The GM Affect

Interest rates have gone haywire the last couple of days. You won’t hear it reported in the media though. Why? Because it would look bad for certain economic positions and actions taken by the current Administration …at least that’s my take on it…

The problem is that the bond markets are upset about the way the Obama Administration has handled the bond holders for Chrysler and fear the same will happen with GM. At the administrations urging, the judge in the Chrysler bankruptcy case forced the bond holder to take on more risk.

Usually bond holders are the first to be protected in a bankruptcy but this time it was other interests that were protected first. (think Unions) The bond holders took a back seat to almost every other concern.

Before you go saying those ‘evil’ bond holders (lenders) deserve it, think about this. Bond holders invest in companies by making loans to them because they are risk adverse. Investing in normal stocks is to risky for these investors. There reason? They are investing money from pension funds and insurance companies. This money needs to be invested in areas with very little volatility and steady returns with low risk to the money. (think about your pension, you want safety right?)

The way these bond holders are being treated is a huge change from how large restructuring like this normally takes place. And this sets a dangerous precedent going forward. So with a bankruptcy from GM looming on the horizon, the bond market got very, very nervous and everyone backed out of the market in one day!

I’m calling this The GM Affect because it was so awful. We saw rates jump 1% in less than 24 hours ….by the way… That is completely unheard of!

Rates have come back down today, but I don’t know how long that will last. Rates jumped up to 5.5% from a low the previous day of 4.5%. Rates today are back down to 5% but no one knows for how long.

With a very scary economic report just out about a 5.7% decline in GDP the first quarter of this year and about companies slashing inventories and jobs (approximately 2,000,000 more jobs lost) I’m not sure how much longer rates can stay this low.

So while the Administration rolls our their latest campaign touting the ‘good’ that the stimulus package has done and while they roll out the parties for the supposed 150,000 jobs that were created, our economy has had the second largest contraction since 1981. (By-the-way, only about $11 million of the $45 Billion that has hit the economy was for worthwhile make- work projects. The rest was for one-time payments for welfare and Medicare and for the extension of unemployment benefits.)

I know that this sounds like political commentary and I apologize because it is truly not meant to be a political view point. I'm commenting on my concern about the numbers The numbers don’t lie, and since they don't lie, then someone or something else is lying. Could that something be the government, maybe both parties? Some will point back to the Bush administration as an excuse to support Obama’s actions. Guess what? Bush was wrong as well!

All the economic tricks and gimmicks being tried today have been attempted before. We did here in the late 70's to early 80's. and it didn't work. Heck countries all around the world have tried what we are doing and they will tell you it doesn’t work.

Call it Keynesian Theory, call it Social Democratization, call it whatever you want but understand this. If it is illegal for you to 'kite' checks to cover your debt, then why do we allow the government to do it? (Kiting a check is when you deposit a check from one of your own checking accounts into another and then from that account back into the original account in a never ending circle just to cover checks that you right elsewhere, at some point it will catch up to you.

So why are we allowing our government to do a thing that we would be put in jail for doing? Because of some ‘theory’? Does this make sense to anyone?

At some point we will not be able to print enough money to buy our own bonds to fund our bloated and bureaucratic government. I’m hoping for the best and preparing for the worst. Here’s a link to a great article with the bad news/good news that can help you make up you own mind. http://www.marketwatch.com/story/us-gdp-revised-to-57-decline-in-first-quarter

In Wonderland

Sometimes when I watch the news I feel as if I’m Alice and I just fell through the rabbit hole.

As I arrived home from another stressful day of barely scratching out a living and working 12-14 hour days just to do it, I was greeted with our President and Secretary “Dodgy The Tax Dodger” Geihtner announcing a new corporate tax program.

As I watched …in disbelief I might add… Secretary Geihtner actually had the gall to admonish corporations who use LEGAL tax loopholes to lower their taxes. He then had the unmitigated nerve to state that the new law would give government the ability to collect back taxes owed by these corporations and wealthy individuals.

Now wait just one cotton pickin’ minute! Is this the same guy that didn’t pay his fair share until he was caught? Isn’t this the same guy that didn’t pay all of his back taxes owed because the statutes of limitation had run out on some of it?

Do we really live in a world where the Sec. Treasury who is supposedly the ‘brightest financial mind’ of our nation can’t even use Turbo Tax to properly file his taxes but is the one lecturing others on the tax responsibilities? Will the hypocrisy never end?

Making American Companies Less Competitive

But let’s look beyond the hypocrisy to the stupidity. While this idea seems to be a good one on its surface and will play well with the ‘class warfare’ types, you know the ones that want to crush the rich and curse the evil corporations, the whole thing will never work.

Here’s why. The rework of the tax code is supposed to ‘punish’ corporations that ship jobs over seas and ‘reward’ companies that create jobs at home. However the tax rate on corporations in our country is confiscatory. We have one of the highest corporate tax rates in the world.

Companies will just choose to move their operations completely out of the U.S. rather than be subjected to further government interference. On top of the regulations on CEO pay and other socialistic policies, more capital and more companies will leave our shores not stay here!

We Pay Anyway

But that’s not the real point is it? In my usual fashion I’d like to take the conversation to where it belongs and it’s a direction that you are not likely to hear from any normal news cast.

No matter how much corporation is taxed they never pay it. The cost of the tax is just reflected in the retail cost of the goods when they are brought to market. That’s right; we pay the tax, not the corporation.
Higher taxes and tightening loopholes will only lead to more companies leaving our shores. It will lead to less jobs here and it will lead to higher prices on everything. We pay anyway.

Evil Corporations!

Now I know that many of you know that I am self employed and as such I am ‘part of the problem’ in this country. After all, I don’t conform, I’m ambitious, I work hard and I’m independent. You can’t fit me a box so I must be ‘dealt’ with.

That’s right, I’m a CEO and I own an evil corporation. But I’d like to say something here. As a dumb hick from the Southside of Atlanta with a high school education, I’ve worked hard. I’ve taught myself and I’ve put a lot of sweat into what I do.

Over the past two years I’ve endured a huge amount of sacrifice and worked 60, 70 and 80 hour weeks without earning a single dime! I’m barely holding on, but I’m holding on. And when things turn around I deserve to make an unlimited amount of money because of my sacrifice. Who has the right to tell me otherwise?

The IRS and The Hospital

Well it seems that the IRS has the right to tell me otherwise. After years of paying my taxes on time, paying 7.5% of other peoples taxes (BTW – that’s what employers do, they pay 7.5% of someone’s wages to the Federal government for the privilege of having an employee, oh yeah, and don’t forget the additional 15% we pay on ourselves. Sound crazy? It is!)

….sorry, I digress…. I received a letter form the IRS saying that I owed back taxes called FUTA taxes for employee payroll from 2005. When I called I found out there was more, they believed that I operated my business out of California even though I’ve only been to that state once in my life, I could not get them to understand otherwise.

So what’s my point? My point is that the way I was treated was so unprofessional and so harsh that the stress sent me into a tail spin and I ended up in the hospital (that story will come soon, I’m writing it now so stay tuned).

You see, I am to be ‘dealt’ with as far as this administration is concerned. So for those of you who think I’m some conservative hack and guys like me need to be dealt with, watch what you wish for. I’m sure that when the government is finished with guys like me, they’ll turn on you.

Remember, government does not create wealth and at some point those that wish to redistribute wealth will run out of other people’s money, that’s when they’ll come after yours.

BTW – I don’t owe the tax and I have proof. Do you think that matters to the IRS? The answer was and is a resounding …NO!...

Stay tuned for the unbelievable TRUE story of what happened when I called into IRS Customer Svc…. “Coming Soon”

A Lesson on Greed

When you look around the world and see the haves and have-nots, does it make you wonder if this capitalist society filled with greed is injurious to the world?

A powerful question to be sure. I like the answer given by Milton Freeman and countless other modern day philosophers. Is there some benevolent benefactor within mankind that is so pure that they can order our society for us?

The answer is NO. When you look around the world, the truth is that the societies with a free enterprise system (capitalism) have the highest living standards on the planet. As a matter of fact the freest people have the best quality of life.

However, look at the world where governments restrict free trade and control societies. Their standard of living is squashed and the motivation to improve society is squandered.

Ah, but human nature is not abated. The leaders of these ‘controlled’ and closed societies are greedy. We need only look at the standard of living the leaders enjoy as compared to the poverty they force upon their populous. Is this not Greed?

The problem with heading towards socialism was best stated by Margaret Thatcher when she said that the problem with Socialism is that eventually you run out of other people’s money.

But I think there is an even greater problem. When you look at the history of countries that trend towards Socialism and Communism you see what happens when men are entrusted with ultimate power.

Their Human Nature overtakes them and the next thing you know you move towards Totalitarianism. In a free trade, free enterprise, capitalist society with a Republic form or government, the market and the rule of law helps to minimize our human nature and acts as a checks and balance to human greed.

Sure, greedy people do succeed, but so do people those that aren’t greedy. In a capitalist system, the non-greedy can compete with the greedy and many times the non-greedy win. This creates a better society, not control by some authoritarian overseer.

Some would blame our current economic situation of the greed of capitalism, but the truth is that this situation was caused by poor government policy, shoddy oversight and mismanaged regulations.

In other words, this problem was caused by powerful politicians attempting to dictate to industry how they should operate.

Now the USA moves towards Socialist policies and I find it ironic that as our President visits his once vaunted campaign trail in Europe he is being met with cold shoulders and words of warning.

Even the once Socialist stalwart nations of Germany, France and Italy are now looking upon the actions of Barak Obama with disdain. They have publicly questioned the soundness of the Presidents push for governments to spend more money to get the world economy moving again.

What they are saying (without saying it) is that this has been tried before. They have tried it before …and…. IT DOES NOT WORK!

So I leave with this one question. If the great Socialist Utopias of Europe are not willing to go further down this path because they understand that it will only do more harm than good, then why are we the citizens of the freest nation on earth allowing our government to lead us this way?

Watch the video and learn… I welcome your opinion.

Watch the Birdy

Recently in the news there was a lot of furor over AIG giving out millions in bonuses to some of it's top executives. I don't want to get into the argument of whether that was correct or not, I'm sure there are many opinions on both sides.

What I want to point out today is something that many of us missed. While the left hand was waving for our attention the right hand was doing something else that the dolts in the media didn't see.

While the spectacle of Chris Dodd stuttering uncontrollably as he tried to explain his way out of allowing the AIG bonuses without throwing the Obama administration and Timothy Geihtner under the bus was amusing. It served to dupe the one-sided media types.

What didn't get reported this weekend and last week was the fact that the Feds decided to throw and additional $1 Trillion dollars at the market and made an additional $6 billion dollar commitment to keep buying MBS (mortgage backed securities).

Sounds good right? What's so bad about that. Well I'll tell you. They don't have the money ...or should I say WE don't have the money to do this with. So the printing presses were pushed into full gear and just to top the bad news off with more bad news... ready...

We used the freshly printed money to buy our own debt. Now in the real world this is essentially like 'kiting' a check. You know, you go down to the bank and you deposit a check from your own account back into that account.

You don't really have an extra grand in the bank but for a brief while the books show that you do. The government just did that. I dare you to try it! They would nail you for fraud and throw you in the slammer for sure!

But the hypocrisy of all this nonsense is not the worst part. The worst part of all this is that we know, everyone with any common since and historical economic knowledge knows that printing money devalues the currency and leads to inflation.

Our only saving grace is that monetary policy with regard to printing new dollars has been relatively tight over the years and we are in a recessionary time, so maybe, just maybe we make it without getting dinged to hard this time.

It's scary out there. While things should start to improve, we won't see real improvement and wealth generation until the bureaucrats and blow-hards in Washington quit with their Tax & Spend ways.

America, this is our wake up call! We can't spend our way out of the mess this time. We need to save and our government needs to save along with us. It's time to STOP spending money we don't have.

That's my opinion, I welcome yours.

Obama Lied; The Economy Died

Obama Lied; The Economy Died

The title of this article is one powerful statement and I was in shock when I read it. It’s the title of an article written by a conservative author, Tony Blankley.

Before you cry foul! Remember that liberal Democrats used the saying Bush Lied; People Died as the center piece of an entire campaign, not just an article in a newspaper …much more incendiary rhetoric I’d say.

Blankly, playing on this same theme makes some very good points in his op-ed piece in the Washington Post. He posits that Obama ran as one ‘thing’ but is really another.

Take the Preisdents message of ‘change’ as example #1. Obama ran on the promise of change in Washington. His stated goal was a more civil tone and more bipartisanship.

However, what we see happening is Obama and his Democratic cohorts ramming legislation down the throats of the Republican minority. His side is using tricks like only issuing legislation in printed format (not electronic) and expecting thousands of pages to be digested and voted on in just days of review.

When legislation is opposed, the President says; ‘We were elected, it’s our turn.’ And when the Republicans decide not to vote for legislation they haven’t had time to review the Obama team calls them obstructionist.

What change? Sounds like the same ole Washington to me!

There’s more, Obama professed to be for fiscal responsibility and no ear marks. Here again he has lied. We have only to look at the huge stimulus package which was one giant earmark made into law and had nothing to do with stimulating anything!

Other examples of Obama’s lies exist as well. The omnibus spending package with over 8,000 earmarks in the billions of dollars is being pushed for passage. The President says its last year’s business, BUT, if that’s true then why wasn’t it passed last year.

This is another example of the big lie. Obama claims to have inherited the Deficit and he did inherent some of the deficit but in the two months since he’s been in office, he’s tripled the size of the deficit.

The constant, persistent and now accelerated growth in spending and government regulations is killing the markets and slaying our economy. Obama ran to the center as a fiscally conservative Democrat in order to get elected, what he’s become is a Harry Reid and Nancy Pelosi tax and spend style liberal!

Obama Lied; The Economy Died; how very apropos.

Shut Up and Get Out of the Way!

There ...I said it! The talking heads in the government need to just shut up and get out of the way. What gives me the right to be so pointed? Well I'll tell you.

I have a unique perspective, being one of the few people in the mortgage industry that didn't go gonzo and make loans to every breathing Jack that walked through my door. I didn't get rich off the housing boom and I wasn't part of the "problem."

I sit everyday watching the stock markets, analyzing the bond market and reading about the mortgage backed securities market trying to give my clients some direction about where interest rates are headed. Right when I think I see a trend developing, BAM! something happens that causes huge volatility in the market!

That 'something' that causes volatility and turns good markets into bad is usually very simple to identify. It is a press conference. Not just any press conference, it's usually a press conference by the President or one of his newly appointed minions.

Case in fact, on Tuesday, February 10, 2009, Sec. Tres. Geihtner has a press conference to announce how the Treasury plans to move forward to 'fix' the crisis, the markets tank and theirs huge volatility everywhere. It's not directional, it's just panic selling without solid trends. It's mindless and crazy.

So what's going on? Well the markets begin to settle and everyone is becoming comfortable. In many cases trends are forming and they are good trends, Whew! We can breath a sigh of relief right?

Wrong! Before a good trend has a chance to take hold and before the capitalism side of our capitalist economy can begin to do what it does, someone from the government announces some new spending, printing or borrowing plan that throws everything out of whack again.

The markets can fix themselves with some oversight and some slight tightening of regulations. But before a real fix can take hold two things have to happen!

One, the government has to Shut Up! Stop telling the markets what your going to do and start listening to what the markets are saying. Step two, is to supply the markets with what they say the need! THEN..... GET OUT OF THE WAY!

If the government officials would quit trying to get face time so they can claim credit for the fix then the fix would come a lot sooner. I for one am tired of seeing the people that got us in this mess claim that they have the fix to get us out.

And I dare you to tell me there's a whole new crowd in charge now and they didn't have anything to do with this mess, come on....I dare you... ;-)