Why Obama's Speech Doesn't Matter

President Obama has broken all records for national speeches by a new president. In many ways, it seems his campaign never ended. His die hard supporters say this is necessary, as the campaign for change will take a new effort with new energy. But the rest of us aren't so sure.

The health care message seemed like a vital issue to me a few months ago. I was scared that the government was taking over, driving us deeper into debt. But now I'm tired of it. I'm not unhappy with my current coverage, the nation seems to have reacted negatively to government movement towards a one payer system, and the only reform I see as vital, tort reform, has been entirely left out (I guess even the democrats don't want to reform the legal community).

So tonight's speech is a lame duck. The far left wants to fight for everything, the far right wants to stop them, and I don't trust either of them. On top of that, I'd rather read a book than listen to one more speech about "change we need right now".

What change have we gotten so far from our new president? Bipartisanship? Nope. Green jobs? Yeah right. Progress from nuclear rogues like Iran or North Korea. Laughable. So why should health care be any different?

I'm hoping for poor ratings this evening. It is time the white house got the message that talk is simply not enough. The campaign is over Mr. President.

Is the FDIC in Trouble?

In a recent release the FDIC listed 416 banks as being on the problem bank list. These banks have deposits totaling over $300 billion, but the FDIC balance of funds on the same day of that release was barely over $10 billion. Quite a mismatch.

The FDIC was created in 1933 as a confidence booster for a public that was badly shaken by the Great Depression. The idea was that a government insurance program would allow citizens to have enough confidence in banks to use them again, and the program worked extremely well. Today the FDIC guarantee is proudly displayed at nearly every bank you walk in to, stating that deposits are protected up to $100,000. But is that true?

The FDIC runs numbers and creates formulas to determine how much cash it needs to keep on hand to bail out banks that fail. These formulas are based on historical averages. Unfortunately, the problem we are dealing with today doesn't track to historical averages, so the FDIC funds are much lower than what is needed.

I'm not afraid of losing my money at the bank. The white house will issue emergency funds to replenish the FDIC money if needed (which will happen yet this year), but I am concerned about how we do it. As the government prints more money to bail out failed banks, it devalues all of the money in the entire system, causing all of us to suffer.

The illusion of guaranteed safety in banks is a vital underpinning to our entire system. Unfortunately, there is no such thing as comprehensive guarantees for all of our deposits, but as long as the illusion holds we don't have to deal with that ugly truth. Instead, we just need to print enough money to deal with the troublemakers. But the price we pay is inflation.

Thanks to my good friend Tim C. for calling attention to the material for this post!

Good Day for Terrorists

Imagine a terrorist cell in a dark basement. They are putting together bomb vests, meant for suicide bombers that other cells are busy recruiting from the poorest segments of the local population. It's a simple plan of attack: find people with nothing to live for and convince them that blowing themselves up in the middle of lunch hour at a local cafe will make them a hero.

This terrorist plan works. It kills innocents and creates a tragic story that generates a lot of press coverage. The cost of the strategy is low, as the suicide bombers are as cheap to obtain as the bomb vests they wear. The biggest problem for terrorists is how to get into areas that Americans frequent, because after all, killing Americans is the fastest way to the jihad wall of fame.

Today these terrorists can celebrate a good day. Not only is the U.S. Attorney General opening investigations into CIA interrogations, but layers of bureaucracy are being added to the law enforcement process to avoid future problem of a similar nature. Instead of protecting Americans from terrorists, the CIA is now expending a lot of energy protecting it's own agents from federal prosecutors.

All of this adds up to less pressure, less resources, and less motivation to chase terrorists. And if we are foolish enough to drag a CIA agent out and publicly embarrass him or her for interrogating a terrorist harshly, you can guarantee that the story will be a top headline on Al Jazeera, prompting much celebration.

God help us. We've become more interested in chasing our own protectors than we are in chasing our enemies.

No More Cash 4 Clunkers

We have recently learned that if you give $4,500 to people that trade in junk cars that we can raise auto sales. It was so important that we borrowed money from China to fund the program. But at what expense?

As I walked my children to their first day of school this morning I caught myself wondering how much debt we, as a country, have taken on in the name of quick auto sales. In 2015, as we continue to pay interest on our national debt, will we still think the Cash 4 Clunkers program was worth it? I doubt it.

The U.S. government is literally risking the future of my children over these programs. These silly little, multi-billion dollar programs that have great media tag lines and very little (if any) economic effect mean more tax burdens for the future. The math doesn't work any other way.

We are spending government (taxpayer) money at a record pace. We are mortgaging our future.

I don't care how much we need change, if we can't pay for it, we don't deserve it.

Where Did the Anti-War Movement Go?

Last night I watched clips of president Obama as he spoke concerning the war in Afghanistan. It was eerie. He said things like:

• This is a war of necessity.
• It will not be easy, or over quickly.
• This war is about freedom, and make no mistake, we will win.

If you were to read such quotes without knowing who the speaker was, would you dream it was anyone other than Bush? Where did the anti-war movement go?

We still have roughly 130,000 troops in Iraq. We are on our way to 68,000 in Afghanistan. We are actively fighting terror in 2009 in exactly the same way we fought it in 2007. But I haven't seen any media coverage of peace vigils. I still see bumper stickers with anti-Bush messages, but now that the commander in chief has changed I don't feel any of the same energy in the discussion.

Is is possible that Bush ignited such hatred in the U.S. that simply removing him from the white house has made the war on terror acceptable to millions of citizens? I'm at a complete loss on this one...

The Fallacy of a Public Mandate

The false idea of a public mandate has created problems for the white house and its most loyal followers at critical moments. Cap & Trade is dead, and health care reform is dying. How could this have happened? Didn't Americans give president Obama a mandate for change? No, but the media sure did.

Jay Cost, writing for RealClearPolitics.com says:
Yet the election of 2008 was not like the 1932 contest. It wasn't like 1952, 1956, 1964, 1972, 1980, 1984, or even 1988, either. Obama's election was narrower than all of these. FDR won 42 of 48 states. Eisenhower won 39, then 41. Johnson won 44 of 50. Nixon won 49. Reagan won 44, then 49. George H.W. Bush won 40. Obama won 28, three fewer than George W. Bush in his narrow 2004 reelection.

When I read this I was extremely surprised. The election certainly never felt that close. And yet this begins to explain why democrats are having trouble pushing a more liberal policy agenda. The majority of voters are centrists, and these centrists have always feared big swings in government policy.

Just as important, these centrists do not trust the U.S. government to control costs in any way. Neither republicans nor democrats have a recent track record of fiscal control, and attempting to push reform with a "we can do it cheaper" argument borders on comical.

There is no mandate. There was instead a vote of no confidence for former president Bush. But confusing these two could prove very harmful for the white house.

Free Preventive Health Care is a Lie

Proponents of health care reform have changed their talking points, now it is all about "Free preventive health care for all!". They tell us that preventive medicine saves money for all of us. But this is a big, fat lie.

At first take this story sounds plausible. If we can help someone avoid a heart attack, then the treatment it takes to prevent the heart attack is certainly cheaper than treating the crisis of an actual heart attack. But this is only true in individual cases. When you spread the costs out across our entire country, it ends up costing us billions more.

Here's how the math works:

Paying for Heart Attacks-

• Each year roughly 1.1 million Americans suffer a heart attack
• A heart attack will cost roughly $20,000
• Total heart attack costs for all 1.1 million patients should be roughly $22 billion

Paying to Prevent Heart Attacks-

• There are over 300 million Americans in this country
  If we granted preventive care to the 20% that are at the highest risk we would need to treat 60 million people (which may not be a big enough number for the biggest disease problem in the U.S.)
• If we could take the entire $22 billion expense of treating heart attacks and divide it by the 60 million people needing preventive treatment we would be allowed to spend $367 per person on preventive care.

What would $367 get us? Nothing of substance I'm sure, at least not with the government in charge of it. And that number assumes we stop all spending on treating actual heart attacks, which is a terrible assumption. It would be a huge deal if we could cut the number of heart attacks in half (saving 550,000 heart attacks annually). But that means we can only spend half of the $22 billion, or $184 per person, on preventive care. And this is with zero savings!

So please, let's not lie about saving money by opening up free health care to millions of people. Free health care may be a lot of things, but free isn't one of them.

Where's the Recovery?

The stock market has rallied in a HUGE way, the government and media are telling us the worst is over, but is it? Personally, I haven't felt any recovery. In fact, I've got a whole new round of friends that have lost jobs in the last two months.

In a recent article posted on CNN, Ian Shepherson, Chief U.S. economist for High Fequency Economics, said:
"The big story is the core [retail sales]. Excluding autos, gas and food, sales fell 0.4%. That's the fifth straight decline," Shepherdson said. "People are cash-constrained and credit-starved. Remember, their spending accounts for 89% of private sector GDP."

Consumers are spending less money because they are afraid for their jobs. Nouriel Roubini, on Forbes.com, had this to say about the job situation which has recently been reported to show improvement:
The decline in the unemployment rate from 9.5% in June to 9.4% in July was not due to an improvement in the employment situation but is explained by the large decline in the labor force (-422,000). Workers facing hiring freezes, fewer full-time jobs and jobs at lower wages are leaving the labor force.

"Leaving the work force" is a reference to the fact that after too many months of being unemployed we simply stop counting people as workers. Instead, we say they have "left the work force". So last month, the number of people that "left the work force" was 422,000.

The job situation is terrible, people aren't spending, but the government is still saying:
"We're probably looking at a turnaround in GDP before the end of the year, so then we'd expect jobs to normally start growing shortly after that," said Christina Romer, President's Council of Economic Advisers.

So while the some talk recovery, I'm left wondering what we are recovering. American households lost $14 trillion in wealth in the last 18 months - that amount is greater than one year of our country's Gross Domestic Product (GDP - a measure of the value of EVERYTHING produced in this country).

Reforming Medical Malpractice

With everyone screaming for health care reform, why aren't our elected officials considering tort reform? Why are we afraid to limit legal liability for doctors?

From a recent Washington Post article:
Health-care reform is bogged down because none of the bills before Congress deals with the staggering waste of the current system, estimated to be $700 billion to $1 trillion annually. The waste flows from a culture of health care in which every incentive is to do more -- that's how doctors make money and that's how they protect themselves from lawsuits.

In short, doctors pay huge premiums for malpractice insurance, and end up ordering more tests in an effort to protect themselves from mistakes. This is a lose - lose proposition, adding costs at an increasing rate. And who do you think pays the bill? You! The medical consumer. Through increased fees.

Here's how it works. Let's imagine that you go to a surgeon to remove a mole. That surgeon is paying $240,000 per year in malpractice insurance ($20,000 per month). This surgeon has a low (yes, that is a low surgeon's rate!) rate of insurance because she hasn't made many mistakes in the past that ended up in court. So not only will you pay higher fees to help your surgeon recover the insurance premium, but the chances are very high that she will order unnecessary tests just to be extra sure you won't have a legal leg to stand on if something goes wrong.

So why aren't we fixing this? Are we afraid to limit damages paid in cases of terrible mistakes? Do we feel it is unjust to put a price on death (the worst possible case)? Or are we simply seeing what happens when politicians are afraid of lawyers?

I think we are afraid of lawyers. I know my doctors are!

Pelosi is a Wing-Nut

Congresswoman Nancy Pelosi is the Speaker of the House. And she is totally a Wing-Nut!

• Her home state, California, is a mess. IOU anyone?
• Her approval rating poll numbers are worse than Bush's.
• Her policy ideas are toxic.

Given her way, Congresswoman Pelosi would tax everyone more, grow the government, and attempt to save the planet (whatever that means). She is for government run everything and is certain the rich can pay for all of it (and her definition of rich gets lower every day).

It would be laughable except for one very important fact - Congresswoman Pelosi is the most powerful democrat after the president. She has taken the lead in drafting the bailouts, the proposed health care reform, and environmental reform. She is literally steering this country from a legislative perspective, that is what the Speaker of the House does.

If the republicans want to come back, then Pelosi is their chance. It's simple. A vote for a democrat is a vote for Pelosi. Chew on that thought. It's almost too easy. Even the president looks bad next to her...

Don't Deny Anyone Anything

Voters agree on some very basic ideas; suffering is bad, justice is good, and we deserve more of everything. This is the only set of rules I can find that explains why we refuse to deny anyone anything.

• We can't deny illegal immigrants government services, despite the fact that they do not support these services.
• We can't allow a union worker to lose a job, even if the company that employs him is tragically bankrupt.
• There is never any reason for someone to be denied health care, regardless of expense, diagnosis, or available resources.

The theme here is a big one. There should be a magical system that takes care of jobs, sickness, and anyone who might happen to need help. Sounds fantastic. If only we could wave a magic wand. (insert MP3 of Dreamweaver)

Have we become unable to say the word NO? Can we even imagine a defensible position that involves some group NOT getting more (despite the evil rich)?

I have a personal rule that may help: If you don't have the money to pay for it then you can't buy it. This works for the government, individuals, and corporations. Finite resources cannot, by definition, provide infinite services.

Iran & North Korea - Do You Feel Lucky?

President Obama extended his hand and the leaders of both Iran and North Korea clenched their fists. The hope that all the U.S. needed was a peace loving president willing to talk openly about new ideas has turned out to be false, but the delay has been valuable just the same.

Some might argue that recent efforts at diplomacy allowed our enemies more time to further their weapons programs, and there is some truth to that argument. But we need to remember our own situation and be very careful not to over commit. The U.S. should not be eager to engage in more military action:

1. The U.S. has been on a war footing for 8 years (since 9/11) and is fighting real and dangerous fatigue among soldiers, commanders, and equipment.
2. The U.S. is already in active engagements in Afghanistan (also known in history as "The graveyard of empires").
3. The U.S. economy is strained to the point of making war spending difficult.
4. The U.S. public is tired of conflict, wanting to focus on their own problem rather than those of foreigners.

It may be best is we allow our enemies to goad us into violent and decisive action - that is all we have the energy for. So my question to our enemies is, do you feel lucky? Do you really want to test a tired American public whose leader badly needs to be seen as strong and decisive? Do you really want to question our courage?

The U.S. may be slow to violence, but history shows we are more than capable of it.

New Definition of Wealthy

The U.S. has a simple plan: reform everything, go into debt to pay for it, and then tax the wealthy to pay off our debt. Great plan, except the numbers don't work out.

We need to raise taxes on the top 1.4% of tax payers by almost 50% to pay for all of the new debt we are taking on. That raise would allow us to tread water, but not pay down additional debt. So how does this work?

I'll tell you how it works, we redefine the word wealthy. Here are a few attempts:

• If you have a job, you're wealthy
• If you every had a job, you're wealthy
• If you have children, you're wealthy
• If you can see out of at least one eye, you're wealthy

And if you're wealthy, you're taxes are going up! Congratulations on being so successful! Now you can help us pay to reform the environment, health care, energy, and fashion (OK, I threw that last one in on my own, but hey, we need to look good if we're wealthy!).

You're taxes are about to go up, and not just a little. States are raising every fee they can (vehicle registration, inspections fees, camping fees, etc.) due to budget shortfalls. The federal government is about to raise income tax, medicare, and social security rates. But don't worry, you can afford it, you're wealthy.

China Says U.S. Needs Less Debt

China has a clear message to the U.S., "Stop running up the deficit!"

This clip from a wonderful article by Robert Scheer tells the story well:
"China has a huge amount of investment in the United States, mainly in the form of Treasury bonds. We are concerned about the security of our financial assets" was the way China's assistant finance minister put it. Briefing reporters at the US-China Strategic and Economic Dialogue, he added, "We sincerely hope the US fiscal deficit will be reduced, year after year." Quite sincerely, one suspects, given a US budget shortfall this year that is slated to reach $1.85 trillion.

So how do we balance the fact that our biggest creditor, the Chinese government, is asking us to reduce our deficit to sustainable amounts while we are considering a health care plan that requires more than $1 trillion in additional debt?

I know that health care is imperfect. I know that we need to continue to work on solutions. But stating that there is no better time to take on more debt for the reform sounds to me as if we are trying to borrow our way to success.

If you had a friend, who owed you $50,000, tell you that he would be in a better position to pay you back if you would loan him another $5,000 to fix a few things that really needed fixing, would you believe him? What if you knew he couldn't pay you now and was losing more cash every month. How would you feel? That is how the Chinese must feel today. And that makes us the bum friend...

Who Will Lead?

Republicans lost their way under Bush, and spent money like madmen. Then the democrats came to town under Obama, and made the republicans look like misers. National polls show that we are all sick of Washington D.C., and even president Obama's popularity and charm can't fix it.

So who will lead us forward? Who has the guts to standup and say NO to new budget items and new taxes? Who has the courage to say that the government can't fix everything?

I'm looking for a leader that has the ability to tell us all to suck it up and take responsibility for our own actions and lives, without pissing everyone off. I'm searching for a common sense, balance the checkbook kind of guy. But I'm coming up empty.

Any of you know a leader like that? Because if I can't find one soon, I'm going to have to start doing it myself (this personal responsibility thing is rough!).

Email ideas to me at bwa.texas@gmail.com

Thanks!

The Problem With Fixed Costs

In business there are three primary types of costs: variable, fixed, and primary sunk investments. Taking on too much of any category can quickly become a problem, as we are finding out in this country.

Variable costs are exactly what they sound like - variable. These costs are only incurred when you sell something, and they vary in a direct relationship with sales.

Primary Sunk Investments are large investments in something that is primary to the way you do business. A factory would be a good example of this type of investment.

Fixed Period Costs are costs that you incur regardless of sales. Think of rent, or salaries. These expenses are there every month even if sales go down. These are the expenses that make slow times very hard, and these are the expenses we seem to be taking on more and more as a country. Here are a few examples:

• Debt Payments - these must be made on the agreed upon schedule
• Social Security - these checks have been promised to citizens
• Government Salaries - more government jobs equals more salary expense

High fixed period costs kill you the instant your revenue (or inflow of cash) slows down. This is the problem suburban families who are in a lot of debt with car and house payments have when they lose their jobs. The payments are still due, but there aren't any savings to fall back on because they have been living too close to the edge for so long.

Similarly, the U.S. government has no savings. We are in debt up to our ears. So any proposal to take on more fixed period costs, such as health care administration or extra workers, should be voted down almost immediately. We simply don't have the cash to pay for it.

Health Care Solutions - At Least a Start

A friend recently called me on the fact that I have been offering opinions regarding the recent health care proposals without offering any possible solutions. She's right, without offering solutions I'm just another member of the peanut gallery, so here are a few suggestions for moving the conversation on health care forward:

1. We simply must start with cost controls. If we aren't willing to discuss cost controls in health care reform then we aren't being serious about the issue at hand. Cost control measures need to involve limiting medical malpractice liability (which the lawyers are opposed to), limiting insurance premiums for pre-existing conditions (which in reality is a method of exclusion), and limiting certain types of care that are free.
2. I know that last part makes people angry. But we have to be honest about the fact that it is not possible to give the best/most advanced health care to everyone in the U.S. Our science and capabilities are growing faster than our wealth. The fact that it is possible to save lives with cutting edge heart transplants doesn't mean that we can afford to make it a right that anyone needing one can receive one. If we screw this up and declare advanced care as a right of U.S. citizenship, we will go broke and stop innovation all at the same time.
3. Our administration costs are high, but the idea that a large bureaucracy like the U.S. government is well suited to lower those administration costs is laughable. The U.S. government doesn't even understand what it means to lower administration costs.
4. Finally, we need to discuss what level of care we are willing to live with. It may be true that our health care costs have climbed dramatically since 1950, but so has our quality of care (and of life). If we want to provide 1950's level care, which is a huge step backwards, we can get serious about cutting costs in half. But that doesn't seem to be the desire. We can't pay 1950 prices and get 2010 health care for everyone in the U.S.

Cost controls are something the government can help with, administrative control is not. And until we decide openly whether health care is a right or a service we will talk around the issue.

These are exactly the kind of hard decisions president Obama referenced in his inauguration speech. Let's be grown ups and make them.

The Best of Health Care Commentary

Some of the best articles I've read lately are here for you to follow. I've pulled key snippets and linked the entire article so that you can get the bigger picture if you have the desire.

Charles Krauthammer, who used to practice medicine, discusses legal handicaps:
When a neurosurgeon pays $200,000 a year for malpractice insurance before he even turns on the light in his office or hires his first nurse, who do you think pays? Patients, in higher doctor fees to cover the insurance.
And with jackpot justice that awards one claimant zillions while others get nothing -- and one-third of everything goes to the lawyers -- where do you think that money comes from? The insurance companies, who then pass it on to you in higher premiums.
But the greatest waste is the hidden cost of defensive medicine: tests and procedures that doctors order for no good reason other than to protect themselves from lawsuit. Every doctor knows, as I did when I practiced years ago, how much unnecessary medical cost is incurred with an eye not on medicine but on the law.

Bill Maher, asking a fundamental question, says:
Because medicine is now for-profit we have things like "recision," where insurance companies hire people to figure out ways to deny you coverage when you get sick, even though you've been paying into your plan for years.
When did the profit motive become the only reason to do anything? When did that become the new patriotism? Ask not what you could do for your country, ask what's in it for Blue Cross/Blue Shield.

Brian Gould, MD, discusses why doctors aren't worried about reform:
There is little for a physician not to like about universal coverage and allowing insurance exchanges to offer a greater choice of carrier. Forty-four years of experience dealing with the Medicare program has taught them that over the long run it's a good deal to accept fee limits in exchange for broader coverage - particularly when the government does such a poor job of capping volume, maintaining treatment standards, or even policing outright fraud (estimated to be running $60 B a year in the current Medicare program). From the point of view of the practitioner in the trenches, Medicare-level fees are a grind, but never having to ask a patient if they are insured is a very good thing.
But wait you say, I thought ObamaCare was also promising to "attack excessive costs?" Isn't this where the rubber hits the road? Isn't a good part of "excessive health care costs" really doctor fees? Perhaps, but doctors never think that their fees are the ones being referred to as "excessive." Moreover, they calculate that reducing health care services to control costs will never be politically acceptable in the US. We may want the UK's per capita expenditure on health care, but we're not prepared to accept what the citizens of the UK do to achieve it. On this one, doctors may know their patients better than the politicians do.

Democrats Find $$$ Solution

It seems democrats have one solution to all of our money problems - Tax the Rich! But I am neither convinced nor impressed.

Today the top 1.4% of income earning families, those making more than $350,000 per year, pay over 45.2% of all taxes collected. Are you comprehending that?! Basically 1% pay half of the bills for the entire country.

This same 1% that pay half of our taxes are also the biggest investors and charitable givers. It's not hard to figure out, this wealthier group simply has more money to invest and give away. They drive the stock market, churches, food pantries, programs for the arts, etc. And yet, we want to tax them harder!

But why? Why penalize people for being successful? Why discourage stock market investment? Why are we pretending that taxing the rich will do anything other than destroy wealth?!

The House of Representatives has recently passed new tax increases for the rich. This is happening right now. And like many other recent monetary decisions, this one is a HUGE mistake.

Health Care Reform is Pure Expense

Douglas Elmendorf, chief of the Congressional Budget Office, said this of the leading Democratic health care proposals in the House and Senate: "In the legislation that has been reported, we do not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount and, on the contrary, the legislation significantly expands the federal responsibility for health care costs."

In other words, the proposed reforms are MORE EXPENSIVE than the current system, NOT LESS! How did that happen? How did we take a national mandate to control health care expenses and screw it into a system that costs more? This is legislative failure, pure and simple.

Our history of predicting what government run health care programs will cost is tragically painful to review:

• The cost of Medicare is a good place to begin. At its start, in 1966, Medicare cost $3 billion. The House Ways and Means Committee estimated that Medicare would cost only about $ 12 billion by 1990 (a figure that included an allowance for inflation). This was a supposedly "conservative" estimate. But in 1990 Medicare actually cost $107 billion.
• Anticipating a 3.5-percent annual inflation rate, government actuaries predicted that the cost of a day’s hospital stay by 1985 would be $155 and that the hospital insurance portion of Medicare would cost $9 billion by 1990. The actual average cost of a hospital day by 1985 was over $600; instead of $9 billion, the hospital-insurance program cost $63 billion in 1990.

(above items from a 1993 article)

If we can't predict medical expenses with any confidence, and the current reform plans don't predict any savings to begin with, aren't current reforms relaly just an open liability that could become excessively huge in the near future? How can we afford that?!

Culture of Change

Last winter the markets collapsed. There were screams and tears and calls for hangings. So we went into debt, deeply, in an effort to stop the bleeding. Anything to fix it!

The second quarter of 2009 saw a rally in the stock market, the conviction of Bernie Madoff, and an auto industry bailout. Hope was the lead story on the nightly news.

But now what? The story of hope is fading, and behind it is the reality of less work and less money for American workers. Despite massive amounts of bailout money being borrowed against future taxes, the unemployment rate climbs. And some say we have a ways to go, from our current 9.5% to a staggering 14%. Could it really get 50% worse? Unfortunately, it could, and very well might.

As the market rally stalls out U.S. companies are reminded that recessions can last a very long time. Managers are being told to stay lean and reduce head counts, as payroll is always one of the biggest expenses a company has. State and local governments, facing huge revenue shortfalls, and are being forced to layoff teachers, agency employees, and support staff. Charitable organizations, facing lower rates of donations, are also laying off paid staff. With all of this bleeding, how can unemployment not go up?

At the point it is vital that we admit that the first stimulus package did nothing to slow job loss, it simply protected large investors and big corporate shareholders. A second package can't be expected to do any better, and I can't emphasize this enough - WE CAN'T AFFORD MORE DEBT!!

New Polls Show Obama Trouble

President Obama's job approval rating has dropped from a +44 to a +22 in the last seven months. And Ohio, who voted for the president, seems to be the first state to have changed it's mind (with less than 50% approving of the president). Many are wondering if this is the beginning of widespread discontent.

Here are the averages of recent polls. Click on the links to see detail (and play with the cool graphs):

President Obama Job Approval
RCP Average
Approve 58.3
Disapprove 36.3
Spread +22.0

Congressional Job Approval
RCP Average
Approve 35.3
Disapprove 54.7
Spread -19.4

Direction of Country
RCP Average
Right Direction 43.3
Wrong Track 52.0
Spread -8.7

A majority of us believe Congress is a mess, the country is on the "Wrong Track", and that the president seems much less exciting than before. This is what you call a BACKLASH. Huge deficits and new proposed taxes don't seem to be a recipe for success, and I can't believe anyone ever believed they would be.

South Korea Openly Grateful

In a recent speech Lee Myung-bak, the president of South Korea, was openly grateful for U.S. help. What surprised me most was the fact that he actually said the words "thank you." It seems that all the media reports now are stories of U.S. hatred and condemnation.

Here's a quote from his speech to Georgetown University on June 17th:
"The Korean War Memorial is not far from here. It is in front of the Arlington National Cemetery and those of you who haven't visited this beautiful memorial yet, please do so. There, you will find what your country stands for and what your grandparents did for others. You will find what courage and sacrifice means. You will be proud of what your country did and understand how grateful we are and that when we say thank you, we really mean it. Likewise, in my message to the American soldiers in Korea commemorating Memorial Day, I said that we will never forget the selfless sacrifice given to us by the young American soldiers to defend freedom and peace of Korea."

At a time when many seem content to take the blame heaped upon us for perceived ills, I for one am not buying it. I am proud of the generosity of our country. I am proud of the sacrifices brave men and women have made to further freedom. And I am beyond tired of apologies by our government.

We have succeeded in Iraq. We will succeed in Afghanistan. And we have our military (and their families) to THANK for it.

Happy July 4th everybody!

Recession Proof Businesses

Here is a list of attributes you can use to grade a business as recession proof (Yes is good, No is bad):

1. Is the product/service the best there is?
2. Is the product/service a necessity for those that buy it?
3. Are there just a few alternative competitors?
4. Is the company creating a lot of free cash flow to the equity holders?
5. Is the product/service protected by patent, intellectual property copyright, or something else?
6. Are the employees top notch?

At the end of the day, being recession proof is all about being really, really good at what you do. Using this definition, some people are recession proof, even if their company is not.

Besides being safer places to work during bad times, such companies tend to be better places to work in general. Productive, successful, thoughtful, and honest companies do great work, and tend to attract great people. So seek quality, regardless of the industry, and you may find shelter from the economic storm.

Federal Flaw

If you're like me you are tired of both the Republicans and the Democrats. Washington D.C. seems increasingly out of touch. But it is a lot easier for national media companies to cover the politics of D.C. than it is to cover state politics, so we get fed a consistent media diet of national politics. But the United States is a huge country made up of diverse people, so the idea that one central group can form solutions that work for all of us is flawed in the extreme.

Our founding fathers new this, even when we only had 13 states, and they took steps to limit federal powers. The main proponents of such views were called Federalists (which is now ironic), and I feel we need to return to some of primary ideas, like making sure states have the ability to effect their own populations.

Living in Texas, I am appalled at the idea of supporting federal decisions that may very well hurt our state. And being one of the few states that gives more money to the federal government than it receives, Texas is in a different position than say, Michigan. Now, Detroit residents may not want state responsibility to be enhanced much, as their city's problems are beyond the reach of any single state, but how responsible should I be for their poor local decisions?

The popular slogan "Think Globally, Act Locally" should be applied immediately to politics. The alternative, hoping that Washington D.C. comes to the rescue, has proven to be about as successful as trying to win the lottery.

Global Warming Cools Off

As Washington debates the importance of Cap & Trade the rest of the world is moving on. In fact, as more scientists come out against global warming theories, the new question isn't "How do we limit fossil fuels?" but rather "Is global warming based on science or fear?"

Here's an excerpt from a great WSJ article (click here for the entire article):
The number of skeptics, far from shrinking, is swelling. Oklahoma Sen. Jim Inhofe now counts more than 700 scientists who disagree with the U.N. -- 13 times the number who authored the U.N.'s 2007 climate summary for policymakers. Joanne Simpson, the world's first woman to receive a Ph.D. in meteorology, expressed relief upon her retirement last year that she was finally free to speak "frankly" of her nonbelief. Dr. Kiminori Itoh, a Japanese environmental physical chemist who contributed to a U.N. climate report, dubs man-made warming "the worst scientific scandal in history." Norway's Ivar Giaever, Nobel Prize winner for physics, decries it as the "new religion." A group of 54 noted physicists, led by Princeton's Will Happer, is demanding the American Physical Society revise its position that the science is settled. (Both Nature and Science magazines have refused to run the physicists' open letter.)

With the science being openly called into question by a new round of respected researchers, can we really afford a new tax program? My guess is that the people struggling to find work would tell us all "NO!"

This is where the rubber meets the road. Voting for climate change legislation is going to making business more expensive, and those new expenses will be passed on to consumers through price raises. In our current economy, that means slower recovery and less jobs, plain and simple.

So which is more important? Do you want cheaper business or more fossil fuel regulations aimed at protecting the earth? It's time to decide.

The Honeymoon is Over

President Obama has a tough job. Being the leader of the free world may come with some cool perks, but nobody wants his job at this moment. Maybe not even him.

To deal with our economic crisis the president has pushed bailout payments and guarantees that exceed $9 trillion. With interest expense on the debt, we basically spent our entire GDP in 12 months. Not good. Especially since we haven't seen much benefit from it. Unemployment is still over 10%, the auto companies still suck, the banks still aren't lending, and housing prices continue to fall.

Foreign affairs aren't much better. Although Iraq seems to have calmed down lately, Iran is shooting protesters in the streets while North Korea is testing nukes and missiles. It seems that our plan to "extend an open hand" has been poorly received. In fact, foreign leaders seem to be pushing the limits, almost daring the president Obama to do something.

An now the president wants to reform health care. He warns that the system is broken and in a state of emergency. But spending yet another $1 trillion doesn't seem like such a good idea to a public tired of government spending that seems to produce few results. And we surely don't want to see tax increases for the middle class to pay for this reform. What happened to the campaign promise of cutting taxes for 95% of us?!

The media may still be in awe of their liberal hero, but the rest of us are looking for results. We need a plan to deal with our huge new national debt. We need to know what the plan is for rogue nuclear countries like North Korea and Iran. We need the government spending to stop. We need, dare I say, "change we can believe in." I wonder what the votes would be today if they were to be re-cast?

ABC News Still Covering Obama Campaign

President Obama has taken public appearances to a new level never before seen at the White House, and it is starting to upset even the most liberal of supporters. Check out this Bill Maher piece aired a 2 days ago on HBO, I was captivated and stunned and thoroughly entertained...
http://www.youtube.com/watch?v=HWulnfog20c

And yet it continues...
On June 24th ABC News will be hosting a live show from the White House, featuring President Obama as he extols the virtues of his health care reform plans. There will be no dissenting views, there will be no debate. And just like that a new political media tool is invented, the presidential infomercial. And just when we thought there couldn't be any more campaigning!

The Republican party has been denied any presence in the program, despite requests. Which brings up a good question - should the Democratic Party be required to pay for this TV time? Without allowing equal time to opposing parties, I am inclined to believe that this is really a sales presentation (infomercial), and I fail to see how that qualifies as news. Isn't the news supposed to be unbiased reporting of facts and events? The Drudge Report broke this news, and have even printed the Republican complaint...
http://www.drudgereport.com/flashaot.htm

(Thanks to Clay for bringing up this topic, I appreciate the help.)

July To Be Most Expensive Month Ever!

In the next six weeks the Obama administration will attempt to pass sweeping health care reform before the August legislative break. If they succeed it will mean higher taxes have been passed to pay for the reform. If they fail health care reform may not happen during this president's tenure. Either case is expensive.

The Rock-
In order to pay for the additional $1.2 trillion in government health care programs that the administration is proposing, there will have to be either more debt or more taxes. More debt is a poor option; the bailout programs have already maxxed out our national credit line. More taxes are a political problem, as it will be nearly impossible to raise enough money to fund the program without taxing the middle class. Raising middle class taxes would break Obama's campaign promise of tax cuts for 95% of Americans. Ouch.

The Hard Place-
On the other hand, if health care reform fails to pass before the August break, there is a good chance that it will be a dead issue for Obama's current term. This might sound like a victory to some Obama haters that would love to see him fail, but ultimately the high cost of medical care growing in the same fashion that it has over the last decade will cost us all a lot of money.

So here we sit, in between a rock and a hard place. The hard truth is in front of us: health care reform will require higher taxes for all but the poorest tax payers. Everyone making over $50,000 (as a family) stands to see higher taxes bills, from hundreds to thousands of dollars per year.

One Example:
-A family of 4 claims $110,000 of income (all together)
-The effective tax rate this family pays is 21%, or $23,100 per year
-This family gets health benefits from one employer
-The employer-paid benefits cost $1,600 per month (young, child-bearing family rates)
-$1,600 per month times twelve months equals $19,200 per year
-If these health benefits are to be taxed at the same rate as income, the additional tax burden would be equal to their tax rate times the benefits they receive, or 21% * $19,200, which equals $4,032 in new taxes.

A family making $110,000 is by no means rich. They work hard to pay their bills and pray that they don't get laid off. They have small savings, and pour everything they make into their children. Giving them a $4,032 tax increase ($336 per month) will not sound like a solution, it will sound like a burden, which it is. Middle class families will be the ones caught in the rocky hard place, battered by waves of taxes, unable to afford the lobbying effort it would require to reverse the new laws.

Middle class families, if taxed at the newly proposed rate, will turn on Democrats in a big way in the next elections. It is time to learn how badly this administration wants health care reform.

The Cost of Safety

In a struggling economy many of us yearn for a safe harbor, and some are asking the government to provide such safety. But can we afford it?

In doing a standard cost benefit analysis of a problem the key question is whether or not an expense is worth the benefit that it may provide. For example:
Let's say that there is a 1% chance that my $20,000 car might be stolen. So 1% times $20,000 means that the estimated losses are equal to $200. This means that if I can spend less than $200 to protect my car from theft, it might just be worth it. But if the a car security system would cost me $500, then there just isn't enough benefit to cover the expense.

The same analysis can be used for big decisions as well. Let's imagine that there is a 30% chance that the economy will melt down if large banks were allowed to fail. This economic problem, if it occurred, would impact the amount of income that banks add to our national GDP (which is $13.84 trillion). Estimating that banks add up to 30% of our GDP, we could figure that a bank failure could lead to the loss of up to $4.15 trillion (30% * $13.8). But there is only a 30% chance that such an event would occur, so the real risk is 30% times the possible loss ($4.15 trillion), or $1.24 trillion. So in such a case, we should only be willing to spend $1.24 trillion to insure such a risk.

That math may be boring, but there is a fairly interesting point. The U.S. GDP is $13.84 trillion. If we lost everything in one year the most we could lose is $13.84 trillion, and the chances of that are effectively zero! So why are we willing to spend over $8.5 trillion to stop the economic crisis? $8.5 trillion is more than the cost of all U.S. wars ever fought! (see http://www.nowpublic.com/world/wall-street-bailout-so-far-exceeds-total-cost-all-us-wars)

The math doesn't add up, but the interest expense on the debt does. This is catastrophic in terms of the burden it places on taxpayers. It's time to say no every single budget increase.

Please Save Us... Fiat?

So here's the situation:
1) We are a huge car company (Chrysler) that is hemorrhaging cash so badly that the president of the United States has stepped in to help.
2) People don't really like our cars due to a reputation for poor quality.
3) We've almost spent all of our bailout money, and we need a plan.

And the solution is...
Wait for it...
FIAT!!

That's right, Fiat.

It really is a perfect match. Both have poor quality reputations. Both are looked down on by car buyers. Both have corrupt leadership. It's a match made in heaven. I mean, be honest, doesn't the idea of owning a sparkling new Fiat sound even worse than owning a spanking new Chrysler? Ha! That's called progress!

Who thinks this crap up? It what bizarro world does this sound like a plan to build a stronger car company that will protect American jobs? The Italians won't help us - they'll hang us. And we made it easy for them.

If relying on the Italians to save us is the best plan we have, then I am afraid that our government is failing to admit how truly desparate the situation is. This move stinks of confusion, denial, and (soon) regret.

The cure is turning out to be worse than the disease.

Could We Actually Increase Offshoring of Jobs?

The current administration is in a pinch. It seems our national income is far less than our national spending rate. So we find ourselves in the unfriendly position of needing to raise money. And unfortunately, the government must raise taxes in order to raise this money.

One of the main tax targets has been large U.S. corporations. The Obama administration wants to close a $190 billion loophole law that allows U.S. corporations to shift profits to overseas subsidiaries and pay the local government taxes instead of U.S. taxes. For instance, if Microsoft shows that a bunch of it's software sales are booked though an Irish subsidiary, then Microsoft pays taxes to Ireland on that revenue (which has a much lower tax rate than we do), and effectively dodges U.S. tax rates for those sales dollars.

At first look the plan to close this tax loophole sounds like a great idea. Nobody will lose any sleep over the idea of big companies making less money, and we are all very suspicious of their ability to screw us with high priced legal teams and government lobbyists. So when the president says he wants to tax Microsoft most people say "Go right ahead!"

But wait just a minute. Microsoft has been very upfront about how it will react if this tax rule is changed. Stevel Ballmer, the CEO of Microsoft, says that such a change would encourage Microsoft to move people and jobs overseas. “It makes U.S. jobs more expensive,” Ballmer said in an interview. “We’re better off taking lots of people and moving them out of the U.S. as opposed to keeping them inside the U.S.” (for the full Ballmer article click here)

DOH!! So we change the tax law in an effort to get more taxes and actually end up chasing jobs overseas and collecting less tax revenue?! That's not the plan! Seems to me that the cure may be more dangerous than the illness if we don't slow down and think very carefully about what we do next.

On the flip side, Ireland is all for this tax law change. So I guess you could say that we are making great strides towards improving our international reputation...

Where Obama Will Spend His Political Capital?

President Obama came into office with a big agenda. He wanted to end the Iraq war, introduce a Cap & Trade environmental reform program, reform health care, cut taxes on all but the wealthiest among us, and stimulate alternative energy production. His message of hope and change was powerful enough to make it a real possibility that such major changes could take place. But then the economy fell apart.

In the face of an economy that was imploding on multiple levels, our president chose to start spending government money. He sent money to bail out the auto industry, the first wave of home foreclosures, the financial industry, the insurance industry, and the construction industry. Each of these bailout plans had a huge price tag associated with it, and when summed up that magical number has passed $10 trillion. (Just in case you are in doubt about these numbers, check out the national debt clock at http://www.usdebtclock.org/, it promises to blow your mind.)

The bailout money has not had time to work yet, so the results are difficult to predict. We may have seen the worst and are beginning a long, slow climb out of trouble. On the other hand, we may be experiencing a suckers' rally that will drop us off a cliff. No one knows for sure. But what we do know for sure is how much debt the U.S. has taken on in this attempt to mend the economy. And just like any other entity capable of taking on debt, the U.S. government will have to pay up.

In the background we have seen the Cap & Trade legislation die a slow and quiet death. Both political parties saw it as a new tax, and killed it in short order. This created a new problem for our president. You see, the Cap & Trade tax was supposed to pay for the new health care reforms, and now there is no money for health care. So the president has been forced to take a new angle on the problem, saying that health care reform is important enough to justify even more government debt. The administration is in a mad rush to pass such reform in the next 8 months before "other issues" become primary.

These "other issues" that are about to become the primary focus are charging at the Obama administration like a mad bull; tax increases for all. That's right, everyone, the rich and the poor, are going to have to deal with higher taxes very soon. There is simply no way around it. The basic truth is that taxation must be equal to the amount of government spending, there is no other way for a government to fund itself (apart from printing money, which we are trying as well). So taxes must be raised in order to cover the trillions of dollars of bailout expenditures. Period.

Explaining these tax increases will require every bit of political capital president Obama has. His reforms will suffer. His agenda will change. And all the while, taxes will increase. Taxes on beer, cigarettes, income, real estate, sales, vehicles, fuel, food, health care, telecommunications, mail, charitable donations, savings, investments, clothes, and on and on and on and on...

Paying up will be painful, and could very well cost president Obama the office he recently won. At the end of the day there just aren't enough "wealthy" citizens to cover the tab, and everyone else who has been promised a tax break may struggle with the reality that our economic crisis is something we must all pay off for years to come. The very real political danger that our president faces is the notion that the change he brougth us is a change towards higher taxes, and that is not a platform that gets a politician re-elected.

Still Not Bullish

GDP falls 6% and the market goes up. The government passes a $3.4 trillion budget that will explode the deficit and the market goes up. The UAW hammers Chrysler's lenders in a bankruptcy scandal and the market goes up.

On top of this, consumer confidence has shot skyward. People are thinking of spending again and feeling much better about the economy in general. But why?! I don't get it. We're still in a mess.

Taxes are about to skyrocket. As Milton Friedman said, the real rate of taxation is equal to the rate of government spending. In other words, if the government spends it, they must tax to get it back. And government spending, if graphed, would look a lot like the hockey stick graphs used by would-be dot.com founders during the tech craze.

Banks are actually bulldozing foreclosed homes instead of taking possession. Granted, these were homes that were abandoned before construction was complete, but destroying them does not exhibit confidence in the market.

We are set to shed roughly 600,000 jobs for the last 30 days, bringing us dangerously close to 3 million jobs lost in 2009 alone! People are still losing work, which means they are losing income, and the poor rate of savings we have in this country leads me to believe that most people cannot live long without a paycheck.

So why are we up in the markets? Simple, it's denial. It ain't just a river in Egypt. It is a very human reaction to sustained bad news. We simply start to choose to ignore things that don't bring us joy. But denial won't keep the market up. I'm doubling down on my short positions. This thing is bound to tank again soon.

Unions Win Again : (

Chrysler may be bankrupt, but the unions have pulled a major victory from the jaws of defeat. Instead of dealing with bankruptcy like every other party that had contracts with Chrysler, the union has already cut it's deal, and it is unusual at best.

The union liabilities (pensions, health care, high wage packages, etc.) were a prime reason for U.S. automaker troubles. Unionized factory workers make over $100,000 in this country, while our competitors pay labor rates that are less than half of that amount. But instead of using bankruptcy to allow these companies to renegotiate their union contracts, the government has already agreed to have the "New Chrysler" take on the debt.

Why is this unusual? Well, for starters, it means that the unions have been given special treatment and allowed to skip the legal process that everyone else with a claim against Chrysler will have to go through. I guess the legal process doesn't apply to unions.

Last month president Obama chastised the entities that have loaned Chrysler millions, saying that they were unwilling to cut a deal that was fair, leaving the president with no choice but to allow Chrysler to go into bankruptcy. But the truth is a much bigger story. After seeing the union get special protection at better than 60% of their contract value, those that had made loans asked why they should quickly accept 30% on their deals. The answer? Because you are not the union.

So even in bankruptcy unions get special treatment. It doesn't seem to matter that there is no legal precedent for such treatment. It doesn't seem to matter that such a deal endangers any future U.S. automakers may be trying to build. And it certainly doesn't seem to matter that taxpayer money is being used to make this whole mess work out.

Boo Unions. I hope this comes back to haunt you.

Is Violence Ever OK?

My kids are 9 & 10. We regularly teach them not to hurt others. We try to teach fairness, openness, and tolerance. But there are times when those approaches break down.

I believe that there are times when violence is not only acceptable, but required, a view that seems extremely unpopular these days. But when might violence be required?
1) When you are afraid for your life.
2) When a bad person attempts to harm an innocent.
3) When the harming of a bad person will save innocents.

When bad people actually act on their threats it changes all of the rules. Talking is a great way to meet verbal threats, but once bad people move to action talking is no longer of much value. You see, I have been held at gun point. And during that very short and uncomfortable time, diplomacy was not an option.

I suspect that most of the liberal politicians that are so against torture (even though they were well aware of it's use ahead of time) would change their tune if their own family and friends were threatened. It seems that a very strong argument for softer tactics is the idea that the threat we face is not really that bad. In fact, the threat we face may be entirely imagined!

But 9/11 says otherwise. Iran says otherwise. North Korea says otherwise. The taliban say otherwise (I won't capitalize their name).

Maybe I'm wrong. Maybe all Iran needs is to be convinced that it's policy of wiping Israel off of the face of the earth is too harsh. Maybe North Korea just wants to be included in global talks. Maybe the taliban, who believe women are second class citizens, just need to be heard.

Then again, maybe they just need to see that such evil will lead to the quick and painful death of their kind. Maybe shooting them is the best diplomacy there is.

Torture Convictions Lead to Increased Violence

Everyone is up in arms about the use of water boarding and other torture like events. Seriously?! Are we really going to turn on the military personnel and federal agents that worked on interrogating terror suspects?

The cycle we are in looks like this:
1) Get lazy and soft because we feel safe and nothing has gone wrong for a while (Clinton years)
2) Have something terrible happen and get tough to protect our families (Bush years)
3) Regret the idea that you got tough and claim that it wasn't worth it (Obama months)

Not a good cycle for anyone. The agents learn that they can't trust orders, and fear being penalized for being tough, so they decide to play it safe. The bad guys learn this and get even tougher. Then the bad guys do something terrible, and we react with even tougher methods. Instead of being a path to peace this actually leads to increasing violence (by encouraging attacks and overreactions).

But I really want to focus on a bigger question: are we willing to do what is necessary to win wars and protect our families? Bad people force us to react harshly. And I am willing to react harshly to protect this country. At some point we need to be confident and secure in our willingness to kick some one's ass that has or is threatening us! Not everyone is going to be persuaded by "talking it out". Some people push until they get their asses kicked. It is a fact of life (albeit a terrible one).

It is one thing to regret having to go to harsh lengths to protect the United States. It is another thing entirely to regret that you did what was demanded of you by the situation. In other words, I regret that you have forced me to shoot you, but I do not regret shooting you when you forced me to do so. The difference is vital to our future as a free country.

Pigs Get Revenge!

Pigs are delicious. Plain and simple. Bacon is one of my three perfect foods (the other two are Kraft Mac N Cheese and JIF peanut butter). But it seems that the pigs are striking back.

Swine Flu is going to be around for months, at best. People are already buying supplies (you can't find a medical mask in the whole of Austin, TX) and changing travel plans. I can't blame them. Trusting the federal government to protect you is a lot like asking the IRS for help with your tax refund- not the best plan.

Initially this wave of buying will show up as a bump in retail sales figures. But if the flu scare gets worse, and people stay home, then look out for more economic bad news. If affected areas decide to issue warnings to avoid public places, you can bet that shopping malls, concerts, sports events, schools, and churches will suffer in a big way. Grocery shopping will become a middle-of-the-night activity. While online sales may jump, overall sales will plummet.

Let's hope they find a vaccine soon, as that is the best way to calm this situation down. This flu doesn't have to turn deadly in the U.S. to cause a lot of pain. At least summer is here. Those poor folks in the southern hemisphere have more to worry about as swine flu mixes with their normal flu season. Uhhggg.

P.S. I bet we're within weeks of some animal lover getting mad at the fact that this whole thing is being blamed on innocent piggies...

Bank Stress Test

Tomorrow we will hear a lot about the government's effort to perform stress tests on U.S. banks. The headlines will begin with the government's release of a white paper detailing the testing methodology, and then continue as the results are consumed by analysts, politicians, and pundits.

As I write this, the banks and the government are continuing to fight (right up to the last minute) about how the test results should be released. This fight is about which numbers will be used, and how they will be presented. The banks want to look as good as possible, while the government wants to increase public confidence, so I'm not really sure what they are fighting about. I imagine the fight goes something like this:

Banker "Look, we don't want to name the report 'Stress Test' anymore. We prefer 'Review of Bank Awesomeness'."
Government "That's a great idea, I just wish we thought of it at the beginning. I can't look bad by changing it now. So I'm going to say 'No Way'. But I reserve the right to use it anyway."
Banker "Fine. We also want to withhold actual financial data at our choosing. To make up for the empty space this will create in the report, we propose releasing a survey of employee stress indicators."
Government "So you want us to report on how stressed out your employees are? That might just work. Can we give them free doughnuts and coffee before they take the survey? It might make for better results. You guys are really good at this!"

If both the government and the banks have incentives to increase public confidence, then how can we expect them talk about loan losses, reductions in lending, mortgage defaults, etc.?

The real stress test is simply continuing to listen to the government pretend like they know what they are doing. Maybe a Stress Test Czar would help?! That sure sounds official and important!

Why Should I?

The government (Bush's and Obama's) keeps asking me to trust them. And my question is- Why Should I?

Bush was a republican who started massive ethanol subsidies (a bio fuel that actually uses more carbon to produce than it saves) and kept having trouble explaining exacting why we were at war. Obama preaches fiscal responsibility while proposing to triple the national debt at the same time. Both scream "It's not my fault!"

The Bush administration had such poor ratings that the last election was a landslide of change. American citizens were tired of not hearing the full story. Now the Obama administration promises to fix everything right now, including the deficit, as long as we trust them with a ton of overspending in the short term.

Bush used fear. Obama used hope, and now fear (if we don't act now it will be a terrible mistake). But I don't trust either of them.

I don't trust that they understand how to fix the problem. I don't trust that they are above back room deals with old friends. I don't even trust that their cabinet members pay the same taxes that I pay.

Without this trust I am left to watch their actions, knowing full well that they will blame anyone but themselves. I am left wondering when to apply tough love to these drunken spenders of my money. I am left watching to see if the world really reacts differently when we talk more and shake more hands.

But so far I'm not impressed. We threw big money at terrible auto companies. We have North Korea, Iran, and Russia all saying "screw you and your softer style". We have explanations about how the bailout money would create more lending, while lending drops every quarter.

The actions are not matching the talk. This isn't a liberal/conservative issue. It isn't grounded in party politics. It is grounded in the observation of terrible performance. The only answer I know is to push for term limits in the senate and congress, while continuing to resist government spending (by anyone).

These people are crazy!

Inflation?

The DOW is struggling to stay at 8,000 as corporate profits are reported for the last quarter. The profits are far below last year, but generally in line with analyst expectations, which many call a good thing. The logic goes like this, "If we hit the analyst expectations, then we must be doing good." Unfortunately, the analysts expect things to be terrible. So I don't see how hitting their expectations is a sign of anything positive.

It seems that the media, and stock traders, and those with stock accounts hurting from the recent down trend are all anxious to return to the old buy-and-hold mentality. Stories are being written about "Missing the Rebound" and "Recovery Quicker Than Expected". People just want to go back to the good ol' days. But it's not that easy.

We are at a very vulnerable spot. If oil goes up, we get screwed. If a major failure surprises us, we get screwed. If inflation starts to run up, we get screwed. And out of all of these very possible events, it is inflation that worries me the most.

Ballooning national debt has the terrible side effect of encouraging the government to print more money. This printing expands the total amount of money in the market, without expanding the value of the market, so every dollar is now worth less. When money is worth less, people need more of their income to spend on the basics, and non-essentials get skipped.

Is it a sure thing that the market tests the lows and falls apart? No. But does it make any sense to say that the worst is behind us? No. We're in the wait and see period. The time when we all hold our breath and try to keep the next domino from falling.

Commercial Real Estate Troubles?

Yesterday, General Growth Properties declared bankruptcy. This is the largest real estate bankruptcy in U.S. history. Among other holdings, General Growth Properties (GGP) owns the Water Tower building in Chicago and the Grand Canal Shoppes in the Venetian at Las Vegas.

These guys own a lot of property. Over $29 billion in real estate assets backed by over $27 billion in loans from people like Citigroup and Goldman Sachs. Any of those names sound familiar?

GGP is a REIT, which stands for Real Estate Investment Trust. REITs generally act llike mutual funds. People by shares in the REIT's holding on the stock exchange, and the REIT managers use the share money to buy real estate assets and manage them.

The odd thing about GGP going bankrupt is that they have good cash flow. They can pay their bills. But a number of their loans are coming due and banks won't lend them money to refinance. So in essence, GGP is going broke because too many of the loans it carries are maturing at the same time, and they had planned on refinancing them instead of paying them off. This is the credit crunch in action.

This is a case of banking risk being bigger than market risk (market risk being the risk of real estate properties getting cheaper). Unusual, but obviously not impossible. Also not a great sign that the banks are back to normal.

Foreclosures Are Back

The temporary moratoriums on foreclosure filings, that the government pushed large banks to declare, has expired. So the backlog of mortgages that would have been foreclosed on during this period is on the way to completion. It seems that the "timeout" called by the government didn't help people find ways to pay mortgages they couldn't afford in the first place, who would've guessed?

These foreclosures enter the market as inventory, and will weigh down prices on the overall market (a big new chunk of supply), making a housing recovery difficult in the near term. But we have to do this. The "timeout" may have allowed people to breathe, but it did nothing to fix the problem. And sooner or later we have to deal with the basic fact that many people bought homes they couldn't afford to live in.

A touch over 800,000 homes were foreclosed on in the first quarter of 2009, with 5 states (California, Arizona, Florida, Nevada, and Illinois) accounting for 60% of the total. These are localized problems to some extent, and the locals feeling the pain have been very successful at making us think it is a national problem.

At the philosophical level, I seem to hear a lot of people saying that houses deserve to be safe investments. Homes should not get cheaper, period, ever. But that is crazy talk. The housing market is a large, flowing market with lots of money at stake. There is risk involved. And if we take that risk away, we will also take the rewards of smart investing away. There is simply no such thing as a risk-free market.

Buy a house at a bad price - and you'll lose money. This situation is basic. This situation is exactly what allows the other side of the story to be true as well. Buy a house at a good price - and you'll make money. Welcome to the market!

Micro Cars Suck

OK, I get that many people feel guilty about using fossil fuels. I understand that we use them faster than they can be replaced. I understand that the carbon level is a major concern for most. I just don't care much any more. The logic simply doesn't hold up for me.

First of all, when we say that carbon levels are rising, and that global temperatures are rising as a result, we make a lot of assumptions. We assume, for starters, that people are the source of all the carbon. We assume that the levels of carbon are harmful and higher than previous periods of history. We assume that carbon levels are the main driver of temperature change. We assume that temperatures are rising faster than ever before.

But we only have data going back to the mid 1800s. That's right. We are making sweeping assumptions about how a planet that is billions of years old reacts to change based on less than 1% of the data. That is called arrogance. I guess our 150 years are the most important. Of course we are the source of everything, because we are the most important part of the equation.

Ice core samples show that carbon levels have been higher in the past, before cars existed. Ice core samples give us indications that temperatures have been higher than they are today. But that information doesn't fit with the doomsday science, so we should just ignore it.

Not only is the world heating up as we foolishly burn fossil fuels, but it is your individual responsibility to make a difference. And I would like you to do that by putting your life at risk. Drive a micro car that goes twice as far on a gallon of gas. Just don't get in an accident. Because if you do your precious micro car will fold up like aluminum foil origami. But you'll get good mileage right up until that point.

As for me, I'm driving something that weighs more. I don't trust other drivers. But I do trust the laws of physics, and the laws of physics tell me that more weight (or more specifically mass) will equate to more safety in an accident. My doomsday scenario involves a car crash - which is a realistic possibility in my life. Global change based on very limit scientific observation will have to take a back seat for now (do micro cars have back seats?).

Go Navy!

The best news story I have heard in months was written about the rescue of a U.S. ship captain from pirates. You've all heard about it. Navy Seals shot and killed three pirates. That's what I'm talking about!

Finally we have a clear example of proper force being used when we felt our interests or citizens were threatened. At I haven't heard anyone crying about the poor pirates (which is surprising). Of course these were lower level henchmen. Of course they come from poor countries with few choice. But they made a choice to threaten a U.S. citizen, and I'm glad they got shot for it. Actually, we need a bit more of that.

Our kinder and gentler approach to creating a peaceful world has me exceptionally worried. The reasons are simple, and are as true on an elementary playground as they are in global politics:

1. Bad people take advantage of weakness, unfairly
2. Talk is cheap, truth is apparent only in action
3. Pretending to abide by the rules while continuing to behave badly only fools blind idealists, the willfully ignorant, and cowards looking for excuses.

Iran, North Korea, Pirates, Hamas, Al Qaeda - these are bad people. Bad people intent on doing harm. In my personal experience (and yes, I've been on the wrong end of a gun before) bad people will abuse every opportunity for as long as possible. They will lie, cheat, stall, steal, and beg if it furthers their goal of achieving power (the only real goal they seem to have). This leaves only one option - a powerful response.

Powerful responses must be three things:
Decisive
Clear - to the point of being impossible to misunderstand
Without apology

The item on that list that is most often screwed up when people attempt to act strongly is the "without apology" part. It is one thing to feel badly about needing to act strongly, it is another to apologize for doing so. Mixing up the two feelings puts you at risk of further harm, as guilt shows weakness.

Shoot more pirates. Stand tall about it. It may not be fun, or pretty, or fair, or proud. But it is necessary. And we must have the courage to do hard things if we expect to defeat bad people.

Unwinding

As earning reports come out in a flurry of activity, expect to hear about how things are bad, but not super-bad. I'm not sure what that means either. But the media is desperately trying to find something positive to report on when it comes to the market.

Why? Why is the media so intent on finding a positive spin to earnings reports that are terrible compared to last year at this time? Because they are human. They tend to have their own investments in the market, and like you and me, they too are tired of the bad news. So we can expect them to hope, and to be more receptive to good stories than bad.

But the earnings are not good. Many earnings, when compared to this time last year, are down over 50-80%. In some many cases, once profitable companies are now losing money, the percentage drop is infinite. Meanwhile, the DOW is down roughly 45%. That alone tells me that there is room to fall.

So I'm staying out of the way of this market. I still believe that 2009 will be a rough year financially, and that government spending is not the answer. In fact I'm short the market at these levels. As far as I can tell, the bigger opportunity is in falling markets.

Easter Weekend

Has Easter weekend seen the beginning of a market rebirth? With Wells Fargo announcing that it will post a record quarterly profit of over $3 billion, it sures sounds like better news than we have had in quite some time. The markets love this news, and so do I.

But can we trust it? How has Wells Fargo come up with such a great new number? Simple, two ways:
1) Wells merged with Wachovia, and the merger will allow them to post savings as they lay off workers.
2) The new accounting rules issued by the FASB allowed for fewer write-offs.

Wells Fargo is really in the same boat is has been in. Lots of terrible assets. Way too much executive compensation. A slowing economy. The reality hasn't changed.

I hope we do rally further. I want better prices to sell this dead cat bounce at. This downturn is far from over. So look out for a post-Easter slide...

Cheers!

Guatemala

I recently visited a private university in Guatemala, UFM. I was astounded by what I found. In a country torn by years of civil war, poverty, and drug gangs, there are major power blocks of both communist and socialist political groups. Democracy in this fragile country is hanging on by a thread.

In the worst of this environment, 35 years ago, 6 business men banded together to form their free market university, UFM. They built a small campus devoted to the education of free market thinkers, hoping that such education could help protect the future of their country. And so far, so good.

The school, an extremely modern campus with dedicated students, continues to teach the benefits of freedom. That may sound trivial to us in the United States, but I assure you, in Guatemala it is anything but trivial. The founders of the school, living in a dangerous environment, risked their very lives to stand for what they believe in. And if they fail, and communism takes hold, then you can be sure that prison would be about the best outcome they could hope for.

If the United States has such a university it would be a private campus with over 100,000 students (based on similar attendance percentages). It would shock the academic world by not allowing a teacher's union or tenure, and it would post graduation and job placement numbers much higher than normal. Full professors would teach nearly every class on campus, and teaching, rather than research, would be the main job of all school employees.

Personally, I want to build such a place. We need it. We can do it. And the time is ripe. Our university system in the U.S. is lazy, expensive, and arrogant beyond understanding. Unionization has tainted the system to the point of breaking. And I am appalled at the idea of spending $100,000 per child to support it.

Dow @ 8,000 - Short It Now

The market hit 8,000 this week, more than 1,500 points off of the low set this year of 7,465 on February 19th. It feels good. There have been lots of green numbers and positive news stories. But I'm not convinced.

The headline today on CNNMoney is "2 Million Jobs Lost in 2009". That was much more than expected, and creates a longer term problem for all of us. There are now 2 million more people requiring government assistance. 2 million more people not spending money.

In March the total number of unemployed U.S. citizens was 13.2 million, or 8.5% (according to the U.S. Dept. of Labor http://www.bls.gov/news.release/empsit.nr0.htm). So in 2009 alone, the number of unemployed workers has increased by 17.8%! That is a huge number.

So while the stick market attempts to get the bad news behind us, the real situation continues to play itself out. I'm choosing to believe the numbers. So I'm short the market.

FASB Mark-to-Market

Today the FASB (Financial Accounting Standards Board) voted to ease Mark-to Market accounting rules for banks. What does that mean, you ask?

Well, it basically means that the rules for how banks report their assets (such as mortgage loans) have gotten easier. Banks can now report more value (higher dollar numbers) for the troubled mortgages they own.

This will mean that the financial statements for banks will look better, instantly. They will now have better asset values, which may allow them to loan more money. At least that is the theory.

But the reality is different. The value of these troubled assets, mainly mortgages, hasn't changed at all. They still suck. And the banks, and most investors still know they suck. So the rule change is basically a way to cover up the mess. This could allow banks to lend more money than they should. HEY WAIT - ISN'T THAT WHAT GOT US INTO THIS FREAKING MESS?!

Way to go congress (who pressured the FASB). When our banks made bad loans and got into trouble, one of your solutions was to ease their financial reporting requirements, which will allow them to loan more money against the same troubled assets.

We can't wish this away. I'm am very disappointed. Don't we have anyone in Washington that can read financial statements and understand how they relate to the real world of risk that we live in?

Reconcile the Image with the Actions

In a recent CNN article, Penn Jillette, the comedian/magician from Las Vegas, made a few very interesting remarks, and I quote:

"President Obama is so damn smart. He just drips smart. He clearly understands stuff that we could never understand. He's trustworthy. If Obama were teaching fire-eating, we would all learn fast. If he told you that the burns would be minor and the fire would go out when you closed your mouth, you'd believe him. If I weren't twice his weight, I'd fall back with my eyes closed into his caring arms in one of those cheesy '70s church trust exercises. He could talk me into anything.
Obama tells us that we can spend our way out of debt. He tells us that even though the government had control over the banks and did nothing to stop the bad that's going on, if we give them more control over more other bank-like things, then they can make sure bad stuff doesn't happen ever again. He says we can get out of all those big wars President Bush caused by sending more troops into Afghanistan. And I don't know. I really don't know."
http://www.cnn.com/2009/POLITICS/04/01/jillette.skid/index.html

It seems to me that there are a number of people struggling, much like Mr. Jillette, to reconcile their love of President Obama with the actions his administration is taking. This leaves many very hopeful and patriotic voters in a tough spot. Should they just believe and hope, can they do that AND disagree in any way?

Politics aren't fair, and President Obama should certainly be given some grace when it comes to the mess he has found himself in. The hope he has managed to invigorate is intoxicating, and I admit to wanting it to be enough. And maybe it can be. But we cannot afford to let the White House go unchallenged during these times. We will all benefit from vigorous debate and strong ideals.

So sit back, do your best not to be offended, and get in the fight. We need the fight. We're worth it. And for me, I'm fighting for a much smaller budget, less government, and less entitlements. Free individuals and free markets require the freedom to fight over this stuff.

Finally- an Alternative Budget Proposal

Today's Wall Street Journal carried an article written by Representative Paul Ryan (R-WI). The article clearly articulated, for the first time, an alternative to the $4 trillion budget currently being proposed by the White House (I've stopped referring to President Obama, people just can't stand hearing anything negative in the same sentence as his name).

In short, the newly proposed budget:
1) Drastically cuts government spending (finally, a plan that doesn't increase debt!)
2) Protects Medicaid and Social Security (social cornerstones, but in danger of insolvency)
3) Lowers and simplifies taxes for citizens and businesses
4) Eliminates the Cap & Trade program (carbon credit taxes?! whose terrible idea is that crap?!)

It is almost as if some one's dad sat down and said "Look, we can only spend what we make, so let's see what is most important to us and make sure we pay for those bills first."

I'm all for it. I want everyone to hear about it. We just can't spend our way out of financial trouble. We have to make cuts, and we have to allow individuals to feel some relief in the form of lower taxes. I simply don't trust the government to spend my money in a better way than I can.

Here's the WSJ article link:
http://online.wsj.com/article/SB123854083982575457.html