by the Treasury against big losses. Why? Because the way the current Plan is proposed/structured, you and I, as a taxpayers, stand to absorb the vast majority of any potential losses.

I am not proposing an alternative solution, mind you. And I am happy to accept fault for criticizing the Plan while not proposing one myself. It's very Republican of me, isn't it.

But I must remain skeptical about this Plan. While I believe that bad mortgages represent a relatively small percent of mortgage-backed securities or CDOs (collateralized debt obligations), given how complicated these instruments are, I'm unsure how you accurately price them - even if you are a so-called expert. It all bears further patience.

Regarding the current bear market rally, let us keep in mind that we've been there before. I hate to bring it up, but during the calamitous bear market of 1929-32, investors - what remained of them - experienced no less than 9 rallies of 15 percent or better. In fact, one rally was some 40 percent! The ultimate result, though, was an overall stock market decline of about 86 percent.

Now bear markets do not announce their ends with fanfare. They do not end simultaneous with the end of recessions. I think we all know this. Conventional history shows us that markets bottom some six months before the economy. So the question remains: when will the economy bottom?

Many pundits are pointing to the "fact" that many stocks that are reporting disappointing earnings and other events are not responding with further declines. They suggest that we see this when investors have "priced in" pretty much all the bad news. This may or may not be the case. I hate to be the cynic. But when investors have sold as much out of equities as they have over the past six months, clearly some feel the urge to reinvest en masse, especially when we see daily gains of 4, 5, 6 percent or more. We just hate missing trains, especially after so much money has been lost.

I, for one, need to see more clarity on the Plan. When and how will investments actually be made? I, for one, need to see some tangible evidence of an improving economic world. I don't even mean increasing corporate profits. A leveling off of unemployment trends would be very nice for starters.

Clearly, as I have stated in prior postings, many many stocks are cheap. It doesn't mean they are as cheap as they can possibly get. But as I have also said, averaging your investments is only prudent, especially given this market's volatility. There is a sense in the air of a change in psychology. But again, we've experienced that before during big rallies in prior big bear markets.

Monday, March 02, 2009

And The Day Isn't Yet Over

So alright. On February 19, I reiterated my commentary regarding yet deeper declines in the stock market. So, sadly, this morning's decline to lows not seen 1997 is no surprise.

We have yet to see the worst of the bad economic news. Safe havens, such as healthcare stocks, dividend yield, etc. in the equities markets, are pretty much as weak as all other sectors. Sure I can make the argument that long-term investors should take advantage of these declines and average down. But I can just as easily make the argument that people should simply take advantage of any semblance of rallies to sell equities and just wait out the ongoing financial carnage.

In recent months and weeks, so-called professionals have been arguing for investment in corporate bond and other fixed income sectors, including U.S. Treasury securities. I have to admit. After spending more than forty years investing, not to mention my educational and professional training and experience, that strategy in this climate leaves me scratching my head.

Managed corporate bond funds, in particular, do not have a great history of investor returns. Sure, you can find and/or develop portfolios of "high quality" bonds - whatever that still means - that produce "respectable" current yields. However, at some point in the not too distant future - and as usual before naive investors see it coming - those yields will be more than offset by an environment of rising interest rates and declining principle values of those wonderful bonds.

As far as the safety of U.S. Treasury securities, a few voices in the media have been cautioning about a developing "Treasury Bubble." Yields are too low and not reflecting risk, but rather reflecting the relentless flight to safety, nor are they reflecting the real possibility of damaging inflation...once we conclude the current deflationary spiral. The only "Treasury" investment strategy that seems to make any sense is to keep maturities short. And I mean short.

A 90-day Treasury bill currently yields less than 0.25 percent annually, six-months 0.4 percent, a ten-year maturity yields an anemic 2.92 percent. Any glimmer of strong inflation, oh perhaps driven by multi-trillion dollar federal deficits and record expansion of the money supply, will drive those yields higher by orders of magnitude. An increase in 10-year yields to say 8 percent - not out of the unpredictable - would drive the principle value of those 10-year Treasuries down by 64 percent. Sound familiar?

We've seen it all before. Well, some of us did. Some of us simply read about these cycles in textbooks, too often in academic passing. Perhaps fewer of us managed investors through these cycles. How many fixed income fund managers were actually managing these instruments, say in the 1970s and 1980s? How many were preparing to complete high school or college in those years? How many were trained at the same "B" schools that produced the very same management geniuses that have led us to our current circumstance?


For years, I've retained a yellowing newspaper article in my desk. Dated July 3, 1998, it's an Associated Press story titled "Study: Blunders kill new airlines."

Subtitled "Big carriers' tactics not to blame, institute says," it was based on a study conducted by George Washington University's Aviation Institute. In short the article points directly at the recycling of senior management in the airline industry, with "famous names" ans "properly educated" executives moving from one failed airline to another. The study examined 129 airline bankruptcies from 1979 through February 1998. It found that more than 97 percent of the 39 airline bankruptcies in the 1990s had senior executives who had been involved in a previous Chapter 11 bankruptcy - in the same industry! Further, the study found that "more than 75 percent had executives who had been involved in at least TWO Chapter 11s, 50 percent had top officials in at least three bankruptcies and 15 percent had executives who were involved in at least four bankruptcies."

Past is precedent. Today's "airline" industry is the financial industry, is it not?

Universities need to drastically rethink how they "construct" business leaders. Businesses need to rethink how they retain and hire future business leaders.

Now is this simply sour grapes coming from a former business executive who graduated from Michigan State University rather than the University of Michigan, or Harvard Business School, or Wharton, etc.? That's for my readers to judge, of course. To preempt your judgment, however, I'll simply say no. But the Ivy League of "B" schools has "educated" us to where we are. Corporations have supposedly sought out the "best and brightest" from these fine institutions, as government has sought the same "rocket scientists" from Goldman Sachs and Morgan Stanley, et al to lead us out of this generational catastrophe. We are caught on a hamster wheel, are we not?

Someone needs to begin thinking outside the box, or at least reflecting very seriously on financial and economic history. Are we doomed to condemn the entire U.S. economy to the fate of the airline industry? Seems like that is where we are navigating.


So many stocks are "cheap" says the conventional wisdom of the financial establishment and CNBC talking heads crowd. General Electric (GE - NYSE) at less than $8.00 when it was happily trading at more than $30 less than a year ago? That list is inexhaustible. Price in a vacuum does not reflect "cheapness." Price must be based on earnings power. And no one, I repeat no one, is in a position to estimate corporate earnings power over from here for the next two to three years. There may be some good guesses. But will you base your financial future on guesses?"

Let's look at the S&P500 Index, shall we? Last fall, I suggested downside risk to 700 on the S&P500. Depending on when you caught up with me, the S&P500 was trading at somewhere between 1,000 and 900, anywhere from 20 to 30 percent ago. On February 19, well a possible "bottom" looked more like 650 - 600 than 700. But all of that is based on earnings declining to perhaps a core of $60, with a price/earnings multiple (P/E) of no more than ten.

When the market last traded at these levels - bordering on 1996 - the S&P500 Index traded at a P/E of about 17 or so. Earnings were a mere $40 - 44. Assuming that earnings collapse to those levels - which is not unreasonable - would you pay 17 times those earnings in light of all the economic uncertainty? Or would you be more willing to pay something closer to 10 times?

450 on the S&P500 Index? Keep in mind: 10x multiples were far from uncommon in the 1970s and first half of the '80s. By the way, that period followed a fairly lengthy market earnings valuation in the teens and greater during the 1960s and early '70s. What goes around comes around? History repeating itself?

The stock market has nothing to grasp onto at this point. As I have been writing this piece, the market has declined from 720 to 704, the DJIA around 100 points. Oh it may rebound somewhat before the end of the day. But that'll simply be short sellers taking profits, not necessarily bargain-hunters.

Myself? The thought of earning less than one percent annually disgusts me. But it just may be reality for most investors for the next year, or two, or three, at least until the giant cloud of uncertainty is resolved.


Our economy has been dominated by consumer spending, driven by debt accumulation, for well over a decade now. You can blame people for being imprudent, for living above their means, yada yada. But the truth is that business has driven people to become consumer animals rather than production engines or, god forbid, savers and conservative investors. Jobs are disappearing as business contracts, leaving us consumer animals either with less money to consume with or greater fear that their ability to consume will just evaporate.

The Harvard MBA crowd has shipped job category after job category overseas to take advantage of lower costs, creating higher profits - profits for the few. How many good paying manufacturing or product development jobs have we created here in the U.S.? How much of those higher profits from cheap foreign labor has found its way to higher wage rates for our fellow Americans?

When the economy turns, and it surely will, how much of that next round of higher profits will find its way into the pockets of workers here at home? As opposed to yet fatter profit margins for the few?

General Motors prays that $40,000 (god! $40,000!!!!) Chevy Volt plug-ins will save it. Forget about the absolute lack of economic rationale for paying $40,000 for a Chevy Volt for a moment. But the greater question to ask is how many Americans will be able to afford - let alone qualify to finance - that Chevy Volt?

The Chevy Volt represents the lack of genius that has created this mess. Is this the business management that we want to lead the nation in the future? In business or government? They don't get MY vote. It's the airline industry all over again. Only this time, the airline industry represents the entire economy.

Thursday, February 19, 2009

Whine Whine Whine

Today, the Dow Jones Industrials Average (DJIA) fell decisively through its November 2008 low, reaching its lowest level since October 2002. The broader S&P500 Index is not far behind, though it has yet to test the November 2008 low. Don't bank on that one holding much longer.

For what it is worth, Merrill Lynch has revised its estimate of earnings for the S&P500 down to $42 for 2009. The most pessimistic Wall Streeters that make their livings guessing about such things have been comfy cozy with $60 - $70, as have I.

Back in October, I estimated that we would see market lows in the range of 7,200 on the DJIA and 700 on the S&P500. The basis was a dramatic decline in corporate profits - to that $60 - $70 range on the S&P500 range. While we are only in February, and therefore premature to "accurately" guess about these things, it seems that the likelihood of Merrill Lynch, of all institutions, being close to the mark for corporate earnings estimates is increasing.

7,200 on the DJIA? That's pretty much a "done deal." 700 on the S&P500 Index? That's only about ten-percent lower than the current level. And if corporate earnings on the S&P500 plunge below $60 this year - or are least expected to - well look out below. 600 - 650 on the S&P500 is more likely.

A reasonable person cannot simply abandon equities. Once the market turns, it will turn with a vengeance. But short of equities - high quality ones - cash remains king and queen. Corporate bonds? Forget about them. Just when you aren't expecting, interest rates will begin rising and bond prices will begin falling. It is a losing proposition. I, for one, am avoiding them like the plague.

Now to the whining.

Wahhhhhhhhhhhhhhhhhhhhhhh! To all the politicians - primarily Republicans - and those among us that oppose just about anything that stands even a snowball's chance is limiting this Great Recession, especially Obama's recently revealed mortgage/housing plans, get over it. Yes, there are irresponsible people that irresponsibly took out unaffordable mortgages and purchased larger homes that they really didn't need. There are people that bought rental homes, be it one or ten, betting as businesspeople that they would generate profits. But they bet as businesses, not as prudent homeowners. The current Obama plan does nothing to assist them, and I believe rightly so.

Sure. I'd love to be able to refinance our home at a lower rate and save some money. But I'm not sure that my neighborhood has been hit as hard as others, many others. But if one of my neighbors needs assistance and this program makes it available, hallelujah! Take it. I won't lose any sleep just because someone else is being helped.

Honestly, where is the compassion? There seem to be some folks that have money, are quite comfortable, either have secure jobs or sufficient assets to survive protracted unemployment, have no problem spending $700 a month on a Lexus lease, and they begrudge those that have less a little assistance. They fail to see the greater picture. Every foreclosure negatively impacts the housing market and eventually, if not now, their own neighborhoods.

They complain about government interference in the housing market when, in fact, the government's been there all along. Do they honestly think that home ownership would be as broad-based as it has been for decades if it was not for the tax deductibility of mortgage interest, for example? Talk about a subsidy. Government involvement in housing is nothing new.

We live in extraordinary times, and these times call for extraordinary compassion and action. My fear is that Obama's current plan may simply not be sufficient. But neither is the Stim, round one.

Thursday, February 12, 2009

We Have Met The Enemy...and It Is Us.

First the stock market...

After the stock market stumbled to the best test yet of the late November 2008 lows, traders experienced a major bounce off today's lows to close largely even for the day. If you're a technician, however, the afternoon bounce wasn't all that significant, with still substantial volume in the day's declining stocks. Yes, the technology-heavy NASDAQ market saw a much greater proportion of its volume in higher trading stocks. However, this is all "technical stuff" and reflects less the current or even future status of the economy.

Market analysts continue to lag reality with their rosy forecasts for corporate earnings, so many stocks look inexpensive. But, as usual, aren't they missing the greater picture here?

Now the broader outlook and the "Enemy"

3.6 million jobs lost over the past 13 months, about half of those in the past three months. There is no evidence that the rate of job losses has reached bottom. And the employment picture does not account for the even greater numbers of part-time workers that want full-time work but cannot find it. Nor does it account for the millions that have simply dropped out of the workforce over the past several years...OK, over the past eight years.

Yes yes, economists will tell you, with significant justification, that employment is a lagging indicator of economic growth - or lack thereof. So no, we won't see the end of the "Great Recession" (I did not coin that name myself.) when we see the end of the current unemployment trend.

Here's the thing. Now follow me on this. Businesses lay off - fire - workers for two general reason: 1) demand for their products declines or is projected to decline; 2) a business' profits are declining or predicted to decline.

It is the latter that is so troublesome. We are caught on a seeming perpetual motion machine. Businesses respond to reduced demand, actual or projected, by firing workers. Firing workers further reduces potential demand for products. Firing workers places more mortgages and credit cards at risk. Increasing the pool of risky mortgages continues the pressure on home values. Increasing THAT pressure increases the risks of credit card delinquencies and defaults. All of this circles back to the banking and business communities, resulting in yet more firings. The downward spiral puts pressure on commercial real estate markets as a result of store closings and other business "downsizing," putting even more pressure on the banking system.

Now certainly, none of this is news to many readers. But it is to some.

So how do we get off the gerbil's treadmill? Hmmm?

Historically - well we do not have a lot of precedence for messes like this - governments intervene and spend money in an effort to a) maintain and create jobs, b) maintain or strengthen social safety nets, and c) stimulate the availability of capital for lending and investment.

President Obama will shortly sign into law "The Stem." While we can point to many aspects of it as "better than doing nothing" as the Republican Party would have us do - what else would you expect from them; they have a lot of experience doing nothing, going back to Herbert Hoover.

The Stem is loaded with ineffective tax cuts. Obama bought three needed Republican votes with those. The Stem is light on infrastructure investment. Yes, there is money for energy, roads, dams, yada yada. But is it sufficient to really make a difference? This commentator would love to believe so. But we need lots more than $789 billion, considering that more than $250 billion of the Stim is tax cuts. Any credible economist agrees that we get far more bang for the buck with actual spending as opposed to tax cuts. But Republicans are not very good students of facts. Hence the ridiculous magnitude of tax cuts in the Stim.

Oh, did I mention that if you are unemployed, you can look forward to receiving $25 a week more in unemployment benefits? $25? That just might pay for your gasoline while searching for those disappearing jobs, not to mention the ones that the Stim will not create thanks to the tax cuts.

If you are employed, you can look forward to $400 a year in tax cuts ($800 if you file a joint tax return). $400? Oh, that's about $14 a week. Heck, we can all return to Starbucks.

If you are receiving Social Security benefits, smile when you receive that one-time $250 extra super-duper bonus check.

And the latest? The rumors / news that rallied the stock market this afternoon? Our government is considering a plan to finally help struggling homeowners. While the details have not yet been formalized, it looks like the federal government may be going into the mortgage subsidizing business, not to mention credit card financing. As it stands at this hour, the Treasury may use part of the remaining TARP funds to subsidize those good ole' banks and reduce interest rates on deteriorating loans. They may even cram down principal values on those loans to reflect the collapse in home values. Oh all of this will be "standardized." So all banks will conform to the same set of standards when evaluating mortgages - assuming all of this comes to pass, of course.

Now I am all for FINALLY helping homeowners. Something in this regard is long overdue. You didn't, however, expect that George W. Bush and his pals would help anyone, did you? It was always up to Obama.

The problem is, sadly, this type of government-subsidized assistance - which could run into the hundreds of billions of dollars even if they are currently talking about $50 - $100 billion - can only serve to place an artificial floor on home values. When would it stop? Beyond the folks that will meet the standards for the program initially, we still have two issues. First, when does the flood of qualifying people end? Second, if you fail to qualify by just a skinny little hair of an actuarial formula, what then? Does the government modify its "standards" downward? And when does THAT stop?

I am not suggesting that I have a better solution. Fact is, no one does. We are swimming in uncharted waters.

One thing that does occur to some of us that think about these issues, though. What if, what if businesses that could actually afford it, public and private, maintained higher levels of employment even if it meant lower profits for their owners? Why do profitable businesses find it necessary to "downsize," to "rationalize their size," to "adapt to new economic realities?" More employment maintained, fewer mortgages and credit cards at risk, less stress on stressed health care and social services systems, more folks actually able to buy stuff.

So OK, my company (well not really mine) generates profits of only $100 million in 2009 instead of the possible $200 million - which, of course, is down from 2008's $400 million. But that $100 million keeps lots of folks employed. And there's a multiplier effect in all of it, as I think I've tried to outline.

And before I forget, I sure did get a chuckle out of those large bank CEOs testifying on Capital Hill the other day, largely suggesting that few, if any, people have had their credit card interest rates explode or credit lines cut since those very same banks took tens of billions of dollars from the TARP.

There is ample evidence that they, indeed, have done that, and done it indiscriminately. This becomes another perpetual motion machine. Slash lines of credit on folks, even if they are strong, consistent payers, and guess what? Their credit scores go down, making them appear to be higher credit risks. So they do not qualify for that new lower-cost mortgage or a new car loan. All thanks to the banks. The banks that our tax dollars are saving from insolvency.

Now not all business owners or managers are cruel. Some people do step up and work overtime to preserve jobs. But many, and I'm mainly talking about large employers here, just don't get it.

We Have Met The Enemy...and It Is Us.

Wednesday, January 14, 2009


After faint hits at rallying, with investors, portfolio managers, and securities analysts, alike forgetting about - THE RECESSION, the stock market is off to its worst yearly start ever. Ever!

As usual, analysts are only NOW getting with reality and slashing - well so far cutting - earnings estimates for 2009. DUH!!!!!!!!!! Where were they when the handwriting was all over the walls like gang graffiti as recently as October? November? December?

Earlier this week, we saw Citigroup, Inc. (C - NYSE) forced to sell a 51 percent stake in its Smith Barney brokerage biz to JPMorgan Chase (JPM - NYSE). Why? They badly need capital. And if you're wondering what's left of Citigroup after Smith Barney, well....largely one of the largest banks in the world. "Too Big To Fail?" How many times will we hear that round in 2009?

Just today, we learned that Bank of America (BAC - NYSE) has gone back to the Fed, hat in hand, "asking" for more TARP money to cover Merrill Lynch losses. "Too Big To Fail?"

Here's the thing about the financial sector: Rather than establishing a mechanism where we can encourage the establishment of new banks, or even solidify the standing of smaller banks that have actually been well-run, the Bush brain trust has seen fit to toss tens upon tens of billions of dollars at the biggest banks, the ones that worked overtime to get us into this mess in the first place.

Rather than establishing broad programs to attack the foreclosure problem - which will only worsen as unemployment continues to rise and as the largely un-talked about ticking time bomb of option-ARM mortgages looks to explode over the next 12 - 18 months, the Fed is feeding bad banks, banks that believe there is no one to which they can actually lend.

Analysts talk about a possible, if not likely, turnaround in auto sales later this year, some suggesting that December 2008 may have actually been the bottom for auto sales. Two questions:

1) As unemployment becomes ever more problematic, who is going to buy these cars?

2) As credit scores decline - as a result of unemployment, bad mortgages, and the rules of credit scoring changing mid-game - who will be able to qualify for a loan?

The likelihood of the stock market not only retesting the November 2008 lows but breaking them, as was reiterated here in December - sorry about the hiatus - is not off the table.

Will there be pockets of strength? Sure. It's more than likely that the worst of the wholesale selling is behind us. So there will be some boats that float, and some that are and will continue to become just plain too cheap to not own if you are looking down the road a few years.

Lots of stocks declined today and the volume behind the declines relative to volume on the buy side was pretty darned heavy. Given the breadth, the good news to take away is that prices could have declined much more than they did. I can easily make a case for many many stocks simply being too cheap to not purchase. But so long as clueless analysts being slow or unwilling to pull the trigger on downgrades and slashing earnings estimates, well cheap is too relative for most folks to be able to sleep at night.