Clear The Mist

As The Market Turns?

2009-03-23T14:10:00.004-06:00

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.

And The Day Isn't Yet Over

2009-03-02T10:49:00.003-07:00

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?

PERSPECTIVES

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.

WHITHER THE STOCK MARKET

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.

CONSUMER SPENDING

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.

Whine Whine Whine

2009-02-19T17:22:00.004-07:00

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.

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

2009-02-12T14:51:00.003-07:00

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.

TROUBLED WATERS AHEAD?

2009-01-14T15:47:00.005-07:00

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.

GEORGE "HOOVER" BUSH & HIS FINANCIAL DEBACLE

2008-12-21T17:40:00.003-07:00

No need for editorial comment on this one. Ripped from The New York Times of Sunday, December 21, 2008.

December 21, 2008
The Reckoning
White House Philosophy Stoked Mortgage Bonfire
By JO BECKER, SHERYL GAY STOLBERG and STEPHEN LABATON

“We can put light where there’s darkness, and hope where there’s despondency in this country. And part of it is working together as a nation to encourage folks to own their own home.” — President Bush, Oct. 15, 2002

WASHINGTON — The global financial system was teetering on the edge of collapse when President Bush and his economics team huddled in the Roosevelt Room of the White House for a briefing that, in the words of one participant, “scared the hell out of everybody.”

It was Sept. 18. Lehman Brothers had just gone belly-up, overwhelmed by toxic mortgages. Bank of America had swallowed Merrill Lynch in a hastily arranged sale. Two days earlier, Mr. Bush had agreed to pump $85 billion into the failing insurance giant American International Group.

The president listened as Ben S. Bernanke, chairman of the Federal Reserve, laid out the latest terrifying news: The credit markets, gripped by panic, had frozen overnight, and banks were refusing to lend money.

Then his Treasury secretary, Henry M. Paulson Jr., told him that to stave off disaster, he would have to sign off on the biggest government bailout in history.

Mr. Bush, according to several people in the room, paused for a single, stunned moment to take it all in.

“How,” he wondered aloud, “did we get here?”

Eight years after arriving in Washington vowing to spread the dream of homeownership, Mr. Bush is leaving office, as he himself said recently, “faced with the prospect of a global meltdown” with roots in the housing sector he so ardently championed.

There are plenty of culprits, like lenders who peddled easy credit, consumers who took on mortgages they could not afford and Wall Street chieftains who loaded up on mortgage-backed securities without regard to the risk.

But the story of how we got here is partly one of Mr. Bush’s own making, according to a review of his tenure that included interviews with dozens of current and former administration officials.

From his earliest days in office, Mr. Bush paired his belief that Americans do best when they own their own home with his conviction that markets do best when let alone.

He pushed hard to expand homeownership, especially among minorities, an initiative that dovetailed with his ambition to expand the Republican tent — and with the business interests of some of his biggest donors. But his housing policies and hands-off approach to regulation encouraged lax lending standards.

Mr. Bush did foresee the danger posed by Fannie Mae and Freddie Mac, the government-sponsored mortgage finance giants. The president spent years pushing a recalcitrant Congress to toughen regulation of the companies, but was unwilling to compromise when his former Treasury secretary wanted to cut a deal. And the regulator Mr. Bush chose to oversee them — an old prep school buddy — pronounced the companies sound even as they headed toward insolvency.

As early as 2006, top advisers to Mr. Bush dismissed warnings from people inside and outside the White House that housing prices were inflated and that a foreclosure crisis was looming. And when the economy deteriorated, Mr. Bush and his team misdiagnosed the reasons and scope of the downturn; as recently as February, for example, Mr. Bush was still calling it a “rough patch.”

The result was a series of piecemeal policy prescriptions that lagged behind the escalating crisis.

“There is no question we did not recognize the severity of the problems,” said Al Hubbard, Mr. Bush’s former chief economics adviser, who left the White House in December 2007. “Had we, we would have attacked them.”

Looking back, Keith B. Hennessey, Mr. Bush’s current chief economics adviser, says he and his colleagues did the best they could “with the information we had at the time.” But Mr. Hennessey did say he regretted that the administration did not pay more heed to the dangers of easy lending practices. And both Mr. Paulson and his predecessor, John W. Snow, say the housing push went too far.

“The Bush administration took a lot of pride that homeownership had reached historic highs,” Mr. Snow said in an interview. “But what we forgot in the process was that it has to be done in the context of people being able to afford their house. We now realize there was a high cost.”

For much of the Bush presidency, the White House was preoccupied by terrorism and war; on the economic front, its pressing concerns were cutting taxes and privatizing Social Security. The housing market was a bright spot: ever-rising home values kept the economy humming, as owners drew down on their equity to buy consumer goods and pack their children off to college.

Lawrence B. Lindsay, Mr. Bush’s first chief economics adviser, said there was little impetus to raise alarms about the proliferation of easy credit that was helping Mr. Bush meet housing goals.

“No one wanted to stop that bubble,” Mr. Lindsay said. “It would have conflicted with the president’s own policies.”

Today, millions of Americans are facing foreclosure, homeownership rates are virtually no higher than when Mr. Bush took office, Fannie and Freddie are in a government conservatorship, and the bailout cost to taxpayers could run in the trillions.

As the economy has shed jobs — 533,000 last month alone — and his party has been punished by irate voters, the weakened president has granted his Treasury secretary extraordinary leeway in managing the crisis.

Never once, Mr. Paulson said in a recent interview, has Mr. Bush overruled him. “I’ve got a boss,” he explained, who “understands that when you’re dealing with something as unprecedented and fast-moving as this we need to have a different operating style.”

Mr. Paulson and other senior advisers to Mr. Bush say the administration has responded well to the turmoil, demonstrating flexibility under difficult circumstances. “There is not any playbook,” Mr. Paulson said.

The president declined to be interviewed for this article. But in recent weeks Mr. Bush has shared his views of how the nation came to the brink of economic disaster. He cites corporate greed and market excesses fueled by a flood of foreign cash — “Wall Street got drunk,” he has said — and the policies of past administrations. He blames Congress for failing to reform Fannie and Freddie. Last week, Fox News asked Mr. Bush if he was worried about being the Herbert Hoover of the 21st century.

“No,” Mr. Bush replied. “I will be known as somebody who saw a problem and put the chips on the table to prevent the economy from collapsing.”

But in private moments, aides say, the president is looking inward. During a recent ride aboard Marine One, the presidential helicopter, Mr. Bush sounded a reflective note.

“We absolutely wanted to increase homeownership,” Tony Fratto, his deputy press secretary, recalled him saying. “But we never wanted lenders to make bad decisions.”

A Policy Gone Awry

Darrin West could not believe it. The president of the United States was standing in his living room.

It was June 17, 2002, a day Mr. West recalls as “the highlight of my life.” Mr. Bush, in Atlanta to unveil a plan to increase the number of minority homeowners by 5.5 million, was touring Park Place South, a development of starter homes in a neighborhood once marked by blight and crime.

Mr. West had patrolled there as a police officer, and now he was the proud owner of a $130,000 town house, bought with an adjustable-rate mortgage and a $20,000 government loan as his down payment — just the sort of creative public-private financing Mr. Bush was promoting.

“Part of economic security,” Mr. Bush declared that day, “is owning your own home.”

A lot has changed since then. Mr. West, beset by personal problems, left Atlanta. Unable to sell his home for what he owed, he said, he gave it back to the bank last year. Like other communities across America, Park Place South has been hit with a foreclosure crisis affecting at least 10 percent of its 232 homes, according to Masharn Wilson, a developer who led Mr. Bush’s tour.

“I just don’t think what he envisioned was actually carried out,” she said.

Park Place South is, in microcosm, the story of a well-intentioned policy gone awry. Advocating homeownership is hardly novel; the Clinton administration did it, too. For Mr. Bush, it was part of his vision of an “ownership society,” in which Americans would rely less on the government for health care, retirement and shelter. It was also good politics, a way to court black and Hispanic voters.

But for much of Mr. Bush’s tenure, government statistics show, incomes for most families remained relatively stagnant while housing prices skyrocketed. That put homeownership increasingly out of reach for first-time buyers like Mr. West.

So Mr. Bush had to, in his words, “use the mighty muscle of the federal government” to meet his goal. He proposed affordable housing tax incentives. He insisted that Fannie Mae and Freddie Mac meet ambitious new goals for low-income lending.

Concerned that down payments were a barrier, Mr. Bush persuaded Congress to spend up to $200 million a year to help first-time buyers with down payments and closing costs.

And he pushed to allow first-time buyers to qualify for federally insured mortgages with no money down. Republican Congressional leaders and some housing advocates balked, arguing that homeowners with no stake in their investments would be more prone to walk away, as Mr. West did. Many economic experts, including some in the White House, now share that view.

The president also leaned on mortgage brokers and lenders to devise their own innovations. “Corporate America,” he said, “has a responsibility to work to make America a compassionate place.”

And corporate America, eyeing a lucrative market, delivered in ways Mr. Bush might not have expected, with a proliferation of too-good-to-be-true teaser rates and interest-only loans that were sold to investors in a loosely regulated environment.

“This administration made decisions that allowed the free market to operate as a barroom brawl instead of a prize fight,” said L. William Seidman, who advised Republican presidents and led the savings and loan bailout in the 1990s. “To make the market work well, you have to have a lot of rules.”

But Mr. Bush populated the financial system’s alphabet soup of oversight agencies with people who, like him, wanted fewer rules, not more.

Like Minds on Laissez-Faire

The president’s first chairman of the Securities and Exchange Commission promised a “kinder, gentler” agency. The second was pushed out amid industry complaints that he was too aggressive. Under its current leader, the agency failed to police the catastrophic decisions that toppled the investment bank Bear Stearns and contributed to the current crisis, according to a recent inspector general’s report.

As for Mr. Bush’s banking regulators, they once brandished a chain saw over a 9,000-page pile of regulations as they promised to ease burdens on the industry. When states tried to use consumer protection laws to crack down on predatory lending, the comptroller of the currency blocked the effort, asserting that states had no authority over national banks.

The administration won that fight at the Supreme Court. But Roy Cooper, North Carolina’s attorney general, said, “They took 50 sheriffs off the beat at a time when lending was becoming the Wild West.”

The president did push rules aimed at forcing lenders to more clearly explain loan terms. But the White House shelved them in 2004, after industry-friendly members of Congress threatened to block confirmation of his new housing secretary.

In the 2004 election cycle, mortgage bankers and brokers poured nearly $847,000 into Mr. Bush’s re-election campaign, more than triple their contributions in 2000, according to the nonpartisan Center for Responsive Politics. The administration did not finalize the new rules until last month.

Among the Republican Party’s top 10 donors in 2004 was Roland Arnall. He founded Ameriquest, then the nation’s largest lender in the subprime market, which focuses on less creditworthy borrowers. In July 2005, the company agreed to set aside $325 million to settle allegations in 30 states that it had preyed on borrowers with hidden fees and ballooning payments. It was an early signal that deceptive lending practices, which would later set off a wave of foreclosures, were widespread.

Andrew H. Card Jr., Mr. Bush’s former chief of staff, said White House aides discussed Ameriquest’s troubles, though not what they might portend for the economy. Mr. Bush had just nominated Mr. Arnall as his ambassador to the Netherlands, and the White House was primarily concerned with making sure he would be confirmed.

“Maybe I was asleep at the switch,” Mr. Card said in an interview.

Brian Montgomery, the Federal Housing Administration commissioner, understood the significance. His agency insures home loans, traditionally for the same low-income minority borrowers Mr. Bush wanted to help. When he arrived in June 2005, he was shocked to find those customers had been lured away by the “fool’s gold” of subprime loans. The Ameriquest settlement, he said, reinforced his concern that the industry was exploiting borrowers.

In December 2005, Mr. Montgomery drafted a memo and brought it to the White House. “I don’t think this is what the president had in mind here,” he recalled telling Ryan Streeter, then the president’s chief housing policy analyst.

It was an opportunity to address the risky subprime lending practices head on. But that was never seriously discussed. More senior aides, like Karl Rove, Mr. Bush’s chief political strategist, were wary of overly regulating an industry that, Mr. Rove said in an interview, provided “a valuable service to people who could not otherwise get credit.” While he had some concerns about the industry’s practices, he said, “it did provide an opportunity for people, a lot of whom are still in their houses today.”

The White House pursued a narrower plan offered by Mr. Montgomery that would have allowed the F.H.A. to loosen standards so it could lure back subprime borrowers by insuring similar, but safer, loans. It passed the House but died in the Senate, where Republican senators feared that the agency would merely be mimicking the private sector’s risky practices — a view Mr. Rove said he shared.

Looking back at the episode, Mr. Montgomery broke down in tears. While he acknowledged that the bill did not get to the root of the problem, he said he would “go to my grave believing” that at least some homeowners might have been spared foreclosure.

Today, administration officials say it is fair to ask whether Mr. Bush’s ownership push backfired. Mr. Paulson said the administration, like others before it, “over-incented housing.” Mr. Hennessey put it this way: “I would not say too much emphasis on expanding homeownership. I would say not enough early focus on easy lending practices.”

‘We Told You So’

Armando Falcon Jr. was preparing to take on a couple of giants.

A soft-spoken Texan, Mr. Falcon ran the Office of Federal Housing Enterprise Oversight, a tiny government agency that oversaw Fannie Mae and Freddie Mac, two pillars of the American housing industry. In February 2003, he was finishing a blockbuster report that warned the pillars could crumble.

Created by Congress, Fannie and Freddie — called G.S.E.’s, for government-sponsored entities — bought trillions of dollars’ worth of mortgages to hold or sell to investors as guaranteed securities. The companies were also Washington powerhouses, stuffing lawmakers’ campaign coffers and hiring bare-knuckled lobbyists.

Mr. Falcon’s report outlined a worst-case situation in which Fannie and Freddie could default on debt, setting off “contagious illiquidity in the market” — in other words, a financial meltdown. He also raised red flags about the companies’ soaring use of derivatives, the complex financial instruments that economic experts now blame for spreading the housing collapse.

Today, the White House cites that report — and its subsequent effort to better regulate Fannie and Freddie — as evidence that it foresaw the crisis and tried to avert it. Bush officials recently wrote up a talking points memo headlined “G.S.E.’s — We Told You So.”

But the back story is more complicated. To begin with, on the day Mr. Falcon issued his report, the White House tried to fire him.

At the time, Fannie and Freddie were allies in the president’s quest to drive up homeownership rates; Franklin D. Raines, then Fannie’s chief executive, has fond memories of visiting Mr. Bush in the Oval Office and flying aboard Air Force One to a housing event. “They loved us,” he said.

So when Mr. Falcon refused to deep-six his report, Mr. Raines took his complaints to top Treasury officials and the White House. “I’m going to do what I need to do to defend my company and my position,” Mr. Raines told Mr. Falcon.

Days later, as Mr. Falcon was in New York preparing to deliver a speech about his findings, his cellphone rang. It was the White House personnel office, he said, telling him he was about to be unemployed.

His warnings were buried in the next day’s news coverage, trumped by the White House announcement that Mr. Bush would replace Mr. Falcon, a Democrat appointed by Bill Clinton, with Mark C. Brickell, a leader in the derivatives industry that Mr. Falcon’s report had flagged.

It was not until 2003, when Freddie became embroiled in an accounting scandal, that the White House took on the companies in earnest. Mr. Bush decided to quit the long-standing practice of rewarding supporters with high-paying appointments to the companies’ boards — “political plums,” in Mr. Rove’s words. He also withdrew Mr. Brickell’s nomination and threw his support behind Mr. Falcon, beginning an intense effort to give his little regulatory agency more power.

Mr. Falcon lacked explicit authority to limit the size of the companies’ mammoth investment portfolios, or tell them how much capital they needed to guard against losses. White House officials wanted that to change. They also wanted the power to put the companies into receivership, hoping that would end what Mr. Card, the former chief of staff, called “the myth of government backing,” which gave the companies a competitive edge because investors assumed the government would not let them fail.

By the spring of 2005 a deal with Congress seemed within reach, Mr. Snow, the former Treasury secretary, said in an interview.

Michael G. Oxley, an Ohio Republican and then-chairman of the House Financial Services Committee, had produced what Mr. Snow viewed as “a pretty darned good bill,” a watered-down version of what the president sought. But at the urging of Mr. Card and the White House economics team, the president decided to hold out for a tougher bill in the Senate.

Mr. Card said he feared that Mr. Snow was “more interested in the deal than the result.” When the bill passed the House, the president issued a statement opposing it, effectively killing any chance of compromise. Mr. Oxley was furious.

“The problem with those guys at the White House, they had all the answers and they didn’t think they had to listen to anyone, including the Treasury secretary,” Mr. Oxley said in a recent interview. “They were driving the ideological train. He was in the caboose, and they were in the engine room.”

Mr. Card and Mr. Hennessey said they had no regrets. They are convinced, Mr. Hennessey said, that the Oxley bill would have produced “the worst of all possible outcomes,” the illusion of reform without the substance.

Still, some former White House and Treasury officials continue to debate whether Mr. Bush’s all-or-nothing approach scuttled a measure that, while imperfect, might have given an aggressive regulator enough power to keep the companies from failing.

Mr. Snow, for one, calls Mr. Oxley “a hero,” adding, “He saw the need to move. It didn’t get done. And it’s too bad, because I think if it had, I think we could well have avoided a big contributor to the current crisis.”

Unheeded Warnings

Jason Thomas had a nagging feeling.

The New Century Financial Corporation, a huge subprime lender whose mortgages were bundled into securities sold around the world, was headed for bankruptcy in March 2007. Mr. Thomas, an economic analyst for President Bush, was responsible for determining whether it was a hint of things to come.

At 29, Mr. Thomas had followed a fast-track career path that took him from a Buffalo meatpacking plant, where he worked as a statistician, to the White House. He was seen as a whiz kid, “a brilliant guy,” his former boss, Mr. Hubbard, says.

As Mr. Thomas began digging into New Century’s failure that spring, he became fixated on a particular statistic, the rent-to-own ratio.

Typically, as home prices increase, rental costs rise proportionally. But Mr. Thomas sent charts to top White House and Treasury officials showing that the monthly cost of owning far outpaced the cost to rent. To Mr. Thomas, it was a sign that housing prices were wildly inflated and bound to plunge, a condition that could set off a foreclosure crisis as conventional and subprime borrowers with little equity found they owed more than their houses were worth.

It was not the Bush team’s first warning. The previous year, Mr. Lindsay, the former chief economics adviser, returned to the White House to tell his old colleagues that housing prices were headed for a crash. But housing values are hard to evaluate, and Mr. Lindsay had a reputation as a market pessimist, said Mr. Hubbard, adding, “I thought, ‘He’s always a bear.’ ”

In retrospect, Mr. Hubbard said, Mr. Lindsay was “absolutely right,” and Mr. Thomas’s charts “should have been a signal.”

Instead, the prevailing view at the White House was that the problems in the housing market were limited to subprime borrowers unable to make their payments as their adjustable mortgages reset to higher rates. That belief was shared by Mr. Bush’s new Treasury secretary, Mr. Paulson.

Mr. Paulson, a former chairman of the Wall Street firm Goldman Sachs, had been given unusual power; he had accepted the job only after the president guaranteed him that Treasury, not the White House, would have the dominant role in shaping economic policy. That shift merely continued an imbalance of power that stifled robust policy debate, several former Bush aides say.

Throughout the spring of 2007, Mr. Paulson declared that “the housing market is at or near the bottom,” with the problem “largely contained.” That position underscored nearly every action the Bush administration took in the ensuing months as it offered one limited response after another.

By that August, the problems had spread beyond New Century. Credit was tightening, amid questions about how heavily banks were invested in securities linked to mortgages. Still, Mr. Bush predicted that the turmoil would resolve itself with a “soft landing.”

The plan Mr. Bush announced on Aug. 31 reflected that belief. Called “F.H.A. Secure,” it aimed to help about 80,000 homeowners refinance their loans. Mr. Montgomery, the housing commissioner, said that he knew the modest program was not enough — the White House later expanded the agency’s rescue role — and that he would be “flying the plane and fixing it at the same time.”

That fall, Representative Rahm Emanuel, a leading Democrat, former investment banker and now the incoming chief of staff to President-elect Barack Obama, warned the White House it was not doing enough. He said he told Joshua B. Bolten, Mr. Bush’s chief of staff, and Mr. Paulson in a series of phone calls that the credit crisis would get “deep and serious” and that the only answer was big, internationally coordinated government intervention.

“You got to strangle this thing and suffocate it,” he recalled saying.

Instead, Mr. Bush developed Hope Now, a voluntary public-private partnership to help struggling homeowners refinance loans. And he worked with Congress to pass a stimulus package that sent taxpayers $150 billion in tax rebates.

In a speech to the Economic Club of New York in March 2008, he cautioned against Washington’s temptation “to say that anything short of a massive government intervention in the housing market amounts to inaction,” adding that government action could make it harder for the markets to recover.

Dominoes Start to Fall

Within days, Bear Sterns collapsed, prompting the Federal Reserve to engineer a hasty sale. Some economic experts, including Timothy F. Geithner, the president of the New York Federal Reserve Bank (and Mr. Obama’s choice for Treasury secretary) feared that Fannie Mae and Freddie Mac could be the next to fall.

Mr. Bush was still leaning on Congress to revamp the tiny agency that oversaw the two companies, and had acceded to Mr. Paulson’s request for the negotiating room that he had denied Mr. Snow. Still, there was no deal.

Over the previous two years, the White House had effectively set the agency adrift. Mr. Falcon left in 2005 and was replaced by a temporary director, who was in turn replaced by James B. Lockhart, a friend of Mr. Bush from their days at Andover, and a former deputy commissioner of the Social Security Administration who had once run a software company.

On Mr. Lockhart’s watch, both Freddie and Fannie had plunged into the riskiest part of the market, gobbling up more than $400 billion in subprime and other alternative mortgages. With the companies on precarious footing, Mr. Geithner had been advocating that the administration seize them or take other steps to reassure the market that the government would back their debt, according to two people with direct knowledge of his views.

In an Oval Office meeting on March 17, however, Mr. Paulson barely mentioned the idea, according to several people present. He wanted to use the troubled companies to unlock the frozen credit market by allowing Fannie and Freddie to buy more mortgage-backed securities from overburdened banks. To that end, Mr. Lockhart’s office planned to lift restraints on the companies’ huge portfolios — a decision derided by former White House and Treasury officials who had worked so hard to limit them.

But Mr. Paulson told Mr. Bush the companies would shore themselves up later by raising more capital.

“Can they?” Mr. Bush asked.

“We’re hoping so,” the Treasury secretary replied.

That turned out to be incorrect, and did not surprise Mr. Thomas, the Bush economic adviser. Throughout that spring and summer, he warned the White House and Treasury that, in the stark words of one e-mail message, “Freddie Mac is in trouble.” And Mr. Lockhart, he charged, was allowing the company to cover up its insolvency with dubious accounting maneuvers.

But Mr. Lockhart continued to offer reassurances. In a July appearance on CNBC, he declared that the companies were well managed and “worsts were not coming to worst.” An infuriated Mr. Thomas sent a fresh round of e-mail messages accusing Mr. Lockhart of “pimping for the stock prices of the undercapitalized firms he regulates.”

Mr. Lockhart defended himself, insisting in an interview that he was aware of the companies’ vulnerabilities, but did not want to rattle markets.

“A regulator,” he said, “does not air dirty laundry in public.”

Soon afterward, the companies’ stocks lost half their value in a single day, prompting Congress to quickly give Mr. Paulson the power to spend $200 billion to prop them up and to finally pass Mr. Bush’s long-sought reform bill, but it was too late. In September, the government seized control of Freddie Mac and Fannie Mae.

In an interview, Mr. Paulson said the administration had no justification to take over the companies any sooner. But Mr. Falcon disagreed: “They absolutely could have if they had thought there was a real danger.”

By Sept. 18, when Mr. Bush and his team had their fateful meeting in the Roosevelt Room after the failure of Lehman Brothers and the emergency rescue of A.I.G., Mr. Paulson was warning of an economic calamity greater than the Great Depression. Suddenly, historic government intervention seemed the only option. When Mr. Paulson spelled out what would become a $700 billion plan to rescue the nation’s banking system, the president did not hesitate.

“Is that enough?” Mr. Bush asked.

“It’s a lot,” the Treasury secretary recalled replying. “It will make a difference.” And in any event, he told Mr. Bush, “I don’t think we can get more.”

As the meeting wrapped up, a handful of aides retreated to the White House Situation Room to call Vice President Dick Cheney in Florida, where he was attending a fund-raiser. Mr. Cheney had long played a leading role in economic policy, though housing was not a primary interest, and like Mr. Bush he had a deep aversion to government intervention in the market. Nonetheless, he backed the bailout, convinced that too many Americans would suffer if Washington did nothing.

Mr. Bush typically darts out of such meetings quickly. But this time, he lingered, patting people on the back and trying to soothe his downcast staff. “During times of adversity, he bucks everybody up,” Mr. Paulson said.

It was not the end of the failures or government interventions; the administration has since stepped in to rescue Citigroup and, just last week, the Detroit automakers. With 31 days left in office, Mr. Bush says he will leave it to historians to analyze “what went right and what went wrong,” as he put it in a speech last week to the American Enterprise Institute.

Mr. Bush said he was too focused on the present to do much looking back.

“It turns out,” he said, “this isn’t one of the presidencies where you ride off into the sunset, you know, kind of waving goodbye.”

Kitty Bennett contributed reporting.

Copyright 2008 The New York Times Company

BOTTOMLESS IRRESPONSIBILITY

2008-12-11T11:22:00.003-07:00

On the plus side, the stock market hasn't tested its November bottom... On the negative side, the stock market hasn't tested its November bottom...yet.

Much negative news has clearly been ingested, if not digested by the financial markets - rising unemployment, declining industrial and business activity - worldwide, the spending of several trillion dollars domestically so far with little to show for it. Although, one must admit, had the Treasury and Federal Reserve NOT printed trillions of dollars to date, exactly where would we be? I shudder to ask and cringe at responding.

We have not reached the bottom of the burst housing bubble. Previously creditworthy folks still cannot buy automobiles. Many banks that claim to be refinancing difficult mortgage loans on better terms are often refinancing in such a way as to actually increase a homeowner's monthly payments.

A decision on federal loans to U.S. automakers has yet to be made - by anyone. It seems to be a "let them eat cake" mentality with no regard for human beings with jobs and mortgages, let alone buying power.

While Wall Street and an as yet unknown number of investors try to sort out the estimated $50 billion Bernard Madoff scam - "eh small potatoes!" - we can only wonder...

As has just begun to be reported in recent days and weeks, have we discounted the millions of projected mortgage defaults yet to come over the next several years? Have we discounted rising defaults on credit card and other consumer debt? How about commercial mortgage debt?

How long will the prices of oil, gasoline, natural gas and fuel oil remain relatively low? Will OPEC succeed in slashing production as demand declines worldwide, something they have usually failed to do?

How long will deflation be with us? When will the enormous wave of inflation that we have created reach our shores?

I truly hate to toss out more questions than answers at this writing. But here's the point...we can all take for granted that the stock market - historically - has been a pretty accurate leading indicator of turns in the economy. But in order to accomplish that, it needs reliable data.

Sorry...not enough data. Far too many unknowns. This recession is unlike any recession in the real life memories of those who are managing money.

Cash remains king (or queen).

Not Since the 1930s

2008-12-01T14:33:00.003-07:00

Not since the late 1930s has the stock market technically been as low as it is now. After a week of rallying, the DJIA dropped 680 points, surrendering more than half its recent gains. The S&P 500 Index and NASDAQ responded in kind, with the broader index shedding nearly 8 percent in one day.

The economic news is bad - manufacturing worldwide, unemployment data, newly announced pending layoffs from major financial institutions.

And worse yet, both Ben Bernanke and Hank Paulson spoke today, reinforcing investors' lack of confidence in the Bush administration's team of economic knuckleheads.

Wall Street remains slow to comprehend the depth of this recession. Hence, in addition to their employers' lack of desire to see stocks' earnings estimates reduced, let alone SELL recommendations shouted out, analysts simply lack the broader outlook to highlight the dangers that still remain.

If anyone expects that we will not see continued waves of tax selling before year-end, well the awakening may be very rude. We will no doubt see a retest of earlier lows. We are less than 600 DJIA points away. I've suggested even lower lows before this market reaches bottom, 7200 on the DJIA and 700 on the S&P500. Investors strongly dislike uncertainty and we have months of it ahead of us.

The good news is that the market will eventually truly reach a bottom. But it won't be a bottom based on wishful thinking or some respected investment strategist waving a magic wand. We will need evidence of a slowdown of the slowdown. And regardless of where you look, we are not close to having that vision.

CITI, OBAMA & RALLIES

2008-11-24T09:24:00.002-07:00

First off, the federal bailout of Citigroup (C).

After "forcing" Citi to take $25 billion in TARP funds from the Economic Emergency Stabilization Act of 2008 last month, and watching Citi just sit on the money rather than loaning any of it out as was the intent, Treasury comes to Citi's stockholders' rescue by giving it yet another $20 billion.

In exchange, us taxpayers receive $27 billion of preferred stock paying an 8 percent annual dividend, plus warrants to purchase 254 million shares of Citi common stock at $10.61 per share (Citi is trading this morning around $6 per share).

Given that Citi's total market value was less than $25 billion on Friday, it seems to me that we have the short end of the deal. Oh did I mention that we also cover 90 percent of the losses from a $306 billion pool of toxic garbage mortgage-backed and other securities after Citi absorbs the first $29 billion of pretax losses?

Sounds like a real deal for taxpayers! The common stock warrants will represent all of about 4 percent of Citi's total common stock should the warrants be exercised. Even if you assume that Citi's stock returns to its all-time high of some $55 per share, taxpayers stand to make all of $11 billion for assuming what could amount to $60 billion or more of losses on Citi's toxic asset portfolio.

Right now, it's difficult to estimate the extent of possible taxpayer losses. Anything is a guess, given the lack of public disclosure. I'm not sure if Treasury even knows what they've gotten into.

Citi has been badly managed for years. They've been encouraged to create, expand and manage tens of billions of dollars - if not more - of bad mortgage products and other derivative products.

But we had to save Citi. The largest bank and financial conglomerate was again "too big to fail." Citi's failure as a company, if not a bank, would have swamped the economy ad financial markets.

But we did not extract a sufficiently large price from Citi. I can only account for this because the guys running Treasury are all pals with the idiots running Citi - into the ground.

The Obama Rally

The Obama team has put together a qualified and competent economic team. It appears that they will propose an enormous stimulus package upon taking office on January 20. The rally in the market is a reflexive "anything should help" rally, not to mention that the appointment of anybody to fill what has become a vacuum of action in Washington is better than anything.

The Market

We are experiencing a very common rally in a bear market, not a bottoming of a bear market.Even if the DJIA and the S&P 500 were to recover all the way to 9500 and 1,000, respectively, it alone would not suggest the end of the downtrend. Don't forget. We can look forward to at least another year of very bad economic news. AND the auto industry mess is still unresolved.

Unless you are a trader, the best strategy is to take advantage of major rallies to lighten up on equities holdings. I expect that safe, high dividend yield stocks will continue to outperform and a good strategy will continue to be to buy them on weakness.

But don't get fooled. We can look forward to lots more pain.

BABIES & BATH WATER

2008-11-20T15:06:00.005-07:00

HOLY COW!

I suppose if you were not prepared for the stock market's devastation and its wholesale destruction of wealth and security, what could you say about the ferociousness of this bear market?

Today alone:

S&P500 Index: 752.44 down 54.14 or 6.71 percent. Intraday low of 747.78. Lowest level since 1997.

Dow Jones Industrials Average: 7552.29 down 444.99 or 5.56%. Intraday low of 7507.60. Lowest level since 2002.

NASDAQ: 1316.12 down 70.30 or 5.07%. Intraday low of 1314.90. Lowest level since 2003.

In past months, when this observer suggested that the stock market could likely see the DJIA as low as 7,200 and the S&P500 Index at 700, the targets were predicated on several factors: 1) a bear market decline on the order of the 1973-75 decline - that was around 48 percent, and 2) a return to the price/earnings valuations (PE) in the pre-1995 era - a much lower average PE of around 14 or so.

So where are we now?

Since peaking at 1565, the S&P500 is down 52 percent. The DJIA is down 47 percent. NASDAQ is down 74 percent.

Honestly, you have to go back to the 1930s to see such breadth of declines. From March 1937 to March 1938, the stock market declined by more than 54 percent. Except for November 1929 through July 1932, when the market declined by a staggering 86 percent, no other bear market has been as powerful.

Let's look at some scenarios in attempting to value stocks going forward through this dramatic recession. Everything is based on a return to an historic "norm" PE of 14.

S&P500 earnings decline to 2005 levels: S&P500 value 979

S&P500 earnings decline to 2002 levels: S&P500 value 386

S&P500 earnings decline to 1997 levels: S&P500 value 556

Using a simplistic approach of averaging those corporate earnings levels, you can make a case for the S&P500 Index declining to 640. That would translate into a DJIA of 6400.

Recently, Standard & Poor's reduced their earnings forecast on the Index component companies for 2009 to about $49. Applying a PE of 14 to that number and you arrive at 686. By the way, the average S&P500 earnings for the aforementioned three periods was about $46.

The trouble is this, as if those numbers are not frightening enough. How predictable are corporate earnings in this environment? If the Big Three auto manufacturers cannot recover, the ramifications for the entire economy are monumental. Metals producers, electronics, glass, rubber, carpet, etc. will all be severely affected.

The other assumption here is that a PE of 14 will be seen as reasonable - not 12 or even 10. And if you lived through the 1970s and were an investor, those lower PEs were commonplace.

Bottom line: 7200 on the DJIA and 700 S&P500 may be too easy to reach. Investment managers and analysts that are suggesting we are at or very close to a stock market bottom should be history. They have no reasonable basis for such conclusions.

I have been pointing out the high dividend yields of many quality companies that are likely to survive the current devastation. Yet the yields continue to increase. The suggestion to me is that investors don't care. They just want to preserve their principal. As do I and as should you.

CASH REMAINS KING

2008-11-19T14:04:00.004-07:00

Today, the stock market continued its trend to testing, and more than likely, taking out the prior October 2008 lows. In fact, both the DJIA and the S&P500 closed at their lowest since 2003.

The DJIA closed down more than 5 percent at 7997. The S&P500 closed down more than 6 percent at less than 807, smashing its October low of 830.

I haven't even commented on NASDAQ, which declined more than 6.5 percent today, blasting below its October lows.

While, as previously stated ad nauseum, we will likely see periodic rallies from such new lows, the stage seems set to reasonably expect to see the market continue to decline to 7200 DJIA and 700 S&P500.

Citigroup (C), the financial services and banking behemoth, set the tone for today, dropping more than 23 percent. Insurance companies, considered by average Americans to be pretty safe places, saw enormous losses, continuing trends not seen since the 1930s.

Pretty much, no place seems safe, feels safe if you are an investor. Oh, well gold was up 30-cents and ounce.

If you've been following any of the Capitol Hill testimony by the Big Three auto makers, I'm sure you are not reassured. After two days of testimony by the CEOs of GM, Ford and Chrysler, and the President of the UAW, no one in the Senate or the House is flashing any strong signals that they believe anything they are being told. It has been quite the spectacle. The CEOs of these manufacturing giants could not even tell their inquisitors how much cash they had on hand nor how much they really needed, let alone precisely when. Are you feeling warm and fuzzy yet?

If anything is being accomplished by these hearings, it is that management of these companies is as incompetent as anyone has been willing to suspect. Furthermore, they did their very best, including GM Chairman/CEO Wagoner in later interviews, how valuable they were to a recovery process. Really?

These are the folks that, on one hand, tout how many of their vehicles get more than 30mpg in the U.S. - on the highway. But guys, how about how many get more than 30mpg in urban driving? Hmmm?

They talk happily about how many new hybrids they "plan" to introduce in two years. But why didn't you produce them earlier? Like Toyota? Like Honda? Where has your management been? What have THEY been driving? SUVs?

The sad thing is that no one has grilled them about the higher fuel efficiency of dozens of models they manufacture and sell in Europe, and why they do not offer them here. No doubt, they have plenty of excuses.

Sadly, on one hand these guys just have to go. When I was an analyst in the '80s - back in Detroit of all places - it was all too evident then that U.S. auto management was in need of a major tuneup. But these companies cannot be allowed to fail. As has been accounted here before, there are simply too many jobs at risk, too many industries, too many small businesses and large businesses.

The auto execs seem to place the bulk of blame for their predicament on the recent economic downturn and tightening of credit. It's not like they've helped their own cause, requiring credit scores of well in excess of 700 - well in excess of 700 - to qualify for an auto loan. In light of this, to whom do they think they'll be selling cars? To Wall Street investment bankers? Oh gee. I forgot. They are all out of work. No job, well maybe no loan.

They've helped destroy their own market.

I fully expect that Congress will come to the rescue. Why not?! They've "tried" to rescue our major banks and the nation's largest insurance company, AIG, not to mention Fannie Mae and Freddie Mac.

Giant strings need to be attached to any auto bailout. This issue of more efficient European vehicles being available for manufacture here needs to be addressed. Labor costs MUST be brought down to levels competitive with domestic operations of foreign producers such as Honda, Toyota and Hyundai. Hybrid technology needs to be rolled out much much faster. GM needs to forget about charging - pun intended - $40,000 for an electric Chevy Volt.

Business as usual, led by the same tired management, must come to an end. Out-of-the-box thinking and management has to be injected into this industry. If not, they'll be back to the public trough sooner than you'll need to fuel up your Cadillac Escalade.

WHITHER THE STOCK MARKET?

2008-11-13T10:23:00.005-07:00

This morning, we find ourselves - well the stock market - on the predicted way to test the October 2008 lows of 7,900 on the DJIA and 830 on the S&P500 Index.

As I write this, we are at DJIA 8,086 and S&P500 830. In just the past six trading days, the DJIA has fallen nearly 15 percent, the S&P500 16 percent. Finally, the markets are focused on this powerful recession and the seeming inability of the U.S. Treasury or the Federal Reserve to formulate an effective policy to mitigate damage.

With 240,000 job losses last month, unemployment is now the highest in a quarter of a century, at 10.1 million Americans. Add in the approximate 17 million that have dropped out of the workforce, and "real" unemployment/underemployment exceeds 17.5 percent!

There will likely be a lot of coal in holiday stockings this year. That does not bode well for retailers, who earn as much as 50 percent of their annual profits and/or sales from the winter holiday season. Circuit City is done. Linens n Things is done. Mervyn's. Fortunoff. Lillian Vernon. Sharper Image. STA Restaurants (Bennigan's). Airlines, banks, investment banks. The list marches on. Sadly, it's not over.

These companies, both well-managed and not, all represent jobs and human lives.

A few weeks ago, I suggested that the stock market has the potential to slide further to new lows, down to perhaps 7,200 DJIA and 700 on the S&P500 Index. I have not changed that position.

Also, I suggested that investors, should they not be able to resist the temptation to be invested rather than remaining in cash, consider stocks that have historically high and "likely" safe dividend yields. Please refer to the disclaimer stated elsewhere on this site. I'd like to repeat the list of examples from October 17, with the yields then and now:

Pfizer (PFE) - now 8.1% then 7.54% P/E below 10
Bristol-Myers Squibb (BMY) - now 6.3% then 7.18%
Dow Chemical (DOW) - now 7.9% then 6.92% P/E below 10
Verizon Communications (VZ) - now 6.3% then 6.71%
AT&T (T) - now 6.0% then 6.28% P/E below 10
General Electric (GE) - now 8.2% then 6.23% P/E below 10
International Paper (IP) - now 8.2% then 5.58% P/E below 10
Eli Lilly & Co. (LLY) - now 5.8% then 5.47% P/E below 10
Glaxosmithkline (GSK) - now 5.4% then 5.42%
Merck & Co. (MRK) - now 5.6% then 5.39% P/E below 10
DuPont (DD) - now 6.1% then 4.85% P/E below 10
Kraft Foods (KFT) - now 4.3% then 4.22%

Volatility will continue. Don't get me wrong. But it is much better to get paid while you are waiting for the market to bottom. So far every pundit and expert that has suggested the formation of a market bottom has been, well dead wrong. Historically, the kind of stocks that I have illustrated here do not trade with such high dividend yields. Sure, there is always the danger of a dividend being cut. But companies such as these have long records of dividend maintenance, if not annual increases, regardless of recession or expansion.

Buyer Beware. Your stockbroker is not your friend - for the most part, rarely has been. Analysts are always late to the table to downgrade stocks as evidenced by a recent downgrading of General Motors just days ago. Mutual fund managers don't get paid for holding 80 percent cash - as I am. Buy and hold doesn't work. Preservation of capital in this most uncertain of environments is paramount.

What are YOU doing?

AMERICAN AUTO INDUSTRY - TO SAVE OR NOT TO SAVE

2008-11-12T15:23:00.006-07:00

The "Big Three," U.S.-based automobile manufacturers, General Motors (GM), Ford Motor (F) and Chrysler (C), are all failed companies - in the United States that is.

With the past year's spike in gasoline prices, the lucrative market for gas-guzzling SUVs, pick-up trucks, Hummers, luxury cars, and the myriad of other inefficient products has collapsed. The Big Three are now left with a mix of uncompetitive products that few people want, let alone can afford.

GM promises better times ahead - maybe in 2010 - with their electric Chevrolet Volt. Sounds promising. But GM, in their infinite wisdom, thinks that Americans will be willing, not to mention able, to shell out perhaps $40,000 for a Chevy Volt, rationalizing it because they will have to spend that much less for fuel. Here's the problem with GM's lack of thought: who is going to finance $40,000 automobiles for the middle-class? Banks? GMAC?

With the U.S. in the midst - well just in the early stages - of a major recession, people losing jobs by the hundreds of thousands, consumers slamming the breaks on discretionary expenditures (like new cars), and lenders tightening their standards, who will be left standing to buy the ill-priced Chevy Volt?

The U.S. auto industry has been mismanaged for decades. Of that, there is no doubt. The market generally allows most mismanaged companies to fail, to file for Chapter 11 bankruptcy protection, to hopefully reorganize - or liquidate and go out of business. However, given the state of the U.S. economy, thanks in every large part to an unregulated mortgage securities industry, "too big to fail" is the anthem of the day.

Treasury Secretary Henry Paulson and his crew are so perplexed as to what to do to stop the hemorrhaging, they seem to have given up on the $700 billion plan to buy "toxic" securities - mortgage-backed securities - from banks and other financial institutions. Taxpayer money is being used to make direct investments in banks - oh, and the insurance giant and world's worst speculator, AIG - hoping that the banks will actually lend it out. But now the banks have a problem, an increasingly huge problem. To whom can they lend these tens of billions? Consumers? With job losses mounting and no daylight in sight, fat chance. Businesses? Capital spending is dropping like a dead weight in industry after industry. Retail giants are slashing spending on inventories, new retail outlets, closing less profitable ones, even closing up shop entirely - think Circuit City and Linens n Things, etc. Auto dealers? Surely you jest.

But back to automobiles. This is what we need to know:

According to the Center for Automotive Research (CAR), as of September 2008, the Big Three employed 239,341 hourly and salaried workers, the motor vehicle and parts industries directly employed 732,800 workers in the U.S. That's a total of more than 771,000 employees. Spinoff employment, defined by CAR as expenditure-induced jobs, or jobs associated with restaurants, dry cleaners, banks and other retailers and services used by those employees, as well as suppliers to the motor vehicle and parts manufacturers, totaled 1,427,663 employees. That is a total of about 2.4 million jobs.

CAR recently prepared a flawed report titled "The Impact on the U.S. Economy of a Major Contraction of the Detroit Three Automakers." Dated November 4, 2008, I say flawed because while they diligently used two scenarios for their analysis, one reviewing the effects of a 100 percent shutdown of Big Three auto manufacturing in the U.S., the other - and more plausible - a 50 percent reduction, oddly enough they assumed that all of the direct Big Three employees would be out of work in the first year. I have to assume that this was simply an error, badly proof-read by two PhDs. If I take the liberty of focusing on their 50 percent reduction scenario - which would be closer to the mark if we witnessed GM halting substantial production and Ford and/or Chrysler contracting - and reducing their projection of nearly 2.5 million immediate job losses by reducing their estimate by some 150,000. This leaves job losses at "only" about 2.3 million.

At the Big Three, these are classic middle-class jobs. In 2007, production workers earned an average of $67,480, skilled workers $81,940 (U.S. Dept. of Labor, Bureau of Labor Statistics data). While anyway you evaluate this data, we are talking about an enormous amount of human pain. 2.3 million of our friends, family and neighbors losing good-paying jobs, dignity and their ability to pay their mortgages, credit cards, college tuition, property, sales and income taxes, even WalMart bills.

In fact, the flawed version of CAR's analysis estimates that personal income would decline in the first year by some $150 billion, personal income taxes by some $24 billion, and Social Security receipts by $21 billion.

The analysis did not address the potential impact on the ongoing housing price decline spiral, something that is absolutely critical to stop.

Can we, as a nation, really afford to allow any of the Big Three to fail, to substantially contract or even close? This is both an economic question and a moral question. Regardless of how we feel about the historically incompetent management of the auto industry in the U.S., the potential cost of a federal bailout is dwarfed by the potential tsunami cost to the economy. While we can readily estimate the immediate effects of a catastrophic failure of a critical manufacturing industry, it is far more difficult to measure the longer-term effects. CAR makes an attempt to do this. However, in their analysis, they seem to assume that many of these folks will fairly rapidly find themselves back at work, within a year or two. I'm not sure how plausible that is, are you?

While a lot of discussion has been fixated on the high production costs of the Big Three in the U.S. - high salaries and benefits, skyrocketing health care costs, pension costs - and these certainly are a competitive reality, less often is it mentioned that the root cause of the Big Three's predicament is their failure to produce desirable, fuel-efficient cars in the U.S.

Let's look at who produces what, based on federal government fuel economy measures of the 2008 model year. This list includes ONLY passenger cars manufactured in the U.S. Also, these measures are based on highway mileage, not city driving (which I believe to be a better measure of fuel economy).

Chrysler 29.3 mpg
Ford 29.5 mpg
General Motors 29.4 mpg

Honda 35.2 mpg
Nissan 33.5 mpg
Toyota 34.7 mpg

The difference between the foreign manufacturers' U.S. production and the Big Three is glaring.

But following is what really stands out as almost criminal:

The Civil Society Institute (CSI) is a not-for-profit think tank that focuses on energy and ecological issues. They illustrate what they call a startling “fuel-efficient car gap” between autos manufactured and sold in the U.S. versus Europe.

CSI found that the number of vehicle models sold in the United States that achieve combined gas mileage of at least 40 miles per gallon actually has dropped from five in 2005 to just two in 2007 — the Honda Civic hybrid and the Toyota Prius hybrid.

CSI states that "Overseas, primarily in Europe, there are 113 vehicles for sale that get a combined 40 mpg, up from 86 in 2005. Combined gas mileage is the average of a vehicle’s city and highway mpg numbers.
CSI further states that nearly two-thirds of the 113 highly fuel-efficient models that are unavailable to American consumers are either made by U.S.-based automobile manufacturers or by foreign manufacturers with substantial U.S. sales operations, such as Nissan and Toyota.

"These cars sold in Europe meet or exceed U.S. safety standards, so there is no reason why they shouldn’t be made available to U.S. consumers," said CSI President Pam Solo.

In fact, the bottom line is that, based on the same "combined gas mileage" standard, automobiles sold in Europe are about twice as fuel efficient as autos sold in the U.S.

So what's wrong with this picture? For years, it has been speculated and/or observed that the Big Three actually know how to produce more fuel efficient automobiles. They have fought increased federal and state (California) standards for decades - successfully, whining that they either did not have the technology of it might bankrupt them.

Certainly, if the Big Three began manufacturing many of the cars here that they do so overseas, we would not solve the energy crisis overnight. There are well over 250 million automobiles on the road in the U.S. It would likely take more than 20 years to replace all of them with more fuel efficient vehicles. But as we built and sold them, we would so a solid, incremental decline in the need for importing crude oil and gasoline from volatile foreign nations, eventually eliminating the need. No amount of new oil drilling in the U.S. would come close to having that impact - ever.

So how do we proceed? The Big Three are suggesting bailout packages ranging from $25 billion to $50 billion. Seems like pocket change compared with the well over $1 trillion the federal government has already committed to saving the U.S. economy. These "bailout" estimates are dwarfed by the financial impact of sitting back and allowing GM or Ford or Chrysler to slip down the drain. remember, CAR estimates the financial impact of a 50 percent contraction of the industry in the first year alone at nearly $200 billion, with lasting effects for years to follow.

Financially, the argument for a bailout is obvious and compelling, the argument against a bailout riddled with political and economic inconsistency.

But can we trust current management of any of the Big Three with the task of rebuilding the U.S. auto industry? Look at their track records. Their companies are where they are largely because of their decisions to produce what they produced, to go for the huge profits from selling fuel-guzzling behemoths. Now many academics and so-called experts argue that their role is to produce and sell what their customers tell them they want. But tell me: which customers haven't wanted more fuel efficient vehicles? At any time? To a product end-user, lower operating costs is lower operating costs. Families and businesses, alike, benefit from lower operating costs.

Now the Big Three have argued for decades that producing fuel efficient vehicles, "even if it were possible," would add to their costs and deter buyers. Really?

The Big Three and others are selling cars - granted, small cars - for under $10,000 outside of the U.S. True, the average price of a car in Europe is much closer to U.S. prices. In some countries, they are much higher, some about the same, some lower, depending on a bizarre array of tax policies.

But surely, the Big Three have the technology and capability to transfer their foreign expertise to the U.S. Any bailout of the Big Three MUST require a wholesale transformation of vehicle production here and preserve jobs. It must emphasize the scale of fuel economy they produce routinely in Europe and have deliberately failed to offer here at home.

Strong political will is required for this. Congress must hear from its constituents on this. Do we really want to see 2.3 million of our neighbors lose their jobs, more homes plummet into foreclosure, further dragging our home values down? How about all of you in retail and other businesses that rely on stable employment?

It is time to be heard on this issue. Do it.

Charter for Compassion

2008-11-11T09:08:00.003-07:00

A Charter for Compassion, crafted by a group of leading inspirational thinkers from the three Abrahamic traditions of Judaism, Christianity and Islam and based on the fundamental principles of universal justice and respect.

The TED Prize is presented to three individuals each year to support an idea that can change the world. In 2008, Karen Armstrong, author and religious thinker, received the Prize and was asked to make one wish. Her wish was for TED's assistance in the creation, launch, and propagation of a Charter for Compassion. The Charter will reconnect people of all faiths to the core idea that all traditions share: The Golden Rule. It is a grassroots effort to lift the voice of compassion above the current noise of hate, violence, and division.

The Charter will be written by the world using an innovative Internet platform and will be guided and finalized by a council of religious leaders. The Charter for Compassion website will be launched on November 11th, 2008 and will be a place for people to submit their own words and read, rate, and comment on others submissions.

Beyond the Charter itself, the website will be a place for the world to share their personal stories of compassion. It is imperative that we reflect the voices of people of all religions, ethnicities, languages, countries, and backgrounds.

The goal is to have a bank of narratives on how compassion (or the lack thereof) has touched individual lives, captured in the speaker’s native language. We are looking for personal stories; stories that overcome the boundaries of religion and culture, and show what it means to live a life of compassion.

People want to be religious, says scholar Karen Armstrong; we should act to help make religion a force for harmony. She asks the TED community to help her build a Charter for Compassion – to help restore the Golden Rule as the central global religious do

Karen Armstrong is a provocative, original thinker on the role of religion in the modern world.

Why you should listen to her:

Religious thinker Karen Armstrong has written more than 20 books on faith and the major religions, studying what Islam, Judaism and Christianity have in common, and how our faiths shaped world history and drive current events.

A former nun, Armstrong has written two books about this experience: Through the Narrow Gate, about her seven years in the convent, and The Spiral Staircase, about her subsequent spiritual awakening, when she developed her iconoclastic take on the major monotheistic religions – and on the strains of fundamentalism common to all. She is a powerful voice for ecumenical understanding.

Armstrong's TED Prize wish asks us to help her assemble a Council on Compassion, where religious leaders can work together for peace.

"I say that religion isn't about believing things. It's ethical alchemy. It's about behaving in a way that changes you, that gives you intimations of holiness and sacredness."

Karen Armstrong on Powells.com

PLEASE VISIT:

http://www.tedprize.org/category/karen-armstrong/

WE HAVE SPOKEN

2008-11-05T09:41:00.002-07:00

Not much to say this morning. So many of us are grateful for the opportunity to have been able to volunteer and serve so many candidates this year, especially President-Elect Barack Obama. And many of us can now take some time and rest, recuperate and re-energize, for the BATTLE of HOPE has just begun.

So much more work to do: revitalizing the economy, helping those among us that are most in need, renewing our commitment to education, changing our health care system so that its emphasis is better placed on benefiting its users, restoring the world's confidence and trust in America, ENDING the immoral War in Iraq and bringing our sons and daughter safely home. And so many other issues to effectively address.

Obama's election is a milestone in so many ways. Many interest groups will claim that it is THEIR triumph. But it is everyone's triumph.

I look forward to our rights under the U.S. Constitution being fully restored. I look forward to fair trade replacing free trade. I look forward to a revised tax system that maintains its progressive formula while improving the position of the lower and middle classes as those that have benefited most in recent years pay a fairer share. I look forward to the Medicare Drug Plan being revised so that the federal government can negotiate pricing with pharmaceutical companies - just like the Veteran's Administration has done for years. I look forward to a greatly accelerated renewable and alternative energy program that ends our reliance on imported fossil fuels forever. I look forward to the use of diplomacy and the end of the Bush/Cheney "bombs first" policies.

Nothing will be easy. But the tone has been set.

If you were like me, you may have shed tears at some point yesterday. For me, the first wave hit at about 2:30pm Mountain time, as I was home for half an hour, taking a break from my Campaign volunteer duties, relaxing into my routine meditation rhythm. Then again, last night during Obama's Chicago speech.

While I have either campaigned or phone banked or canvassed or simply showed my support for many presidential candidates over the decades, beginning with Robert F. Kennedy's candidacy in 1968, this campaign for Obama has truly been the most transformative in so many ways.

As a nation, we have the opportunity to awaken to a more spiritual, less combative rising sun. Let us all take stock of the challenges that we all face, both in America and worldwide. We have the opportunity to retake the higher moral ground as a nation.

Let us all hold our government accountable. Let us all continue to raise our voices in support of the issues that we hold dear.

BACK TO THE MARKETS

2008-11-03T09:22:00.002-07:00

As we find ourselves on the eve of Election Day, with lots of questions to open up regardless of who wins, a quick comment on the state of the stock market and the economy.

We had a good rally in equities last week, but we still closed out one of the worst months in stock market history. It is strange how many market pundits and professionals feel good about the markets as a result. Essentially none of the fundamentals have changed.

* Unemployment is going to increase substantially.

* The nation's manufacturing index has seen its bottom fall out, declining to its lowest levels since 1982.

* General Motors and Chrysler are pleading for a federal bailout. Personally, I prefer to see bankruptcies, the old fashioned way to restructure badly managed businesses. GM and Chrysler dug their own holes, relying on low MPG, bloated and expensive vehicles rather than offering a broad range of products that actually appeal to a broad market.

* Many people see uncertainty as far as government fiscal policy, deficit management, etc. regardless of who wins tomorrow. So safe havens in the stock market continue, in my opinion, to be well positioned companies that pay good dividends and have the wherewithal to continue to pay them during a big recession. I've mentioned many of these names in prior posts.

* While we have been looking for lower interest rates internationally as well as domestically, we really haven't seen sufficient cuts as yet. We might; I would not take the negative argument for granted. Big European rate cuts, as well as cuts in China, would go a long way to mitigating worldwide recession. But it is still an uncertainty to be considered when investing. Insufficient cuts would be viewed negatively by the investment community. But even big rate cuts may not have any positive effect, at least lasting positive effect, since we still cannot accurately forecast the breadth and length of the recession.

* We are seeing some progress in the financial community regarding home mortgages, with JPMorgan Chase doing workouts on bad WAMU mortgages, at least on a temporary basis. But with a potential flood of two million or more possible foreclosures over the next several months, much more must be done.

* We still face uncertainties regarding potential default increases on auto and credit card debt.

* The still unregulated, decentralized credit default swaps arena, a $62 Trillion or so market, remains a huge black cloud over the markets and economies worldwide. Even if we are able to move forward with regulating this market, there could be major unpleasant "surprises."

Bottom line: there is little logical rationale for markets to continue a sustained rally from its October 2008 lows. That said, while we could certainly see ongoing rally periods, potentially of explosive nature, they are likely to be short-lived. Markets dislike uncertainty, even if some pundits and professionals, alike, voice delight about what they think are low valuations. Remember: valuations based on earnings forecasts are pretty much worthless as we enter recessions. Analysts are universally slow in cutting forecasts, and universally laggards in issuing outright SELL recommendations.

All of this suggests a continuing bias towards not only testing October's lows, but very possibly establishing new ones. You can choose to sell on rallies or buy on further declines. I'm not so sure about buying on further rallies unless you are getting good, safe dividends as insurance along the way. It's simply speculation.

As the computers and androids always say in science fiction films and novels, "NEED MORE DATA."

Stock market bottoms are

VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE

2008-10-31T10:47:00.004-06:00

VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE VOTE

RESTORE THE U.S. CONSTITUTION RESTORE THE U.S. CONSTITUTION RESTORE THE U.S. CONSTITUTION RESTORE THE U.S. CONSTITUTION RESTORE THE U.S. CONSTITUTION RESTORE THE U.S. CONSTITUTION RESTORE THE U.S. CONSTITUTION RESTORE THE U.S. CONSTITUTION RESTORE THE U.S. CONSTITUTION RESTORE THE U.S. CONSTITUTION RESTORE THE U.S. CONSTITUTION RESTORE THE U.S. CONSTITUTION RESTORE THE U.S. CONSTITUTION RESTORE THE U.S. CONSTITUTION RESTORE THE U.S. CONSTITUTION RESTORE THE U.S. CONSTITUTION RESTORE THE U.S. CONSTITUTION

SUPPORT OUR TROOPS...BRING THEM HOME NOW SUPPORT OUR TROOPS...BRING THEM HOME NOW SUPPORT OUR TROOPS...BRING THEM HOME NOW SUPPORT OUR TROOPS...BRING THEM HOME NOW SUPPORT OUR TROOPS...BRING THEM HOME NOW SUPPORT OUR TROOPS...BRING THEM HOME NOW SUPPORT OUR TROOPS...BRING THEM HOME NOW SUPPORT OUR TROOPS...BRING THEM HOME NOW SUPPORT OUR TROOPS...BRING THEM HOME NOW SUPPORT OUR TROOPS...BRING THEM HOME NOW

ENSURE FREE & FAIR ELECTIONS ENSURE FREE & FAIR ELECTIONS ENSURE FREE & FAIR ELECTIONS ENSURE FREE & FAIR ELECTIONS ENSURE FREE & FAIR ELECTIONS ENSURE FREE & FAIR ELECTIONS ENSURE FREE & FAIR ELECTIONS ENSURE FREE & FAIR ELECTIONS ENSURE FREE & FAIR ELECTIONS ENSURE FREE & FAIR ELECTIONS ENSURE FREE & FAIR ELECTIONS ENSURE FREE & FAIR ELECTIONS

ROLL BACK THE BUSH TAX GIVEAWAYS TO THE TOP 2% ROLL BACK THE BUSH TAX GIVEAWAYS TO THE TOP 2% ROLL BACK THE BUSH TAX GIVEAWAYS TO THE TOP 2% ROLL BACK THE BUSH TAX GIVEAWAYS TO THE TOP 2% ROLL BACK THE BUSH TAX GIVEAWAYS TO THE TOP 2% ROLL BACK THE BUSH TAX GIVEAWAYS TO THE TOP 2% ROLL BACK THE BUSH TAX GIVEAWAYS TO THE TOP 2% ROLL BACK THE BUSH TAX GIVEAWAYS TO THE TOP 2% ROLL BACK THE BUSH TAX GIVEAWAYS TO THE TOP 2% ROLL BACK THE BUSH TAX GIVEAWAYS TO THE TOP 2% ROLL BACK THE BUSH TAX GIVEAWAYS TO THE TOP 2%

TAX BREAKS FOR THE WORKING MIDDLE-CLASS TAX BREAKS FOR THE WORKING MIDDLE-CLASS TAX BREAKS FOR THE WORKING MIDDLE-CLASS TAX BREAKS FOR THE WORKING MIDDLE-CLASS TAX BREAKS FOR THE WORKING MIDDLE-CLASS TAX BREAKS FOR THE WORKING MIDDLE-CLASS TAX BREAKS FOR THE WORKING MIDDLE-CLASS TAX BREAKS FOR THE WORKING MIDDLE-CLASS TAX BREAKS FOR THE WORKING MIDDLE-CLASS TAX BREAKS FOR THE WORKING MIDDLE-CLASS TAX BREAKS FOR THE WORKING MIDDLE-CLASS

RENEWABLES BABY RENEWABLES RENEWABLES BABY RENEWABLES RENEWABLES BABY RENEWABLES
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HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL HEALTHCARE FOR ALL

EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION EDUCATION

VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS VOTE DEMOCRATS

JOHN MCCAIN

2008-10-31T10:26:00.002-06:00

http://www.youtube.com/watch?v=GEtZlR3zp4c

http://www.youtube.com/watch?v=Lh-T2iGkLJY&feature=channel

http://therealmccain.com/

http://bravenewfilms.org/blog/38133-mccain-s-spiritual-guide-wants-america-to-destroy-islam

http://bravenewfilms.org/blog/31567-john-mcbush-2008

http://bravenewfilms.org/blog/34701-why-won-t-mccain-support-our-vets

http://votevets.org/index_html

http://www.votesmart.org/issue_rating_category.php?category=66&go.x=2&go.y=12&can_id=53270&type=category

OBAMA'S MESSAGE TO AMERICA

2008-10-30T10:27:00.001-06:00

In case you didn't catch it Wednesday evening:

http://www.youtube.com/watch?v=GtREqAmLsoA

PALIN'S $40 BILLION NATURAL GAS PIPELINE MYTH

2008-10-29T14:07:00.003-06:00

You can fool a good portion of the people a good portion of the time.

Simply by repeating a lie over and over again, and having the media simply look the other way and not ask the correct questions, a lie can fester into a perceived truth. Such is the myth of the Alaskan natural gas pipeline that Vice Presidential candidate and newly annointed "wack job," Sarah Palin, perpetuates during the closing days of the presidential campaign. And of course, poor John McCain bought it hook, line, and sinker.

Here are the simple facts, much of which is excerpted directly from the web site of TransCanada Corporation.

On August 1, 2008, TransCanada Corporation (TSX, NYSE: TRP) (TransCanada) received the support of the Alaska Legislature to award it a license for the Alaska Pipeline Project under the Alaska Gasline Inducement Act (AGIA).

"The Legislature’s decision represents a significant milestone in advancing this major natural gas pipeline project to connect stranded U.S. natural gas reserves to Alaskan and Lower 48 consumers. We are pleased to receive this vote of confidence from the representatives of the people of Alaska," stated Hal Kvisle, TransCanada’s president and chief executive officer. "This ratification of our license under AGIA will facilitate TransCanada’s continuing commercial negotiations with potential shippers, improving the likelihood of a successful open season and the construction of a natural gas delivery system from Prudhoe Bay to Lower 48 markets."

TransCanada will now move forward with project development, which will include engineering, environmental reviews, aboriginal relations and commercial work to conclude an initial binding open season by July 2010. During this period, TransCanada will continue its efforts to align with potential shippers. If sufficient firm contracts are secured in the open season, TransCanada would begin construction after regulatory approvals are received. TransCanada is targeting to have the pipeline in service by September 2018.

TransCanada applied under AGIA to build a 4.5 billion cubic feet per day (bcf/d), 48-inch diameter natural gas pipeline running approximately 1,715 miles (2,760 km) from a new natural gas treatment plant at Prudhoe Bay on Alaska’s North Slope to Alberta. Integration of the pipeline with TransCanada’s Alberta System will provide access to diverse, Lower 48 markets across the U.S. The application includes provision for expansions up to 5.9 bcf/d through the addition of compressor stations in Alaska and Canada.

With more than 50 years’ experience, TransCanada is a leader in the responsible development and reliable operation of North American energy infrastructure including natural gas pipelines, power generation, gas storage facilities, and projects related to oil pipelines and LNG facilities. TransCanada’s network of wholly owned pipelines extends more than 59,000 kilometres (36,500 miles), tapping into virtually all major gas supply basins in North America.

OKAYYYY THEN. WINK WINK

Here's the plain English:

The pipeline project is still in the earliest planning stages. In fact, you could say that it isn't even in the "planning stage." Rather, it is in the CONCEPTION STAGE. Largely where it has been for years and years. The only thing that has changed since Palin became governor is that TransCanada now has the rights to "think" about building a pipeline. NO CONSTRUCTION CONTRACT. NO CONSTRUCTION HAS BEGUN. NO HARD DEADLINE OR TARGET FOR GAS DELIVERY. NADDA. ZILCH. TransCanada is performing some engineering and environmental work. But that's about it.

During 2007 and 2008 to date, TransCanada has issued ONE PRESS RELEASE regarding the Alaska Pipeline Project. That was on August 1, 2008.

Here's a problem with the proposed pipeline. The United States has an abundance of natural gas. It has really only ever been an issue of price when it has come to building pipelines, either in Alaska or the continental U.S. But in recent weeks, as the price of crude oil has collapsed, prices have fallen so far that major natural gas producers and explorers have been scrambling for cash and selling properties.

Shipping of yet more natural gas from Alaska to the rest of us would more than likely keep pressure on natural gas prices. This is usually a huge disincentive for to produce more, let alone invest $40 billion in a new pipeline project.

Fact is anyway, more than thirty percent of crude oil is used for transportation fuels. Natural gas accounts for a drop in the bucket. Republicans have done virtually nothing to encourage the use of natural gas as a transportation fuel despite the fact that the technology has existed for years, with millions of natural gas-fueled automobiles tooling around Europe. Sure, you see the occasional fleet of natural gas powered municipal buses and other fleets around the U.S. But nothing is really being done to facilitate the availability of natural gas as a transportation fuel, let alone providing incentives.

So just what would we do with more natural gas? The biggest key to slashing our dependence on oil imports is the conversion of our automotive fleet to "something else." Natural gas, electricity, wind power, Flinstones' foot power, whatever.

THE SARAH PALIN / JOHN MCCAIN $40 BILLION Alaska Pipeline Project IS JUST A SIMPLE LIE.

POLITICS OF HATE, POLITICS OF WAIT

2008-10-28T15:00:00.005-06:00

One week to go. Lots of people have voted early. Lots of people have voted absentee ballots. LOTS OF PEOPLE HAVE NOT YET VOTED!

I'm not disturbed by the latter observation. Most people don't bother to vote until Election Day, period. It is disconcerting that people that have likely made up their minds choose to wait until November 4 to cast their votes. They might have to endure enormous lines, some polls may close before all voters vote. The weather - rainstorms, snowstorms, frogs and locusts - might discourage some voters from venturing out, convinced that the election is in the bag for their candidate (I am assuming they would be Obama voters).

My candid advice to anyone that has not yet voted, yet has the legal opportunity to do so early? GET OFF YOUR ASS AND VOTE AND DO IT NOW!

Just because every poll seems to be saying the same thing, that Barack Obama will win on Tuesday, November 4, does not assure anyone of that becoming reality. People still must vote, not just think about or pray about it.

Besides, Election Day is one week away. And the POLITICS OF HATE are heating up from the Far Right. We haven't heard the last of the "Robocalls." We haven't heard the last of veiled or outright racist hatred epithets. We haven't heard the last about "Joe/Barack the Socialist" or "Joe/Barack the Marxist" or "Joe/Barack the Taxer" or "Joe/Barack the Appeaser" or "Joe/Barack the Who Knows What."

We certainly haven't heard the last from John McCain the Liar or Sarah Palin the Liar or the Republican National Committee the Liars, or the rest of the Right Wing "distortion trust."

The next week will be ugly. And spin doctors have been known to pull rabbits out of hats at the eleventh hour. The Bush administration seems to be doing their darnedest to insight more enemies and potential conflicts with attacks on Pakistani and Syrian soil, despite ongoing protests from those governments and even the Iraqi government.

I can expect John McCain to demand that Barack Obama take a public stand on Alaska Senator Ted Stevens felony conviction. After all, we can forget that Stevens has been "pallin' around" with Palin for years, despite what she says on the stump.

And who knows what dirt will be dredged up about all those under $200 contributors to Obama's campaign, myself included? Or the fact that Obama has actually accepted contributions from firms/employees on Wall Street as well as Main Street, and how that might be spun.

As quickly as the polls universally swung to Obama's direction, they can swing right back, pun intended. That is why it is soooooo important to vote and vote as soon as you can!

In multiple states, attempts continue to disenfranchise voters, new and old, for any number of reasons. Yes, this year the Democrats have been aggressive in filing lawsuits to reverse or prevent these actions. Here in Colorado, Republican Secretary of State Mike Coffman - who is running for Congress in my own district - is being sued because of the possible disenfranchisement of tens of thousands of potential voters. And many pundits - and experts - believe that Colorado could be The STATE to watch on Tuesday.

Enough people who have been claiming they will vote MUST get out and actually vote so that disenfranchisement does not cost Democrats the election. Hey! I would like to continue to live in the United States as an American. A McCain win on November 4 just might be sufficient to push me off the cliff to find a new country to call home. I'll take higher taxes and single-payer healthcare in the UK or elsewhere if it means I won't remain under the crushing foot of Right Wing "I'm Patriotic and You're Not!" Republicans.

One last thought for the day: John McCain has been so concerned about taxing and spending and the need to freeze or slash (depending on the day) spending in order to pull us out of our dire economic circumstances. Yet at the same time, this great student of history - McCain, I mean - accuses Barack Obama of wanting to pursue Herbert Hoover policies. Let's not forget our history - our real history. Hoover cut spending at just the wrong time, exacerbating a huge financial crisis and transforming it into the Great Depression. Rather than "deficit be damned" and stimulating the economy by investing in it, Hoover pulled the plug and everyone watched as the nation circled the drain, landing with one loud "glug glug glug, THUMP."

GET OUT AND VOTE!!!!!!!!!!!!!!!!!!!!!!!

BACK TO THE FUTURE? AGAIN? OR IS IT BACK TO THE PAST?

2008-10-28T14:18:00.004-06:00

Well today, the U.S. stock market rise about 11 percent. The Dow Jones Industrials Average exploded for nearly 900 points to close above 9,000. The S&P500 Index also rose about 11 percent to close up more than 90 points to more than 940. And yes, the NASDAQ Composite rose more than 140 points to close above 1,600.

It feels to some like an eternity since we've been that high. And many pundits are already expounding that we have likely seen the bottom in U.S. stock prices and it's time to BUY BUY BUY!

HOLD ON THERE BOBALOUIE!

The stock market is back to where it was five short days ago. The market rose today on fairly light volume, suggesting not so much a huge influx of buyers and bargain-hunters, but perhaps more a lack of sellers today. Now this could be due to "sellers' exhaustion." It could be due to an absence of anything else to sell. But it certainly isn't due to a change in the fundamental outlook for the economy.

We are still staring down the barrel of a recession of still unknown proportions and length. While there has been some very modest movement to unfreeze credit markets, those all-important markets are still pretty stuck. We are looking at the likelihood of somewhere between two and three million homes going into foreclosure between now and the end of the year, barring dramatic action that is not yet in the equation.

An 11 percent one-day move in stock prices is not going to dent consumers' desire or ability to spend spend spend this Christmas. And who knows? Credit card issuers - banks - may not allow consumers to spend spend spend.

The Conference Board's index of consumer confidence plunged from 61.4 in September to 38 this month, the lowest reading recorded in 41 years. That's 1967, people.

After many stocks have declined anywhere from 50- to 75-percent off their highs, Wall Street securities analysts are just now issuing sell recommendations...but darned few of them. I guess the Harvard Business School logic is that if you thought U.S. Steel was a bargain at $195 a share, it had to be an even bigger bargain ALL THE WAY DOWN to $30 a share. Sure makes sense to me. I call that "The Lemming Logic of Financial Analysis" or LLOFA.

Thanks to LLOFA, tens of millions of retirement plans have been driven off a cliff this year. Oh no. It's not the first time, of course. But one must wonder...does it ever get any better? Do "highly educated, highly trained" people ever learn from history, let alone their own experience?

A poorly functioning clock is right twice a day, so they say. The investment industry only prays that we can't tell time the rest of the time. Or we are too attention deficit impaired to remember any past experiences.

I guess I don't quite fit that mold.

Sure, stocks are cheap if you believe that they'll have good earnings next year - the earnings estimates that analysts have yet to get around adjusting for a recession of ANY magnitude. And stocks appear cheap based on last year's earnings, very cheap. But unless you believe that this recession will be of shallow and short-term duration - which you know I do not - all you can say is it's nice to have an 11 percent up day for a change. But one day does not a trend make. And this day ignores any possibility of a recession.

Defense - no, not the manufacturers of grown-up war toys - remains the best strategy, in my humble opinion. Can the market still decline to 7,200 and 700 on the DJIA and S&P500, respectively? Nothing has changed from five days ago other than the market has been down and up and down and up.

If you are a trader, no doubt you'll find opportunities to bet on. But until there are clearer signals about our economic health, can you really return to serious investing? Five days...Where will the market be five days hence? Just after a presidential election?

BARGAINS OR FOOL'S GOLD?

2008-10-24T08:32:00.001-06:00

CORRECTED: THERE WAS A SMALL ERROR IN THE ORIGINAL POST REGARDING TARGETS FOR THE S&P500 INDEX, WHICH WAS FIRST PROPOSED ON OCTOBER 10.

Although this commentator was recently quoted in a print media outlet as "a former stockbroker," most of my career in the investment arena was spent as a securities analyst, portfolio manager, and research director. Be that as it may, as investor attempt to find their way, with most serious investors likely keeping most of their cash on the sidelines, many market pundits and manager/advisor wannabe's are simply perplexed.

Lately, as I observe all of the financial media via print, television, Internet outlets, and investment firms, there is talk mainly regarding two schools of thought - bargains and volatility.

BARGAINS:

A reasonable person - investor or otherwise - might define "bargain" as something that can be purchased at a below-market, or below-true value, price. I suppose you could define bargain in other ways. But these definitions seem to apply to things like stocks and real estate. So I'll stick with them.

In order to identify a bargain, you need to be able to relate its price to some historic norm or, on a more speculative scale, to a reasonable expectation of future value based on performance. Herein lies the problem with the argument for bargain-hunting.

How reliable are forecasts for future earnings? Sure, if you are that now rare "buy and hold" long-term, ten-year investor, you might be able to throw darts. However, if you're more focused on one, two, three, even five-year horizons, can you truly forecast, with any accuracy, earnings for many companies? And if you can, what value do you place on those earnings? In the face of a severe recession, how accurate can corporate CEOs really be when discussing future prospects with analysts?

I know, some readers may be thinking that I am beating the proverbial dead horse. But as you watch the incredible market volatility, particularly in light of the observation that quite "suddenly" market professionals have only just begun to consider the makeup of the current recession - it's depth and length - you just have to wonder what people are thinking, and who's best interests they have at heart, when they suggest that the stock market is at or near a bottom.

VOLATILITY

The other day, a number of supposed investment professionals were quoted in our daily newspaper regarding volatility:

"I don't believe this volatility is the real norm..."

"Volatility will persist..."

"The current volatility level has to do with the unique circumstances of the global credit crisis and the bottoming of the bear market."

"It is not uncommon for volatility to increase for prolonged periods."

"Definitely abnormal, but tumultuous times bring volatile markets."

"Unfortunately market volatility is here to stay for a while."

"For now we will continue to see wild swings in either direction."

Oh my! And these folks are actually paid to manage billions of our dollars? Golly gee! The market is volatile. Yep.

BACK TO THE FUTURE?

On October 10, I suggested that this stock market might not see a bottom until around 7,200 on the DJIA and 700 on the S&P500 Index. This morning, the stock market has, so far, hit an intraday low of about 8,200 and 853, respectively. We can be looking at further declines of 12 percent or more in the much-watched averages. Some stocks will decline more, some less, of course.

But this bear is not finished growling.

This morning, OPEC announced "their intention" to cut oil production by 1.5 million barrels a day. That's more than "Sister Sarah" and other oil industry "experts" believe can be pumped from ANWR ten years hence! It's a pretty big cut, even given collapsing near-term demand for oil.

I keep harkening back to the recession of 1973-76 and THAT stock market decline. We are in the midst of the biggest market collapse since at least that period, and perhaps yes, since the 1930s.

The following questions do not yet have clear answers:

How high will employment reach?

How much will gross domestic product (GDP) decline? And for how long?

When the dust clears, will there be a U.S. auto industry? And if not, how startling will be the ripple effects throughout the economy? Under Clinton (yes) and Bush trade policies, we have shipped a huge portion of our basic manufacturing capacity for goods overseas, perhaps not to return...ever. We could yet see several million more Americans out of work, and perhaps one or two million is a low number.

Will declining energy prices once again dent our will to switch to alternative fuel sources?

When will inflation finally rear its ugly head? While it is imperative for interest rates to continue to decline internationally in order to try to mitigate the recession, the end result of such declines is often inflation. And that will again result in much higher interest rates - bad for home buyers, for credit card holders, for the bond market, for equities, for everyone.

Despite OPEC's decision to cut production, the price of crude oil has plummeted. This morning, it broke $63 a barrel, down 57 percent from its peak. This is good news for consumers of energy, bad news for producers, bad news for developers of alternatives, possibly fatal news for General Motors and the development of the Chevy Volt electric plug-in.

Gold continues its march lower, suggesting that inflation is not yet seen as a problem, but rather deflation. And the evidence is all around us.

I must say, at the same time all this volatility and horrible economic news is before us, circumstances have created potentially great "bargains" in equities - assuming that you can see an end to the current recession and your investment horizon is long enough. Baby Boomers perhaps cannot see ten years down the road as an investment horizon for equities. At some point, especially after they evaluate their third quarter 401(k) and other retirement plan statements, they will (we will) at least gradually shift to less volatile investments. This will create less demand, perhaps for equities.

As suggested in earlier posts, this commentator has tip-toed back into the market during this recent leg of the bear. But 75-80-percent cash still feels pretty good to me. No one catches bottoms, well most professionals don't. Sure, we can all agree that bear markets bottom before recessions end. But when will this recession end? It is not like any recession that we've experienced in some time. And virtually no one that is managing money right now, hundreds of billions of dollars of investment portfolios, was around the stock market in the early '70s, let alone the 1930s. No, I wasn't around for the 1930s either. But I didn't learn about the investment climate of the 1960s and '70s through text books and lectures during my MBA years, either, I lived them. "B school" didn't teach me anything about effective investment management despite my investment in the degree. I simply had to get my hands dirty.

Today, we have a system of portfolio managers and securities analysts that too often landed in their positions simply because they "went to school." Think about that next time you open up your reports from your mutual funds and retirement plans. These folks often rely on other analysts, or equally bad, what self-serving CEOs of corporations tell them. They see trees, but not the forest. They follow unsustainable trends. They "go with the flow" and explode with the bubbles.

CORPORATE TAXES

2008-10-23T15:59:00.003-06:00

John McCain loves to talk about taxes, especially corporate taxes, comparing our 35 percent corporate tax rate to that of Ireland (11 percent) and the rest of the world. What McCain and all other pro-corporate tax welfare advocates fail to state is that essentially no U.S. corporation pays that kind of tax rate.

The following is excerpted from an article by Citizens for Tax Justice from September 2004.

Citizens for Tax Justice 1311 L St. NW, Washington, DC www.ctj.org 202-626-3780
WEDNESDAY, SEPTEMBER 22, 2004 at 12:30 P.M. EDT
CONTACT: Bob McIntyre, 202/626-3780, ext. 22

Bush Policies Drive Surge in Corporate Tax Freeloading

82 Big U.S. Corporations Paid No Tax in One or More Bush Years

Eighty-two of America’s largest and most profitable corporations paid no federal income tax in at least one year during the first three years of the George W. Bush administration — a period when federal corporate tax collections fell to their lowest sustained level in six decades. This is one of the many troubling findings of a major new report on corporate tax avoidance by Citizens for Tax Justice (CTJ) and the Institute on Taxation and Economic Policy (ITEP). The report covered 275 profitable Fortune 500 corporations, with total U.S. profits of $1.1 trillion over the three-year period.

“The sharp increase in the number of tax-avoiding companies reflects the results of aggressive corporate lobbying and a White House and a Congress eager to do the lobbyists’ bidding,” said Robert S. McIntyre, director of CTJ and co-author of the report with T.D. Coo Nguyen of ITEP.

Skyrocketing Corporate Tax Avoidance

In part due to a major expansion in corporate tax breaks in 2002 and 2003, along with continued failure by Congress and the White House to curb abusive corporate offshore tax sheltering, corporate tax avoidance has skyrocketed. For example:

# Eighty-two of the 275 companies, almost a third of the total, paid zero or less in federal income taxes in at least one year from 2001 to 2003. Many of them enjoyed multiple no-tax years. In the years they paid no income tax, these companies earned $102 billion in pretax U.S. profits. But instead of paying $35.6 billion in income taxes as the statutory 35 percent corporate tax rate seems to require, these companies generated so many excess tax breaks that they received outright tax rebate checks from the U.S. Treasury, totaling $12.6 billion. These companies’ “negative tax rates” meant that they made more after taxes than before taxes in those no-tax years.

# Twenty-eight corporations enjoyed negative federal income tax rates over the entire 2001-03 period. These companies, whose pretax U.S. profits totaled $44.9 billion over the three years, included, among others: Pepco Holdings (–59.6% tax rate), Prudential Financial (–46.2%), ITT Industries (–22.3%), Boeing (–18.8%), Unisys (–16.0%), Fluor (–9.2%) and CSX (–7.5%), the company previously headed by our current Secretary of the Treasury.

# In 2003 alone, 46 companies paid zero or less in federal income taxes. These 46 companies, one out of six of the companies in the study, told their shareholders they earned U.S. pretax profits in 2003 of $42.6 billion, yet received tax rebates totaling $5.4 billion. In 2002, almost as many companies, 42, paid no tax, reporting $43.5 billion in pretax profits, but $4.9 billion in tax rebates. From 2001 to 2003, the number of no-tax companies jumped from 33 to 46, an increase of 40 percent.

# After 2001, the average effective rate for all 275 companies dropped by a fifth, from 21.4 percent in 2001 to 17.2 percent in 2002 and 2003, less than half the statutory 35 percent corporate tax rate that corporations ostensibly are supposed to pay.

The Size of the Corporate Tax Subsidies

Over the 2001-03 period, the 275 companies in the survey earned almost $1.1 trillion in pretax profits in the United States. Had all of those profits been reported to the IRS and taxed at the statutory 35 percent corporate tax rate, the 275 companies would have paid $370 billion in income taxes over the three years. But instead, the companies reported only about half of their profits — $557 billion — to the IRS. Over the three years, the effective tax rate on the companies as a group was only about half the ostensibly required 35 percent rate.

Wide, Economically-Distorting Disparities in Tax Rates

The study found wide disparities in taxes among industries and among companies within particular industries. Over the 2001-03 period, industry effective tax rates for the 275 corporations ranged from a low of 1.6 percent to a high of 27.7 percent. In 2003, the range of industry tax rates was even greater, ranging from a low of –30.0 percent (a negative rate) up to a high of 27.9 percent.

# Aerospace and defense companies enjoyed the lowest effective tax rate over the three years, paying only 1.6 percent of their profits in federal income taxes. This industry’s taxes declined sharply over the three years, falling to –30.0 percent of profits in 2003.

# Other very low-tax industries, paying less than half the statutory 35 percent tax rate over the entire 2001-03 period, included: transportation (4.3%), industrial and farm equipment (6.2%), telecommunications (7.5%), electronics and electrical equipment (10.8%), petroleum and pipelines (13.3%), miscellaneous services (14.4%), gas and electric utilities (14.4%), computers, office equipment, software and data (16.0%), and metals & metal products (17.4%).

# Not a single industry paid an effective tax rate of more than 29 percent, either for the entire three-year period or in any given year.

Conclusion

The study points out that the losers from widespread corporate tax avoidance include:

# The general public, who must pay higher taxes, lose public services, or be responsible for big future debt burdens.

# Relatively disadvantaged industries and companies that will find it harder to compete for investment capital with tax-favored corporations.

# The U.S. economy, which is harmed by the distortions that corporate subsidies produce.

# State governments and state taxpayers, which see their corporate tax systems erode along with the federal system.

# The integrity and sustainability of the tax system as a whole.

“Most of the loopholes and tax dodges that corporations use to slash their taxes may be technically ‘legal’ in the sense that the tax law allows them,” said McIntyre. “But remember that these subsidies got into the tax code because corporations lobbied to put them there. Saying something is ‘legal’ doesn’t mean that it’s right.”

You can download the entire report from:
http://ctj.org/html/publist.htm#history

THE CLUELESSNESS (OR DECEPTION) OF THE MCCAIN/PALIN CAMPAIGN & REPUBLICANS

2008-10-22T10:27:00.004-06:00

Several days ago, the political world potential - hopefully - imploded for one Republican Rep. Michele Bachmann (MN). On Chris Matthews, MSNBC "Hardball" program, Rep. Bachman, when asked by Matthews if she believed Obama held anti-American views, she replied, "Absolutely. I'm very concerned that he may have anti-American views. That's what the American people are concerned about. That's why they want to know what his answers are."

Further, Rep. Bachman called for the media to launch an investigation of Congress to determine who is pro-American and anti-American.

To paraphrase, former Senator Lloyd Bentsen, from his 1988 Vice-Presidential debate with Dan Quayle, "Representative Bachman, I knew Joseph McCarthy. You're no Joe McCarthy." Well, I really did not personally know McCarthy. But even as a very small child, and as a student of history, I know enough about demagoguery to scream about it when I see it.

The McCain/Palin team and their "band of reckless and ruthless brothers and sisters," try as they may out of desperation, will never be as successful in destroying lives as was Joe "the liar" McCarthy. Seems like everyone on the Republican side wants to label people "Joe." I wonder how popular the name, Joe, is amongst their children.

So now - suddenly - Bachmann says she regrets using the term "anti-American" while discussing Democratic presidential candidate Barack Obama's views? Why you may ask? Because since her remarks, her Democratic opponent, Elwyn Tinklenberg, has raised more than $1 million in campaign contributions. In just a few days!

Well no wonder she has regrets. a remark that could threaten her re-election bid. Prior to her remarks, she only held a 4-point lead over Tinklenberg. This week's polls should be quite interesting.

Bachmann claims to have never seen "Hardball" prior to her appearance. Ever! Is she just too busy? Does she not have access to television or electricity?

But Bachmann's remarks are all too typical of a political movement that has lost all credibility.

McCain and Palin, and their surrogates, continue to talk taxes. They continue to claim that Obama will raise taxes on all the Joes and Jills out there, that he will be sending tax dollars - "your tax dollars - to people that don't even pay taxes.

Of course, they conveniently lie about virtually every aspect of Obama's tax proposals. The ones that will cut taxes for "working families." As opposed to "non-working" families. They forget, probably because "they" have never paid their fair share of them, that most members of the lower and middle income strata in America pay payroll taxes on 100 percent of their earnings, unlike the folks that earn more than $250,000, who pay payroll taxes only only a minority of their income.

And they lie about Obama's healthcare plan as well as their own. I guess they don't have access to the "Internets." I guess they don't really know anything about their own federal healthcare plan that is far from a single payer Medicare plan, but rather a menue of private plan choices called the Federal Employees Health Benefits Plan, or FEHBP.

You can learn everything you need to about FEHBP right here:

http://www.opm.gov/insure/health/index.asp

Obama simply says keep your current insurance, or if you can't or do not wish to, or just plain do not have health insurance, you can take a look at FEHBP and the very same variety of choices that are available to members of Congress and other federal employees.

On one hand, I am morally, emotionally, intellectually, and spiritually disappointed that we have had to once again endure such a negative political campaign season. But on the other hand, most polling shows that Americans are responding negatively to the negativity. Hand in hand with that, many voters are actually sensitive to the real issues.

I just hope that by the end of the day on November 4, people will have sifted out the lies and chosen to side with actual facts.

Cluelessness may be an excuse for checking the wrong boxes on the ballot. It is not an excuse for running a political campaign.