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S&P Upgrade

Considering the recent SEC investigations into S&P’s downgrade of US debt and possible insider trading, I have to cynically wonder if the government is putting the muscle on the company to bolster the stock price of General Motors, which the government presently holds one-third of the outstanding stock. In order to fully recoup the $49.5 billion in bailout funds, the government must sell its holding of General Motors at a share price of $133.78 or about $113 higher than where the stock is currently trading.

Wall Street Journal Report

Ever since the government sold a portion of its General Motors stock almost a year ago in the mid-thirties the price has declined by almost 40%. Along with the government, the UAW and I would speculate some state pension plans also hold large amounts of stock. In other words, a lot of Obama’s political allies are suffering extensive losses with the decline of GM share prices and something needs to be done to halt the freefall.

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Perhaps no greater source of misinformation exists than CNBC. Today the financial news network, a term I use loosely, provided two examples of journalistic stupidity or outright falsehoods. First echoing the recent blunt assessment by Texas Governor and Presidential contender Rick Perry, Rick Santelli ask New York Times journalist Thomas Friedman and Steve “I am an economic moron”, Liesman of CNBC whether Social Security is a Ponzi scheme. The following video displays not only the dishonest answer to the question but the unprofessional retort of a person caught in a lie.

A second story on CNBC parrots the chatter of economist representing the financial industry and government. According to economic gurus, the US economy is not headed for a double-dip recession. By some manipulated form of reasoning the prolonged double-digit unemployment rate and stagnant business climate does qualify as a recession let alone a depression. Of course we are not in a double-dip recession; we never got out of the depression.

The CNBC article states, “But Wall Street’s biggest names have backed off earlier doom-and-gloom predictions of near-zero growth and now believe the economy at least has a better chance of avoiding an outright recession.”

I am sure economists Aichi Amemiy of Nomura Global, Jan Hatzius of Goldman Sachs, and Gary Bigg of Merrill Lynch have no corporate interest in portraying a sunny economy to investment clients.

I have one more observation to pass on to my classes. A fool that makes investment decisions based on CNBC opinions or other mainstream outlets will soon part ways with their money.

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But this analysis says nothing about the original of purchase. As several noted in the comment section to the article, gamblers that bought and held over the last decade would have an unrealized loss of roughly negative 6%. Or heeding my own words in late 2006 and early 2007 printed on this blog about the impending doom, I sold my entire stock portfolio and began purchasing gold and silver and commodity exchange traded funds (ETF), which have appreciated handsomely.

An individual that bought stocks in 1929 and held tight would not fully recover until some 25 years later. The scenario today in comparison is much worse. I noted several years ago after the lows in the stock market were made in March of 2009 that financial bubbles follow a historic pattern of a crash, a sizeable rebound, and then a death spiral that ends up 80 to 90% from the highs. This would put the S&P 500 at a level between 300 and 400 or 700 points lower than it closed on Friday. The Dow Jones Industrial Average will face a similar fate bottoming out around 4000.

When people with a vested interest in keeping you in stocks provide phony analysis that says hold tight, then it may not be a bad idea to get ready and fold the cards.

http://www.cnbc.com/id/44204393

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See Randy’s Rubbish

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Today AIG stock closed at a price of $29.70. The US Treasury holds roughly 92% of the shares with a breakeven cost of $28.72 per share. This past January the share price traded as high as $52.67. The simplest adage in making money in the stock market is to buy low and sell high. At a price around $50 the government would pocket over $20 a share or a percentage gain in excess of 66%. But only the idiots at the Treasury led by Tim “tax-cheat” Geithner can turn a potential gain into a resounding loss.

The Treasury is now looking to unload its AIG holdings. Talk on the street puts a $25 offering price on the government owned shares, which results in a loss of $6 billion. Of course this is assuming enough fools with money exist to buy the stock. In reality the government could not have sold their shares at the higher prices and I am betting potential owners will hang on the sidelines even at a price 50% below the January highs.

Grabbing a Loss

The purchase of General Motors does not appear to be the wisest investment either. The Treasury sold some of its GM shares in a public offering that fetched $33 per share. In order to break even, the government would need to sell its remaining 500 million shares at a price of $53 or roughly 66% higher than it closed today at $31.39. In a few weeks the lock-up period for insiders that received the IPO will expire and more selling pressure can be expected. If the government dumped its remaining shares today, then the realized loss would be in the neighborhood of $11 billion.

Leaking Oil

One side note on both AIG and GM, both stocks have slid while indices have recently touched new annual highs. In other words, both stocks are dogs with fleas.

The government’s venture in real estate has fared even worse than its stock picking. Fannie Mae recently requested the Treasury to pony up another $8.5 billion after suffering a first quarter loss of $6.5 billion. Credit losses and expenses from bad loans totaled more than $11 billion. With housing prices taking another turn south, Fannie Mae expects credit losses to remain elevated for some period of time. The combined bailout for Fannie Mae and her indigent brother, Freddie Mac ,has reached nearly $160 billion since the fall of 2008.

Swamp Land

Psst! Hey Tim I have some prime bamboo land in northern Wisconsin that I will give you a deal on.

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This was the best 1:15 of the debate as far as I’m concerned.

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Welcome to the world of ruling from the bench with emotions versus facts….and she quotes….

“It seems to me the public policy behind effective enforcement of the open meeting law is so strong that it does outweigh the interest, at least at this time, which may exist in favor of sustaining the validity of the (law),”

With her quote, she is looking at public outcry versus the actual letter of the law as it stands now. It is not her job to set policy by public opinion, it is her job to enforce the letter of the law as it is now.

Don’t appeal. Just vote again on original bill.

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Such a scenario sets the stage for two possible outcomes. The first, already being executed, has the Federal Reserve further monetizing the debt. As history has taught us, monetization of debt is the precursor to hyperinflation and destruction of the currency. Savings and investments in fixed income are decimated.

The second possibility revolves around the ratio of debt to GDP. At some point, rating agencies will be forced to downgrade US Treasuries to less than AAA status. When this happens, investment funds that can hold only certain quality debt in their portfolios could be forced to liquidate massive amounts of US debt. The selling will cause the price of debt to fall precipitously and thus, inflicting great financial distress on those not able to sell.

It appears PIMCO may be trying to get out of town before anyone else.

The only effective way to pull the country back from the abyss is to drastically cut the government. Approximately $2.2 trillion in receipts flow into the national coffers. The federal government currently spends $3.7 trillion, which results in a projected deficit of $1.5 trillion. In a hypothetical thought of how much to cut from federal spending and how many years to erase the debt, let’s take a look at some staggering numbers.

In order to eliminate the debt in ten years and assuming tax receipts at the current level, federal spending would need to be slashed by $3 trillion to around $700 billion. Cutting federal outlays by over $2.2 trillion annually would erase the debt in twenty years. Nearly halving federal spending to a level of $1.7 trillion would pay off the credit card in thirty years. Imagine taking a $1.5 trillion chunk from the budget; we would be in the same fiscal mess as today.

The Republicans tout going back to 2008 spending levels; a plan that expand the debt by several hundred billion. And Congress is now arguing over spending cuts of $60 billion or less. Why even bother?

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When using standard accounting rules the private sector has to use you will find the state of Illinois has an unfunded liability of 3 Trillion dollars! When Illinois runs out of money, who is going to fund them? Well folks, it’s going to be your wallet, your children’s wallets, and your grand children’s wallets. Right now, every last single man, women, and child in the state of Illinois is on the hook for over $225,000 dollars each! This figure will continue to grow unless drastic reform is taken. Even then, it’s probably too late. Granted, Illinois is one of the worse, but what is it in your state? How much are you on the hook for?

See The State Pension Time Bomb

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When you’re done watching, go over to www.YouWorkForUs.net and answer the one question poll.

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But are the Koch’s as conservative as you think? Let’s examine the other contributions the Koch’s have made over the years. Let’s see, $20,000,000 to the ACLU to fight the Bush administration over the PATRIOT Act. Hardly, conservative. In July 2008, Koch pledged $100 million over 10 years to renovate the New York State Theater in the Lincoln Center for the Performing Arts (now called the David H. Koch Theater), and has pledged $10 million to renovate the outdoor fountains at the Metropolitan Museum of Art. Sounds a bit more like the other side of the isle would do.

A prostate cancer survivor, Koch sits on the Board of Directors of the Prostate Cancer Foundation and has contributed $41 million to the Foundation, including $5 million to a collaborative project in the field of nanotechnology. Koch is the eponym of the David H. Koch Chair of the Prostate Cancer Foundation, a position currently held by Dr. Jonathan Simons. I commend him.

In 2007, he contributed $100 million to the Massachusetts Institute of Technology to help fund the construction of a new 350,000-square-foot (33,000 m2) research and technology facility to serve as the home of the David H. Koch Institute for Integrative Cancer Research. He also contributed $20 million to Johns Hopkins University School of Medicine in Baltimore. The building he financed was named the David H. Koch Cancer Research Building. $30 million to the Memorial Sloan–Kettering Cancer Center in New York, $25 million to the M.D. Anderson Cancer Center in Houston to establish the David Koch Center for Applied Research in Genitourinary Cancers, $15 million to New York-Presbyterian Hospital Weill Cornell Medical Center.

So yes, the Koch’s do contribute to libertarian causes. But not nearly in the balkpark that their contributions might compare for the arts, education and medical research. In fact, they’ve given more than $600,000,000 more than all their political contributions combined.

One other thing, David Koch was the Libertarian vice-presidential candidate on the Clark-Koch ticket in 1980. The ticket proposed legalization of prostitution, recreational drugs, and suicide. The Clark–Koch ticket also promised to abolish Social Security, the Federal Reserve Board, welfare, minimum-wage laws, corporate taxes, all price supports and subsidies for agriculture and business, and U.S. Federal agencies including the SEC, EPA, ICC, FTC, OSHA, FBI, CIA, and DOE.

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“We are fast approaching the stage of the ultimate inversion: the stage where the government is free to do anything it pleases, while the citizens may act only by permission; which is the stage of the darkest periods of human history, the stage of rule by brute force.” Ayn Rand.

You would think that this quote may even be the sentiments of many of the unionized workers in the state of Wisconsin these last fifteen days. They look at the state as a bully taking away their candy bar from their bag lunch. Conservatives also look at the state as a bully as well, in the form of taxation. So if there is any common ground we have right now it is our shared disdain of government. This however is about as close as this debate gets.

The left only has this disdain when they are not in power. Right now they are not in control. The “brute force” that Rand spoke of is government. If you don’t play by the rules (law) you will get penalized. The confiscation of your hard earned capital via taxation to pay for government programs is nothing more than legal plunder. The unionization of government workers is wrong if the wages and benefits they demand and expect are better than those who pay them, and are not limited to what is in line with the private sector. Defined pensions should not exceed the amount that was contributed. Public workers contribute little if any to their pensions. The taxpayers are broke and should not be responsible for exponential benefit plans run like Ponzi schemes. That is what this whole national movement is all about. Taxpayers have voted in elected officials who want the system changed. Growth of government has to STOP. We need to shrink government.

So the left can’t have it both ways. They have a disdain for government who is their enforcer that extorts capital from the citizens to pay their wages and benefits. There is a bit of a dichotomy here. In this case, it’s the taxpayers who the government represents. The government is a representation of the people who are elected. The people have spoken. Even then, it is the majority of Wisconsin right now, who thinks that Wisconsin has not gone far enough. It’s the Conservatives that should be angry. This adjustment to unionization of government workers is only 10% of the trimming this state needs to do to balance the books. Dare tell when the rest gets proposed.

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The head of one of the US’s biggest industrial groups has launched a scathing attack on Barack Obama’s attempts to repair relations with companies, dubbing him “anti-business”.

Manufacturers could shift production out of the US to Canada or Mexico as a result, warned George Buckley, chief executive and chairman of 3M.

Read 3M chief warns Obama over business regulation @ Financial Times.

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