Wednesday, November 26, 2008
Hello “Dollars and Sense” listeners,
...Earlier this month the government reported that our nation’s unemployment rate jumped from 6.1% to 6.5%, a larger increase than anticipated. The Dow Jones Industrial Average promptly rose more than 250 points that day.
Today, government data showed that our economy contracted in the 3rd quarter at an annual rate of -0.5%, worse than expected. A few minutes later, another report showed that home prices plummeted by the largest annual rate on record, down more than 16% from a year ago. One economist followed up the reports by solemnly observing, “As bad as the 3rd quarter was, the 4th quarter will undoubtedly be worse.” The market was poised for a lower opening but suddenly turned higher after the dour numbers were reported and posted modestly positive gains at the end of the day.
Yes, you are reading this correctly. The market is moving higher AFTER the release of doom-and-gloom economic numbers. This gets right to the heart of what I’ve been discussing constantly in recent weeks, particularly on the “Dollars and Sense” show. The market has already factored in a fairly serious recession, so when the figures are actually released the market gives a collective shrug as if to say, “Yeah, we knew that. So what?” Think of it this way. The S&P had already fallen a jaw-dropping 41% from 9-1-08 through 11-20-08, the largest decline in history over a 3-month period. Don’t you think the market was already anticipating some pretty bad news?
So that gets us to the most important question of the day: where are we heading from here?
Actually, it’s quite simple.
The economy is either heading into The Great Depression Revisited…or we’re not.
Stocks and bonds are either poised to drop considerably lower…or they’re not.
I don’t mean to sound so flippant and cavalier about it, but our future really boils down to such a simplistic outlook. The market has priced in a weakening economy and it has been spot on with its forward looking call, but it has NOT priced in a 1930s-style economy. So I get back to the original thesis: we’re either on a downward spiral that will potentially see stocks drop at least another 30%-50%, or we’ve seen the worst of the Great Bear of ’08 and the market will begin moving higher even as the headlines continue to drip with fear and angst.
Here’s how investors should treat each of those two scenarios.
1) The Great Depression: The Sequel.
Sell all stocks. Invest only in government-backed bonds and gold. That’s it, not even CD’s. In a severe depression the government will not be able to save the banking system, which would include its inability to pay off all insured deposits. It would first have to pay the interest on its own debt to satisfy all the foreign governments that own our bonds. You could keep a little in cash but not much because the dollar will lose much of its value. For more extreme pessimists, load up on non-perishable food items and sell your home immediately. Find a nice apartment to rent for a couple of years and then start looking for a home after prices have dropped another 20%-40%.
(Some of you may chuckle when reading this, but these kinds of doomsday scenarios are getting a lot of traction these days. I know because I get e-mails from radio show listeners convinced we’re heading into an economy worse than the 1930s. I also lurk on various investment-related chat rooms where financial Armageddon is the theme of the day. These are the same chat rooms, by the way, that were chock full of the New Economy rhetoric of 10 years ago that was eventually discredited. There was an article on marketwatch.com today that spoke about the coming 100-year bear market. It’s a little nutty out there, folks.)
2) Deep Recession.
I’ve already pointed out that investors have collectively factored in some of the worst economic news we’ve seen in many decades. The easiest prediction to make right now is that the news will get worse before it gets better. Some economists are predicting unemployment to rise toward 10%, only the 3rd time in history that we would hit double digits in that category. Go to the investment section of any bookstore and you’ll see the growing number of tomes dedicated to the coming crash. There’s no question that stock prices already reflect a worsening economy that most of us are anticipating. Today’s poor numbers are so yesterday!
Based on the evidence we have before us today, while extrapolating for possibilities down the road, I do NOT believe we’re crashing toward the first scenario.
I can’t say with any certainty how bad the recession might become, but I definitely acknowledge the possibility that conditions could deteriorate well into 2009. (Barak Obama may find himself asking, “And why did I want to do this exactly?” However, if conditions improve through the 2nd half of his term, which I expect, then he would likely coast to victory in 2012. But I’m getting WAY ahead of myself.)
As I’ve mentioned before, stocks AND bonds will likely rise in the next upswing since both have been trashed in recent months. Today is a perfect example as both asset classes exhibited positive returns today. We don’t feel the need to add to our stock positions at the present time as there’s still enough risk in the market to remain on high alert, and bonds SHOULD give us the support that they frankly did not give us in September and October. Moderate allocation models are doing well in relative terms here in November and we don’t feel any rush to change that.
This is definitely the most trying time financially that any of us have ever seen, but I continue to strongly believe that most, if not all, the damage is behind us. However, here’s a warning. Another market like this and I may go back to working the graveyard shift at a local gas station, something that I did during my college days in the early 1980s. That stint included a death-defying robbery where I had a gun pointed at my chest, the robber yelling at me while I was unloading the cash register, “You must not want to live, you’re not moving fast enough!” At least that incident only lasted a few seconds. Here’s hoping that this bear market, aka “The Great Wall Street Robbery,” is also close to running its course. (In case you’re wondering, they never caught the guy. But I did get my name in the paper!)
Have a blessed Thanksgiving!
David W. Simons, CFPâ
Saturday, November 22, 2008
He pointed to a little paper cup containing just three kernels of corn beside Grandpa's plate.
"It reminds me of what a tough time the Pilgrims had. In the beginning, three kernels of corn was each person's daily food ration."
"Against all odds, they made a life for themselves in the wilderness.
Later, Governor William Bradford made a decision. Instead of the colonists sharing their crops equally, he assigned a parcel of land to each family and told them they could keep whatever they produced for themselves.
""Then what happened?" asked Sam."
At last the Pilgrims began to prosper.
Governor William Bradford wrote in his book 'Of Plimoth Plantation,' 'This had very good success, for it made all hands industrious, so as much more corn was planted than otherwise would have been.'
""Shoot! If you can keep everything you make, of course you're going to work harder. Everybody knows that."
Grandpa answered, "The first seed had been planted for the American Revolution. People were free to practice their religions as they saw fit and were free to keep the fruits of their labor. This had never happened before in the history of mankind. In the words of William Bradford, 'As one small candle may light a thousand, so the light here kindled hath shone unto many, yea in some sort to our whole nation.' "
What an amazing idea. Isn't it interesting how opposite this idea is to the "spread the wealth" concept.
Friday, November 21, 2008
Vance Packard Publications:
- 1957 The Hidden Persuaders - on the advertising industry - the first of a popular series of books on sociology topics (ISBN 0-671-53149-2)
- 1959 The Status Seekers - describing American social stratification and behavior
- 1960 The Waste Makers - criticizes planned obsolescence describing the impact of American productivity, especially on the national character
- 1962 The Pyramid Climbers - describes the changing impact of American enterprise on managers, the structured lives of corporate executives and the conformity they need to advance in the hierarchy
- 1972 A Nation of Strangers - about the attrition of communal structure through frequent geographical transfers of corporate executives
- 1983 Our Endangered Children - discusses growing up in a changing world, warning that American preoccupation with money, power, status, and sex, ignored the needs of future generations
- 1989 Ultra Rich: How Much Is Too Much? - examines the lives of thirty American multimillionaires and their extravagances.
I'm going to start with his book: "The Waste Makers".
The concept of planned obsolescence really aggravates me... I like things built to last.
Tuesday, November 18, 2008
BY MARK PHELAN • DETROIT FREE PRESS COLUMNIST • November 17, 2008
The debate over aid to the Detroit-based automakers is awash with half-truths and misrepresentations that are endlessly repeated by everyone from members of Congress to journalists. Here are six myths about the companies and their vehicles, and the reality in each case.
Myth No. 1
Nobody buys their vehicles.
General Motors Corp., Ford Motor Co. and Chrysler LLC sold 8.5 million vehicles in the United States last year and millions more around the world. GM outsold Toyota by about 1.2 million vehicles in the United States last year and holds a U.S. lead over Toyota of about 560,000 so far this year. Globally, GM in 2007 remained the world's largest automaker, selling 9,369,524 vehicles worldwide -- about 3,000 more than Toyota. Ford outsold Honda by about 850,000 and Nissan by more than 1.3 million vehicles in the United States last year. Chrysler sold more vehicles here than Nissan and Hyundai combined in 2007 and so far this year.
Myth No. 2
They build unreliable junk.
The creaky, leaky vehicles of the 1980s and '90s are long gone. Consumer Reports recently found that "Ford's reliability is now on par with good Japanese automakers." The independent J.D. Power Initial Quality Study scored Buick, Cadillac, Chevrolet, Ford, GMC, Mercury, Pontiac and Lincoln brands' overall quality as high or higher than that of Acura, Audi, BMW, Honda, Nissan, Scion, Volkswagen and Volvo. Power rated the Chevrolet Malibu the highest-quality midsize sedan. Both the Malibu and Ford Fusion scored better than the Honda Accord and Toyota Camry.
Myth No. 3
They build gas-guzzlers.
All of the Detroit Three build midsize sedans the Environmental Protection Agency rates at 29-33 miles per gallon on the highway. The most fuel-efficient Chevrolet Malibu gets 33 m.p.g. on the highway, 2 m.p.g. better than the best Honda Accord. The most fuel-efficient Ford Focus has the same highway fuel economy ratings as the most efficient Toyota Corolla. The most fuel-efficient Chevrolet Cobalt has the same city fuel economy and better highway fuel economy than the most efficient non-hybrid Honda Civic. A recent study by Edmunds.com found that the Chevrolet Aveo subcompact is the least expensive car to buy and operate.
Myth No. 4
They already got a $25-billion bailout.
None of that money has been lent out and may not be for more than a year. In addition, it can, by law, be used only to invest in future vehicles and technology, so it has no effect on the shortage of operating cash the companies face because of the economic slowdown that's killing them now.
Myth No. 5
GM, Ford and Chrysler are idiots for investing in pickups and SUVs.
The domestic companies' lineup has been truck-heavy, but Toyota, Nissan, Mercedes-Benz and BMW have all spent billions of dollars on pickups and SUVs because trucks are a large and historically profitable part of the auto industry. The most fuel-efficient full-size pickups from GM, Ford and Chrysler all have higher EPA fuel economy ratings than Toyota and Nissan's full-size pickups.
Myth No. 6
They don't build hybrids.
The Detroit Three got into the hybrid business late, but Ford and GM each now offers more hybrid models than Honda or Nissan, with several more due to hit the road in early 2009.
Wednesday, November 12, 2008
If you just landed here from Mars, and you looked at that map, you would swear the Republicans won this thing in a landslide, if you didn't know where the population centers are. County and by square mileage, we skunked 'em!"
Here's the problem: Votes are not weighted by "acreage owned".
As I pointed out in an earlier post. This election was a battle between those who have and those who want.
Sunday, November 9, 2008
At 250 KM (155 mph) the operator is traveling at 227 feet per second. With normal reaction time to SEE-DECIDE-REACT of 1.6 seconds the above operator would have traveled over 363 feet while making a decision on what actions to take. In this incident the Swedish police indicate that no actions were taken.
This is very interesting to me. Kind of like different interpretations of art only on an entirely different level of seriousness.
In Sweden, based on the text accompanying the article, the interpretation could be as follows:
Swedish Lesson A: "Based on the "normal reaction time to SEE-DECIDE-REACT of 1.6 seconds", in order to save your life and the lives of the public, when riding your high powered race machine on public streets you must obey traffic laws and DO NOT EXCEED THE SPEED LIMIT.
Swedish Lesson B: "The sign above the display also noted that the rider had only recently obtained his license." This shows that some members of our public are too stupid to own high powered race machines even after passing the state-run training course. Therefore, HIGH POWERED RACE MACHINES MUST BE BANNED from our public streets in order to ensure the safety of our good citizens (like the two that were inside the Volkswagen).
In America, I believe that people would look at this in one of two ways.
Friday, November 7, 2008
Shelby Steele is the author of the book "White Guilt" - How blacks and whites together destroyed the promise of the civil rights era.
It's a good read. I recommend it.
More on Shelby Steele: http://en.wikipedia.org/wiki/Shelby_Steele
From Wikipedia: Steele is a self-described Black conservative. He opposes movements such as affirmative action, which he considers to be unsuccessful liberal campaigns to promote equal opportunity for African-Americans. He contends that blacks have been "twice betrayed": first, by slavery and oppression, and second, by group preferences mandated by the government that discourage self-agency and personal responsibility in blacks.
Thursday, November 6, 2008
Here's a video that explains his reluctance: Video of Obama's Bankrupting Coal Industry Remarks
Here's audio and a partial transcript of the same interview: Audio: Obama Tells SF Chronicle He Will Bankrupt Coal Industry
Here's what he said on January 17, 2008:
"Let me sort of describe my overall policy.
What I've said is that we would put a cap and trade system in place that is as aggressive, if not more aggressive, than anybody else's out there.
I was the first to call for a 100% auction on the cap and trade system, which means that every unit of carbon or greenhouse gases emitted would be charged to the polluter. That will create a market in which whatever technologies are out there that are being presented, whatever power plants that are being built, that they would have to meet the rigors of that market and the ratcheted down caps that are being placed, imposed every year.
So if somebody wants to build a coal-powered plant, they can; it's just that it will bankrupt them because they're going to be charged a huge sum for all that greenhouse gas that's being emitted."
Here are 5 year stock charts from three of the largest coal producing companies in the world:
Consol Energy Inc.
Oh, And for good measure, here's the Dow Jones:
Coal and coal fire power plants are a wonderful source of relatively cheap energy. Our competing super power (China) already "uses more coal than the United States, the European Union and Japan combined. And it has increased coal consumption 14 percent in each of the past two years in the broadest industrialization ever. Every week to 10 days, another coal-fired power plant opens somewhere in China that is big enough to serve all the households in Dallas or San Diego. Source: New York Times
America's population and energy needs increase every year. Looking at these charts, they reflect an increase in energy demand and production, each peaking in June 2008 and then falling off sharply. Did the demand (and the future of the coal business) really decrease that much in June 2008?
Coincidence? Obama was nominated by the Democratic party in June 2008. Campaign Timeline
To a knowlegable coal investor, Obama's nomination would have signaled increased risk that tighter restrictions may be coming and coal demand would fall if Obama were elected. Note that the dow didn't crash until three months later (apparently as a result of freddie and fannie - More on that here.).
I wonder. How much of the economic collapse had to to with politics?
I wonder. What will Obama do to help his home state achieve it's energy and economic needs while keeping his environmentalist supporters happy?
Listening to his statements above, one can draw their own conclusions.
Who he chooses for energy secretary will say a lot: Possible nominees for Obama's energy secretary
It will also be interesting to see what the future holds for FutureGen under the Obama administration: http://www.futuregenalliance.org/
My bet is that the Obama administration will throw a ton of federal dollars at the FutureGen project. If you can figure out a way to make money off of FutureGen, it may be time to get into the game now.
Wednesday, November 5, 2008
Tuesday, November 4, 2008
It's clear that the majority of people who want something live in the large cities. The large cities are going to vote for Obama. Given this, I believe that Obama will win the popular vote.
However, as every news agency has reported, this election will come down to the results in the "battleground" states. If, in these battle ground states, there are more people who have something than those who want something... And they vote. Then McCain will win.
Prediction: The popular vote could be a landslide. However, the electoral college and the ultimate result will be very close.