Obama dream team

This weekend Obama passed with flying colors.

President Elect Obama seems to have begun to act like the next president with effective actions and hope replacing previous weeks of vapid change monologues and economic fear finger pointing.

Lame duck president Bush has now become calculatingly negative but no one listens to him any more. This weekend at the Asian Economic Summit he said protectionism leads to the "D" word. This is something everyone in the room learned in third grade and was the first time he was broadly reported using the "D" word. Usually he is more responsible. If he sticks his foot in his mouth again like that... then President Elect Obama can ram it down his throat and say President Bush's white knuckled fear mongering is hurting America. It is time for these leaders to put up or shut up and stop trying to always blame someone else or terrorize the financial community just to seem more important and powerful than others.

The bailout of the incompetent management of Citicorp would normally mean a down day for the economic markets today but the new leadership and positivism of President Elect Obama and his dream team may wash away that bad news.

Japan is the fragile canary we use to test if the air in the financial coalmines is fit to breathe. Japan's market faltered first last year and led us down into this bear market. Now Japan seems to be showing evidence of having completed a market bottom. Most European markets are now giving ambiguous signals due to the high volatility, but Asian markets seem to be more accustomed to the volatility and are showing a better indication that the market bottom has now been established.

Today we will see if the failure of the lower resistance levels in American and European markets last week was a classic head fake to shake out the last of the panic sellers. Anyone with a brain now would be hesitant to short this market with equity values now at historic highs putting the risk of an earth shaking rally at an all time high.

We estimate that a rally now could easily extend to between 25% and 30% in its first spike-up and beautify and perfume the current dismal fund results heading into the year-end fund reporting period. And we have the recent calm measured and intelligent leadership of President Elect Obama to thank for a more positive national outlook. That market rise is consistent to a rise to the traditional 200 day moving average resistance level and as large as it seems it would still be a bear market. A bull market would have the the lower not the upper resistance level at the 200 day moving average resistance level.

The movers and shakers of the world see Obama and are shaking.

President Elect Obama continues to subconsciously undermine the economy.

"The great difference between those who succeed and those who fail does not consist in the amount of work done by each but in the amount of intelligent work. Many of those who fail most ignominiously do enough to achieve grand success but they labor haphazardly at whatever they are assigned, building up with one hand to tear down with the other. They do not grasp circumstances and change them into opportunities. They have no faculty for turning honest defeats into telling victories. With ability enough and ample time, the major ingredients of success, they are forever throwing back and forth an empty shuttle and the real web of their life is never woven."

Og Mandino

Wake up!Americans are beginning to see what Obama has been doing. He is like a new misguided purchaser of a restaurant who is so ambitious, so calculating, and so confused that subconsciously he thinks he has to make the restaurant a shambles before the deal closes so that he can say how bad it was before he became the new manager. So each night he goes the current owner’s restaurant and yells fire, fire. Someone accidentally knocks over a candle and again Obama yells fire, fire… and this time he is telling the truth. But then he says, "I am not the manager yet so I can’t help you." "The restaurant is facing an extreme crisis of historic proportions!" So people panic and Obama secretly hopes the restaurant will only smolder with soaring loses and unemployed workers until the deal closes so he can mock the previous owner and claim he, Obama, raised the restaurant from its ashes. Unfortunately Obama still does not realize the panic he started that knocked over the candle may do extreme damage and could possibly burn the restaurant down before he takes over. And historians may actually one day point out that Obama's irresponsible behavior and unbridled voice of economic death probably is the cause.Americans are not oblivious to such calculated negativity.

Prior to this election it was pointed out that in previous elections of a Democrat after a two term Republican... the stock market surged. This year instead, the day of the 2008 election when the polls showed that McCain could beat Obama, the market soared but since Obama won, the market has nose dived. It is evident that investors and worker pension fund managers think the Obama administration is an economic death star and people fear that tyrants historically liked to talk down their countries into economic chaos before they took over. It would be so easy for Obama to overcome this world wide fear of Obama. Sure world socialists, terrorists, potheads, and communists overwealmingly preferred Obama to McCain but the recent Obama induced drop in the value of all free markets has been international in scope. Barely more than half of American voters chose Obama. The movers and shakers of the world see Obama and are shaking... with fear.

President-elect Obama provided some encouragement for markets when he announced that his replacement for retiring Treasury Secretary Paulson would be New York Fed president Timothy Geither. That was credited with producing yesterday's big snap-back rally. Geither is a free market thinker and that is encouraging. Now President-elect Obama needs to start talking up the economy and produce a few working free market capitalistic ideas. Even Red China’s President HU Jintao knows how to do that.

Markets poised to rise, just waiting for President Elect Obama to provide the pretext

Hit the ground running? How about just waking up!

The last democrat to be president hit the ground running the week after he won the election. President elect Clinton put the word out to corporate leaders that he wanted to meet with them and get their ideas for the economy. Clinton did not let the 1992 recession of his predecessor put the economy at the point of collapse. Clinton did not make excuses for doing nothing like saying we cannot have two presidents. Clinton was not caught catching a nap before he took office.

Since the President Elect Obama mocked Senator McCain for saying the economic American economic fundamentals were sound… the economy started its nosedive. The nosedive got worse as Obama and McCain proposed $750 billion bailout. Investors know that socialism and the inevitable nationalization of industry would destroy the value of equities like it is already doing to the big three auto industry. Socialism to most Americans implies first economic and then moral bankruptcy such as paying autoworkers not to work.

Last night James Cramer asked when President Elect Obama would start doing something other than trounce the economy? Cramer said the lame duck President and Congress can't do anything now so it is time for Obama to show he has some of the leadership skills of his predecessor Bill Clinton who actually did hit the ground running. Cramer indicated that a depression was possible if Obama continues to show no leadership. That means President Elect Obama is beginning to be perceived as the cause of the economic chaos during his campaign against the American economy with his negativism, his failure to show Clintonesque leadership, and Obama's willingness to allow fears of socialistic nationalism grow and destroy faith in the American free market system.

Destroying the American economy is now being perceived as the strategy used to discredit past free market policies and lead to the victory of Obama in the election. I don't think it is true but Obama is doing nothing to help the free market economy or to give any hope that he supports the reforms of even the Clinton administration.

Two days ago James Cramer of "Mad Money" spread fear saying the market could lose another 50%. Yesterday the markets dropped only 6% on in spite of high volume. Fear mongering by the media and the newly elected is being perceived as an attempt to create damage during the Bush administration so that the new administration looks better. But it is being done at the expense of all Americans and Americans will not forget this irresponsible behavior. It is time to stop trashing the economy and work for solutions. Nationalizing the automobile industry by giving them money for a stake in them will further undermine the American free market system. If President Elect Obama is not a socialist then he should show his cards now and ease market fears.

Yet yesterday showed that the American markets are ready to surge on any positive pretext. If Obama gives a positive pretext he will get the credit for the surge. If President Bush gives the pretext and the surge occurs in spite of Obama's negativism then Obama will take office when the market has nowhere to go and history will see Obama's methods to be contrary to the best interests of Americans. Yesterday the investors fought off a high volume of short selling and the market failed to collapse into disorder. That means the market is poised now to recover with a record advance on record volume. But it needs a good pretext.

Economic Depression: cause and a solution

Cause:
Economic depressions and hyperinflation are unstable collapses in asset value or monetary value. Depressions wipe out the debtor’s ownership and hyperinflation wipes out the saver’s cash. An economic depression is often followed by hyperinflation as happened in Germany and other countries. Either or both instabilities can lead to political chaos.

A depression wipes out deep debtors first and as fear grows it successively wipes out even the minor debtors. Fear carried by the opportunistic media and fed by opportunist politicians, short sellers and asset buyers drives a relatively healthy economy into these economic instabilities. Recent Congressional testimony is an example of gross political opportunism. They drove the markets to break through their previous lows knowing full well that the lame duck Congress did not have any votes to act. They just wanted the opportunity to score political points and make the Fed and Treasury Secretary look dangerously foolish. So all the Congressional leadership accomplished was to make Americans even more fearful. It is evident that the three automakers need to restructure first before government loans make any sense. Congress opened mouth and inserted foot again just as the President elect was starting to do some positive things to allay fears and give signs of government competency.

It is easy to understand a home owner with 10% equity and 90% debt is wiped out when the home price drops more than 10%... if payments become a problem. It is easy to understand that as a depression grows more and more people become unemployed and can no longer make payments on debt. During a depression the panic causes people to stop buying and therefore layoffs increase enough to reach 25% to 40% unemployment in advanced economies and 90% in the third world.

Next the people with 80% mortgages are wiped out and the 70%, 60%, 50%....down to 10% mortgages when values drop 90%.

In the equities markets the investors liquidate to try to reduce debt to zero as soon as possible because if equities drop 90% as they did in the great depression you are given a margin call even if you only started with 10% margin.

Solution:
The solution is to recognize the instability when it reaches a threshold and then remove the fear factor and remove the reward for opportunism. For example if inflation exceeds 1% in any month or the core price index changesa at an annual rate of 20% or if housing or equities rise or fall more than 20% within a year, then the debt and asset values become locked together for that change. That means if a stock or house increases or drops say 50% in value the dept also drops or increases 50% in value.

Example 1922: House worth $20000 mortgage $18000, and then the house value drops 50% to $10,000 so the locked in mortgage drops 50% to $9000 and the homeowner preserved equity of equal value and did not default. Relative value relative to currency is preserved and opportunism is defeated

Example 1935: House worth $20000 mortgage $18000, and then the inflation hits 100% and value increases to $40,000 and the mortgage rises to $36000. Again value relative to currency is maintained for the particular asset.

The solution needs to have different factors for different major asset classes such as equities, homes and commercial properties and are class averages no tied to particular houses. The solution is not executed until the sale of the asset. Debtor and bank equally share the risk upon the sale of the asset when the threshold is reached so that banks and short sellers do not have an incentive to destabilize the market completely. They are limited to a threshold of 20% within a year before they share in the consequences.

The solution requires everyone use their intelligence shut their mouths and stop being politically or economically opportunistic.

The pravda and nothing but pravda from the media. Now at Bob Brinker capitulation level

America’s Pravda is still negative on America.

Pravda is Russian for truth, and was the name of the lying press the communists used to push failed economic policies and ridicule and destroy Soviet thinkers.

The economic news continues to be slanted highly negative. President elect Obama is acting wisely forgiving and embracing different ideas as President Lincoln did. Lincoln brought prominent thinking opponents into his cabinet to broaden his government and Barack Obama seems to have Lincoln as a role model. That could explain his excellent command of the English language.

But the news media has spread fear and seems bent on killing the American economy to further hurt the defeated and lame duck Bush administration. The media is irresponsible as well as biased in favor of socialism and Americans will ultimately punish the media by further ignoring their form of “pravda.”

Record low housing starts are good news not bad news as European socialists and the America media pronounce. How else will we turn the economy around if we don’t stop building unnecessary housing so that the prices of homes can recover and abandoned housing can be fully rented?

Record decreases in oil and gas prices are great not bad for the American consumer who can now buy something American instead. Most of the money for oil leaves America much the way a foreign tax would drain the American economy. The media one sided mental block is illustrated by their failure to distinguish between core inflation/deflation and oil/gas price increases. In the past they ignored the increases and stressed core inflation because the media wants higher energy costs because in their "quasi religious mother earth belief system"… high prices reduce consumption and other environmental pressures making mother earth happier. Until the cold war Iron Curtain came down these sappy happy folks were telling us how much more environmentally correct the Soviet states were. Then we discovered the communists had destroyed their forests and were driving autos called Trabits which were as polluting as it would be for everyone to drive their lawn mowers to work.

We also discovered how the only way East Germany reduced environmental pollution was by building their power stations on the West German border so the winds would carry the Soviet block pollution into Europe. It is the type of sappy environmentalist thinking that puts all the California power plants on their eastern border to export California pollution to neighboring states.

Mark twain understood that kind of sappy media thinking:
"The mania for giving the Government power to meddle with the private affairs of cities or citizens is likely to cause endless trouble, through the rivalry of schools and creeds that are anxious to obtain official recognition, and there is great danger that our people will lose our independence of thought and action which is the cause of much of our greatness, and sink into the helplessness of the Frenchman or German who expects his government to feed him when hungry, clothe him when naked, to prescribe when his child may be born and when he may die, and, in fine, to regulate every act of humanity from the cradle to the tomb, including the manner in which he may seek future admission to paradise." Mark Twain

Benjamin Franklin understood American sappy media thinking too:
"They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety." Benjamin Franklin

Volatility is the name of the game due to the competing fears of recession and hyper-inflation. While hedge fund redemptions have subsided recently the fear the news media is spreading causes investors to seek to exit at prices they can say they broke even. An investor who followed Bob Brinker’s buy and hold forever advice and who got into the stock market in March of 2003 can often get out and break even on market rallies from this current level. We are at the Brinker capitulation level now and when his following has abandoned his sappy advice the market should be quite strong but less secure and hence more volatile.

A big bounce is due soon

10, 9, 8, 7 6,..... launch

To launch a real rally the news media and Congress need to lighten up on their negativism… because their dour attitude will destroy this important retail season which normally accounts for almost 50% of our annual sales. The president elect is already taking many very positive steps. The country need some decent economic news in January.

There is evidence that the small investors who were weak hands have left the market and the downside volume has dried up. So now the funds control the volume and they are at this point in a zero sum game unless they drive the market up and attract more investors. With the market this low the funds can only cut up a very small pie and every fund that wins does it at the expense of another fund. So now if they short too much the pie gets smaller and they all lose.

Add to this the year end tax losses are almost settled and it is time for the funds to deliver and document their year end gains. Therefore unless they want to look very bad, the funds need to grow that pie by Dec 31. The only way they can do that is to cover some of their shorts (about 33% of investments now) and take a more positive position at this market low. Then when all the little investors jump back in next January with the new president’s inauguration… the funds can begin to unload and take short positions again.

One problem with a GM buyout is that the high paid workers already get early retirement and want taxpayers to pay the cushy pensions they get which more than doubles what social security gives average Americans… and they get it as early as age 55. The Republicans think the GM workers should go out and get jobs and only collect pensions when they reach 65 like most Americans. The Democrats on the other hand take big union contributions and feel the quid pro quo pressure to give the unions Anerican taxpayer money in return. The GM union wages are bad enough but the pensions make it impossible for GM, Ford, and Chrysler to compete. And as long as managers can get a free government handout they don’t care about stockholders. The GM shares are worthless anyway and the shareholders only theoretically select the management. This is a similar situation to that in Europe before World War II when the management took all the assets and left the population of Europe penniless. Something should be done but GM should be forced to reorganize the way Lee Iacocca reorganized Chrysler and gave Chrysler 20 more good years of productivity.

Rally needed to save year end sales

Without year-end sales the president elect could fumble the ball

To launch a real rally we need the funds buying to put a squeeze on short-sellers, forcing them to the buy side to close out short-sale positions. That could happen by Monday if Bernacke, Bush, and Hank don't open their mouths too much this weekend. That buying would drive the rally still further dispelling pessimism in time for the holiday season. Unless the news media and the president elect lighten up on their negativism… their dour prognostications will destroy this important retail season which normally accounts for almost 50% of our annual sales.


On seeing higher market prices, the media would then begin pointing out positive news. Institutional money on the sidelines would begin to come in on fear of being left behind for what can be a rally that restores most of what has been lost this year. People would feel more confident and go out shopping again.


If we remember the panic of 1987, the market lost 25% in two days in October. But by the end of that year the market was higher than when it started. Today's market is oversold because the press picked up on the Obama campaign depression talk. Notice that no one but the press still continues to talk that negative talk and when they stop it, the market will rise to compensate for the previous negativism. If president elect Obama really cares about the downtrodden he would not wait until he takes office to show positivism.


FDR showed positivism early and by the time he was in office two months American production had doubled. If the party that won in November does not take action and work together in a non partisan manner to turn the economy around now, then they could be holding a dragon by the tail in January and Americans will see them (they mandated mortgages for unqualified home buyers) as the true cause not the solution to this problem. If this recession is not over in three years (as with the DOT- COM bubble) they will be held responsible. So it is in the interest of the newly elected to start positive thinking for implementing solutions as soon as possible or they will run out of time. Americans are not very patient when presidents fumble the ball.