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Sluggish Recovery, Good for Investors

If you read the headlines right after Federal Reserve Board Chairman Ben Bernanke testified before the Senate Banking Committee today, July 21, 2010, you would think the world is coming to an end. AP prints, “STOCKS FALL SHARPLY….” while Reuters states, “OUTLOOK UNUSUALLY UNCERTAIN….” The fact is that a sluggish economy will benefit smart investors. Smart investors do not act solely on emotion and fear because they are savvy enough to know that harbingers of gloom and doom who write about the stock market, the economy and investments know just as much as Mr. Adam Monk, the stock-picking monkey who reportedly made a lot of money for those who followed his picks. Harbingers of gloom and doom quickly reverse themselves the moment the wind changes direction. It is like following the herd which is not hard to do.

The fact is that a sluggish economy will keep inflation and interest rates down making it easier for consumers to purchase. Prices of goods especially large ticket items such as automobiles, home appliances, furniture and computers will be kept in check. The price of real estate had been rolled back to a decade ago in many areas of the country. This, coupled with low mortgage rates should encourage first time homebuyers and real estate investors alike to snap up bargains. A sluggish recovery will put more pressure on this administration to rethink its goal of increasing taxes. A sluggish recovery would prove to this administration that taxing the rich and increasing entitlements is not the way to economic recovery and prosperity. A sluggish recovery means the consumer is not spending as much as expected in a typical expansion. Hence, the consumer has more money to pay down his debt and to increase his savings. He is poised to spend. He may go out on a spending spree at the onset of any type of good news because in our culture, in a free market society, the consumer has an intrinsic need to keep up with the Joneses. Another important factor is that many businesses are reporting record profits but are reluctant to invest and hire due to uncertainty about taxes, Europe’s debt crisis and more government regulations. When the uncertainty goes away, the recovery may catch fire quickly and may even overheat. The European bank stress test results to be disclosed this Friday, July 23 may add to more uncertainty which may cause investors to dump stocks. But the savvy investor can look beyond the horizon.

Geithner and Bernanke know what is going on with the economy and they have the power to change things. Bernanke told lawmakers today, "If the recovery seems to be faltering, we have to at least review our options but no further action is planned for now because the economy is still growing”. Geithner has the power to counsel President Obama with regard to taxes and he must have told Obama that the private sector does not like tax increases. I predict that this administration will take appropriate action if signs point to another recession which President Obama will have to own. He will not let this fragile recovery slide back into a recession because that would most likely seal his fate as a one-term president. To me, fixing this economy is as simple as following what JFK, Reagan and Clinton did, and that was to reduce corporate and capital gains taxes. Obama may be compelled to follow the same route if the economy appears to be sliding back into a recession and once again, that would be good for investors.

If this recovery continues to be sluggish but does not fall back into a recession, stock prices will continue to rise even though they may turn sideways some days and drop halfway to the floor other days. Yes stocks will rise and fall but they will not sink to recession level prices unless there is another recession. Economics 101 and plain common sense.

This article is not intended to provide financial advice. Please consult your financial advisor before acting on any advice provided herein.

Any opinions and views expressed herein are the sole responsibility of the writer.

What causes stock market fluctuations?

Ken Little who authored 12 books on investing and personal finance gives the following reasons for the drop in stock prices: Interest rates, inflation, earnings, oil and energy prices, war and terrorism, crime and fraud and serious domestic political unrest. With all due respect to Mr. Little, what he pointed out are the symptoms of the disease rather than the disease itself. The disease which causes the stock market to tumble significantly is recession. Yes the stock market will fall at the onset of various bad news such as an increase in the interest rates and energy prices, instability of the Euro Banking system and the high jobless rate. But if these factors do not lead to a recession, the stock market should quickly recover and continue to rise. Sudden market fluctuation is significant for short-term traders but should not be for long term investors because the market always recovers after a recession. It would be nice if you can predict the highs and lows of the market because you could have made a killing if you had sold in October 2007 when the Dow Jones Industrial Average hit 14,000 and bought again in March 2009 when it plunged to a low of 6,600. Therefore, the Eurozone problem, high jobless rate, the downgrading of Spanish bonds, North and South Korean conflict, Israeli’s deadly raid and the BP oil spill do not worry me as much as decrease in retail sales, reduction in hiring, declining commodity prices, industrial production and housing starts. The day-traders may drive down the stock market purely on investor sentiment and emotion, and we may yet see a DJIA of 9,000 in just a few weeks, but it defies logic for a downward trend to continue if all leading economic indicators are pointing upwards. This is all intricately connected because if stocks do not recover quickly, and we get into a prolonged bear market, consumer confidence may deteriorate resulting in reduced consumer spending. Again, I do not see a protracted bear market unless we are heading for another recession.

We must go back to basics to enable us to assess where we are now in the economic recovery. Recessions are a normal part of a business cycle. Recession comes from the word “recess” which most of us know is the suspension of whatever we are doing in order to have fun and relaxation. As in “let the children play during recess”. However, in business lingo recession is a word that is feared by most people because it can be defined as the suspension of consumer spending or to put in milder terms, an intermission from spending. In economic terms recession is often referred to as a “contraction” of the economy and the recovery which follows is commonly called an economic expansion. Recession is feared by most people because it results in the reduction of wealth.

Historically, recessions are brief with this last one, dubbed “the great recession” being the most severe since the great depression. It is the consensus of many economists that this last recession lasted 18 months. Now that we know recessions are merely temporary suspension of consumer spending, we can be sure that economic growth will follow shortly unless a catastrophic event ensues, such as the collapse of the banking system leading to a depression, another bubble burst or some kind of a natural disaster. It is the opinion of many economists that “the Great Recession” has not been followed by a “Great Recovery” because taxes and government spending have not been reduced by this administration. Historically, tax cuts have always spurred economic growth.

But where are we now in the course of this economic expansion after the great recession? I have a more optimistic outlook and I am hoping that we are halfway back up a “V” shape recovery and not in a “U” shape recovery. The European Debt Crisis and the high unemployment rate alone should not cause the stock market to plunge. First, the European Debt Crisis has been alleviated by the commitment of the European Union Central Bank and the IMF (International Monetary Fund) to pledge almost $1 trillion in bail out money (Le Tarpe) for ailing Eurozone countries such as Greece, Spain and Portugal. Le Tarpe has a great potential for success if used judiciously in buying junk bonds of troubled countries but The European Central Bank must continue to demand austerity measures from leaders of these countries. Although Greece’s default is imminent, Le Tarpe should temper investors’ sentiment since the bail out money should tide Greece over for a year or two. The stock market plunge this month, the worst May for stocks since 1940 was caused by investors’ panic and uncertainty about Le Tarpe.

Second, the high jobless rate of 10% is not enough to derail the recovery. Even if the entire unemployed population stops spending, there is still the remaining 90% of the working population, which according to statistics, continues to consume. If consumer spending is lower than forecast in May, that would worry me and I am sure it would worry stock market investors. Despite the high jobless rate the private sector is still reporting robust increase in hiring through the end of April. What would cause the stock market to plunge some more is bad economic news that could signal another recession. And going back to basics again—what will erode consumer confidence and stop the consumer from spending? For starters: Reduction of income; job insecurity; debt increase due to higher interest rates; inflation; diminution of assets, of investments and other tangible property such as real estate.

This article is not intended to provide financial advice. Please consult your financial advisor before acting on any advice provided herein.

Any opinions and views expressed herein are the sole responsibility of the writer.

PIIGS: Too Big to Fail

The largest economy in the world, The United States of Europe, officially called the European Union is facing a financial crisis that could weigh down our own economic recovery. The bears on Wall Street have outnumbered the bulls, focusing on the economic upheaval in Europe instead of the good economic news here at home. Economic indicators here in the U.S. are still pointing upwards indicating the continuation of our recovery from the great recession. Housing starts rose an estimated 5.8% in April to an annual rate of 672,000; retail sales were up 0.4% beating expectations; industrial production moved higher; 1^st quarter earnings of 75% of companies in the S&P 500 have exceeded expectation and most notably, the private sector added 32,000 jobs according to ADP. Various economists differ in their projection of job growth this year, from a low of 300,000 to a high of 1 million private sector jobs. I believe that the extension of unemployment and health benefits is a disincentive for many unemployed workers to seek work, thereby contributing to the high unemployment rate which has been hovering around 10%.

The malaise in Europe is hard to ignore because our global economies are all inter-connected. The failure of any of the EU’s most ailing economies, the PIIGS which is an acronym for Portugal, Ireland, Italy, Greece and Spain could send a tsunami of global economic woe: a financial meltdown much worse than the sub-prime mortgage crisis of 2008. The PIIGS are less affluent countries than their northern neighbors such as Germany and France and there is such a disparity of wealth between member nations. The IMF/European Debt Bailout of 750 billion Euros, which has been nicknamed “Le TARP”, pacified the market early last week so the bulls started running again driving up the Dow Jones Industrial Averages (DJIA) 500 points from the previous week’s low of 10,380. As reality sank in, investors became jittery and gravitated towards tangible investments such as gold, driving up its price to $1220 an ounce.

Reality is that Greece will eventually default. It is my educated opinion based on facts. Greece is the second most corrupt developed country in the world according to Forbes Magazine. It is easy to bribe Government officials. It is a social democracy, a welfare state with generous entitlement programs which includes early retirement, state pensions, and huge bonuses for public employees and a generous cradle to grave health care system. The wealthiest members of society, shipping magnates like Onassis, lawyers, doctors and other highly paid professionals have traditionally avoided paying direct taxes. I do not think the Greek populace can swallow the austerity measures being currently debated by the Greek parliament. Public anger in Greece will continue running at explosive levels. Why should the Greeks agree to do away with their entitlements which have been their way of life for such a long time? Besides, most Greeks do not blame themselves nor their government for their predicament. Rather, many Greeks would argue that the U.S. caused the financial meltdown leading to the severe world wide recession and banking crisis. Greece’s accumulated deficit is running 113% of GDP. They have ran out of money to pay for their bonds that are coming due. The solution is to issue more long term bonds to raise money but their government bonds have been downgraded making it impossible to sell them to continue to finance deficit spending.

Austerity measures being proposed include the freezing of government pay till 2014; dispensing with the 2-month bonus for public employees; increasing of the retirement age from 61 to 63; increasing VAT (Value Added Tax) from 19 to 23%. It is reported that 1/3 of the Le TARP money or 250 Euros will come from the International Monetary Fund (IMF) out of which 10 billion Euros is the contribution of the U.S.

Volcker’s statement last week that the Euro may break up, points to the core of the problem of the European Union. The Euro has gone down from its high of $1.50 per Euro last November to a low of $1.24 this week. The problem is that on one hand, member countries have become financially responsible for each other as magnified by this crisis. On the other hand, member countries have very little influence on how another country is governed because each member is an indivisibly sovereign state. At least if Greece goes back to its own currency, the drachma, it will suffer on its own for its fiscal irresponsibility. This current crisis is testing the EU if it can stay united and if the Euro will be preserved.

The 750 billion Euros may not be enough to rescue Greece. It certainly will not be enough to bail out other PIIGS in case any of them defaults on their external debts. If one falls, it would be followed by another and another and another. And this is what worries me and makes me bearish on the market despite the good economic reports in this country.

This article is not intended to provide financial advice. Please consult your financial advisor before acting on any advice provided herein.

Any opinions and views expressed herein are the sole responsibility of the writer.

SEC’S Case vs. GS&CO: Weak, Most Experts Agree

Goldman Sach’s Chairman and CEO Lloyd Blankfein had to dumb it down for his interrogators during a 3-hour question and answer session of an 11-hour marathon hearing last month on Capitol Hill. The hearing was about the Securities and Exchange Commission’s (SEC) civil case against GS. Several members of the Permanent Senate Committee on Investigations asked similar questions different ways that Blankfein had to find the proper words in the hope of making himself understood by an audience of what appears clearly as a group of “investment banking neophytes”. At one point he caught himself almost about to use the word “fiduciary”, stopped in time and had to struggle to describe what he meant in much simpler terms.

Lloyd Blankfein who received his business and law degrees from Harvard University and who was named “2009 Person of the Year” by the Financial Times, was probably the smartest person in the room during that senate hearing. Blankfein had skillfully steered GS&Co. through the financial meltdown. The company earned an impressive $13.4 billion last year and has not recorded a losing day from the first business day of 2010 through the end of the first quarter. To acquiesce to political correctness, he announced compensation caps for his company last year despite the company’s huge profit. Some report that GS received $10 billion of TARP money. If true, they clearly did not need it and it must have been paid back with interest. The Treasury Department used most of the TARP money to increase the capital of “too big to fail” banks and other financial institutions, such as GS whose assets have fallen when “mark to market” accounting method is applied.

As to the SEC’s suit, I see it as nothing more than a political move by the SEC which is composed of a decision-making body of 5 commissioners headed by a Chairman. The commissioners are appointed by the President and their terms are 5 years each but are staggered so that each commissioner’s term ends on June 5 of each year. To make the SEC non-partisan, no more than 3 commissioners may belong to the same party. So much for that non-partisanism. The decision to sue GS was not a unanimous decision but a 3-2 split along party lines which leads me to believe that this is all a political ploy, possibly to call attention to some kind of Financial Reform Bill which Obama and the Democrats have been trying to push through. If the SEC had a stronger case, I would argue that they would have gone directly to the Justice Department for a criminal prosecution rather than file, what in my opinion is a frivolous civil case.

GS&Co. has nothing to fear from the SEC. Goldman’s lawyers issued an initial statement indicating the allegations of “securities fraud” are completely unfounded in law and in fact. I agree. Let us briefly examine the allegations: SEC alleges, 1) “GS&Co …made misleading statements and omissions in connection with a collateralized debt obligation (CDO-ABACUS 2007-ACI)) it structured and marketed to clients…” Paraphrasing Blankfein’s reply, “If no one is willing to buy them, we cannot sell them.” In other words, the buyers of the CDO’s were well aware of the risks as well as the high returns. Says Blankfein, “We do this thousands of times a day. We buy and sell securities”. 2) GS&Co. failed to disclose in their prospectus that ABACUS 2007-ACI, which was backed by sub-prime residential mortgage securities (RMBS) was partially structured by hedge fund, Paulson & Co. Paulson shorted the portfolio it helped create by buying CDS (Credit Default Swap) securities from GS&Co. Paulson’s interests were sharply conflicting. Here is my spin on this: My understanding is that there is nothing in the law that requires the marketer of the securities to disclose that a selector of the securities in the portfolio took an adverse position by hedging against the portfolio. If Congress wants to introduce a law for that specific disclosure, let them do it right after the resolution of this case. Second, the SEC alleges that investors in ABACUS lost over $1 billion and Paulson’s opposite CDS yielded him approximately $1 billion. John Paulson is not God. The market could have gone against him. If anyone knew what we know now, in 2007 no one including Warren Buffet would have bought ABACUS. As it is, GS&Co. sold 10 billions of dollars in ABACUS stocks to mostly savvy investors. Would it have made a difference if those savvy investors knew that the selector of the funds took an opposite position? I don’t think so. Not when Chris Dodd and Barney Frank kept assuring us as late as June 2008 that there was nothing wrong with the housing market and that Fannie Mae and Freddie Mac were still good investments. Before the sky fell, ABACUS was highly rated and yielded an annualized double digit return.

This article is not intended to provide financial advice. Please consult your financial advisor before acting on any advice provided herein.

Any opinions and views expressed herein are the sole responsibility of the writer.

A tale of Two States

Although Election Day is not until November 3, 2009, the gubernatorial elections in Virginia and New Jersey are just about over. Republican candidate Bob McDonnell will win in Virginia and Democrat Jon Corzine will be re-elected in New Jersey.

Virginia is the only state in the union which limits the governor to a single four-year term. Tim Kaine, the incumbent would have been re-elected easily. Instead, the office is being contested by Republican Bob McDonnell and Democrat Creigh Deeds. Bob McDonnell holds a 7% lead and I believe he would hold on to that lead until Election Day. The Washington Post cited a White House Official for “throwing Creigh Deeds under the bus”, by distancing Obama from Deeds. The unnamed official reportedly said “Creigh Deeds is bad for Creigh Deeds. Period” meaning that a Deeds’ loss is not a harbinger of doom for Obama. My opinion is that Deeds made a big strategic mistake from the beginning of his campaign. In a traditionally Republican state, he attempted to distance himself from Obama so as to allay the fears of certain white rural voters who still retain some prejudice against African Americans. In the process he managed to estrange himself from a large percentage of the Democrat voter base. I would consider it a small miracle if Creigh Deeds manages to pull it off and win the election on Tuesday.

New Jersey is the highest taxed state in the nation if you combine property taxes with state, sales and business taxes. Just to give the reader an idea, the real estate tax on a house that is valued at $500,000 in some NJ municipalities can be as much as $18,000 a year (source: http://www.nj.com/politics/index.ssf/2009/09/_new_jersey_has_the.html).

New Jersey has the highest automobile insurance premiums in the nation. New Jersey is also considered one of the most corrupt states in the union. The arrest of several NJ public officials in July 2009 proves the point. Corzine increased the sales tax from 6% to 7%; suspended homestead tax rebates; limited the real estate tax deduction to $10,000; tripled the deficit which his office projects to be 10 billion dollars next year; and the most recent data indicates unemployment rate has increase to 9.7% (source: http://www.nj.com/business/index.ssf/2009/09/nj_unemployment_matches_us_rat.html)

But why will the voters return Corzine back into office? Because more than anything else elections are about personalities. Issues take a back seat to style and charisma of the candidates. Jon Corzine does not have much of charisma or style but Chris Christie has even less. Even though Christie has been a tough prosecutor his name alone denotes some kind of an effeminate weakness. In campaign spending, Corzine has been outspending Christie 4 to 1. Corzine’s attack ads portray Christie in negative light, from being in bed with insurance companies to being a fat slob. The negative ads have taken their toll. Christie was up 16% in some polls last month but the most recent polls show Corzine pulling ahead with a 2 point lead. If charisma and style make elections, the Republican Party is in such a sad state of affairs in New Jersey. The two candidates who competed in the GOP primary were obese Chris Christie and legally blind Steve Lonergan who appeared in several debates like he was wearing part of a squirrel for a hair piece. This discussion will not be complete without mentioning independent candidate Chris Dagget. There is no question Dagget would take votes away from Chris Christie. I would consider it a major miracle if Chris Christie can eke out a narrow victory over Jon Corzine on Tuesday.

Any opinions and views herein are the sole responsibility of the writer.

BUSH-OBAMA Recession, No Different from the Rest

Many economists, prognosticators, financial pundits, stock brokers and financial planners have committed a big blunder or a big hoax by proclaiming this recession different from the rest and the worst since the great depression. The fact is I believe this recession is no different from the previous post war recessions. Those who share my belief have made a lot of money in the stock market during this recession. In the first quarter of this year, the majority of financial pundits I watched on TV advised investors, some of whom have already lost 50% of their savings at that time, “to stay out of the market” unless they have 10 or more years to go before retirement. Who knows how many took their advice and got out of the market, thereby missing the bull market that started in March and is still going strong as of this minute. In January and February, many financial experts were predicting the Dow Jones Averages to go down to 5,000. In “DIDOSPIN-11,000 DOW, August 7, 2009” when DJIA was 9,370, I predicted the Dow to climb to 10,000 before the end of the year and to 11,000 before the end of next year. It already reached 10,000 last week. Most of the financial experts I watched on the Lou Dobbs and Larry Kudlow shows collectively stated that “it may take 10 years to recover losses in retirement plans…” Shame on them for being so incompetent or for perpetrating a hoax! Those investors who stayed put have already gained back most of what they have lost and I believe this bull market still has legs before the next significant market correction.

In “DIDOSPIN- Obama’s Recession, March 8, 2009”, I said “Recessions are part of a normal economic cycle. Soon consumers will come back and resume buying necessities such as refrigerators, TVs, computers, furniture, cars…” How true! A lower than expected contraction in GDP at 1% in the 2^nd quarter is believed to have been followed by a small positive increase in GDP in the 3^rd quarter, although official stats have not yet been released. I predicted a much bigger increase in GDP the 4^th quarter. The increase in GDP is an indication of an increase in consumer spending. One thing to remember is that GDP stats do no even take into consideration business to business consumption, only the consumption of the ultimate consumer or end-user. This is something that many people are not aware of.

I secretly scoffed at my boss in January when he told me in a panic that we must dig in our heels in this “worst ever recession”. I told him, “We’ve seen this before, the last one in 2001….” “No, no, no”, he adamantly replied, “this is different”. How wrong he was! The only difference between this recession and the previous ones is its nickname. This one will probably be known by several nicknames such as “Sub prime Mortgage Crisis, aka Housing Bubble Burst, aka Auto Industry Crisis Recession”. The various nicknames of the 3 previous recessions according to Bloomberg News were: Dot-Com Bubble Burst – 2000 to 2001; S&L Crisis, 1990 to 1991 and the Energy Crisis Recession, 1981 to 1982.

I concede that this will prove to be the longest recession since the Great Depression. But its severity and misery index pales in comparison to the Carter-Reagan recession. According to Bloomberg News, during the 1981-1982 recession, the national unemployment rate was 10.8% at its highest; inflation was 14% and the prime rate went up to 20.5%. In this current recession, inflation is almost non-existent and the prime rate is the lowest it has been in 50 years (source: http://www.wsjprimerate.us/wall_street_journal_prime_rate_history.htm).

Obama predicted the unemployment rate will continue to increase and will exceed 10% before the year is over but I will go with my prediction in “DIDOSPIN- Recession Over, June 27, 2009” that it would peak at 9.8%. This means that more than 90% of the working population is employed and is poised to go back into the “buying mode”. It is a cycle and consumers eventually buy what they need or want. The stock market rally is a big factor in consumer spending. If a consumer sees his portfolio going up in value, he will have more confidence spending his discretionary income as opposed to saving it for a rainy day. Fortunately, the behavior of the stock market follows a free market pattern that is predictable. The stock market does not like government intervention in the free market economy. It does not like redistribution of wealth; tax increases; government take over of health care, the banking system and other private industries; cap and trade; interest hikes and increase in deficits. One of the reasons the market is doing so well is that Obamacare and Cap and Trade appear to be in trouble. There are different versions of Obamacare bills that are still under discussion in the congressional committees, and although Cap and Trade bill passed the house, it is not expected to pass the senate. If these two bills regain traction, it is almost guaranteed that the market will take a plunge, perhaps causing a double dip recession.

This article is not intended to provide financial advice. Please consult your financial advisor before acting on any advice provided herein.

Any opinions and views expressed herein are the sole responsibility of the writer.

DIDO’S Summer 2009 Travelogue

Travel is one of the five things I love doing most in life. This summer alone I logged in over 50,000 travel miles. But the way I see it, there is the “good and the bad of travel”. The good part is seeing all those wonderful places, different sceneries, different people, different cultures, the food, the aroma and the environment in those beautiful new places. And the bad part is the trip to the airport, the airport scene, the plane ride, ground transportation to the hotel and the hotel stay itself. To put it another way, travel would be more enjoyable for me if I can be tele-transported or beamed down to my destination then sleep in my own bed each night.

I hate the airport traffic, the long lines at the security gates, the cramped airline seats and toilets, the airline food if any, rude flight attendants, crying babies and 400 pound seat mates. For me, this is purgatory…sort of the hell I have to pass through to get to those heavenly places such as Interlaken, Dubrovnik, Amsterdam, Bristol, Prague, Istanbul, Sabah and other popular tourist destinations.

This year I have been fortunate enough to travel first or business class on trans-Atlantic and trans-Pacific flights which made the “bad of travel” more tolerable. With all the miles under my belt, for me, the worst of “the bad of travel” is the plane ride. The take offs and landings terrify me. I call all on all the saints for intervention and silently pray several Our Fathers and Hail Marys during take offs and landings. The moment I get on the plane it seems a dark cloud follows me. There is always something. I often get a seat next to a woman with a crying baby or next to a 400 lb. lard ass. On the first leg of my trip to Brunei, I got a seat next to a Chinese man wearing a surgical mask who kept coughing and who kept monitoring his temperature. On the flight back, a grungy looking Japanese guy who must not have showered for 2 years sat next to me. Why can’t the airline god give me a break once and seat me next to Paris Hilton? Yes, I can never get a break. I can't even count the number of times when the flight attendant runs out of food just before she gets to my row, then skips my row entirely after replenishing. There have been many times when everybody’s TV monitor works except mine. There were times when I asked for beef and all they had was chicken but when I got up to the lavatory after the meal, I saw the flight attendants eating my beef dinner. Oh, I hate that!

Since I hate flying so much, I avail myself to everything the airline gives for free. Heck it’s all included in the fare anyway. I do not mean the airline blankets, pillows and ear phones which some passengers take home with them. What I really mean is that before the plane even gets off the ground I would have 3 glasses of champagne and two sets of hors d’ouvre. The moment the “fasten seat belt” sign is turned off I ask for a double gin and tonic, martini or scotch depending on my mood. Then a few glasses of wine with my meal followed by an Irish or Mexican coffee with my dessert. A short while later, a few shots of brandy nicely fall into place. If an airline such as Lufthansa, Qantas, Cathay and Singapore Airlines offers caviar or foie gras, God help them because I will keep asking for more until they run out of it or until the plane lands. I am shameless and guiltless when it comes to getting my fill. My rationale is that I’ve paid for it. Despite all the alcohol I find it hard to sleep more than 1 or 2 hours even on long trans-oceanic flights and even on relatively comfortable fully reclining sleeper seats.

I hate stop-overs for connecting flights. Oftentimes they require you to go through airport security again which can become very stressful if you have too short a connection time between flights. Amsterdam’s Schipol airport is a strange one because they make arriving passengers go through a security check before leaving the airport which does not seem to make sense. But I will tell you why I do not mind stop-overs in Narita, Nagoya and Osaka. It is not just because of the pretty, young Japanese girls in the airport shops who keep bowing, seemingly eager to take care of every man’s needs. It is because of the Japanese toilets. Unlike the airport toilets in America which generally are not so clean, quite stinky and open enough for your next stall neighbor to measure your stride, Japanese toilets are clean, almost odor free and privately enclosed down to the floor with the door tightly fitted to the jambs. No weirdo can sneak a peek while you are busy doing your business. In addition to the cleanliness and privacy, most of their “western type” toilets are equipped with a water spray, with optional perfume, perfectly aimed “at the spot” which is triggered at the push of a button. You can also increase or decrease the pressure of the spray. It makes going to the toilet a pleasant experience. I have been successful in timing it perfectly so as not to go for number 2 in those midget airline toilets. I hold it and run to the airport toilet, after which I am well and good and smiling again ready for my connecting flight.

The Labyrinth of OBAMACARE

The House Bill on Health Care Reform also known as the ‘‘America’s Affordable Health Choices Act of 2009’’ which I affectionately refer to as ObamaCare is a mess. It is an intricate labyrinth of legalese mumbo jumbo which I am sure Obama has not read. If anyone has the time and patience to read this complex cat’s cradle bill, here is the link:

http://energycommerce.house.gov/Press_111/20090714/aahca.pdf

The following is a sample of what you will see page after page of this 1,008 page Bill:

(b) REQUIREMENTS FOR QUALIFIED HEALTH BENEFITS PLANS.—On or after the first day of Y1, a health benefits plan shall not be a qualified health benefits plan under this division unless the plan meets the applicable requirements of the following subtitles for the type of plan and plan year involved:

1) Subtitle B (relating to affordable coverage)

2) Subtitle C (relating to essential benefits)

3) Subtitle D (relating to consumer protection).

What the hell does it mean? This is an abomination which Obama and the Democratic majority is asking us swallow. The AMA supported it without reading it due to pressure from the White House. I have a feeling that I have read more of this Bill than Obama, Pelosi, Rham Emmanuel and Harry Reid combined.

In my brief examination of portions of the Bill, I note that there will be a “Commissioner” to oversee ObamaCare. It is not clear if this is a cabinet level position requiring congressional confirmation or simply a Czar type position requiring nothing more than a blessing from “THE ONE”. No matter, the Commissioner will have enormous power over our well-being because he will have a free reign in oversight and enforcement.

The following excerpt is from page 94 of the Bill:

ii) EXCEPTION FOR IMMINENT AND SERIOUS RISK TO HEALTH – Clause (i) shall not apply if the Commissioner determines that a delay in termination….would pose an imminent and serious risk to the health of individuals…..

WHAT THIS MEANS FOLKS is that the Commissioner can decide on your well-being instead of you and your doctor. So the commissioner might be enjoying a 5 course dinner with his girlfriend while you are waiting for his approval for a life-saving operation in your doctor’s office.

(a)(1)(A) Parag.7, page 91 states: CULTURALLY AND LINGUISTICALLY APPROPRIATE SERVICES AND COMMUNICATIONS - The entity (health care provider) shall provide for culturally and linguistically appropriate communication and health services.

Simply put, WHAT THIS MEANS is that there may be sanctions or penalties imposed on say, non-Spanish speaking health care providers who provide care to Spanish speaking patients.

Everyone including illegal aliens and visitors to this country will have access to health care under this bill. Younger individuals who had previously chosen not to have health care insurance will be forced to buy health care insurance if they can afford it or will be provided for by the state or by their employers. This massive government takeover of health care would be initially financed by a 5.4% tax increase on couples earning a million dollars or more a year and 1% on couples earning $350,000 or more. A portion of the capital gains tax would also go towards financing this boondoggle. This would be bad for the economy and this is only the beginning. Obama and the Democratic majority who are trying to shove this Bill through our throats do not know what they are talking about. If the government is going to give 40 million previously uninsured people health care, there will be a greater demand on health care providers. This may lead to health care rationing. You may have to wait 3 months for a hernia operation.

Fortunately, the novelty of the Obama presidency is starting to wane. His job approval rating has been steadily falling. His performance during his last news conference which was dominated by questions about his health care proposal has earned him the title of the “Great Mis-Communicator”. His comments that the Cambridge Police acted “stupidly” in arresting his friend Professor Gates made him look like a fool. So there is very little chance of passage of this Bill before the August recess or even this year. The Blue Dog Democrats are starting to show their fangs even in the face of tremendous pressure from the White House and from Pelosi.

Why don’t they use common sense to solve the so-called health care crisis? There is already a system in place called Medicaid for those who cannot afford health care. Additionally, it is illegal for hospitals to refuse admission to patients even if they have no insurance. Either Obama lied or he does not know what he is talking about when he said during the news conference that 14,000 are losing their health insurance every day because of job loss. I cannot find such statistics and besides even if true, those who lose their jobs can be covered by Medicaid if they cannot afford continuation of coverage through their former employers’ group plans (COBRA). If they can afford it, why not let them pay for it themselves from their savings instead of asking me to pay for it. What gives Obama and the rest of these socialist leaning politicians the right to my earnings?

Unlike many fellow conservatives, I do not believe Obama is lacking in intelligence. He is purported to have the highest IQ of all the previous Presidents and I’ll take that for what it’s worth. Therefore my last parting comment to Team Obama is: “Oh, what a tangled web we weave when first we practice to deceive."

Any opinions and views herein are the sole responsibility of the writer.

Recession Over

Despite Obama’s pronouncements of a rough second half of the year, I declare this recession officially over. I looked at the stock market movement, the Dow Jones and NASDAQ averages, and I conclude that the 50 to 200 day market activity indicates an upcoming bull market. Oh yes there will be ups and downs and sideway turns in the market but all in all this will prove to be a bull market. Durable goods orders have been up 3 out of 4 months, corporate capital expenditure is up, and consumer confidence is starting to soar both in housing and in big ticket items. The Fed’s policy of keeping the prime rate low in spite of an inflated money supply should hold down inflation for at least a year or two. Relatively low energy prices should also help temper inflation. Housing affordability is an all time high. I predict that the third quarter will show a small gain in the GDP followed by a much larger gain in the 4^th quarter.

At this point, I like the tech stocks sector, natural resources and developing market sector. You can invest 10 to 15% of your holdings in real estate securities if you do not mind the volatility and if you can play with this portion of your holdings for the next 2 years. The real estate sector has been beaten up so badly that it can only go up.

What I do not see improving is the value of our currency. The U.S. dollar will continue to be tested because of the unprecedented Obama budget deficits and the massive trade deficits particularly with China. The unemployment rate is a toss up. I do not have much of a quarrel with Obama’s declaration that it would go up to over 10% before year end, but my prediction is that it would peak at 9.8%.

What does this all mean for the Republican Party? Bad news. In this instance, the free market economy will prove to be an ally of Obama because despite Obama’s incessant attack on capitalism, like redistribution of wealth and the take over the health care system, the free market economy will prove to be so resilient in the face of such an assault that it will remain true to its usual pattern of “a long period of feast and a short period of famine”. Timing is everything and it appears that Obama’s timing is perfect, almost heaven sent. 2010 should be the start of a full economic recovery and 2012 should be a year when the economic recovery gets into full swing. I am still hoping though that voters will have enough sense to vote Harry Reid, Chris Dodd, Barney Frank and Nancy Pelosi out of their respective offices.

This article is not intended to provide financial advice. Please consult your financial advisor before acting on any advice provided herein.

Any opinions and views herein are the sole responsibility of the writer.

Scrap Mark to Market Valuation

The key to unfreezing the credit markets is the scrapping of Mark to Market Valuation. Because of the U.S. Generally Accepted Accounting Principles (GAAP) bank assets are valued at Mark to Market. Many of these assets, Mortgage Backed Securities (MBS) and other derivatives have drastically dropped in value because of this method of valuation. The Treasury Department and the SEC have branded these types of assets as toxic. However, the reality is that many of these so-called toxic assets are still earning the same return as when they were first bought by the financial institutions. Therefore, even if a bank is very profitable it may not pass the Feds’ stress test, and the Feds may opt to re-capitalize it with bail out money thereby subjecting it to compensation and bonus restrictions. A bank may be considered by the Feds as a troubled institution even if it is drowning in money.

An alternative method of valuation which many economists are now advocating is the Cash Flow Method. As a simple explanation, the Cash Flow Method of valuation takes into consideration how much income the company receives from the so-called toxic assets rather than how much those toxic assets are presently worth. If this valuation method is used, financial institutions will start lending again because they will show a stronger balance sheet, presumably taking them off the government hit list of troubled financial institutions.

Geithner’s “plan” which was revealed yesterday is a hybrid of the solution I proposed in DidoSpin 03/08/09. It appears that the government will indeed create an entity to buy toxic assets (MBS). The difference is that the government will solicit investors from the private sector to partner with in buying the assets. With $1.25 trillion to spend, the government, in partnership with private investors hopes to acquire the assets at close to their toxic asset prices. Obviously the banks will try to get as much money as they can for them. This is a win-win situation because the banks’ stocks will increase in value as soon as the toxic assets are sold and when the housing market recovers as it always does the government’s holdings will increase in value and the government will make a hefty profit. If Wall Street is in favor of the “plan” and liberals are against it, then I am for it.

Any opinions and views herein are the sole responsibility of the writer.