I Love Watching Bankers Get Grilled Over Bailouts

Congressman Alan Grayson tears up former Citigroup CEO Vikram Pandit over the bailout his company received last fall. Just watching these videos shows the shear fraud that has been perpetrated on the American people. We need more men like Mr. Grayson in Congress to ask the tough questions and get the to bottom of this mess. This entails Ending the Fed.

Portfolio Update - 11/13/2009 - Think Housing Has Bottomed? Guess Again!!

Portfolio Update: Sorry for the slow updates. However, nothing has changed. We are still in cash and awaiting a final bottom in the dollar and a final high in the stock market. In times of transition, like this. It is prudent to stay in cash and listen to what the market has to say, rather than making any rash decisions to "chase the market higher". No new positions will be taken today. Let's wait and see what comes our way next week.

Check out the graph and paragraph about the housing market at the bottom of this post.

Allocation: 100% Cash


Trades I'm pondering:

1) Long U.S. Dollar (UUP)

2) Short Gold (GLD)

3) Short Macy's (M)

4) Short Mylan (MYL)

5) Short Freeport McMoran (FCX)

Monthly Mortgage Rate Resets

The second wave of the housing crisis is upon us. Notice in the graph how the current stock market rally has taken place as monthly mortgage rate resets have been steadily falling. As of right now we have settled into a bottom in the reset market and mortgage resets will steadily start rising from here. Subprime is over. However the option adjustable rate and alt-a mortgages are going to start resetting to higher rates (reflecting the increased risk of default by most borrowers). This could send the housing market into another tailspin, much like 2007-2008. In my opinion this will be the catalyst for the coming start market crash I have been predicting.

Here is what James J. Saccacio, chief executive officer of RealtyTrac, had to say:

“Rising unemployment and a new variety of mortgage resets continued to gradually shift the nation's foreclosure epicenters in the third quarter away from the hot spots of the last two years and toward some metro areas that had avoided the brunt of the first foreclosure wave. While toxic subprime mortgages drove much of that first wave of foreclosures, high unemployment and exotic Alt-A and Option ARMs are spreading the foreclosure flood to more metro areas in 2009”

This news of a shift in the character of foreclosure activity comes precisely in tandem with the beginning of the predictable second wave of the housing market decline. The pleasant lull in the reset schedule is decidedly behind us. As always do your own due diligence on any investment you may make.

So the stimulus created jobs? That makes me laugh......

I'm sure you saw on Friday that the Obama administration announced that the government's fiscal stimulus program has helped to create of save 650,000 jobs so far. Here is an excerpt from an article on UPI.com:

• "A federal report compiling data from all 50 states is due Friday, USA Today reported Wednesday. In the meantime, the figure from states already reporting -- meant to be an actual count, not an estimate -- appears to back up the claim from President Barack Obama's Council of Economic Advisers that 600,000 to 1.1 million jobs have been created or saved, the newspaper said."

Vice President Joe Biden had this to say:

• "We're moving in the right direction. We're starting to make real progress on the road to recovery. Quite simply, the Recovery Act is performing as advertised."

Are these claims by the government accurate? Probably not, but it doesn't really matter.

Government may create jobs that didn't exist before, but the net effect on the economy is negative. Jobs don't matter, production does. Government stimulus jobs are mostly temporary and they allocate resources to some of the least productive parts of the economy. This misuse of resources further sours an already ailing economy. To quote Casey's Research:

• "Consider the Obama administration's claim that 640,000 jobs were created from $159 billion of stimulus spending (a cost of almost $250,000 per job, most of which are temporary, and may last for just weeks).

S0 we spent $250,000 per job to create a few jobs that pay a few workers a one time salary of a few thousand dollars? How is that productive? How will that create more jobs in the future? How will that pull us out of our new depression? The answer is that it won't. Government stimulus has never been the primary driver the any economy to pull out of any recession in history.

One question you may ask yourself is, "where did that $159 billion dollars come from?" It came from you and me....the taxpayers. What would we have used that $159 billion for had it not been taken from us to be redistributed so inefficiently? Casey's research answers:

• "Some of us would have spent it on food, some shelter, some luxury goods, and some may have saved and invested the money. Indeed, if that $159 billion had not been taken from us, then every business we would have purchased from or invested in would be better off. They would have received more revenue and produced more goods, and potentially would have hired more people to make and sell those goods."

Jobs created in this fashion are normally permanent. That is how an economy grows.

• "But it doesn't stop there. If that $159 billion had been left in our hands, we would have spent and allocated it on things that are the highest priority for us. This action would have sent a series of signals through the market of what to produce more of and what to invest more in. It would have encouraged competition among suppliers of the various items being purchased, driving them to find more efficient and effective ways to create superior, more innovative products for less. This is how the market creates wealth. Competition spurs innovation and creative destruction, which increases productivity.

Sounds like the government needs to take a lesson in economics 101. The only effective government stimulus I can think of is tax cuts. However, to do that the government must reign in it's deficits (like that's going to happen). The Feds are too busy bailing out the automakers and misallocating our tax dollars to "stimulus" to let the free market fix the problem the government created in the first place.

• So, instead of the $159 billion, higher employment, more goods and services, and more innovative businesses producing what society values more, we have 640,000 (mostly temporary) jobs producing what society values less....and that's assuming the administration's claim is accurate.

Which scenario do you prefer?


Source: Casey's Research

Barack Obama Campaign Contributions

I stumbled onto something today that I find very interesting. Take a look at Barack Obama's top campaign contributors. It just so happens that 6 of the top 20 are banks. 4 of those 6 received Federal bailouts and 3 of them (Citigroup, GE Capital, and UBS AG) are still clinging to life support. Not to mention that UBS AG isn't even an American company and they are using their money to influence American government. Goldman Sachs, Mr. Obama's 2nd place contributor, didn't even need a bailout. They easily could have survived the storm, however, they were the first to be paid when U.S. taxpayers saved AIG (American International Group).

Another part of this list I find interesting is the random law firms (Sidley Austin LLP, Wilmerhale LLP, and Skadden, Arps et al) that contributed to Barack Obama. What do these huge international law firms want to please our new president for? The only clue I have to answer this is what these law firms specialize in. Skadden is an expert in the Troubled Asset Releif Program (TARP), acquisition finance and corporate restructurings.

WilmerHale spells out their specialty right on their website, "Lawyers in WilmerHale’s Corporate Practice are renowned for their work in initial public offerings, venture capital, private equity, mergers and acquisitions, strategic alliances, corporate governance matters and the representation of start-up companies. Clients look to WilmerHale’s Financial Institutions Practice for assistance with complex, challenging federal regulatory and legislative, litigation, enforcement, and business transaction matters that impact them as banks, card issuers, insurance companies, broker dealers, mortgage lenders, database operators, on-line firms and other financial services providers." Their list of clients includes GE Finance, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and UBS. All of these companies have been subject to corporate restructuring, more regulatory reform, or have participated in a merger and acquisition backed by taxpayer money.

Sidley Austin LLP fits right in with the group. "Sidley has a major capital markets practice and a broad transactional practice. Major practice disciplines include corporate and securities, mergers and acquisitions, securitization, intellectual property, funds and other pooled investments, bankruptcy and corporate reorganization, bank and commercial lending, public finance, real estate, project finance, tax and employee benefits, as well as trusts and estates."

Is it a coincidence that the banks who contributed to Barack Obama were bailed out or were the beneficiaries of easy acquisitions? Is it a coincidence that the law firms who contributed to Barack Obama were hired to oversee these acquisitions, help with corporate reorganization, adhearance to TARP, and the implementation of new regulatory reforms? You be the judge!!