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”

As The World Turns

As The World Turns is a daytime drama that has been on for years. And as all soap operas are apt to do, the drama that unfolds on a daily basis is so complex and drastic as to be unbelievable. Well the same can be said for the World Economy…

In America we woke up this morning to news that the Swine Flu has broken out in Mexico and Mexico City is like a ghost town. Luckily the epidemic has only spread into 5 states in the U.S. and outbreaks here have been minor.

We also learned that the British Pound-Sterling will stay that way for quite some time. For better or for worse (I think for the better) the Brits will not acquiesce and diminish their economy even further by joining the EU and converting their currency to the Euro.

And yes, there’s even more world wide news, seems that China is developing even closer ties with Taiwan while property prices in Hong Kong are making a huge comeback.

So, why do I report all of these things going on around the world? It’s because they affect our bond market which ultimately affects the flow of capital and the interest rates we pay.

Weak Economies Follow the Strong

Several months ago I wrote a blog titled ‘And So Goes the World.’ The point of the article was that as our economy experienced ups and downs, the world’s economy follows right along.

I wrote that article because many of the more liberal financial journalists were decrying our capitalist system and pointing to the strength of the EU and China and implying that their economic systems were superior to ours. In truth, these journalists with an agenda were wrong.

We don’t live in a vacuum and neither do our trading partners. Many bemoan the fact that America consumes so much, but we consume because our economy is so strong. What is happening to the world economy right now is a direct result of our economy losing it’s ability to consume.

So where is all this heading this morning? I’m not trying to make a political point here, I’m making a statement of fact. Property values in Europe have fallen and their banks are a mess. Their economic cycle follows ours by about 12-18 months.

Next it’s the BRIC economies …Brazil, Russia, India and China… These economies follow ours with a 20-24 month lag.

Stabilization is the Next Step

In the US we have seen a recent stabilization of property values and in the economy overall. Things may still be trending downward but not at as rapid a pace. The same is starting to happen in Europe, however, they still have a few big hits before they get to where we are.

But, China and the other BRIC nations are just starting to feel the heat. Remember earlier in this article I mentioned that property values in Hong Kong were on the rise? That’s because Hong Kong is one the few places in the world where the economy is somewhat insulated.

Their tax system (a consumption tax akin to the Fair Tax) has made the economy very insulated over the years. They follow patterns similar to the US so now that China is feeling the squeeze money is moving from China to Hong Kong!

What does all this mean to us …US…? It means this. We are getting close to the end of our economic down turn. Nobody knows if growth will be robust or sluggish, but that’s not the point. The point is we probably have one more big-hit coming and then we stabilize.

Ferocious Entrepreneurial Spirit!

This also proves another point. Many left-leaning ideologues would have us believe that capitalism can’t work without highly restrictive government oversight. But, they are wrong, capitalism works in spite of highly regulatory environments.

If you look at the data you will find that the government actions did very little to stop our precipitous fall. Some will argue that the TARP helped save banks, but did it really? Not all of the TARP money was even used.

The government still has hundreds of billions in unspent TARP money and the banks have stabilized. A very, very small percentage of the pork-filled, ear-mark laden, $800 billion dollar stimulus package has hit the economy. Yet, we are stabilizing.

The correction of the bubble in the economy was due to normal business cycles within the world wide Capitalist economy. No the ferocious entrepreneurial spirit will turn the American and World economies around despite the best efforts of central governments around the world and NOT because of them and their actions!

Lending Lies

There is a great new show on Fox called Lie To Me. In the show the main characters are experts at facial expressions. They can literally tell when someone is lying by the look on their faces. Pretty amazing and fun to watch.

I wish I could get the bank execs in the room with these experts. Here's why, the banks say they are lending, but are they really? The truth is that many banks have increased lending but at a paltry rate.

Bank of Americas recent revelation that they earned a profit of almost $4 billion dollars in the last quarter was quickly quashed and the ‘real’ number was reduced to $2.5 billion. But even that number may not be accurate.

B of A, Citi and other large banks would have us believe that these profits stem from an increase in lending to home owners, when the truth is that lending increased less than 2% over the same period last year. So where did the profits come from?

The profits came from thin air. As reported in a very eye opening article on MarketWatch.com, much of the banks profits were driven by the TARP money they received. With TARP plugging gaps in the banks balance sheets, huge write downs allowed by larger banks swallowing up smaller failing banks and additional relaxed accounting rules allowed by regulators, the banks all of the sudden look very strong.

But that’s not the real story. The real story is this, banks aren’t lending for good reason. After years of excess and easy money the banks have learned their lesson and their hording their cash to protect them from further market turmoil.
In a recent quote in The Wall Street Journal, Fed Chairman Ben Bernanke talked about the need for more education about credit by addressing the inequities in wealth between whites and minorities.
He stated: "Part of it has to do I think with financial education," Mr. Bernanke told students at the historically black college. "There needs to be broader understanding in minority communities … about the importance of saving and building a credit record."
In my opinion Mr. Bernanke missed the point. This is more than a white vs. minority issue. He could have just said; There needs to be a broader understanding …and a core curriculum starting in grade school that teaches… the importance of saving …money… and building a …good... credit record. (the bold comments are mine.)

Additionally, I still hold to my belief that America needs to change our economy from a spending based econ to a savings based economy. Some have argued that this will limit growth and achievement.

Those that argue against a savings based economy miss the point completely. All a savings based economy refers to is an economy where the pace of credit spending does not outpace the rate of earned income and savings.

http://www.marketwatch.com/news/story/Banks-say-theyre-lending-theyre/story.aspx?guid=%7b4280B32E-53CB-49A7-8DC8-D0E95F855358%7d&print=true&dist=printMidSection

Winners and Losers Who Chooses

It's taken me a couple of days to completely absorb the fact that a sitting president just reached into the board room of a major corporation and fired the CEO. Notice I didn't say that the Board of Directors asked for the government’s assistance ...they didn't...

The news has been all over the place on this one, some say he needed to go. Others say the government shouldn't have this kind of power. Even others justify the action 'this one time' because of all the money given to the company to keep it afloat.

As is usual with me, I have a completely different take on the situation and it is one that hasn't dawned on many people yet. My question is not whether government should be in the business of firing CEO's of private companies.

My questions is have we crossing some precipice? Some invisible line that takes into a dark abyss where government decides which companies succeed and which should fail.

I know many will argue that this has gone on for years visa vie tax policy and regulations and I would agree. However, when this economic mess started in earnest and we allowed the Treasury and the Feds to save some investment banks while allowing others (Lehman Bros., Bear Stearns, etc.) to fail, we started down a slippery slope.

Now we are in full slide! It’s not just which banks should be saved and which should be allowed to fail, now it’s giving one company 30 days to fix a problem and allowing another 60 days. It’s firing a CEO and putting in another by dictation rather than a vote by the Board.

When the Obama administration announced that the government would stand behind the warranty of GM’s cars, they took an even greater step towards choosing winners and losers in this economy.

I ask one simple question, how is Ford to compete with GM (Government Motors) when Government Motors has billions of our Tax dollars funding it?

I admire Ford for recognizing its problems many years ago and setting out on a goal to fix them. I admire Ford for eschewing government hand outs and showing the rugged individualism and toughness that is genuinely American.

I am genuinely worried that we are on a destructive path here. When ‘BIG’ Government gets to choose the businesses that will be winners and the ones that will be losers, the people are bound to suffer.

I need only point to one example. Take a look at the history of England. You will see that at one time the government controlled all the car companies. You will also find out that there were waiting lists months and months long to get a new car.

So get ready, if government gets to choose the winners in this economy, you could be standing in a long line for your new GM, your new ‘free’ health care and maybe even your block of government cheese very soon!

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.

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... ;-)