Saturday, October 31, 2009

Scariest Thing You'll Ever Read on Any Website

Yes we did pick the orange bar at the top and the black font in the spirit of Halloween. It's okay that it took four months to get to Halloween from the Joe Shareholder launch in July. We like to plan ahead here at Joe Shareholder.

Also in the spirit of Halloween, we thought we'd post a scary video below. It's a little political, but we indescriminately rip on both parties when they misbehave. Don't worry, there's been plenty on Helicoptor Ben in the past. Enjoy!

video

SCARED YET? READ ON!

The Dow Jones shed 250 points on Friday on high volume. That was kind of scary, but not too bad. The reason? Friday the Gov reported Consumer Spending dropped in September .5% from August; but that wasn't too scary considering cash for clunkers ended in August. The Consumer Confidence guage also dropped from 73.5 in Sept to 70.6 in Oct, but that wasn't too bad considering a similar preliminary number was announced a week ago.

Also Scary: VIX, the fund that measures fear and volatility in the market (And a must-have in your portfolio as a hedge in Joe's opinion) increased 25% on Friday. That isn't too scary - especially if you made money on it. And Finally, yes, it's scary that our fearless leaders Helicopter Ben Bernanke of the Fed, Turbo Tax Tim Geithner of the Treasury, Obama, Pelosi, and Reid all seem to have no clue how to fix this sinking ship and we have many more years of each.

HOWEVER, you want to know what's REALLY, REALLY, REALLY SCARY? It has come to Joe's attention that some of his readers haven't passed this blog on to everybody in their address book quite yet. This is really quite scary because how else will your beloved family and friends be able to navigate through the stormy seas of today's markets? (JoePS) This alone may have sent the stock market down 250 points on Friday as investors fear that some people may not have the proper investment instructions and directions (Joe, recalculating) found only at Joe Shareholder. (Just Joeking)

Wednesday, October 28, 2009

Harry Reid's Public Option Hail Mary Heave

Health Care Public Option?
Feeling the squeeze between inter-party clamor for a public option and increasing opposition among Nevada constituents slated to decide his fate in next year's election, Senate Majority leader Harry Reid on Monday shocked the world by raring back and heaving the Public Option hail mary pass into his consolidated Health Care Reform Bill.

First of all (Joe United States of yesterday), nobody knows how much this Health Care Reform Bill with the Public Option will increase the deficit. We have estimates but we don't know how accurate they are. (Joe Twain, "There are three kinds of lies: Lies, 'Darn' lies, and Statistics) Many programs' past estimates including medicare, medicaid, and social security all overshot intended targets (Joe Minneapolis-bound pilots), so why shouldn't we expect the same with this Health Care Reform Bill with the Public Option? Typically, anything the government touches adds inefficiencies and costs and drives down effectiveness and results. Click here for an economic analysis on the costs associated with Health Care Reform by prized economist Thomas Sowell. (It's very interesting and informative. Well worth the read.)

Second of all (Joe United States of today), even if it does accurately hit the $900 billion mark promised by Reid and Obama, we still can't afford this Health Care Bill with OR without the Public Option. Our economy is extremely fragile right now with "green shoots" of growth visible - but currently requiring massive amounts of aid. (Joe fertilizer, sun, water, and tape all the way around the yard to protect from foot traffic). The cost of this Health Care Reform Bill with a Public Option could send the economy right back to where we were. (Joe, a different kind of fertilizer).

So what does this mean for Joe?
Joe has always believed in a "diversified portfolio". Not only is he hoping to add some gold and a diamond to his portfolio someday soon....and the sooner the better, but he's also hoping to add a strong health care package to his diversified portfolio. You can probably guess the most important part of his health care package: A good maternity plan and pediatric coverage as he plans (by himself) for a herd of youngsters together with JoAnn. In order for this to happen, he'd like to choose his own doctors and be in control of his future family's health care. Maybe a "diversified portfolio" of insurance coverage, doctors and physicians free market style would help. For this to happen, however, he's hoping Harry's Health Care Reform Bill with a Public Option Hail Mary Heave will be intercepted by a defensive back.....possibly even the "Free" Safety.

Tuesday, October 20, 2009

Ben Begs the Chinese to Become Communist

This past Sunday, Fed Chairman Ben Bernanke emerged from his black helicopter, straightened his black tie, pulled down his black sunglasses, nodded for his bodyguards to open his black briefcase and then delivered a speech on world trade. Within the speech, he specifically cited a need for a "rebalancing" of world trade and encouraged China to spend more and the US to save more. This echoed what the United States Treasury (Joe Oxymoron) Secretary Turbo Tax Timmy Geithner (Joe Oxymoron, minus the oxy) said a few weeks ago about rebalancing world trade.

So what were our fearless leaders really saying? It's unlikely Ben Bernanke really cares whether US citizens save more. If that were the case he'd simply raise interest rates to incentivize (Joe, is that a word?) saving. No, he doesn't care. What he's really doing is begging the Chinese to stop exporting so much and start importing more US products for the "greater good" of the global economy. (Jo-seph Stalin) In other words, the United States is asking the Chinese to become more communist? (Joe upside down world, with Chinese up and US down) If we analyze further, however, we realize he doesn't really care about the global economy - he cares about the US of course.
Here's why
If the Chinese export less and the US slows the import flow, then our trade deficit will improve. If the US trade deficit improves, our GPD will go up and we'll escape depression 2.0. The weakening dollar will help achieve these desired trade effects because a weak dollar makes it more expensive to import, and less expensive to export. When we understand what Ben's doing to the US Dollar (Joe Shell game), it's easy to see the true motives behind his remarks.

So what does this mean for Joe? The Chinese have to be upset about our monetary and fiscal policy aimed at destroying the US Dollar. Therefore, Joe decided to hedge against a future Chinese invasion and take up karate lessons. He told JoAnn he's going to learn hand-to-hand COMBAT just in case; and asked JoAnn if she'd like to help him prepare by giving him hand-to-hand CONTACT while they go for a walk. JoAnn simply told him since there may be some angry Chinese out there, and since he hasn't actually taken any hand-to-hand combat lessons yet, that she'd be safer inside.

Saturday, October 17, 2009

Weaker Dollar = Weaker US

Weaker Dollar = Weaker US? Are the consequences of a weakening currency all negative? Nope, click here for the glass half full version posted earlier this week. Now we get to be depressed (Joe Prozac) and discuss the negative aspects of a weakening currency. Okay great, is everybody nice and depressed and ready to read on?

Joe was depressed after trying unsuccessfully to convince JoAnn to accept a diamond ring before prices shot up. Things are looking better for Joe since the last post however, unlike the US Dollar. The dollar continues to inflate (Joe home-made hot air balloon) with out much of anything to bring it back down. (Joe wasn't inside)

Disadvantages of a Weak Dollar

Inflation - Everybody knows a weakening currency leads to inflation, which subsequently decreases your purchasing power. This was one of the main causes of our current recession. Inflation starts with investors bidding up commodities as a form of hedging against possible inflation - which ironically further aggravates inflation. Commodities such as oil are building blocks for manufacturing; and commodities such as corn, soybean, and wheat (Joe farmers market) are building blocks of food production. Prices of end products are affected as the increased prices of commodities filter up through the economy. Also, inflation is simply a tax on savers because the value of money decreases.

Treasury Auctions - Think the Chinese will be upset if the rate of inflation surpasses the interest on their treasury purchases? Inflation damages investments of fixed interest debt such as US Treasury notes and bonds. The Chinese and various oil-exporting countries are in a pinch right now. If they stop purchasing our US Treasury notes and bonds the interest rates on current auctions will have to increase to attract buyers. This will in turn drive up interest rates - further damaging our housing market and delay the recovery. If they keep purchasing our worthless debt, they increase their exposure to debt that may not be able to be repaid in full with dollars that are worth anything. If we default these notes, the Chinese will seek restitution Jackie Chan style. At what point do we have to start asking permission from our international creditors whether to sign stimulus legislation? We're slowly being bought by some very dangerous creditors. (Joe, check-N-go)

International Positioning - It's no secret that the US is starting to slip a little bit on the international scene. Once the world economic and military superpower, now we're essentially owned by a handful of third-world nations. What was once inconceivable (Joe, hiding in the attic for five hours) is now starting to be realized because of poor fiscal decisions and a financial collapse which lead to a global recession. What we need to do now, however is protect the dollar. We've already ticked off our creditor nations once because of our crashing economy. It might be wise to avoid doing it again by protecting our dollar.

Saturday, October 10, 2009

Of Course the Government wants a Weak US Dollar

It's a stand off with the US Dollar held hostage. Ben Bernanke, the Fed, and US Legislators currently have the US Dollar grasped firmly around the throat with a gun resting against the poor greenback's temples, while China and the rest of our creditors are trying to negotiate a safe and harmless release.

The WSJ reported on Thursday that central banks in Korea, Taiwan, Philippines, Thailand, Indonesia, and Hong Kong have "intervened to slow the dollar's fall against their currencies". Why would they do something crazy like that? Simple, these nations depend on exports, and when the dollar is weak, importing costs more to US Companies. Vice Versa, when the dollar is strong, it becomes easier to import foreign products.

The weaker dollar is very alarming to the rest of the world for other reasons as well. "The Independant", a British news source (here), reported last week that a host of nations met together secretely without the US to discuss how to end the pricing of commodities such as oil in US Dollars. The proposed alternative to the US Dollar is a basket of currencies including commodities such as gold. Absent from the proposed currency basket was the US Dollar, which alarmed domestic currency investors and further intensified the US Dollar decline. So as we can see the US Dollar is in trouble. (Joe Letterman) With this much doubt and uncertainty (Joe weatherman, seven day forecast, especially the seventh day) surrounding the value of the US Dollar, we can cautiously assume this downward trend will continue. (Joe temperatures in the northern hemisphere, Joe real estate values, Joe employment, Joe anything, just pick something and it's probably going down right now)

As we mentioned earlier (here), Ben's monetary plan to escape depression 2.0 is to devalue the US Dollar. Are his devaluation plans working? You bet. (Cha, Joe Palin) The US Dollar hit a new yearly low last week and seems to be firmly entrenched in a downward trend. Below is the one year trend of DXY, the dollar index compared to a basket of foreign currencies.


So this is bad news right? The falling dollar is not good for America? Actually, there are many advantages as well as disadvantages to having a weak currency. Right now, the Fed and Government have incredible incentives to keep the dollar tumbling downward. The rest of this post will outline why this is so.

Advantages of a weaker dollar - as the Fed and Gov see it.

1. Exports are cheaper. Just as imports cost more to pay for foreign goods with a weakened US Dollar, exports become cheaper and exporting companies benefit. Timmy Geithner (Joe Turbo Tax), our current Treasury Secretary, is reportedly okay with a slumping dollar because it "rebalances" our trade deficit. The net trade deficit/surplus is an important component of a nation's GDP, and when a country's exports gain against imports, the final GDP number improves. Since an increase in GDP will most likely signal an end to the recession, It's no wonder that the weaker dollar and resulting increase in exports are considered very important to our current administration and Federal Reserve. Some could argue, however, that the gains in exporting are often offset by the increased costs of importing. (Joe zero-sum game).

2. Inflation leads to increased asset valuations. Indeed, a small amount of inflation is necessary for housing values to increase and to establish consistent economic growth. However, when asset values increase too quickly - as happened this decade - dangerous bubbles result and eventually pop. To deal with the depressed real estate values and their slumping effect on the economy, the Fed has been purchasing hundreds of billions of dollars worth of Mortgage Backed Securities off of banks' balance sheets since early this Spring. These toxic assets are simply bundled home loans whose market values are significantly less than what is owed. Remember, even though the Fed prints US Dollars and has the responsibilty of setting monetary policy, it is not a government-owned bank. Hence, motivation exists to make money through the increase valuations of these assets. (Joe Conflict of Interest)

3. Fixed-Interest Debt becomes Cheaper: Everything from credit cards, home loans, school loans, corporate debt for businesses and treasury bonds on the part of the US Government should become less expensive to pay off - and heaven help us, the US has a lot of debt right now to be paid down. American deleveraging, or the shedding of regular business and household debt, should continue for some time according to many economists. An inflated dollar would help this cause.

Bottom line, the Fed and Gov are not concerned about a falling dollar in the same way our Asian friends are. (Joe, trigger squeezing tighter, dollar starting to sweat, Asians too) The longer term consequences, which will be discussed in the next post, are of lesser concern to the Fed and the current administration because elections create incentives for politicians to be more focused on the short term rather than long. (Joe what have you done for me lately).

So how does this affect Joe Shareholder? Joe doesn't regularly export anything, and the left side of his balance sheet is blank. He does have debt from his three years at St. Joe's University in Philly, however. Even though inflation should allow him to pay off his fixed-interest debt easier, he is concerned that the negative aspects of inflation will offset the positives. (Joe, stay tuned for the next post) Speaking of fixed-interest, his interest in JoAnn has never wavered and is growing ever-stronger (Joe Six-pack abs). Not to let a good opportunity go to waste, he informed JoAnn that now would be a good time to purchase an engagement ring and book a honeymoon cruise since the weakness in the dollar could lead to inflated prices later. Not only that, but fixed-interest rates at low levels won't last forever. Additionally, it would help the economy if he were to buy her a diamond ring and jewelry stores would be able to feed their families. JoAnn told him thanks for the offer, but she was never into expensive rings anyway, and she would be more than happy with a simple honeymoon - should the right opportunity present itself.

Thursday, October 1, 2009

Bi-Czar Breakdown Causes CIT's Downfall

WSJ reported on Wednesday that embattled lender CIT Group offered its bondholders a debt exchange in which soon-to-be maturing debt would be replaced with new CIT asset-backed debt set to expire further down the road. In addition, bondholders would obtain almost all the equity in the firm. Late Thursday CIT management also asked their bondholders to accept a prepackaged reorganization deal in the case CIT decides to file for chapter 11 bankruptcy. CIT Group is a major lender to small and medium sized businesses, one of which is Dunkin Donuts. (Police Chief Joe) Some analysts suggest small businesses will have a difficult time securing credit with new lenders in this difficult economic environment.

So it looks like it could be chapter 11 either way. If the bondholders do not accept the debt exchange they'll likely be forced into chapter 11; and even if they do accept the offer, the deal includes a possibility of bankruptcy anyway. (Joe Donut like either option.....or should we say Dozen like either option)

So why wasn't CIT Group saved by the government? No taxpayer lifeline? Apparently the Bailout Czar didn't feel CIT was too-big-to-fail like so many of its bankster counterparts? Maybe the Bailout Czar didn't feel CIT posed systemic risk? Maybe it's simpler than that. Maybe the Bailout Czar felt pressure from the "Health Czar" or the "Zero Trans Fat Czar" to thin-down America? This might require intervention from the "Law Enforcement Czar" to lobby on CIT's behalf.

But let's back up for a minute. (Joe policeman spots donut shop in rear-view mirror) Where was the "PR Czar" at the time this story was leaked to the public? This kind of information should not be allowed to surface at a time in which the economy is still considered fragile. This breakdown by the "PR Czar" clearly indicates the need for more oversight czars.

Let's dip down into the story a little deeper (Joe donut in milk)

Debt Side:
Where was the "Loan Ratification Czar" when CIT group was offering these loans to small businesses? And why didn't the "Balanced Loan Portfolio Czar" inspect the books to see how diversified they were? Why didn't the "Debt-Roll-Over Czar" intervene with the "Public-Offering Czar" in an effort to raise sufficient cash before these bonds matured?
Asset Side:
After the FASB changed the accounting rules to allow banks to value their assets at whatever price they wanted to, why didn't the "Non-Performing Asset Czar" and the "Mark-to-Market Accounting Removal Czar" get togther and help CIT inflate their assets just like all the other banksters?

In conclusion, CIT Group has fallen victim to not only the US bailout system but they've also fallen victim to the outdated single-tier czar program. (Joe short straw) What we need is more czar oversight in the form of a two or three tiered czar program to help flegling companies like CIT Group stay afloat (Joe, broken off piece of donut in milk) rather than going under. (Joe, broken off piece not floating anymore) If there isn't a new system implemented soon, you'll see a HOLE lot more small businesses get Krispy Kremed.