Republicans Take Senate!

$SPY – The GOP takes the Senate, and gridlock will continue. The stock market tends to like it when each side cancels each other out.  The difference will be that instead of Harry Reid stopping legislation, President Obama will have to use his veto pen.

The only way legislation gets enacted is if there is compromise.  There are a lot of pro-growth ideas coming from the Republicans, from the Keystone Pipeline to corporate tax reform.  But it will be hard to push those through the mighty veto pen of the President.

Still bullish on stocks, though.

#145: China Buying Euro Debt? Petes Coffee; Apple Dividend? Obama 43.4% Tax on Dividends?

#139: News of the day, Romney or Gingrich? Obama vs. Brewer, Retirement in the US

#120: $NFLX - Netflix Stock Crash, Stocks Swoon on Europe, and the Obama Refinancing Plan

Jim Cramer on President Obama

I think we have to go contrarian on this.

Maybe Obama is doing a fantastic job after all. And Jim Cramer will probably say something down the road where he said he's been praising Obama all along.

"HAVE YOU WATCHED MY SHOW?"

Stop the Bailouts!

I was critical of many of the Fed members last year when they were worried about inflation. But here's a good column from former member William Poole, Stop the Bailouts.  Excerpts, and my comments:

THE fundamental causes of this recession, unique in the experience of the United States, were mortgage defaults and the consequent insolvency of major financial firms. These insolvencies, and especially fear of them, damaged normal credit mechanisms.

You'll hear folks talk about the need for more regulations or the "greed of Wall Street."  I think that's just an effort to politicize the crisis.  The bottom line on why we are where we are is that loans were made that never had any hope of being paid off.  If the mortgages were paid monthly, everything would've worked.  But folks couldn't make the payments.  Yes, these folks were caught up in the greed of it all and wanted a piece of the American dream before it got away, and lenders preyed on that.  All bubbles seem to work in that fashion.  But the bottom line of the crisis is that mortgages went into default  A lot of mortgages.

The self-correcting nature of markets will ultimately prevail. We should not underestimate the power of monetary policy; with the sharp increase in the nation’s money stock starting in September, monetary policy is now extraordinarily expansionary. I believe, though without great confidence, that the recession will end in the second half of this year.

Businesses that make bad decisions go out of business.  If loans were made to folks who didn't have the means to pay them back, it was a bad decision by companies to make those loans.  In a world without government bailouts, these firms would go out of business.  The free market wouldn't allow them to survive.  It would be painful, but those businesses that made more prudent decisions would emerge the evolutionary winners.  The strong survive, the weak perish.

The government is trying to stimulate the economy, and now is where we should start watching for signs of inflation.  Especially as we begin to recover.  The economic indicators provide a rear-view mirror snapshot of what has happened in previous quarters.  It'll be important to watch the bond market.

My thoughts are that the worst of the recession is already over, and that the employment numbers are lagging indicators.  I also say this realizing that I underestimated the severity of the recession!

Federal policy is damaging the economy’s prospects. It fails to provide the needed tax incentives for investment in factories and equipment, incentives that were central to efforts to revive the economy during the Kennedy-Johnson era and under Ronald Reagan. But government spending can’t lead the way to sustained recovery, because its stimulating effect will be offset by anticipated higher taxes and the need to finance the deficit.

The federal government is trying to prop up businesses that would otherwise fail.  I believe this postpones the inevitable for these companies.  I don't believe there is enough stimulus in Obama's stimulus package.  More should've went to tax relief and less to earmarks. (Such as $200,000 for tattoo removal in LA).  These earmarks are less stimulative than putting money in people's pockets.  Obama stood up and told us that there were no earmarks in this package.  There are over 8000.  C'mon, Mr. President.

In addition, many states are raising taxes and fees as the stimulus is being releases.  In CA, Governor Arnold Schwarzenegger is raising the sales tax, gas tax, car registration tax and income taxes.  This will more than suck up the stimulus Obama is providing families in direct tax relief.

Obama also promised "not a dime" in tax hikes for those making under $250,000.  C'mon, Mr. President.  Be honest.  He's raising the gasoline tax.  He's raising taxes on electricity, natural gas and heating oil.  Don't folks making under $250,000 pay those?  He's also lowering tax deductions for mortgage interest for folks making over $209,000.  That's a tax hike, sir.

And no serious energy policy.  Windmills and solar panels today contribute less than 1% to our energy grid. Obama wants to double this over the next decade.  Ooooooh.  What about nuclear power, as Italy and Sweden are now embarking on (and many other countries are already doing)?  What about using natural gas for our federal vehicle fleet?  The latter would have a quick impact on our consumption of foreign crude.  Wait until oil goes back to $5 a gallon.  Lots of the stimulus package will flow to OPEC.

I'm digressing.  I realize that President Obama was voted in because folks wanted to make changes.  And Obama is delivering.  But I think it's fair to criticize his actions if they don't make much sense and there are other options available.

Phew.  Thanks for listening.

Take and Bake Wednesday

• More of the same in the market. Today's flavor was up early followed by a swoon to take the DOW and SP500 down while leaving the Nasdaq near flat.  Not a good day.  From Yahoo Finance, Stocks dropped on Wednesday as uncertainty about the Obama administration's plan to stabilize the bank sector overshadowed data that showed the vast service sector shrank less than expected in January.
• Cisco after the bell.  (Thus the picture).  Cisco Systems Inc. says its most recent quarterly profit fell 27 percent. But it still beat lowered Wall Street expectations for earnings and revenue.  Wow!  Not as horrible as we thought!
• It seems as if all eyes are on Obama and Congress for the stimulus package.  Everyone wants a life line and "free money."  I'm concerned that the stimulus package doesn't contain enough for 2009 and 2010, and instead contains lots of paybacks and pork boondoggles.  Some of that latter stuff is to be expected, but the focus has to be increasing money in folks' pockets and helping them out day-to-day.
• Obama's pay limit plan courts disaster.  The President wants to cap executive's salary.  In the real world, though, this sort of constraint is likely to make bad companies worse. A few public-spirited executives might relish the opportunity to run troubled enterprises for much less pay than they could garner from overseeing more successful ones.  Yeah, that's my thought.  Wouldn't a quality executive just go somewhere else?

Back to Stimulus

With the Super Bowl behind us (and the Cardinals covering the spread and the over), the nations's eyes turn back to the economy.

Did Budweiser really spend $18 million on those commercials? I stopped counting at 6 commercials. Maybe it was more.

Back to President Obama's (not pictuted) goal of a stimulus package by Presidents Day. The question is how much in tax breaks and boondoggle pork to include to get consensus and help the economy. My thoughts are that we need help here in 2009. I'm a little nervous about an economic recovery that has wording like "by 2020, we' like to..."

The picture is of Gretchen Mol, from Life on Mars.

Saturday (and Grace Park) Randomosity

• A few days in to the new era of Hope and Change, and President Barack Obama (not pictured) is running into some opposition not just from the Republicans, but from Nancy Pelosi (also not pictured) and other leading Democrats. President Obama used today's radio address to stress the need for "unprecedented action."
• Am I Grace Park's biggest fan?  I've been watching the Canadian TV series The Border.  But only starting from Season 2, Episode 7.  That's when Agent Liz Carver (Grace Park)  joined the cast.  I've only made it through that one so far.  Not horrible.  Maybe I'll watch the the first season and S2E1-6.
• I'm long the market.  I think we're near "the bottom."  Of course, the transports are worrisome, no?  But I continue to believe that it's not over for the US.  I believe that the low interest rates and stimulus will work to stimulate economic growth.  But right now, no one seems to have faith. 
• The president pleaded for urgent action, saying, "if we do not act boldly and swiftly, a bad situation could become dramatically worse."  Obama's remarks came as he is lobbying for a quick congressional passage of a $825 billion dollar stimulus package to pump up the economy.  That's another nearly trillion on the deficit, by the way.  I suppose he's trying to gain public opinion his way to give him the green light to spend like crazy. 
• And now, after 8 years of silence, the Republicans are finaly trying to act like spendthrifts.  Right.  They didn't do any better on their watch.  I can't see how anyone can take them too seriously when it comes to balancing the budget.
• The Aftermath of Financial Crisis, from Barry Ritholtz.  A link and excerpts from the Barron's column this weekend, and also links to Barry's previous comments.  Worth a peruse.
• I do wish President Obama well, but I am already suffering from Obama Fatigue.  Maybe it was the long campaign season.  But his speaking style is really getting to me.  You know what I mean, it's the TV-preacher thing.  I keep expecting to hear, after every uplifting sentence, "Can I get an amen?"  Remember Arsenio Hall's stand-up TV preacher bit?  Like that!
• It always seems like *this* will be the week work lets up a bit and I'll have a few more minutes to blog.  Still hasn't happened.  Work is crazy.  Nornally the holidays would be slow, followed by the big bang in January.  But the Fun Factory was hectic over the holidays and continues to be so.  Hectic. 
• Bookmark this one for future reference.  Econobrowser has a concise summary of macro performance under the Presidents.  Cool chart.  I like charts.  Noice.
• There's a Grace Park video on Youtube where she's being interviewed about her role in The Border.  What's funny is when she's asked about her prep work for her role as Liz Carver.  She had to dig deep down to come up with something, I thought she might blurt out, "No.  Not really. No prep work whatsoever. Want to go grab coffee?"  Link.
• Listened to Gary Kaltbaum's radio show last night while working out.  He noted that GE is now yielding about 10%-ish.  They spend about $12 billion on their dividend.  So, they could cut that to 5% and save the company $6 billion.  Would they do it?  Seems to me that we are in an era of shrinking dividends.
• Richard at Move the Markets has an interesting one up on DJIA Distortion.  Well, the Dow and SP500 are market-cap weighted.
• And I'll take you out with a Grace Park vid.  Can I get an amen?

Inauguration Randomosity

• I think it was on CNBC this morning that it was mentioned the stock market is down on inauguration day 72% of the time.
• Check.
• Financials down over 16% today. The market will have a tough time rallying if the financials are getting smoked.  And they are getting smoked world-wide.
• As a friend said in an email, "Today was a beating."  Totally.
• I watched some of the inauguration today (via iPhone).  I know it's a big event, but I was looking for some real news somewhere, and that's been tough to find today.
• The best thing about the inauguration is the picture of Obama's daughter Sasha giving him a thumbs up.  And that's pictured!  Great photo.  "You did good, Dad."
• $C closed at $2.80.   WOW.
• Fox is trying some new TV pilots.  I'm scared to try any because the ones I've liked get canceled.  (Uh, Journeyman.)
• Are those women on Rock of Love (Bret Michaels) skanky or what?  They look like burnt-out druggies to me.  Bleh.
• "If you own financial shares, maybe today Obama was the sideshow." - Up is Good Down is Bad.

Rally up to Inauguration?

Just thinking to myself. Possible rally in the market due to optimism about Obama's message of "hope and change?"

I think we're all ready for something new.

Except for American Idol. It's more of the same, and I'm watching it anyways...

Time to Read Atlas Shrugged?

Check out the WSJ column on Ayn Rand's classic novel, "Atlas Shrugged" and the actions of our politicians today. 

For the uninitiated, the moral of the story is simply this: Politicians invariably respond to crises -- that in most cases they themselves created -- by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.

In the book, these relentless wealth redistributionists and their programs are disparaged as "the looters and their laws." Every new act of government futility and stupidity carries with it a benevolent-sounding title. These include the "Anti-Greed Act" to redistribute income (sounds like Charlie Rangel's promises soak-the-rich tax bill) and the "Equalization of Opportunity Act" to prevent people from starting more than one business (to give other people a chance). My personal favorite, the "Anti Dog-Eat-Dog Act," aims to restrict cut-throat competition between firms and thus slow the wave of business bankruptcies. Why didn't Hank Paulson think of that?

These acts and edicts sound farcical, yes, but no more so than the actual events in Washington, circa 2008. We already have been served up the $700 billion "Emergency Economic Stabilization Act" and the "Auto Industry Financing and Restructuring Act." Now that Barack Obama is in town, he will soon sign into law with great urgency the "American Recovery and Reinvestment Plan." This latest Hail Mary pass will increase the federal budget (which has already expanded by $1.5 trillion in eight years under George Bush) by an additional $1 trillion -- in roughly his first 100 days in office.

The current economic strategy is right out of "Atlas Shrugged": The more incompetent you are in business, the more handouts the politicians will bestow on you. That's the justification for the $2 trillion of subsidies doled out already to keep afloat distressed insurance companies, banks, Wall Street investment houses, and auto companies -- while standing next in line for their share of the booty are real-estate developers, the steel industry, chemical companies, airlines, ethanol producers, construction firms and even catfish farmers. With each successive bailout to "calm the markets," another trillion of national wealth is subsequently lost. Yet, as "Atlas" grimly foretold, we now treat the incompetent who wreck their companies as victims, while those resourceful business owners who manage to make a profit are portrayed as recipients of illegitimate "windfalls."

If you haven't read that book, now would be a great time to hunker down under a Snuggie and go through it.

Tuesday Randomosity

• President elect Obama names his energy team. Pictured.   LOL.  Maybe not.  The team includes Nobel-prize-winning physicist Steven Chu as Energy secretary and former Environmental Protection Agency head Carol Browner in a newly created position to coordinate energy and climate policy.
• Maybe Steven Chu will be pro-active on nuclear power.
• The case for bonds.  Investment-grade bonds, anyone?  Anyone?  Buehler?
• Does Toyota want GM to be saved?  An interesting take. 
• I don't want GM to go under.  I can't see how they can continue to operate as they've been, losing billions a month.  But I'd like to see them stay around.  Maybe they could build some natural gas cars.  Just a thought.
• Downloaded slydial for the iPhone.  Can leave a message for any cellphone, rather than dialing and risking talking to an actual person.  Very handy when you want to give a message, but don't feel like having a conversation.  LOL.
• Chrysler has a plan to beat the Chevy Volt, in the battle of electric cars.  I hope the plan includes building nuclear power plants because those cars are going to need a lot of electricity to charge those batteries.
• Is the Santa Claus Rally just a bunch of nonsense?  From Mark Hulbert.

The Financial Crack Team

President-elect Barack Obama introduced his crack team of men with middle initials who will serve as his financial team this morning. In the NY Times article it lists the middle initials of everyone except the President-elect.

The market faultered during the conference, as many were concerned about the lack of specifics during President-elect Barack H. Obama's speech. (Just showing you a little MI love, Mr. President-elect). But the swoon was short-lived, as the market had another huge day after the Citigroup ($C) bailout deal announced over the weekend.

That's two big days in a row for those keeping count. I believe that's called "a streak." Haven't had one for awhile. *Sigh*.

-- Post From My iPhone

The New New Deal?

Everyone is sitting at the edge of their chairs in anticipation of President Barack Obama creating a new New Deal. He almost said as much in today's Message from the President-Elect. 

President-elect Barack Obama said Saturday that he has told his economic team to come up with a recovery plan focused on creating new jobs -- 2.5 million of them in the next three years to be exact.

In the Democratic Party's weekly radio address, Obama said that while the details are yet to be worked out, it will be a "two-year, nationwide effort to jumpstart job creation . . . and lay the foundation for a strong and growing economy."

Among the targets will be rebuilding roads and bridges and modernizing schools, along with "building wind farms and solar panels; fuel-efficient cars and the alternative energy technologies that can free us from our dependence on foreign oil and keep our economy competitive in the years ahead."

Sounds very 1930's.  But what were the causes of the 1930's and have we learned our lesson?  From the New York Times comes this view that the new deal of the 1930's didn't always work.

The traditional story is that President Franklin D. Roosevelt rescued capitalism by resorting to extensive government intervention; the truth is that Roosevelt changed course from year to year, trying a mix of policies, some good and some bad. It’s worth sorting through this grab bag now, to evaluate whether any of these policies might be helpful.

(Read article to see the analysis of the "grab bag.")

If you read the conclusion, lets hope that it doesn't take World War III to get us out of this funk. 

Picture is of the Miami cheerleaders. Student support for athletic teams at the University of Miami is perhaps best exemplified by the longstanding tradition of fine cheerleading squads. Uniforms and cheers have changed over the years, as this photograph of UM cheerleaders practicing for an upcoming football game in the 1930's illustrates.

CPI Falling Randomosity

• Stocks trade near their daily low on the fears that the world is coming apart at the seams. Stocks are down sharply at midday as economic worries and speculation over the fate of U.S. automakers keeps buyers on the sidelines.
• I know I'm becoming such an iPhone fanboy.  Sorry.  It's like a virus that's overwhelming my system.  With that in mind, check out this funny, "iStone vs. iPhone."
• Consumer prices dropped at the fastest rate on record.  CPI down 1%.  Analysts said earlier concern about inflation risks may soon be replaced by worry about deflation, which also has a corrosive effect on the economy's performance.  Maybe that's due to all those FREE apps in iPhone app store. 
• President Elect Barack Obama selects Tom Daschle as health secretary.  Does it seem strange to you that the guy who promoted change during the election campaign is recycling the same-old politicians?
• Yeah, we want folks with experience next to President No Experience.  I get that and think it's probably a good idea.  So bring in Daschle, Summers, Rubin, et al.  We need folks who have been there.  I'm not so sure of Hillary dealing with foreign policy issues, though.
• Kind of an interesting read about Netflix, Microsoft, and Sony.  Sony has made some of their movie content available to Netflix, for the instant-watching devices.  Well, except Sony wants to exclude the Microsoft XBOX 360.  Because Sony has the PS3. 
• Speaking of, Microsoft's Chief Executive Steve Ballmer on Wednesday ruled out an acquisition of Yahoo Inc (YHOO.O) but said his company was very interested in resuming talks on a Web search partnership.
• Hey, Jason was in a bicycling accident. Stop by and wish him well!  He's one of our favorite financial bloggers!

The Big Saturday

• Forgot to turn off the alarm clock this morning. Saturday, right? Phew. 
• Volume Divergence on the $DIA: Let’s step inside this situation for clues on how volume could have helped you anticipate a reversal… or at least suspected that ‘things weren’t quite right’ with the recent rally.
• The best thing about charts?  They're great for predicting the past.  Seriously.  No matter what  happens the coming week, by next weekend you can take a look at a chart and come up with an explanation. 
• Read on for perhaps a chart prediction?
• Currency trends:  Double top for the $USD?  While the US Dollar has been strong of late, there is a disturbing divergence that is going on between the rising uptrend on the chart and the negative sloping relative strength index ((RSI)).
• Who will be President Elect Obama's Treasury Secretary?  An article in Saturday’s Journal suggests that Obama’s economics advisers are split between Clinton Treasury Secretary Lawrence Summers and New York Fed President Timothy Geithner.
• Voters rejected environmental propositions.  From California to Missouri, four of five environmental initiatives lost at the ballot box. Voters are clearly still not ready for exorbitant costs and excessive regulation without clear benefits.
• The amazing thing in the article above is a comment on wind energy.  Wind is unreliable.  It isn't always windy.  Wind turbines generally operate at only 20% efficiency compared with 85% for coal, gas and nuclear plants. A single 1,000-megawatt nuclear power plant would generate more dependable power than 2,800 1.5-megawatt, occasionally operating wind turbines sitting on 175,000 acres.
• From Seeking Alpha, Warren Buffett on Investing vs. Business.
• President Elect Barack Obama apologizes to Nancy Reagan for this:  “I have spoken to all of them who are living,” he responded. “I didn’t want to get into a Nancy Reagan thing about doing any séances.”
• Well, it is Saturday.  There is college football on.  LSU-Alabama, right?  Yard needs work  here, too.  Lunch?  Sukiyaki!
• What's up with you?  Leave a comment or voice mail.  Hey, the comment system from Disqus even allows video comments.  How cool is that?

Obama: Biggest Issue is new Puppy for Daughter

• President-elect Obama's (not pictured) speech is over, and what I got from it wasn't anything specific, but rather a sense of urgency.   As RevShark noted (clip in last blog entry), he did seem to set expectations lower thus setting  himself up for a nice pat on the back when the economy recovers.
• Biggest concern from visitors to Obama's website?  The dog he plans on getting for his daughter.  Tough economic times, indeed.
• Harry Dent calls for a 40% additional drop in home values.  “ We’ve seen the greatest housing bubble in history. With low interest rates and wealth created by the Baby Boomers and so much speculation towards the end, that housing prices need to fall 50% or more to get back to normal and that is going to hurt a lot of people who own houses, and it’s going to be the greatest gift to the younger generation coming along where housing isn’t affordable to them.  “ It will become affordable and the deleveraging process will happen, Governments can’t prevent it. They always think they can. They couldn’t prevent the Great Depression or any downturn since. So this is going to happen and the best thing people can do is prepare for it now.”
• On a positive note, this is the same Harry Dent who wrote the book The Roaring 2000's.  It's nice to know that the guy who got it wrong in such a big way, is making a dire prediction.  Check out the link and his 40,000 DOW prediction, etc.  Riiiight, Harry.

 

Pic is of Nguyen Thuy Lam... Miss Vietnam 2008.

Waiting on Obama Randomosity

• You want stimulus? Extension of unemployment benefits and food stamps.  How's that for an economic stimulus plan?  Can  you buy a car with food stamps?  Lets think about this.  What if grocery stores sold bananas for $25,000 and threw in a free car?  Could you use food stamps then?
• And no sales tax on food purchases!  "Can I help you load these groceries in YOUR BRAND NEW CAR?!"
• Call it a recession already!  Nearly 1.2 million jobs have been lost this year. The unemployment rate is at its highest level since 1994. Retail sales were dismal last month and for automakers, October was the worst month in more than a quarter-century.  But guess what? The United States is still not officially in a recession.
• Obama to meet with "economic brain trust."  Uh oh, the three most feared words in the English language.  To paraphrase Ronald Reagan.
• Hey, Pittsburgh Steelers running back Willie Parker is hurt again.  Looks like Mewelde Moore will get the start.  I still have Mewelde on the fantasy roster!  Yewooowowowowo.
• From RevShark via Intuitive Traders, While I’m sure Obama will be upbeat, it is very likely that during the transition phase of the presidency, he will be working to lower expectations about what he can accomplish. Setting the bar low will go a long way in the future perception of Obama’s success.
• Yeah, that'd make sense.  Set the expectations lower and exceed them. Okay, Obama is on...

The Market Reacts

Back to your normally scheduled programming

• Market down over 5% percent. Worst post-election day plunge. Just saying. The news sites are saying it's because folks have taken their eyes off the halo around Obama's head and are focusing on the economy.
• $GOOG ending its advertising agreement with $YHOO. Govermnent regulators seemed concerned. $GOOG down almost 7% while $YHOO up over 4% because folks feel HEY! Maybe $MSFT will step back in. Wow, $YHOO about $14. Remember when it was over $30 on previous $MSFT rumors?

Drinking and Driving

• The German economic stimulus plan includes tax breaks on cars! Hey, remember back here at home when you could deduct your car loans on your taxes?
• Molson Coors ($TAP) profits up 28%!

In Edit: That's Jamie Chung, from Real World San Diego and Samurai Girl.