Stocks (GNBT)
- Thread starter Joey
- Start date
Judge blocks Bank of America-SEC bonus settlement
August 6, 2009
NEW YORK (Reuters) - A federal judge refused to approve a settlement between a top U.S. regulator and Bank of America Corp over executive bonuses, the latest twist in the bank's star-crossed takeover of Merrill Lynch & Co.
The decision late Wednesday by Judge Jed Rakoff of the U.S. District Court in Manhattan that the $33 million settlement could be unfair to the public was an unusual step, lawyers said.
It comes on the heels of months of shareholder anger, a boardroom overhaul, and billions of dollars of losses since Bank of America completed the Merrill takeover on January 1.
The settlement was intended to resolve an SEC civil lawsuit accusing the bank of making false and misleading statements to shareholders about bonuses promised to Merrill employees. Bank of America and the U.S. Securities and Exchange Commission will now attend an August 10 hearing to answer the judge's questions.
READ THE FULL ARTICLE HERE
August 6, 2009
NEW YORK (Reuters) - A federal judge refused to approve a settlement between a top U.S. regulator and Bank of America Corp over executive bonuses, the latest twist in the bank's star-crossed takeover of Merrill Lynch & Co.
The decision late Wednesday by Judge Jed Rakoff of the U.S. District Court in Manhattan that the $33 million settlement could be unfair to the public was an unusual step, lawyers said.
It comes on the heels of months of shareholder anger, a boardroom overhaul, and billions of dollars of losses since Bank of America completed the Merrill takeover on January 1.
The settlement was intended to resolve an SEC civil lawsuit accusing the bank of making false and misleading statements to shareholders about bonuses promised to Merrill employees. Bank of America and the U.S. Securities and Exchange Commission will now attend an August 10 hearing to answer the judge's questions.
READ THE FULL ARTICLE HERE
What's up next for Apple?
That is the dilemma faced today by Apple (AAPL), whose iPhone, at a mere 2 years old, is inarguably the best computer and media device, ounce for ounce, that has ever graced the globe. It so surpasses previous notions of what a telephone, media player, handheld computer, pathfinder and personal gaming device could be that it continues to astonish owners and observers alike.
The electronic love that blossoms among iPhone users is not immaterial, and I would argue that there's a good chance it will help propel Apple shares to $335 (about twice their current price at $163) by mid-2012 -- and with a kick-start this fall as more groundbreaking products emerge as soon as next month. That makes Apple one of the best stocks to pick up on any upcoming weakness. Here's why.
Another good read on MSN Money HERE.
Yes, I am biased when it comes to AAPL, if anyone hasn`t noticed. Just another update to keep this thread alive!
That is the dilemma faced today by Apple (AAPL), whose iPhone, at a mere 2 years old, is inarguably the best computer and media device, ounce for ounce, that has ever graced the globe. It so surpasses previous notions of what a telephone, media player, handheld computer, pathfinder and personal gaming device could be that it continues to astonish owners and observers alike.
The electronic love that blossoms among iPhone users is not immaterial, and I would argue that there's a good chance it will help propel Apple shares to $335 (about twice their current price at $163) by mid-2012 -- and with a kick-start this fall as more groundbreaking products emerge as soon as next month. That makes Apple one of the best stocks to pick up on any upcoming weakness. Here's why.
Another good read on MSN Money HERE.
Yes, I am biased when it comes to AAPL, if anyone hasn`t noticed. Just another update to keep this thread alive!
you guys do any technical analysis, or do you just speculate?
any case, here are some technical analysis reports I did for as part of University of Pacific's Investment Fund, where I was the Financial Sector analyst. Keep in mind I did these in the beginning of March, so I was definitly more risk adverse and was looking for solid balance sheets and good fundamentals. Needless to say, like the rest of the market, my picks have done great since the early March crash, but I can only take so much credit.
U.S. Bank (NYSE: USB)
Northern Trust Company (NASQAD: NTRS)
Edit - can only find my USB report.
http://rapidshare.com/files/266026127/New_Stock_Recommendation_-_USB.docx.html
I used a Dividend Discount Model for my valuation, and also used EXTREMELY conservative growth rates and a low future PE. I still was showing a positive alpha, so we went ahead and pulled the trigger. Bought around 14.35, I priced it at 15.23, it ended today at 23.02. Not too bad if you ask me.
any case, here are some technical analysis reports I did for as part of University of Pacific's Investment Fund, where I was the Financial Sector analyst. Keep in mind I did these in the beginning of March, so I was definitly more risk adverse and was looking for solid balance sheets and good fundamentals. Needless to say, like the rest of the market, my picks have done great since the early March crash, but I can only take so much credit.
U.S. Bank (NYSE: USB)
Northern Trust Company (NASQAD: NTRS)
Edit - can only find my USB report.
http://rapidshare.com/files/266026127/New_Stock_Recommendation_-_USB.docx.html
I used a Dividend Discount Model for my valuation, and also used EXTREMELY conservative growth rates and a low future PE. I still was showing a positive alpha, so we went ahead and pulled the trigger. Bought around 14.35, I priced it at 15.23, it ended today at 23.02. Not too bad if you ask me.
so im doing alot of reading and understanding the breakdown of charts and graphs,but my question is how do you guys find potential penny stocks to get into,is it through articles you guys read about them,or do you get the wallstreet journal and jus scan the pages looking for penny stocks and then investigate? and how many different stocks do you guys own at a time,is it in the double digits or triple digits?
Faith-based investing
By Chan Akya
http://www.atimes.com/atimes/Global_Economy/KH05Dj02.html
You're a brave man. Go and break through the lines. And remember, while you're out there risking your life and limb through shot and shell, we'll be in here thinking what a sucker you are.
- Groucho Marx in Duck Soup
The US S&P 500 Index shot to over 1,000 on Monday during the day while other indicators of risk all shrunk. Deconstructing the arguments, one notices a range of self-contradicting answers that are at the heart of the current phase, even as everyone blithely ignores the only real answer to the question.
The following is a summary of observations gleaned from the financial media over the past two weeks. As world asset markets entered a new phase of expansion, I would suggest readers pour through the multiple answers that can be found in every major financial media outlet in dealing with the four questions asked below. The choices are ranked as per their frequency of occurrence based on my own unscientific survey of media outlets over the two weeks.
Question one: Why are US stock prices rising?
1. Earnings are better than expected.
2. Inflation is low and other macro-economic data are also better than expected.
3. Investors need to add to their stock positions or risk missing the rally.
4. Low interest rates make dividend income more attractive, and stocks more valuable.
Question two: Why are commodity prices rising?
1. Economic growth is better than expected everywhere.
2. Money is being diverted to real assets because people have lost faith in the US dollar and the euro.
3. Interest rates are low, allowing speculators to buy more.
4. Speculation will be reduced, so everyone is increasing their positions now.
Question three: Why are emerging market (EM) credit spreads improving (tighter)?
1. Commodity prices have risen and will further rise.
2. The International Monetary Fund is making money available.
3. China will do bilateral deals for commodities denominated in yuan to avoid as much as possible using the US dollar.
4. Market-priced refinancing is now available.
Question four: Why are interest rates expected to remain low?
1. Central banks remain worried about the fragile position of commercial banks.
2. Inflation remains low as rising commodity prices are offset by lower consumer spending on other items; that is, economic growth is not rebounding quickly enough.
3. Emerging market countries will continue to buy the debt issued by Western countries only if low interest rates can "guarantee" them no alternatives.
4. It's the only way for current heads of the world's major central banks to keep their jobs.
I would suggest a quick repeat reading of the answers before proceeding to the next section.
Looking through the maze
In this section, let us examine the various alternatives that suggest significant logical inconsistencies, factual errors or plain bad math. Readers will have noticed most of it, but here are a few ideas anyway.
First fiction: Earnings are better than expected. By far the biggest propellant of equity valuations is the notion that share prices deserve to go up because companies' earnings "beat" analyst expectations. This raises a serious intellectual question of why any investor would even bother thinking about the equity analysts who failed to say anything useful about the stock markets from 2005 to 2007, and then consistently lagged the market through the course of 2008.
That aside, readers should probably appreciate some back-to-basics here: say that a company made $1 per share annualized in 2005 and traded at a multiple of 15x, that is at $15 per share. Then it lost money in its "investment" portfolio in 2007 and barely avoided bankruptcy in 2008. This company, whose shares now trade close to $10 after the rebound in the second quarter, was widely expected to make $0.40 per share in 2009, but now appears to be on track to make $0.50.
So now, what should be the correct price of the share: 15 times 0.5 gives $7.50, which is 25% off the current price of $10; but instead, the factoid that it did better than "analyst expectations" has sent the share price to $12. This level is 24 times earnings. Why is that sensible for any investor? So the answer to this paradigm is simply that current stock prices already discount the recovery of earnings up until 2020 in most cases, which leaves little or no room for error.
Second fiction: Index herding makes sense. One of the more frequent comments I have seen and heard over the past few months is that investors must buy stocks now because if they "miss" the index rally, there can be no jumping back on the bandwagon at a later date.
This is wrong in numerous ways, but the most obvious is that buying into individual stocks because they are "beating analyst expectations" as in the example above doesn't mean that investors can be protected from future disappointments. The idea of using exchange-traded funds (ETFs) to reduce idiosyncratic risk and increase systemic risk is also a poor one because the survivorship bias of American indices is rarely captured by ETFs.
For example, a number of failing companies such as financial and automotive companies are replaced by those with higher stock prices. While this keeps index base prices constant, it actually costs investors substantially more by the losses on failing companies and the rally they miss on the new additions because they are added to indices later on.
Basic math failures: What is good news anyway? Last week, financial media reported that the contraction of the US economy by 1% was "good news" because economists surveyed had expected a worse figure of contraction, by 1.5%.
Use basic math and keep in mind the fact that previous figures were also corrected: if - as Bill King writes in the "King Report" - Q4 08 gross domestic product (GDP) was 100 units, and Q1 09 was reported at minus 5.5% and Q2 09 GDP was expected to be minus 1.5%, the expectation was for GDP of 100 units minus 5.5%, or 94.5 units, minus 1.5%, or 93.08 units. But, with the revision of Q1 09 GDP to minus 6.4%, the Q1 GDP units become 100 minus 6.4%, or 93.6 units. So Q2 is minus 1%, or 92.664 units. In other words, the figures were worse, not better, than expected. [1]
Yet, read all the financial media headlines from last week and I almost dare you to find someone who did the above calculation to arrive at what is effectively a fairly simple conclusion. Really.
Contradictions abound (1): Inflation and the path of interest rates. Stock markets are assuming that interest rates will remain low, but this contradicts the most obvious assumption on the other side, namely that economic growth will improve enough to warrant earnings growth.
Central banks assume that inflationary pressure will remain low and yet stock prices for commodity-based companies have recently reached all-time highs. Cyclical companies have seen stock prices rebound, and yet the most important argument for central banks to restrain interest rates is that consumption has not edged higher in either Europe or the United States. The rise in stock prices of emerging market stocks - the best performers over the past 100 days - also belies the notions held widely by the Group of Seven central banks; the same is true for credit spreads of EM countries.
Contradictions abound (2): The role of the US dollar. One of the key constants for markets these days is that falling values of the US dollar correlate to higher stock prices and vice versa, in what is effectively a Mundellian portfolio rebalancing (named after Robert Mundell, the Nobel laureate). This is also the reason that interest rates on US government debt haven't skyrocketed on the back of the significant increase in spending being signaled.
The problem is that, alongside, we have seen the expanded use of bilateral currency agreements by the likes of China, Iran and Latin American countries, effectively bypassing the US dollar. Increased use of such facilities dent the longer-term prospects of the US dollar and make the argument of portfolio rebalancing suspect for stocks.
To paraphrase the great Sherlock Holmes, whatever remains after one has removed all other possibilities, however improbable it may seem, is the truth. In this situation, the option that hasn't been explained away is the vast horde of money that has been given to banks and other financial institutions globally by central banks since the great loosening of credit began over the course of 2008.
In effect, the only answer for rising market values for risk assets is that there is money chasing these assets - be they apartments in Shanghai or equities in New York. If there is one thing everyone has learned since 2007, it is that the single-best path to economic ruin is to buy something because (and only because) it is being chased by fiat liquidity.
Health warning: As with all my articles on stock markets, this one too carries the standard health warning. The aforesaid should not be relied on as investment advice, readers must consult their financial advisors or use their common sense.
Note:
1. This paragraph has been corrected to identify Bill King's "The King Report" as the source, inadvertently omitted from the original. Our apologies.
(Copyright 2009 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
By Chan Akya
http://www.atimes.com/atimes/Global_Economy/KH05Dj02.html
You're a brave man. Go and break through the lines. And remember, while you're out there risking your life and limb through shot and shell, we'll be in here thinking what a sucker you are.
- Groucho Marx in Duck Soup
The US S&P 500 Index shot to over 1,000 on Monday during the day while other indicators of risk all shrunk. Deconstructing the arguments, one notices a range of self-contradicting answers that are at the heart of the current phase, even as everyone blithely ignores the only real answer to the question.
The following is a summary of observations gleaned from the financial media over the past two weeks. As world asset markets entered a new phase of expansion, I would suggest readers pour through the multiple answers that can be found in every major financial media outlet in dealing with the four questions asked below. The choices are ranked as per their frequency of occurrence based on my own unscientific survey of media outlets over the two weeks.
Question one: Why are US stock prices rising?
1. Earnings are better than expected.
2. Inflation is low and other macro-economic data are also better than expected.
3. Investors need to add to their stock positions or risk missing the rally.
4. Low interest rates make dividend income more attractive, and stocks more valuable.
Question two: Why are commodity prices rising?
1. Economic growth is better than expected everywhere.
2. Money is being diverted to real assets because people have lost faith in the US dollar and the euro.
3. Interest rates are low, allowing speculators to buy more.
4. Speculation will be reduced, so everyone is increasing their positions now.
Question three: Why are emerging market (EM) credit spreads improving (tighter)?
1. Commodity prices have risen and will further rise.
2. The International Monetary Fund is making money available.
3. China will do bilateral deals for commodities denominated in yuan to avoid as much as possible using the US dollar.
4. Market-priced refinancing is now available.
Question four: Why are interest rates expected to remain low?
1. Central banks remain worried about the fragile position of commercial banks.
2. Inflation remains low as rising commodity prices are offset by lower consumer spending on other items; that is, economic growth is not rebounding quickly enough.
3. Emerging market countries will continue to buy the debt issued by Western countries only if low interest rates can "guarantee" them no alternatives.
4. It's the only way for current heads of the world's major central banks to keep their jobs.
I would suggest a quick repeat reading of the answers before proceeding to the next section.
Looking through the maze
In this section, let us examine the various alternatives that suggest significant logical inconsistencies, factual errors or plain bad math. Readers will have noticed most of it, but here are a few ideas anyway.
First fiction: Earnings are better than expected. By far the biggest propellant of equity valuations is the notion that share prices deserve to go up because companies' earnings "beat" analyst expectations. This raises a serious intellectual question of why any investor would even bother thinking about the equity analysts who failed to say anything useful about the stock markets from 2005 to 2007, and then consistently lagged the market through the course of 2008.
That aside, readers should probably appreciate some back-to-basics here: say that a company made $1 per share annualized in 2005 and traded at a multiple of 15x, that is at $15 per share. Then it lost money in its "investment" portfolio in 2007 and barely avoided bankruptcy in 2008. This company, whose shares now trade close to $10 after the rebound in the second quarter, was widely expected to make $0.40 per share in 2009, but now appears to be on track to make $0.50.
So now, what should be the correct price of the share: 15 times 0.5 gives $7.50, which is 25% off the current price of $10; but instead, the factoid that it did better than "analyst expectations" has sent the share price to $12. This level is 24 times earnings. Why is that sensible for any investor? So the answer to this paradigm is simply that current stock prices already discount the recovery of earnings up until 2020 in most cases, which leaves little or no room for error.
Second fiction: Index herding makes sense. One of the more frequent comments I have seen and heard over the past few months is that investors must buy stocks now because if they "miss" the index rally, there can be no jumping back on the bandwagon at a later date.
This is wrong in numerous ways, but the most obvious is that buying into individual stocks because they are "beating analyst expectations" as in the example above doesn't mean that investors can be protected from future disappointments. The idea of using exchange-traded funds (ETFs) to reduce idiosyncratic risk and increase systemic risk is also a poor one because the survivorship bias of American indices is rarely captured by ETFs.
For example, a number of failing companies such as financial and automotive companies are replaced by those with higher stock prices. While this keeps index base prices constant, it actually costs investors substantially more by the losses on failing companies and the rally they miss on the new additions because they are added to indices later on.
Basic math failures: What is good news anyway? Last week, financial media reported that the contraction of the US economy by 1% was "good news" because economists surveyed had expected a worse figure of contraction, by 1.5%.
Use basic math and keep in mind the fact that previous figures were also corrected: if - as Bill King writes in the "King Report" - Q4 08 gross domestic product (GDP) was 100 units, and Q1 09 was reported at minus 5.5% and Q2 09 GDP was expected to be minus 1.5%, the expectation was for GDP of 100 units minus 5.5%, or 94.5 units, minus 1.5%, or 93.08 units. But, with the revision of Q1 09 GDP to minus 6.4%, the Q1 GDP units become 100 minus 6.4%, or 93.6 units. So Q2 is minus 1%, or 92.664 units. In other words, the figures were worse, not better, than expected. [1]
Yet, read all the financial media headlines from last week and I almost dare you to find someone who did the above calculation to arrive at what is effectively a fairly simple conclusion. Really.
Contradictions abound (1): Inflation and the path of interest rates. Stock markets are assuming that interest rates will remain low, but this contradicts the most obvious assumption on the other side, namely that economic growth will improve enough to warrant earnings growth.
Central banks assume that inflationary pressure will remain low and yet stock prices for commodity-based companies have recently reached all-time highs. Cyclical companies have seen stock prices rebound, and yet the most important argument for central banks to restrain interest rates is that consumption has not edged higher in either Europe or the United States. The rise in stock prices of emerging market stocks - the best performers over the past 100 days - also belies the notions held widely by the Group of Seven central banks; the same is true for credit spreads of EM countries.
Contradictions abound (2): The role of the US dollar. One of the key constants for markets these days is that falling values of the US dollar correlate to higher stock prices and vice versa, in what is effectively a Mundellian portfolio rebalancing (named after Robert Mundell, the Nobel laureate). This is also the reason that interest rates on US government debt haven't skyrocketed on the back of the significant increase in spending being signaled.
The problem is that, alongside, we have seen the expanded use of bilateral currency agreements by the likes of China, Iran and Latin American countries, effectively bypassing the US dollar. Increased use of such facilities dent the longer-term prospects of the US dollar and make the argument of portfolio rebalancing suspect for stocks.
To paraphrase the great Sherlock Holmes, whatever remains after one has removed all other possibilities, however improbable it may seem, is the truth. In this situation, the option that hasn't been explained away is the vast horde of money that has been given to banks and other financial institutions globally by central banks since the great loosening of credit began over the course of 2008.
In effect, the only answer for rising market values for risk assets is that there is money chasing these assets - be they apartments in Shanghai or equities in New York. If there is one thing everyone has learned since 2007, it is that the single-best path to economic ruin is to buy something because (and only because) it is being chased by fiat liquidity.
Health warning: As with all my articles on stock markets, this one too carries the standard health warning. The aforesaid should not be relied on as investment advice, readers must consult their financial advisors or use their common sense.
Note:
1. This paragraph has been corrected to identify Bill King's "The King Report" as the source, inadvertently omitted from the original. Our apologies.
(Copyright 2009 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
Preparing for the Worst
by Robert Kiyosaki
"Is the crisis over?" is a question I am often asked. "Is the economy coming back?"
My reply is, "I don't think so. I would prepare for the worst."
Like most people, I wish for a better future for all of us. Life is better when people are working, happy, and spending money.
The stock market has been going up since March 9, 2009. Talk of "green shoots" fill the air. Yet, in spite of the more positive news, I continue to recommend that people prepare for the worst. The following are some of my reasons:
1. I believe the stock market is being manipulated. I suspect the government, banks, and Wall Street are doing everything they can to keep the market from crashing. Our leaders know that nothing makes the world feel better than a raging bull market.
Do I have any proof that the market is being manipulated? No. I just smell a rat, or a pack of rats. I believe greed, self-interest, arrogance, and fear control the financial markets. I suspect those in charge will do anything to keep us all from panicking... and I don't blame them. A global panic would be ugly and dangerous.
2. In my view, this global crisis has been caused by the Federal Reserve Bank, the U.S. Treasury, Wall Street, and the central banks of the world. They caused the problem, profited excessively in doing so, and now profit by being asked to fix the problem.
Every time I hear a politician mention the word stimulus, my mind flashes back to high school biology class, when I touched battery wires to a dead frog to make it twitch. Today, you and I are the dead frogs. Pretty soon the dead frog will be fried frog.
In the 1980s, our government's hot money stimulus was measured only in the millions of dollars. By the 1990s, the government had to ramp the stimulus voltage into the billions in order to get the frog to twitch. Today the frog has jumper cables with trillions in high-voltage hot money pouring through the lines.
While most us feel better when we have more high-voltage money in our hands, none of us feel good about higher taxes, increasing national debt, and rising inflation for the long term. Another old saying goes, "Sometimes the cure is worse than the disease." I say the government stimulus cure is killing us frogs.
3. Old frogs don't hop. Another reason I am cautious about the future is that the Western world has a growing number of old frogs. Between 1970 and 2000, the economy responded to bailouts and stimulus packages because the baby boomers of the world were entering their greatest earning years -- their purchasing power increased, and demand for homes, cars, refrigerators, computers, and TVs boosted the economy.
The stimulus plans seemed to work. But when a person turns 60, their spending habits change dramatically. They stop consuming and start conserving like a bear preparing for winter. The economy of the Western world is heading into winter. Hot wires and hot money will not get old frogs to hop. Old frogs will simply join the bears and stick that money in the bank as they prepare for the long, hard winter known as old age. The businesses that will do well in a winter economy are drug companies, hospitals, wheelchair manufacturers, and mortuaries.
4. The dying frog economy will lead us to the biggest Ponzi schemes of all: Social Security and Medicare. If we think this subprime financial crisis is big, it's my opinion that this crisis will be dwarfed by the crisis brewing in Social Security and Medicare...Medicare being the biggest crisis of all. As old frogs head for the big lily pad in the sky, they will demand young frogs spend even more in tax dollars just to keep old frogs from croaking.
5. The 401(k)Ponzi scheme. A Ponzi scheme, like the scheme Madoff ran, depends upon young money to pay off old money. In other words, a Ponzi scheme needs tadpoles to finance old frogs. The same is true for the 401(k) and other retirement plans to work. If young money does not come into the stock market, the old money cannot retire. One reason so many people my age are worried, not only about Social Security and Medicare, is because they're concerned about getting their money out of the stock market before the other old frogs decide to drain the swamp.
The facts are that the 401(k) plan has a trigger that requires old frogs to begin withdrawing their money at a certain age. In other words, as baby boomers grow older, more and more will be required, by law, to begin withdrawing their money from the market. You do not have to be a rocket scientist to know that it is hard for a market to keep going up when more and more people are getting out.
The reason the 401(k) has this law related to mandatory withdrawals is because the Federal government wants to collect the taxes that they deferred when the worker's money went into the plan. In other words, the taxman wants their pound of flesh. Since they allowed the worker to invest without paying taxes, the government wants their tax dollars when the employee retires. That is why the laws require older workers to sell their shares -- and pay their pound of flesh.
Demographics show that we are entering a battle between young and old. I call it the "Age War." The young want to hang onto their money to grow their families, businesses, and wealth. The old want the tax and investment dollars of the young to sustain their old age.
This war is not coming...it is upon us now. This is one of many reasons why I remain cautious and say, "The worst is yet to come."
by Robert Kiyosaki
"Is the crisis over?" is a question I am often asked. "Is the economy coming back?"
My reply is, "I don't think so. I would prepare for the worst."
Like most people, I wish for a better future for all of us. Life is better when people are working, happy, and spending money.
The stock market has been going up since March 9, 2009. Talk of "green shoots" fill the air. Yet, in spite of the more positive news, I continue to recommend that people prepare for the worst. The following are some of my reasons:
1. I believe the stock market is being manipulated. I suspect the government, banks, and Wall Street are doing everything they can to keep the market from crashing. Our leaders know that nothing makes the world feel better than a raging bull market.
Do I have any proof that the market is being manipulated? No. I just smell a rat, or a pack of rats. I believe greed, self-interest, arrogance, and fear control the financial markets. I suspect those in charge will do anything to keep us all from panicking... and I don't blame them. A global panic would be ugly and dangerous.
2. In my view, this global crisis has been caused by the Federal Reserve Bank, the U.S. Treasury, Wall Street, and the central banks of the world. They caused the problem, profited excessively in doing so, and now profit by being asked to fix the problem.
Every time I hear a politician mention the word stimulus, my mind flashes back to high school biology class, when I touched battery wires to a dead frog to make it twitch. Today, you and I are the dead frogs. Pretty soon the dead frog will be fried frog.
In the 1980s, our government's hot money stimulus was measured only in the millions of dollars. By the 1990s, the government had to ramp the stimulus voltage into the billions in order to get the frog to twitch. Today the frog has jumper cables with trillions in high-voltage hot money pouring through the lines.
While most us feel better when we have more high-voltage money in our hands, none of us feel good about higher taxes, increasing national debt, and rising inflation for the long term. Another old saying goes, "Sometimes the cure is worse than the disease." I say the government stimulus cure is killing us frogs.
3. Old frogs don't hop. Another reason I am cautious about the future is that the Western world has a growing number of old frogs. Between 1970 and 2000, the economy responded to bailouts and stimulus packages because the baby boomers of the world were entering their greatest earning years -- their purchasing power increased, and demand for homes, cars, refrigerators, computers, and TVs boosted the economy.
The stimulus plans seemed to work. But when a person turns 60, their spending habits change dramatically. They stop consuming and start conserving like a bear preparing for winter. The economy of the Western world is heading into winter. Hot wires and hot money will not get old frogs to hop. Old frogs will simply join the bears and stick that money in the bank as they prepare for the long, hard winter known as old age. The businesses that will do well in a winter economy are drug companies, hospitals, wheelchair manufacturers, and mortuaries.
4. The dying frog economy will lead us to the biggest Ponzi schemes of all: Social Security and Medicare. If we think this subprime financial crisis is big, it's my opinion that this crisis will be dwarfed by the crisis brewing in Social Security and Medicare...Medicare being the biggest crisis of all. As old frogs head for the big lily pad in the sky, they will demand young frogs spend even more in tax dollars just to keep old frogs from croaking.
5. The 401(k)Ponzi scheme. A Ponzi scheme, like the scheme Madoff ran, depends upon young money to pay off old money. In other words, a Ponzi scheme needs tadpoles to finance old frogs. The same is true for the 401(k) and other retirement plans to work. If young money does not come into the stock market, the old money cannot retire. One reason so many people my age are worried, not only about Social Security and Medicare, is because they're concerned about getting their money out of the stock market before the other old frogs decide to drain the swamp.
The facts are that the 401(k) plan has a trigger that requires old frogs to begin withdrawing their money at a certain age. In other words, as baby boomers grow older, more and more will be required, by law, to begin withdrawing their money from the market. You do not have to be a rocket scientist to know that it is hard for a market to keep going up when more and more people are getting out.
The reason the 401(k) has this law related to mandatory withdrawals is because the Federal government wants to collect the taxes that they deferred when the worker's money went into the plan. In other words, the taxman wants their pound of flesh. Since they allowed the worker to invest without paying taxes, the government wants their tax dollars when the employee retires. That is why the laws require older workers to sell their shares -- and pay their pound of flesh.
Demographics show that we are entering a battle between young and old. I call it the "Age War." The young want to hang onto their money to grow their families, businesses, and wealth. The old want the tax and investment dollars of the young to sustain their old age.
This war is not coming...it is upon us now. This is one of many reasons why I remain cautious and say, "The worst is yet to come."
