800 Billion Dolllar Stimulus, We Can Do It the Right Way Without Being Socialists

The Socialists in the House lead by Pelosi wanted little infrastructure building, giveaways to illegal immigrants, labor unions and give tax breaks to people who don’t pay taxes. It is a sham bill that will worsen our recession and will simply reward bad behavior.

The Senate seems to be getting it and understand that we need more infrastrcuture spending, more help to homeowners and targeted tax cuts that can stimulate the economy. Giving tax breaks to rich individuals, capital gains tax breaks and more write-offs won’t help either. The rich keep hoarding cash or blow it in bad investments with likes of Madoff or end up in costly divorces where the newly minted divorcee wife starts hoarding diamonds, silicone and gold. Giving money to the poor will only help out taco bell, state lotteries and anheuser-busch and maybe help out more mothers wanting to pop out octuplets. And you can’t keep extending unemployment benefits forever. We definitely need a health insurance reform, but that’s for a discussion at another time.

The US is home to one of the highest corporate tax rates in the world. Lowering the corporate tax rate to 25% will entice cash-rich companies like energy, pharmaceuticals and telecom to spend. Also giving an amnesty rate of 5-10% for foreign repatriated earnings would bring in lots of new capital to the country. We’re not rewarding the bad players…because the bad players (banks, finance companies) have huge losses and aren’t paying taxes anyways. We should be rewarding the good and profitable companies and giving them a good environment to invest.

We also need an Eisenhower Interstate Highway Bill II. Most of the freeways we drive on are 40-50 years old. We need a commitment from the federal govt for massive spending on highways…and that will create and maintain jobs that can’t be exported to China. Also while housing prices are depressed, it’s a great time to start using imminent domain to condemn homes and reduce the supply on the market. Expanding the 101, 405 and 5 freeways and completing the 710 will require lots of homes to be torn down and isn’t this a great time to do it? In addition to highways…Let’s build a levee that can withstand a Category 5 hurricane in New Orleans, Let’s finish the incomplete subway system in New York and let’s rebuild our passenger railway system so we can rival what they have in Europe.

We need to bring private capital back into illiquid securities which would help eventually homeowners. An ad-hoc approach to bailout individual homeowners will not work. The government needs to become a market maker or “bad bank” in mortgage backed securities and be willing to continue to buy from and sell to private investors. Initially they would need to pay above market value for the securities and perhaps take some losses, but by calming the markets and by putting liquid high yielding securities on the market (during times where money funds are yielding 0%) we can bring in tons of private capital and allow banks to remove these assets from their balance sheet…or at least be able to mark-to-mark it fairly, to stem the massive write-downs. This does not require nationalization of the banks and will eventually allow the federal govt to get out. Hank Paulson’s TARP capital injections nationalized the banks, which devastated the equity shareholders…and if you keep scaring away private investors, you can’t have a sustained recovery.

By keeping the market for mortgage securities flowing, that will keep interest rates low, and make credit available to those seeking to buy homes, which will in turn stop housing prices from plummeting which in turn will stimulate the economy.

Also tax credits to new car buyers ($1000 to all new car buyers, $2000 for buying hybrids) will be highly stimulative and if matched by the states with sales tax waivers…I think we can help break the death spiral of the auto industry while they wind down.

If we’re spending 800 billion dollars, let’s do it right. Breaking the down cycle is what we must do and we must plant the seeds for a sustainable recovery without becoming socialists.

Weekend Update: Gambling, Investing and Poker

More and more I am beginning to think that investing and trading, is more and more becoming high stakes gambling. I am a big fan of gambling myself, but I always wanted to believe that swing trading and investing was not exactly like gambling at a casino.

How else do you explain 30-40% falls in energy stocks and the 30-40% gains in financials in a period 48 hours? This week was perhaps the most grotesque and egregious example of “sector rotation” that I have ever seen. So energy was so great last week and financials so horrible…then everything just flips on a dime? Sure a correction was to be expected but not everyone in the market should be trading together, there should be some kind of balancing act which keeps the market somewhat sane I am beginning to think the stock market has organized criminals involved, but it could be just Goldman Sachs reigning havoc on us all.

I don’t think any stock or sector is really investable right now. Financials have gone up too much too quick…backing of Fannie and Freddie by the feds and less than dire news from Wells Fargo and Citi doesn’t take us out of the woods yet. Tech? It has been one of the worst sectors this year and bad news from Apple and Sandisk…with continued bad news from VMWare and EMC can send us to the abyss.

I’ve been through wild swings before, but this past week was the most disgusting manipulation by the market I have ever seen. Unless you engage in rapid fire daytrading, nobody can make any money…the bulls and bears both get taken to the cleaners together. If you shorted financials a month ago, you are even. If you bought energy 3 months ago, you are even. All gains made by casual investors have been wiped clean.

On the other hand if you sold financial stocks last week, I feel your pain…same goes with those who didn’t sell energy 2 weeks ago. Fannie and Freddie is the best example of how our markets have been hijacked…these stocks fluctuate 20-100% daily…which is just not supposed to happen but nowadays we accept the fact that it does.

The World Series of Poker returns to ESPN starting this week on Tuesdays. In a quirky arrangement, the WSOP Main Event was paused last week and all the final table players return in November to complete it. ESPN didn’t like the fact that people knew the winners 3 months before it aired.

The top prize is 9.2 million dollars…and all final table players were given an advance of $900,000 which was 9th place money. There are no well known pros who survived, which assures for the 8th year or so a no namer will follow the footsteps of Chris Moneymaker, Joe Hachem, Jaime Gold and Jerry Yang.

The best poker program on TV, the World Poker Tour is returning for its 7th season. They will leave their home on the Game Show Network (GSN) and move to Fox Sports Net. It is unclear if the hosts (Mike Sexton and Vince Van Patten) will return or if it will continue to same format that it always had.

Hostess Layla Kayleigh will not be returning which makes her the third straight hostess to be one and done since the 3 year reign of Shana Hiatt. Courtney Freel and Sabina Gadecki were the last two one and done. The favorite of many WPT fans including myself is Kimberly Lansing to take over the post.

Season 6 Hostess Layla Kayleigh and former G4 and Maxim personality.

Seasons 1~3 Hostess Shana Hiatt, former hostess of Poker After Dark and Playboy Cover Model

Season 4 Hostess Courtney Friel, now an entertainment reporter and contributor for Fox News

Season 5 hostess Sabina Gadecki, currently the girlfriend of New York Knicks player David Lee

Season 6 Supporting Hostess Kimberly Lansing…the girl I would like to see takeover the duties for Season 7 and one of the top 5 ladies on tv I have a crush on.

I am NOT looking forward to the stock market tomorrow…no matter what happens I am likely to lose. I am in the process of winding down my positions, taking what little profits I have left and cutting losses…but as long as financials keep rallying while tech and energy tank…I am trapped. A lot of depend on earnings reports from Bank of America (before the bell) and Apple Inc (after the bell). Good luck to all investors out there!

The National Deficit from 6 to 9 TRILLION Dollars under Bush

In continuing my “Buy Gold” series, let’s look at the national debt. More than anything our national debt devalues wealth in this country by watering down the dollar, it is as simple as that.

For those who don’t know how much a trillion dollars is, let alone 3 trillion dollars…it looks like this $1,000,000,000,000.00

Take that and multiply that by 3. That’s how much our national debt increased under Bush.

When Clinton started his presidency in 1992, the national debt was at 4.6 trillion dollars, in the end of 2000 when he departed it ended at 5.7 trillion dollars, an increase of about 1.1 trillion dollars.

Then came Bush and immediately after his first year as president, the debt shot up to 6.2 trillion dollars and today stands at about 9.5 trillion dollars.

And it ain’t decreasing anytime soon. For fiscal 2009, it is expected to surge by anywhere from 500-700 billion dollars. Because individuals and companies are making less, our tax collections are dropping and due to ever increasing govt expenditures our spending is growing. So our intelligent government is making less and spending more. Athletes and Entertainers and Govt Employees (which include politicians) and CEOs are making more money than ever before. The middle class are suffering from loss of jobs, decrease in value of their retirement savings, increase in spending from inflation…just the entire kitchen sink of misery all at once.

Under Bush we have indebted this country by an ungodly amount, obliterated capital (bank stocks, tech stocks, retailers, 401ks and IRAs…all in a freefall), made country more dependent on foreign oil, did nothing to improve our aging infrastructure, increased illegal immigration/poverty by an unmeasurable amount and created a never ending war in Iraq.

Clinton gave Bush a relatively clean slate…sure we had the dot com bubble but if I remember gas prices were around a buck fifty, this country had a surplus, was involved in no wars and unemployment was at historic lows. Boy did things change over 8 years.

I know it is unfair to blame the president on all things bad, but he had his hands dirty in every aspect of the problems we face. It was he and Cheney who started the war in Iraq. It was he who passed the tax cut bill that bankrupted this country. It was he who fiddled while Wall Street, Fannie/Freddie, Federal Reserve and Speculators allowed the housing bubble to grow to epic proportions and it was he who didn’t act fast enough to give it a softer landing. It was he who opened our borders everyone from the third world and refused to enforce immigration laws. It was he who would rather pass further tax cuts instead of spending it to upgrade our aging infrastructure of highways, bridges, levees, power grid, subways and more. It was he who stymied alternative energy and conservation efforts that contributed to oil spiking and acted recklessly to devalue the dollar and thus causing the mother of all spikes in commodities.

I strongly feel that it will take 2-3 years before we see the light at the end of the tunnel in this mess we are in. Do not bet on a V shaped recovery. It will take a long time before coffers of banks are replenished and most of the incompetent Bush appointees in government are swept out.

In the meantime, invest in the market conservatively and use gold as a hedge. You will have plenty of time to ride the gold bull market, you do not need to jump in all at once.

Here are the benefactors of the Bush recession:

The Losers:

Run On Banks, Buy Gold Part II

It looks like the Indymac seizure by the FDIC has caused bank runs across the country. I am not sure if there are runs on deposits, but I’m sure deposit holders and shareholders do not want to be holding the bag on the next Indymac.

So the federal government gave unprecedented assistance to Fannie Mae and Freddie Mac. They opened the discount window, agreed to extend a credit line and also even buy equity in the companies if need be. How did the market react? They took it down and beat it down further.

Self-fulfilling prophecy is the name of the game. When everyone thinks a bank is going bankrupt, everyone sells the stock and pulls deposits out, they do end up going bankrupt. The banks that are most likely doomed are FirstFed Financial of California, Downey Savings of California, Corus Bankshares of Illinois, BankUnited Financial of Florida, BankAtlantic of Florida, Sterling Financial of Washington and Provident Financial of California. These banks are too small for the federal government to bother save and won’t mind them becoming the next Indymac. If you own their stock or have more than the FDIC limits in those banks, it’s still not too late to bail.

The “too big to fail but doesn’t mean stock won’t fail” banks include Washington Mutual, National City, Regions Financial, Marshall & Ilsey and Wachovia. These banks are in serious trouble, but I don’t think it’ll result in a FDIC takeover.

Well I can list every financial stock in wallstreet and they are all in trouble. If you have every bank and brokerage in the country teetering on possible failure…what does this mean? FDIC and the US Treasury doesn’t have enough money to bailout everyone.

So what will we have? We will have anywhere between 50-100 banks fail in the next year. Lehman Bros may be taken under by Goldman Sachs or JP Morgan. Citigroup and AIG may have to break up into little pieces to survive.

I already described before that the Pension and Deficit issues plaguing the United States and Europe will be serious issues that will plague both the Dollar and the Euro. Japan and their Yen has had this problem for nearly 20 years now and there is no end in sight. Emerging Markets and their currencies with 10% annual inflation is plain scary.

So how can you invest your money? You can take a shot through puts on an implosion of a bank, brokerage, insurance company, etc. So far nobody has lost money shorting regional banks and there are many that will likely go down further and implode. But that’s not a viable long-term investment and is just a speculative trade.

The best way to play this environment is Gold. As people continue to flee the dollar, the euro, the yen, the loonie and all world currencies plagued by pension issues, deficits and inflation…Gold is the currency that everyone wants. I think you play gold by owning GLD (the iShares Gold Bullion Trust ETF) and the GDX (MarketVectors Gold Miners ETF). I would avoid oil but own Natural Gas instead. Natural Gas generally follows oil, is easier and cheaper to find and is currently undervalued compared to oil. Easiest way to own Natural Gas is via the UNG (US Natural Gas Trust ETF) and CHK (Chesapeake Energy).

Stocks in the Ag space like Potash, Monsanto and Agrium are too volatile and their charts look exactly like how Yahoo was in the late 90s. Solar stocks have 50% quarterly moves and are not for any moderate investor.

So stick with Gold, stick with Natural Gas, avoid Financials and avoid any strong dollar dependent stocks (retailers, food producers, automakers, airlines, transports) and you can ride this out.

And for those who think Obama will save us from this mess…there really isn’t anything he can do. The energy and financial crisis created by Bush with the Iraq War on the side is too great for anyone to solve, without declaring a dictatorship or something.