Friday, January 30, 2009

Why you shouldn't follow the so called professional investors?

I love that video. I'm glad I found investment sense on March 16th 2008 when I got out of stocks and corporate bonds. Don't be fooled by investment performance in a bull market. Even asshats make money in bull markets. I'm no genius and I made a good chunk of change in the bull market from 2002-2007. I have many friends who think their investment guy is smart when all he does is tells them to "buy and hold." The investment advisor collects his trail on the mutual fund no matter how bad it performs. Buy and hope works great in a market where there's a 25 year credit expansion. The "buy and hold" investment philosophy is dead. RIP.

Thursday, January 29, 2009

The Bad Bank Idea or Shit Sandwich?

Wouldn't it be nice to make a bad financial decision and then be able to take the loss and put it on someone else. I didn't go out and buy a house that I couldn't afford. I didn't spend like an idiot and not save at least 10 percent of my income. I actually was like a Chinese person and saved over 30% of my income. So it's not unfair for me to ask the question, why should I the responsible taxpayer have to pay for this banker bailout? The banks are going to be able to take all of their non-performing assets and put them on the taxpayer balance sheet. These non performing assets are not wanted by anyone in the private investment community for any price. That alone should raise the red flag. So the banks will sell the taxpayer all of their shitty assets at seventy cents on the dollar. These assets are worth zero. Most people go to jail for doing what these bankers did.
Back in mid 2008, Merrill Lynch sold roughly 31 billion dollars of toxic paper of which 21 billion was already written off as losses. An investment company bought the toxic paper for roughly 6 billion or sixty cents on the dollar. The information that wasn't in the headline was Merrill Lynch had to finance 75% of the purchase and there was a clause that Merrill Lynch pay for any losses incurred. If you do the math the company paid 1.5 billion with no risk because Merrill Lynch had to bear the losses. 1.5 billion divided by 31 billion equals less than 5 cents on the dollar. I'm assuming all of the investment companies were doing this and all of the gains were fraudulently manipulated. Bear Stearns was taken over and Lehman Brothers failed. Goldman Sachs and Morgan Stanley had to become bank holding companies and Merrill Lynch was bought by Bank of America. My point is that bad banks should fail and good banks should take over the bad banks. I the taxpayer want no part of taking another bit of the shit sandwich. Debt is the problem not the solution.

Saturday, January 24, 2009

IOU USA and the United States Leadership

China saves 9% of GDP and the US borrows 7% of GDP. If China would appreciate their currency from 7 to 1 to one to one Yuan to US dollar. Then we would only owe China a trillion dollars versus the 7 trillion we owe them currently. Obviously by keeping the current exchange rate it's benificial for US and Chinese business people who sell product in the states. As the Yaun appreciates then the jobs in China would be be shifted. Jobs would go back to the US or to another less developed part of the world like southeast Asia. Some interesting videos below:

Tom Friedman at MIT "The World is Flat"

A cool video on global trends.

F**** the Fed

The Fed needs to go. Between income tax and the international super bankers the people have no power. We never will until we get these a**clowns out of Washington. The Federal Reserve isn't part of the federal government and the banks don't have any gold reserves backing the United States dollar. What a scam on the american people.

Saturday, January 17, 2009

Bank of America and Citibank are going WAMU???

Is that Citibank or Shittybank, I guess they are one in the same. I've had friends talk about buying bank stocks like Citibank, National City Bank, or Washington Mutual to name a few and I've been telling them for a while that these stocks will go to zero before they go up. George Soros wrote a paper a while back that talks about banking booms and busts. Given his insight, it will take 25 years for many of the surviving bank stocks to reach new highs. There's blood on the street but now is not the time to buy. I've attached a few video clips regarding BOA for your viewing enjoyment.

Friday, January 16, 2009

Grayson Rep from Florida Questions Fed on Bailout Funds

Watch the 2 videos listed above which show the major theivery going on against US taxpayers. Stealing from the people is nothing new in government. This will go down as the biggest fraud in US history. Donald Kohn can't answer where 1.2 trillion dollars went. He won't incriminate himself by going on the record and to say where the money went. This is worse than Iraq where politicians can't account for 30 billion dolllars. We're paying for this and the people in charge aren't answering the questions of where the money is going. As you can see from the video, he won't go on record with the list of institutions who benefited. Many of these institutions are based outside the US. Why do we pay taxes????

Tuesday, January 13, 2009

This is a great illustration of the job creation efforts of presidents since FDR. The US is obviously going through a cycle of hope and business will be spun off to get smaller. Many companies are too big to provide any value to shareholders. The Bush presidents have a lot to be proud of. I guess things could get worse and the government could shut off energy and food to the people. The secular bear market is here and there's more pain to come.

Monday, January 12, 2009

Newstopia explains the Reserve Bank

The money policy at all the world's reserve banks. If you increase interest rates, money costs more to borrow, which reduces spending, which lower demand which lowers prices which reduces the risks of inflation. So now with increased interest rates it costs more to borrow and buy a house therefore less to purchase day to day things like food, which lowers demand, which lowers spending, which reduces prices.
In the case of businesses, lower business spending will lower production which decreases supply, lower supply with the same amount of goods then prices will rise, makes sense right? Lower production which leads to less work, less work leads to increased unemployment which leads to lower spending and prices fall. You can't have a healthy economy without affordable prices.
Funny how the Fed controls everything and always has a scientific answer on the cause and effect of the perceived risks. The Fed creates and solves the financial problem. So why do we need the Fed???? WATCH THE VIDEO BELOW.

Depression Similiarities???

During the first Great Depression unemployment rose to almost 25% and the U3 is currently at 7.2%. U3 is the headline number that you always see reported the first Friday of every month. This number is non-farm payroll which is also greatly understating real unemployment which makes politicians look better than they are. John Williams at reports government statistics and takes out all of the BS adjustments. At a minimum the US unemployment is approaching 14% and rising. In my opinion when history is written this period will be known as the second great depression/recession.

Sunday, January 11, 2009

Great Article about Corruption in Washington

Big Money Still Learning to Lobby

Published: March 13, 2007
On a cold evening in late January, Senator Charles E. Schumer invited a who’s who of hedge funds to dinner at Bottega del Vino on the Upper East Side of Manhattan. More than $100 billion worth of wealth sat around the table, including Paul Tudor Jones of Tudor Capital; Steven Cohen of SAC Capital; Stanley Druckenmiller of Duquesne Capital; and James Chanos of Kynikos Capital, according to a person who was briefed on the dinner.

Mr. Schumer, the New York Democrat, had some simple advice for the billionaires in his midst: If you want Washington to work with you, you had better work better with one another. (Mr. Schumer and the hedge fund managers declined to comment).
While hedge funds confidently flex their muscles in the markets and in boardrooms, in Washington they are experiencing the awkward growing pains of a relatively new industry coming to grips with its own power. Some hedge funds like D. E. Shaw and Cerberus Capital Management have spent time and money in the capital, but most funds have been content to hope Washington will not rear its regulatory head.
Now, united by a desire to avoid stringent regulation and a healthy sense of competition — there are three hedge fund lobbying groups — the industry seems resigned to no longer being a wallflower and looks set to join the dance with Congress.
So far the industry’s efforts have witnessed remarkable results. More than two years after the Securities and Exchange Commission required that funds register with the agency — a move overturned by a federal appeals court last summer — the Treasury Department, the Federal Reserve, Congress and the S.E.C. seem to agree: hedge funds are as regulated today as they should be.
“They’ve been extraordinarily effective in lobbying, which is pretty amazing given Long-Term Capital Management and the number of other cases involving problems with hedge funds,” said David Tittsworth, head of the Investment Adviser Association, a group which represents registered investment advisers. “The hedge fund industry — whoever they are and whoever is representing them — has been successful in fighting a centralized and comprehensive regulatory scheme.”
Their efforts, though, may have more to do with an unusually benign environment for regulation than any well-oiled and deep-pocketed campaign. Henry M. Paulson Jr., the Treasury secretary, was chief executive of Goldman Sachs, which services hedge funds and runs its own hedge funds; the Federal Reserve continues to take a hands-off attitude toward hedge funds; and the Democratic chairman of the Senate Banking Committee, Christopher J. Dodd comes from Connecticut, home to a large number of hedge funds.
For an industry drenched in money — hedge funds manage more than $1.4 trillion today — hedge funds have spent a pittance on winning over Washington. From 1998 through 2006, 15 hedge funds — the sum total of those that have registered their activity — have spent $7.7 million lobbying Congress, according to the Center for Responsive Politics.
The top spender on lobbying is Cerberus Capital Management, a hedge fund better known for its private equity investments. Cerberus spent $2.1 million from 2001 through 2006. Issues range from registration to asbestos litigation and military spending bills.
“The small proportion of money they are spending is related to the fact that they are not heavily regulated,” said Tim La Pira, a lobbying researcher at the Center for Responsive Politics. “Heavily regulated industries like banking or oil and gas spend an enormous amount of money because they have a history and legacy of being regulated.”
The hedge funds’ main trade association does not appear to have significant financial influence either. From 1998 through 2006, the Managed Funds Association spent only $752,000 lobbying. Its political action committee raised $169,500 in 2006 and made contributions of $112,600. By way of comparison, Merrill Lynch spent $4 million in 2006 alone, and the Investment Company Institute, representing the mutual fund industry, spent $5.4 million last year.
Political contributions show a similar pattern: the numbers are growing, but pale against the wealth managed by the fast-growing industry. In 2006, individuals at hedge funds as well as their spouses (if the spouse does not list an independent source of income) contributed $6.2 million (69 percent to Democrats and 27 percent to Republicans). That was up from the 2004 election cycle when individuals gave $5 million (67 percent to Democrats and 33 percent to Republicans). Top donors include Richard Perry of Perry Capital and his wife, Lisa ($202,850 in 2006); Kenneth C. Griffin of the Citadel Investment Group and his wife, Anne, who works for Aragon Global Management ($192,857); and Robert Soros and his wife, Melissa, a filmmaker ($171,500), according to the Center for Responsive Politics.
But Washington has turned its attention to the fast-growing hedge fund industry — as well as other alternative investment vehicles, like private equity. As members of Congress show growing interest, the industry seems increasingly resolved to make its case on Capitol Hill before another major hedge fund blow-up forces it to act on the defensive.
Representative Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, will hold hearings today on hedge funds. Last week, Senator Charles E. Grassley, Republican of Iowa, sought to offer an amendment to a Homeland Security bill that would have required hedge funds to register, but he was rebuffed before it came to a vote.
A decidedly antiregulation environment in Washington has helped the industry. Four reports have been released in the last four months contending that American capital markets are less competitive, with excessive litigation and regulation being top culprits in each report. (Citadel Investment, a huge Chicago-based hedge fund, was among the groups that paid for the report.)

Late last month, the President’s Working Group, which includes the heads of the Treasury, the S.E.C., the Federal Reserve and the Commodity Futures Trading Commission, issued a long-awaited report on the potential risks of hedge funds. It concluded that systemic risk was best addressed through aggressive monitoring of the major financial banks and investment banks that do business with hedge funds and it determined that the S.E.C. was working well to protect unsophisticated investors from investing in hedge funds by raising the wealth standard to qualify to invest in a hedge fund.
Not everyone agreed with the report’s conclusions. “You are talking about milk toast — go out and do good deeds,” said Mr. Tittsworth, describing the President’s Working Group study.
Corralling the hedge fund industry toward the purpose of educating Washington — and donating money, arguably a more effective tool of persuasion — has proved to be no easy task. The M.F.A. has tried to lead the way, and today has 1,300 members including 60 of the top 100 hedge funds, according to Robert Aaron, chairman of the group.
But even its role as representative for the industry has been a rocky one. In 2003, when the S.E.C. proposed a rule to require that hedge fund managers register, the M.F.A. engaged in what critics called a scorched-earth policy, insisting that hedge funds would move offshore and that liquidity in the system would evaporate.
Many hedge funds say that they face tough standards from their investors — sophisticated institutions like endowments and pension funds — and that revealing information about their trading strategies would be a violation of intellectual property rights.
But other funds that were registered, or that thought that registration was a reasonable first step, balked at the resistance to registration put up by the M.F.A.
When in 2004 the S.E.C. passed the registration rule, the association was left in a tough spot. “It was the worst of all worlds,” said one industry lobbyist who asked not to be identified. “At least in the past the industry’s take-no-prisoners approach resulted in initiatives being killed.” The industry, it seemed, proved to be just as secretive as perception had suggested.
(Mr. Aaron, who was not the chairman of the M.F.A. during the registration issue, noted that most of the association’s members are now registered.)
In 2004, Mr. Chanos testified before a Senate hearing on hedge funds and proposed a middle-ground approach: in exchange for having hedge funds exempt from audits, the funds would agree to provide the S.E.C. with all the critical data needed to determine the size and scope of hedge fund activity.
The proposal failed but others in the industry expressed their support for his view. In late 2005, Mr. Chanos founded the Coalition for Private Investment Companies. To avoid any conflicts of interest, the group would not give money as a group to politicians, and so it could be effectively bipartisan. “Our members think the M.F.A. does a tremendous job as a trade association — my own firm is a member of the M.F.A.,” Mr. Chanos said. “But I do believe there was room for another voice in the public policy debate."
A goal, Mr. Chanos said, was equal treatment for all alternative investors and getting regulators to focus on activities that worry them, not just the groups engaged in them.
Since Mr. Chanos founded the coalition, another lobbying group has surfaced, this one with the intent of reviving the registration requirement. Kenneth D. Brody, co-founder of Taconic Capital Advisors and the former head of the Export-Import Bank during the Clinton administration, hired the Rich Feuer Group, a group focused on financial services issues.
The groups say they agree on most issues and they are working together more. “The consolidated effort will grow but individual efforts will continue to take place,” Mr. Aaron said. “We welcome that.”

Madoff fraud reported to SEC in 1999

I guess everyone on the street had a suspicion that Bernie Madoff was a crook. When you average 14% returns for 18 years and only have 4 losing months something ain't right. That's considering Madoff is the largest hedge fund in the market.

Wednesday, January 7, 2009

2009 Expectations and 2008 Reflections

Bye bye 2008 and good riddance. 2008 was a bad year for the Economy to say the least. The S&P 500 index dropped 38% and the prospects for recovery in 2009 are non existent. Seems like leadership is doing their best to destroy America using the Japanese 1990 playbook. In this post I'd like to discuss 2008 in review, 2009 Trends that may develop, and How to profit in 2009.

2008 was a very interesting time to live through to say the least. We are living through the second great depression or at best the worst recession since the 1930's. 2008 saw the real estate market collapse, the failure of a few investment banks, and a trillion plus dollars of bailout money thrown at companies. America certainly doesn't seem like a capitalist society anymore. I warned my friends of Japan in the 1990's and that stock markets can go down for years. I got out of the stock market on March 17th the day JPMorganChase bought Bear Stearns for $10 a share and I felt like I was late to the dance. Not many people listened to me and most of my friends are expecting the market to rally back to previous levels. I say good luck with that and 2009 will be just as bad.

What I expect to develop in 2009-2010 is the economy will deteriorate further and unemployment with go to double digits. I expect the US Long Bond will collapse and the yields will move higher. This environment will be similar to the 1970's with the Burns FED. The US will start to save more because credit will be less available especially since the home equity refinance will not be an option. I expect the S&P 500 will move to around 600 and possibly even lower.

To profit in 2009 I would stay in cash or cash equivalents. In these types of economic conditions the best thing to do is preserve capital. Remember it's not what you go into a bear market with, it's what you come out of a bear market that really matters. Wealth preservations is key. Take Care and God Bless.