Tea Leaves; in the last couple of days there have been a lot of them, so let’s start reading:The tangible parts of GS’s earnings were suspect (Investment Banking -38%, Asset Management -6%, Trading and Principal Investments -7%) while the FICC unit (Fixed Income, Currency, Commodities) showed all the gain. “Net revenues in FICC were $5.99 billion, significantly higher than the third quarter of 2008. These results reflected strong performances in credit products and mortgages, which were significantly higher compared with a difficult third quarter of 2008.” In other words, last quarter this division had mark downs and this quarter the assets were marked up. Is that a sign of a strong business or clever accounting? ECONX Industrial Production Surges
Industrial production rallied for the third consecutive month as production increased 0.7% in September. The consensus expected a much more moderate increase of only 0.2%. The jump in production was expected to be driven by the auto industry, and the sector didn’t disappoint as motor vehicle production rose 8.1% as assemblies of autos and light trucks increased 13.0% to 7.15 million vehicles.What has been the Fed’s response to all these tea leaves? Read on…

Fed’s Fisher says keep rates low, inflation not a risk - Reuters.com
Reuters.com reports the U.S. economy is recovering but the upturn will be slow and it makes no sense to raise interest rates in this climate since inflation is not a risk, a top Federal Reserve official said.(I humbly suggest someone clue in Fisher to the reality that (all together now) Inflation is a currency event, not an economic event.)

Earnings from the technology space, Intel & Google to name a couple, have been well above expectation. This could be a positive development, but of course expectations are a joke. Analysts constantly get it wrong so let’s dispense with the “better than expectations” farce. A note a caution on the Intel number and others on that end of the food chain; an inventory rebuild is occurring at an aggressive pace. This rebuild is only a good thing if consumers spend. I would be more apt to cheer a good earning number out of, say Best Buy, as that would show end user demand. Inventory build without end user demand spells trouble for the economy in Q1 of 2010.

I am loath to discuss the earning of the banks. JP Morgan and Goldman Sachs showed strong results. However, when we parse the numbers it appears that earning were again created with clever accounting.

 JP Morgan’s results were similar to GS. Should we cheer or should we be concerned with this ugly little fact buried in the announcement: “JPMorgan’s loss provision to cover current and future home loan defaults rose to $3.99 billion, while its provision for credit card losses surged to $4.97 billion”

We will choose to be concerned. However, the share prices of the financial group remain in an uptrend and while it may be stupid to believe the earning “surprises” it may be equally stupid to fight the trend of higher share prices. I would suggest you keep the above discussion in the back of your mind so when prices begin to falter you will not be the proverbial “deer in the head lights.”

A review of our investment strategy may be in order before we begin the reading of economic tea leaves. I have established over the last few months that the inflation trade is under way. Assets are inflating, both the commodity and equity markets, because of increasing U.S.$ weakness. Hence, weak economic numbers are actually positive for the aforementioned markets because the Fed can not raise rates and defend the U.S.$ while the economy is still in trouble.

So, how is the economy looking?

 The numbers were even better than the headline suggested as total manufacturing excluding motor vehicle production rose a healthy 0.5%. This includes strong growth in consumer goods excluding motor vehicles, which jumped 0.3%.

There is a drawback to the strong production numbers. We have not seen orders for manufactured goods pick up. If orders stay low we could end up with a big increase in manufacturer inventories. This would cause manufacturers to pull back on their production. If this scenario occurs, manufacturing production will see a “double-dip” as production rises today and quickly falls back in a few months.

Ok, we know from the recent spat of “good” earnings that production is up, but as we discussed this will be negative down the road if consumers don’t wake up.

How is the consumer doing…? Briefing: October University of Michigan Sentiment-prelim 69.4 vs 73.3 consensus. This was a bad miss and could spell trouble. Again I will say, this is good for stock market investing.

One reason for this bad Michigan number may be related to the on going problems in real estate as evidenced by this Fitch story…

Fitch Sees 60% of Current RMBS Borrowers Underwater

“The majority — 60% — of remaining performing borrowers within ‘06- and ‘07-vintage residential mortgage-backed securities (RMBS) bear negative home equity, meaning they are underwater on their mortgages and owe more than their houses are worth.The rating agency noted the number of non-agency borrowers 90 plus days delinquent reached 1.66m in September — the highest level on record. The rating agency expects US unemployment to peak at 10.3% in the middle of next year, further pressuring current borrowers. House prices will ultimately decline another 10% over the next year.”

“I am worried about unemployment and I see an enormous amount of slack. I hear it everywhere,” Federal Reserve Bank of Dallas President Richard Fisher told Reuters in an interview. “I am super-hawkish on inflation. I don’t think that is where the risks are right now,” Fisher said.

His comments will reinforce the impression that the U.S. central bank is in no hurry to raise interest rates,despite guarded optimism that the U.S. economy is healing. Fisher, who takes pride in a reputation as an anti- inflation policy hawk, said the U.S. central bank would not lose sight of its long-term obligation to keep price pressures at bay. But he stressed that this was not the current issue. “Right now that is not the risk. The risk is a disinflationary/deflationary risk,” he said…

Fisher, who is not a voting member of the Fed’s policy-setting committee this year, said it would take “a while” to work off excess capacity in the economy. “I don’t see a ‘V’-shaped recovery. I see a couple of quarters of growth and then the question is where do we go from there. That is the real key question in 2010 and 2011.”

Tags: central bankers, Fed, Fisher, Goldman Sachs, Google, Inflation, intel, interest rates, investment strategy, JP Morgan, new global currency, stock market investing, US$

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              Inflation concerns have been on economists’ minds since the Fed started passing drastic measures to combat our country’s troubled economy. Now, as the worst of the storm appears to be behind us, the concerns about the repercussions of our government’s monetary actions are under the microscope. The Fed’s commitment to keep the interest rate near zero for the next year has fueled speculation that other central banks will raise interest rates first—which would make other currencies more attractive than the dollar. Australia’s decision last week to raise interest rates already hurt the dollar and suggested that resource-based economies might recover quicker, and be more attractive to investors, than the United States. 

 The V-Shaped Climb 

              As manufacturing gains its footing, the stock market strengthens, housing inventories fall and retail spending returns; our economy will continue traveling up the V. However, government provides the stability in many market rebounds.  Once government funds are pulled back, the likelihood of dropping back into a recession could increase.

              Until spending is once again a consumer behavior, instead of a government one, the underlying economic problems will remain—threatening to pull us into another deep recession. In order for consumers to spend again, they are going to need to be convinced that their hours will not be cut, their jobs will not be lost and their wages will not be dropped. Of course, before they can be convinced of any of this, the unemployed will have to be reintroduced into the workforce. 

              We will continue wrestling with high unemployment numbers until business owners are confident that their products and services are once again in demand. Currently, businesses are getting by with nearly-depleted inventories. But, as consumer demand rises, business owners will beef up inventories; which will produce the need for more employees in the manufacturing industry. Business owners are scraping by with the bare-minimum number of employees. Larger inventories require new employees to sell, stock, ship and manage the products. 

              So, as consumer demand slowly returns, so too will new jobs. As we crawl out of this recession, a number of positive signs fuel consumer demand. As home prices continue to rise, homeowners will no longer be underwater and their confidence will get a boost. As the stock market continues to climb, so too will investors’ confidence. Major markets are all interrelated. Signs of growth in one market have the ability to positively impact another. The process is slow and filled with pockets of discomfort, but the climb has begun and the journey is forecasted to be slow and steady. Being patient and taking the right steps now will help our economy avoid falling down the second trap in the dreaded W-shaped recovery.  

Protecting Your Wimpy Dollar, Not Fearing it 

              Fearing inflation is a reactive investor’s behavior. This group of investors waits until something drastic happens in the marketplace that demands they respond. Active investors prefer to take more proactive measures to prepare for unappealing market conditions, such as inflation. Wise investors salt the slugs of inflation long before they have the chance to take over their gardens and devalue their investments.

              First, let us be clear that our country still may be on track to side step a nasty bout of hyper-inflation; which could cause a gallon of milk to cost a truckload of fifties. Our policy makers have to make the right decisions as we trudge through this recovery. To recognize the silver lining, an economy needs to have ultra-low unemployment levels and rising wages to effectively foster a period of hyper-inflation—both of which we are lacking at the moment. Unemployment is flirting with the 10-percent mark and real average hourly wages fell from December, when they were at their recent high point, to August at a seasonally-adjusted 1.5 percent.[1]

              Some may consider worries about inflation to be premature, but there are countless signs suggesting that the dollar will continue to considerably weaken over the next couple of years. The most concerning: Our government has borrowed hundreds of billions of dollars in efforts to hold up our banking system and this has added to our country’s already-enormous debt responsibilities. Having far too much money and too few goods is the root cause of inflation. Therefore, the biggest worry is that our government will continue to print money to pay for its extraordinary debt. Even if some experts are arguing that inflation concerns are premature, there are proactive actions an investor can take to protect his or her investments.

              Some assets rise in value during times of inflation and having a dose of them in your investment portfolio can do wonders for its performance. The following are widely-considered to be the best performers:  

·      Real estate: Traditionally, investors have used real estate as a hedge against the spontaneous performance of portfolios that are overloaded with stocks and bonds. Real-estate assets can also act as a hedge against inflation. Plus, today’s affordable prices and availability have real estate looking extremely appealing as an investment opportunity.

·      Commodities: Inflation causes the price of materials to rise. So, why not hold interest in the materials themselves? Investing in commodities through exchange-traded funds can help small investors avoid the many drawbacks that come with investing in commodities (like deciding where to store 1,000 barrels of oil).

·      Gold: With our currency no longer anchored to gold, it can lose value—and often does. The magic with gold is that it often moves opposite the value of the U.S. dollar.

·      TIPS: Treasury Inflation-Protected Securities are similar to other Treasury securities in that they are long-term IOUs that pay a fixed rate of interest until they mature. But, with TIPS, the government adjusts the payments up or down each month according to inflation levels.  

All My Best, 

Thomas J. Powell 

The discussion of investment strategies in this article should not be considered an offer to buy or sell any investment. As always, consult an investment professional to assist you in meeting your investment goals.

[1] See http://www.bls.gov/news.release/realer.nr0.htm

Tags: 10 percent, central banks, commodities, consumer spending, credit streams, Dollar, gold, hedge, hyper-inflation, Inflation, inventories, IOUs, Real estate, Recovery, TIPS, tips for hedging inflation, trade deficit, unemployment, weak dollar, wise investors

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Welcome back, today we will continue our discussion about the inflation/hyperinflation/ stagflation trade. In my last post I illustrated how the important news stories of last week clearly unveiled the footprint of the inflation trade. You may recall that I ended with the familiar refrain: “Inflation (particularly hyperinflation) is a currency event, not an economic event.”

Therefore, the investment strategy required to profit in this environment is one that begins with the close monitoring of the U.S.$ and ends with the investment in assets that appreciate in value when the U.S.$ suffers.

What is the number one asset we expect to benefit from this developing trend? I will pause here and allow long time readers, clients of RCM, and partners of the Fortune’s Favor Family of Funds the chance to shout in unison…GOLD! And as Ed McMahon used to say, “Yes, you are correct!”

With the above investment strategy in mind, I would like to continue our journey following the footprints with a recent word from a respected investment professional. One who has vast experience and in a succinct manner uses his success through the years to impart some valuable wisdom…

The Sage, Richard Russell: “…What happens next is that the cheap dollar is dumped on the market in huge quantities. When any currency or any item is created in massive quantities, that item must fall in value. And the dollar is falling. Ah, Professor Bernanke, what do you do now? To make a currency more attractive, you raise the rates that it pays. But raise the Fed Funds and you squeeze that already gasping US economy. Also, when you raise rates you raise the cost of carrying the gigantic US debt. Total public and private debt in the US is around $57 trillion. A one percent rise in interest rates would drain $500 billion each year out of the US economy….”

Well said! So what are the Fed members saying this week? Is there a will to raise rates…?

Fed’s Lacker says he doesn’t: “think we should tighten policy today”; willing to go along with purchasing full amount of long-term securities purchases for now…Seeing rise in losses from commercial real estate lending, likely to continue for a while…

No, there is no will to raise rates and to make matters worse the bulk of the commercial real estate tragedy has yet to unfold. In fact, the tentacles of the commercial real estate problem are winding around the neck of small businesses. Without small and midsize businesses recovering, unemployment will continue to get worse further impeding the Fed’s ability to raise rates…

Credit tightens for small businesses - NY Times reports many small and midsize American businesses are still struggling to secure bank loans, impeding their expansion plans and constraining overall economic growth, even as the country tentatively rises from its recessionary depths.

Most banks expect their lending standards to remain tighter than the levels of the last decade until at least the middle of 2010, according to a survey of senior loan officers conducted by the Federal Reserve Board. The enduring credit squeeze appears to reflect an aversion to risk among lenders confronting great uncertainty about the economy rather than any lingering effects of the panic that gripped financial markets last fall, after the collapse of the investment banking giant Lehman Brothers. Bankers worry about the extent of losses on credit card businesses as high unemployment sends cardholders into trouble.

They are also reckoning with anticipated failures in commercial real estate. Until the scope of these losses is known, many lenders are inclined to hang on to their dollars rather than risk them on loans to businesses in a weak economy, say economists and financial industry executives.

These developments are all U.S.$ bearish. Central bankers around the world see the writing on the wall and are moving towards the exits…

Dollar reaches breaking point as banks shift reserves - Bloomberg.com Bloomberg.com reports central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades.

Policy makers boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, according to data compiled by Bloomberg. Nations reporting currency breakdowns put 63% of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That’s the highest percentage in any quarter with more than an $80 billion increase… The diversification signals that the currency won’t rebound anytime soon after losing 10.3% on a trade-weighted basis the past six months, the biggest drop since 1991.

Meanwhile, the price of Gold has advanced roughly 22% since the beginning of the year. Our hedge fund, Fortune’s Favor Precious Metals, has exceeded the performance of gold year to date. You can review our investment philosophy as well as the quarterly and annual returns on our website: http://www.rosenthalcapital.com/.

I have received many questions recently about the sustainability of the precious metals move higher. As Gold took out the $1,000 level a menagerie of analysts and letter writers wrote of the impending doom of the Gold rally. As Gold moves above $1,050, I hear countless tales of certain failure, of commercial shorts winning the day. I LOVE THIS TALK! This type of bearishness is typical of continued momentum higher.

To sum up, I will simply reprint the headline from a recent Barron’s story: Gold Is Still a Lousy Investment By Dave Kansas. Need I say more?

Until next time, chew on this:

“It is not because things are difficult that we do not dare; it is because we do not dare that they are difficult.” Seneca, philosopher

Tags: barron's, credit tightens, gold, hyperinflation, Inflation, investment strategy, Not Categorized, small business, stagflation, US$

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Tags: alcoa, australia's central bank, commercial real estate, Fed, Geithner, hyperinflation, Inflation, obama, stagflation, Stimulus, US$

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Gold breaks out to a new high up 2.4%, Silver up 4.36%, the equity markets are up over 1.5%, and the U.S.$ is down another .66%. The inflation trade is alive and well.

I would like to begin with a quick comment on Nouriel. I have reprinted the essence of his most recent comments for your perusal:

Nouriel Roubini appears on CNBC discussing his weekend comments about stocks rising “too much, too soon”
Says there are several reasons the recovery is going to be anemic: 1) the labor market is just awful; 2) the consumer is shopped out, saving more and consuming less; 3) there is a glut of capacity; 4) the financial system is damaged with limited credit growth; 5) fiscal stimulus will become a drag by next year; and finally, overspending countries like the U.S. are spending less while spending in oversaving countries is not picking up.

While I agree with his thoughts on the economy, I feel we should avoid placing any weight behind his stock market call for three reasons:

1. The media loves to cheer Nouriel for his historic bear call on the markets last year. But you see, that’s the problem, the call is history. Now, every time the markets fall for a week or two the media trouts out Roubini for another “Dr. Doom” market call. What they don’t tell you is that he has felt the same way all year and yet the market has rallied. Point being, how helpful has his market opinion been this year?
   
2. I fear Roubini may join a long list of pundits who get it right once and make a career out of the call but they don’t help your investment career going forward. Anyone remember Elaine Garzarelli? She called the 1987 crash right and nothing else since. Or, how about Ralph Acampora and Abby Cohen? They called the bull market right at the turn of the century and had every financial network scrambling for a sound bite right at the top. Where are they now? The markets collapsed and they missed the call so Ralph loses his job and Abby gets shuffled. You see, inherent in every right market call are the seeds for failure on the next call. Successful tools that help during one market environment may not necessarily help when the environment changes and the hubris that inevitably infiltrates the minds of these “correct” pundits clouds their ability to spot the change. It is only human nature and happens to the best of us. I’m simply saying beware.
   
3. The driving force behind the equity market rally may, in fact, be something other than the economic turn around and if so then Roubini’s call will be based on the wrong issues. As I have stated many times over the last few months, we believe this market rally is building momentum because of the inflation trade (please see the Sept. 7th post for details). Roubini’s call for economic trouble plays right into our inflation trade theory and is the impetus for higher, not lower, equity prices. Those of you who are subscribers to this blog know the familiar refrain: Inflation is a currency event not an economic event. The more negative economic numbers come out, the longer easy credit will flow, the more the Fed will monetize U.S. debt and the U.S. $ will continue to weaken. This progression leads to an ever increasing exodus out of the U.S.$ into hard assets and equities that benefit from inflation or have a growth rate much greater than inflation.

Since, inflation is a currency event not an economic event, it behooves us to keep our collective eyes on the greenback. By closely monitoring the developments involving the U.S.$ we may glean some valuable insight into the direction of both the commodity and equity markets….

UUP U.S. Dollar loses ground to Euro - WSJ WSJ reports the 16-nation euro rose Monday against the U.S. dollar despite attempts over the weekend to boost the strength of the American currency. The euro bought $1.4648 in morning European trading, up from $1.4588 late Friday in New York. The British pound rose to $1.6010 from $1.5919 in New York, while the dollar rose slightly to purchase 89.77 Japanese yen from 89.63 late Friday.

The dollar weakness came even after finance ministers from the Group of Seven wealthy nations talked up the currency amid fears it could fall farther and disrupt the global economy. U.S. Treasury Secretary Timothy Geithner and France’s Christine Lagarde stressed the need for a strong dollar. Mr. Geithner said it’s “very important for the U.S. that we continue to have a strong dollar,” while Ms. Lagarde said “we need to have a strong dollar .. volatility is not welcome.”

…When world leaders assemble to talk about supporting a currency and the currency breaks down anyway often an inflection point is rapidly approaching. During the collapse of the British Pound in 1992, British central bankers repeatedly stressed the desire for a strong currency much like “Pinocchio”, I mean Geithner, has over these many months.

Norman Lamont was the British “Pinocchio” from 1990 -93. He famously announced he would borrow $15 billion to defend Sterling right before the ultimate devaluation of the currency. At the time George Soros was short $11 billion worth of the Pound sterling and pocketed a cool $1 billion on the day of the devaluation. I only wonder what Geithner will say right before the ultimate fall? (Click for Soros‘ opinion on the U.S.$ today)

I love the smell of fresh denial in the morning….

Saudi central bank says report on replacing dollar is wrong - Reuters Reuters reports newspaper report that Gulf Arab states are in secret talks to replace the U.S. dollar in the trading of oil is wrong, Saudi Arabia’s central bank chief said on Tuesday. Asked by reporters about the story in Britain’s The Independent, Muhammad al-Jasser said: “Absolutely incorrect.” Asked whether Saudi Arabia was in such talks, he replied: “Absolutely not.” The Independent quoted unidentified sources as saying Gulf Arab states were in secret talks with Russia, China, Japan and France to replace the U.S. dollar with a basket of currencies in the trading of oil.

Tags: euro, gold, Inflation, nouriel roubini, Saudi central bank, silver, soros, U.S. Dollar, US$

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Reasonable Regulation: That’s Allstate’s Stand

            Many companies involved in financial services cower when an official of any stature mentions the threat of national regulation, but Allstate has decided to embrace it. Since late April, Allstate has been pushing an advertising campaign that is rooted in support for creating a national regulation agency for all players in the financial industry, including insurance companies. Each ad in the four-part series, which runs in major magazines such as The Atlantic, touts the common theme of calling on “Congress to act boldly and quickly in drafting strong, comprehensive and clear federal regulation.”[1]

             Under the current system, insurance companies are regulated on a state-by-state basis, something that Allstate CEO Tom Wilson thinks needs be changed. In a national press release, Wilson argued:

 The American consumer is burdened with a patchwork of insurance regulatory systems that are cumbersome and ineffective in managing risks in an era of rapid change and innovation. American families need better protection from systemic risks and access to products and services that will help better manage their financial futures.[2]

            Allstate’s push for a national regulation system is bold. The campaign appears to be having an impact as the Obama administration has started tackling a number of vital decisions that could ultimately lead to national regulation for all financial services. President Obama himself may not have been directly affected by Allstate’s campaign, but according to PRnewswire.com at least one Congressperson has received more than $20,000 in campaign contributions from Allstate over the past four years. Clearly Allstate has identified the potential benefits that would come bundled with national regulation.

            One group that stands to be trapped and bound by the regulatory net of a national system is the stock brokers on Wall Street. The Obama administration has proposed a plan that would hold brokers to the stricter fiduciary standards of registered investment advisors. Under this plan, brokers would be required by law to act in their clients’ best interests, not their own. Also, with each piece of investment advice, brokers would be obligated to disclose what they stand to gain personally. A plan to implement a complete regulation overhaul is sure to be cumbersome and will take time to be implemented effectively. The Obama administration would be wise to have patience with this reform and comb through all of the complexities before attempting to have anything signed into law.

 At the end of the day, the federal regulatory overhaul will aim to force those in the financial system to be more transparent, something the Allstate campaign clearly addresses: “Only when there is transparency around valuing the risk in the financial system—including the role of insurance to help mitigate that risk—will we regain confidence in the economy.”[3]           

To view all of the Allstate advertisements in their entirety, visit allstate.com/fedreg.

Commercial Real Estate’s Role in the Next Bailout

            Banks have had little to celebrate over the past 20 plus months. Still dizzy from the debacle caused by residential real estate, banks nationwide fear the devastation that could soon be unleashed by the rising number of foreclosures in commercial real estate.

            The banks which provided the money to build endless numbers of commercial buildings originally did so because they, like so many others, believed occupancy and rent rates would always consistently rise. But, many owners of commercial buildings are now fueling another wave of foreclosures because they are not able to generate enough cash from tenants to cover their principal and interest payments. Because the loans have also been bundled and sold on Wall Street as commercial-backed mortgage securities (CMBS), the foreclosed buildings spark a ripple effect. Anticipating the severe consequences this could have on our economy, the Federal Reserve is struggling to contain the situation and prevent the need for a second wave of bank bailouts.

            According to Deutsche Bank, about $153 billion in loans that make up CMBS will come due by the end of 2012. The vast majority of these will not be eligible for refinancing through their lenders because the values of the properties have dropped so dramatically.[4] The losses will potentially cripple not only the owners of the commercial properties, but also anyone holding CMBS. Furthermore, because CMBS typically help drive pension and hedge funds, the pain will be widely spread.

            The only positive side of this mess will be the number of affordable investment opportunities for those looking to get into commercial real estate. Commercial real estate does perform in the long haul. But, because of the onslaught of new commercial buildings that sprouted in recent years, we are now experiencing an uncomfortable rebalancing of the industry. Loans that were made on loose credit and then bundled by Wall Street into dicey investment vehicles are all being exposed. However, the underlying properties are not rotten; they still make for sound investments.

            Like the residential market, the commercial real-estate industry was saturated with quick deals that turned sour because they were not thought through. Now, because the consequences stretched so far, the commercial real-estate industry has to be turned upside down and untangled. Although the untangling process will be turbulent, it will also be exposing an array of investment possibilities. Commercial real estate provides the venues for consumer spending. As the economy slowly recovers, so too will the demand for prime commercial real estate—something that will be readily available and reasonably priced in the immediate future.  

Keep Health Care in Our “Best Interest”

            I have been reluctant to bring the argument of national health-care reform to the Powell Perspective because it does not necessarily pertain to real estate, finance or investing. But, national health-care reform has the potential to have drastic impact on our economy, and for this reason I believe it deserves attention here.

            I have been convinced to raise this issue after overhearing a 20-something at the gas pump discuss the issue with someone of similar age. “Man, the whole thing is no big deal, I mean how often do we really go to the doctor anyway?” he said. As I drove off, I realized that the young man, healthy and probably feeling somewhat resilient, was simply not interested in the topic. He wanted to be able to disregard the topic so he could have more attention to focus on the issues that had a more immediate impact on him.

            This week will bring an important turn in the debate over national health-care reform. The Obama administration has committed itself to rethinking the plan before the President is scheduled to address Congress on September 9^th. President Obama is now going to be leading the arguments that he has been able to mostly sidestep thus far. What has me concerned is that the administration will recognize what I did while pumping my gas: The youth do not care. If the Obama administration addresses this and rebrands the issue to somehow get the youth behind it, then the approval rating for health-care reform could skyrocket. The same demographic that helped the President win the office, could now help direct a national issue that they may not be truly interested in for another 20 years. On the other hand, maybe it is time to address the demographic who will still be paying for this change long after we are gone. After all, the people that currently have a vested interest are at a standstill after becoming equally heated on both sides of the issue.

            Since its appearance in the Obama administration’s limelight, health-care reform has done nothing but become more complex. The plan is unclear. No one knows what it will look like, we only know what the media reports: We’re currently 37^th in the world in health-care quality. Death panels will dictate how long we live. The President will personally pull the plug on our grandma. If there are details to this administration’s plan, then they have all been shadowed by heated talk show hosts’ attempts to get the public screaming about something no one knows about.

            On September 9^th President Obama is going to be forced to add some structure to his administration’s plan. Thus far, no one has been able to dissect and discredit the plan because it has only taken shape through various town hall meetings and informal gatherings. In his first address to Congress since February, President Obama will be talking exclusively about health care. This national issue is going to take rigid leadership from the President. If he wants to make any progress he is going to have to involve the nation by getting the young to care and the old to stop shouting at one another and listen.

Tags: 60-40 split, advertising, advertising campaign, Allstate, alternative asset class, alternative investments, bailout, Bank, Basis Points, benefits, Bernanke, Billion, bold, business week, Cash For Clunkers Part One: Good For Business?, cmbs, commercial real estate, commerical backed mortgage securities, Compounding Interest, confidence, Congress, contrarian investing, Credit, deutche bank, due diligence, economics, economy, ELP Capital, fiduciary, Finance, financial, Financial Future, Financial services, forbes, Geithner, harvard business review, Harvard Real Estate, health care reform, health-care, Hedge against inflation, Inflation, Investing, investment advice, market fluctuation, Money, Money Market, national regulation, newsweek, obama administration, Paulson, Piggy Bank, President Barack Obama, principal and interest payments, private investing, Putting cash to work, Putting Money to Work, Real estate, real estate asset class, real estate assets, real estate trends, Resources, Retirement, risk analysis, Ronald Reagan, Rule of 72, scared, Short Sales, Smart Money, Standing In The Rain, stock and bond split, tangible assets, The Atlantic magazine, The Powell Perspective, Thomas J. Powell, thomas powell, tom powell, Tom Wilson, traditional investment, transparency, Trillion, Trust, Trust But Verify, volatility, Wall Street, Wall Street Journal

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Stats Won’t Save Us

Every day, and every minute somewhere on the Web, another statistic that hints at an economic recovery is reported, copied, translated, manipulated and reevaluated. It seems for every positive up tick in economic numbers, there is also a negative. We have been experiencing shaky times for the past 20 months. Every sector is not going to at once join together on an all-knowing graph somewhere and move together as one gradually-rising black arrow.

Stats are meant to give us market indication. “Experts” on the economy make sense of the stats by attaching other positive attributes to them without any solid proof. In social psychology, it is similar to how the halo effect works: If I see Bob Somebody helping an old lady cross a busy intersection, then I automatically believe Bob to be a good person; without having any solid proof. Helping the elderly in dangerous situations is good, I saw Bob do that, so Bob must be good. Similarly, the media tells us recessions are scary and bad, positive things do not happen in recessions; therefore a positive up tick in one sector must mean we are out of the bad recession and into the good recovery. Experts link good news with other good news without any solid proof.

Earlier this month, Newsweek ran a cover that pictured a big red balloon which read “The Recession is Over!” The cover and its related story caused a small uproar that resulted in criticism from President Obama. Although the cover story was meant primarily to sell magazines, the author did make a solid point: “… when economists proclaim a recession over, they’re celebrating a technicality: they mean economic output has stopped contracting.”[1] When the economy stops contracting, it does not simultaneously return to the rising rates we experienced in the years prior to this recession.

The reporting of numbers, percentages, graphs and ratios should only be taken for face value. We use them as indicators, as ways to gauge where we are and the possibilities of where we could be heading. Be aware that we are approaching a period that is sure to be overflowing with economists eager to be the first to accurately predict the recovery by accident. Statistics will punctuate every news story you ingest. A small increase over a quarter is no reason to speculate and sink loads of savings into any financial market. The recovery will come. As we work towards it, I encourage you to stick with the basics. Own stocks that make sense. Consider incorporating alternative investments such as real estate into your portfolio not only because of their soundness, but also because they work as a wonderful hedge against inflation. Pay off debt. Adapt to the times. And, most importantly, focus on those things in your life that you care about the most.

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In today’s article: “Taleb offers a universal solution to our ills” (Published July 14, 2009 at 10:46 AM “THE DEAL”) Prof. Taleb, author of “The Black Swan,” a book about the likelihood of outlier events otherwise believed to be improbable, profers a solution to the current debt and liquidity malaise.  He says to make a mandatory conversion of all public and bank debt to equity for what I infer solves an “agency” dilemma or moral hazard.

First, I perceived back in Summer 2007 in articles posted on Albourne Village that the growth of the C.O. market with its corresponding fraudalent price discovery structure and boundless creation of synthetics already doomed the banks and would result in money center bank nationalization and subsequently result in the creation of a world currency displacing the USD and the Fed.

Taleb has his own views of predicting Black Swans, but as a student of Financial Risk (GARP) I recognize two things: