Saturday, November 28, 2009

Credit Crisis is Over, Excess Liquidity Crisis Begins

Just last week Dubai World announced it can't meet it's debt obligations over the next several months and has asked creditors to accommodate a 6 month "standstill" or postponement in debt repayment of about 60 billion dollars. (Joe, can I do that with credit card!) This announcement pummelled stock markets all over the world on Thursday with some European and Asian markets dropping between 3-5%. The US market dropped almost 2% when trading resumed on Friday. So how did this rapidly emerging economy of Dubai crash? (Joe party attendees at White House) Let's look behind the scenes.

Reason#1: In '95 the financial world was exuberant about the emerging market of Mexico, and invested heavily in Mexican debt which offered a yield of about 12%. Investment banks were all over this 12% offering like Tiger Woods on a fire hydrant at 2:30AM. 12%! Too good to pass up! Well, the bubble popped and the Mexicans had no option other than to default the debt (Jose, left with the check at the end of the mole-sauced meal, but no pesos with which to pay for it). Citigroup, Goldman Sachs, JP Morgan, Morgan Stanley, and Chase Manhattan (now part of JP Morgan Chase), who sprayed out money like water from damaged fire hydrants while ignoring the risks of possible default were on the verge of losing tens of billions of dollars. What happened after that? Robert Rubin, a Wall Street fat cat and executive of Citigroup lobbied for billions in bailout money. The Republican Congress told Rubin to take a hike but Slick Willy Clinton, who had formed strong alliances with Wall St democrats Rubin at Citi and Jon Corzine of Goldman Sachs (who recently lost a gubernatorial bid in NJ), committed bailout money from the US Treasury. (if Joe daddy says no, just ask JoAnn mommy).

This set a dangerous precedent on Wall Street as risk was being spread across taxpayers while reward was still privatized and dished out in large bonuses. Over the next four years, similar instances occurred 3 more times in the form of South Korean bonds, Russian debt and even private institutions which owed money to Wall Street banksters. In all three cases, Rubin was instrumental in siphoning money from the US taxpayer into Citibank and its Wall Street allies under the guise of "systemic risk to the financial world". (Where have we heard this recently?) Fast forward to 2008, when Bush's Treasury Secretary Paulson proposed hundreds of billions of TARP money (Joe up the ante) - ratified by Congress -to these very same investment banks to avoid "systemic risk to the financial world". So where does Dubai fit into this? It's the same thing here - emerging economy gets expansion money and then falls on its face and can't pay it back. NO problem, US Taxpayer to the rescue. So where is Rubin now, who was so instrumental in bailing out Wall St in the '90's? He's an advisor to Obama. Furthermore, Summers and Geithner, who were proteges of Rubin, are in Obama's inner circle. Any guess what will happen to this Dubai World debt if it can't be repaid in 6 months? (Joe Vitale, Bailout City BABY!) This will not be the last government to default bonds during this crisis.

Reason #2: A good chunk of the blame goes to Rubin, Clinton, Treasury Dept and Congress for establishing a bailout culture on Wall Street. But, the Fed is not without blame as it creates excess liquidity when rates are too low LIKE THEY ARE NOW. Indeed, these same investment banks can borrow at .25% right now from the Fed and chase high yields such as Dubai offerings during a time in which banks need cash. Who wouldn't take advantage of this cheap and easy money, especially when the losses are absorbed by taxpayers??? The Federal Reserve bank needs to be abolished if free markets are again allowed to work properly. Because of this excess liquidity, the credit crisis is over now, but a new crisis has emerged. A spending and bubble crisis. ALL OF THIS FREE LIQUIDITY IS CREATING BUBBLES AROUND THE WORLD as investment banks are sniffing out high returns with little regard for risk. Make no mistake about it, these bubbles will pop as we saw this week with Dubai. Then the real pain will begin. (Joe anything getting struck by SUV's at 2:30 in the morning) The Fed should be abolished. Wall Street must become responsible, and Pres Obama and Congress must get tougher on allowing markets to work freely. (Joe, for the good of the kid, tell him no occasionally) The recession isn't over, we're very much still in the thick of things.

So what does this mean for Joe? Joe is very wary of these so called "emerging market" bubbles forming after the Dubai incident. Joe has decided to stay away from emerging markets, but also wonders whether the stock market has become an equity bubble from excess liquidity. Other bubbles could include expensive commodities such as gold and oil. Don't get me wrong, Joe doesn't mind holding the check at the end of the meal (especially if he's eating a meal with JoAnn), but unless he's the one ordering the burritos, he shouldn't be shelling out the pesos.

Thursday, November 26, 2009

Abe's Thanksgiving Proclamation

Washington, DC, October 3, 1863

The year that is drawing toward its close has been filled with the blessings of fruitful fields and healthful skies. To these bounties, which are so constantly enjoyed that we are prone to forget the source from which they come, others have been added which are of so extraordinary a nature that they can not fail to penetrate and soften even the heart which is habitually insensible to the ever-watchful providence of Almighty God.

In the midst of a civil war of unequaled magnitude and severity, which has sometimes seemed to foreign states to invite and to provoke their aggression, peace has been preserved with all nations, order has been maintained, the laws have been respected and obeyed, and harmony has prevailed everywhere, except in the theater of military conflict, while that theater has been greatly contracted by the advancing armies and navies of the Union.

Needful diversions of wealth and of strength from the fields of peaceful industry to the national defense have not arrested the plow, the shuttle, or the ship; the ax has enlarged the borders of our settlements, and the mines, as well as the iron and coal as of our precious metals, have yielded even more abundantly than heretofore. Population has steadily increased notwithstanding the waste that has been made in the camp, the siege, and the battlefield, and the country, rejoicing in the consciousness of augmented strength and vigor, is permitted to expect continuance of years with large increase of freedom.

No human counsel hath devised nor hath any mortal hand worked out these great things. They are the gracious gifts of the Most High God, who, while dealing with us in anger for our sins, hath nevertheless remembered mercy.

It has seemed to me fit and proper that they should be solemnly, reverently, and gratefully acknowledged, as with one heart and one voice, by the whole American people. I do therefore invite my fellow-citizens in every part of the United States, and also those who are in foreign lands, to set apart and observe the last Thursday of November next as a day of thanksgiving and praise to our beneficent Father who dwelleth in the heavens. And I recommend to them that while offering up the ascriptions justly due to Him for such singular deliverances and blessings they do also, with humble penitence for our national perverseness and disobedience, commend to His tender care all those who have become widows, orphans, mourners, or sufferers in the lamentable civil strife in which we are unavoidably engaged, and fervently implore the imposition of the Almighty hand to heal the wounds of the nation and to restore it, as soon as may be consistent with the divine purpose, to the full enjoyment of peace, harmony, tranquility, and union.In testimony whereof I have hereunto set my hand and caused the seal of the United States to be affixed.

Done at the city of Washington, this 3d day of October, A.D. 1863, and of the Independence of the United States the eighty-eighth.

Abraham Lincoln By the President: William H. Seward, Secretary of State.

Thursday, November 12, 2009

Joe's Portfolio gets Fueled by Syntroleum Corporation

Okay everybody, so maybe my last stock pick (here) hasn't worked out too well..... yet. (Joe Edison, "I didn't fail, I just learned 2000 ways to not invent the light bulb"). Speaking of light bulbs, we're about to head into the dark, cold, winter, where plenty of natural gas will be used for home heating and power. Couple that with a weak US Dollar and UNG should still perform for you even though the ETF has diversified a little and is not completely invested in gas futures now. That's beside the point however - the point here is to make money. That's why Google pays us the big bucks to place ads in margins. So Joe, what's the next stock to double in price? Simple, it's Syntroleum Corporation - stock ticker symbol SYNM. Please do not continue reading if you're not interested in making money, but if you are, turn off the TV, let the dog out, lock the kids in the attic with Balloon Boy, and locate the "buy" button on your computer screen. I can't believe this stock has dropped this low, but it has, so now we get to profit from it. SYNM

Meet SYNM:
Syntroleum Corporation (SYNM) and Tyson Foods Inc (TSN) created a 50/50 joint venture company called Dynamic Fuels LLC. The purpose of this joint venture is to leverage patented technology from Syntroleum to convert Tyson's chicken grease into synthetic biodiesel fuel. Dynamic Fuels LLC is currently constructing a plant in Geismar, LA which is 75% complete now. Construction is scheduled to be completed sometime in February 2010 and full scale production will begin mid-2010. While there are currently facilities producing biofuels from foods/plants such as corn, this is the first large scale plant to produce synthetic biodiesel from waste products. (John, cousin of Joe, one man's trash is another man's treasure) Both Tyson Foods and Syntroleum should benefit from this joint venture, but Tyson has a market capitalization of around 5 billion dollars so a profitable joint venture would have greater earnings impact on a small technology company like Syntroleum with a market cap of under $200 million. Dynamic Fuels already has a contract in place with the US Department of Defense to supply jet fuel for its planes. Click here for more information and a short news clip on Dynamic Fuels LLC.

So how should you play SYNM going forward? It depends on what you think the market will do in the next couple months. There's a strong correlation between the price of oil futures and SYNM, so if you believe Ben Bernanke will continue to destroy the US dollar, it would be a good idea to invest now because we'll soon have rampant Zimbabwe-esque hyperinflation. However, if you think Ben's shell game will flop, global oil demand will stay depressed, the US dollar will stabilize, and commodity and equity prices will crash down again, then you might want to wait. While there's no way to predict the long term future with 100% certainty, we do have some knowledge of what can happen in the short term even in the midst of a stock market crash. Let's turn back the clock to Sept '08. A company called Global Resource Corporation (GBRC) - which extracts oil and gas from petroleum based products such as tires through microwave radiation - finished constructing a large scale reactor in Sept '08. Take a look at the two year graph for GBRC to see how the stock performed leading up to the reactor's start-up date of September 29th 2008. (Dates are at the very bottom of the graph)

As you can see the stock price more than doubled from around $1 at the beginning of September '08 to almost $2.50 by the end. This compared to the Dow Jones which lost around 10% during the same time period. So the stock performed great just before the start-up date, but why did the price crash when production started? No clear answer here, but most likely simply a case of "buy the rumor, sell the news". Long term profitability was in question in the midst of so much uncertainty (Joe Senate Majority Leader in next year's election), so speculators dumped stock soon after production began. The point here is that even if the market tumbles again, SYNM should perform well, especially right before plant completion and large scale production begins. That said, this should be a nice long term hold in Joe's opinion.

So what does this mean for Joe Shareholder? Right now the stock market has ballooned to a 52 week high based on questionable fundamentals. (Joe's fire, leaves burning brightly at the top but no logs underneath) Bottom line, this fire could be doused at any time. So, before plowing blindly into it (JoAnn shopper on Black Friday), and getting trampled at the exits by people trying to get out (JoAnn shopper during Black Friday), and losing all your money, (JoAnn shopper by the end of Black Friday) it might be a good idea to wait and watch this one for a few months and buy any steep dips in SYNM. Joe plans to set "limit" buy marks and enjoy the ride.