Thursday, November 29, 2007

Wall Street a.k.a. Greed Street

Bush's tax cuts have kept the economy growing, we are told again and again and again.

WRONG! While tax cuts may have contributed at the margins, what kept the economy growing was Mr. Greenspan's "generosity.

By lowering the Fed funds rate to next to nothing and flooding the system with $$ picked from his "money tree," Mr. Greenspan did indeed help the economy perform the short run. In fact, if lower taxes and interest rates had been offset by budget cuts, a case could have been made for sustainable economic growth.

Alas, that was not to be. In fact, precisely the opposite occurred as the Administration engaged in a spending spree of humongous proportions, aggravated by launching a very costly, unprovoked war on Iraq. These expenditures were financed from $$$ picked from Bush-Cheney's "money tree," (read: money borrowed from overseas).

Once the system was flooded with liquidity, Mr. Bush declared that the "ownership" economy was now in full swing. And, for a short while, that was indeed the case.

Anxious to oblige, lending standards were rendered obsolete by banks and S&Ls, teaser rates became the rage, and with the exception of the homeless, everyone was able to obtain a mortgage, whether qualified or not.

Prices of homes skyrocketed and allowed owner to borrow against their equity. This in turn led to increased spending and GDP growth.

Down payment anyone? Oh, never mind. Just sign on the dotted line and we'll take care of the rest.

Credit cards were issued to everyone, qualified or not. Teenagers were also a preferred target given that they love shopping, say "charge it" and present the bill to mom and dad. In short, no one was immune from the credit card assault and the debt loads on both, the economy and the consumer, continued growing.

If these totally irresponsible actions were not bad enough, the arrival of Wall Street on the scene made a bad situation much, much worse. By engaging in their favorite sport, namely, deadly "Games People Play" with derivatives, they triggered a major financial crisis that is presently being played out in the U.S., and to a lesser degree, overseas.

While it is true that the use of derivatives (options and futures) can be very profitable, it is also true that they can lead to enormous losses, as is presently the case. These are the actions that led to the sub-prime mess that affected and infected U.S. debt markets to the point they are practically frozen.

By "bundling" mortgages that included "the good, the bad, and the ugly" and selling this tainted merchandise both at home and abroad, many foreign institutions have also suffered major losses.

While no one knows the precise nature and or extent of derivatives on their books, they are rumored to be in the trillions. Hence, it should not come as a surprise that the value of the dollar has dropped precipitously of late.

Presently, pressure on Fed Chairman Bernanke to lower interest rates, once again, has reached a crescendo and he seems ready to oblige on Dec. 11th or earlier. Whether lower rates will solve the problem is yet to be determined.

According to financial "experts," it is the only way to normalize a financial system that has run amok, given that well-functioning debt markets are at the very core of capitalism.

It's a classic case of GREED trumping rational thought....

The History of Two Markets

To say that markets are nervous these days, is an understatement.

With oil reaching the $100 mark, the sub-prime mess weighing on markets, commodities at very high prices, the housing market in the doldrums and the dollar on life support, the question then becomes: Why invest in equities at a time of so much turbulence?

Answer: Because we are living in extraordinary times in terms of global economic development, as large nations such as China, India, Russia and others embrace capitalism and with it the potential for enormous economic growth in the years to come.

Result: The history of two markets.

At a time that many sectors in U.S. markets must be avoided in the short run (housing, finance, retail), others must be embraced (industrials, minerals, energy, technology, drillers) given their potential for continued profits.

Given the drop in the dollar of late, America is on sale as far as foreign buyers are concerned. Hence, goods exported by large U.S. corporations (Boeing, GE, oil drillers, cyber-retailers and others) are doing very well as they overseas profits are translated into dollars.

In short, selectivity is the name of the game as far as equity investments.

To sit and watch the unprecedented growth in a large portion of the globe would be a major mistake given its enormous potential.

Sure, stocks swing widely at times given that investors are either too anxious to join the party at any cost, or allow fear to trump reason when bad news come to the fore.

The intelligent investor tries to avoid both, fear and greed, by tailoring a portfolio of companies that are growing earnings in timely sectors, both abroad and at home.

A portfolio that does not include foreign stocks these days, is doomed to under-perform given that the S&P is largely unchanged year to date. Hence, an investment in an S&P index fund would also be largely unchanged.

Conversely, a portfolio largely tilted toward foreign equities that trade on the NY stock exchange and NASDAQ in the form of ADRs, have yielded gains of 50% to 100%, depending of the ratio of foreign to domestic stocks in the portfolio.

For those who prefer to invest in mutual funds, the advent of FTFs (exchange traded funds) is a welcomed change given that these funds trade like stocks and can be bought and sold at the click of a mouse. In addition, ETFs can be found for all sectors and or exchanges, say, the Great China Fund that covers "A" shares in the mainland that are listed in Shanghai, or the "H" shares that trade in Hong Kong and are, generally, less costly.

However, since nothing goes up in a straight line, taking profits as equities advance too fast is recommended given that a profit is not a profit until it has been taken. The patient investor will wait until these stocks have corrected (they always do), at which time he may want to jump back in and ride the next leg up, assuming that particular company is still of interest.

As they one has ever gone broke by taking profits....

And finally, had the Administration embraced free trade, even with nations such as Iraq, as opposed to wasting lives and treasure by launching an UNprovoked war, the dollar would not be in the cellar nor would our national debt have grown exponentially during the past seven years.

After all, if we can do business with China, a Communist nation, why not do business with the rest of the world, regardless of leadership, given that it is precisely free trade that can trigger major change within those governments?

Tuesday, November 27, 2007

Better Late than Never....

It took roughly seven years for Mr. Bush to become interested in the Israeli-Palestinian conflict.

That this conflict was at the root of the reasons the U.S. is resented in the region has been obvious to every serious observer. Coupled with the presence of U.S. troops on Arab/Muslim lands, it has led to what has been called the "war of all wars" by the Bush administration.

Why they would accord bin Laden the "honor" of having triggered the "war of all wars," is a mystery that only Bush-Cheney can explain. After all, he had a relatively small following when he launched the attack on 9/11 while he presently has an enormous following not only in the Middle East but also in many other nations.

Reason: Policies pursued by the Administration that have been highly counterproductive.

So, as they say, better late than never...only by attacking and resolving the ROOT CAUSES that lead to resentment and hatred, can the "war of all wars" be brought to a successful conclusion.

Needless to say, skepticism prevails as the conference presently being held in Annapolis with participation of Israelis, Arabs and others is opened for business.

But, who knows...miracles do happen on occasion and most observers will be happy to give the parties the benefit of the doubt.

Should a positive result emerge after decades of bloody entanglements, the world will surely applaud, and Mr. Bush will have one feather in his cap that is peaceful, as opposed to the other bloody feathers he has rightly been tarred with as the world looked on in horror at his inept leadership.

Blogging about Blogs....

What is it that makes blogs unique, interesting or uninteresting?

And why is it that millions are engaged in an activity that was, just a very few years ago unknown, and has recently exploded?

It's obviously the inherent need that many individuals feel to communicate with others and or simply make their views known to the rest of the world.

I, for one, started blogging a few years ago but have neglected to do so of late. Admittedly, I lost interest when Bush-Cheney were SELected to occupy the Oval Office by five U.S. Supremes.

So this blog is basically posted to remind me that: a) making one's voice heard is important, particularly as we approach a new election cycle and b) because my son has been on my case and wants me to add my voice to that of millions of others concerned about the future of our nation as well as the future of mother earth.

Therefore, I hereby declare that I will try to blog at least once a day to: a) help change the direction that our nation has been dragged in for the past seven years and b) turn my son into a happy camper as he reads the "words of wisdom" posted by his mom.