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28 November 2008

2008 is the Year of Bailouts

Never before in history has the government bailed out the financial industry as they have in 2008. Major American corporations are failing at an alarming rate. The government let some go into bankruptcy, others they funneled an unprecedented amount of money to keep them afloat.

Government funding of bailouts is totaling in the trillions of dollars. It's hard to even imagine how much money that is and it may never be repaid. If it is, it will likely take decades.

Saving Wall Street, saving Main Street, saving Corporate America, click here to read about the total dollar amount involved, it's staggering.

Even with the sky high dollar totals already pledged, the government is presenting new programs to save the economy, totaling billions more. How will this end? Will it end anytime soon? With a new President coming soon, will it be enough to save America? Obama has got his work cut out for him. We wish him luck, he's gonna need it.

27 November 2008

Mumbai Terrorist Attack Rocks Financial Center

At least 10 hostages were reported freed at the recent siege by terrorists in the Indian city of Mumbai. Still, at least 20 hostages remain captive or trapped.

The Indian Prime Minister is saying that the terrorist group is from an outside country and the goal is to disrupt the financial center of the country. The group has killed 125 people so far. Explosions and gun fire can be heard even 24 hours after the siege began. Another 327 people have been wounded.

There are many Westerners held captive and it is believed that the attack was designed to target foreigners from the West.

Authorities found 17 pounds of RDX, one of the most powerful kinds of explosives, indicating that more violence may have been planned. It also indicates that this group may be well funded by a foreign government.

Gunman are firing guns indiscriminately, killing citizens in their homes and kids who venture outside.

Police say the attackers came by boat and found a fishing trawler loaded with high tech satellite gear and GPS equipment.

26 November 2008

Volker Named to Obama's Economic Team

President-Elect Obama named former Federal Reserve Chairman Paul Volker to head his new Economic Advisory Board. A panel set up to analyze recommendations and get the economy back on track.

Analysts estimate that GM's debt could lose 75% of its face value if the government provide aid to the company.

Mortgage rates finally fall under pressure from the Fed. Average rates dropped to 5.5% this morning from 6.38%.

Buffet had a good 3rd qtr with financial stocks, Wells Fargo, US Bankcorp and American Express, earning 36% and averaging 2.3% over the course of the year. So far in the 4th qtr, Buffets financial shares have lost 41%.

Sales of new houses has fallen to the lowest level since 1991 on the loan freeze. Units sold totaled just 440,000 units.

Treasury's are at a record low yield of 2.9837%.

Crude inventories rose an unexpected 7.28 million barrels. Analysts expected a rise of 1 million barrels. Options traders are betting the price of February crude to fall below $25.

25 November 2008

Great Depression 2?

We are in what economists and analysts like to refer to as a recession similar to 2001 only deeper. I was pretty busy in 2001, but I don't recall some of the worlds largest banks and brokerage houses going bankrupt. I don't seem to remember the government authorizing $700 billion dollars to keep the financial system from collapsing. I don't remember the Federal Reserve offering $7.4 trillion dollars in funding to banks with frozen credit.

Maybe I blacked out for a few months, but I barely remember a recession back then. In fact, the only reason I knew we had one was because the press talked about it briefly several months after it happened.

I've been hearing some chatter, lately, about an ancient Myans prediction that the world is going to end in December of 2012. I find it hard to believe that the world is going to end, but I can buy into the theory that the world will end as we know it. That can mean a lot of things, but probably not that people will suddenly cease to exist.

Paul B. Farrell has an interesting perspective that makes people's hair stand on end. Most think he is just too far out in left field, but maybe there is some middle ground that helps explain what the Myans are trying to tell us.

He basically explains 7 nightmare scenarios and briefly justifies each one. His scenarios range from there is no exit and we will continue to experience never ending disasters to an endless 100 year bear market, warfare, too many people chasing too few resources, maybe it's just a dream and maybe there is a solution if we act correctly right now. Read his whole article here.

Market News

Fed Chairman Bernanke says he is aiming to bring down mortgage and consumer rates. To assist in this endeavor he is adding $800 billion more to help home buyers, consumers and small businesses. The spigot is wide open.

Paulson says that market stabilization may take some time to work. Conservatorship is working as planners hoped. Paulson has no time line for seeking the final $350 billion. He says that the financing market is not working as they hoped.

Paulson announced that the $200 billion for the Asset Backed Securities (ABS) is just a starting point and will likely expand from there.

FDIC Chairwoman Bair says that they expect more bank failures. YTD there have been 16 bank failures, 5 times normal. Problem banks have risen 46% and FDIC insurance money has declined.

President-Elect Obama has announced Peter Orszag as the new Director of the Office of Management and Budget and Rob Nabors as the Deputy Director of the OMB.

24 November 2008

Market News

Shares of Citigroup soared 65% this morning as the Government bails the company out by issuing $306 million in loan guarantees and providing $20 billion in cash. Citigroup is getting $27 billion in preferred stock from the Treasury requiring it to pay 80% in dividends. Citigroup will also cut its quarterly dividend to $.01. This frees up $64 billion in capital for spending.

In comparison, the Savings and Loan bailout in the 1990's cost the government $210 billion total.

The Federal Reserve has pledged $7.4 trillion in rescue funding to banks with frozen credit. This amount is 9 times the cost of both Iraq and Afghanistan wars to date, it is 1/2 of the GNP of the United States, it amounts to $24,000 for every American and dollar bills placed end to end would reach Pluto at the outskirts of our galaxy.

Paulson may ask for the last $350 billion to bolster consumer credit.

Obama's stimulus plan may top $700 billion.

Bush has announced, along with Citigroups bailout, that he will make more financial moves as necessary to stimulate the economy.

GM seeks to cut debt and change union rules to gain support for U.S. aid amid speculation that one of the Big three are likely to fail.

Obama Names Economic Team

President-Elect Obama has named his Economic Team. As expected he chose Federal Reserve President Timothy Giethner as the Treasury Secretary. Giethner help managed Wall's Streets meltdown earlier this year, overseeing the purchase of Bear Sterns by JP Morgan, the bailout of AIG and the bankruptcy of Lehman Brothers. He was appointed the Fed President in 2003.

Larry Summers will Head the National Economic Council. Summers served as Treasury Secretary in the Clinton Administration. He was chief economist at the World Bank from 1991-1993 and he taught at Harvard.

Christina Romer was chosen to be the Head of the Presidents' Council of Economic Advisors.

Obama also announced Melody Barnes as the Director on the Domestic Policy Council and Heather Higginbottom as the Deputy Director on the Domestic Policy Council.

Saturday, Obama offered an outline of his economic recovery plan to create 2.5 million jobs by 2011, but decline to offer details or specific numbers until his newly appointed team has a chance to provide input.

Obama also talked about a $175 million dollar stimulus plan, but many analysts suggested the number will have to be much higher.

21 November 2008

Strategic Petroleum Reserve

The Strategic Petroleum Reserve (SPR) was created in 1975 in response to the oil embargo of '73-'74. The purpose was to prevent the economic effects of future temporary disruptions of oil supply to the United States and provide a safety net until supplies were restored.

The SPR is located in the Gulf of Mexico region and is capable of holding 727 million barrels of crude oil. It reached its highest capacity in 2008 at 707 million barrels.

Thirty years ago designers could not envision how this responsible idea could be used to manipulate market prices for huge windfall profits.

In 2001, President Bush issued a directive to fill the SPR to 700 million barrels, a level reached in August of 2005. Hurricane Katrina caused some drawdowns on the reserve, but it was restored in April of 2008.

The Iraq war began in March of 2003 in response to the events of September 11, 2001. The United States government felt going after the person responsible for the 9/11 attack would not necessarily protect the national security of America and decided to attack Iraq because they felt it was supporting terrorism.

On the chart on the right, it is evident what the Bush administration decisions had on the price of oil. A small decline occurred following the announcement to fill the SPR to 700 million barrels, but then began increasing as the purchases started. After the war started prices began increasing more rapidly on the fear that oil supplies could be seriously disrupted, despite the fact that the United States imports only about 1 million barrels of the 21 million barrels it uses daily from the Middle East.

After the Department of Energy announced plans to purchase more oil for the SPR in March of 2007 prices spiked sharply. Even after reaching its goal of 700 million barrels, prices continued to rise. Then Katrina hit and prices accelerated its climb. By this time, speculation and euphoria takes over. With oil approaching $100, then breaking through with very little resistance, the price rose rapidly on every announcement of possible supply disruptions.

In January of 2007, President Bush suggested in his State of the Union speech that the Strategic Petroleum Reserve double in size. This was on the heels of the Energy Policy Act of 2005 that requires the SPR to fill to 1 billion barrels of oil.

At the time of the speech oil prices had been declining and were at the lowest point they would reach until October of 2008.

After reaching $100/barrel and with no sign of slowing down, House Speaker Pelosi called on Bush, in April of 2008, to suspend purchases of oil to the SPR and help to ease prices of energy to the consumer, a move Bush previously opposed.

On May 12, 2008 Representative Peter Welch (D,VT) and 63 co-sponsors introduced SPR fill Suspension and Consumer Protection Act.

The DOE announced on May 16, 2008 that it would halt all deliveries to the SPR by July of 2008.

On May 19th, President Bush signed the bill into law.

Ironically, the price of oil peaked in July of 2008.

Could it be that Bush orchestrated the biggest conspiracy of all time? Sending the price of oil into the stratosphere for the benefit of his buddies, Dick Cheney, his father and their Saudi friends the Bin Ladens?

The announcements to fill the SPR and the start of the Iraq war; was it a plan to increase oil prices from $20 to $147 and reap huge profits in the process?

It seems that Congress knew that ceasing the purchases of oil for the SPR would ease prices as demonstrated by their actions in May of '08.

Since purchases to the SPR have stopped, prices of crude have plummeted to under $50/barrel, a level no one ever expected to see again. You be the judge.

Market News

President-Elect Barack Obama is expected to announce his nomination of Hillary Clinton to the post of Secretary of State after Thanksgiving.

Citigroup denies rumors that it intends to breakup the company even as its value on the stock market drops below $20 billion increasing its credit risk.

GM is facing a cash squeeze and announces further production cuts.

President Bush signed into law an extension for the jobless benefits to unemployed workers.

GM is returning some of its leased jets, leaving just three in its fleet. It denies this action has anything to do with recent Congressional criticisms.

Speaker Pelosi rejects the notion of bankruptcy for the automakers.

20 November 2008

Auto Bailout Support Disappearing

Congress has scrapped the vote on the bailout for automakers due to a lack of support for the bill. Lawmakers want to see a plan before they are willing to give money to the industry. The House expects to reconvene in December to take up the issue.

In Anna, Ohio near a thriving Honda auto plant, citizens say Congress should not give the Big 3 bailout money. They say the companies should be allowed to go into bankruptcy. September Quinn, a waitress at the Inn Between says there is "something not right in the way they running their business, why should the American people have to bail them out if they can't figure out how to do it right?"

For the time being automakers are going to have to wait to see what Congress decides to do. There is a growing consensus that despite the cries for help and the warnings of societal catastrophe from the prophets of doom, that it may be better to send the companies into bankruptcy, allow them to restructure labor contracts and re-emerge stronger, more efficient companies.

Car makers shares managed to hold on to rallies they enjoyed as news of a possible bailout emerged, but the stock market sank to new lows as the two day sell-off seems to gain momentum.

Market News

GMAC joins the ranks of financial institutions applying for bank status, making them eligible for bailout funding.

Pirates demand $25 million for Saudi's oil supertanker.

Goldman erases 10 years of advances as share prices slump below the IPO price.

JPMorgan predicts that the Federal Reserve will cut interest rates to 0% in January.

Jobless claims are at the highest level since 1992.

Congress is yet to approve a bailout plan for the automakers, but Congressman Bond says that a group of bipartisan lawmakers have agreed to a plan. The plan entails expanding the authority of the already approved $25 billion to be used for bridge loan purposes. Originally, money was to be used for re-tooling. Some Congressman want to see tight restrictions put on the money and some are still upset that the CEO's are not acting like they are in crisis mode even though they say they are. This was evidenced by their using private jets to travel to Washington D.C. instead of saving money by travelling commercial.

GM is down over 90% YTD and traded at its lowest price since the 1930's. On news of the rumor of a bailout plan, shares traded to session highs. Kerkosian aide York says that GM may have only weeks to survive, not months.

Oil prices traded below $50 for first time in 24 months. Prices rose to a record $147 in July as the U.S. added oil to the strategic oil reserve, since July the U.S. has stopped purchasing oil for the reserve.

19 November 2008

Auto Exec Criticized by House Committee

In a grueling day of testifying before Barney Franks' House Financial Services Committee, auto company executives endured a barrage of questions and criticisms regarding their request for another $25 billion to bailout the auto industry.

GM's Rick Wagoner said a failure of the auto industry would be catastrophic to the American economy. Auto CEO's stated that the failure of one of the Big 3 would have dire consequences to the others.

Congressional leaders tried to understand why giving the automakers another $25 billion would help solve their problems and how long the money would last. The CEO's would not give a straight answer as to how long the money would keep them afloat, but GM's Wagoner said they estimated GM could survive through next year with current funding.

Automakers were pressed for plans to curtail expenses and if they had contingency plans for bankruptcy. One lawmaker asked if the executives travelled to Washington in their private jets or if they flew commercially. They all indicated that they used company planes.

Although many lawmakers indicated the money would likely be forthcoming, they weren't happy about it and probably not going to vote for the proposed bailout plan. Congressional leaders are worried about who will come to congress next asking for a handout and aren't convinced that giving the automakers another $25 billion will stop the bleeding. How long will it be before they are back asking for more?

One house member raised the point that they could give 2 million small businesses $25 billion and possibly have a more positive effect on the economy than giving it to the auto companies.

Senator Bunning says he would prefer to give the auto companies money to assist them through their chapter 11 bankruptcy, hoping that a new and more efficient company emerges.

Al Qaeda mocks Obama

Al Qaeda's number 2 leader mocked President-elect Obama on a web broadcast citing a "heavy legacy and crimes await" him.

Ayman al-Zawahiri criticized Obama's foreign policy on Israel, Afghanistan and Iraq, comparing him unfavorably to 1950's and 60's activist Malcom X.

There are videos of messages including speeches from Malcom X in the taped broadcast.

The speaker says that Obama's plan to pull troops from Iraq and send them to Afghanistan "is a policy that is destined for failure before it was born."

The message says Obama is the direct opposite of honorable Americans like Malcom X. The speaker says that Obama and former and current Secretaries of State Colin Powell and Condoleezza Rice fit the description of "house slaves", a term Malcom X used to describe African Americans who were subservient to whites.

The message reiterated the call to fight Western powers in the Middle East and to be "firm and resolute". The speaker says the enemy has begun to stagger so keep hitting him.

Begich Beats Stevens

Stevens conceded the race for Senator of Alaska to the democratic mayor of Anchorage Wednesday.

Stevens was very gracious in his concession speech and wished Mark Begich well. Begich was ahead of Stevens by 3,724 votes with only 2,500 ballots to count. A recount could take place if the difference is less than .5% and Stevens would have the right to a recount regardless of the percentage difference if he paid for it himself.

Governor Palin congratulated Begich and said she looks forward to working with Mark on issues important to the State.

Stevens, 85, who was convicted for taking gifts from the oil companies and then lying about it on his financial disclosure forms said two days before the election that he hadn't been convicted of anything.

The full results will be certified the week of December 1.

The victory gives democrats 58 seats in the Senate with races in Minnesota and Georgia still to be resolved. If the democrats obtain 60 seats they would have a fillibuster-proof majority in the Senate.

Defensive Stock Plays

Many analysts would agree that in today's market there are not many areas that will have good returns in the short term. Investors need to take a long term outlook if they intend to invest in the market.

If someone wants to put some money to work it is best to purchase stocks in defensive industries which would include consumer staples. People still need to eat, even as they put of luxury purchases. Here are a couple of ideas to consider:

Campbell Soup (CPB); Family Dollar Stores (FDO); Apollo Group (APOL). These companies may do OK in a down market since they provide services that people need no matter what the economy is doing. Even though they may enjoy profits it doesn't necessarily mean their share price will increase.

Clinton - Secretary of State

Hillary Clinton would face a decision to pay off $7.6 million in debt before accepting a post as Secretary of State. The debt is left over from her presidential bid. Legally she can accept money from her Senate campaign committee account which would pay about $6 million of the debt. She can also legally continue to raise money to pay off the debt, but it would raise ethical questions that could marr her appointment.

She is not allowed to accept money from foreign governments and nationals, but she can accept money from U.S. lobbyists for foreign governments. Obama may ask his administration to follow his lead in accepting money from government sponsor coffers, which is to not use this as a source of contributions.

Rolling Back the Future

GM and Citigroup are trading at 13 year lows. Goldman is trading at 6 year lows. Housing starts are at 791,000, the lowest level on record, permits are sliding as well. Gas Prices at the pump have come down some, but not as much as the lowest futures prices since records started being kept.

GM plunges 89% YTD; Ford is down 79% YTD. Citigroup and Alcoa have both tumbled more than 70% YTD.

This is just a very small list of lows that have been happening for all stocks in the recent past. It seems that prices will continue to slide and the opportunities to accumulate stocks at the lowest prices we've seen in a generation continue to increase. Patience is required to get the best bargains. We've got a ways to go to the bottom, in this market I think it will be better to be a month late than a month early.

Other market insights:

The threat of ID theft is on the rise as web users ace a jump in 'Matware' Spyware programs.

NATO won't increase its anti-piracy fleet even as the Saudi's encourage future piracy by negotiating ransom demands with the pirates that recently hijacked their oil tanker.

Automaker CEO's testified before Congress today, GM's Wagoner said that if the auto companies fail it would be catastrophic to society. Senator Bunning would like to use federal money from TARP to assist the auto companies through the bankruptcy process, hoping they will come out of it better, more efficient companies.

NASA astronauts watched a tool bag float away as they were performing their high tech grease job. Someone apparently forgot that things float in space and didn't tether the bag.

16 banks have failed so far in 2008. Typically about 2 or 3 banks will fail in a year, none failed in 2005 and 2006.

18 November 2008

Paulson, Bernanke, Bair Testify

Today Secretary Paulson, Chairman Bernanke and Chairwoman Bair testified before the House Financial Services Committee Chaired by Barney Frank. Committee members were a little irritated by the fact they voted for a bailout package under false pretenses.

Some members felt duped by the bait and switch calling it the 2nd largest in history. The largest bait and switch was the invasion of Iraq according to one House member.

In response, Paulson said that markets changed materially. That banks were failing, events in Europe worsened and the credit spread widened. These factors justified a change in strategy for the $700 billion bailout plan.

Paulson said he feels the program seems to be working.

Bernanke said he sees some signs that the credit markets are improving, but more is needed on mortgage modifications. He also said that credit conditions are "still far from normal".

Chairwoman Bair has a system for modifying loans that the FDIC is utilizing and urges Congress to develop a plan to avoid 1.5 million foreclosures.

Paulson said he has not said no to mortgage help in the TARP, but in a prepared statement at the beginning of his testimony he said he is not in favor of using TARP funds for foreclosure mitigation because, and get this, that was not the intent for the use of the funds when he sold the concept to Congress.

One House member was very upset that a bank in his district could not get a response when applying for TARP funding. He said that the bank was in a relatively healthy position, but got the run-a-round when attempting to apply. He wondered why some banks that received money didn't even ask for it and didn't need it to survive. Paulson said that TARP funding was not designed to prop up weak banks only healthy ones and he wanted to get it to them before they needed it, not after.

This logic sounds familiar. Banks tend to lend money to people that don't need a loan and the ones that do can't get a loan. I can understand this philosophy, since banks want to get repaid and people with money are more likely to pay it back. But if you're trying to save the economy from financial collapse, giving money to healthy banks and not to banks that need some help from failing lacks logic. That's like saying bank failures won't hurt the economy. If that's the case then what was the point of TARP in the first place?

The Auto makers are seeking funding as well. Paulson says that funding for an Auto industry bailout was not the intent of TARP. TARP funding was intended to bailout the financial industry, although as we've heard from Paulson, only the healthy portion of the financial industry.

Paulson said Congress should consider modifying the $25 billion offer from the Department of Energy to bailout the Auto makers.

Paulson says there is no plans for the remaining TARP funds, yet.

In other news:

The U.S. producer prices plunged 2.8%, most on record.

Auto makers will testify before Barney Franks committee this afternoon to push for aid. In the meantime they sell assets to raise cash.

Blackrock announced job cuts for the 1st time in its history.

Home prices drop in 80% of U.S. cities due to a rise in foreclosures. Paulson says more needs to be done for homeowners.

Berkshire Hathaway trades at a 2 year low, trading below $92,000 share. Berkshire's credit risks soar on their AAA rated debt.

Airlines are looking for buyers of their idle outdated aircraft. They are being forced to absorb storage costs and are shopping emerging markets to unload excess inventory.

Idle planes does not bode well for plane makers like Boeing, whose Dreamliner delays are a major setback for the company. Shares are falling.

17 November 2008

Insider Buying

Insider buying of their own shares hit $1.4 billion in October. Usually when this happens the shares of stock in those companies rise. Between 1988 and 2007 this has happened 8 times and the market rallied each time. But this time, as with the last two times in August of 2007 and March of 2008, the market declined one month after the purchases. Maybe insiders are a little over optimistic or maybe they see their companies shares as a good value, but either way the market is punishing them.

Speaking of punishing, the SEC has charged Mark Cuban with insider trading of shares in 2004. Cuban sold 600,000 shares at that time.

In other news:

The NABE economists, 96% of them, now agree that the U.S. is in a recession with unemployment to rise in 2009 to 7.9%.

Citigroup is announced it will layoff 50,000 workers, that's down 76,000 from its peak.

Goldman Sachs announced they will forego executive bonuses. These executives have received bonuses in the tens of millions annually for years, so it's hard to feel too sorry for them. At some point you have to wonder what will I do with another 10 or 20 million. On the other hand to be fair, the costs of operating yachts and jet aircraft can be very expensive with the pilots, captains, deckhands, laborers, parts and supplies, food and don't even mention the cost of gas to get to the next hot vacation spot. Whether you feel sorry for them or not, I'm sure they won't have to worry about putting food on the table.

Credit card late payments are rising, Target's credit card late payments are rising faster than the average at 7.7%. This retailer's been in the news a little too much lately with negative news. In September and October, companies that were in the news didn't fare well.

If you are looking for a place to park some money, defensive stocks are in the healthcare and comsumer staples sectors.

Auditors are removing the "doubt" language from Las Vegas Sands audit, meaning that the audit will not contain language indicating that the Sands' operation as a going concern is in doubt. Shares of Sands rose on this news.

Auto makers have not responded well to the $25 billion offers due to the 'strings' attached. They have yet to take the money. The Senate is not likely to approve the broader bailout plan with a vote expected this week.

Obama on 60 Minutes

President-Elect Obama gave his first post election interview on 60 minutes. As expected his discussion topics centered around the economy, but he touched on a wide range of issues including a peek into his family life. Follow this link to view the complete transcript.

14 November 2008

YOUR $$$ Can Make 1,000% in 10 Months:

Buy XYZ Stock NOW to Own USA's #1 Oil Stock

Sell every major oil stock you own right now, then buy every share of XYZ stock you can get your hands on up to $X price.

Have you ever got one of these letters in the mail? Have you ever bought the stock that they were recommending?

These sales letters are well written and very compelling, but do their recommendations ever deliver what they promise? I've been getting these letters for years and I can't say I recall any stock that was ever bought out by a major company sending the penny stock skyrocketing.

I have purchased a couple of these recommendations and made some money too. But you have to be careful if you're thinking about jumping in on these risky investments. Most of these companies don't have any revenue and have never turned a profit. The sales letter is designed to push the price of the stock higher by enticing wary investors to call their broker the next day and begin buying.

I'm speculating that someone, whether it's the authors of the letter or someone else, has purchased a gazillion shares of this stock for pennies and now they are trying to get people to push the price up at which point they will start selling for huge fortunes.

I just received a letter and even though it is dated November 2008 and suggests that the stock will enjoy a spectacular rise in the next 10 months, I have received this same letter promising the same thing for the same stock over 10 months ago.

The letters are very compelling and make good arguments for why the stock should rise, but really I don't know how much, if any, of this information is true. I'd be jumping into the market completely blind by buying this stock. Sure I can do some research on the company, and I have, but usually the company is so new or has little to no financial information available, it's impossible to make a decision on that alone.

Now if you feel so compelled to try buying one of these 'shot in the dark' stocks, here's what you should look for.
Remember, these sales letters are designed to drive the price up. It's likely that when the letter was originally written the price of the stock was at or near the price suggested in the letter, but it may be higher by now, since it is unlikely that you are the first to receive this letter.

Get online and find a website that you can chart the stock symbol. I use If the stock has already risen substantially on high volume and looks like its peaked and is turning back down, then stay away from this stock unless you like losing money in the market.
If the stock has started to move higher, but has not moved up substantially, then you might be able to take some high risk money you don't care if you lose and plunk it down on this trade.
BUT, watch it carefully and do not be afraid to take your profits. This is NOT a long term trade, it is a very short term trade that could last as little as a few days. Once the stock seems to run higher in a frenzy, get out! That could be defined visually by a large intraday trading range and extremely high volume uncharacteristic of the stock.

I once was fortunate enough to get in on one of these stocks trading around $4.5 - $5 at the time. The Stock ran up to $15, I sold it at $14. It now trades for under $1 and it traded for under $1 even before the stock market wipeout.

Good trading to you.

FDIC proposes a plan to modify loans

The FDIC, in a break from Bush Administration's official stance, posted a proposed plan on its website to use TARP monies to restructure 2.2 million mortgage loans. Two days earlier Secretary Paulson rejected the idea to use funding from the $700 billion bailout monies.

The Treasury says they are aggressively searching for a solution to reduce escalating foreclosures. The Treasury says that use of the bailout money is to eventually bring a return to the Federal Government and the FDIC proposal does not meet this requirement, it's just a spending proposal.

The FDIC's plan would guarantee the 2.2 million modified loans — mainly risky loans made to borrowers with weak credit or small down payments — through the end of next year. Borrowers would get reduced interest rates or longer loan terms to make their payments more affordable.

FDIC Chairwoman Sheila Bair says that the housing market will enjoy more stability if we can avoid more foreclosures.

FDIC says that the lending industry will be more willing to back the loan modifications because taxpayers will absorb half the losses if the borrower defaults again. Also, loan servicing companies would be paid $1,000 for each loan they modify.

Clinton Mum on Cabinet Speculation

In a speech in Albany, Clinton said she was "happy there is so much press attention and interest in transit", but refused to speculate on whether Barack Obama is considering her for a cabinet post.

Clinton said, "let me just say that I'm not going to speculate or address anything about the
president-elect's incoming administration."

Still, a meeting is rumored to be scheduled and everyone awaits an announcement on whether Clinton will make her way back to Washington.

Market Insights

Here are some market headlines for November 14th.

  • Retail sales dropped most on record in October, a whopping 2.8%.
  • Freddie Mac lost over $25 billion and is seeking $13.8 billion in funding as their net worth turned negative.
  • Bernanke says that challenges remain ahead, but the worlds central bankers stand ready to respond in any way needed.
  • Buffets recent purchases of Goldman Sachs and GE are down 46% and 36%, respectively, resulting in a paper loss of over $3 billion dollars.
  • Top Republicans oppose the Auto industries proposed bailout plan, which could hasten their failure.
  • U.S. consumer confidence figures are at a 28 year low on job losses.
  • McDonalds is planning on adding 175 more stores in China as they complete their 1,000th today.
  • The Dow slides 8.5%, so far, in November, following a 14% drop in October.
  • Analysts see dividend paying stocks as the bright spots in the market as yields are very attractive due to stock price drops.

13 November 2008

Stock Market Rebounds!!!

In a 900 point swing the Dow traded below 8,000 after being positive on the open, then began a rally that took the Dow to a 552.51 point gain to finish at 8,835.17. Remarkable! Some analysts believe this reversal means the market has put in its least for a few weeks.

Volume was about 5oo million shares above average. In terms of dollars, the Dow's swing amounted to a gain of over 600 million dollars after losing more than 300 million.

It's still wise to be careful investing at these levels, but now may be the time to test the waters.

Click on title to learn how to become a better stock market trader.

Volatility Returns to the Market

The Stock Market, after opening higher, began selling off and sinking to lows not seen since March of 2003. The Dow traded below 8,000 and the S&P sank to 816. That had put the S&P on track for its worst year since 1931.

Then, out of nowhere, the market began retracing its steps and in less then 1 hour erased its loses and was actually in positive territory. By 2:30 EST the market was making new highs for the day. Volatility took a short breather, but seems to be making a comeback.

Hearing of Hedge Fund Managers

Hedge Funds managers testified before Henry Waxman, Chairman of the House Committee on Oversight and Government Reform. Hedge Funds have lost $100 billion in the last year during this bear market.

Billionaire George Soros testified that regulators should reactiveate margin requirements and blamed excessive deregulation has inflicted great losses in the hedge fund industry. Soros said that the amount of money hedge funds manage will shrink in the near term. Hedge funds need to be regulated within a framework, but warned legislators not to go overboard, Soros said.

All the hedge fund managers present supported higher margin requirements and reducing the leverage that financial institutions use to make money. They said that the high rates of leverage intensified the losses and led to capital shortfalls when market conditions deteriorated.

GM's Bailout

General Motors is seeking cash for ensure its survival. Twenty-five billion is the number being tossed around right now, but President-elect Obama says $50 billion is needed.

One Congressman says that his constituents have concerns about giving people making $75/hour with $250,000 bonuses money to save their company. He disputes claims that GM is "too big to fail" because it implies that some companies are too small to save. Saving large companies just makes them bigger and subject to higher a degree of systemic risk.

Congressman Cummings says that U.S. can't let the auto companies fail because 1 in 10 jobs in America are connected to the auto industry in some way. While Cummings is not thrilled with Treasury Secretary Paulson's bail and switch of the bailout money, he does think it is wise to change the strategy from purchasing troubled assets to providing capital to companies.

Cummings said that the auto industry needs to do some belt tightening and it needs someone to monitor the industry, kind of like an auto industry czar like Obama has mentioned. The labor unions are also going to need to cooperate if the industry is going to be able to turn around.

Bush Speaks

President Bush was speaking at the Manhattan Institute about supporting the free market system and had this to say, "I'm a market guy, but not when we're faced with a Global Meltdown". Telling people we're facing a Global Meltdown isn't very supportive. The markets began to sell off on his speech, but then recovered and continued higher. I can't wait to see if Saturday Night Live picks up on that comment.

12 November 2008

Information You May Not Have Known About Heart Attacks

Heart Attacks And Drinking Warm Water

The Chinese and Japanese drink hot tea with their meals, not cold water, maybe it is time we adopt their drinking habit while eating.

For those who like to drink cold water, this article is applicable to you. It is nice to have a cup of cold drink after a meal. However, the cold water will solidify the oily stuff that you have just consumed. It will slow down the digestion. Once this 'sludge' reacts with the acid, it will break down and be absorbed by the intestine faster than the solid food. It will line the intestine. Very soon, this will turn into fats and lead to cancer. It is best to drink hot soup or warm water after a meal. Common Symptoms Of Heart Attack... A serious note about heart attacks - You should know that not every heart attack symptom is going to be the left arm hurting . Be aware of intense pain in the jaw line . You may never have the first chest pain during the course of a heart attack. Nausea and intense sweating are also common symptoms. 60% of people who have a heart attack while they are asleep do not wake up. Pain in the jaw can wake you from a sound sleep. Let's be careful and be aware. The more we know, the better chance we could survive.

Stock Insights

Here are some stock market highlights:

  • Best Buy cuts profit forecasts
  • GM is judged as too big to fail
  • Deutsche Bank says that the TARP's $700 billion bailout can't meet the phenomenal demand
  • Russia's crime rate has risen as more citizens are carrying cash due to the world's financial crisis
  • Macy's loss is smaller than expected
  • Global economic confidence remains at rock bottom levels
  • Singapore government says they won't bailout Las Vegas' Sands project
  • The Fed says regulators are to take action when bank dividends get too high
  • Persian Gulf shares decline led by Tamweed
  • Crude oil falls to 21 month low, trades below $57/barrel
  • American Express converts to a bank holding company and seeks $3.5 billion in bailout funding
  • Here's one for environmentalists - the U.S. Supreme Court rejects concerns over whales and allows the Navy to continue use of sonar

Paulson says banks must continue to lend money to help stimulate the economy, or in case no one has told him yet, they need to start lending.

Paulson has identified three areas of uses for the remaining TARP funds. TARP which stands for Troubled Asset Relief Program has yet to use any funds for troubled assets. Now, Paulson is abandoning the plan to buy troubled assets and shift the focus to supporting asset back securitization. The second half of the $700 billion will be spent to 1) reinforce the financial system; 2) support asset backed securities and non-bank credit, i.e. credit card debt, student loans, auto loans; and 3) explore ways to reduce risks of foreclosure.

Paulson is comfortable that $700 billion is enough to get the economy back on track.

11 November 2008

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Stock Insights

  • Online Travel stocks are down 54%-74% YTD
  • Circuit City got a $1.1 billion dollar loan in a last ditch effort to stay afloat
  • The Sands in Las Vegas got a $525 million dollar loan from the Adelson Family, they seek more
  • Stillwater Mining plunges most in 5 years on lower profits
  • Starbucks retreats from its 40,000 store goal as 4th quarter profits expectations plunge
  • Goldman Sachs down 50% in last month, 70% YTD
  • Diamond prices are poised to drop for the first time in 5 years as unemployment rises

Fuel Factor

Is the drop in gasoline prices over? Historically the price at the pump is about 50-60 cents over the futures price of unleaded gasoline on the futures exchange markets. The difference in prices is due to taxes and profit margins charged by the various distributers and jobbers that move the gasoline from the refiners to the gas stations. As oil was in a free fall so was the futures price of gasoline. The price at the pump lagged, but is now closer to the historical average.

In some places in the U.S. gas at the pump is just below $2.00. Today the futures price is $1.29. Either the futures price will rise slightly or gas prices at the pump will drop slightly more. It appears that the drop would be nearing a bottom and will likely rise with any shock in the oil markets.

Stimulus Package

Analysts say that a stimulus package is needed sooner rather than later. The size of the package could approach $200 billion, but may come in two phases. It is widely held that the components of the package will be for tax cuts, infrastructure, income security and money for the States.

It would be likely that the first phase would be $75-100 billion and include cash, unemployment benefits and medical aid, while the 2nd phase would be tax cuts. If there is no package, many believe that the downward spiral the economy is currently experiencing will worsen. The hope will be that consumers spend the money this time rather than stash it in savings accounts.

Many ask how can we afford to do another stimulus package? Others respond, how can we not afford it? The alternative is a severe deflationary period. With prices so high now maybe that's not a bad thing.

Additionally, analysts believe that money should be provided to the Auto industry. Not for the Auto industry itself as much as for the suppliers that would be hurt by the Auto industry's slide. Many feel that the Auto companies made the mistakes that put them in this hole so they should take their medicine for it, but it would hurt hundreds, if not thousands of smaller companies that supply the auto companies.

10 November 2008

Government Bailout Widens

Today news of the AIG bailout re-negotiation was announced. AIG will now be getting $150 billion dollars from the federal government. The plan includes a capital investment of $40 billion which the government will receive preferred stock and a 10% dividend. Additionally, AIG only has to pay back $60 billion. That's a heck of a deal there, maybe more firms should seek government bailout funding. But that's ok because AIG believes they will be able to get good prices for the assets they plan to sell.

Who's next you ask? Well, the housing industry is looking for a bailout. It's this industry that is right in the middle of the cause of the economic collapse so if anyone should get government funding it's them. Many analysts believe the economy won't recover without the housing market turning around. You'd think this would be a priority for the government.

Fannie Mae lost $25 billion more, so they're looking for more bailout money too.

General Motors, whose bankruptcy is likely even with bailout funding from the government, is looking for $35 billion. That's more than the bailout of Chrysler in 1980.

Circuit City filed for bankruptcy today to add to a list of retailers going out of business before the holiday season is even here. They plan to stay in business while they're working on a restructuring plan. Twenty three percent of their stores are closing and they plan to layoff 7,500 workers.

Gerald Cassidy from RBC Capital Markets says that there are likely to be more problems with the top 25 banks in the 4th quarter. Regional Banks are faring better primarily because they were not big participants in the sub-prime lending market. Cassidy believes that the TARP (Troubled Assets Recovery Plan) will solve our problems...eventually.

The upcoming holiday shopping season is expected to be very weak, this could and likely will lead to more retail bankruptcies.

Have a nice day!

09 November 2008

07 November 2008

Casinos Roll a Seven Out

The economy is hitting the pocketbooks of casinos in America. Usually recessions benefit casinos because people like to take what little money they have and try to make their mortgage payment at the craps table. Not this time around. Apparently the massive scale of America's largest corporations going out of business, the rapidly increasing unemployment rate and the sinking stock market are making people think twice about throwing their wallets in casinos front doors.

The Sands Casino in Las Vegas is finding out first hand what Lehman Brothers, Bear Sterns and others did earlier this year. Their balance sheet ratios are not measuring up to the standards of their loan convenants and could be facing closure if they can't work something out with their lenders.

How long will the economic wipeout last? When will the Governements bailout plan begin to work? Or will it work at all?

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Should Microsoft purchase Yahoo?

The Microsoft/Yahoo deal has been in the news for a long time. Microsoft initially offered around $33 a share, but Yahoo thought they were worth closer to $40 a share and wouldn't agree to a sale. Investors and other big name corporate raiders believed Yahoo should sell, but they stood their ground.

Then Microsoft, apparently not into the drama, backed out of the deal.

Now Yahoo shares are selling for $12 and the owner is much more willing to look at selling the company, I don't know at what price. Microsoft, on the other hand, is not interested in the whole company, but seems interested in the search division. Is Yahoo still a viable company for Microsoft to own?

It seems that Microsoft could just go in and start purchasing shares for 1/3 the price they were willing to pay and take Yahoo over in a more hostile manner. It seems Microsoft is taking the high road, wanting to be a corporation with integrity. Yahoo, on the other hand, missed the boat the first time and now seems to be panicking. Maybe when this drama is over, Microsoft will be able to pick up Yahoo shares for under $10.

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06 November 2008

Followers list

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Stock Market Reveiw

The stock market in this election week has seen some volatile trading. This really isn't much different than we've been seeing the past month, except I really expected the market to see an Obama rally. It turned out to be a buy the rumor sell the fact type of market.

Leading up to election day everyone expected Obama to win and the market rallied in a big way. Then after the election the market tanked again. Wednesday seemed to try and hold on to its gains and move higher but there was too much resistance at the top and by afternoon the market began selling off. Thursday the market didn't waste any time heading lower, in fact in overnight trading the market was down big as well.

The markets seem to be focusing on the economy and jobs reports, which as we all know are not looking good. The holiday shopping season will become an area of focus in the coming couple of months. Shoppers are expected to spend less; some companies are already going out of business, which usually doesn't happen till after the holidays. Many marginal businesses will probably fail if shoppers cut back.

05 November 2008

Race for the Senate

Yesterday's election has indeed proved the analysts correct, it was a historic election. With the Democrats in the White House, attention turns to the Senate. The Senate has picked up about five seats so far, but they are not likely to get to the 60 number people were concerned about.

Some would like to have seen 60 democratic Senators to prevent republican filibusters, others thought it would give the democrats too much control. However it turns out, the democrats will have control and will push their policies forward. Can the democrats and republicans work together in a bipartisan manner? They've struggled with this so far, but then the republican president embraced divisive tactics and policies. Maybe with change coming to Washington, partisanship will leave as well.

How will this affect the markets? Indeed there will be some industries that benefit more than others. The energy sector will hold its own just on pure fundamentals and the fact that it will take years for any alternative energy source to come to market and challenge crude oil as a primary energy source. But many think this sector will not benefit from Obama's policies.

How about the economy in general? Can a change in policies put a bottom to the recession that is baked in the cake? Or is the mess that's been created too big for any change in the White House to stop in the short term?

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04 November 2008

Presidential Election

Media and market analysts have been calling this election the most important in modern history, a historical election no matter who won. Now we know the outcome and we have a President - Elect Barack Obama.

Democratic Presidents tend to favor policies that help middle class Americans, whereas Republican Presidents favor policies that help the wealthy, big business and the system in general.

President - Elect Obama's tax policies have been at the forefront of media discussion. He has promised to lower taxes for people who make less than $250,000 and not re-authorize the cuts that President Bush gave to people who make over that amount, which will result in an increase to those people compared to the last 6-8 years.

Certain investments will also benefit from Obama's administration, most notably "green" type businesses or alternative energies, i.e. solar, natural gas, managed health care and the automotive industry.

Obama has promised to end the war in Iraq, yet I haven't heard of any specific plan or timetable for that to happen. With the economy in shambles, it's hard to image that we can continue to support the cost of the war for much longer. Although, at the rate the Fed and Treasury are printing money, I guess it doesn't really matter.

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03 November 2008

Bailout Plan - Confidence and Faith

The real goal of this bailout is to instill confidence and faith in America's financial system. This really is why the system works in the first place. Take the provision included in the new bailout plan of raising the FDIC insurance to $250,000 from $100,000 for example. This is designed to make people think that their money is safe and there is no reason to run to the bank and take it all out. A bank run contributed to Washington Mutual's failure. If people really gave this much thought they'd realize that the FDIC has about $30 billion dollars of insurance to cover $9 trillion dollars of deposits. I don't care if they insured depositors money for $1 million dollars, if a large number of banks begin to fail depositors will lose money.

Let's take this a step further. Millions of Americans (and people around the world) go to work everyday (if you're still lucky enough to have a job) and work their perverbial rear-ends off to make money. Business owners take varying degrees of risk to earn revenue and ultimately a profit. Then everyone takes this piece of paper with ink on it we call money and gives it to someone we don't even know, with complete confidence and faith that they will give it back when we ask for it. And if they don't or can't because their business failed, then the FDIC will give it back to us.

This only works because people have confidence and faith that they can access their money when they want. In fact, money is only money because people have faith that someone will take this piece of paper and give them some goods or services for it. And that "someone" only gives goods and services for it because they have confidence that someone else with do the same for them...and on and on.

That confidence and faith is developing cracks right now and the Government is attempting to stick some putty on it. Will it work? And how will your investments be affected? Time will tell. But if history is any guide, this exciting time will provide many opportunities as well.

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Global Crisis - U.S. Bailout Plan

There is no denying that the United States, and now the World, is in a financial crisis of historic proportions. Are the days of economic superpower status are quickly fading away.

Let's quickly review what has happened in the past 8 years to get us to this point. The Federal Reserve Chairman Alan Greenspan lowered interest rates (Fed Funds) to 1% signaling an era of easing money.

So what did we do with it? It got funneled to the housing market. Americans started realizing the Amercian dream and buying houses at a blazing rate of speed. This drove up the prices of housing, but no worry's, low interest rates and banks flush with cash to lend made it easy for borrowers of moderate means to afford housing once believed to be out of reach.

Banks even lowered their lending standards making it possible for people with no down payment, little assets and small incomes to qualify for large loans with tiny interest only payments. In some cases, banks didn't even check to see if a borrower had an income. In many cases borrowers could only afford a mortgage half the size they were approved for.

Borrowers were getting adjustable rate mortgages (ARM's) that allowed them to pay interest only for the first 5 years. That made that half a million dollar home very affordable. And since housing prices were going up 20% a year there was nothing to worry about.

Fast forward 5 years. Guess what happens now. The adjustable rate resets. That means that the interest rate is going up to the current market rate. Well now, isn't it interesting that the new Federal Reserve Chairman Ben Benanke has increased Fed Funds rates to over 5% from 1%. Mortgage rates have increase as well. The new principle and interest payment these borrowers are now faced with is going to go up. Yikes, they could barely afford the low interest only payments.

What happens next sets off the worst financial disaster since the Great Depression. Borrowers can't afford to pay and they record numbers.

As more and more borrowers defaulted, banks, brokerage houses and mortgage brokers were forced to write down the declining value of their assets. This was over a half a trillion dollars and may still be going up. Almost all of the banks and brokerage houses in America lost 80-90% of their value. The stock market sold off and lost 40% of its value before stablizing, but who knows, that sell off may not be over.

In steps the mighty government. The Federal Reserve has been putting off a financial credit re-alignment for 8 years. There is no putting it off anymore. Several unprecendented money supply expansions have happened in the past eight years, but none can possibly top the expansion that occurred in September of 2008. It is estimated that the country's bailout will exceed 1.5 trillion dollars. And in the end that probably won't be enough. In fact, the only thing that will ultimately work is to let the markets re-balance themselves...except, there might be one thing that could work. Hyperinflation! That is what the Federal Reserve and the Treasury department have brought to the plate. They've expanded the money supply more than at any time in history and are willing to hyperinflate the economy to drive it out of its credit squeeze.

First, lets get the banks loaning money again to all those people that couldn't afford to pay it back before the crisis hit, then we'll deal with the hyperinflation by raising interest rates through the roof, causing even more people with ARM's to default on their loans because their payments have gone up again. Yeah, that sounds like the solution.

The Fed has lowered the Fed Funds rate to 1% again. At least banks can loan themselves money at very favorable rates, even though they have yet to do so. Us poor consumers are paying a higher interest rate today then they were one month ago, before the stock market collapse. How is that going to get consumers borrowing again? Isn't it the consumer that needs to borrow to get the economy going again?

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