The catalyst behind the economic collapse surrounded housing. Both Bill Clinton and George W Bush were big believers in making homeownership a reality for anyone who wanted it. However, the fact is not everyone can have a home because not everyone makes enough bank. The wage growth of lower and middle class do not keep pace with that of the upper class - easy to understand if you understand percentages. The gap grows no matter who is president. The percentage of home ownership in the US is around 65% - sure to go lower. The top two countries in the world in percentage of homeownership is Ireland (83%) and Italy (65%) - the US ranks 7th. Right now, both Ireland and Italy are on economic life support.
The housing bubble though stemmed from the credit bubble. With credit too freely available (the maestro, Alan Greenspan dropped rates to the floor), that fueled subprime mortgages and the packaging of now toxic mortgage-backed securities. Investment houses and banks also ate their own cooking in packaging, buying and selling of these products to each other. Because of decreased regulation, they were able to borrow more cheap money to chase profits. When people could not make payments on their homes, the value of those securities went south. Because the value of those securities were based on unrealistic models, investment houses suddenly had a pricing problem - exactly how much were those things worth? Without a price, you can't buy or sell them - thus making them toxic.
So the bubble that burst in 2008 was based on credit. So to state that people bought too much stuff isn't really wrong, especially when you explain it to nine-year old.
Kernen never addresses this, which was supposed to be why he wrote the book. Instead, it became an excuse for explaining his anti-Progressive views and that government should butt out of Wall Street except when needed to bail them out. Kinda like saying, "Dad, stay out of my life except when I crash my car, because I'll need you to pick up the tab." It doesn't take a genius to see the moral cowardice in this - government should stay out as long as the rewards of capitalism continue to roll in, but government should intervene to prevent the downside of risk.
Still, I recommend the book despite the fact that half the book is wrong. The reason is because Kernan engages in active conversations with his daughter on how things work. That kind of parental interest is rarely advertised and deserves recognition. Best of all, Kernen acknowledges that his daughter doesn't fully agree with all his philosophies and he's okay with that. That's healthy, and is fosters a curiosity in kids.
Kernen went on Hannity and on CNBC to promote his book with his daughter. He had a real opportunity to talk about how to engage your children about money. Instead, it was simply a soapbox for spewing his ideology. He claims to know better than his daughter's teacher and the rest of the liberal mainstream because he lives in the real world at the NY Stock Exchange. That would be the place where people make bets on the price of all things.
Maybe he does know better. Does the school system preach hatred of Capitalism to kids (his contention)? That is debatable.
But the teacher, who supposedly represents public education in his book, was never proven wrong about why the market crashed.
Stock Market Thoughts
Uh oh! Commericals on TV for Goldman Sachs (GS). Considering the GS normally doesn't spend revenue on TV advertisements, this spells the beginning of the end for the stock. The last example of this was Research in Motion (RIMM). As soon as Blackberry commercials were popping up, you just knew that sales were decellerating. I'm sure people lost confidence in GS when it was reported they lost over a $1 billion in Libyan money. ... Greek Austerity Plan calls for minimum tax income level to lower from 12000 euros to 8000, a progressive 1% to 5% increase in taxes, tax hikes on heating oil and diesel, and spending cuts over the next five years. The Greeks had to pass this resolution in order to receive the last $17 billion of a $156 billion rescue package from the EU. This cooperation would also help them for future bailout money because this 5 year plan ain't gonna do it. Given all the protests occurring over there, implementation should prove problematic. ... In addition to the Greek austerity, many Italian banks stopped trading last week after significant drops in stock value. Ratings agencies threatened to cut their ratings, which, if enacted, would require instant requirement to raise capital (ie selling their assets on the cheap). More market uncertainty makes for sloppy market. ... Fed Chairman Ben Bernanke lowered his estimation for GDP growth to below 3%, citing supply disruptions in Japan (tsunami) and higher prices (food and oil) crimping people's budgets. However, he remains optimistic about 2012 - assuming the Mayans are wrong. ... Announcement of tapping into the Strategic Petroleum Reserve resulted in a quick drop in spot oil. Pro-Obama traders are calling the decision an act of genius as described as such: the desired effect would have been to add to the momentum of declining oil prices, forcing speculators who were hoping to push up oil prices to sell - thus snowballing the price down even further. Instead, oil is still where it is. It's hard to fool the market. ... The oil in the SPR is known to be low quality, so it isn't the most desirable for refiners. As far as relief at the pump, gas prices tend to creep back down slowly when oil lowers after a sharp increase. Oh, and oil is looking perky this week. ... QE2 ended this week and with that, enthusiasm for US debt. Foreign bidders for Treasuries fell below 40% in June as opposed to 61% in May. Fewer Treasury purchases mean higher interest rates to attract buyers. That could be a potential killer of the next rally. Bottom Line For Next Week:
We are finishing the quarter this week so the action this week is hardly unsurprising. Stocks are getting bought up to fluff up portfolios of asset managers when reporting to clients. Still, the market is choppy, and it doesn't inspire much confidence. Wait for the next pullback. If it's a higher low, then enter with greater confidence. As for me, I missed this move. I'll catch the next one.
Current Positions:
ABV, COP
One share: BAC, AAPL, BIDU, LULU, PLG, SLW, KSU
90% cash.
Stuff That May Only Interest Me
Newsweek released its annual "Best High Schools In America" list. Almost all of the top ten schools on the list are charter/private, likely to add fuel to the public-schools-suck argument. But before people jump on that bandwagon, they should recognize one important characteristic these ten schools have: the average class size is under 20. Only one of the ten averages more than 30 and the lowest is 11.3. ... Two notable schools on that list: Eagle High (Eagle, Idaho) and Houston High (Germantown Tennessee) have a student/teacher ratio of 1.2 and 1.3 respectively. ... Fed Chairman Ben Bernanke stated that he doesn't know why the market is slowing down, but expects 2012 to be a very good year. Our economy is largely consumer driven (60-70% of GDP is based on consumption), meaning that as long as people spend, then everything is good in the 'hood. However, the high unemployment and the debt that the average person carries has meant a slowdown. Housing is double-dipping too - or maybe that it's stopped pausing before continuing downward because that wasn't much of a rebound. Jobs continue to be the barometer for the economy and employment is stalling right now. So how does that translate into a good 2012? ... Now that I'm on (un)paid vacation, I feel like I've lost 50 pounds. It was all in my head. Normally, I'm still motivated to do something work-related, batteries still charged, for at least three weeks and then it would require another two weeks to get into the swing of vacation. Last summer, I did a boatload of lesson planning thorughout the entire month of July while overseas. This time, stick me with a fork. The most productive thing I've done related to work was begin the process of cleaning out my classroom. Anything else is beyond what my mind can handle for a sustained time period. I'm just that tired. ... Too much Cars 2 promotionals. I loved the original Cars but I have no desire to see the sequel after all the product tie-ins. Whenever I see anything regarding Cars 2, my mind starts turning toward State Farm. Aargh! ... The Dodgers, not the owner of the Dodgers, filed for bankruptcy. This means a very tumultuous state for the team and its employees - including the players. Considering the contracts, what does that mean regarding owed compensation? Would players be paid in terms of part ownership of the team? Though Major League Baseball will likely pick up the tab, it does create an interesting dynamic in sports. ... I'm having difficulty seeing the honesty in Tiki Barber in regards to his marital affairs. He takes no ownership. "It was a bad marriage" is a copout for cheating on his wife. I also see an ego run amok in regards to his opinions of his coach in New York. Smooth talker doesn't equate to uncompromising honesty and outspoken doesn't equate to piercing insight. He's just another guy who's full of himself. ... I need a car. My transmission is giving out, and it's grinding. However, the price of cars are quite high, and there are reasons. Firstly, the price of everything has risen (food and oil for starters), but also there's Japan's tsunami. That has resulted in fewer Toyotas and Hondas and also supply problems for auto parts (yes, Ford and GM do use Japanese parts too). Fewer cars and parts mean higher prices. So I'll have to wait. ... Virginia's governor is dangling a $3 million funding pool to school districts willing to conduct a one year experiment on teacher evaluation. The metric largely consists of student test scores. Most who are familiar with the use of test scores as a metric for teacher effectiveness fail to see the innovation in this study. Test scores are influenced by many factors, not just teachers, so to make them a critical basis for teacher evaluation even now shows a lack of forethought. Thus far, roughly 7% of the districts in Virginia have agreed to this. ... Robert Wagner is smooth. Any time I see his commercial, I get the urge to take out a reverse mortgage. ... S&P stated that the US will have the credit ratings on its Treasuries cut if it misses the debt payment for maturing Treasuries this August. Whether or not that payment is made is dependent on the debt ceiling getting raised. That pretty much makes it a done deal. The debt ceiling will get raised and hardliners will cave. If the US gets its rating cut, interest rates will go up. It's like if you miss a credit card payment, your APR shoots up and your minimum monthly due amount goes up. According to Treasurer Geithner, the US currently borrows 40 cents for every dollar it spends. Eventually, something will have to change. ... President Obama made a speech this week about increasing the tax burden of the wealthy and included the term "corporate jets" while demonizing them. What I'm finding difficult to connect is corporate jets are "corporate", not "private" and thus not the same as a wealthy person. Unless you include the recent ruling from the Supreme Court giving corporations the same standing as real people in regards to campaign finance. Shouldn't they then incorporate the same tax burdens too? ... A thing about the Greek bailout: It isn't the Greeks who get bailed out, but rather it's the banks. Not Greek banks. Banks that lent Greece money. Yes, that's German, French, and American. Probably why they are rioting over there. Stunning that our banks would invest in Greek paper. Then again, if they knew this bailout would come, it's a stroke of genius. Of course, if they were genius, then they would not have needed a bailout three years ago.Article: Too Big To Fail Infographic (Click on the picture to magnify)
Last Week's Best
-R
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