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Posts Tagged ‘socialism’

Economists debate whether or not we are going to fall into the dreaded “double dip” recession.  This occurs when you go through a recession, start a period of recovery, and then fall back into a recession again. 

Let’s look at the basics.  You have a Government that has spent 100’s of billions of dollars to stimulate the economy and yet we have very little to show for it and we still have a large unemployment problem.  Oh pardon the mistake –the politicians have a lot to show for it as they have been able to use our tax money to pay back favors. 

The realization is two fold.  First government spending isn’t going to be the solution to our economic problems.  If you want companies to start hiring, then build confidence back that the Obama Administration and the rest of the politicians are not going to destroy this country by turning us completely into a socialistic country.  You do that by passing legislation and using resources to help the small business owner.  Unfortunately, the opposite is happening.

Second, we are going to be hard pressed to recover without the participation of the consumer.  The consumer is not confident and for good reasons. 

  • We are well into this so called recovery and the unemployment problem is bad as it possibly could be.  That will continue to keep consumers in a less than confident state of mind. 
  • Confidence in spending money is also tied to the stock market.  If the stock market has begun a bear market, consumer confidence will fall off the cliff. 

Then there is the foreclosure crisis, the state of emergency in the Gulf, and the list goes on.   There isn’t much to be confident about in this environment.  So, it shouldn’t be a big surprise that Friday’s consumer spending fell off the cliff (comparatively speaking) when you look at how the above have performed recently. 

So, it really surprises me when economists are so bubbly about things.  The Wall Street Journal had this to say in their weekend edition.

“The surprisingly poor sales cast fresh doubt in consumer spending that had allowed economists to raise their forecasts for US growth this year despite a moribund housing market, a dismal job market, and tepid business investment.”

So economists really thought that the consumer facing the prospects of losing their home and their job or the consumer who is not employed or underemployed gave economists enough confidence to raise forecasts?  

The bottom line is that we are going to be extremely lucky to escape a double dip recession.  I think that the question on economists’ mind shouldn’t be whether we face it but how deep this one is going to be.

The probabilities are high that the decline that started in April in the stock market will start to resume again in short order.

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All of the analysts are out this morning describing last week as nothing more than the normal correction that we have been expected.  “Don’t panic – this is no big deal.”  “It is great to be normal again.”  To be fair, everyone who is bearish is calling for this bear market rally to be over and done.  So, who is right?  Corrections are normal.  The fact that we haven’t seen a correction is not normal.  So, welcome back to normal stock market activity.  At the same time, the charts are potentially showing a change of character in the market that would also support the bearish case. 

Every time the market changes direction, you have to look at the catalyst.  Unfortunately for the bullish case, the catalyst is Washington intervention and finger pointing.  Washington wants to assert control (continued move towards socialism) and wants to point the finger.  There were two news items beyond not so hot earning reports that had a negative effect on the markets.

First issue – On Thursday, President Barack Obama proposed new rules designed to restrict the size and activities of the U.S.’s biggest banks, the latest in a series of administration moves to curb Wall Street.

If you think back to last year, they forced all of the investment companies like Goldman Sachs and JP Morgan to be banks so that the Government could give them aid and help protect them from failing.  Well there is a price that comes along with that protection and it is called control.  Basically President Obama wants to tell banks how big they can be and tell them whether or not they can participate in what is called proprietary trading. 

Healthcare was only one of the ingredients of socialism.  Nationalization of the banking system is the other.  So, we just continue to follow their game plan.   Last year they took some major steps in gaining control over the banking system.   They performed an unnecessary stress test on the banking system last year in order to tell us (which was not necessary) the banks that were healthy and unhealthy.  They also announced a list of problems that might force the government to step and take over.

Well one of those problems is unemployment.  The government said that banks might have difficulty in an environment where we had a 10% unemployment rate.  Guess what our unemployment rate is today?  Yes, technically we are starting to meet the criteria as stated by Washington that would require them to assert control.  It makes you wonder if President Obama’s announcement last week was a reenergized effort towards nationalization of the banking system.  

As you might imagine, Wall Street wasn’t too happy with the President’s plan to assert control.  You can look at the stock market and the moment he stated that he no banks should be allowed to run proprietary trading systems and that he wanted to limit the size of banks, the market fell apart. 

This also gives the politicians during an election year the ability to point the finger at those big old bad banks that gave mortgages to people that couldn’t afford them.  Those bad banks are the problem and the Obama administration and Congress are going to correct the problem. 

Second issue – Members of Congress came out and declared that they would not vote for reappointment of Fed Chairman Ben Bernanke for another term.  This is the ultimate in finger pointing.  It is real convenient to blame him for the financial crisis and take the spotlight off of their part (the largest part of the blame) in the financial crisis.   Not reappointing him would be a grand mistake. These politicians are too interested in their own survival to realize the problems they will create in the markets by not reappointing him. 

This is the risk that we run into with the markets. You create problems when Government wants to fix things, assign blame, and start over regulating industry.  They don’t regulate when they need to and when they regulate they do it too much.

Politicians should practice preventative medicine to prevent the crisis from happening and never should be allowed to fix anything after it is broken.  You just have to look back to the Great Depression to see they same type of effect when they passed the Smoot-Hawley Act which many historians state made the Great Depression much worse.  

Once again, we come to the same conclusion.  These politicians seem to continue to be the problem.

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Every Friday, all across the country, bankers hold their breath.  This is the day that the FDIC chooses to show up and take over banks that are on the verge of failure.  This past Friday, FDIC employees were especially busy when they showed up at 9 different banks.   The banks had combined assets of 19.4 billion dollars. 

On Sunday one of the largest bankruptcies in corporate history occurred.  CIT who lends money to hundreds of thousands small to medium business filed for bankruptcy protection.  This could have some pretty large ripple effects.

The problem is the lack of capital to those lenders and banks who focus on the small business owner.  The Obama and Bush Administrations failed miserably in taking care of  the heartbeat of America, the small business owner.   Take that capital they are dealing out like candy and give it to those banks that service the small business owner.  Further, if you want to solve the unemployment problem in this country, help the small and medium sized businesses.  Of course, that would be the promotion of capitalism which is something none of the politicians seem to understand.

The Obama Administration stated that they might infuse money to small banks if they will agree to lend to small businesses.  The Obama Administration needs to get a backbone.  If they are going to give money to the big banks,  put stipulations on the money and stop requesting what they want the banks to do in return of receiving the bail-out money.  They are dealing all of this money out to the big banks and at the same time wanting these big banks to stop abusing credit card customers and start lending it.   Here is an idea – STOP GIVING MONEY WITHOUT STIPULATIONS!!  Go ahead and give money to the small banks without stipulations and they still will not lend it out.  It is all about survival.

You got to love bank nationalization and the march to socialism.

Levels to Watch

Let’s take a look at the price levels on the S&P 500 because some damage was done last week.   We have broken through some pretty significant price levels.  However, the BIG ones are in front of us.  The range to watch on the S&P 500 is 989 to 918.  It will be interesting to see what happens around those levels.  Yes, this is a wide range.  However, it does give you a good range in which to monitor risk if you are heavily invested in stocks.   Remember, the question is always,  “Is the rise in the stock market from March a new bull market or just a bear market rally?”  The answer to that question is crucial to the future of your invested money.

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My friend Joe sends me disturbing articles from time to time.  This is the most disturbing one.  This is your Government at work destroying our country.  This is why we will never return back to normal.  This is why the stock market remains EXTREMELY risky.  Before you go to the chart, consider this:

Our Government has committed 10.5 trillion dollars of taxpayer money and has only invested 2.6 trillion of that 10.5 trillion. 

Click through to this disturbing chart.  Did you ever think that you would see an America like the one we have today?  More importantly, are you even a little bit outraged?

http://money.cnn.com/news/storysupplement/economy/bailouttracker/index.html

We will have no choice but to be dependent on the Government.  You are seeing the framework of socialism developing.

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