Thursday, June 25, 2009

Pres Obama's Ultimate Fiscal Policy Target in the Mayan Yr 2012 ~Manufacturing Balance~

It is late 2014, two years have passed since the Mayan prophecy and the 57th U.S. presidential election. The fallout from four years of higher taxation, over regulation, and jaw dropping budget deficits have come home to roost. .A period of fiscal enlightenment enveloped the United States, and in the end it wasn't all bad for President Obama. While the Mayan prophecy failed many scientists who called for end of the world, the motivations behind President Obama's fiscal liberal policies fooled nearly every economist and journalist on earth. In a paradoxical twist, President Obama revealed political motivations that sent shock waves throughout the world, but especially China. Whether you agreed with President Obama's radical fiscal policies from 2009 - 2012 or not, they were responsible for reigning in many positive changes. Fiscal and monetary policies that consistently undermined the greenback caused economic havoc for China's dollar pegged renminbi. This currency issue caused the dominant balance of Chinese manufacturing to change abruptly after 2012. Yet the economic ills that developed as the greenback collapsed from 2010 - 2012 will not be forgotten. Never again will any free-market society run their Deficit to GDP above 10%, or will they... In his 2014 book, President Obama admitted he only wanted one-term to exacerbate China's labor law violations, which haunted America's unions and manufacturing sector. He believed the U.S. private sector had to be burdened with more govt control, higher taxes, higher fees/fines, then higher inflation on consumers in order to spark the collapse of the Chinese renminbi which lead to the Solidarity type labor revolution in China in 2012. Considering the Mayans were prophetic with some kind of change occurring in that their calendar ended in 2012, a few historians awarded them some credit for the Chinese revolution. . Still, the pain from the uber abnormal U.S. budget deficit caused protests in favor of smaller govt across the 50 U.S. states during the 2012 presidential campaign. The concerned U.S. echoes then spread to other nations like no fiscal issue in the past. The landslide U.S. election of 2012 was proof how difficult daily lives became for American consumers. Yet there was a rainbow forming in the distant eastern hemisphere... . The mass media experienced a philosophical awakening, an obvious change in behavior compared to the 2008 campaign coverage. Responsible reporting made crystal clear the pitfalls of bigger govt, more regulations, and higher taxes on success compared to smaller govt, less regulations, and lower taxes on success. For the first time since William F. Buckley, the father of fiscal conservative print media, endorsed Governor Ronald Reagan in 1980, fiscal conservatism was widely accepted, winning over American voters' hearts and minds. . Republican Congressman Paul Ryan of Wisconsin was coached by former Speaker of the House Newt Gingrich as well as Congressman Ron Paul. Congressman Paul Ryan dismissed all presidential candidates on his way to a shattering win for free-market capitalism. The landslide win was similar in fashion, look, and feel to President Ronald Reagan's win over Jimmy Carter in 1980: 489 electoral votes to 49. Looking back, here's a balanced look at former Congressman Ryan courtesy of MSNBC's "Morning Joe", with hosts Joe Scarborough and Mika Brzezinski in 2009: . From North to South Pole, Asia to the Americas, the Mayan riddle of 2012 was solved. 2012 was a new beginning for U.S. manufacturing and improved human rights/labor laws/pay for the people of China. A fundamental understanding resonated that private risk taking must never again be choked off by any future U.S. Administration. Nonetheless, the hard working people of China were grateful to President Obama in the end. They believed it was his fiscal policies that caused what they felt was inevitable, a revolt against slave wages. While most in U.S. hailed that not one U.S. soldier needed to be deployed, the short-term economic trauma was not easily forgivable as it still stung. . The United States Constitution and Declaration of Independence were read and became very popular in academic and media circles. Educators and journalists embraced the ideologies in these two hundred year old plus documents like never before. High school and college students exhibited a greater appreciation for the texts. This broad movement of enlightenment lead to the creation of the 28th Amendment, which put a percentage limit on the ability of any Administration to raise the budget deficit, unless related to 1) national defense spending in war time 2) natural disasters 3) health pandemics . The sea change in the U.S. toward fiscal conservatism spread to the world's leading economies. A belief that free societies are better off with less govt intrusion in private enterprise struck a major chord, and true free-market green shoots began sprouting in every corner of the world. . We recall President Obama's persistence of clouding the public-private sector lines beginning in 2009, along with the two and a half trillion dollar budget deficit at the end of 2012. The budget deficit was his undoing as the Administration's GDP growth estimate of 3.5% failed to break above 1.6% for any calendar year from 2009 - 2012. Although unemployment steadied at 11.5% in 2011, it was smoothed by a greater quantity of government jobs. . The media became electrified by the financial fiasco printing more and more money caused. Yet the people of China held President Obama in highest regard when the dust settled after 2012, please read on... . Like the end of a Columbo mystery, President Obama took full credit in his 2014 book by stressing his 2008 campaign slogan 'Change We Can Believe In' was in fact a maniacal fiscal plan for America's long-term success by breaking the pegged Chinese currency, creating a more level manufacturing playing field. He believed it was necessary to jolt the economic cost of manufacturing goods as well as the human rights component of labor in China. Philosophically parallel to his idol President Abraham Lincoln. Lincoln's conservative policies jarred the social injustices of slavery in the U.S. while Obama's liberal policies indirectly jarred the social injustices of wage slavery in China. President Obama's hidden agenda of igniting a Chinese labor revolution empowered a new class of Chinese at the expense of extreme short-term U.S. suffrage. Yet 2012 extincted fiscal liberal budget deficit spending policies unless specified in 28th Amendment, which was signed into law by President Paul Ryan on March 17, 2013. . Even highly regarded fiscal conservatives like Newt Gingrich were silenced as President Obama explained away his unorthodox leadership style as the manufacturing cost paradigm equalized after his one-term. What the classic American fiscal conservatives like William F. Buckley, Milton Friedman, and President Ronald Reagan would think is unknown, yet many think they would have accepted 4 years of economic Armageddon in order for Chinese manufacturing cost structure and positive social change to occur. Hence, maybe the economic malaise President Obama created was necessary for Americans to value and hold forever dear the wisdom's in the Founding Fathers' documents. And hundreds of millions of Chinese developed voracious appetites for reading about the 20th century American labor movement. Ironically, "The Jungle", written by a socialist journalist named Upton Sinclair sold more copies in China in 2012 than everywhere in the world since its first printing in 1906. . Democratic cronies: Pelosi, Reid, Boxer, Kerry, Waxman and others were caught off guard when President Obama's motivations for weakening the greenback were revealed in his 2014 book. The 2012 Mayan riddle can be explained as a 180-degree shift from crashing the most successful model of capitalism into a centralized bureaucratic wall, all for the sake of changing wage slavery in China and reviving U.S. manufacturing. Maniacal fiscal genius perhaps. Yet the bell for empowering citizens and states tolled loudly in 2012 as a result of the budget deficit and what seemed to be fiscal control freak isms signed into law by President Obama. Yet his one-term goals were not revealed during the 2012 presidential campaign, nor were the pro free-market macro effects of rising manufacturing costs in China felt until mid 2014. So everyone who voted for Change in 2008 was vindicated by 2014, yet they flipped their votes against President Obama in 2012 due to the domestic economic frost that seemed too thick and permanent. Congressman Paul Ryan was sworn in before a crowd 2X larger than President Obama's 1.4M in the Mall and 400K in the streets. Chants of "Stop Bigger Govt Control", "Stop the Spending Madness", "States Rights Matter", and other slogans dominated the D.C. and Northern Virginia landscape. During the 2012 campaign, Milton Friedman's fiscal conservative principles crystallized with most American voters. ... The power of mass media worked against President Obama as consumers voted for a stronger greenback and for smaller govt. Yet the manufacturing cost pendulum was about to swing violently in the U.S.'s favor as new Chinese labor laws were just being inked. . Even though the Chinese middle class flourished after the 2012 labor revolution, four years of U.S. over regulation and over taxation paved the way for deregulation and divorsification in the U.S. with the arrival of President Paul Ryan. Private sector bankruptcies came back and were embraced as the norm. The action of govt co mingling in private sectors fell completely out of favor. Sectors that never needed TARP, like technology and bio tech, were rewarded higher multiples. While companies that accepted TARP and failed to pay it back suffered a whiplash devaluation effect, based on understanding that public and private sectors should remain as separate as Church and State. . The beauty of winners and losers, success and failure, fear and greed, booms and busts, all made stunning comebacks. These key components were once again respected from coast to coast and border to border as monumental for attaining economic equilibrium and the most important generator of capitalism, private sector growth. Regardless of the short-term pains some risk takers suffer, there can never be any future reward of GROWTH without them. Americans rejoiced and welcomed in the most important part of the free-market equation, a dog eat dog environment of Darwinian capitalism with big brother not competing on the field of play. . The spending and controlling govt the Obama Administration carved out fell out of favor. Fiscal conservative journalists like Charles Krauthammer connected with the largest following ever. Govt was forced to shrink in size and taxes on businesses and individuals were eliminated for several months after President Paul Ryan was sworn in. Very few understood or believed the positive consequences the Chinese labor revolution was about to create for U.S. manufacturing. . Unloved fossil fuel sectors were in vogue again, as drilling for oil and mining for coal became normal and rational. Venture capital money flowed from every corner of the world to these once dirty projects. Older familiar places as Silicon Valley, CA, Raleigh Durham, NC, and the Great Wall Street. Corporate R&D spending replaced budget deficits, unleashing tremendously positive psychology and a Pudzianowski type economic growth muscles only dreamed of by fiscal conservatives like: William F. Buckley, Milton Friedman, Newt Gingrich, Larry Kudlow, Arthur Laffer, Ron Paul, and President Ronald Reagan. . Still, the lesson from attempting to centralize the most powerful economy on planet earth was explained by Newton's theory on motion: "For every action, there is an equal and opposite reaction". And now the Chinese stood on the verge of a burgeoning middle class. . As a result of Obama's fiscal policies, Thomas Jefferson's quotes from the Independence Days of 1776 spread through the TV and Internet on a scale 10X greater than any campaign video in '08. Here were two timeless Jeffersonian wisdom's that resonated with many American voters: "My reading of history convinces me that most bad government results from too much government." "I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them." . President Obama took credit for swinging the fiscal pendulum violently enough to cause the revolution in China by collapsing the greenback and thus breaking the Chinese export economy from 2009 - 2012. After the Chinese labor revolution, U.S. and European goods were finally able to compete, and the inhumane wages that plagued the Chinese people were eliminated. So perhaps it was Obama's hell bent fiscal liberal genius that opened Pandora's Box of ultimate 'Change' if you believe his motivations outlined in his 2014 book. He did preface '08 speeches with: "It will take time, these problems will not go away overnight'. President Obama went down as one of the most influential one-term presidents since his idol President Abraham Lincoln. Lincoln is credited with abolishing U.S. slavery, and Obama is credited with indirectly abolishing Chinese wage slavery. Some argue Obama's bigger govt policies forced an intellectual enlightenment and consumers in the U.S. to become stir crazy for free-market capitalism. Emotions and visuals were of little importance as Americans stepped into voting booths in 2012, they were mad and their votes proved it. The end of the world some scientists warned the Mayan calendar predicted actually birthed manufacturing jobs, and an appreciation for smaller govt. Perhaps Obama's policies set the stage for colossal fiscal and social shifts to occur, sending the S&P to nearly 2,500 in late 2014. No wonder Pimco's El-Erian, in a June 7, 2009 CNBC special called "Meeting of the Minds", admitted "I voted for President Obama and would vote for him again today". Even though El-Erian ended up being right, we're almost certain President Obama's end-game fiscal agenda head faked El-Erian as well. . President Obama defended his harsh policies as purposeful and claimed they were designed with pro capitalism forward-looking goals. Perhaps it all makes good sense, because just days after being sworn in, the Administration's fiscal policy target had been exposed: Through legislation that consistently pressured and devalued the greenback, U.S. manufacturing jobs made a comeback, after 2012, as Chinese goods increased in price due to the double blow of a falling dollar and a labor revolution that raised wages in China. And the social victory the Chinese people scored was of tremendous historical significance as it ironically happened under the watch of the first African American president. Perhaps President Obama's fiscal liberal genius to end Chinese wage slavery was parallel to President Lincoln's social conservative genius to end U.S. slavery. .Both of these positive changes demanded opposing liberal and conservative forces to evolve, thus our respect for the eventual perfect balance in political forces, be they fiscal or social. .And so it goes and so it was, the lost Mayan civilization could not have selected a more interesting cycle than 2012 by sheer coincidence. The Psychology of the Call team hopes you enjoyed this fictional/futuristic piece. A great day and healthy summer is wished to all forward-thinkers.

Monday, June 22, 2009

An Administration's Three Pronged Tale to Muscle Through Free-Market Failure

The stock market has had a very good move since early March, yet the Psychology of the Call team (POTC) believes few positive fundamental growth events have occurred to rationalize today's valuations. Hence, the equity run has been 80% technical in our opinion. We reserve the other 20% for a turn around based on unorthodox policies rooted in creating the largest budget deficit in the history of investment finance; or just plain luck with some new growth paradigm emerging in bio tech or technology. Yet we believe there are three very ominous anti growth policies regarding: energy, health care, and the Employee Free Choice Act (EFCA) still ahead. . Is it possible the Administration gets lucky and some new growth paradigm emerges, Yes; is it likely, No. POTC believes the rest of the world, especially export driven economies like China are in deep trouble as U.S. GDP and unemployment remain anemic. The problem, from a macro perspective is "U.S. GDP Growth" and Organic U.S. Job Growth (minus govt spending). . POTC sees a paradox developing with this Administration. Green initiatives would end up destroying jobs and add to U.S. unemployment, yet such anti free-market policy is being debated. What does this Administration not understand? Why would pro entrepreneurship/capitalism advisers push-out oil and coal in favor of green initiatives in times of economic strife? Oil and coal are two extremely important elements in the U.S. macro economic picture for stability and eventual equilibrium and growth. As the title suggests, there are many dangers ahead of us, especially: 1) energy policy, 2) health care policy, 3) EFCA . IF the Administration muscles through even one of those proposals, we predict the S&P breaks through the 800 level. IF they muscle through 2 or all 3, then we see the S&P breaking through the old 666 low. Thus ultra short ETF's like "SRS" and "SKF" would become huge winners. We also feel Gold, as highly touted as it is is a real wise investment for 20% of your portfolio. POTC recommends the "GLD" ETF as an inflation as well as a geo political hedge..We remind bottoms form over time, and are marked by boredom setting in. . Bottoms are also often times marked by left field events layering on top of what every economist, talking head, journalist and educator already knows. Thus we like "GLD" and "SRS" and "SKF" for up to 30% of your asset allocation, as that left field event has not yet occurred. The other 70% could be either a combination of cash and technology Generals who have tremendous barriers against entry, as well as a cash hoard to buy their dying competition: GOOG and AAPL IF you must be long. We do not like RIMM due to their concentration in the business enterprise sector. . POTC urges you to realize the U.S. economy and its markets are on a precipice due to the behavior of the current dynamo. Their refusal to allow many private sectors to right themselves will have unknown consequences going forward. And the markets dislike the unknown. Investors and traders feel hog tied as a result, since the weight of the Treasury's printing presses is an unbearable phenomenon. . Please focus on the Administration's deadly three pronged pitch fork in the coming few weeks - months. If they muscle through any or all of these partisan policies, free-market failure is almost guaranteed. . Thank you for your Monday attention, the Psychology of the Call team hopes nothing ahead of us will be too shocking and that everything will only change your world for the better:

Thursday, June 18, 2009

Monetary Pyromania Soon to Flourish under the Hot Summer Sun?

Late Friday afternoon greetings to all, Did anyone catch the misleading analogy Geithner used to describe the upcoming regulations and Federal Reserve powers? He used the words "Fire Department". We have this short message for Geithner: . The financial fire we're in the process of extinguishing was ignited by loose monetary policy/cheap money, so are we now entrusting the firetrucks and water hoses to the same pyromaniacs? Since they were accomplices to the financial fires, why would they now be promoted to guard over the private sector, a sector that has evolved over time and should be allowed to bankrupt itself over time~ What is it about capitalism and free-markets that Geithner fails to understand? . The time element of allowing the private sector to heal itself is what most government officials are missing here. If there was crime, let's prosecute, but let's not shower more power to the Fed. Creating bigger bureaucracies as a result of a crisis does nothing to promote organic private sector growth and a return to true free-market capitalism. . The recent proposal of empowering the Fed is eloquent nonsense on the part of Geithner, Obama, and Lawrence Summers, who in our opinion is setting up to be the next Monetary Fire Starter and Captain of the Almighty Fed. The Psychology of the Call team wishes all a good Thursday afternoon (POTC). ------------------------------------------------------------------------------------------------- WASHINGTON (Dow Jones)--Treasury Secretary Timothy Geithner faced the questions on Capitol Hill Thursday but it was the Federal Reserve that had lawmakers' attention as they expressed concern about vesting more authority with the central bank. Geithner, appearing in rare back-to-back hearings on both sides of Congress, was repeatedly pressed on the regulatory overhaul unveiled Wednesday by President Barack Obama and the Treasury Department. He said policymakers "cannot afford inaction," and must overhaul regulation of financial firms, protections for consumers and oversight over financial markets broadly. But in the first formal airing of concerns with the Obama plan, lawmakers focused on the linch-pin of the proposal: giving the Fed broad authority to regulate systemic risk and examine any firm that could threaten financial stability. "I personally believe this represents a grossly inflated view of the Fed's expertise," Sen. Richard Shelby, R-Ala., said during Geithner's morning appearance before the Senate Banking Committee. Sen. Jim Bunning, R-Ky., a long-time Fed critic, pointed out that the Fed has declined to use its authority when it was given powers by Congress, most notably with writing mortgage regulations passed by Congress in 1994. "It took 14 years for the Fed to write one regulation on mortgages that we gave them," Bunning said. "What makes you think the Fed will do better this time around?" In addition to a lack of faith in a more powerful Fed on the part of some lawmakers, they were also wary of impinging on the central bank's core mission to set monetary policy. A requirement in the Obama plan that the Fed seek Treasury approval to use emergency lending powers, is troubling, lawmakers said. "I think that's really crossing a line and a sort of fundamental change," Sen. David Vitter, R-La., said. "All of a sudden, the Fed is acting more like a department of the government than an independent bank." Geithner, fielding the criticism from both sides of the aisle, said the Fed is best suited among existing agencies to be the chief cop overseeing the financial system as a whole. "It has a greater knowledge and feel for broader market developments than is true for any other entity," he said. He also downplayed the idea that the plan would consolidate too much power at the central bank, calling any expansion "actually quite modest" and saying that the Obama administration doesn't want to overextend the Fed. The Fed's ability to act independently will not be removed, he vowed. "It is very important that we preserve the independence of the Fed and its basic credibility and responsibility for monetary policy. We would not recommend a proposal that would put that at risk," Geithner said. -By Michael R. Crittenden and Maya Jackson Randall, Dow Jones Newswires; 202-862-9273; Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: You can use this link on the day this article is published and the following day. (END) Dow Jones Newswires June 18, 2009 12:22 ET (16:22 GMT) Copyright (c) 2009 Dow Jones & Company, Inc.- - 12 22 PM EDT 06-18-09

Wednesday, June 17, 2009

Fed Reserve and Exec Branch Take On New Powers, Powers that may Strain the Muscle of Capitalism, Risk Taking. Summers Next to Head Fed?

=DJ AT A GLANCE: Obama To Offer Financial Regulatory Reform Plan THE EVENT: President Barack Obama Wednesday will propose the most sweeping overhaul of the way the U.S. government oversees financial markets since the 1930s. He will push Congress to grant the Federal Reserve and the executive branch of government vast new powers to supervise previously unregulated aspects of the economy, while reorganizing other aspects of oversight. THE DETAILS: The Obama proposal - according to a near-final draft of the plan viewed by The Wall Street Journal - would: - Give the federal government power to take over and wind down a large financial company. -Mandate that large financial institutions raise more capital and meet higher liquidity standards. - Give the Federal Reserve more power over payments and settlement systems. - Give the Fed power to oversee almost any financial institution in the U.S., including firms' foreign affiliates. - Allow the Fed to oversee any commercial company that owns a banking charter. - Set up a new consumer protection agency with the ability to write rules related to mortgages, credit cards and other consumer products. - Abolish the Office of Thrift Supervision and create a new national regulator for financial institutions. - Require advisers to hedge funds and other private pools of capital to register with the Securities and Exchange Commission. - Suggest there be some sort of federal coordination of insurance regulation. - Give the SEC and the Commodity Futures Trading Commission more authority to police and prevent fraud in the derivatives market. - Require more scrutiny of credit-ratings agencies. REACTION: The proposed regulatory changes received some support from the Securities Industry and Financial Markets Association, the American Securitization Forum, the Managed Funds Association and the Investment Company Institute. MARKET REACTION: Reaction to the plan has been muted, given the current embryotic state of the plan - and the fact most of the news already was out. WHAT'S NEXT: After Obama formally unveils the plan, the White House will send it to Congress. Most of the details will be crafted in both chambers. "We expect that Congress will move swiftly to get these laws in place. I want to sign them and get them up and running," Obama said Tuesday. (END) Dow Jones Newswires June 17, 2009 12:25 ET (16:25 GMT) Copyright (c) 2009 Dow Jones & Company, Inc.- - 12 25 PM EDT 06-17-09

Tuesday, June 16, 2009

U.S. Beauracrat Kennedy Hails the Way; Capitalist Pig Bob thinks the Public-Private Sector Smog being Created in D.C. is Enveloping Entrepreneurship

IF you're wondering why companies like AET, AFL, UNH, and WLP are trading at single digit multiples, here's perhaps a big part of the reason: -------------------------------------------------------------
WASHINGTON (Dow Jones)--A preliminary analysis released Monday shows a $1 trillion cost for health-care legislation sponsored by Sen. Edward Kennedy, D-Mass, while a net 16 million people in the U.S. would obtain insurance coverage as a result of the bill. Kennedy's bill, which the Senate Health, Education, Labor and Pensions Committee will consider on Wednesday, aims to extend access to health-insurance coverage to the nation's 46 million people currently lacking it. The non-partisan Congressional Budget Office, in a letter to Kennedy on Monday, said enacting the proposal "would result in a net increase in federal budget deficits of about $1 trillion over the 2010-2019 period." The Joint Committee on Taxation, a non-partisan congressional panel that provides analysis of tax legislation, joined with the CBO on the estimate. The analysis estimates that the bill would result in 16 million more people carrying insurance coverage. It derived that figure by estimating that 39 million people would obtain insurance through health-insurance "exchanges," in which individuals would compare and purchase coverage. Fifteen million people would no longer receive insurance coverage through their employers, while "coverage from other sources would fall by about eight million." The two organizations performing the analysis were careful to state that the estimate isn't finalized. "The analysis of the proposal's effects on the federal budget and insurance coverage reflects CBO's and the JCT staff's understanding of its key features and discussions with committee staff, but does not represent a full assessment of the legislative language that was released by the committee," the letter states. Notably, the estimate does not take into account an expected expansion in Medicaid, a federal health program for low-income people, that would cover those at up to 150% of the federal poverty rate. The Medicaid provision is likely to both expand the number of people that would be insured under the legislation and change the cost of the bill. The bill in its current form also does not yet include a public health insurance option or a mandate that employers provide health insurance coverage, so those provisions were not considered in the analysis either. Kennedy spokesman Anthony Coley said committee Democrats "knew that this process would produce this estimate" and said that when "blanks" in the legislation are filled, the cost of the bill would decrease. "This is an incomplete estimate of an incomplete bill," Coley said. "We look forward to a complete CBO estimate of a complete bill." According to the analysis, the number of uninsured people would fall to "36 or 37 million" people once the bill is fully enacted. Republicans swiftly responded to the analysis, criticizing the Kennedy proposal because of the projections that many would lose employer-based coverage. "Democrats keep saying that, if you like the care you have, you can keep it, but the facts about their bill don't support that statement," said Sen. Mike Enzi, R-Wyo., the top Republican on the Senate Health panel. "CBO makes it clear - the Democrats' plan will force millions of Americans to lose the care they have now." The analysis projects a $1.3 trillion cost for providing subsidies under the health-insurance exchanges for low- and middle-income people to purchase insurance. That cost is offset in part by payments of penalties from those who don't obtain insurance, reductions in costs for other low-income health programs and increased tax revenue as a result of fewer workers receiving employer-based insurance coverage. -By Patrick Yoest, Dow Jones Newswires; 202-862-3554; Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: You can use this link on the day this article is published and the following day. (END) Dow Jones Newswires June 16, 2009 07:37 ET (11:37 GMT) Copyright (c) 2009 Dow Jones & Company, Inc.- - 07 37 AM EDT 06-16-09

Monday, June 15, 2009

Insurers LNC and HIG Dragging the Financials Lower; Just as POTC predicted on May 21st

Lincoln National Corp. (LNC) said Monday it is aiming to raise $2.1 billion in capital, including a $600 million common stock offering, as part of its broader program to bolster capital levels and reduce debt. The insurance holding company also announced plans Monday to sell $500 million in senior debt and $950 million in preferred stock under the Treasury's Capital Purchase Program. The parent of Lincoln Financial has a common stock value of about $4.5 billion. Shares fell Friday after fellow life insurer Hartford Financial Services Group Inc. (HIG) announced a $750 million stock offering as it plans to tap money from the Treasury program. Lincoln has also been approved to receive money, while other cleared life insurers have declined the funds. Lincoln National in May received preliminary approval for up to $2.5 billion under the government rescue program. It also is one of the latest to take advantage of a resurgence in capital markets. It plans to use $1 billion of the raised funds to bolster capital at its life insurance unit. The company swung to a first-quarter loss last month. In addition to the capital raising it also has been cutting costs and slashed its dividend by 95% to stave off a liquidity crunch after steep stock-market declines spurred investment losses. Standard & Poor's Ratings Services recently cut Lincoln National's credit ratings, saying the company's cash needs have spiked in the first half of 2009 on maturing short-term debt. Lincoln National closed Friday at $17.75 per share and didn't trade premarket. -By Tess Stynes, Dow Jones Newswires; 201-938-2473; Order free Annual Report for Lincoln National Corp. Visit or call 1-888-301-0513 Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: You can use this link on the day this article is published and the following day. (END) Dow Jones Newswires June 15, 2009 06:54 ET (10:54 GMT) Copyright (c) 2009 Dow Jones & Company, Inc.- - 06 54 AM EDT 06-15-09

Friday, June 5, 2009

Forget the V's and Focus more on the Two T's

Friday Greetings and Well Wishes to all,
Many technical analysts may be ready to buy the parabolic move the 10 Year T-Note has made over the last six months; a "V" formation crying out for imminent exhaustion, caution: Dynamic forward-thinking money managers like Pimco's Bill Gross refuse to pile in due to the developing drama of where the new normal "T"-rillion dollar budget deficit will stabilize the yield curve, a steep slope resembling one of Jackson Hole's double black diamond runs. Here's what Bill Gross sees developing for treasuries, outside the technicals some traders solely rely on: "The immediate question is who is going to buy all of this debt? Estimates suggest gross Treasury issuance of up to $3 trillion this calendar year and net offerings close to $2 trillion – almost four times last year’s supply. Prior to 2009, it was enough to count on the recycling of the U.S. trade/current account deficit to fund Treasury borrowing requirements. Now, however, with that amount approximating only $500 billion, it is obvious that the Chinese and other surplus nations cannot fund the deficit even if they were fully on board – which they are not. Someone else has got to write checks for up to $1.5 trillion additional Treasury notes and bonds. Well, you’ve got the banks and even individual investors to sponge up some of the excess, but a huge, difficult to estimate marginal supply will have to be bought. The concern is that this can be accomplished in only two ways – both of which have serious consequences for U.S. and global financial markets. The first and most recent development is the steepening of the U.S. Treasury yield curve and the rise of intermediate and long-term bond yields. While the Treasury can easily afford the higher interest expense in the short term, the pressure it puts on mortgage and corporate rates represents a serious threat to the fragile “greenshoots” recovery now underway. Secondly, the buyer of last resort in recent months has become the Federal Reserve, with its publicly announced and near daily purchases of Treasuries and Agencies at a $400 billion annual rate. That in combination with a buy ticket for over $1 trillion of Agency mortgages has been the primary reason why capital markets – both corporate bonds and stocks – are behaving so well. But the Fed must tread carefully here. These purchases result in an expansion of the Fed’s balance sheet, which ultimately could have inflationary implications. In turn, nervous holders of dollar obligations are beginning to look for diversification in other currencies, selling Treasury bonds in the process." In Gross's honesty we find the true conundrum, the force of politics on money and banking on a scale never witnessed before. Convincing foreign governments like China the U.S. credit rating is safe in the face of such unparalleled spending while unemployment and GDP disappoint is cause for concern. Considering Pimco's trading psychology is the litmus test for most in the industry, the fear of trading against governments is evident and clear at Pimco. The Pimco's of the world suddenly look like cubs next to the voracious govt spending tigers. No wonder individual investors are confused; trading against govt printing presses creates confusion... So as tempting as the 10 year treasury note looks from an artistic perspective, think twice before buying today's 3.8%+ yield. It is likely the T-Note sees 5% before 3%, as unemployment and GDP scenarios will not improve overnight. Understanding technical analysis is usually very helpful, yet understanding the psychology driving the yield curve in this new normal environment may trump all investment methodologies. The investment allocation along the yield curve has obviously shifted from greed to fear. Today's less riskless longer-term treasuries are being sold for short-term maturities. Could that suddenly change with this administration's policies, Bill Gross surely sounded skeptical. That "Full Faith and Credit of the U.S. Governement" phrase is not being reflected in the large spread between the 2's and 10's, over 250 basis points or 2.5%. A reason it may be wiser to forget about the "V's" and be more cognizant of the two "T's as the title suggests: the "T"-rillion dollar budget drama ahead and your ability to hedge that inflation danger with "T"ips, Treasury Inflation Protected Securities.
The Psychology of the Call team wishes all a fine June weekend.

Monday, June 1, 2009

The Political Smog Enveloping Capitalism

If the Obama administration did a sudden 180 in terms of anti constitutional behavior, Capitalist Pig Bob (CPB) would stand in shoulder to shoulder support. Yet CPB thinks there's less than a 10% chance this administration takes corrective action necessary for organic free-market forces of capitalism to sprout.
The looming problem is the paradoxical short-term bullish stock market reaction to the gargantuan budget deficit dripping and dropping with three trillion dollar plus force while bullying nearly every private business sector. Even seasoned capitalists are in jeopardy of being hoodwinked and silenced in this political smog. Caution, as the synthetic sweetness of this spending spree could eventually envelope and choke-off free-market capitalism.

Supply side economists, like Steven Moore of the Wall Street Journal argue that government spending without tax cuts could spell economic disaster in due course, I agree.
An unprecedented economic low could likely take hold as housing prices continue to fall, interest rates remain stuck at Japan, employment is merely smoothed by more mediocre govt jobs at 10%+, and the Administration's forecast for 2009 GDP growth of 3.5% falls liberally short. Peter Orszag stated "unemployment would peak at 8.1%" a little over two months ago. His forecast turned out to be wrong as the rate today stands at 9.4%.

Even if the employment scenario improves on the surface, we are more concerned with quality of jobs over quantity. A larger govt bureaucracy and dead-end type jobs will not provide a healthy environment for free-market forces to stabilize and battle back to a healthy normal, rather a manipulated new abnormal. It is difficult not to argue the spending smog created by this Administration is a short-term head fake toward a long-term un-American paradigm, caution...

Recently, computer generated mathematical modeling forecasts with the best minds on Wall Street inputting data failed badly in predicting real estate prices. We cannot afford our public sector servants being wrong with their GDP growth forecasts in 2009 considering the mammoth stimulus packages, no way no how.

The govt is the lender of last resort and some feel the banking ball and chain Hank Paulson handed to Obama's team may have been taken advantage of. Ex V.P. Dick Cheney reiterated some of these feelings on The Kudlow Report just last week. Cheney sounded concerned with the violent direction political policy has swung under Obama. In fact, he sounded somberly concerned for the future of free-market capitalism.

CPB adores free-market capitalism, where bomms, and busts, peaks and toughs, success and failure, fear and greed evolve as a result of the other, not as a result of Big Brother pooling public with private sector funds. Just like the separation of church from state, separation of govt/public interests from private interests is paramount, yet President Obama and his Administration continue show no respect.
The confusion this Administration is creating on the back of the real estate and credit crisis is rooted in their belief govt knows best, and that's dangerous. Their rhetoric and pending legislation is explicit in the theory private sectors are unable to right themselves: whether health care, energy, and the list goes on.

CPB understands it's the risk taking American pioneers who created the States and in turn created the federal government. Why the federal govt insists on printing and diluting trillions of greenbacks through the private sector is troubling.

The current crisis was born in the halls of Congress more so than any private sector. Whether repeal of Glass-Steagall in 1999, or a result of the latest 2009 Obama three trillion dollar budget deficit, every private sector is being dumbed down by stricter regulations/controls and higher taxes.
Even though the ultimate price is still a mystery, the path this administration has chosen is unparalleled. If you believe in the fiscal conservative wisdoms of President Ronald Reagan, or economist Milton Friedman, the hovering spending smog is cause for great concern. Only 4 months into a 4 year term, this political freak show will go on, and the Psychology of the Call team promises to monitor it for you.