Anyone who hasn’t been hiding under a rock during the past few weeks has heard of O’Bama’s healthcare reform bill. The basics of the bill are that healthcare be provided to at least 97% of the population. The tab for this overhaul is in the $600B range. The idea is that the bill will reduce the cost of treatments and medicine, which will reduce the premiums charged by healthcare providers. This means that folks with current health insurance will see a reduction in their premiums and folks that don’t have health insurance will have a choice of new and affordable plans. There are a myriad of other factors that go into this reform, such as making insurance companies accountable and increasing the competition. Also, the goal seems to be a McDonaldization of hospitals and other health care facilities. Basically, that means that no matter what hospital you go to, you’ll receive the same high quality care as any other place. One funny detail is the plan wants to require insurance companies to cover pre-existing conditions.
I, personally, have a few problems with this. One, the bill suggests that having health insurance is a “right”. The last time I checked the Constitution, it made no mention of health insurance being a right to every American citizen. There are people out there who take terrible jobs, simply because of the health coverage. It is not a right. Only about 60% of the jobs in this country offer health insurance as a benefit. The cost that this plan will have is going to be spread out amongst everyone in the form of increased taxes. The $600B price tag is simply the tip of the iceberg in terms of cost.
I am in favor of the tax on the “wealthy”, since there are so many loopholes in the tax code that the average percentage of taxes paid by the richest 1% in the country was about 17%, which is roughly the tax bracket shared by the average middle class person. Since the top 10% control 50% of the assets in the country, let them pay a few percentage points more. They can afford it and it will not affect their standard of living whatsoever.
To sum this up, O’Bama is 1/8th the way through his term and I did have high hopes for him. However, I give him an “A” for effort, but his ideas and performance are a lowly “D-“. Luckily, I’m and individual and my opinion means nothing in the grand scheme of things. Unfortunately for Bam Bam, if what he has put in motion does not yield any fruit in the next two years, we will have seen our first single term president since G.H. Bush (unless Palin gets the GOP nomination, then we’ll get him for another four years). Even if his plan does produce good results in the short-term, the full consequences of his actions will not be realized until well after he is gone from office. It will be a bit like the financial meltdown we are going through can be attributed to Clinton and not G.W. Bush, even though he is still an idiot.
So, what can we take away from all of this that can be used to our advantage? That’s as tough a question as there is at this point. You are kind of “damned if you do, damned if you don’t.” Staying totally in cash will subject you to inflation risk. Going all in the market can leave you open to market risk, especially since the jury is out on whether the economy is going to make a recovery sooner or later. Going all into bonds leave you open to interest rate risk. The yields are high, but the bigger issue is the reclassification of bond ratings that has taken place recently. You must understand the risk and weigh that against the interest rate. The spreads are still very large, so there is a lower risk than normal, but you still have to be vigilant in your research of the bonds you intend to purchase. As for myself, I’m still sitting on the side of the pool with my feet in the water; debating on whether I’m going to dive in or just wade in. It is times like this (and forgive me for sounding like a broken record) when flexibility is the key to being prepared for anything.
The market is approaching 9,000, but do not bet on it being at that level by the close of the year. Also, try not to look at the market overall, but rather the stocks you hold. Understand all the sectors and the industries within.
Wednesday, July 22, 2009
Tuesday, July 14, 2009
So……What Now?
It seems that everything is currently in a holding pattern as far as the market and the economy are going. The air breaks have been slammed and the free-fall is screeching to a halt. The question is, “When and will it reverse course? Let’s take a look at some of the big issues going on currently.
The answer is yes, no, soon and not for years, depending on what you are talking about. Let’s take the hottest topic that is currently being thrust into the news: Unemployment. Yes, it will reverse course and it will soon. However, the rate has a little further to go before we see it come back down. Bam Bam stated that if Congress put his stimulus plan through back in January that the unemployment rate would not increase beyond the then 8% rate. Oops! We are currently at 9.5% despite the approval of the stimulus plan. Most experts are calling for the rate to reach 10% or the popularly vague estimate of “double digits”. I’m calling for 11.5% is where it shall peak by the end of 2009. Despite new jobless claims that have been recently reported, many folks are taking temporary, part-time and contract jobs. To me, these jobs are short-lived and mask the true seriousness of the unemployment situation. When the market comes back, it will take time for companies to shore up their finances, before they start expanding again and adding jobs.
Next up is the housing market. Yes, housing prices overall will come back up, but they are likely to hang at these low levels for a long time (3-5 years), before you see any significant increase in home prices. This is good for folks that are starting their working careers and are looking to purchase a home. The lagging prices will present excellent buying opportunities, but on the flip side, more money down is required and credit isn’t as plentiful as it was back in 2006. It’s tough for folks who are retiring now, because the baby-boomers on average have about 60% of their net worth tied up as equity in their home. The dreams of retiring, selling their home and moving to a tropical location may not happen or will have to be put on hold. These folks got it from multiple sides, with their 401(k) getting spanked as well as the equity in their home shrinking at an alarming rate. Hopefully, they were diligent over the years to build up a healthy savings to access while their investments recover, rather than having to liquidate or move their investments around thereby taking either a realized loss or a paper loss.
Last up is the stock market. Yes, it will reverse course, but not as soon as you would like. The market will remain pretty flat for the rest of 2009. We should see a small recovery, but the market will be deflated for next few years before a significant and sustained rally occurs. Americans have changed the way they handle money. More folks are saving, which means less money is being put in the market, which should keep prices low. This offers a wonderful opportunity for anyone willing to continue to invest. The market should recover a little ahead of the housing market, but for now, we’ll have to wallow in this for a bit. But, remember to take advantage and keep buying, but also do your home work.
The answer is yes, no, soon and not for years, depending on what you are talking about. Let’s take the hottest topic that is currently being thrust into the news: Unemployment. Yes, it will reverse course and it will soon. However, the rate has a little further to go before we see it come back down. Bam Bam stated that if Congress put his stimulus plan through back in January that the unemployment rate would not increase beyond the then 8% rate. Oops! We are currently at 9.5% despite the approval of the stimulus plan. Most experts are calling for the rate to reach 10% or the popularly vague estimate of “double digits”. I’m calling for 11.5% is where it shall peak by the end of 2009. Despite new jobless claims that have been recently reported, many folks are taking temporary, part-time and contract jobs. To me, these jobs are short-lived and mask the true seriousness of the unemployment situation. When the market comes back, it will take time for companies to shore up their finances, before they start expanding again and adding jobs.
Next up is the housing market. Yes, housing prices overall will come back up, but they are likely to hang at these low levels for a long time (3-5 years), before you see any significant increase in home prices. This is good for folks that are starting their working careers and are looking to purchase a home. The lagging prices will present excellent buying opportunities, but on the flip side, more money down is required and credit isn’t as plentiful as it was back in 2006. It’s tough for folks who are retiring now, because the baby-boomers on average have about 60% of their net worth tied up as equity in their home. The dreams of retiring, selling their home and moving to a tropical location may not happen or will have to be put on hold. These folks got it from multiple sides, with their 401(k) getting spanked as well as the equity in their home shrinking at an alarming rate. Hopefully, they were diligent over the years to build up a healthy savings to access while their investments recover, rather than having to liquidate or move their investments around thereby taking either a realized loss or a paper loss.
Last up is the stock market. Yes, it will reverse course, but not as soon as you would like. The market will remain pretty flat for the rest of 2009. We should see a small recovery, but the market will be deflated for next few years before a significant and sustained rally occurs. Americans have changed the way they handle money. More folks are saving, which means less money is being put in the market, which should keep prices low. This offers a wonderful opportunity for anyone willing to continue to invest. The market should recover a little ahead of the housing market, but for now, we’ll have to wallow in this for a bit. But, remember to take advantage and keep buying, but also do your home work.
Wednesday, July 1, 2009
A Look Back on the 2009 Predictions
Well kids, it’s half-time for 2009. I made few predictions back at the beginning of January and I thought I’d take a moment and revisit those predictions to see how my Nostradamian abilities have fared thus far. And……away we go!!
Predictions
Bernie Madoff Ponzie Scheme will exceed $50B- As the final answer could take years to figure out considering if the value of losses should be based on actual investments or the valuations of the fake investments. Honestly, I’m not sure why they are even debating this, but it would seem the actual money invested should be the given valuation. So far, investigators and the SEC have increased the losses to $65B in the past couple of months. So far, I’m partially correct, but that could change either way.
Nationwide Increase in Tolls- A few states have announce state wide toll increases, however, the increases are nothing out of the ordinary and certainly not a nationwide epidemic. I assumed an increase would occur in order to offset tax revenue reductions from employment and sales taxes. Still six months left to change.
Worldwide Number of Billionaires Falls Below 1,000- Unless there is a massive rally in the markets around the world, I should be just fine. The number at the beginning of the year was about 1,125 and as during the month of May, it was announced the number fell below 800. I should be safe on this one.
The British Pound will fall below the US Dollar in value- It is a good thing I’m not trading in currencies. Yahoo Finance posted the exchange rate as $1USD equal to 0.681 British Pounds at the beginning of 2009. It has come down a little and currently sits at 0.610. The British Pounds has not nosedived (yet) and the US Dollar is sucking a little more than I thought. With no interest rate hike in the near future by the Fed., I will most likely be wrong.
The Dow Will Break Through 7,000 in the First 100 Days- I was very accurate with this prediction. I was scary accurate last fall when I said the DOW would bottom around 6,500 sometime during the late 1st Quarter of 2009. March 9th, it closed at a low of 6,440.08. It closed below 7,000 on March 2nd for the first time at 6,763. No magic formula for that prediction; just a gut feeling and a little bit of luck.
More Ridiculous Bailouts For Big, Stupid Companies That Suck- I’ve actually stopped keeping track. Unless you’ve been living under a rock for the past six months, you know this one is dead on. Anyone could’ve predicted that. The scary thing is the amount of money outlay has heighted the threat of inflation. The really scary thing is that the Fed isn’t going to hike the interest rate in the near future and they stated they do not feel inflation is a threat. Wow, wow, wow, wow, holy F’ing WOW!!
One of the “Big 3” Auto Companies Will Fail or File For Bankruptcy- In most cases, 2 out of 3 ain’t bad, but when we are talking about the Big 3 filing for Bankruptcy protection; well, it’s bad! I should’ve left the fail part out, because I knew the Gov’t wouldn’t let any of these idiot companies go out like Bear and Lehman, no matter how much money they had to print!
At Least One European Country Will Drop the Euro- No one yet, but I’m still betting on Italy to be the first and go back to the Lire. Don’t count out Spain, Germany or Ireland, either.
Predictions that Most Likely won’t Happen in 2009
England will default- If the British Pound goes down, this will happen, but no real danger, yet.
AIG will Fail- As long as the Gov’t is still handing out monopoly money quantities of bailout money, AIG should be safe.
Unemployment will reach 20%- As of now, we’re hovering in the 10% range, which most economists are saying will be the peak. Unless something huge happens or they start computing the rate the way it used to be prior to “Wild Bill” (Clinton), then this number is unlikely.
Oil will Drop Below $25- I was close just over $32 was the low. It is sitting at about $70 currently and should settle somewhere between $80-$90 by the end of the year, unless something very unexpected happens.
China’s Economy will Blow Up (Not in a Good Way)- I’m still convinced that China is the most overrated economic producer in the world. If the US Dollar experiences high inflation, you could see some black clouds hovering over China, since they are sitting about ½ Trillion in US Treasury Bonds. Their record keeping and earnings reporting guidelines are poor, which can lead to easy book cooking and other sketchy ways of reporting company financials.
Housing Market Recovers- At this point, it seems as though the housing market has stopped the freefall in prices, but a recovery of the losses sustained over the past 18 months is much further off. The market has basically stabilized and hopefully will resume the historic 6% average annual appreciation.
Oil Exporters will Figure Out how to Protect their Tankers from Pirates- I’m still sticking by my idea of Bo and Luke Duke riding shotgun on these things and when a speed boat approaches, they crank back their bows and blow these guys out of the water. I would have suggested the A-Team, but they apparently aren’t best shots around. How can it be that during the shows run, they failed to actually shot anyone despite firing about 2,000 AK-47 rounds per show at the bad guys? The only way they would work is that the sun glistening off of Mr. T’s gold chains might blind the speed boat driver and end up crashing into the side of the tanker. Face it (no pun intended), since Hannibal has been deceased for 15 years, no one is around to devise a solid plan to foil the would-be pirates. Even if he was still around, smoking cigars on an oil tanker is probably not the safest thing.
The National Debt Reaches $15 Trillion- Still not likely, but we are now sitting at a smidge under $11.5 Trillion instead of smidge under $11T. Unless a wave of massive bailouts happen, which is very unlikely, then we will not come close to $15T. Unless things change, we will reach that mark in the near future.
The Government Issues Another Stimulus Payout- No word on whether any payout will be given. The government is more concerned with keeping unemployment at bay, rather than giving out $600 checks to everyone in hopes that they’ll visit the mall and spend it.
Gold will Top $1,000 per Ounce- Gold is currently at about $940 per ounce. The price has been driven up due to investors using it as a hedge against inflation, rather than going with defensive stocks. This shows that until investors feel confident about the market, the price of gold could still go higher.
Keep an eye on these for the second half of 2009.
Predictions
Bernie Madoff Ponzie Scheme will exceed $50B- As the final answer could take years to figure out considering if the value of losses should be based on actual investments or the valuations of the fake investments. Honestly, I’m not sure why they are even debating this, but it would seem the actual money invested should be the given valuation. So far, investigators and the SEC have increased the losses to $65B in the past couple of months. So far, I’m partially correct, but that could change either way.
Nationwide Increase in Tolls- A few states have announce state wide toll increases, however, the increases are nothing out of the ordinary and certainly not a nationwide epidemic. I assumed an increase would occur in order to offset tax revenue reductions from employment and sales taxes. Still six months left to change.
Worldwide Number of Billionaires Falls Below 1,000- Unless there is a massive rally in the markets around the world, I should be just fine. The number at the beginning of the year was about 1,125 and as during the month of May, it was announced the number fell below 800. I should be safe on this one.
The British Pound will fall below the US Dollar in value- It is a good thing I’m not trading in currencies. Yahoo Finance posted the exchange rate as $1USD equal to 0.681 British Pounds at the beginning of 2009. It has come down a little and currently sits at 0.610. The British Pounds has not nosedived (yet) and the US Dollar is sucking a little more than I thought. With no interest rate hike in the near future by the Fed., I will most likely be wrong.
The Dow Will Break Through 7,000 in the First 100 Days- I was very accurate with this prediction. I was scary accurate last fall when I said the DOW would bottom around 6,500 sometime during the late 1st Quarter of 2009. March 9th, it closed at a low of 6,440.08. It closed below 7,000 on March 2nd for the first time at 6,763. No magic formula for that prediction; just a gut feeling and a little bit of luck.
More Ridiculous Bailouts For Big, Stupid Companies That Suck- I’ve actually stopped keeping track. Unless you’ve been living under a rock for the past six months, you know this one is dead on. Anyone could’ve predicted that. The scary thing is the amount of money outlay has heighted the threat of inflation. The really scary thing is that the Fed isn’t going to hike the interest rate in the near future and they stated they do not feel inflation is a threat. Wow, wow, wow, wow, holy F’ing WOW!!
One of the “Big 3” Auto Companies Will Fail or File For Bankruptcy- In most cases, 2 out of 3 ain’t bad, but when we are talking about the Big 3 filing for Bankruptcy protection; well, it’s bad! I should’ve left the fail part out, because I knew the Gov’t wouldn’t let any of these idiot companies go out like Bear and Lehman, no matter how much money they had to print!
At Least One European Country Will Drop the Euro- No one yet, but I’m still betting on Italy to be the first and go back to the Lire. Don’t count out Spain, Germany or Ireland, either.
Predictions that Most Likely won’t Happen in 2009
England will default- If the British Pound goes down, this will happen, but no real danger, yet.
AIG will Fail- As long as the Gov’t is still handing out monopoly money quantities of bailout money, AIG should be safe.
Unemployment will reach 20%- As of now, we’re hovering in the 10% range, which most economists are saying will be the peak. Unless something huge happens or they start computing the rate the way it used to be prior to “Wild Bill” (Clinton), then this number is unlikely.
Oil will Drop Below $25- I was close just over $32 was the low. It is sitting at about $70 currently and should settle somewhere between $80-$90 by the end of the year, unless something very unexpected happens.
China’s Economy will Blow Up (Not in a Good Way)- I’m still convinced that China is the most overrated economic producer in the world. If the US Dollar experiences high inflation, you could see some black clouds hovering over China, since they are sitting about ½ Trillion in US Treasury Bonds. Their record keeping and earnings reporting guidelines are poor, which can lead to easy book cooking and other sketchy ways of reporting company financials.
Housing Market Recovers- At this point, it seems as though the housing market has stopped the freefall in prices, but a recovery of the losses sustained over the past 18 months is much further off. The market has basically stabilized and hopefully will resume the historic 6% average annual appreciation.
Oil Exporters will Figure Out how to Protect their Tankers from Pirates- I’m still sticking by my idea of Bo and Luke Duke riding shotgun on these things and when a speed boat approaches, they crank back their bows and blow these guys out of the water. I would have suggested the A-Team, but they apparently aren’t best shots around. How can it be that during the shows run, they failed to actually shot anyone despite firing about 2,000 AK-47 rounds per show at the bad guys? The only way they would work is that the sun glistening off of Mr. T’s gold chains might blind the speed boat driver and end up crashing into the side of the tanker. Face it (no pun intended), since Hannibal has been deceased for 15 years, no one is around to devise a solid plan to foil the would-be pirates. Even if he was still around, smoking cigars on an oil tanker is probably not the safest thing.
The National Debt Reaches $15 Trillion- Still not likely, but we are now sitting at a smidge under $11.5 Trillion instead of smidge under $11T. Unless a wave of massive bailouts happen, which is very unlikely, then we will not come close to $15T. Unless things change, we will reach that mark in the near future.
The Government Issues Another Stimulus Payout- No word on whether any payout will be given. The government is more concerned with keeping unemployment at bay, rather than giving out $600 checks to everyone in hopes that they’ll visit the mall and spend it.
Gold will Top $1,000 per Ounce- Gold is currently at about $940 per ounce. The price has been driven up due to investors using it as a hedge against inflation, rather than going with defensive stocks. This shows that until investors feel confident about the market, the price of gold could still go higher.
Keep an eye on these for the second half of 2009.
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