The R Letter

Is Santa Coming To Town?

2011-12-21T17:09:00.000-08:00

Qualcomm is changing the name of Qualcomm Stadium to Snapdragon stadium - all in an effort to promote its new chip. The name will remain until 28 Dec after all the football games are done. How's that impacting the stock? Not much. Still, if you like sloppy uptrends, this is your baby. Just note the one concern (check the chart).

What about the rest of the market? It's confusing. We might see a Santa rally - in fact, this might be it right now. Hard to tell. I'm having trouble getting interested. Confusion tends to make me step away. Last time, I expected a rejection of the 1200 level, but that didn't happen. I was anticipating too many different things to occur. The most immediate thing was the bounce up to 1200. I should have just stopped there. Looking back, it seemed arrogant to point so many things out. Still, that won't stop me from making such judgments about Bank of America.

And last but not least, your Bank of America update.

Last Week's Best

-R

The 38% Level

2011-11-26T09:53:00.000-08:00

There hasn't been a Sarah Palin bus tour in a while, so instead we get eight more GOP debates. Woohoo. Maybe that's the why the market is sliding. Only 21% of stocks in the S&P 500 are above their 50 day moving average. What does that imply? Stocks are pretty oversold, but they can get oversold-er.

Lovers of Fibonacci and Eliot Wave Theory will view Monday as a high probability turning point. The Fibonacci sequence (1, 2, 3, 5, 8, 13, 21, ...) is well regarded in mathematics and science. In this instance, I'm referring to the convergence of its ratio: 1.618 (the Golden ratio). The 0.618, or 61.8%, and 0.382 (1 - 0.618), or 38.2%, are used to help predict turning points after the market retraces from a rally. Measuring from trough to peak, one identifies the different levels and waits for the market to commit before buying/selling (check the chart below for those levels).

Click to enlarge

You might notice that the number 8 is also a part of the sequence. We've had 7 down days in a row. Given its level, it is reasonable to assume that on day 8, we will see a turn to the upside. Many superstitions and self-made rules are derived from the numbers in the sequence. For example, if the market is up two days in a row, do not buy on day three. If the market is up five days in a row, it will be down three days in a row right after that.

Anyways, it works until is doesn't. The fact that so many people believe it is enough to at least follow it.

So expect a bounce here. The financial news media will attribute it to better-than-expected Black Friday sales. Whatever. Believe it or not, I still experience joy despite not owning a smartphone or Playstation 3. ... Enjoy the next few days of upside. Just don't go all-in, because the bears see it as a great shorting opportunity. It's still a volatile market, not to mention Europe is still trying to rearrange the furniture aboard the Titanic.

Last Week's Best

-R

Debt Panel Calamity

2011-11-23T09:31:00.000-08:00

The Debt Panel Committee had to agree on how to cut $1.2 trillion over ten years. $1.2 trillion over 10 years equates to $120 billion per year on average. How tough is it to cut $120 billion? To put that in perspective, let's do a little math.

The government revenue averages around $2.4 trillion annually, or $24 trillion over 10 years. If this task was given to you at home, this is what it would mean: If your household income was $48000 for the year, you would have to figure out how to cut $2400, or $200 a month, out of your budget. Yup, that's what the debt panel had to figure out - the equivalent of a car payment.

These cuts would not take effect until 2013. Until then, Congress and the President can make adjustments to these cuts after they are agreed upon. So ultimately, there may not be any cuts.

That is what makes the deadline miss so disappointing. There really was no urgency. Just pick something (like Congressional salaries that total $100 million a year).

Revisiting Bank Of America

This chart was taken intraday. I expect a bounce at this level, but only a pause before the inevitable drop below. I hear people on CNBC talk about it being a buy at this level. So they are going to be giddier when it goes even lower, because then they can call it a "screaming buy".

Revisiting Netflix

Netflix isn't looking so hot. After it dropped (again) from bad earnings, it tried to recover. However, the market is still trying to find a price level that reflects the value of the company. That means lower prices by the looks of things.

Happy Thanksgiving

-R

Debt Panel Deadline Coming. Don't Hold Your Breath.

2011-11-19T22:30:00.000-08:00

So what happened this week? JoePa hired a publicist to rewrite history, Natalie Wood re-died, and Italy is near default. I seriously doubt Italy will fall. If Greece is still afloat, then Italy will resolve itself.

The Debt Panel has a deadline coming up, and most on it are huge partisan players. Doesn't look good. Is it me, or is the market already pricing in failure?

The Eurozone being a dicey place to invest. Perhaps that's why the dollar is up.

So if big money is buying US Dollars' isn't that good for US banks? Maybe, but many US Banks have substantial Eurozone exposure.

Despite the Newt Gingrich surge, inTrade.com lists Mitt Romney's chances of grabbing the GOP nomination at 67%.

Last Week's Best

-R

2011-11-13T08:21:00.000-08:00

Okay, I'm back. So what's happened ... The market whipsawed, GOP candidates got the two-hand touch treatment by CNBC, and the Chargers changed their name to "AFC Eagles". Oh, and Europe's still gone wild.

The market continues its choppiness. So who do we listen to for advice? It's difficult to trust the politicians, because they don't know any better. Ask a Democrat, and he'll tell you things will get better as soon as the Jobs Bill gets passed. Ask a Republican and he'll tell you things are bad and will get worse until all regulations are eliminated and spending is cut. The only question is: Do you bet on red or on black - or is that red or blue? What about analysts? Over 90% of them are saying "buy buy buy", but let's face it: 90% of the stocks are not buys. As for the media, their tremendous lack on independent thought (like FOX and MSNBC) makes them untrustworthy. So take a step back, loosen up. And guard your money and time.

The market is currently in a box. We're fine as long as we stay in this box or breakout to the upside. Note where we are in the box: closer to the top than the bottom. That should clearly tell you whether or not you should be buying on Monday.

Gold's enjoying a nice uptrend. So why isn't silver? Is that a sign of impending drop or pop?

It is troubling that financials haven't rallied the way the rest of the market has. This is especially for Bank of America, but I do see some optimism for the stock. As long as it stays above $6. A number of weeks ago, I stated that drop below $6 was a warning shot. It still is.

Last, but not least, Rick Perry's presidential prospects took a nose-dive on inTrade during his brain freeze. I'd hate to see a candidate lose on something like this. I'd rather Perry lose on the issues - like dissolving the department of Education, Commerce, and what was that third one? If anything, these three departments need a clearer direction. Education needs to recognize Common Core Standards and dump Race To The Top. Energy needs a policy. Commerce needs to work with Education to ensure that today's kids are adequately prepared for tomorrow's businesses. Dissolve these three departments and it's "anything goes". Not to say that nothing positive will result, but such a move would lead to an extremely Darwinian dynamic. The last time that happened was 2008. Institutions were not adaptable enough to the changing climate and many good businesses and enterprises failed. Something should be in place to reduce the severity of boom-bust cycles (which exist everywhere). And no, the answer isn't 9-9-9. We're talking apples and oranges if you're bringing that up. ... Anyway, inTrade puts Rick Perry's chances of securing the nomination at 4%. Not good, no matter how much shine FOX News will put on it.

Last Week's Best

-R

High Ho Silver?

2011-10-25T17:20:00.000-07:00

Is today the first day of the market pullback? For today at least, normalcy returned in that when you sell stocks, you store your money in gold and silver.

Netflix lover? Find another date. The relationship is over.

-R

Oops

2011-10-23T18:26:00.000-07:00

So much for all those "warnings" and "downtrends" from two weeks ago. Of course, if I were vain, I'd write, "it's still coming, you gotta wait a bit longer." Sometimes, you're wrong.

That stated, I'm still no tthe biggest believer in the move we've had (you can guess I missed the move) because of the ho-hum volume, but if given an opportunity for a meaningful pullback, I will hold my nose and buy.

I think we've seen the lows for the year. However, I think early next year could be tumultuous. It depends on how the debt panel and jobs bill get resolved. Not saying we're going lower. Just saying there are still significant headwinds. The volatility is still quite high, and that means high risk.

Last Week's Best

And last, but not least ...

-R

Warning Shot

2011-10-08T10:26:00.000-07:00

The market broke below support, but then reasserted itself within the channel. Bulls can shout "hoorah!", but the successive lower lows shout even louder.

* * *

The financial sector is fueling this uncertainty. The Fed's Operation Twist isn't bringing about any enthusiasm. Bernanke has made his plea to Congress ("Congress, do something!"), but the President's derivative jobs bill is all that's on deck. Meanwhile, Europe is burning.

* * *

So shouldn't gold be going up? Sure, but not necessarily in dollar terms. With Europe burning, gold is good to hold in terms of euros. However, the chart below shows gold in dollar terms. Since euros are becoming toxic, currency people are flocking to king dollar (lower case intentional) because it is still the safety trade (despite the S&P downgrade). Thus, gold's price in dollar terms doesn't lead to higher prices - yet.

* * *

Here's a follow-up on Bank of America. A slightly different take on what I've posted before. My thesis is still the same. a $3 handle coming soon.

* * *

Here's a favorite I like to follow. This is how I'm stalking it for the right entry.

Last Week's Best

-R

Bank Of America's Debit Fee

2011-10-01T18:45:00.000-07:00

Now you have a dilemma, Bank of America customers. You can go to Subway for a $5 footlong and pay cash, or save that $5 to pay for the right to use your debit card at Subway. It had no real impact on Bank Of America's stock as debit fees have been part of the rumor mill for quite a while - though most thought Wells Fargo that would be the bank to pioneer it. Bank of America has pressing financial issues as the Countrywide and Merrill Lynch issues have everyone rethinking Ken Lewis's legacy as CEO.

As for the rest of the market, not so good. Short term, looks like a buy, but this quick revisit to this level does not build confidence. Still quite volatile. Hopefully, you aren't too highly invested.

Last Week's Best

-R

Operation Twist

2011-09-25T20:49:00.000-07:00

The market bounced predictably after the big Fed-inspired drop. We are in a very choppy channel. Buy/sell carefully. Right now, fundamentals are unimportant and winners are few. In my personal account, I'm not doing much of anything. Just watching and waiting for a great shorting opportunity.

The market dropped after the Fed's "Operation Twist" announcement - buy more long term bonds (ie mortgages). That's all you need to know about the state of the housing market and the banking sector's inability to heal itself. Doubt the GOP's pompous letter to the Federal Reserve affected decision-making. The last thing you want is a Fed that succumbs to political pressure. Greenspan did that with regularity and look where that got us.

One financial stock I've been watching with great interest is Bank of America, so here's another follow-up. I personally own just one share. I owned it for the purpose of tracking it, but now wish I didn't own it. I haven't sold my one share because it would cost me more to sell it than for the stock to go to $0.

Here's a gold chart. Rumor has it that funds are liquidating their gold to raise cash (margin calls). Gold looks a bit broken (silver is really broken).

Last Week's Best

-R

Dylan Ratigan Starring In "Network"

2011-09-18T13:50:00.000-07:00

What's Next For Financials?

Dylan Ratigan Starring In "Network"

Visit msnbc.com for breaking news, world news, and news about the economy

Last Week's Best

-R

Jobs Bill Was As Expected

2011-09-10T18:12:00.000-07:00

If the president's bill had unexpected positive surprises, we would have seen a nice jump in the market on Friday. That didn't happen. So for now, we are still range bound. The failure to reach resistance should be a concern. If the market falls back to 1120, we may get a bounce, but it could merely be a pause before we see 1030.

Following up on the Warren Buffet Trade of Bank of America

Not picking on Warren Buffett, because the deal he got with Bank of America is a deal no one else can get. Still, it has a striking similarity to his investment in Goldman Sachs back in 2008.

Last Week's Best

-R

Market Looks Ominous.

2011-09-03T19:43:00.000-07:00

First the daily chart:

The Relative Strength Indicator on top showed a break in uptrend, indicating that momentum is shifting. It could be shifting to sideways or down.

The volume declined as the market turned downward, either because fewer were interested in selling (if you are a bull, you like that) or because people were taking an extended Labor day weekend. Either way, it points to a bounce on Monday. How high will we bounce? If it's above resistance (1220), that would be bullish. Likely, the President's speech would be the catalyst for higher prices should that happen. Current economic data does not support it.

Long term chart below

Ominous. Classic head and shoulders pattern shows a long term top. he market tried to revisit the neckline to test. It failed to make it there. So far.

Last Week's Best

-R

Warren Buffett Investment Comparison

2011-09-01T22:21:00.000-07:00

Three years ago, Warren Buffett invested $5 billion in Goldman Sachs (GS). It took 9 days before GS dropped below his buy price for good - that is, until it hit bottom and eventually recovered. Until it bottomed, GS lost roughly 2/3 of its value from the Buffett top.

Will history repeat itself (or rhyme) with Bank of America (BAC)? If so, BAC will revisit the Buffett level on Wednesday, then fall all the way down to $3 before hitting bottom.

Or BAC could bounce and reassert an uptrend.
Or BAC could fall below this level, then bounce at $6.

Lots of what-ifs.

Monday Stock Market Note

2011-08-29T20:33:00.000-07:00

S&P 500

Gold

Last Week's Best

2011-08-26T07:25:00.000-07:00

-R

Wage Recession

2011-08-21T11:52:00.000-07:00

"The touchstone for economic policy is: Does it allow the average American to find good employment and see their incomes rise?" -Barack Obama, April 2009

I don't think any civilization has ever experienced growth through austerity. It's like gaining muscle through fasting. If anyone has been paying attention to Europe, then surely that person would point out that it isn't working for them. So simply cutting everywhere isn't the answer, as promoted by Balance-the-Budget enthusiasts. If anything, reallocating resources should be a big topic during fiscal policy discussions. Someone uttered that we don't need more taxes versus more taxpayers. Well said.

How bad is it out there? A recent report indicates significant job growth since the Great Recession in an area most people would rather avoid: low-paying jobs ($13.52 and under). This speaks loudly that "good jobs" are at a huge deficit (maybe shipped overseas?).

During the Great Recession, mid-wage jobs have seen the greatest contraction.
The recovery has seen a strong rebound only for lower-wage jobs.

This is very bad, because middle and higher wage jobs mean a more robust economy. Low wages are bad for housing, and bad housing means a host of other problems. Houses do more for the economy than anything else. When one buys a house, then one also buys other goods for upkeep - a new washer/dryer, new roof, landscaping, security, etc. These other purchases spill over into the rest of the economy. But none of that will come to fruition if people cannot afford to buy a home.

Part of the reason why we had a housing and credit bubble burst was that the wage downtrend started when Bush 43 took office. In 2008, mid-wage jobs fell off a cliff. Mid-wage jobs (teachers, telecom repairers, and machinists for example) have been hit the hardest with totals equaling more than high-wage jobs (executives, engineers, and nurses) and low-wage jobs (retails salespeople, clerks, waitresses, cashiers) combined.

During the George W Bush presidency, mid-wage occupations growth was anemic.

The graph at left establishes that Obama had good reason to blame the last president who I believe is still hiding in a corner somewhere. However, Obama - and Congress - own this too and with good reason: they have largely neglected the economy throughout Obama's term. Of course, lawmakers like to point fingers at "special interests", but "special interests" don't make the laws.

Even if lawmakers can right the economy, they still have to face the hourglass trend: mid-wage jobs have given way to low-wage and high wage jobs, ie the middle-class is in decline and we are getting an enhanced separation between haves and have-nots. This is significant for one simple reason: if there is no wage growth, then there is no economic growth. The graphs indicate that economic growth during the Bush 43 years was not real growth. The economy simply corrected in 2008. Considering the bounce that Wall Street has, and Main Street hasn't, the separation is again evident. This gives much fuel to the double-dip recession predictions.

The increasing duration of unemployment hints a predisposition against hiring
people who have been out-of-work for an extended period of time.

So will there be a double dip? A "recession" in economic sense means contraction, and the dismal numbers do not indicate a shrinking economy. Yet. They indicate a slowing economy. The difference is that there is still growth. However, that is in the economic sense and these numbers are lagging indicators. They tell you what happened, but past does not always equate to present. If one looks at Main Street (ie: JOBS), then one can sense if a double dip is taking place. As far as a job-hunting American is concerned, that's all that matters. With military coming back from war, the President has proposed tax incentives to companies that hire former military. Given that and the preference for employers to hire people who already have a job , that leaves out a growing group of people.

The Stimulus Package proved to be less a stimulus and more of a Recession Slower. While many think they have the answer, they ought first study the Stimulus Package before deciding on the particulars of a new Stimulus. The Stimulus Package was one-third tax cuts (proving that simple tax cuts are not any-time answer - they matter little if you're not making a wage to be taxed), one-third state-city balance sheet replenishment (states and cities hoarded stimulus money from the 2009 stimulus package to bridge the gap created by out-of-work Americans who suddenly found themselves without jobs and/or in new jobs with lower wages), and one-third programs.

2012 should prove to be a pivotal year economically for the President. Stimulus money is now gone, so many states are cutting back even more. The President stated in his State Union last year jobs had to be the primary focus. Now, twenty months later, he is finally turning real attention to it. A new stimulus plan is needed that focuses on higher wages and job creation, something his first stimulus package lacked. Given that the debt ceiling debate resulted in passage of a bill that did not address any real spending cuts, it is entirely possible to print more money for it. If the economy can generate any momentum, he could get a second term. If we get increased unemployment, Obama will be one-and-done, forever placed in the Ford/Carter category. ...

However, fate may very well be out of Obama's hands. Any new government stimulus program, if it gets passed (a third extension on unemployment benefits did not get passed so that does not bode well), will take a while to take affect. By that time, people may have already made up their minds on who they will vote for.

The Obama Track Record

For the next election, you must first come to terms with whether or not you want Obama for another four years. So let's take a look back.

Platform: "Change You Can Believe In"
Obama Policies: Stimulus Package, Omnibus Bill, Healthcare Mandate, Cash For Clunkers, Home Loan Modification Plan, Bush Tax Cuts Extension, Dodd-Frank, Guantanamo Bay, Israel. I'm sure I'm missing lots from this list, but these are the major policies put forth by his administration.

What about quantitative easing? The Fed is supposed to act independently of politics (though Ben Bernanke, a carryover from the Bush presidency who worked extensively with Alan Greenspan, was reappointed by Obama), but it does work in concert with Treasury. Therefore Obama shares responsibility for that.

Do you like the direction the Obama White House has taken? Did Obama deliver the change you voted for? If so, then reelect him. Obama's platform for 2012 will not be "Change", but rather "Status Quo".

A Few Obama Quotes

"Greatness is never a given. It must be earned." (Inauguration)
"I'm happy to get good ideas from across the political spectrum, from Democrats and Republicans. What I won't do is return to the failed theories of the last eight years that got us into this fix in the first place, because those theories have been tested, and they have failed." (Feb 2009)
"I don't believe that the American people want us to focus on our job security. They want us to focus on their job security. I don't think they want more gridlock. I don't think they want more partisanship." (Jan 2010)
“Never again will the American taxpayer be held hostage by a bank that is too big to fail.”
"We lose ourselves when we compromise the very ideals that we fight to defend. And we honor those ideals by upholding them not when it's easy, but when it is hard." (Nobel Lecture)
"What the American people hope – what they deserve – is for all of us, Democrats and Republicans, to work through our differences; to overcome the numbing weight of our politics." (2010 State of the Union)

Stock Market Stuff

Time To Turn On The Printing Press?

Hewlett Packard (HPQ) is during its earnings release stated that it's going to discontinue tablets and it's spinning off its PC division. HPQ has the biggest market share in PC sales, but is deciding to shift away from it because of anemic growth (thin profit margins). With its purchase of Autonomy, it seems HPQ wants to go into cloud computing and servicing - ala IBM. As it transitions from hardware to software, we might not be able to recognize HPQ in five years. ... Terrible numbers from Philadelphia's Federal Reserve on factory orders. Expectations were for a positive number (+3.2) and instead we got a negative number (-30.7), giving more ammunition to the "double-dip recession" whispers. ... Much focus is now on the Fed and on what it will do. Many think Bernanke needs to crank on the printing press again because of deflation fears. However, Bernanke tends to act only when crises have already arrived. He doesn't want to turn the money machine. It would not only look bad, but it would further muddy the economic picture going forward. However, he might not have a choice. ... Gold can't go any higher, right? Well, it just passed $1800 this week and it's still going parabolic. Truly amazing. Silver isn't keeping pace either, so what does that say about the recent run-up in gold? Fear. Investment and view as an alternate currency is what establish gold's uptrend, but now the uptrend is skyrocketing. Silver should be keeping pace, but it isn't. Fear. ...

Bottom Line: Bounce over. High risk out there, I wouldn't be too long on anything. There may be another bounce early week. If it happens, it's likely to happen Monday or Tuesday. However I wouldn't start to get aggressive until the S&P closes above 1205.

Current Positions: 20% cash - AAPL, MO.

Stuff The May Only Interest Me

Leon Panetta is worried about his defense budget getting cut. So much that he's telling Congress to raise taxes and cut Social Security among other things. The defense budget has actually gone up under Obama's watch. However, what Panetta seems to misunderstand is the cuts he seeks in Social Security in favor of defense is downright criminal. Americans pay specifically for Social Security, and Congress continually dips into the Trust fund because it can't say "no". It's understandable that he wants to hold on to what he has, but if he thinks taking from the Trust fund is acceptable, then he's got his head stuck in a panera. ...

While Obama has clearly demonstrated a lack of understanding of the problems of the education system - or maybe he does get it and just doesn't want to deal with it - it is also clear that none of the Republican candidates for President have a grasp of it. The response in last week's debates echoed the same sentiment: vouchers, choice, and defer decision-making to the states. That to me translates into, "I have no idea, so let the states handle it." With NCLB, the states handled the standards and curriculum to help comply with testing and accountability timetables mandated. The result was a lowering of standards to meet NCLB guidelines as "proficient" has become "basic". Voucher systems in Wisconsin and Minnesota have, on average, not yielded superior results to public schools, nor have "market forces" lead to improvements in the public schools - despite the ability of charters to cherrypick the most motivated students from the public schools. As it turns out, starting a school and making it successful is tougher than starting a Starbucks. What about choice? Choice actually has not been taken advantage of by parents because few are willing to have their children commute more than an hour to school and back everyday. The problems in education are multi-faceted, and many factors are external to the education system. ...

Our politicians keep blaming the S&P downgrade for the market turmoil, but actually the market started tanking during the nationally embarrassing debt-ceiling jihad which occurred before the downgrade. Why do they do that? Is it because they're stupid? Well, yeah, they aren't very smart, but they're downgrade excuse has a purpose: they want something from us. Scrutinize what they say and recognize that isn't truth oozing from their lips. They either have an agenda or are trying to rewrite their own history of poor decisionmaking. Instead of going Wisconsin and protesting out in the streets, we are eating it all up. ... Ball Park Franks has declared weiner war on Oscar Mayer, charging Oscar Mayer that its hotdogs are not 100% beef and that it lies about its taste test results. Sara Lee (owner of Ball Park Franks) has thus sued Kraft (owner of Oscar Mayer) - opening statements in court this week. Onlookers eating Hebrew National hotdogs are probably watching to see which one will win the title of second-best. ... I'd really like to another Democrat run against Obama in this next election - John Huntsman doesn't count. Obama needs a shot in the arm the way Pat Buchanan provided for George H Bush in 1992. I don't think Obama really takes the Republican opposition seriously, and he needs to start planting those seeds now. Recently, he's been sounding more Republican, stepping too far to the right in an effort to appear centrist. ...

Unemployment - Texas vs. US
(Click to enlarge)

A community organizer is a person who helps generate community support for an action - whether political, social, religious, or otherwise. It was what Barack Obama was most known for and what detractors targeted - claiming that Obama had no real experience outside of his activism. Given what has occurred so far, does anyone find it ironic that he has been unable to generate support in Washington for the majority of his term - especially since Rahm Emmanuel left? Community organizing is less difficult when there are common goals and ideas. Washington has proved to be uncommon, and interests became less common after the last election. ... Rick Perry's criticism of the Fed's quantitative easing policy is a weak political argument. Though it definitely aids in the transfer of wealth from middle class to rich, there's very little he could do about it since the Fed Chairman and not the president puts the policy in place. Now, if he were argue about whether or not the government should have greater control over Fed policies, then you 'd have something more substantive. However, that would contradict his "small government" mantra. It should also be noted that Bernanke has held his position since he was first appointed by Bush 43. He should tread carefully, because the Bush 43 questions will surface. ...

Click to enlarge
(Courtesy The Big Picture)

There's been some talk of Rick Perry's "Texas Miracle" - that is, how Texas has managed to avoid the the Great Recession. I don't know what numbers lead to the classification of "Miracle", but if Texas is a miracle, then North Dakota is downright divine. The chart at left shows unemployment (U3) of the US, California, Texas, and North Dakota. On a percentage basis, the number of unemployed workers increased nearly 100% in Texas since January 2008, about the same as the entire US. Unemployment though is determined by rate to account for population and labor force changes. From January 2008 to July of this year, Texas saw its unemployment rate increase 4.4% to 8.2% (86% increase) whereas the rest of the US went from 5.0% to 9.1% (82% increase). Perhaps the "Miracle is elsewhere. Texas rankings on poverty and crime crime aren't worthy of boasting either (see right). Neither is education in that student scores on the National Education Assessment Program tests have been rather stationary during his tenure - not bad when compared with the rest of the country, but not worth boasting about when you start talking "Miracle". ... Perry supporters have been gawking "yeah, but" when parsing through these numbers, but whatever the case is, I really wouldn't care. I'm more interested in what direction he plans to take the country. So far, it's sounding like the same direction he took Texas, and that doesn't excite me. ... I can see Newt Gingrich as a chief of staff. He looks like the type who could pull off a Rahm Emmanuel in the shower.

Stamp collectors will be on the lookout for Pixar stamps. WALL-E and Buzz Lightyear are among the characters featured by the US Post Office on its new "Send A Hello" series of stamps (but nothing from upcoming Pixar flicks, not that they need more promotion). Their reasoning for choosing these characters is that they are "unlikely heroes who explore the bonds of friendship and family . . . the stamps [are meant to] encourage people to connect with their loved ones through the mail." Kinda makes me want to stop texting. OMG! I wonder if kids today know how to write an address on an envelope? Or where the stamp actually goes. LOL. ... No Child Left Behind (NCLB) required that all students achieve "proficiency" on state tests or face punsihments like a state takeover or firing of all staff. Many states delayed punishment in various ways - like lowering the "proficiency" level to "below basic" on state tests so that more can pass. Some districts got around it by refusing NCLB money and subsisting on significantly reduced revenues. Only two years are left before every school is deemed a failure because there is no way 100% of all students will be "proficient." Much like his boss who learns very slowly, Secretary of Education Arne Duncan has finally realized this mathematical impossibility, and is now generating a plan that would grant NCLB waivers to school districts which I interpret as "scrapping NCLB and sending it back to Texas". It will not be declared as such, but granting waivers allows you to circumvent and if the requirements for waiver are "below basic", all states will be filing the paperwork. However, I haven't seen the plan yet, so it could be just a Chicago waiver. Again, Duncan is a slow learner, so he may only see a need for some districts with exceptional circumstances. Hard to tell. ...

Abercrombie and Fitch wants a Jersey Shore member NOT to wear their clothes. Reportedly, it is willing to pay Mike "The Situation" Sorrentino, one of the stars of MTV's hit reality show about promiscuous people who get drunk at clubs and puke the next morning (they make so much money on this - life is not fair), if he doesn't acquiesce. With Back-To-School season in gear, the company wants a cleaner image among parents. The fact that it sells thongs with names like "eye candy" and "wink wink" printed on them seems lost on all this. Considering the A&F once sold "Fitchuation" t-shirts, it is hard to understand why A&F would do a 180. "The Situation" hasn't become more gentlemanly. What changed? ... Now that S&P has gone on a downgrade bend (it just downgraded Venezuela, though it still hasn't downgraded France's AAA), the SEC is now investigating S&P for its ratings on mortgage-backed securities. Thus, the backlash begins. Took the SEC long enough, and it only required a downgrade of the country. Why stop there? Fitch and Moody's should be on their menu too. ... Kim Kardashian got married. I give it 18 months. ... Now that HP is discontinuing its Tablet (geez, that was quick), Best Buy is having a Tablet fire sale. The cheapest sells for $99. Want one? Good luck, because they are hard to find. Rumor has it Best Buy employees are gobbling them up. Your best shot may be online. ... As this is my last post (on this blog), I just want to say thank you for entertainment my mild ramblings. Next week's post might simply be comics - which probably what many of you just skip to anyway.

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S&P Inconsistencies

2011-08-12T10:39:00.000-07:00

"On the other hand, it's hard to think of anyone less qualified to pass judgment on America than the rating agencies. The people who rated sub-prime mortgage-backed securities @ AAA are now declaring that they are the judges of fiscal policy? ...Really???" - Paul Krugman

You might have heard that Standard & Poor's downgraded the US credit rating from AAA to AA+. OK. Everybody knows. Here's the result of their calculations on our debt.

“Under our revised base case fiscal scenario — which we consider to be consistent with a AA+ long-term rating and a negative outlook — we now project that net general government debt would rise from an estimated 74 percent of G.D.P. by the end of 2011 to 79 percent in 2015 and 85 percent by 2021.”

That's debt =
74% GDP by end of 2011
79% GDP by 2015
85% GDP by 2021.

The US government initially cried "foul" because it saw a $2 trillion error in S&P's estimates of our GDP. That's "trillion" with a "t". Oops. Careful with that decimal point. After the correction, S&P reiterated its downgrade, perhaps to avoid looking even sillier.

The US does have the capacity to print its way out of debt. Having a printing press gives it flexibility in how it attends to population increase and debt payouts. Yes, inflation robs the population of its wealth, but the government wants to pay everyone back. Printing dollars certainly helps, because it gives the government monetary options to go with its fiscal options.

S&P currently has a AAA rating on France. According to S&P's models, France’s debt will be 83% of its GDP by 2015. That's higher than the US's 79%. Also, France cannot print its way out. No monetary options. In addition, they are directly affected by the poor financial situations in Portugal, Italy, Greece, and Spain (PIGS). Yet, they are rated higher by S&P. Why is that?

If you've read last week's comments, then you know that it's confidence in government. S&P is more confident in France's government with its relatively higher debt and fewer options than in the US government - despite the fact that 12 member debt panel has yet to form and construct a fiscal plan to be voted on.

Is S&P wrong for downgrading us? With its spotty track record, it hasn't been right very often. Given the status that it has enjoyed, that level of incompetence deserves the corporate death penalty. Still, S&P could be right downgrade only because it should have done it a long time ago (pre-Obama). Only it could be wrong by its own metric since it weighs political factors so heavily. Only it could be right because blah blah blah. I can argue both sides of this interminably.

May it's right or maybe it's wrong. I just don't understand why France is less risky when politicians, French or otherwise, are cut from the same cloth. Others have pointed this out and now, so logically, there are rumblings of a possible France downgrade too. The crowd has to point things out first before credit agencies act. And when they act, they do so long after the writing is on the wall.

If that isn't enough, some think S&P will downgrade the US again by year's end to AA . Should this idea gain momentum, does that mean that France comes with us?

Stock Market Stuff

Fed Chairman Ben Bernanke reiterated the Bernanke Put this past week by declaring that rates will stay on the ground floor for the next two years. In addition, he made cryptic allusion to using other market tools to help keep things going. Beyond, that, he offered nothing. That disappointed many who were hoping for a QE3, but really? The purpose of QE is to hold bond rates low so that banks can borrow at a low rate and lend out at higher rate, making money on the spread and thus repairing their balance sheets. Europe is already doing that for us by bailing out Italy. They are taking that cash and buying US treasuries for safety. That increased demand is driving rates to the floor. If US Treasuries are being bought, then there is no need for QEX. After an initial selloff, the market rallied hard into the close. When a market rallies on bad news, that means something. A line in the sand for the bulls. ... Earnings from other companies rleased this week have been overshadowed by the stock market liquidation this week, but it's still important to pay attention to earnings to see which ones are going to fine. Most companies will be unaffected by a US downgrade or debt issues, and some are actually recession proof. For example, do you think Altria (MO) is going to be hurt by all this? Heck, MO might actually benefit. MO sells cigarettes and this type of market is bound to drive people to smoke. ... With Bank of America (BAC) diving, whispers of capital raising are starting to creep in. BAC's stock is diving because of the mortgage overhang and increasing difficulties of passing that trash to Fannie and Freddie. The AIG lawsuit of course doesn't help matters either. I don't see BAC going to zero because of implicit federal support, and I wouldn't mind buying some. Seeing it fall to $6.50-$7, I wouldn't mind dipping a toe in - at $4. ... Cisco (CSCO) returned to its 2009 low. Still a favorite of many mutual funds, CSCO has gone the way of Microsoft (MSFT): the numbers indicate a growing company, but it's falling out of favor because everyone sees slim growth potential. ... Parts of Europe have banned short selling (sell high borrowed shares, then buy back low) for a while, and that's a bad thing. When we did that here in 2008 on selective sectors, stocks sank even further as the shorts just simply target stocks in other sectors. It simply redirects it and the contagion spreads. While shorts can definitely cause the market to fall, they also help cause bottoms. When they cover (buy back their shares), that causes prices to go up and when buyers step in, that adds fuel to a rally. ... A bit of irony: the downgrade is now being viewed as a harbinger of negative things to come for S&P. Given its questionable logic, many institutions will not rush to get a rating on their debt. McGraw-Hill (MHP), which owns S&P, saw its stock take a shellacking this week. When will the downgrades come for MHP's stock?

Bottom Line: Enjoy the (jackhammer-like) bounce while it lasts. It could just be a pause before more selling takes place. So if your stuff stops going up, then sell it.

Current Positions: 50% cash - AAPL, BIDU, HS, MO.

Stuff That May Only Interest Me

Deer antler spray is now on the list of drugs that athletes use as an HGH replacement. Immature deer have high levels of IGF-1 (insulin growth factor) in their antlers. The antlers are ground up, then put in a breath spray. Major League Baseball issued a warning to players not use it, but not because of the IGF-1 (which it can't test for). The warning is due to a possible testosterone contaminant in the spray that MLB does test for. How's that for goofy? That's like warning people not to walkout onto a freeways blindfolded because an accident would deface the driver's car. ...
Has anyone noticed that with all the negative publicity the different czars got in the first two years of Obama's presidency that we don't have a Healthcare Czar? It would make sense to have one, wouldn't it? ... Experts are now tossing around the idea that the price of gold could reach $2000 an ounce. I don't think they're aiming high enough. A very real possibility is $3000. ...

Last week while Obama celebrated birthday #50, the income tax turned #150. Originally, the income tax came to be when Abraham Lincoln needed money to finance the civil war. The result was a 3% on people with incomes over $20500 (in today's dollars). The Revenue Act has come a long way since then. Know anyone being taxed just 3%? I know a few companies that get that kind of treatment, but certainly no people. ...
Here's why the Chinese complaints about dumping the US dollar in favor of a new world currency sound silly: they want sell their goods here. To do that, they have to expect compensation in US dollars, because last I checked, we don't use rubles or pesos. And what do you do with all those dollars? If the dollar is the world's currency, then it could buy oil or gold or Treasuries. If it isn't the world's currency, then it's just Treasuries. Yeah, it stinks for them if the US just simply prints the money it needs to pay the interest and debt, but since the yuan is linked to the dollar, they aren't exactly losing with dollar depreciation. ...
BTW, guess what China's credit rating is? AA+, same as ours. ...
The crisis in Europe over Italy, plus the diving stock market, is causing investors to reallocate their money to Treasuries. Yes, the same ones S&P downgraded last week. Because of that, interest rates are dropping to the floor. Which is why we are examining the idea of refinancing our home again. We are hoping to shave off at least another 1% or better. We've been quoted in the mid 3% range. The negative: home values have slid (don't believe the hype about housing prices bouncing), so it could mean bringing in more money for the minimum 20% capital requirement. ...

For kicks, we floated the idea to a loan originator of someone else applying for a home loan. He filed bankruptcy four months ago and owns nothing. As it turns out, he did qualify for a loan - from a private investor. The price: 9% + 6 points. The loan originator tells us 9% is good because normally 15% would be offered if it were offered at all. Yikes. ...
Tiger Woods is a much better golfer when he's out of control and hooked on Ambien. This sober (or somber) Tiger just doesn't roar like he used to. ...
The Fed's monetary policy might be helping the banks repair themselves and it may give incentive for them lend to help give businesses a push, but it really punishes savers. If you are looking to save money by putting it in a CD or money market account, then you aren't going to get much of anything back. Current monetary policy encourages investment and spending, especially since it is pushing the "inflation" button. The problem is that though banks have the Fed's help in repairing their balance sheets, people are getting hurt with regard to their own balance sheets since the result ultimately is higher prices. ...
What will ultimately help people's home budgets is wage growth (which I will address in next week's blog). Fiscal policy has splashed around with apparent aimlessness. The cries for austerity are loud ones, but not necessarily the best course of action since rates are so low. You don't get much return on your money. What government needs to focus on is how to spur investment in the US that will put people back to work longterm and give opportunities for wage growth. Everything should be on the table - including NAFTA. Any fiscal policy should also include education in the conversation. We are still smarting from NCLB which focused on testing and accountability on math and reading, yet heavily neglected curriculum. Produce smarter, more well-rounded people, and the jobs won't go overseas. ...
The best critique of the Iowa Republican debate was on MSNBC. Ed Shultz, who is rarely in control of his emotions, made some very solid and measured analysis. FOX gave atta-boys to every candidate with a focus on who gave better anti-Obama points. Pawlenty did his homework on Michelle Bachman and found several chinks in her armor, but showed little substance on what he was about in going the Schwarzenegger "vote me because the others stink" route. Santorum did his best "me too" impression all night in trying to ride Pawlenty's thunder, Romney was a wishy-washier Mr. Center-Right, Herman Cain was still on his soapbox, and Ron Paul continued with isolationist policy theory. Commentators found it curious that the crowd applauded whenever Paul said "can't we all just get a long and leave Iran alone so that we can focus on the inner us", but they forgot that the debate took place on a college campus. College students vote only in Presidential elections and tend to vote for the one with the hippest, give-peace-a-chance viewpoints. ...

The best was probably Gingrich. He found some new supporters after this debate. Agree or disagree with him, but he knows better than the other candidates how Washington works. Gingrich clearly demonstrated that if Obama had the kind of experience and understanding he has, Obama would be a more effective leader. Of course, if Gingrich had the kind of restraint Obama has, he'd have a lot less baggage and would be more electable. I can see someone choosing him for a vice-Presidential running mate. Don't think so? If Joe Biden can get in the White House then anything is possible. ...
One predominant theme during the debate was that all candidates claimed to be fiscally conservative. That hasn't really been true of any president during the last few decades. Democrats spend on social programs and Republicans overspend on defense. Both spend just as much and judging by the wars, Republicans spend more. ...
Spain is struggling as are Spanish banks like Bankia. This week, Bankia IPO'ed to raise cash and did so successfully, raising enough to get it above the minimum requirements for passing the 8% capital stress test level. So why do I find this remotely interesting? Because Bankia helped finance Real Madrid's (that's a soccer team) acquisition of two coveted players - Ronaldo and Kaka. If the IPO didn't bring in enough money, they would have aggressively sought a loan from the European Central Bank and put these two players up as collateral. That's probably worse than "I'll gladly pay you Tuesday for a hamburger today," but who knows? Maybe Ronaldo and Kaka are really good at monetary policy, too. Gooooaaaaall!!!!!!!!! ...
Right now, I'm reading Diane Ravitch's new book "The Death And Life Of The Great American School System." Worth your time. It demystifies a lot of the rhetoric involving education reform and identifies statistics that contradict many popular ideas vouchers, choice, small schools, and testing. Some great stuff on San Diego too and it details how Tony Alvarado's (some would say "mixed") success in New York was poorly implemented by Alan Bersin, how the legacy of Bersin still haunts us here (that dude does not know how to run a toaster oven, not to mention a school district), and how his virulent leadership qualities live on in New York (Joel Klein and Michael Bloomberg are Bersin-spawn). ...
Rick Perry is running for President. Aaaaah! I don't think this country can handle another dose of Texas. Its phony testing and accountability program for education became the backbone of NCLB. I can only hope he garners just enough votes to tie Ron Paul and perhaps winds up in a cameo in a Bruno sequel. ...

Rick Perry

Perry's idea of praying for rain to end the Texas drought doesn't seem like assertive policy, so I can't say that I'm a big supporter of that theory. The only thing I do agree with Perry is repealing the 17th amendment. Currently, senators are elected by the public. Instead of the public or the state legislatures, I'd rather state governors not named "Blagojevich" appoint them. The House is supposed to represent the people whereas the Senate represents the states. People voting on senators kinda makes the Senate pointless. Otherwise, I'd be fine with eliminating the Senate. ...

Meredith Whitney

Meredith Whitney is a very smart analyst when it comes to banks and bonds, but CNBC is going too far in letting her voice opinions on everything else. Her view of public education (we need pay for performance and vouchers) and the Tea Party (it consists of freaked-out, unemployed white men) wreaks of simple-minded idiocy. Just stick to subjects pertinent to your college major. ...

Michelle Malkin is way off her rocker. She clearly does not understand teachers and the education system. Having a mother who was a teacher does not give her street cred, and nor does having children in a charter school. A charter school is a school that exists between the islands of public and private, so that doesn't really give her any insight into public schools. She brings up the classic "teachers work only 180 days and get a nice salary with benefits" without acknowledging that teachers really work 184 real days, not 184 nine-to-five days. That's like saying she only works when she types up her articles - never mind the research, homework, preparation, and review (though this article indicates substantial absence of all these). She doesn't acknowledge that the level of mastery and schooling teachers must attain is not comparable in salary to that of other professions with similar level of credentials and studies. And with regard to LA's superintendent claiming that "too many ineffective teachers are falling into tenured positions - the equivalent of jobs for life?" If they are rated "ineffective", they don't get tenure unless there is no one else that's better or available. It's LA. You take what you can get, because there really isn't a line outside of qualified individuals. Oh, by the way, LA isn't known for paying its teachers well. Maybe that has something to do with it. Lastly, she has bought into the whole reading- and math-only curriculum and bottom-line results equals reality. While you can't test everything, she seems to be in favor of not exposing children to everything either. All there is to life is reading and math. Very narrow-minded, she has much more research to do. As far as this article is concerned, I can tell she didn't do any. Alluding to Guggenheim's "Waiting For Superman" with its several factual inaccuracies hardly qualifies as solid argument point. "I saw a movie on it" is hardly persuasive. Michael Moore's "Sicko" didn't do it for her on healthcare, so why should "Waiting For Superman?" ...
Mr. Teachbad has been fired, and he thinks it's due to his blog. Teachbad taught in DC where Michelle Rhee instituted her highly subjective IMPACT program which evaluates teacher performance. Since his views of administration were quite hostile on his website, that possibly tainted their evaluations of his teaching. While my views are far less incendiary (my point of view of administrators is very different) and I am no longer concerned about a Terry Grier or Alan Bersin, this is probably the last straw for me on this particular blog. Teachers in our district have been warned about social media and blog postings and how they would be used against us if we were made targets. This blog isn't meant to inspire cries of "Attica" at work and in no way will I go the Anthony Weiner route - though I've been told that I'm better-looking, but then again I wouldn't know because I don't A-Rod (study myself in the mirror) - but still, I don't need the potential headache.
Therefore, I will stop posting this blog after next week. A shame, because I enjoyed this. However, Mrs. R has raised this point with me time and again. At last, I will acknowledge her correctness on this issue. If we were keeping score on how often she is right, my balance sheet would look like AIG's.

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Quantifying Confidence

2011-08-05T20:06:00.000-07:00

First, the debt deal.

Debt ceiling gets raised $400 billion. That's enough to get through August.
Debt ceiling get raised another $500 billion. That's enough to get through another 5 months. Congress can renege on this part of the deal, but that would require another vote - which Obama will veto. So if Congress chooses to waste time voting on it, it will be a political statement to pander to more votes for next year.
Spending cap: Almost $1 trillion will be cut over the course of 10 years starting in October. The cut for 2012: Just $21 billion, enough for a politician to claim "I voted for budget cuts".
Starting in November, a 12 member panel will devise a plan for another $1+ trillion in cuts.
Balanced Budget Amendment proposal gets sent to the states for a vote. The result will determine whether Obama can increase the debt ceiling another $1.2 trillion (no BBA) or $1.5 trillion (new BBA). Congress can revote on this debt ceiling raise and decide "no", but Obama will veto.

Here are the problems with #4:

Congress votes on the panel's recommendations as presented - no changes can be made. That pretty much guarantees a "no" vote.
Didn't we just have a debt commission recently give its recommendations? What happened to that?
If there is a "no" vote, cuts are triggered in all departments except the sacred cows - Social Security and Medicaid. Medicare might get some cuts.
The debt is $14+ trillion. These proposed cuts roughly covers just the interest on our debt.

In short, I'm not seeing anything bold in this. The decision was to vote "no" on cuts later. Just not now.

Confidence Matters

Now that the "ideology first, country second" debt ceiling debate has concluded, two of the three credit rating agencies, Fitch and Moody's, evaluated Congress's commitment to a debt plan and decided not to downgrade the US, but issued a negative outlook. The negative outlook simply means that they will downgrade the US in the future if the government continues to do a lousy job on fiscal policy. Standard & Poor's on the other hand, followed through with the downgrade threat, going from AAA to AA+. S&P is less optimist about the future Congressional debt panel vote. Yes, credit rating agencies base their decisions on the degree of optimism they have about our government. Very scientific those people are. Case in point: S&P downgraded Greece recently from CCC to CC. Nevermind that Greece has been this close (I'm pinching two fingers together) to default for quite some time. The idea of confidence is very big in the credit world. For example, prior to 2008, many banks and brokerages levered up more than 30 to 1 - that means for every $1 they had, they borrowed $30. Despite that, their credit ratings were investment grade. That works just fine for a business model as long as other institutions had confidence in the institution's ability to make money and come up with the dough upon demand. Confidence has always been a part of the business model for banks. A lack of confidence means a run on the bank. So if confidence is part of the foundation for your business, one would think that you should be risk adverse to guard against the downside, because the risk isn't just the loss of money. It's bankruptcy. That, of course, did not happen. Confidence tapered, then disappeared. Institutions wanted cash, not credit. Since there wasn't enough cash, the house of cards toppled.

China is not as confident in the US. China's leading credit rating agency this past week downgraded the US from A+ to A, five levels below the highest rating possible (AAA). That means in China's eyes, we are at the same risk level as Russia which defaulted thirteen years ago on its bonds. No one is really paying any attention to China, because of their propensity for fuzzy mathematics. That's ironic, because confidence also incorporates fuzzy mathematics.

The confidence credit rating agencies assign to our lawmakers and President a number and that number gets plugged into whatever formulas they use. After a few (some would say "bogus") calculations, they sausage out a rating. There's no public reference or formula one can check as each agency keeps its rubric confidential. The fact that these confidence numbers can trump everything else is mesmerizing. Again, Greece just got downgraded a week and one-half ago. That means there is now even less confidence that Greece will make good on interest payments on its debt. The fact that there was any confidence at all before the downgrade is quixotic.

Prior to 2008, credit ratings agencies routinely rated mortgages as AAA. That means the ability for borrowers to make payments was as secure as a savings bond from the federal government. Yet, they were more risky since they paid higher interest rates than a savings bond. Huh? Yep, confidence bridges that gap. Confidence got them AAA rated. Or maybe it wasn't confidence in the borrowers paying off their mortgage. Rather, it was confidence that the banks that issued the financially-engineered mortgaged-based paper would make payments to the ratings agencies for rating them AAA. Hard to tell.

Currently, S&P's downgrade matters little because the other two have yet to follow suit. It also matters little because S&P itself has little credibility. Consider this statement from S&P on its decision to downgrade:

"More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011."

Simply put, S&P feels less confident than Fitch and Moody's in the government's political climate and its commitment to sound fiscal policy. On this basis, Congress should immediately eliminate S&P as part of the oligopoly status the credit rating agencies currently enjoy. Not for retaliation for screwing the taxpayers yet again, though that would be a great way for Congress to say, "Don't mess with Daddy." Instead, Congress should exclude S&P because of a lack of confidence in its ability to credibly rate debt. Consider: how is this Congress and White House any different than the last few? The debt has gone up for decades. Congress still plays the games it plays. How is now different than then? If there is no difference, then why is a different credit rating necessary?

Suppose a teacher incorporated confidence into grades. If asked, could I say, "Yes, Johnny has an F on paper, but I'm rating him a B because I have confidence that he will attain that grade in the future based on effort and trend." What if Johnny doesn't earn the B and still deserves an F? Can I downgrade him? Sure, but I can't revise past report cards (not without administrative help) the way government revises economic data. And if enough time has past, then Johnny has already moved on to the next level and there's no going back from that. I'd be lumped into the conversation of grade inflation and possibly labeled a bad teacher. Johnny's education gets screwed in the process, because we will be denied the ability to learn what he should have in the first place. Heck, he might even develop some more bad habits in the process, because he has learned how to pass a class with an F.

This is similar. When a credit agency overweights confidence, it becomes an enabler. It enables more of the same decisionmaking from the institutions it rates and all other parties tangentially involved. Because of flawed ratings, we have had:

more toxic mortgages getting rated AAA,
more mortgages from speculating house-flippers since any and all mortgages were virtually guaranteed a AAA rating,
more risk-taking from banks and brokerages through excessive borrowing,
more inadvertent risk-taking from retirement funds (they were buying these toxic mortgage-backed products because they were highly rated), and
more irresponsible fiscal policy from the government.

Thus you have an economic crash and a stagnant recovery. While many players are guilty for their roles in the economic crash, credit rating agencies are probably the most culpable (after Alan Greenspan). So why not eliminate the oligopoly status? If no one in Congress has the spine to hold hearings and throw some of those people in jail, then at least eliminate the special treatment.

Do I think that will happen? No. I have no confidence in Congress in making intelligent decisions. Because now is no different from then.

Stock Market Stuff

Dive! Dive! Rates are plunging as people flock to safety. Even silver (SLV) started selling off. Many believers in gold feel that silver should be shorted in favor of the yellow shiny metal. However, silver is out of balance with respect to its historical value in relation to gold. Relatively undervalued. The shorts may be right with respect to momentum, but they are wrong on the fundamentals. ... With the market falling, supports are being sliced through like butter. As a result, ignore supports on stocks on your watch list. At this moment, people are just picking numbers. At what number will the market bottom (some say 1138 on the S&P b/c of a H&S measured move from head to neck)? In 2008, we had the Devil's bottom - that is, the S&P bottomed at 666. The fact that the market crash arrested at that number is no coincidence. The trick is to start buying at that magical number the rest of market will step in. Since I'm continually losing week in and week out in the lottery, I'm not inclined to rush out and buy until someone else does first. I'm just not good at picking numbers. ... All the gains made from QE2 have been erased. Just like Japan, only it didn't take 10 years for it to happen. Just 10 months. Who said the market isn't becoming more efficient? ... It took a while, but fear finally crept into the market Thursday as the VIX spiked to over 30. When the VIX is high, it's time to buy. How high is "high"? Some say 30's, but I'd love it in the 50's. ... And what about breadth? Less than 4% of stocks in the S&P 500 were above their 50 day moving averages. That extreme typically makes the market a screaming buy. ... Since emerging from bankruptcy, GM has shown itself to be leaner and meaner. Great earnings. ... The QE3 whispers are getting louder.

Bottom Line: It's nasty out there, but in this nastiness, there will be a bounce that will lead to a nice rally. So is Friday that bounce? Lots of volume but the move was suspect. Don't forget that Thursday saw a huge drop. Friday could have simply been a one day snapback. Being Friday muddies things. Not many were willing to go long over the weekend, especially with headline risk in Washington (S&P downgrade for example). Don't try to catch the bottom, just wait for that one strong positive day. Then jump in on day 2.

Current Positions: 95% cash - After being in cash for close to two weeks, I bought a little AAPL on Friday.

Stuff The May Only Interest Me

Many Chinese citizens like to eat at places like KFC, Dunkin' Donuts, and McDonald's not just because it's fast food. They also cite that those places are healthy. "Huh?" you might ask? Yes, healthy. The ingredients used by American franchise restaurants are streamlined and consistent. Since Chinese restaurants have quality food control issues, American-style fast food chains are a healthier alternative. Go to some other place and you might find that eating "flied lice" is no joke. ... The stock market is going down in flames and pundits on the idiot box are dishing out blame in all directions. The most common one I'm hearing is the lack of common sense displayed by politicians in the debt-ceiling debate shows that they are incapable of fixing the economy. However, the answer for why the stock market is crashing and burning could be a lot more grounded: during the whole debt-ceiling saga, a lot of bad economic numbers came out indicating less manufacturing and production than expected. In addition, we had a revision of previous GDP numbers that showed that the country wasn't growing as fast as previously thought. The stock market tends to price in future expectations and those expectations simply got lowered. That could be what we are seeing. A simple correction. As far as another recession is concerned, I don't buy that we will enter a double-dip recession because from my vantage point, the first one never ended. ... The argument by union-bashers that unions are the reason for what's wrong in the economy just got a little weaker. A recent study has linked shrinking union representation with shrinking wage growth over the last three decades. Wage growth is key to a growing economy. If the majority earns a weak salary, then their purchasing power suffers. Thus fewer goods bought means less production which means a decelerating economy. ... Food stamp users now number close to 46 million - 15% of the population - the highest ever. What makes this remarkable even more than the sheer number is that Alabama's contribution to this total doubled in one month. I'm sure people wouldn't mind flocking to a nearby state for better prospects, but when it's bad all over, does it really matter? ... Cell phone companies are offering free cell phones and service to qualifying patrons . I can only guess why: charity means tax relief. Except that money has got to come from somewhere, right? So when I look at my wife's cell phone bill (I technically don't have a cell phone) and gander at the "other fees" line, it makes me wonder if really means "paying for others' fees". And as far as the tax relief is concerned, that tax credit comes from somewhere too. Yup, ordinary taxpayers fill that gap. That's a double whammy against John Q Taxpayer. ... Starting next year, if you want a caffeinated beer, you'll have to leave California to buy one. Though caffeinated drinks are nothing new in today's bars, I wasn't even aware of it in beers too. The legislation advocating decaf is inspired by FDA warnings, and while I can understand wanting to protect the public from unsafe products, it makes me wonder why such people (namely college students) who favor fruity-flavored beer with caffeine and taurine over a real beer SHOULD BE protected from themselves. ... This will be bad for tourism: the entire police force in Ascension, Mexico, has resigned . Ascension, which is just a few miles south of El Paso, Texas, has seen its police chief and a handful of officers gunned down this year - three recently this week. It's sad to hear about such things as they are ongoing in Mexico, and I'm curious what kind of shine Mexican PSAs will put on it when they generate their next round of radio advertisements. ... Quickie weddings in Las Vegas are on the decline . Is it because people are becoming more lucid with their life decisions? Nah. Before, people would go to Vegas, get hitched, spend all their dough in the casinos, then lose the rest of their money in a subsequent divorce. Now, there just isn't enough money to go to Vegas in the first place to do all that stuff. ... It pays to be healthy if you're a Netflix employee. Netflix employees get a $10000 health benefits allowance. If they do not go over that mark, then they get to keep the rest. That would never fly in education where teachers are treated like cattle. ... Italy is shaping up to be Greece II. The ECB voted to commit to buying Italian bonds only if Italy agrees to jump through certain hoops for them. Expect Italians rioting in the street soon when they learn their entitlements will take a haircut. ... Jared Bernstein is a frequent contributor to MSNBC. Whenever he comes on, I tend to switch channels. Why? He was Joe Biden's chief economic advisor. He was the one who told Biden that the 2009 Stimulus package would prevent unemployment from surpassing 8%. Spewing that stuff got it passed through Congress. It's hard to take that guy seriously. ... Lawmakers are crying foul at the calculations used by S&P as the basis for its credit downgrade. It's like a failing math student correcting the test of another failing math student without an answer key.

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The R Stimulus Plan

2011-07-30T21:01:00.000-07:00

How about this: Instead of raising the debt ceiling $3 trillion, how about collecting no income tax for a year? Tax revenue amounts to approximately $2.4 trillion and shrinking since joblessness means less taxes. So why bother raising the debt ceiling that amount plus 25%?

This idea works better than a stimulus package. Obama's stimulus package failed to deliver largely because most of the money got routed to state and local governments. The aim of a stimulus package is to stimulate the economy and private sector growth. Government plants the seed. However, since so much of the money got routed government agencies, the money got hoarded instead.

No income tax for the year would mean that people who are struggling get themselves on their feet. It means people can raise capital quicker to start a business (more jobs) or build up enough for a down payment on a house.

What about the rich? According to Forbes, the richest 400 people pay only an average of 18% in taxes. Since everyone else pays a higher percentage, it is everyone else who is helped the most by this.

This of course will never happen. Obama shot off all his ammo with the healthcare bill. He has nothing left, and I doubt he'd ever promote such an idea anyway.

The Debt Ceiling Isn't Getting Raised

Matters that get the attention of everyone tends to lead to lots of misinformation. The reason is because we get the information from our lawmakers who in turn get their information from special interests, the Bible, and journalists, many of whom do no research. Here are few examples:

China owns most of our debt. (False. The Social Security Trust Fund does. China does not rank second either and is not even close.)
The US will default if we don't raise the debt ceiling. (False. The US can avoid default if it chooses to pay the interest on Treasuries next week.)
We need a balanced budget amendment to get our fiscal house in order. (False. Even if revenue amounted to $2 trillion last year, Congress could budget for $2.1 trillion next year and still wind up with a surplus if next year's revenue ultimately totals $2.2 trillion.)
Tea Party members are the reason why the debt ceiling isn't getting raised. (False. Tea Party members constitute just a small percentage of Congress. Passing a bill does not require unanimous vote. The fact that lawmakers are crying that the Tea party fails to recognize their place as junior members of Congress only reinforces the need for term limits. The sense of entitlement is through the roof.)

You cannot blame Republicans or Democrats exclusively for the failure to pass a bill. All lawmakers share the blame equally for one simple reason: The Boehner plan didn't have a single Democrat vote when it passed. In the Senate, just about all the Republicans rejected Harry Reid's plan. That screams partisanship from both sides that goes beyond a few Tea Party members. The President deserves blame too, but not in the way whiny lawmakers make it out to be ("The President isn't giving us any direction on where to go. Waa waa waa.") The President miscalculated when he demanded a debt ceiling raise PLUS a long term fiscal policy to address the debt (Sorry, Lawrence O'Donnell, but the President isn't outsmarting any of the Republicans on a daily basis.). He already forgot how entrenched party members delayed his healthcare plan. Congress has failed to put forth any fiscal plan for several months. Obama should have instead called for a debt ceiling raise independently. Then after passage, some serious work on the debt commission's recommendations.

Still, the President deserves only a limited amount of blame for this. Sorry Sean Hannity, but when it comes to this issue, you are wrong on days that end in "y". The blame is squarely on the shoulders of Congress. Both parties.

Whereas before I expected the debt ceiling to be raised before the August deadline, I now doubt it. When TARP was proposed, Congress did not pass it the first time. I expect the same thing to happen again with the second time being the charm - that is, with a whole lot of pork. Both sides will capitulate and we'll wind up a poorly imagined long term debt plan.

Stock Market Stuff

JP Morgan Chase (JPM) estimates an additional $100 billion annually in taxpayer costs if the US gets downgraded on its credit . That's based on an estimated 60 to 70 basis point (0.6 to 0.7%) increase in interest rates. Sounds like little, but that's tremendous if one considers the delicate nature of mortgages and housing. Of course, any rise in rates makes stocks less attractive. ... The debt ceiling resolution will inevitably mean lowered government spending, a perpetuation of recent trends (teachers are getting laid off for example). Revised GDP numbers also show that the economy shrunk more than expected during the recession (1% more) and that growth since then has been worse than previously determined. In short, we have economic uncertainty - bad for stocks. ... Dunkin' Donuts (DNKN) went public (again). It's had an impressive first three days so far given the state of the market. It's still above its IPO price. How much of a push will it get when the debt ceiling gets resolved? ... For those hoping for another bite at Apple (AAPL) might not have to wait too long. It's showing a bit of weakness after its earnings jump. Pray for another 6% drop, but be ready to get in when market bottoms.

Bottom Line: Hopefully you've raise cash. When the debt ceiling gets raised, I expect lots of money to flood into the market. That will be your buying opportunity. Don't try to buy early, because the market could really sink before it bounces.

Stuff The May Only Interest Me

Football is back as both union and owners have agreed to a collective bargaining agreement. And not too soon because many players were getting into trouble with the law. For some, the NFL is like a Boys Club - keeps them out of trouble during their free time. ... Wells Fargo got fined $85 million by the Federal Reserve for conning customers, their good ones, into more costly loans and falsifying information on customer applications. To give you an idea of how much that is, Wells Fargo brought in $20 billion in revenue last quarter. So they bilked John Q Public over the last few years, and have to pay 0.4% of their sales made in the last 3 months - essentially the interest they pay on their CDs. In addition, Wells Fargo doesn't have to admit any wrongdoing. No one gets fired. No one goes to jail. ... Reuters reports that robosigning are occurring again even though banks agreed not to do it. Slap-on-the-wrist fines mean nothing and you're seeing it here. Where's the accountability? ... A recent survey of men in the US, Canada, Britain, and Australia revealed that men are sick of hearing about guys like Justin Beiber (47%) and Charlie Sheen (20%). No surprise. As for women that men are sick of hearing about: Lady Gaga (29%), Sarah Palin (25%), and Kim Kardashian (17%). Kim Kardashian's numbers is interesting in that in the UK, her disinterest number is actually 42%. Maybe if her teeth were crooked, she'd have more appeal. ... Fans of Chutes & Ladders and Candyland, rejoice. Battleship (as in "You sank my battleship") is coming to your local cineplex next year. To spice it up, they've added aliens so now it looks like "Battle: Los Angeles" on water. Some talk about seeing Monopoly: The Movie when it comes out, but that's a little too reality TV for me. I like to escape when I see movies. ... Monster-dot-com ranked Elementary School and Special Education Teacher two and five respectively as the worst paying degrees of 2011. That said, Monster acknowledges that job growth prospects for these positions should be very good because of shortage of qualified teachers. I'd add attrition due to working conditions and wages is a mighty contributor to job growth, too. ... Any country that has the kind of debt our country has shouldn't have any billionaires. Yet, we do have quite a number of them. ... Despite all the political shenanigans, bond yields went lower for the week. Why is that? Probably because even in a bad neighborhood, US Treasuries are still considered safe. No one is looking to ditch them - even if China protests. ... Though Obama-McCain was worse than Clinton-Romney, I am happy that McCain isn't president. If McCain were elected, the Treasurer would have been Phil Gramm. A lot of people, myself included, have been very dissatisfied with the choice of Timothy Geithner as Treasurer, but it would have been ten times worse with Gramm who spearheaded legislation that led to the creation of Too-Big-To-Fail institutions. Yet, we still wound up with Lawrence Summers as chief of Economic Advisory Council (he aided in the deregulation of derivatives), so I guess there's no escaping them. Ideological knuckleheads were destined to run our economy into the ground no matter what. ... So much for the name "Maverick". After talking about how wonderful Tea Party candidates would be for Congress last year, John McCain is now calling them "hobbits" because of the debt ceiling debate. Nevermind that Democrats didn't vote for the Bummer - er, Boehner - bill either (maybe "Bill Buckner bill" is more appropriate). A real maverick would point out that both Democrat and Republican bills are Debt-Plan-Lite. ... Starbucks is telling customers in Russia to leave their cigarettes outside . It literally is bad for business, because of second-hand smoke. Not for customers, but for the coffee. Anyone who has left a box of baking soda open in a refrigerator knows that it absorbs all the odors. Same holds true for cigarette smoke and coffee. Starbucks reached the conclusion that all the smoke has been tainting the flavor of the coffee. So leave the butts outside. ... If taxes go really high as a result of the debt debate, I wonder how many people will start maxing out their Roth IRAs since they are tax-free? ... Hard to find any articles on this to corroborate this one but the company's website seems genuine, so I'll make light of it anyway: Somewhere in Italy, you can buy Hitler Beer. Or you can order online if you crave a different kind of German beer. Or if Mein Kampf Premium isn't your style, you can go with the Stalin Amber with hops that been genuinely hammered and sickled. A case of 12 bottles comes roughly to $40, without shipping. Quite frankly, I'd rather drink a bottle of O'Doul's that's been sitting in the sun all day. ... Illinois is offering advertising opportunities for corporations on its license plates. For a fee, one can have their corporate logo plastered on the state plates. Registrants who want a registration fee cut can simply opt to have a corporate logo plastered on it. So the average joe pays a smaller fee/tax, and the company gets billed for the advertisement. In all, the state makes out better. It's only a matter of time before all sorts of services get on the plates (For a good time, call 1-800- - - ) ...

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More Phony Debt Debate

2011-07-23T19:42:00.000-07:00

Three groups spend other people's money: children, thieves, politicians. All three need supervision. - Dick Armey

The phony debt debate is losing its purity - meaning that it is less about a longer term plan to attend to the debt and more about appeasing the phony credit rating agencies.

Why is everything so phony?

First the credit rating agencies: they - meaning Standard & Poor's, Moody's, and Fitch - routinely rated junk debt as AAA, the same ratings given to Treasury bills, during the last decade. Since many pension and mutual funds can only buy investment grade, they heavily favored this junk because they paid a higher interest and were rated as safe as Treasuries. That infected the entire system. They are a big reason why many senior citizens have to work cashier at the local McDonald's. When they testified in front of Congress about the process in which banks and brokerages were able to essentially "purchase" a AAA rating, they quipped a "just an opinion" disclaimer and followed it up with, "Oops, sorry." This is not the first time. They were exposed during the Enron scandal for their complicity in rating Enron's junk. And yet nothing regarding them has changed.

And the phony debt debate? Last week, I mentioned that House Republicans routinely voted to raise the debt ceiling under Bush 43, and have routinely voted "no" during Obama's tenure. The reason given on TV is that new Tea Party lawmakers have changed the culture on Capitol Hill, but when the majority of the members voting are still the same and entrenched, you really have to credit partisan politics.

So things are moving forward on a deal that will raise the debt ceiling. But is it a real deal? The proposal is to raise the debt ceiling $500 billion and have a concrete plan to deal with the debt in six months. So the plan really is: kicked the can down the road again - only this time with a time table - and maybe we can hammer out a real deal then.

Will the promise of a plan really appease the credit ratings agencies? Who knows. Given the shadiness of the ratings agencies, there is another way to avoid a downgrade: All Congress has to do is threaten their oligopoly status and the ratings agencies will go away with the downgrade threats. Did anybody think of that?

The Obama - Reagan Comparison

Some Republican voices compare Obama to Carter, and feel that Obama should take a Reaganesque stance on the economy. The term "tax-and-spend liberal" also gets batted about. As the two graphs below will show, both parties like to spend. This first graph shows the growth of the debt ceiling from Carter to Obama. The figure for Obama is current, not the proposed one in Congress.

Looks like Obama is running up the tab. However, everything in the financial world is percentage-based. Interest rates, treasury bills, mortgage rates, credit card rates, etc. All percentages. So now check out this next graph showing the debt ceiling growth in percentage terms.

Compared to Reagan, what Obama has done is just a drop in the bucket. It should be noted that Carter and Bush 41 were one term presidents. If they served two terms, doubling those figures would give a rough estimation of the heights they would have reached.

So don't be fooled by the finger-pointing from Reid, Pelosi, McConnell, Boehner, and Cantor. They sang a different tune for years now. Both parties are guilty. Hold your representatives' feet to the fire and demand they answer for it on Election Day.

Stock Market Stuff

Blowout earnings from Apple (AAPL) had the stock knocking up against $400. The run up to $400 caught a lot of people by surprise and are now hoping for a pullback to get into the stock. However, AAPL has had earnings pops before and they rarely were followed by pullbacks. If you're looking to get into AAPL, you might want to take a little stock right here and now. If it pulls back 10%, then you get substantially average in. If it doesn't pull back, then you can at least ride some profits higher. ... Anyone noticing that during this bounce, when the market goes up, gold (GLD) and silver (SLV) go down. When the market is down - even intraday - gold and silver go up? Spells out the market's view of gold and silver, does it not? With what's happening here with the debt ceiling and the European's ongoing plans with a structured Greek default, investors flock to gold and silver when they want to take risk off the table. Before, it was enough just to exchange your stocks for cash. Now it's exchange your stocks for precious metals. Because of that, you can't view gold and silver as in a bubble. Gold and silver are the new currencies. ...

Bottom Line: If you didn't get in on the bounce, then you missed at least half of the move. So if you still want a piece of this market, consider buying small.

Stuff That May Only Interest Me

Google of course makes its money from advertising - 97% of their revenue in fact. Everyone knows how Google works. You type in keywords, and Google returns a list of results for you to click on. Google holds an auction called AdWords for companies to bid on keywords. The results are on this location. The number one keyword is "Insurance" which nets Google $54.91 per click. Rounding out the top ten are: loans, mortgage, attorney, credit, lawyer, donate, hosting, degree, and claim. These words are not surprising, for if they were in the Yellow Pages, these would probably be the thickest sections. What was surprising was #20: "Cord Blood" - netting $27.80 per click. Cord blood?!? What is "cord blood"?!? I could tell you, but you'll have to Google it yourself to find out. The only thing I'll hint is that it is consistent with the theme of the other keywords - people would type in these words for help. ... With the debt ceiling issue being what it is, the Chinese are expressing concerns about their investment in our Treasury bills. They feel that we are purposely debasing our currency. Well, I feel that Chinese publicly-traded companies purposely cook the books and defraud American investors. Tit for tat. ... Kim Kardashian is suing Old Navy for using a look-a-like to promote its products. Kardashian, whose sex tape propelled her to stardom, feels that people will confuse the look-a-like with her and think that she endorses Old Navy apparel. On the flipside, Graceland has yet to sue Las Vegas. I'm sure they're watching intently. The lawsuit, not the sex tape. ... On a slow day, news channels are still calling up Donald Trump to ask him what he thinks. It's like watching a bad movie for the umpteenth time at 2 AM. You keep praying for a commercial interruption. ... Borders is now liquidating its stores. I popped in Friday to use up my gift card. All sales final. I grabbed a book on American Presidents and a Simon R Green novel. I then cursed myself when I got home, browsed online, and found the same book cheaper - despite the discount. ... A new study on couples from the United States, Brazil, Germany, Japan and Spain concludes that cuddling and caressing are more important to men than women. Frequent kissing, greater intimacy, leads to a happier relationship for men as time goes on. So you see ladies, men are deep, too. ... The state of California has authorized school districts to negotiate up to seven additional furlough days for the coming school year. Currently, the law allows for five without deduction in revenues to school districts. If that occured in San Diego, then the traditional 2011-12 school year would end on 1 June during the Memorial Day shortened week. All staff, teachers included, would take an additional paycut since they are seasonal workers (teachers do not get vacation pay). Current paycut is 2.7%. That will increase to 6.5%. ... Nationally, school budget cuts have lead to special fees and taxes on families to help sustain extracurricular activities. Thus back to school costs will certainly rise for families when September comes around. ... US unemployment rate is 9.2%. California's is at 11.8%, second worst in the nation (Nevada, 12.4%). Jobs continue to wither. When will lawmakers deal with it? ... If you're detoxing like me, you probably aren't barhopping. So what to do if you're jonesing for a drink with friends? Go virtual on Barspace. With Barspace, you can see the action through live cameras and determine if the atmosphere is right for you before going. Or check out the meat market if you're single (or not). Since I'm a teacher and getting caught drinking on TV could possibly be career-ending, I need to first see if my establishment ISN'T broadcasting before going. ... RIP Amy Winehouse.

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Debt Ceiling Demystification

2011-07-17T14:22:00.000-07:00

Here's what being said on TV about the debt ceiling:

Pew Research: The public has grown more concerned that failing to raise the debt limit would force the government into default.
Bill O'Reilly: If the USA defaults on obligations in August, all of us will suffer economically because foreign investors would begin to pull their money out of America and the dollar would plummet, along with stocks.
Michelle Bachmann: We have sufficient revenue coming in to pay off the interest on the debt and we don't have to default.
President Obama: I cannot guarantee that those checks go out on August 3rd, if we haven't resolved this issue. Because there may simply not be the money in the coffers to do it.
Lawrence O'Donnell: It must be raised on a date certain – at a particular time on the clock, or the United States government goes into default.

Would you believe that Bachmann is the only one in this group who has it right? (She's wrong about not needing to raise the debt ceiling, but that's another argument). All the rest, including the president, either don't know what they are talking about or are using scare tactics to LIE to the public.

Let's assume that the debt ceiling - not that it really exists, because when Congress passes a bill, they've already committed the money to it - is not raised. Then Treasury cannot borrow money anymore and with the General fund depleted, it will no longer have access to short-term cash. So it must then decide what doesn't get funded.

So now consider: who gets paid first? In your household, the bills get paid first, right? That's why the mortgage and the rent are due the first day of the month. The bills are debt, and everything else isn't. After you pay them off, then whatever money you have left gets spent on what you want.

Let's say that you are building a new patio, but haven't bought all the wood and cement needed to complete the job. You're waiting for the next paycheck so you can go to Home Depot and buy more stuff. But your hours just got cut, so now you're bringing in less. You get paid less money - not enough to pay for everything. What do you ignore? You don't ignore the mortgage. You don't ignore the electric or the water either. You pay those off first. There's little left to buy patio stuff, so you put off a visit to Home Depot until next month. The patio remains unfinished.

That's the decision Treasury will make. Treasury will pay off the Treasury bonds first, because if it doesn't, credit rating agencies will definitely downgrade the US and rates will go up (like your credit card bill if you don't make a minimum payment). Then there are other obligations - Social Security for example. Yes, grandma will get her check. Who won't get paid is anyone's guess, but consider Uncle Sam's obligations. GI Joe fighting over in Afghanistan will still get paid. However, company X might not get paid for the planes it's building for the military - that isn't an obligation. What happens if company X doesn't get its money? We don't get more planes.

That's all there is to it.

I found it telling that while the TV news media and the politicians were talking about the "debt ceiling crisis" that bond rates went down, not up. That's because investors were aggressively buying bonds. Why would people buy bonds if there's a fear that the US would default on its debt?

Because it won't. There is enough revenue to pay off its bonds, because the bills come first. Ever notice that Treasury Bills are called "bills"?

Some Other Debt Ceiling Thoughts

Bill O'Reilly has been a real ditz on this issue. He keeps bringing up that if the debt ceiling isn't raised, then the market will tank 1000 points. First of all, he means the Dow 30. Secondly, so what? Congressional decisions should not be made to prop up asset prices. The focus instead should be on the bond market. A credit rating downgrade will mean higher rates. Higher rates spell death to housing and business. ... The President should simply state: "I need the debt ceiling raised in order to follow through on obligations that Congress already voted on. Put forth a bill on the debt ceiling and the debt ceiling only and we will deal with the other issues of spending cuts and taxes separately, because they deserve a separate platform. Congress has a tendency to insert a whole bunch of other crap into their bills to get them passed by a small minority who need to be recalled by voters." ... One of the few times I agree with Sarah Palin: she accuses the President of fear-mongering by threatening grandma's Social Security checks. She's right. ... Obama's demand for a long term solution comes from the idea that the credit rating agencies will downgrade the US debt if no such plan is put into place. That stated, both Congress and the President have been unable to make any budgetary headway for several months now. Pitiful. ... This will be the 4th time the debt ceiling will be raised under President Obama (yes, this will pass). Under Bush 43, the debt ceiling was raised 7 times, and House Republicans voted for the ceiling raise with regularity. During Obama's tenure, not one House Republican has voted to raise it. Because of that, the current debt debate feels pretty phony. To help make my point about their phoniness, check the graphic below showing the debt ceiling raises, courtesy of the Washington Post. Also consider that Obama did vote "No" on raising the debt ceiling while serving as senator. (The blue and red should be reversed.) Spells it out quite clearly the games they play, doesn't it?

One more thing about this chart: it's an arithmetic scale, not logarithmic. If it were logarithmic, that is one based on rate, it would more plainly spell out that the debt ceiling increased - these are approximations - 200% under Reagan, almost 50% under Clinton, and almost 100% under Bush 43. Currently, Obama stands at about 30%. Is 30% a lot? Sure, but not nearly as much as Reagan's 200% to whom many attach the term "economic genius".

I'll try to produce a logarithmic scale next week.

Stock Market Thoughts

Conoco Phillips (COP) will split into two companies - one that does refining and the other on E&P. COP jumped 8% in the morning, only to sell off. It's that kind of market. People sell the rips - yours truly included. I took my profits and ran. When COP splits, it will become the largest independent oil and gas company in the US. This could spark some M&A activity in the sector so that others short on capital can compete. ... Great earnings from Google (GOOG) that led to a pop to $600. What is even more noteworthy is that Google+, GOOG's recent effort into social networking, has generated tremendous buzz. It's still in beta, but millions of users are already testing it. If it catches on when it goes live, it could steal away significant market share away from LinkedIn (LNKD) and Facebook. ... Low interest rates are losing their attractiveness to homeowners looking to refinance. Refi's hit a 10-week low. This petering out makes sense considering that absent job growth. ... So much for debt crisis. The ten year note yield fell for the second week in a row and is now challenging support. With the rate being at 2.908%, it's slightly below the 3% sweet spot. From a longer-term perspective, it looks like yields are trying to reverse its downtrend, but until yields can stop making new lows, equities are the place to be. ... Fed Chairman Ben Bernanke may have retracted his hints of QE3, but the Freudian slip is quite obvious. It's only a matter of time before QE3 comes in some form.

Bottom Line: This remains a choppy market. Though the S&P bounced off its 20 day moving average (you have a clear definition of short term support), you must view any buys as a trade. That is, until the debt ceiling gets resolved. Once Congress raises the debt ceiling, then we will see if the market will rally or drop in response.

Current Positions: ABV, SLW, BIDU
One share: BAC, AAPL, COP, LULU, PLG, KSU
70% cash.

Stuff That Might Only Interest Me

Prosecutors in the Roger Clemens perjury case pulled a Bill Buckner by throwing the case during opening arguments. They were told not to introduce inadmissible evidence and they did it anyway. Thus, mistrial. Since the trial had already started, jeopardy is probably already attached. Spend all that money and blow it in the first inning. Someone should fired for that. ... A new study found that the size of the fork used to eat is inversely related to the amount you eat . That is, the smaller the fork, the more you eat. Kinda makes sense. When doing the yard work, the bigger the pitch fork you use, the less work you actually do. Or feel like you must do. ... A recent study shows that the number of A's given in universities have increased significantly over the last five decades . Private institutions have shown an even and even steeper "A" rate increase. Is it grade inflation or simply better performance? If this data reflects the latter, then it runs contrary to the contention that students aren't performing any better throughout the years in high school. If the former is correct, it simply highlights that colleges are businesses constantly in search of more customers. It should give an employer pause to hire someone from a private university, also. In addition, it should raise a red flag whenever people consider making public grade school education more consumerist. ... I have been having trouble finding any coverage on FOX regarding News Corp's phone hacking. Could be because News Corp owns FOX News. I'm sure when it does come up, the explanation will be that it all originated from one rogue operator. ... People have it wrong when they state that the economy will fix itself when housing resumes its upward trend. The health of housing will move with the rest of the economy - or not. What matters is not housing. It's the economy. And what breeds a health economy? Job and wage growth. We haven't had wage growth in over a decade. And we all know about job growth. Everything else is cosmetic. ... Sunoco, a gas-retailer, is testing beer-filling stations, called growler bars, at some of its convenience stores in Buffalo. You get a 64 ounce jug of micro-brewed beer for anywhere from $8 to $17, plus $4 for the glass jug. This is also being tried at other establishments - Sonic, Burger King, and Starbucks for example - with great success. In fact, some New York pharmacies sport growler bars - the best kind of medicine. I wonder if Budweiser is in the generics aisle. ... Jeff Stone, a Riverside Republican, thinks California should separate into two states - North and South - because it's too much to govern. That idea seems contradictory to being Republican. Republicans by nature are hands-off, laissez-faire. To govern less is to govern effectively, right? So how is California too big? ... This is not a new idea, but the old argument was that they needed each other. The South needed the North's agriculture, livestock, and raw materials. The North needed the South's finished products. Since NAFTA, that dynamic has changed. Both North and South now get much of their needs filled by Mexico. So maybe the argument should be to annex Mexico into California? Nah. ... I checked Jeff Stone's website . You aren't a politician unless you have your picture with high school kids to show you care about education. Nothing on it about California separating into two. In fact, not much on anything else. All I could gather is that he's anti-graffiti. On the right side of his homepage - would have to be since he's right-wing - there's a "Report Graffiti" link. I bet he ran unopposed on that issue. "Vote for me, b/c I'm against tagging!" ... A recent study of Kenyan baboons revealed that alpha males stressed out more than betas. By analyzing their poop, they determined that alphas were exposed to higher levels of stress long-term, with spells only during times of peace. They theorize that the alphas may get more women, but also have to repel more challengers. Thus, their stress levels are as high as those in the lowest ranks. Consider the analogy to humans: We already know that Al Gore couldn't carry Bill Clinton's luggage. Does anyone think that Joe Biden could stand the heat as well as Obama has? For me, that would mean being vice-principal has more perks than being principal. ...

Articles

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-R

Casey Anthony Thoughts

2011-07-09T21:32:00.000-07:00

I admit it: I didn't watch the trial. Didn't keep daily tabs either. But that doesn't mean I have no thoughts on it. Now that the verdict is in, here are some things that came to mind.

Nancy Grace has egg on her face as it should be. You can't base your show on fueling public outrage and expect no backlash. What I can't figure out is why she should act surprised?
When the prosecution brought in a smell-of-death expert, it had the smell of desperation. Maybe less is more?
No, I doubt someone offered Casey Anthony $1 million to tell her story. That stuff is drawn from the same kind of PR used to air new NFL contracts. The $1 million amount is purely based on several things happening.
There's a debt ceiling issue and a lack of conversation on generating job growth. Mainstream media, wake up or trade in your press credentials.

In any case, this is over. Unfortunately, the media is still paying attention to it. I'd rather listen to some

serious ideas on using public money to plant a seed for private sector job creation.
intelligent conversation on what policies need to be enacted to get people back to work.
brainstorming on possible new careers that will evolve in the next decade because many of the jobs that disappeared over the last three years are gone for good.

Years ago, Michael Moore did a documentary on guns and the NRA. In the film, he posited that news media focuses too little on what affects everyone - instead pursuing stories with shock value. He was onto something.

Casey Anthony is not nationally important. Let's move on.

Stock Market Thoughts

According to Bloomberg, the market for mining truck tires have exploded. The price of one tire would now set you back over $100000. With that, it should at least resonate the future for companies like Caterpillar (CAT) and Cummins (CMI). ... China announced that total debt of local economies approximate 25% of GDP (over $500 billion). Does this mean China needs a debt ceiling debate too? ... The Fed predicts growth in the US at 2.9% for the year, then accelerating to 3.7%, then 4.2% by 2013. Very rosy numbers. The IMF is less optimistic, predicting the US to grow at 2.5% this year and an average of 2.7% over the next five years. Why the difference? The IMF thinks housing will be the main driver in a recovery. If housing is up, then growth will follow. Thus, the IMF thinks housing will drag over the next few years. ... So much for the Strategic Petroleum Reserve. Oil is back at $100. If oil stays under $100, then any rally can be sustained. Once above $100, it's a high risk environment. No real science. The $100 level is purely psychological.

Bottom Line For Next Week: The rally is pausing and by the looks of it, over. While it could conceivably be just pausing before the next leg up, it could also be starting its pullback with the disappointing jobs number as catalyst.

Current Positions: ABV, COP, SLW
One share: BAC, AAPL, BIDU, LULU, PLG, KSU
85% cash.

Stuff That May Only Interest Me

There's talk of a one-time tax break to companies that do business overseas. The hope is this will compel these companies to use the money saved to build stuff and hire people. This happened once before back in 2005, but instead of building and hiring, companies bought back their stock and increased their dividends to shareholders. Why are the same solutions tried and failed under Bush 43's tenure being reapplied under the current administration? Are there really differences between Democrats and Republicans or is it simply they are controlled by smarter entities? ... I was browsing through the Padres headlines and ran across two peculiarities on this one. 1) On the top left are links to Major League Baseball in Chinese, Japanese, Korean, and a link to "padresbeisbol" in Spanish. Yes, four other languages. The NFL offers Spanish along with English. I point this out because the website for the Canadian Football League only sports English even though French is also an official language. Even for South Africa where there are 11 official languages, the website for the Wanderers (cricket team) sports just one language: English. 2) There's a picture of Trevor Hoffman is on the right with an announcement of his retirement ceremony. Look real closely and you'll see that his left leg has been sheered off at the knee - courtesy of Photoshop. ... After all that, I forgot about what the article was about or even why I was clicking on it. Amazing the things that can distract a person. ... About that debt ceiling - an article in The New Republic asserts that president Obama can ignore the debt ceiling and just spend the money anyway. The argument goes like this: The legislative branch already appropriated money for programs, so the executive branch can go ahead and spend it. Obama has a constitutional right to ignore the ceiling. Of course, if he does this, he might as well say "Sayonara" to any hope of getting reelected because of how it will get publicized. Like it or not, Republican media is much more crafty at PR than the left-leaning media. ... Transocean, which leased the rig to BP that ultimately blew up 14 months ago, finally published a report on the explosion. All 850+ pages of it. I'll summarize: "Blame BP, not us. We're not sorry." Nine of the 11 deaths were Transocean employees. At the time of the explosion, just 6 of the 120+ people on the rig were from BP, while almost 80 were from Transocean. In short, Transocean owned and ran the rig. BP spent over 100 times more than Transocean on clean-up and settlements last year. A court battle begins in February to ascertain percentage blame for the disaster. May the best lawyers win. ... Some lawmakers are calling for a Balanced Budget Amendment, but they don't realize that a country technically doesn't have to. For example, let's say you made $100 last year (hope that isn't too close to reality for you). You budget for $103 for this year instead of $100. Now, if you ended up making $103 by year's end, no problem. ... Unemployment rose to 9.2% and that's despite the reduced labor force. Some of that can be attributed to layoffs of government workers (know any teachers who filed unemployment recently?). Just 18000 jobs were created, which is pretty close to zero if you consider the total number of jobs hovers near 132 million. In order to keep pace with a growing population, 150000 jobs need to be created every month. In the meantime, our mainstream media and our politicians are still not banging the JOBS drum. Legislative proposals do not center on spurring job growth, probably because the unemployed are too silent. It might very well require someone to run for the office under the slogan of "I'm running, because I need a job. I could definitely use the lifetime benefits." ... With the final shuttle mission now underway, can we add "Space Shuttle Pilot" to the next unemployment count? ... The movement against teachers and teachers unions is gaining momentum, and I can't figure out how. Budget cuts have been the norm for a handful of years now. The ignorant are pointing about the "high costs of teachers and their benefits", quoting statistics without reference. "High costs"? Where did that come from? I'm trying to find a reference for all the stats talking heads conjure on the idiot box, but I can't find anything to match those numbers. ... VP Joe Biden has a Twitter page now. Given Weiner-Gate and how easy it is to hack into an account, it makes little sense for Biden to start tweeting. He's better off having an aide blog for him from the White House website. Then again, anyone believing that Biden is actually doing the tweeting from his Blackberry probably thinks OJ is innocent and the one-armed man did it. ...

Articles (Click to Access)

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-R

Your Teacher Said What?

2011-06-29T20:39:00.000-07:00

That's the title of a book by Joe Kernen of CNBC's "Squawk Box". What made him exclaim "Your Teacher Said What?" was a statement made by his nine-year-old daughter. Basically, her teacher told her that we are in a recession because people bought too much stuff and it would be better if we wouldn't spend so much.

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

Ignorance And The Business Model

2011-06-19T11:49:00.000-07:00

A teacher within our district went public with a letter she sent to the union president, imploring the union to negotiate the elimination of all layoffs by taking more furlough days (like up in LA) and opening the health benefits package negotiation. The union board of directors voted against that idea and the union representatives from each school, myself included, also voted against that idea. For not doing this, she charges the union prioritizes "senior, not junior, members".

The letter displays a significant amount of ignorance. It is sad because it shows a teacher who does not do her homework, and it is upsetting because her public letter weakens the position of all members. When the letter was read on conservative radio, it was endorsed with a "you go, girl" along with no real follow-up - as if that says it all.

This has brought out all sorts of people with half-baked ideas and tangential comments. The most prominent: apply a more business-like model.

First a bit of history:

In 2003, the teachers agreed to a pay freeze during a time of economic prosperity. The District refused to open the contract, nor pass on funds for cost-of-living-adjustment to its teachers (ie not abide by the language of the contract) in which the union had to sue for.
In 2006, the teachers finally got their raise. At the end of 2008, the average salary increase per year during the 2000 decade was less than 1%. Tell teachers to do their part and sacrifice is to ignore the sacrifices made during a time when the economy was booming.

I agree with you, R. Teachers shouldn't have to sacrifice. But what's the alternative? The Board followed through with laying off workers, proving that there's financial issues. The teachers look greedy in not compromising to maintain the quality of education. Remember, the kids are the real losers here.

If you want to tick off a teacher, utter "sacrifice for the kids". There's a reason why a person becomes a teacher and it isn't for the lavish pay. They chose a career in teaching for the kids. As already established, they already sacrifice.

The District does have a pile cash on hand, but it does not want to spend it on teachers. In a recent proposal of reopening the contract and revisiting benefits, the District did not propose a guarantee of recalling those layoffs for the extra money it would gain. Also consider: healthcare was restructured a year ago (to the chagrin of many at my site), resulting in millions in savings. According to contract, that money is supposed to go to teachers. The District has yet to abide by that.

Angry teacher, I sympathize with your situation. You care about your job and the ones you serve. But if you had bothered to do your homework, you would not have addressed your letter to the union. You would have addressed it to the Board and District. No thank you for helping to galvanize the ignorant opposition and hurting all teachers this year next.

R, you have it all wrong! We should be applying the business model for layoffs! Instead of using seniority as the basis for layoffs, the union should acquiesce to using student test scores as the foundation for dumping the least effective teachers.

I agree that indiscriminately choosing the least tenured teachers for layoffs isn't the best system, but the alternatives are very subjective. Test scores are a decent indicator of student acumen, but a poor metric for teacher effectiveness (students take those tests, not teachers). However, people who rail against the seniority system and call for a more business-oriented solution fail to recognize the existing connection between seniority and business: when a business contracts, they don't layoff the senior people first. They don't get a new CEO and senior committee. They dump the peons. Like it or not, that's the way the corporate world works. Does it makes sense to do that? Consider this: If a hospital cuts its staff, would you feel more confident going there if you knew they kept the inexperienced, but "energetic", doctors instead of the more experienced? The fact is - businesses use the seniority system, too, because it equates "less experienced" with "less skilled". When proponents of the business model criticize the system of seniority as the basis for layoffs, they exhibit a high degree of hypocrisy.

But R, many business owners take a cut and are willing to take even less than their employees in order to keep the business running effectively.

Fair point. There are many business owners that fit this description. When leadership is that dedicated to a business, the employees will follow. However, I'm not hearing talk of a paycut from District brass or Board. Back in 2003, our bosses got pay increases while the peons carried the load. In 2008, the superintendent (Terry Grier) simultaneously called for teacher paycuts while accepting bonuses. The lightbeam is cast only on teachers and classified personnel - each and every time. So this point is not applicable to this situation. In addition, you must consider that a business owner is in the business of making money. There's a monetary reason for keeping on workers and reducing one's own salary. In education, having teachers is a social need, so that must be weighed against the idea of indiscriminate cost cutting.

Stock Market Thoughts

Pandora (P) IPO'd this week and almost everyone who bought it after day one lost money. P is a competitor to Sirius/XM (SIRI) but it has thin profit margins. I just don't see the growth. ... Research In Motion (RIMM) is no longer in motion. After lowering guidance a month ago, RIMM announced earnings this week and still came in below expectations. It's still going down, and I don't think it's a compelling value play yet. ... The price of oil is falling, it's probably related to the end of QE2. Because of politics, don't expect a QE3 unless the economy goes into the tank. So by the looks of things, oil has probably topped. ... Gold (GLD) is still in an uptrend though. QE or no QE, it speaks to the perception of the yellow metal as safety. ... Sketchers (SKX) is no longer seeing ginormous profits from its Shape-Ups line of shoes. These shoes supposedly are little more demanding on your calves, thus giving you an exercise as you walk. Of course, if you're out of shape, you'll have sore calves the next day. In any case, this wasn't the money generator SKX had hoped. The Kim Kardashian commercial is already a distant memory. And the profit potential is too. ... Microsoft (MSFT) looks like it's putting in a nice base. Technically speaking, it looks like it has bottomed. Fundamentally, that's another matter. MSFT continues to struggle with evolution and it must find a way to move beyond Windows. IBM used tohave the same problem two decades ago and remade itself, going beyond PCs and into servicing and software. MSFT is constantly trying to react, and has significant myopia when looking forward. That starts at the top. I know Steve Ballmer was there when Bill Gates was, but it is time for him to move on. Surprised shareholders haven't demanded it yet.

Bottom Line For Next Week:
The market is still weak. Sure it bounced, but the bounce isn't very convincing as THE bottom (vs. A bottom). "Caution" is the word.

Current Positions:
ABV,
One share: BAC, AAPL, BIDU, LULU, PLG, SLW, KSU
95% cash.

Stuff That May Only Interest Me

A Miami headscratcher: after Miami lost its basketball championship bid, an ad underneath the article describing the details of the Miami loss read "Congratulations Miami!" with pictures of shirts and baseball caps proclaiming Miami as the champions of basketball. At least "Dewey Beats Truman" was printed prior to an event's outcome. This came after the event along with the actual article. Oops. ... The town of Empire Nevada is set to disappear. Off the 447, it will be sealed off and its zip code will be discontinued. The mining town existed because of a drywall company, USG, that mined gypsum for wallboard - one of the largest drywall companies in the nation. Five months ago, they shut down the plant due to its inability to outlast the decreased demand and the failure of higher prices to bring in increased profits - no more houses means no more drywall. So much for the recovering housing market. ... Last month, 86% of college graduates stated their intention to move back in with their parents. Sad. Says a lot about the incompetence of Washington. ... Now that airlines have hiked up prices, aiports are following suit. More fees to travel. ... The Greeks are rioting because of bank bailouts and imminent loss of their entitlements. I would sympathize with the Greeks loss if it weren't for the fact that the majority of them refuse to pay their income taxes. Sure their unemployment is 16% (pretty bad), but it could be 1% and it wouldn't matter because of the tax dodging culture. ... Some banks in the US have some exposure to Greek banks. Given the amount of time that has passed, those banks should have dumped those Greek bonds by now. Greece's situation is not new. Those US banks should take those losses. If the US government steps in and helps, expect riots here too. ... Weiner couldn't keep it up - that is, the idea that he can go back to business as usual. He resigned, but he shouldn't have to wait too long before getting back to Capitol Hill. New York reelected Charlie Rangel despite the tax dodging (blasphemous since he wrote the tax laws). Weiner will take a vacation and run for reelection in New York in a couple years - after a Celebrity Apprentice appearance. Or maybe he won't run for office again after having settled on a show on MSNBC following Rachel Maddow. ... The Weiner resignation was met with extreme disrespect by those present. How can people cry about the indecent behavior when they too exhibit vociferous indecency? ... A new study by the CDC indicates that about 25% of high schoolers drink soda everyday. That's actually less than I thought, attributable to other energy drinks. Still, that isn't good, and one should wonder how many of the 25% stop at just one. ... The new Blackberry Playbook is now getting commercial time. Its selling point: it runs flash! Apple has a thing against Adobe, electing to run video through Quicktime instead. Apple's refusal to reach a deal with Adobe on flash for its iPad is rather stupid. Even stupider is that people would buy a Playbook instead of an iPad over flash. If that's your selling point, then it's not going to sell. ... Much ado about a round golf with the president and the House speaker. I don't get into golf with Tiger Woods on the course, and I doubt the Golf Channel covered amateur hour either. ... Accenture reports that doctors are leaving private practices for hospitals and big clinics. Obama's Healthcare package is cited as the reason for this shift and one must ask, "Why the shift?" Is it financial stability? Better access to equipment? Better sway with insurance companies? Private practices are an important alternative for those who cannot afford costly health insurance. ... The President attached some blame for the job lag to improved technology. What makes this reasoning amusing is that this argument has been made in the past and has been proven wrong time and again. One book I'm reading actually predicted that this complaint from politicians would arise when the job market is stagnant. The book was written five decades ago. The only support for the President's argument is that innovation hurts jobs short term. Innovation inevitably leads to less expensive products which in turn makes items that were once largely unattainable suddenly very accessible to the masses. That creates a market which requires increased employment to create supply to meet demand. ... The party of no-new-taxes (that would be the Republicans) have something in common with Democrats - renaming "taxes" as "fees" or "premiums". The Republicans are opposed to taxing the rich but in the case of Medicare, are interested in having the wealthier pay higher Medicare premiums. Isn't that a "tax on the rich"? And what about the poor? Under Obama's Healthcare, everyone must get health insurance or they go to jail and/or pay a fine - a "tax on the poor". In the last election, John McCain put forth the idea of giving a tax credit for buying health insurance. Nice idea except that taxpayers then foot the bill for that credit - the poor ones actually, since they can't afford health insurance even with the credit. "Tax on the poor." ... Now that the NBA has concluded its season, it will now explore the idea of a lockout - just like the NFL. There is one exception though: the NFL is swimming in money. The NBA has a Major League Baseball issue with haves and have-nots: some teams are losing money. The NBA tried to go corporate by chasing more lucrative TV/cable deals and raising prices exponentially at arenas - essentially freezing out fans, especially in smaller markets. The average fan cannot afford to go to a game, nor subscribe to satellite packages that air them. The NBA cannot demand paycuts especially after last summer when the LeBron James media circus revealed that some clubs are swimming in money at the expense of smaller markets. Neither side will look good if a lockout interferes with next season. ... With nothing going on in NFL news other than "they met again to talk", much focus has revolved around players holding their own team workouts. As great as the media thinks they are, it is merely selling false hope to its fans. If school teachers went on strike and students decided to hold their own classes in response, how far do you think they would progress? There's a reason why there are no player/coaches. ... The federal government allocates far less federal spending overall to California than average - thus affecting all programs including education. Why no one in Sacramento is screaming at the White House or Congress over this is anyone's guess.

Articles and Videos

Last Week's Best

-R

More Money, More Problems

2011-06-12T14:05:00.000-07:00

The State may be providing more money for the San Diego Unified School District. So layoff recalls coming, right? Not so fast. The District and school Board is more pessimistic about next year and the year after. Based on budget projections, both think that the money will not be there when it comes time to restore teacher salary, then implementing raises in the final contract year. As a result, they want the teacher's union to reopen the contract in that they want them to end this contract, and start a new three-year contract. Here are the basics:

The current contract:

Years one and two: 5 furlough days with salary cuts.
Year three: furlough day and salary restoration with about 3.5% salary increase. (Don't believe the 7% number. The final increase occurs on the last day of the contract which means nothing unless a new contract agreement is in place).
Year one will be in the books on 30 June.

The new proposal:

End this contract on 30 June and start a new three-year contract.
Years one and two: step and salary freezes.
Year three: same pay increases - thus delayed for a year.
Five furlough days in each year of the contract, resulting in salary cuts. Salaries will be frozen with cuts pro-rated during the furlough years, then percentage increases in year three (against the furlough day cuts).
Money saved goes to recalling layoffs if inline with District priorities (no assurances here).

Why is that tough for the teacher's union to swallow?

Both the District and Board admit that there is money available to rehire the laid off workers. Thus they are set for next year. The State Revise will provide an additional $32 million ($48 million if you include mental-health programs) to the existing $9 million surplus, and both District and Board want to bank that money. These funds could be used to recall each and every single layoff remaining (about 750).
The planned budgets evolve as numbers change seismically from January to May to summer. To have any certainty about projections in future years is akin to flipping a coin and hoping that it lands and rests on its edge.
The District has a history of providing inaccurate staffing numbers. It is the chief reason why it issues layoffs annually, then rescinds them all year after year.
Contracts are bargained. If the union gives by reopening the contract and giving concessions, it will not receive any giveback other than the vague possibility of recalled layoffs.
Unions across the state are giving in. Most notably, the UTLA in Los Angeles just agreed to 4 more furlough days - 9 total - with no concessions for the next three years. The District and Board know this, and the union feels they are seizing on that opportunity.
The District hired hundreds of temporary workers throughout the year and gave some probationary status. One counselor was hired after the layoffs were issued.
The State gave the District permission to reduce its reserve by 33% provided that it repleneshes that reserve in coming years.
The District routinely underestimates student attendance (ADA) annually. The union thinks it's happening again to the tune of 1% ($6 million). Why 1%? Because that's been the average margin of error.

Is the union right to reject opening the contract? The numbers do give credibility to the union's response.

One last piece of information for this debate: The Board's labor leader has sided with the fiscal conservative in wanting union concessions. The question is: Why would he do a 180 like this? What do they know that contradicts all that is publicly known?

Stock Market Thoughts

S&P reports that a slowdown in China will mean at least a 50% plunge in commodities. That speaks to the level of influence China's growth has on materials. However, the money rotation out of commodities doesn't necesarily signal death to the economy, but rather just a shift in where the money will flow. ... Bank of America (BAC) is a screaming buy - extremely cheap. However, it looks like it's going to get cheaper. I'm salivating on loading the boat on this stock. That stated, financials (XLF) aren't getting any love. So all banks are still toxic. ... Steve Jobs introduced Apple's (AAPL) new iCloud which allows users to get their music from anywhere at any time. While people were enthused by it (Applonians are enthused about anything from Jobs), I couldn't help but notice how emaciated Jobs looked. Not good news for AAPL, the stock. ... Analyst Dick Bove says that Goldman Sachs (GS) is being done a terrible wrong because the Justice Department is targeting them regarding possible perjury statements made about its position during the economic collapse. I say that GS is terribly wrong if it's doing $1 billion deals with Libya's oil money. ...

Bottom Line For Next Week: We're in the midst of a freefall. Any bounce you see is a selling opportunity.

Current Positions:
ABV
One share: BAC, AAPL, BIDU, LULU, PLG, SLW, KSU
95% cash.

Stuff That May Only Interest Me

Radiation issue in cell phones? The World Heath Organization thinks so, stating that overexposure leads to cancer. Years ago, a cellphone tester sued the company he worked for, charging that testing cellphones for 10 years gave him brain cancer. His key piece of evidence were brain scans showing ominous red colors shooting out from where his left ear would be (he is left-handed). Cellphones are better today than before, but if you're a kid, you still have to wonder. Kids have thinner skulls (I'd argue that high school teenagers have thicker skulls), so are more susceptible to cellphone radiation. No studies on kids yet regarding cellphone usage (why would they need a cellphone anyway?), but in the meantime, companies acknowledge that you'll want to keep the phone away from your skin. Anticipating possible lawsuits like that of the cellphone tester, companies actually print in their manuals warnings about putting a phone next to your head - as in "place the phone no closer than a half-inch from your ear" (the iPhone warns 5/8 inches is the limit). When you push the phone against your ear because of a bad signal, the cellphone tries to compensate for the bad signal, thus upping the radiation. As for the earpieces, they too have radiation, but significantly less. However, keep in mind that earpieces are worn all the time by some people. ... What if you keep the phone in your pocket? Would that cause a guy to have wimpy sperm? Studies have been conducted on over the last decade with mixed results with the more recent ones concluding "yes". This brings into question what the radiation levels are when you have a call versus when you don't and whether or not male vasectomies are a necessity. By extension, do I blame my laptop for not yet becoming a father if I'm constantly on Skype? ... Anthony Weiner uses Twitter instead of Craigslist, but it's all the same. Prior to Weiner's confession, the media coverage on this had been nothing less than fascinating. On MSNBC, Rachel Maddow did a big thing on how easy it is to hack Twitter and Chris Matthews said "no big deal" about Twitter-gate. On FOX, Bill O'Reilly made a stink about how hacking a Congressman's Twitter account is a serious national security issue, while Sean Hannity hollered "Guilty, Weiner Boy!" And what about after the confession? Fox can't stop talking about it, but MSNBC is staying away from Weiner-Gate. ... Ben Franklin once said something about telling half a secret in order to conceal the rest. For example, athletes who were caught doing steroids will admit to doing it for a year to conceal the fact that they've been doing it for many years (is anyone suspicious that A-Rod's drug source still travels with him?). That stated - is that really the extent of it regarding Anthony Weiner? Anthony Weiner has admitted to having "online relationships" with 6 women he doesn't really know over the last three years. That sounds like a real bombshell, but is it just 6 women? And are they all women? Is it just 3 years? Is it just electronic flirting? ... Lastly, Weiner says he takes full responsibility for his actions. He won't resign, so what does that "taking full responsibility" exactly mean? ... I think the best way to assess the veracity of the smell-of-death expert's credentials is to have him sniff a wine, then describe its smell to see if it matches the description on the bottle. ... O'Reilly, stop recycling your Word-Of-The-Day! ... Amidst the Weiner story, there is a simple matter of the budget which still hasn't been resolved. That ought to be a long, multi-part series with each day dedicated to breaking down specific pieces of the budget, but ask our media to do that is to ask them actually do their homework. Instead of investigating, they're too busy revising their preconceived beliefs for the teleprompters. ... First overreaction to Japan' nuclear fallout: Germany is phasing out all nuclear power. ... The Donald now says he will consider running for President as an independent. Why does guy known for bluntness be so coy about this? Like a male Sarah Palin. ... Though bin Laden's codename was "Geronimo" to the Navy Seal team that ultimately took him out, his codename at the Pentagon was "Cakebread". This according to the new book on bin Laden's death (geez, that was fast). Not sure where "Cakebread" came from, but it is a bit redundant - like injuring your elbow-arm by hitting it on the funny bone-humerus. ... Presidential hopeful Tim Pawlenty unveiled an economic plan that is basically cuts in taxes, spending, and regulation. His growth target is 5% which is about as realistic as Joe Biden's proclamation of the stimulus package halting unemployment at 8%. This idea of Pawlenty is about as original as a Hollywood sequel and it fails to take into account that many big companies already pay less than 5% taxes (in the case of companies like GE, 0%). Repealed regulation contributed mightily to the economic collapse of 2008. How is cutting regulation going to bring the reverse result? Next candidate please. ... Mitt Romney was more electable four years ago than he is today. He is efforting even more to cultivate the delightfully vague and to convince everyone that he is for whatever you believe in. Obama was a master at it, but everyone has since learned to ask for specifics now that the president has shown his true colors. ... There's an iPhone app that will measure who talks too much during a conversation. Kinda made me want to get an iPhone so I can use it in class, and say, "See? Even this says you talk too much!" ... The FDA revealed a replacement for the food pyramid called MyPlate - essentially 4Squares 2-point-0. The food pyramid wasn't digestable for the average parent (do plates looks like pyramids?) so the obvious confusion. Hopefully, this shift back to simple portioning will help the obesity issue. Eat those peas and carrots. ... I'm not a big Sarah Palin - okay, I think she's a ditz - but this picking on her with Paul Revere is distracting from real issues. After all this time, I still don't really know what Sarah Palin is about. When she's on TV, she always reverts back to talking points and canned answers. Her supporters laud her for not answering questions the way "[the media] wants", but is it really a pat on the back to dodge questions? ... Judging by the pics of Anthony Weiner, I think he ought to be featured on the next P90X DVD set. The slogan could be "Get yourself in Twitter-shape." ... I'm going to have some upset students this year, and they only have themselves to blame. There are many students who are borderline and could round up to the next grade. However, I won't round up unless they have a G or E in citizenship. For many, citizenshps sank in the last six weeks due to a myriad of reasons.

Articles and Videos

Bill Gates Sells Bad Advice

Coffee Names

Last Week's Best

-R

Trust This Projection

2011-05-29T21:12:00.000-07:00

Based on a projection two years into the future, one of the school board members in San Diego publicly stated that teachers should forgo their raises in the third contract year and suspend step raises. Proponents feel that this is important because the salaries of teachers will be "carried on the backs of our kids" unless these freezes are put in place. Some teachers have approached me about that and were downright concerned about their livelihood. Many are already having difficulty enduring the cuts that have been made.

Contracts are bargained. You get this in exchange for that. Teachers took a paycut in the form of furlough days. Though there are five fewer official work days, that does not change the workload. We simply have five fewer days to accomplish it. Next year will be year two of this agreement. To proclaim that teachers should simply give up what was bargained for - teachers had to give something up for that third year raise - based on sympathy is purely attempted manipulation.

Teachers have heard this before from a certain guy who is now the Border Czar. Teachers were shown a projection, and they believed the story, agreeing to a pay freeze. They conceded and in return got nothing. While teachers like me had trouble staying in the black month to month, money flooded in the district and the economy took off. Back then, prosperity wasn't on "the backs of our kids", but rather on the backs of teachers. It still is. And that's why you have a trust issue.

So you want teachers to sacrifice something based on a projection. Becoming a teacher means you have already sacrificed. Ask a teacher to give up something more and you show that you take them for granted.

Here's a projection: Given that fewer college students are deciding on education as a career, the attrition resulting from all the layoffs, the anti-union sentiment in the press, education is going to suffer in the next decade. Guess who gets sacrificed?

Stock Market Thoughts

Yandex (YNDX), the Google of Russia, went public this week. Looks like the euphoria is already over. ... Sell in May, go away maintains its reputation. May has seen us return to even for the year. ... Though financials (XLF) bounced off the 200 day moving average, it's still looking grim for this sector. Whether dollar up or down, they continue to suffer. One might want to look at housing as a culprit. Housing, a big money generator for banks, continues to drop. ... Google (GOOG) has released a pay service (Google Wallet) on Android smartphones and that has eBay's Paypal upset - so upset that it's suing. GOOG's current vice-president of payments used to work at Paypal and other a couple other eBay executives have defected to GOOG over the last two years. So there is some real smoke. ... Research In Motion (RIMM) is looking pretty dead. Its roller ball and typepad were so attractive initially. However, whereas it once lead, it now follows. Touchscreens and RIMM's inability to innovate has it looking like old technology. RIMM's tablet, the Playbook, is very late and it's sporting GOOG's Honeycomb, not their own operating system. Many think RIMM has value here, but a value tech company that doesn't pay a dividend is not a good value stock. ...

Bottom Line For Next Week: That's the market below, right between the blue lines. If it continues this trend, then it's sell on Tuesday, and buy on Friday or next Monday. These are quick gains if do that. If you're a longterm investor, just sell on Tuesday and wait with your money on the sidelines.

Current Positions: ABV, SLW, KSU
One share: BAC, AAPL, BIDU,LULU, PLG
90% cash.

Stuff That May Only Interest Me

Last weekend's Rapture dissapointed loyal followers. For Harold Camping who forecasted the occurrence for 21 May 2011 at 6:00 PM EST, this was his second misfire (Rapture was also supposed to happen back in 1994). No massive earthquakes were reported. A betting man would not have made this wager - go all-in because the casino's going to close. True believers though did go all-in, having left town in newly purchased Winnebagos with maxed out credit cards to see parts of the country they had yet to see. Imagine their dismay having quit their jobs and abandoned their relationships - a self-inflicted apocalypse in a sense. You may recall, we had Y2K in between that. We've survived yet another Doomsday. On to 12/21/12, the Mayan prediction - though their world really did end a long time ago. ... Camping was irresponsible in how he promoted 21 May as Rapture. To the tune of $100 million, he was using scare tactics to convince people to pledge themselves to Christ. When you have a microphone, you have a responsibility to the community you're preaching to. While many are pointing the finger at Camping, a lot of that blame also goes to his PR man. After all, what if you're wrong? It has happened before. Many true believers were taken advantage of as a result of their expectations. For example, one "company" sold insurance to offer pet care after going to heaven. Another company will send out "You've been left behind" e-mails to loved ones of members after Rapture. People changed their future plans based on this prediction. Now that the prediction has been proven wrong, many people's lives have been ruined. Even worse, many who were true believers may lose their faith because of the seismic displacement they have suffered. Unless you're an atheist, that is a greater disaster. ... Unions are cutting back significantly on campaign donations to Democrats. The fiasco in Wisconsin being the main driver, unions feel that Democrats have shown a weak spine and have thus cut their donations by almost 50%. Donations to Republicans have declined as well (13%). Firefighters and engineers haven't contributed a dime so far this year. ... President Obama's desire for Israel to roll the clock back 40+ years is, to put it mildly, a headscratcher. Everyone has chimed in on the (in)appropriateness of this, but my take is different: two years ago, Obama went on a world apology tour, saying "sorry" for our country's meddling in the affairs of others. How is this action consistent with all those apologies? ... A touch of class: Barry Bonds has pledged to pay any college bills for the children of the Giants fan that was beaten into a coma at Dodger's Stadium. What makes this classy is that neither Bonds or anyone working for him announced it. He made the pledge over a month ago, and it became public only through the victim's attorney. Score a run for decency. ... One interview that Bill O'Reilly is proud of is with Rep. Barney Frank. During this "interview", O'Reilly called Frank a coward for failing to own up to his talking up Fannie and Freddie prior to the collapse. O'Reilly is so proud of this interview that he featured it in his recent book, "Pinheads and Patriots". If this interview is his crowning achievement, it shows how far from "journalist" O'Reilly has wandered. A real journalist would have refrained from calling Frank a fraud and a coward for giving bad investment advice. Frank is lawmaker, not a stock broker. Who would consult their local Congressman on which stock to buy? Instead, O'Reilly should have grilled him on his voting record and apathy toward financial regulation. Calling a Congressman a coward during an interview just shows that you didn't do your homework. You're not his mommy, so why admonish with name-calling and goofy accusations? ... Why is it that people don't find the agendas of both major parties - Democrat and Republican - repetitive? Consider the mantra of the right - less regulation, more oil drilling, and cut taxes on businesses (this strategy worked well for us during the last President's tenure, didn't it?). They scream this every election, regardless of the State of the Union and economy. Not exactly original thinking, but campaigns are based on them. As for the left - the Middle class is under attack, the rich need to pay higher taxes, more social programs (at least the third one is getting addressed this term). Assuming these solutions are enacted in their entirety, none of these solutions, will be felt quickly. Yes, that is contrary to what candidate X wants you to believe ("Elect me now, or this country's going to Heck"), but government actions take a long time to take effect which is why it's important not to elect candidates who by nature are reactionary. The 2008 economic collapse came from seeds that were planted over the course of several years, including pre-Bush 43. ... San Diego City Schools donated $20 million to help fund the building of a new nine-story Central Library downtown near Petco Park. You know. After the game, let's go to the library and read a book. In exchange for this $20 million, the district gets floors six and seven for a charter school that is currently nothing more than an idea (what's the charter's ideology?). It works like this: $20 million of Prop S bond money was set aside. The bond haven't been sold yet, so the land underneath the Hilton in La Jolla - valued at $30 million two years ago (who knows what it is now) - was put up as collateral. Except the Hilton is still leasing that land, so they have rights to it currently. With budget cuts being what they are now, some schools have closed down. Why not just make one of them charter for a fraction of the price? I wish I could tell you, but I'm not as smart as those decision-makers. ... The NY Times reports that about 20-25% of seafood is switched in restaurants. That is, when you order halibut, you get tilapia. If it becomes rampant, I can imagine McDonald's reaping the benefits when its Filet o' Fish makes a comeback - unless they switch it for a big chicken nugget. ... Columbia Pictures will release a bin Laden movie next year. Maybe a Hot Shots redux with Charlie Sheen "winning"? ... AIG is getting set for a stock offering. Meaning: taxpayers were forced to own it before, so now they can own it as investors. Quite the shell game. ... How's this statistic for a college education: unemployment rate among college grads is 4.5%, where as high school grads sport a 9.7% unemployment rate. McDonald's wants someone with potential to be assistant manager. ... Alan Greenspan offered on Meet The Press last month that America needs to return to the tax rates during the Clinton years because of the high deficit. Therefore, you know we need to keep rate rates right where they are. Greenspan is a great contraindicator. ... A new study on college professors shows that Republican professors give more A's than Democrat professors who in turn give more B's. However, Republican professors also give more D's and F's. In addition, the variance of student grades of Republican professors correlated more with their SAT scores. Still, this leads to several more questions. Which party gives more multiple-choice tests? Which tends towards authentic assessments? Also, one has to wonder how Liberal Arts wagged the results. The study strengthens the assumptions of the egalitarian beliefs of both parties. It needs more follow-up though. Only a few Republican professors were part of the study as the professors were overwhelmingly Democratic. ... Chrysler will no longer be American. Fiat has pledged to purchase the rest of the US Government's stake in Chrysler, giving them about 57% of the company. Given Chrysler's turnaround, President Obama plans to make a speech later about how government loans can save a company. We will lose about $2 billion because Chrysler went into bankruptcy after the "loan" anyway, but who's keeping score?

Articles and Videos

Last Week's Best

-R

Some Oil Speculation

2011-05-21T21:43:00.000-07:00

Oil company CEOs went to Washington to testify about the high price of oil and the subsidies we give them. First off the subsidies: these companies are making money hand over fist. Why the subsidies?

To better understand a subsidy, allow me to define it: it is money collected from the taxpayer and given to another party. Now if the subsidy is taken away, then gas (and other oil products) will assuredly increase by that amount. In other words, that money taken from us by Uncle Sam will ultimately get paid anyway. So the subsidy is pointless.

Gasoline is a low margin business when oil prices are stable. From rack to pump, companies make their money on volume. Are oil companies intentionally making prices outrageous? No - but they would if they could. People talk about the oil companies in the US (Exxon/Mobil and Chevron for example) having a hand in driving up oil prices. They fail to see that oil is bigger than them. Every country in the world needs oil.

So now let's look at OPEC. There are so many things people don't realize about oil production and OPEC. I'll list a few.

OPEC consists of 12 countries: Saudia Arabia, UAE, Iran, Kuwait, Nigeria, Venezuela, Iraq, Algeria, Libya, Angola, Qatar, and Ecuador.
OPEC produces about 60% of the world's oil.
About a quarter of the world's oil comes from what used to be USSR (Russia et al).
About a third of the oil the US imports comes from OPEC countries.

So what does that mean? It means any political hiccup in those countries will wag the price of oil. Now let's look at recent history.

Libya is dealing with a possible revolution.
Saudi Arabia, OPEC's biggest oil producer, is having few protest problems.
Iran is having domestic problems (Ahmadinejad's phony election isn't their biggest issue)
Nigeria has a rebel problem.
Venezuela's Hugo Chavez isn't the most loved figure in his country.
Iraq ... well, you know about Iraq.

In short, almost all of the OPEC countries are having stability issues. So when something unexpected happens, the price of oil goes up.

There's also a supply side: The IEA Govenring Board warned this week that the world's oil supply is too low and called upon oil producers to increase production. OPEC though thinks that supply is adequate.

Then there's the demand side: the early part of the summer season is when oil peaks usually during the year.

Still want to blame Exxon and Chevron? Cry at them if you hate going to the pump, but that does not change the price of oil which is a worldwide phenomenon. And gasoline is not the only piece of this. Oil is used to create a lot of other products from heating oil to plastic.

So if we want some oil stability, we'll need to either increase production on our own or find alternative sources ("sources" plural because of the multitude of uses oil has).

As for speculators? Anyone who buys and sells is a speculator. Too broad a term. A big money speculator can move prices short term, but cannot sustain a longterm move the way oil has gone. To blame speculators is to overlook all these other facts.

So about that dog-and-pony show in Washington over speculators ... we've had this before and no solutions came out of it. Don't expect anything to change this time either. At least, that's my speculation.

Stock Market Thoughts

LinkedIn (LNKD) went public this week. The IPO was successful in that it was able to sell a lot of its stock. Facebook is licking its chops. Social networking sites are gaining momentum in the US. They might be able to take in a whole lot of money. In any case, I'm just watching. Not a fan of the company or the stock. ... As for Facebook China, Renren (RENN) has finally bottomed since its IPO. The bottom is temporary because everything about it is temporary. How much does this bounce have? Not much by the looks of it, especially since the market is so heavy. While you can scrutinize the fundamentals of a US company with some confidence, it's buyer beware when eyeing Chinese stocks. ... Jim Cramer thinks the LNKD IPO is a sham - probably based on his experience with the TheStreet.Com IPO. He's not the only one that thinks LNKD is overpriced. Unfortunately, you can't short it. People are trying. ... The Euro continues to struggle. Greece is leaning towards a quiet default, while Spain tries to keep up with Greece. Lovers of silver and gold should be happy about that. The dollar is showing strength only because its counterpart is weak. Banks should be catching a bid (when your currency is strong, international investors will want to buy your dollars), but they continue to look weak. ... Fitch just downgraded Greece again last week. I didn't know they hadn't downgraded Greece to their lowest rating yet. What took so long? ... Italy is now getting a warning of an impending downgrade. All spells doom for the euro. ... Russian Google, Yandex (YNDX) is set to IPO next weak. They're hoping for a LinkedIn type of response. Russia is a place that many investors consider to be up and coming, so it'll be curious to see if they're willing to put their money where their mouths are.

Bottom Line For Next Week: Nothing really spectacular in the market. It's still in consolidation. If anything, I've noticed another lower high short term. People are selling their gains quick, all the more reason not to get aggressive.

Current Positions:
ABV, SLW, LULU, PLG, KSU
One share: BAC, AAPL, BIDU,
85% cash.

Stuff That May Only Interest Me

Everyone knew about Arnold's propensity to treat the help like squeeky squeeze toys, but the love child news is even worse because our tabloid media failed to follow-up on the Arnold shenanigans years ago. Either Arnold has the best PR people in the business, capable of jedi mind-tricking others into thinking that the smelly fart is coming from a fellow down the block, or people have that much respect for Maria Shriver's choice in men. Ironic that Maria Shriver married a man who was just like the other Kennedys - womanizing and power hungry. ... Rapture date is 21 May 2011 according to some. The source for this date has been divined from many conjectures, including one involving math. For example, the numbers 5, 10, and 17 have meaning in that 5 is atonement, 10 is completeness, and 17 is heaven, traits that embody Rapture. Square the product of 5, 10, and 17, you get 722500. Thus 722500 days after the crucifixion of Jesus is 21 May 2011. Despite all the connections drawn to 21 May, one has to wonder why the beginning and end are so diametrical in their definitions. That is, the heavens and Earth were clearly created in 6 days (God rested on Day 7 - implicitly promoting a six-day workweek), but Rapture's stardate is fuzzy. I don't know. Hopefully, Piers Morgan can cast a light on this soon. ... SlutWalks are gaining momentum since the first one up in Canada last month. Advocates say that SlutWalks, protest marches of scantily-clad women, refute the idea that rapes are not the fault of women - as put forth by a Toronto judge - and they will help women reclaim the word "slut". In my mind, slut is a term applicable to both men and women who are sexually permiscuous and/or have loose sexual morals. Arnold Schwarzenegger for example is known for displaying slut-like qualities. Why would you want to own that term? ... A SlutWalk has since been held in Boston with more planned elsewhere throughout the US and in the UK. In response, a few have mentioned organizing "PimpWalks" (hopefully without the testicle cleavage). One has to wonder the effectiveness of such a statement if it plays to the stereotypes places by mass media. For example, a gay pride parade featuring occupations across the spectrum dressed in everyday casual wear is more effective than people sporting neon tights with a nipple hanging out. Stereotypes are built on image and looks. The more everyday your look is, the more effective the protest is. In these SlutWalks, many women strut in fishnets and suggestive clothing that invites ogling. Reducing a protest to a public peep show will hardly help the image problem. ... "The End of The World" Trade for stock investors: Winnebago (WGO) and Thor Industries (THO) are seeing their stock prices decline. People aren't rushing out to buy RVs to drive inland. Housing hasn't dropped off a cliff either (though existing home sales were less than expected), so we aren't seeing anticipated inventory increases that come with the world ending. However, stock in Campbell's Soup (CPB) and Pepsi (PEP - which in addition to soda sells Quaker Oats and Frito Lays) have caught bids. One must conclude that people aren't thoroughly convinced of Rapture, but harbor enough skepticism to stock up. Purchases of Campbell's Soup and Pepsi are easily reversible actions. Just bring your receipt. ... Osama bin Laden is still alive - in Corona California. At the SC VIllage Paintball, you can enter the Abbottabad compound and fire pink paint at the bearded one. Gamers I'm sure are also salivating over the idea of a new Call of Duty sequel. ... A few interesting statistics on housing from "The Economic Collapse Blog" (http://tinyurl.com/3ffyuyp): 28% of all single family mortgages are now underwater; the average price of a home is now 8% lower than last year; 13% of all homes are sitting empty. ... The owner of a Ferrari is suing the Justice Department because an FBI agent wrecked it while driving. The car was stolen years ago and after discovery was kept as evidence. When trying to transfer it, the car, one of only 50 1995 Ferrari F50's in the US, got totalled and has been ruled a total loss. Justice refuses to pay for it, and the insurance company isn't getting any info the details of the solo car crash - all in the name of "need to know". The amount sought after: $750000. I wonder how much I could get for my stolen Toyota Cressida if they ever recover it. ... Cris Collinsworth thinks the NFL lockout will result in a 10 game season, starting in November. He thinks a deal will get done only after the owners start having to pay those stadium mortgages and players start missing their game checks. If the players give because of that, then that's gotta be the dumbest thing ever. Quite simply, they make an insane amount of money and they knew this lockout was coming. They should have been preparing for it by saving up. In instances like this, it's all about who blinks first. The union should have been advising them of this and setting up financial workshops because players traditionally manage their cash poorly. ... In-n-Out Burger franchises open in Texas last week and the lines were literally a mile long. Just confirms again who makes the best burgers on the planet.

Articles and Videos

Last Week's Best

-R

Teacher Layoff Thoughts

2011-05-15T09:50:00.000-07:00

With the teacher layoffs all but a foregone conclusion, many are calling on teachers to pay for some of their health benefits in the interim until the budget improves. They know not what they are suggesting. Deals put in place regarding benefits are impossible to reverse. These times are tough, but they are relatively short term. Screw with benefits, and you screw with longterm. People talk about feeling the pain for the last three years, but teachers have been feeling the pain for a lot longer than that. The frustrations of not being able to save have lingered with me since Clinton left office. When times are booming, teachers struggle to get a share in that. Now that times are bad, you are going to give teachers that crap about sacrificing and paying their fair share? Teachers have been overpaying an unfair share for a very long time - longer than the meager three years they point out. You want shared pain, but not shared prosperity. ... These layoffs will have a ripple effect that will carry over into the years to come for both students and the teaching field. Students will have it tougher because the people in charge of their future will have less to work with and more to do. As echoed before, the teaching field will thin over the next few years because of the dropoff in college students entering education (50% over the last two years). There will be fewer qualified applicants and many existing teachers are mulling over the possibility of leaving the classroom for greener pastures. ... Many lay blame on the teachers by saying "Take another paycut for the kids." Sorry, but a teacher has a right to live too. Many already sacrifice so much time away from their families to deal with the increased burdens they now shoulder due to cuts over the last three years. You want more? Pitch in yourself. ... I was very dissapointed in the Tuesday rally. That was essentially the last gasp for educators. Now witht he deadline past, the layoff notices are now official. Our district will lose about 13% of its teachers. Though the layoffs can still be rescinded, the momentum the negative PR and morale has gained will likely mean that some of these teachers will be gone forever as they seek greener pastures. ... And then there's the doomsday scenario: if the State elects to suspend Prop 98, the minimum funding guarantee for education, then that would mean another $55 million in cuts (coincidently, or not, the number SD Unified had on its books as "set aside"). This means that school will end 6 weeks sooner - another law violation since state law requires 175 school days. It why the teacher's union argued that those funds be used to rescind all the layoffs. If the doomsday scenario kicks in, then school will be shortened. Therefore, why even bother laying anyone off if everyone's job will be cut short for the year?

Stock Market Thoughts

Microsoft (MSFT) bought Skype this week as it tries to grab a firm toehold in the smartphone space. MSFT's failure to innovate in this space is the reason for this overpayment. It wants exposure in an industry that is flowing with money. Unfortunately, MSFT still doesn't innovate and must rely on acquisitions. The one acquisition it should focus on? Drive its stock price low enough so that it can go private. It's not giving shareholders any value. ... The Renren (RENN) IPO has thus far disappointed (a member of the audit committee resigning should have been a red flag to investors). Billed as the "Facebook Of China", many thought this would scream higher given the hunger over the potential profits from advertising social networks can rein in. However, some accounting issues have derailed the IPO as well as trust in China. China itself sandbags with fuzzy math, and this failed IPO might be the start of the end of China as a focus for investment growth. ... Facebook hired a PR firm to secretly bash Google (GOOG). Given that Facebook may IPO later this year, this shows how much Facebook views GOOG as a rival. GOOG has thus far failed with Buzz, but it's still looking for way to innovate a substantial foothold in the social networking space (Notice no one is doing negative PR against MSFT because MSFT has already taken care of that). ... Is the price spike in commodities done? Many seem to think so. QE2 is coming to an end, so we may start to see the end of early cyclical plays. However, the dollar is bouncing because of renewed fears of Greek default. Bad for the euro, so good for the dollar. Though the government is trying, the dollar isn't going to zero. Mayn feel the next leg up in the market will come from the banks (a strong dollar favors them because of international investors seeking strengthening currencies), but right now, the XLF looks so darn weak. Still, keep an eye on it because value investors are starting to step in. ... If silver doesn't reestablish itself soon, then we could be seeing the end of the move in gold too.

Bottom Line For Next Week: The market continues to chug sideways which is healthy. A correction would be healthier. In any case, it isn't the type of market to pile all in with. I did a lot of selling on Monday and Tuesday.

Current Positions:
ABV, SLW, LULU, PLG, KSU
One share: BAC, AAPL, BIDU,
80% cash.

Stuff That May Only Interest Me

Followers of Josh Fox, the filmmaker behind Gasland, rejoice. Bad news for natural gas companies: a scientific study has at last linked hydraulic fracturing to water contamination. A Duke University study concluded that water near natural gas wells contained dangeroud levels of methane and the type of gas in the water is the same type as the gas extracted from these wells. Drinking water currently has no methane level regulation. This news should renew momentum for the FRAC Act still languishing in the House. ... Bill O'Reilly doesn't buy the wealth divide argument, stating that the US poverty rate is under 10%, solid for a capitalist country. His numbers are off. Poverty is cyclical in the US and historically, it ranges from 13 to 18%. Right now, it's about 14% in the US. But for children, it's nearly 25%. That should be the cause for concern. Children in poverty underperform in school. That's your future right there. ... Charlie Sheen's replacement on "Two And A Half Men": Ashton Kutcher. Sheen's quite bitter about it because he was hoping to regain his role after bashing everyone on the show. Somehow, he didn't think he'd burned any bridges. Someone fire a Torpedo of Truth at that guy sometime. ... It's starting up again. We're getting buried by promotions from unknown lenders about the great interest rate we can get from them on a home refinance. It's almost as if 2008 never happened. ... Porn, weed, and Pepsi were staples in the bin Laden compound - at least that's what the government says. If it's true, it reveals bin Laden and his cohorts as banal and hypocritical. If it's true. One has to wonder if the government is attempting to conduct a psychological war with bin Laden's admirers. One can never forget that winners of wars write the history books, and no entity is above propaganda. There is always a goal when releasing information to the public and "transparency" isn't always primary. ... Bin Laden's choice of Pepsi is curious, because Coca Cola is reportedly so dominant on that side of the world. ... Porn is a real taboo amongst members of the Muslim community. Yet it is discovered often during raids of militant hideouts. It shows what happens when religion and personal faith mixes with political and militaristic objectives: foundations in faith become lost or twisted into something else that fits more neatly with personal desires. Ironic that the desire to create chaos also leads to disorder on a personal level. They become what they impose. ... With the BP oil spill a distant memory, President Obama is ordering more drillng in areas previously untouched in Alaska and in the Gulf. All that despite that the agency in charge of regulation is still the same (though it does have a new name - with the same people running it). ... Intrade current listings: Donald Trump to announce a run at the presidency (52%) and be the GOP Presidential nominee (4%), Scott McCreery to win American Idol (62%), Barack Obama to win re-election next year (59%). These numbers are better than Sarah Palin winning the White House (2%) and Mike Huckabee being the GOP nominee (0.1%). Currently, Mitt Romney is the favorite to garner the nomination (26%) whereas Herman Cain is a distant 5%. ... If you have a chance, be certain to Netflix "Inside Job", the documentary on the 2008 collapse. It appropriately points fingers at the right people, and does a much better job than Michael Moore's "Capitalism" which, compared to "Inside Job", is reduced to mere left-wing propaganda. Unlike "Capitalism", "Inside Job" was able to successfully describe many of the financial instruments Wall Street uses to generate profits. ... Northern Ireland announced its new government trhough Twitter. Unlike having a Press Secretary like we have here, Northern Ireland can tweet away without having to take questions. best of all, it was able to reduce labor costs by replacing the Press Secretary wtih a blogger. Will this be the start of a trend?

Articles and Videos

Last Week's Best

-R

Focused In The Wrong Place

2011-05-08T09:28:00.000-07:00

Donald Trump came along four years too late. Questions about a candidate's qualifications isn't relevant if that candidate has been serving as president. It's pointless. It's not like lying on a resume. If a company likes the job you're doing, then it's not guarantee you'll get sacked for lying on your resume. The company might try to work with you to get those necessary credentials. For a president, no one is going to care about your grades unless you are running for office the first time. No one, sadly, cared about Bush's qualifications in 2004 when he ran for reelection. Same holds true in this case.

Trump may be the only one pointing at the elephant in the room - poor fiscal policy - but he is concentrating too much on questions that should have been asked by our incompetent media before 2008. It's too late for that. Obama has a track record while in the White House. If you want to attack the president's credentials, you point out 1) the President hired creators of the economic crisis to help run the country's fiscal policy, 2) the idea that the stimulus package would keep unemployment under 8% was a fairy tale - purposely told to get legislation passed, 3) the President focused on what he wanted (healthcare) instead of what the country needed (bank reform) - and getting ineffective versions of both in the process, and 4) the failure of Congress to pass a budget stems from Obama's proposal to increase the deficit another $1+ trillion.

The main issue should be jobs and the economy. I like that Trump is banging that economic drum. He just isn't doing it well or enough. He has delivered vulgar messages about it, misunderstanding the topic requires no profane expressions. It just needs to be articulated over and over again in several different ways. Profanity carefully chosen is effective. Profanity that streams out profusely is a huge turn-off. The ugliness of the truth is profane enough. If facts are on your side, you need not curse them out to get a response. The anger of the Tea Party merely required details of the stimulus package and the budget deficit to kickstart a movement. It didn't require birth certificates, school grades nd four-letter words.

The Debate Disappointed: There was a GOP Presidential debate this past week, and it was far from encouraging if you're a Republican. These candidates confirmed that the Republicans bring nothing to the table. There is so much out there they could focus on, but it sounds to me they are largely clueless on how to deal with China, how to stimulate economic growth, and how to put people back to work. Worst of all, no one really addressed the long list of mistakes coming out of the White House.

It was not encouraging if you're a Democrat either. Obama has made some stinker decisions, and his feet won't get held to the fire. You need the other side to come right out and put together some substantive arguments. Instead, all we got are ideologies and talking points.

Not that I'd vote for him, but we need more Trump. Someone to stir the pot. Otherwise, that elephant continues to occupy the sofa in the living room. And it's holding the TV remote.

Stock Market Thoughts

Sony (SNE) CEO blogged a big "I'm sorry" for the data breach of its PlayStations. This is a bit of a black eye for cloud computing in general. Cloud computing is supposed to allow easy access and movement between different platforms. It's what allows you play movies from Netflix (NFLX) on them.That seems to be the case for hackers as well. Companies like Salesforce (CRM) and VMWare (VMW) have underperformed the rest of the market since news of SNE's breach come public. This sector could have difficulties if businesses back away since it will mean smaller growth rates - and therefore revised earnings guidance. A hint of shrinking PEs means sell now and wait for confirmation later. ... Citigroup did a 1 to 10 reverse split on its stock - meaning if you owned 100 shares at $4.52, you now own 10 shares at $45.20. Citi hopes this creates some interest in its stock as it is no longer under $5. The $5 and $10 marks are critical levels since some institutions tend to avoid stocks below those marks. It worked for AIG, so why not. ... Speaking of banks, financial stocks are running sideways, so there's no hurry to get into them. Citi and JP Morgan exemplify that. Bank of America (BAC) is right at clearly defined support, you have a low risk entry right here. Wells Fargo (WFC) is really weak. Can't say I want a piece of that. Even weaker are the big brokerages - Goldman Sachs (GS) and Morgan Stanley (MS). Ugly. ...Unemployment rises to 9% but job creation is higher too. That means people are out looking for a job again, so that's a bonus for the economy. Still, quality jobs are tough to find. That needs to be central focus in the next presidential election. ... Dunkin' Donuts (includes Baskin Robbins) is going public - again. They were public decades ago but went private when the economy tanked in the 70s. The IPO should bring in a lot of cash for Dunkin' and investors are sure to flock to it. Ticker symbol likely be DNKN. ...

Bottom Line For Next Week: Bin Laden's death marked the top short-term - an interesting paradox. People were so happy, they sold. However, gold and silver trades got unwound too, so we're seeing some cash being raised. Though the market bounced Friday at an obvious pivot point, it could be a pause before further downside. Or it could be a perpetuation of the uptrend. Hard to tell. In any case, still cautious.

Current Positions:
ABV, SLW, LULU, PLG, BIDU, UNP
One share: BAC, AAPL, C
40% cash.
I got stopped out of most of my positions on Monday and reentered SLW on Friday. I'm not real optimistic, and am ready to bailout on the most of my positions if the market dives further.

Bin Laden Stuff That May Only Interest Me

Sean Hannity is getting desperate. He's been on TV all week promoting the idea that George W Bush deserves shared credit for bin Laden's death. Hannity believes that the system Bush put in place enabled Obama to finally track down bin Laden. Sorry. Bush's chief contribution was to thoroughly eliminate Iraq as a possible hideout. ... Sarah Palin also commended George W Bush (and not Obama) for the bin Laden operation. Consider the hypocracy: We shouldn't blame Bush for the current economic woes because Obama has caused a huge increase in our debt and poorly mismanaged the economy. Yet, we should credit Bush for military success on eliminating an enemy of the State because of the system he put in place? You can't have it both ways. You either credit Bush for both the economic and military systems put in place or leave him out of the conversation entirely. ... Native Americans objected to the name "Geronimo" given to bin Laden as a codename. "Geronimo" in Apache means "one who yawns". Given the comfort that bin Laden lavished himself with, I'd say the name fits in that respect. ... People on TV are calling for the release of bin Laden's death photo. Why? There has too much coverage of the compound with graphic photos of others that were killed. Why do you need it? ... Call it like it is: the insertion team that went into bin Laden's compound weren't going in to take him alive. ... A study of the medicines at the compound hint that people there suffered from ulcers and high blood pressure. However, I can easily see someone reaching the same conclusion from my own medicine chest. It could just be that everyone had some bad Pakistani Chinese food a couple nights before the breach. ... Now that bin Laden is dead, what happens now in Afghanistan? Our presence there is rooted in neutralizing al Qaida. However, al Qaida has presence in several countries, so what makes Afghanistan al Qaida headquarters? After the O-phoria wears off, people may call for a troop withdrawal pronto. ... Someone in Pakistan was knowingly helping to harbor bin Laden. Had to if 1) the White House knew of bin Laden's location for months and thus 2) bin Laden had been there for years and 3) that location was just a short distance away from military compound. The White House wants names. More heads will roll. This is a real stain on the Pakistani government. And we thought Karzai was bad. ... Some people think it's despicable to celebrate the death of a foreign enemy - more precisely, a death in general. These people miss the point. Now you can tell your kids that monsters are not invinceable. To celebrate death is to celebrate an unprovoked, unjustifiable attack. This attack on bin Laden was self defense. People can now sleep better. That's the cause for celebration. ... "I’ve never wished a man dead, but I have read some obituaries with great pleasure.” -Mark Twain

Stuff That May Only Interest Me

With rising cost in college education, one has to wonder where the money is going. It certainly isn't going into instruction. The majority of instructors are not tenured, do not possess a doctorate, and earn less than a high school teacher. If colleges are going charge so much, they should at least return quality at the classroom level. However, much is spent on attracting students there with upscale dorms and facilities. Not enough is spent on what is both the most pivotal and unseen. Because of this trend, college is becoming a scam. ... Sony's CEO blogged I'm sorry" for the hacking of its PlayStations. In addition to the "Dear Friends" salutation, he mentioned the earthquake and tsunami in Japan, but last I checked, the hacking capabilities of tsunamis aren't subtle - they tend to destroy the entire PlayStation instead of just the security. If hackers can get in once, they can get in again. Not comforting if you do Netflix on those things. ... Lawrence O'Donnell said that Jesus was very big on a super-progressive income tax for the wealthy. He derives evidence from when Jesus encouraged his followers to relinquish all possessions. That may have been true, but I am certain Jesus meant for them to give all possessions to charity or church, not the treasury of the state. ... Social Security Administration confirmed the top boy and girl baby names for 2010 is Jacob and Isabella - thus confirming that Twilight is still pretty popular. I would have thought Ronda and Ronnatello would have cracked the top ten, but (sigh). ... Now that the royal wedding has passed, tabloids are now fawning over Kate Middleton's side fo the family. It's so ridiculous, that I'm now expecting a royal version of Will & Kate + 8 soon. ... Toronto is hoping for an NFL franchise in the future - right after Los Angeles gets one. If so, it won't be a new franchise, but instead an existing one relocating from another city. Dare I say it: The Toronto Chargers? Though Toronto is hoping for a franchise like the Jaguars, they will have trouble convincing the NFL since it doesn't have anything resembling what the NFL wants in place - a new stadium with lots of corporate boxes that ordinary fans cannot afford. ... In 2001, the Congressional Budget Office projected a debt-free government by 2006. However, if one took into account other nongovernment factors, the year changes to 2008. So what happened to change this? Legislation according to the CBO. Medicare Part D, the Bush tax cuts (and the Obama extension), increased government spending (both Defense and otherwise), other tax cuts, the stimulus package, and Iraq and Afghanistan. Obama's two years in office have figured fractionally in comparison to the Bush years. That stated, the CBO is used to operating with data fed to them by other people's assumptions (ie politicians). That's how the phony assumptions about a lot of bills like Obamacare come to be. Need some more evidence? Look no farther than Medicare Part D. ... I know that companies are trying like mad to invest in China. Great for the bottom line. However, when the growth slows down, I'm wondering if the Chinese government will allow them to take that money out of China they way did here in the US.

Articles and Videos

Review's Of Bin Laden's Compound (Google Maps) (http://tinyurl.com/3qot6cm)

Last Week's Best

-R

The President Shows He's Transparent

2011-04-30T09:41:00.000-07:00

Obama Trumps Trump: At last, the president releases his birth certificate. Took long enough. While Obama was right to call it a silly issue, it was equally silly to let it stew for over two years.

Obama already had doubters about his character preelection because of his associations. Then the birther accusation. Obama never addressed it though, so it became a movement. Only now has Obama came right out with it to silence a vocal critic who himself has character issues. However, with the passage of time comes true believers. Some will always believe that Obama is lying regardless of what evidence is brought forth.

Transparency is a must in politics; yet it is rarely delivered. Transparency in fact was part of Obama's platform (earmarks and posting bills online prior to signing for examples). All those promises are but fading memories. Whenever you wait a long time to address an issue that challenges your qualifications as Commander-in-Chief, the issue metastisizes.

Politicians sadly do not understand "transparency". It is more than openness. Transparency also requires perception. People must believe you are being transparent. Waiting two and one-half years doesn't inspire that.

Consider Roswell. Decades passed before the government finally explained the alien crash-landing in New Mexico. And because of the wait, no one believes the explanation. The lack of expediency makes people think the truth isn't genuine.

Trump Polishes Turd: It took an equally untransparent presidential candidate to facilitate the unveiling of the birth certificate. Then at a press conference, he talked about being proud of what he accomplished. I think he was holding a shovel at the time. Trump craftily shifted gears on attacking Obama's qualifications by now focusing on Obama's grades in school. I really don't care if Obama benefitted from affirmative action in those days. Dubya graduated from Yale. That didn't make him a genius.

We already know that Obama is as smart as Bush 43. In time, questions about Trump's qualifications will also surface. Trump will point at his own grades in school. The smart ones will instead call attention to his four bankruptcies in two decades. That means Trump, like Bush 43, is a rich guy but not an economic genius. What makes Trump a poor President is simple: he, like Obama, is a true believer. In other words, he is not agnostic about most issues. If President, he would lead with his head down, charging forward without looking up. The last thing we is Charlie Sheen in the White House.

Why The Lack Of Transparency And Intelligence? Politicians by nature are short-term decision makers. Because of that, they focus on the unrealistically optimistic and ignore longterm warnings. They look at what will get them or their cronies reelection. Thus, transparency tends to be selective. You need only refer to the numerous bills rammed through Congress over that last two years for confirmation of that.

What The Focus Should Be: Trump should be making transparency an issue instead of birth certificates and grades. Obama made that campaign pledge and we haven't gotten it. Since Obama's crowning achievement was healthcare, I'd focus on that. Recall when he addressed Congress about it? I'm sure everyone remembers Joe Wilson's "you lie!" Well, he did ultimately lie. He said he'd consider changing the bill to make it more of a reform package and make it deficit neutral. Since that speech, he fed the Congressional Budget Office phantom economic assumptions to justify it economically. The bill didn't change and it passed anyway as the same universal coverage mandate. Insurance companies won because they got more customers, but no new competitors for their markets.

Stock Market Thoughts

Best Buy (BBY) is the new Circuit City. Ironic, because they bought Circuit City. The stock is diving, searching for a bottom. It looks like it may have finally found one. Short term. Still, long term prospects aren't great. People go into BBY stores to shop around, then after looking at the merchandise, get on their iPhones and order it from Amazon (AMZN). ... Bank Of America (BAC) has stopped going down too, but that doesn't mean it's okay to pile in. It's low risk to buy here, but the return upward will be a choppy one if it starts now. Time has to pass first because there is so much heartbreak in it from people who bought at higher levels. The recent mortgage writedowns lingers in the memories of most of those buyers and they will be aching to sell it if the price moves up. ... Given the government's monetary policy, commodities have replaced housing in that people are buying them out of fear it will cost more in the future. Housing burst because the credit for it evaporated. Will that happen here too? ... Railroads are taking off and it would pay off to buy one. I put some money into Union Pacific (UNP).

Bottom Line For Next Week: The market broke out to a new high. It still continues to impress. Most interesting is that the breakout was on unremarkable volume. There just isn't any real believers in this market and that disbelief is probably what's driving it. Nonbelievers are slowly becoming believers. That transformation adds buyers into the market. In addition, owners don't feel compelled to sell so the lack of selling pressure contributes to the market uptrend. If you're buying here though, you're probably late.

Current Positions: ABV, WLT, SLW, LULU, PLG, BIDU, TCK, UNP
One share: BAC, AAPL, C
25% cash.

Stuff That May Only Interest Me

Journalism is now considered the most useless college degree to have. I have to sadly agree with that. Media does not value an effective journalist - that is, someone who looks at matters objectively. The number of faux-journalists on TV, on radio, and in print proves it. You need no journalistic training. Just the gift of gab and the ability to polarize audiences. Polarization and devisiveness sells. Truth? That's yesterday's news. ... Thursday was a perfect TV day. Women can chime into the royal wedding, and guys check out the NFL draft. ... Three sophomore girls talked about the royal wedding and commented on how attractive Prince William looked - until noticing that he is follicly challenged. Now suddenly the tone shifts from handsome to "old". I am of course just four feet away from them and very visible, but I guess when you have even less hair and bank than a balding prince, you are also more deaf and inanimate. ... Bill O'Reilly on his TV show always features a "Pinheads and Patriots" segment. "Pinheads and Patriots" is also the title of his new book which, I assume, is about people who are either patriotic (like Colin Powell) or pinheaded (Joe Biden) or both (George W Bush). If so, it has absolutely no correlation to his P&P TV segments which ought to be titled "Cool or Uncool" instead. Basically, O'Reilly will feature someone doing or saying something, then viewers vote on whether that person is a Pinhead or Patriot. It could be something as simple as pepper-spraying a squirrel or poorly coordinated breakdancing. Neither of these instances imply pinheadedness (insignificance or stupidity) or patriotism (defender and supporter of one's country). Ironically, his "Word of the Day" describes his daily P&P segments. P&P is hardly pithy, occasionally mordant, frequently insolent, usually gormless, and always callow. Put simply, it is an opportunity to make fun of others. Only a charlatan would claim otherwise. ... I sent myself a message about history and how people tend to ignore it. It's due to arrive in two and one-half years. Sometimes, we need reminders like that. ... The Nissan Leaf is very different than the Chevy Volt. It's a hatchback, not a sedan. It's purely electric (no gas tank). And it doesn't work as a primary vehicle. According to Nissan, the battery will get you 100 miles - as long as you don't turn on the AC, headlights, or radio. Otherwise, you'll get about 75 on one charge. Fine if you never leave your home county. ... Buying a Leaf means a $7500 federal tax credit and $5000 California tax credit too (the Chevy Volt doesn't qualify for the $5000 since it's a hybrid). If you live in Riverside, you can claim an additional $2000. Sounds like a deal. But the Leaf requires 20 hours to fully charge. However, that time can be cut in half if you install a Level II charger in your home (there goes your California refund). You might also need another electric panel/meter for it (bye bye Riverside money). All for a car you can't drive from San Diego to Los Angeles. ... A bill has been introduced in California to allow for alkaline hydrolysis, or liquification, of a corpse in funeral homes instead of cremation. That way, your carbon footprint can be reduced when you die. Basically they liquify you, then flush you down the toilet. Nice to know I can mingle with sewage upon death. ... Did you bet on the royal wedding? People were able to place bets on the color of Kate's dress and the Queen's hat among other things. A first kiss lasting 10 to 60 seconds paid 25 to 1. ... Fed Chairman Ben Bernanke stood in front of a burning building and proclaimed, "Nothing to see here!" when discussing the government monetary policy. The resulting inflation has meant pain for those who eat, run their cars on gasoline, or are retired and rely on their CDs and bonds for income. In the meantime, the rich still get richer and the poorer - well, you know. Thus the banks can still borrow at zero, and lend it back to the US government (ie the taxpayer) at 3%. Why not just write the banks checks and cut out all the broker fees? ... Here's one question that should have been posed to Bernanke: With all this money pumped into the system to heal the banks, why is it still so hard to get a job? While monetary policy is linked to fiscal policy, one must ask our leaders if 1) is Obama's poor fiscal policy the reason why the job market is so piss-poor? and 2) is the Fed's monetary policy encouraging bad fiscal policy? ... The idea that cellphones can track your movements is nothing new. However, now people are screaming about privacy. What did you expect? Those things come with GPS and child locators. Think your eyePhone can tell the difference between an adult and a child? You paid up to give up some privacy. ... Instead of arguing that Obama wasn't born in Hawaii, I'd rather argue that Hawaii isn't a legitamate state. That place is definitely different from the mainland. ...

Articles and Videos

The Post-Crisis Generation (http://tinyurl.com/44raydf)
Bad Education (http://tinyurl.com/3qgbln6)

Last Week's Best

-R

2011-04-24T19:55:00.000-07:00

Stock Market Thoughts

While the media spreads happy news about real estate turning up, JP Morgan Chase (JPM) and Bank Of America (BAC) reported $1.4 billion and $3.8 billion in charge-offs related to mortgages in their earnings. BAC's outgoing CFO expressed pessimism on an improving mortgage picture. One has to wonder if the Federal Government will embark upon QE3 and more money printing. ... China is trying to stamp down inflation again, and that spells trouble for China. Despite its complaint about us printing money and making their existing holdings of our Treasuries worth less, the Chinese have been engaging in money printing of their own. They've been trying to slow the flow of money down regularly for quite a while - including raising capital requirements of banks four times this year - but when the government itself is trying to hoard resources like rare earths and copper, it tends to send a mixed message. ... Toyota (TM) announced that it will be at full production by the end of the year. Hopefully, the brakes will work. ...

Bottom Line For Next Week: The market is at resistance, so again "Caution" is the word. Volume hasn't been very convincing so a new high would be viewed with skepticism if more buyers don't step in.

Current Positions:
ABV, DNR, WLT, SLW, LULU, PLG, BIDU, C, TCK.
One share: BAC, AAPL.
25% cash.

Stuff That May Only Interest Me

The + IRS = Theirs. For tax reasons, I should have spent 11 months of the year dead. With tax day having come and gone, it kinda made me ponder, as a math teacher, whether or not I should dedicate less time teaching subtraction and more time teaching deduction. ... If Charlie Sheen outlives me, I'm going to be really upset. ... Donald Trump is at the top of polls among conservative Presidential candidates. Thus GOP has no chance in next year's election. ... Amazon is now selling a new Kindle. For $114, you can buy the cheapest Kindle yet. The catch? It comes with advertising. Save $25 and you get "Special offers" and screensavers that are "sponsored". It's only a matter of time before audiobooks feature the same. ... People who bash the government for its weak dollar policy are neglecting the Bush years. The US dollar began its decline on 9-11. That's when Greenspan dropped rates to the floor and started blowing up the housing bubble. The dollar reached its lowest level at the end of Bush's tenure. That doesn't get Obama off the hook though. He has emulated Bush's economic policy with all this deficit spending - except he's done it to an extreme. So while both parties point fingers at each other, just keep that in mind: both parties are at fault. ... Speaking of weak dollar, the declining dollar is the cief reason why oil is going up. Politicians and ignorant TV personailities can blame speculators all they want, but the reason for the oil prices is simple: the dollar is going down and oil is quoted and largely purchased with US dollars. So dollar down, oil up. ... The National Association of Realtors released an upbeat report on existing home sales. Of course, they are always upbeat about home sales because, well, they're all about supporting realtors. The national media is buying the BS too, but the recent earnings of banks muddies the picture a bit. If you look at the numbers, yes, home sales are higher in March than in February. However, home sales always increase in March because that's when the housing season kicks in. Compare to 2010 and you get a different picture. Sales in March 2011 are actually lower than in March 2010. February 2011 were also lowr than February 2010. With exception of January, sales were lower than the year before dating back to July. ... With Will and Kate marrying next week, a brewery in Scotland is commemorating the event with a beer called "Royal Virility Performance". What separates it from others is that it's laced with chocolate, Viagra, "horney goat weed", and "healthy dose of sarcasm". Other breweries are are commemorating the event with special names too (Kiss Me Kate Pale Ale, Royal Wedding Ale, Celebration Ale), but "Royal Virility Performance" seems to be more about consummation than commemoration (it says that on the bottle). That stated, you can't get Viagra without a prescription, so someone would have to prescribe the beer to you. ... Toyota's production might be slowed, but their recalls haven't. They've recalled another 333000 cars, SUVs this time for airbag risk. I'm surprised sales haven't taken a bigger hit. One year after the spill, BP is suing Transocean and Halliburton for their roles in the spill. It is their rig after all that blew up. It seems the only ones benefitting from the spill are the lawyers. ...

Articles and Videos

Big Crime, But No One's Guilty (http://tinyurl.com/3qjo8r7)
The Cost Of Higher Education (http://tinyurl.com/3d2k7fm)

Last Week's Best

-R

Part 4 - Why Teacher Pay Should Approach Wall Street Pay

2011-04-10T18:06:00.000-07:00

From an intrinsic standpoint, pay needs to be adequate so that the teacher doesn't have to think about it. A teacher can just do the work, put in the time, and do the best to get it right. If money and pay is always in the back of teacher's mind, then it significantly wags teacher performance. For example, if test scores are linked to salary, then teachers will ask themselves if a topic/strategy/task will help benefit teacher first and student second. That kind of scenario can have a seismic affect on the culture of the classroom.

Schools are criticized for the student underperformance and the criticism falls on the shoulders of teachers. Then the conclusion becomes this: students are underperforming because teachers are either bad at their jobs or are too secure in their jobs to try and improve at their craft. To make that criticism is to say, "I know you became a teacher for crappy pay because despite the long hours, you love helping to build the future of these kids. But you don't love your job enough because if you did, you would be trying harder and succeeding at making them superior to kids in other countries."

Does that make sense?

When the economy went into the toilet in 2008, Wall Street executives refused to take any blame for it, stating that it involved circumstances beyond their control. Lots of variables external to their little microcosms in which they operate. So when those that buy that story - Fox News and CNBC - turn around and comment that teachers are to blame for underperforming students, they are exemplifying a high degree of hypocracy.

One can turn this around to the media types too. Journalists are at their best when they investigate and provide a balanced look at a story. However, these people are far from balanced and fair in their reporting, because they often do not investigate, instead choosing to spew some ideology. They do not do their homework, and often rely on polls - in other words, popular opinion of like-minded people - as data to confirm their "news". Polls are not facts, nor are they a substitute for truth. If you took a poll seven centuries ago, the conclusion would have been that the world is flat. Today, that would be "News at 11", except it isn't news, and it isn't journalism. Ironically, for a journalist to comment on the effectiveness of one profession reveals that journalist to be substandard one because his overt opinion is the basis for his facts.

What would cause a teacher to underperform?

Lack of desire? If it's lack of desire, that teacher will exit the profession for one simple reason: the kids will drive him/her out. That lack of desire is part of the five-year churn rate.

Lack of ability? Ability falls into two categories: the ability to teach and the ability to manage. Principals are very good about ridding themselves of those teachers. However, principals cannot be choosy because the line of capable teachers isn't very long.

If it's neither of these, then there must be something else? As stated before, if a teacher is working two jobs or needing to work summer school, then lack of adequate pay causes underperformance. That's not the teacher's fault.

This goes towards merit. Which has greater importance? A guy on Wall Street will talk about how important it is for the financial system to run smoothly because without it, companies go out of business and therefore cannot employ people. Fine. I get that. And what about teaching?

Well, here's where we get different interpretations. In San Diego, the average salary hovers around $45000. The average teacher makes more than that. So the argument is:

Teachers should feel lucky making what they make because it is far above average.
Teachers are commodities and since there is a large supply of them, there is no need to pay them more, because there is a line outside with more prospective teachers waiting.

However, there are big holes in these arguments.

The average salary may be significantly lower, but the average person does not hold a college degree. Therefore, that average is rather insignificant. The average teacher on the other hand has more schooling than a guy on Wall Street. What's the average salary of those guys? Run a comparison with them.
If teachers are commodities, then principals wouldn't have to resort to "emergency credentials". And the pool is getting smaller. Year-after-year layoffs are causing massive declines in college students entering the education field. California has seen a 50% decline over the last three years. Add in the churn rate (50% quit within their first 5 years). Result: there is no line outside.

Conclusion

Teacher pay should approach Wall Street pay because ...

The field of educators is shrinking. A decline in college students pursuing education as a career will further erode the foundation of teaching.
Current pay is not comparable to level of expertise and education of that of other professionals with similar workloads, stress levels, and societal importance.
The criticisms of teachers are silly and misplaced.
The simple linking of student test scores to salary is improper because the tests are aimed at assessing student learning, not teacher effectiveness.
Teachers need to paid enough so that they can focus on the art of teaching with minimal number of distractors.

Once teacher pay has increased significantly can the conversation of targeting bad teachers be started. Because no one enters teaching for crappy pay for financial or job security.

Stock Market Thoughts

Fortune magazine boldly proclaimed that real estate is back, and if you count that it isn't crashing and burning anymore, then I'd have to agree. The stability of unemployment has helped with this perception, but since real estate is a slow moving market, I'd like to see more evidence in that first. ... Industrials (XLI) is looking liek a double top. The MACD is showing a lower high coincident with the last stock price high. Negative divergence. ... Same thing for homebuilders (XHB). ... Wells Fargo (WFC) looks like is't ready breakout. A break above $32.50 and I'm in aggressively. ... Oil continues to rip higher and it looks like it will be the catalyst for a downward move. It's just a matter of what number? Some out there are picking a number. Like "If oil hits $125, then start selling eveything."

Bottom Line For Next Week: The recent 7.1 earthquake in Japan confirmed that the market is pretty strong. It is reason to keep some money in the market. However, since the market isn't going up or down, it is not reason enough to pile all-in. Continue to remain cautious. If your stocks aren't performing, sell them quickly.

Current Positions:
ABV, DNR, WLT, SLW, LULU, PLG, BIDU, C, TCK.
One share: BAC, AAPL.
25% cash.

Stuff That May Only Interest Me

The Bronx Zoo cobra that has gone missing now has name: Mia. For an animal that can kill with a single bite, "Mia" just doesn't seem to fit. How about "Morticia"? ... The Sacramento Kings seemingly want to move their basketball team to Los Angeles, making it three LA teams - the Lakers and two undesirables. San Diego doesn't have a team, but apparently the city that can't host a football team needs three basketball teams. Yeah. Good idea. How about four? New Orleans hasn't really taken to the Hornets. ... School districts issued layoff notices across the state to teachers last month, because for permanent teachers, that is the legal cutoff day. The reason why districts are overshooting on pink slips (and they are) is because traditionally, they can't look back after the 15 March deadline and think, "Oops, we were too conservative in our projections, so we need to lay off more." After 15 March, they cannot increase that number, so layoff notices are based on worst case scenarios. However, there is a California law that allows them to still issue layoffs, but it has not yet been tested - if a school's general purpose funding did not increase by at least 2% above last school year, then districts could lay off teachers that didn't get the March notice. They have until 15 August to invoke that law, and if so, we can expect this go to court. ... Glenn Beck lost his gig on Fox. That happens when you alienate everybody. It doesn't just make people stop watching. It also makes advertisers go away. It's a shame, really. I liked the Glenn Beck that was on Headline News. It seems that being on Fox released his inner crazy because his views became more and more extreme. If MSNBC can sack Keith Olbermann, then FOX can sack Glenn Beck. Hopefully, this will be a positive step for FOX because lately, its news coverage has veered away from truth and journalism significantly. ... After testing positive again for steroids, Manny Ramirez decides to retire instead of serving out the suspension. Drug test is more of an IQ test actually (happens 6 times a year for him because of past impropriety), so perhaps it's more correct to state that he tested negative for brain cells. No matter. Good riddance to him. He at least has all those millions to lean on. ... Shutdown averted. Stupidity the status quo. We are halfway through the fiscal year and still no budget for it. We have 6 short-term bills instead. Sure, we get a short-term one every year, but 6 in a row? They can cram a new healthcare law on us, but no budget. The paper reported that it's largely due to abortion. Are you kidding me? That's a drop in the bucket either way. Way to think longterm, yokles. ... With baseball season starting, watch to see if players are eating pistachios instead of peanuts. Reportedly, more are turning to them. Just in time too. Hopefully, that drop in peanut demand will make peanut butter cost less, because PB&J is probably all that anyone can afford these days given rising food costs. ...

Articles and Videos

Fewer Students Entering Teaching Career (http://tinyurl.com/3ddkrpt)

The Insanity Of Fannie and Freddie

Visit msnbc.com for breaking news, world news, and news about the economy

Last Week's Best

-R

Part 3 - Michelle Rhee Proves Herself Wrong

2011-04-03T20:21:00.000-07:00

President Obama recently said, "Malia and Sasha, my two daughters, they just recently took a standardized test. But it wasn’t a high-stakes test. It wasn’t a test where they had to panic. I mean, they didn’t even really know that they were going to take it ahead of time. They didn’t study for it, they just went ahead and took it. And it was a tool to diagnose where they were strong, where they were weak, and what the teachers needed to emphasize." He also stated that too many standardized tests are given to kids, essentially acknowledging the limited usefulness of these tests. Though that significantly contradicts policies promoted and inspired by Race To The Top, I think this should also be seen as an example of what a parent feels. A parent feels that the primary purpose of a standardized test is to diagnose the academic strengths and weaknesses of students, not necessarily the strengths and weaknesses of teachers.

Exactly how could one design a test that assesses teacher effectiveness? What would you test and how would the questions be asked? Also, would you give it to the student or the teacher?

But don't take my word for it. Take it from the president. Some more choice quotes from President Obama this week when talking about his daughters and the tests they take.

"Too often what we’ve been doing is using these tests to punish students or to, in some cases, punish schools."
"Let’s make sure that that’s not the only way we’re judging whether a school is doing well ... because there are other criteria."
"One thing I never want to see happen is schools that are just teaching to the test. Because then you’re not learning about the world. ... All you’re learning about is how to fill out a little bubble on an exam and the little tricks that you need to do in order to take a test."

The president's personal vision as a parent does not align with the Education department's public policies. Yet tying student test performance to teacher pay and livelyhood persists under Race To The Top.

USA Today did an expose on cheating in DC public schools and Michelle Rhee, former superintendent of DC schools, had to answer questions about it since it was during her tenure. She instituted a pay-for-performance system based on test scores and it completely changed the culture of the schools for the worst. Focus on learning transformed into focus on high test scores. Both teachers and administrators become fearful for their jobs.

Consider the argument put forth by Rhee and those who are likeminded: Your job depends on whether or not kids can learn what you teach. Sounds reasonable, that isn't really what it is. It's really "your job depends on whether or not kids WANT to learn what you teach."

This is a truth that Rhee did not want to face. Though she knew about this three years ago, she ignored it. In a sense, her own job and credibiilty was on the line at that point, not to mention her bonuses. Her blind eye turned toward this cheating proves the damage that merit pay can bring: corruption from top to bottom.

The goal is to improve student performance, and dangling carrots in front of teachers who need no incentive to work their best for measily pay, or punitive measures that threaten people's livelyhood does not improve the quality of instruction. It in fact taints education. People like Rhee thinks that tying salary to test scores incentivizes greater effort and innovation, and after this scandal works its way through, they still will. But Rhee has actually proven the opposite. Again. In Wall Street, that system worked out so poorly that banking, insurance and real estate industries needed a taxpayer bailout. The are still getting that bailout in the form of money printing and falsely low interest rates that has already started to create hyperinflation which is a greater thief of personal wealth than taxes.

What is Wall Street's argument against higher pay? I can tell you what it is.

You cannot pay too much because every dollar that goes towards a teacher's salary or pension or health benefits comes from taxes. Tax dollars taken from the public prevent consumer spending and wealth building. If people aren't able to spend their money, then businesses cannot expand, ie no new jobs. Tax them more heavily to pay a lazy teacher and those businesses shrink. Therefore, increasing a teacher's salary kills jobs.

Not a bad argument. But here's a counterargument: education is the foundation of society, so you need the best people under the best conditions working there. Teaching and education is a long term investment. Whereas Wall Street looks forward to the next quarter, education looks forward to the next quarter century. Invest for the long haul, because you can't flip teachers like stocks. And the way you invest is time, energy, and money. The interchangeable cogs you call "teachers" are not that interchangeable. There is no line outside of others capable to take their place. You need to create that line by offering better entry level pay, and you need to create supply for teaching by ensuring that teachers who can do the job are not pushed out of the classroom.

Money is an issue for teachers because quite frankly, it just isn't enough. If it were, no teacher would ever work summer school or a second job. If it were enough, I wouldn't be looking at stocks everyday. The poor salary will mostly likely be the catalyst for my departure from the classroom.

Do not offer adequate pay and you not only will not have the best possible teachers in the classroom, but you will not have the best from the teachers you currently have. Their attentions and time will be split between the welfare the children they are trusted with and the welfare of their own families. Institute pay-for-performance, and the welfare of students will become tertiary.

Invest the money and you'll get the best out of the best teachers. And you'll have students who graduate with high marks and become higher wage earners. A higher wage earner can pay more in taxes. And those precious tax dollars Wall Street argues about will come back tenfold.

Concluded Next Week

Stock Market Thoughts

Unemployment fell again, this time to 8.8%. This hints that the labor market is finally healing itself - just don't tell Mrs. R because she's still jobless after three years. ... The new quarter started on Friday, and with new quarters comes a shift in money. Where has it been traveling to in preparation for the second quarter? Retail (XRT) and Energy (XLE) that isn't nuclear seem it. Soaring oil and inflation is the reason for movement into energy stocks, but for retail, it could very well be the jobs number. If more people are finally getting back to work, then they are spending again. I'm still skeptical of this, but that's the trend, so my money will follow. ... Watch railroads like Union Pacific (UNP), Kansas City Southern (KSU), and CSX are moving up. This confirms the move in retail is real. If companies are shipping stuff via rail, that's because they are getting orders. CSX is in a smooth uptrend. UNP is struggling to blast through $100 and KSU is also in a sideways consolidation. ... As the market has continued its ascent, it's troubling that financials aren't performing. Will there be another crisis in this sector? With monetary policy being what it is, it is quite possible.

Bottom Line For Next Week: I'm careful about next week. The market has made one heck of a recovery since the nuclear bottom. Now it's flirting with February's top. I'm hoping for a nice pullback to get in big, but we might not get that pullback. I put a little more cash to work this week, but I've also tightened my stops. It's a new quarter, so anything could happen next week. Keep a stop for every buy.

Current Positions:
ABV, HMIN, DNR, NVDA, WLT, SLW, APPL, LULU, PLG
One share: BIDU, TCK, C, BAC.
25% cash.

Stuff That May Only Interest Me

Governor Jerry Brown has declared the California drought over. Just in time, because I think we're due for yet another water bill increase. We've had water bill increases as often and stamp price increases. Still awaiting a new BS excuse now from the city on this. ... Check out the infographic on College Degrees in the US (http://chronicle.com/article/Adults-With-College-Degrees-in/125995/). Greensville County, Virginia is the lowest I could find (4.8%). Pitkin County Colorado (59%) is the highest. Can you find any higher/lower? ... An Egyptian cobra escaped from the Bronx Zoo. Being so deadly that it's bite could drop an elephant in three hours, people in New York are a bit more edgy than normal. That said, the snake, ahem, opened a Twitter account and has started tweeting. Pretty hilarious. http://twitter.com/BronxZoosCobra#. Here's one choice quote: "Leaving Wall Street. These guys make my skin crawl." ... Rutgers reportedly paid Snooki $32000 to make a speech. Rutgers also paid Toni Morrison to come and make a speech too, but offered her $30000, $2000 less. One is a reality TV show star who spends lots of time drunk and in bed and the other is a Nobel prize winning author. Just goes to show which one even a university values more. ... For a great education on the risks of natural gas, recommend you Netflix "Gasland". It chronicles the filmmaker's journey across America as he explores the ramifications of the effect of hydraulic fracturing on the water supply. In addition, we see him become an activist in the process. Pretty alarming that he was able to light water on fire as it came out of a faucet. The filmmaker, Josh Fox, was on the Dylan Ratigan show this past week and usually Ratigan handles this stuff pretty well. Unfortunately, he handled this subject quite badly (http://tinyurl.com/3jhj2jj) and classlessly dismisses Fox's comments and facts. Fox makes a very good point, but Ratigan sadly dismissed it as propaganda. Again, Netflix it. ... Microsoft is screaming "antitrust" at Google for being denied access to much of Google's content (youtube for example). It is the first time Microsoft has ever lobbed that grenade. Ironic. Who would have envisioned this ten years ago? ... Chris Brown threw a tiff over an unpleasant interview. Then he gave a nonapologetic sorry. I see students give this I'm-sorry-but-it's-you-not-me BS, but when grown-ups like Chris Brown and Charlie Sheen do it too, that's even worse. The nonapology is so pervasive by irresponsible adults that it has warranted its own wikipedia entry (http://tinyurl.com/2b9727). You messed up. We all do. Say your sorry, and mean it. Own up to it. ... The CEO of Walmart came out and warned that higher prices are on the way because they are all over the place in the supply chain. This is a big statement, because Walmart is used to able to dictate prices to its suppliers. No more. ... In addition, the Labor Department reported that February food prices rose its sharpest in almost 40 years. ... Approximately 200 layoffs have been rescinded. Another 800 to go. ... New graduation requirements for students in our district, sarting witht he class of 2016 (seventh graders). They will now be required to meet the minimum requirements for entry into public California universities. Advocates feel that this move was necessary because too many students grduate high school without meeting these requirements. However, these advocates assume that 1) all students want to go to a university after high school, and 2) students will be able to just flip on that switch. If any thing, I can envision a dumbing down of some courses just get students who are less gifted through with a diploma. If not, then envision a higher dropout rate.

Last Week's Best

-R

Part 2 - Why Teacher Pay Needs To Match Wall Street Pay

2011-03-27T17:52:00.000-07:00

What Attracts And What Motivates

Consider the horse that moves if there's a carrot on a stick dangled in front of it. There are essentially two types of carrots: intrinsic and extrinsic. Extrinsic carrots are motivators like money and lifestyle. Intrinsic carrots are motivators like self-satisfaction and pride.

Let us first consider the attraction. Why would anyone go to Wall Street to start a career? Most will say it's the money (extrinsic), but in the job interview, they will say it's for the love of business, the thrill of the sale, and being a part of something special (intrinsic). These phrases are pretty standard for just about any industry one interviews for. However, the reward is clear - the money (extrinsic) - and that stands out as the primary attraction for going to Wall Street.

Why would anyone go into teaching? I got asked that question when I first started my teacher education program and I jokingly answered, "the money." Totally caught the guy off-guard. Before I admitted that it was a joke, he mumbled that a teacher could eek out an honest living and live fruitfully if he was careful with his money.

Why was he caught off guard? Because no one goes into teaching for money. That in itself hurts the teaching profession. It attracts only the intrinsically motivated. Some of the brightest people out there are also motivated by money and seek prosperity in other fields or go to Wall Street, make their dough, and do philanthropy.

Poor pay also excludes those with high student loan debt. There may be people who have that intrinsic motivation, but cannot afford to enter education as a career because of having to spend the next two to three decades paying off loans. That in itself is reason why teacher pay needs to be higher.

So contrary to what knuckleheads on the idiot box argue, a person enters teaching not for security, because financial security isn't what they have - and if you live in Wisconsin, you don't have security of benefits either or retirement either. Their reasons are aimed more towards public service. It's hard to make that case in Wall Street - though the commercials do their best to suggest otherwise (I'm sick of insurance commercials).

Chances are, teachers are already working at their best because of the intrinsic motivation. It is the same reason why they entered teaching in the first place. To say otherwise is to be contradictory. So to argue that tying pay to test scores will bring about better results for students and education is also contradictory. That logic says that teachers aren't intrinsically motivated.

Consider what tying test scores to pay could possibly do? It will alter pedagogy, making it less hueristic and more outcome oriented. Less process, more bottom line. Perfectly fine if you don't want to teach problem solving and deeper thinking. But the damage will be to the teaching force itself. It will transform it from intrinsic to extrinsic. A teacher who is more motivated by money does not hold the social and academic development of students as primary. Consider: you as a parent are entrusting your child to someone every single day. Do you want this person care less or more about you child? Teachers will teach to the test, and some may even cheat.

Quite simply, teacher compensation has to be better if you want to attract quality educators into the field because 1) college tuition is skyrocketing and no one in Washington is saying a word about it, 2) teachers need enough to live on without having to resort to extra duties and second jobs because a tired teacher is a less effective one, and 3) using the Wall Street argument, the attraction of the best talent.

Continued Next Week

Stock Market Thoughts

Japan is the center for a lot of technological devices. Given that production has stalled over there, that should cause supply problems not just for Japanese companies like Toyota, but also for a lot of technological companies that aren't Japanese. I'm curious if earnings next month will involve lowered guidance. ...
This market has surprised me in that after the Japanese nuclear problems surfaced, the market has steadily climbed. I think it has come to the realization that the fears of meltdown are unwarranted and that no matter how messy it gets there in the clean-up effort, the worst is over. So we have a resumption of prior push-and-pull between the bulls and bears. I'm not ready to declare victory yet and plow all my money in, but I do have some skin in the game. ... Research In Motion (RIMM) fell on earnings and it could be a harbinger for other tech stocks as earnings kick off. Though they've lost a lot of luster from the iPhone, they still have the Playbook, their tablet, due out soon. Right now, Apple (AAPL) and Google (GOOG) dominate cell phones and tablets and the Playbook reportedly will sport GOOG's Android apps. What kind of earnings boost will Playbook give RIMM and will it be enough to justify a higher multiple? ... Nike (NKE) has stabilized since its earnings and guidance miss, but it isn't doing anything spectacular. The longer it can go sideways at this point, the better. If you're a NKE fan, you can buy some here, but get out if it drops below $75. If NKE on the other hand can break above $79, then you might do well add more. Just keep in mind, that if it breaks above $79 real soon, there will be people waiting to unload their stock at $82. Lots of pain in this stock ans supply is overhead. ... Another that's taken pounding is Cameco (CCJ), the largest uranium producer on the continent. Nuclear to me looks dead for now, and the stock seems to reflect it. If you're looking to buy some on this drop, you better have patience. ... Aflac (AFL) is recovering nicely since the tsunami (they have tremendous exposure to Japan), or I guess you could say they're recovering nicely since sacking Gilbert Gottfried as the voice of the Aflac duck. If you missd the bottom in AFL, be patient. There will be a pullback, because it's already running out of steam on this bounce. Buying interest is tapering (note declining volume) in last few days. Wait for the pullback.

Bottom Line For Next Week: The market is right in the middle of overhead supply/resistance. Lots of sellers have been waiting to get out of the market after the selloff on the tsunami. Caution is the word.

Current Positions:
ABV, HMIN, DNR, NVDA, PCX, TLT, SLW, APPL
One share: BIDU, TCK, WLT, GLD, PLG, C, BAC.
50% cash.

Stuff That May Only Interest Me

There are rumblings about discrimination against unemployed people. Many job descriptions add "applicant must be currently employed" to their ads. Perhaps the attitude of employers is that someone is unemployed for a reason and the long-term unemployed have diminishing skills since they are out-of-practice. Some state legislatures though are reacting. In New Jersey for example, they are banning the "applicant must be employed" advertisements. In Georgia, they are following suit. But will that have any real effect? According to the Labor Department, the average length of unemployment for everyone in February was 36.7 weeks. Among blacks, it's 41.9 weeks. For asians, it's 43.1 weeks. For my wife, you'll need to add those numbers together. The older you are, the more out of luck you are. For ages 55 to 64: 44.1 weeks. For ages 20 to 24: 29.2 weeks. There are all sorts of ways employers discriminate. For example, all advertisments my wife found required 2 years experience, which didn't work well for her since she was just coming out of school. So she volunteered. Now she has the necessary experience, but still no job openings. She can't even get an interview. ... Last year, General Electric, the country's biggest company made $5.1 billion in profits domestically ($14.2 billion worldwide). So guess how much tax they paid for 2010: $0. In fact, they claim a $3.2 billion tax benefit. Hmmm. How did they get away with it? Simple: they bombarded the IRS with a 24000 page tax return - probably with the help of NASA. Why even read it? Just give in. If it were me though, I'd read 24000 pages for a crack at a healthy slice of $5.1 billion. ... What is most appalling about the GE no-tax bill is that we bailed them out in 2008 after their financial arm failed to manage its risk. ... Bloomberg Television ran a segment positing that Best Buy has become the showroom for online retailers like Amazon.com. I can see that for just about any place. Consider: you see something you're interested in, take out your cellphone and start looking it up online to compare prices. On some sites, you can avoid taxes (or get lower taxes, likely if you live where I live) and get free shipping. All you have to do is wait a few days. It's probably why Borders is bankrupt. Go to the store, read a few pages of a book you're interested in, get on your cellphone, and order it on Amazon. And as far as Best Buy is concerned, I checked the very first item they listed for Apple MacBook. $50 cheaper through Amazon. ... While checking out a Borders that was closing down, I checked the prices of some books I was interested in. With expection of the bargain book shelves, all the books I was interested in, despite the across the board percentage price cuts, cost more than on Amazon. Intruth, I'd pay the premium at Borders if the prices were only slightly higher. However, when the price difference is at least 50% higher, the choice is easy. For example, The Death and Life of the Great American School System, Diane Ravitch's new book, is $26.95 at Borders. On Amazon, it's $17.79. For "Bollinger On Bollinger Bands", Borders has it at $49.95. Amazon: $30.83. ... With Watson playing Jeopardy as well as it did, I think humans have been put on notice on their job prospects. Some teachers have been replaced by online curriculum, so summer school has been eliminated in favor of sticking kids on a computer. With robots and machinery becoming more sophisticated, we may see them in other professions over the next few years, and we could see more jobs disappear. A simple robot flipping burgers is not out of the realm of impossibility. Neither is a lawyer that can quickly access laws and construct law-based arguments. ... Steve Forbes made an interesting observation about the government's printing money strategy: if printing money helps the economy, then why is counterfeiting illegal? ... One of the biggest blasphemies of George W Bush's presidency was the abuse of the national guard. In waging war in Iraq, he took people that were supposed to defend our borders and sent them overseas. Presidents have bent the rules time and time again regarding wars that we are in, but have technically not declared. War is suppposed to declared by Congress. But with the military operations in Libya, Obama is simply doing the same George W Bush thing. While it sounds like NATO is assuming command of all forces, how much of those forces are American and how much of them are Arab (it's really their problem, isn't it?)? For example, the government made a point of stating that both US and British have launched Tomahawk missles. OK. But 98% of those missles weren't British. Congress doesn't declare war anymore. The President does and then later, Congress makes a decision on whether or not to fund it. Except, Congress doesn't really make a decision on it, because that stuff is tied into defense spending, and no Congressman who wants reelection wants to be viewed as soft on defense. ... It's been a year since Obamacare has passed, and the good (expanded coverage for Americans) has easily been outweighed by the bad (regional oligopolies that still persist). Except according to Gallop, the percentage of Americans who are without coverage is actually HIGHER than it was two years ago (16.1% in 2009 vs 16.3% now). So the same high cost system is still in place (credit all the predeals made prior to passage), and coverage has been expanded, yet it hasn't. Corporations so far have won again. ... One reason why so many are still without health insurance is because companies are hiring people as "independent contractors". Thus, they simply issue a check without the taxes taken out. So technically, they aren't regular workers and therefore are not entitled to health insurance through Obamacare. ... Premier Silvio Berlusconi of Italy faces trial next week for allegedly paying for sex with 33 women, including a Morrocan minor, at his villa during "bunga bunga" parties over the course of two months, and using his influence to try and cover it up. His defense? "I'm 74. I'm too old have had all that sex. That's too much even for a 30 year old. Besides, my girlfriend would have ripped my eyes out if that happened." Prosecutors disagree, but the only thing they have is the charge of having sex with a minor. Paying for sex is not a crime in Italy as long as she's 18. Somewhere out there, the Craigslist Congressman is lamenting. ... Bank of America wants to start issuing dividends again and the Federal Reserve has said "no". If banks want to issue dividends, that means that they are strong. So why should economic policies still be steered toward propping them up? ... A large popcorn at a movie theatre contains as much calories as two or three McDonald's Big Macs, so movie theatres are naturally resistant to putting nutrition labels on the popcorn box, especially since a sizeable portion of revenue comes from food sales. Still, think anyone will stop buying Big Momma size when they go see the new Big Momma sequel? How many will able to read the label in a dimly lit movie theatre before the curtain goes up? ... Latest Intrade predictions: Odds that Khadafi is out by year's end: 79.5%. Odds that IAEA will upgrade Fukushima to a Level 6 accident (there are 7 levels): 12.5%. Tim Pawlenty leads all Republicans with 17.5% chance to become the GOP Nominee for the 2012 presidential election. ... A new British study finds that very attractive women don't think they should pay on a date whereas "less attractive" women are more willing to help out with the check. In the study, the men and women surveyed rated their own looks - which I guess is also a study on narcissism as much as it is about beauty. The men in the study agreed that they would be more willing to pony up dough for the whole bill, but men who considered themselves "handsome" felt less inclined to do so. Apparently, time, effort, and good genes are their justification for paying less at dinner. As for me, I'd be perfectly fine with that paying the whole tab thing if she's realizing we ain't eatin' lobster (maybe Wendys?). One question not addressed in the survey to both men and women was if the guy paid the entire check, what should he expect in return? Hmm. ... I wonder who The Nobel Prize committee will award the next Peace Prize to? I'm sure their selection system involves a list of names on a wall in roomful of monkeys to throw darts at.

Articles and Videos

GE Pays No Tax (http://tinyurl.com/46ac8wk)
Hot Women Eat Free (http://tinyurl.com/4ou88pp)

Changing The School Paradigm

Visit msnbc.com for breaking news, world news, and news about the economy

Last Week's Best

-R

Why Teacher Pay Needs To Match Wall Street Pay - Part 1

2011-03-20T16:03:00.000-07:00

The most common argument for high Wall Street pay and bonuses is the need to keep talent. The logic of these Wall Street types purely demonstrates that they understand the dog-eat-dog culture of their own industry, but little else beyond that. And even their comprehension of the culture they work in is limited at best. That culture was there prior to their arrival, so it's all they know. And because it's all the know, they defend it with their claws up.

The culture of Wall Street is simple:

You need to pay for performance, and give "bonuses" that are exorbitant. Otherwise, the attraction of good talent just won't be there and the company will suffer because industry-wide, all companies have that system in place. The best performers perform because they are paid the best. And the best potential performers are attracted to the industry because of higher pay.

Okay. So what about teachers? Apply that to teachers and we get a similar take.

They shouldn't be paid as much to start. They need to have pay-for-performance like structure for their salaries too so that they can work their way up. There should be no job security, because lack of security makes you effective. If you're good, you can go to the highest bidder.

The way that sounds is very attractive, and I hear versions of this argument on TV often (typically on FOX News and CNBC) and on radio from the conservative talk shows. That is, I hear the link-salary-to-test-scores argument only. They have no concept of anything grander than that.

And that might actually work if the same system were put into place. What these people do not realize is that the system is far more complex than they know.

One example: a teacher cannot just simply jump from one district to the next. Districts get their money from the government, not from clients who can change their place of business as casually as picking a new brand of cereal. Thus, the security of that money makes them less apt to pay an incoming teacher the same salary (or more). More likely, it will pay incoming teachers less and give them less credit for the their expertise and experience. Thus there is little incentive for current employers to up the pay for teachers.

Those who blame union contracts for preventing higher pay have absolutely no understanding of contracts. The contract establishes the minimum salary and pay rates for educators. Districts can elect to pay beyond that if they wish. If that sounds like rubbish, then know that this has already happened in the past. There have been cases in which districts have been short of qualified teachers and offered to import teachers, even from overseas, for greater pay.

The union is really all the teachers have as defense. If the teachers' union was weakened by, say loss of bargaining rights (hello Wisconsin), this puts teacher compensation in a rather precarious position.

Consider what it takes to become a teacher. It requires a four-year degree and in some states, a fifth or sixth year for licensing. They must pass a state test for basic skills (not easy) and subject or multiple subject test to prove they know their subject matter (also not easy). In other words, a teacher is a highly qualified individual. Now make all that rigor and tribulation less attractive by lowering compensation. Then prevent mobility (like the before-mentioned intra-district scenario). Factor in escalating college tuition. Suddenly, this is not an attractive career for the best and brightest.

Improving education is supposed to be high priority. Making it more difficult for teachers, either through strained compensation, rights, working conditions (budget cuts means increased workload), or mobility isn't likely to improve education.

To Be Continued Next Week.

Stock Market Thoughts

Usually when there's some crisis, people go to cash. That means a flight to the dollar. The fact that the dollar tumbled this week instead of spiking is telling. A weak dollar is different than an imploding dollar. And a dollar that's imploding is bad news for everybody. ... Solid support for oil is $97. At the moment, oil being rangebound is a good thing because it would mean less volatility. Oil breakout above $108 could be bad. Right now, I'm watching Saudi Arabia more than Libya. Escalating unrest in Saudi Arabia could be very bad. ... Much of the worst possible scenario in Japan is going to be factored into the market over the next two weeks. Because of the dependence technology has on Japan, I expect many companies will guide lower over the next three months. Will analysts figure that out ahead of time? ... Bad earnings on Nike (NKE) Friday, sending shares down about 8%. From a technical standpoint, the stock is broken. Momentum is gone. Even if you like the company, given the uncertainty of the market, I would be cautious to pick up any. ... The nuclear threat caused a massive drop in the market both here and abroad. Here, the market recovered some of those losses, to finish respectably, but the rest of the week was still choppy. As for Japan, the Nikkei (EWJ) dropped a whopping 10%, and that led to different action. Here, we had an intraday bounce, but in Japan, it was a bottom. Buyers of the EWJ on Tuesday have had a great week. Was I one of them? No. Being sick tends to cloud one's judgment. ... Someone at General Mills (GIS) must of liked the free yogurt at Costco, because GIS is now buying half of Yoplait. GIS is pretty diversified with its foods already (anyone care for some Haagan Dazs after finishing their Green Giant and Progresso soup?), so it apparently feels a need to getting a toehold into the yogurt industry. Yoplait is second only to Danone in yogurt revenue, so this is a smart play for GIS if Yoplait can gain a greater market share. In any case, it's buying a "name" which has value in itself. ... AT&T (T) bought Deutsche Telecom, making it the new owner of T-Mobile. This strengthens its positoin in the US and expands its position in Germany. It also leaves Sprint (S) scratching its head trying to find a revenue stream. The assimilation of T-Mobile into AT&T Wireless should be interesting because of the differeing technologies. ... Will coal (KOL) be the real beneficiary of the Japanese nuclear disaster? KOL has been in sideways consolidation for a while, showing greater strength than the rest of the market. Though the global nuclear index (NUCL) has put in a bottom to some degree, Cameco (CCJ), probably the largest nuclear company, and based on this continent, is still getting clobbered, so we know what the market thinks about the idea of nuclear's death in America being overblown: it isn't.

Bottom Line For Next Week: Though the market has had a bounce since Wednesday, it's difficult to be optimistic. Was Wedneday the bottom? At this moment, I'd have to say "no". If anything, it has provided an opportunity to sell and go to cash.

Current Positions: ABV, HMIN, DNR, NVDA, PCX, TLT.
One share: AAPL, BIDU, SLW, TCK, WLT, GLD, PLG, C, BAC.
50% cash.
I bought a little of that bounce by buying PCX, NVDA, and DNR. I also bought some AAPL, but sold it quickly when it became evident that the bounce had no legs. Very tight stops on PCX, NVDA, and DNR. Loose stop on HMIN which is looking constructive. No stop on TLT. The rest are down to one share positions as placeholders.

Stuff That May Only Interest Me

The government denies that there's inflation, but ask restaurants and you'll get a different answer. Fuddruckers and Uno's declared bankruptcy a week ago and rumor has it the Sbarro's and El Pollo Loco are leaning that way too. Any business that closes puts more workers on the unemployment line. ... Many in the media are pointing out that Obama's wish for more nuclear power is now officially dead with disaster in Japan. However, I'd argue that he is actually ambivalent toward nuclear energy. Though he created the post of "Green Jobs Czar", there is no energy policy and no movement on alternate energy forms since his inauguration. ... A surprising lack of criticism on the whole Guatanamo Bay issue. Could it be because no one really wants it closed? And if so, why all the cheering three years ago when Obama was yelping about closing it down? ... When Chernobyl melted down during the 1980s, all the news outlets - that would be CBS, NBC, and ABC only - showed animations of radioactive clouds that would travel over the US and the populations that would get exposed. Fear made people watch the tube, and given the lack of information available - internet was not widely accessible - people only had a limited amount of information. Nowadays, the same fear is being sold, but lots more information is coming out. Some of it is woefully inaccurate as the most of talking heads only know what their producers have told them in between commercials. I find it amusing that kids are worried about radiation hitting California when they expose themselves excessively to cellphone radiation daily. ... The BLS may have unemployment at 8.9% but Gallop has it at 10.2%. With all the teacher layoffs about to occur here in San Diego (more than 1000 by the looks of things), it's hard for me to comprehend how things are improving. ... According to a new study, a "like" is better than a "tweet". Comparing profits derived from Facebook and Twitter, a Facebook "like" amounted to about 62% more in revenue than a "tweet". In addition, this gap is increasing, thus showing that Facebook is more valuable than Twitter. I guess that's important, but I wouldn't know. I neither use or log onto either. Logged onto to Facebook once. Confused the heck out of me. Too much to divert my attention. Won't get a "like" from me. ... I'm still sick. Took off Thursday and Friday because I just couldn't do it anymore. Ah, the pleasure - of lying in bed. I'm so far behind in my work, I can't die until I get caught up. ... A few months ago, Google tried and failed to acquire Groupon. Groupon, which does mass discount coupons online (try it, you might find something new everyday) is mullng over an IPO and the valuations are going through the roof. Google's offer a few months ago was for $6 billion. Now Groupon says it's worth $25 billion. How can Google be so way off? Probably because Google isn't. Maybe $10 billion would be more believeable, but if $25 billion is the actual number Google would not have lowballed Groupon with $6 billion - unless it had a coupon. Why make the effort? I think the $25 billion is smoke, trying to generate buzz for when it goes public. ... Another IPO in waiting is KinderMorgan which deals in oil and gas. KinderMorgan is run by Richard Kinder who owns 30% of the company. Kinder used to work at Enron as was supposed to succeed Ken Lay as CEO. Lay instead sandbagged Kinder and went with Jeff Skilling because Kinder disagreed with Lay's hands-off management style. Kinder left to start KinderMorgan, and for Enron, the rest is history. If only Lay turned left instead of right. ...

Articles and Videos

Nuclear Reactor Worst Case Scenario (http://tinyurl.com/4jmewtk)
The Empire Strikes Back ... Against Spam (http://tinyurl.com/4euoqll)

Last Week's Best

-R

The Pleasure Of Loss

2011-03-12T10:54:00.000-08:00

I've been sick for quite a while, and being ill tends to make anybody wallow. However, I love getting better and recovery, but not just for the obvious reason - not being sick.

I think about it the way a drunk does when he's bent over the porcelain throne, promising never to do it again. I tell myself that I hate being sick, and I promise to take better care of myself. I don't use hand sanitizer with regularity, and being around kids, I probably should. However, I don't because of a habit I adopted years ago - avoid touching my nose, eyes and mouth for any reason unless I just washed my hands. If my eyes or nose are scratchy, I use hand sanitizer first or the back of my hand to rub them.

But it isn't just that. Illness requires time off from work and staying home to be pampered by loved ones. It reminds you who your loved ones are and the place work should have in your life. At work, we are all replaceable. At home, not so much, which is why it's always top priority.

The feelings of appreciation come from loss. Lose something you take for granted and you appreciate it more. In this case, it's loss of health.

Two of my colleagues have been recently hobbled - one due to injury and another due to surgery. The restrictions have made them more aware of the freedoms they used to enjoy. They mentioned the frustration of their newfound limitations and realized how great it was to walk around casually.

That's what I think about as I lie sick in bed. I enjoy the sunshine more, the freedoms that I have, and the people around me. Thanksgiving doesn't come in November for me.

As I lie sick in bed, I tune in to the TV and again get a report on the latest Charlie Sheen shenanigans. He just got canned, and he is indignant. Sheen is sick, and that has caused him to lose something. However, Sheen has always been enabled. All the tantrums and drugs and rent-a-women haven't cost him until now because he still had his high-paying job. Now that it has cost him his show, one would think he would take a step back and consider what his actions have brought. However, he has instead blamed everyone else. And why not? His ego is really big. He starts a Twitter account and through various interviews and online videos, has attracted over one million followers. The media and the people feed his ego. In a sense, we are the enablers for paying attention to him.

And desperate for attention he is. Some people perceive the misbehaviors of a small child as cute. Because of all the attention, the child will repeat the behaviors. Any attention is good attention. Though Sheen is a child, his actions are not cute. It's appalling, and I'm dismayed by how much attention we pay him. I'm wondering if Mel Gibson is watching what is happening and taking notes.

Never take for granted what you got. When you do, you become Charlie Sheen. You become bitter, you keep score, and worst of all, you do not adapt.

Loss makes you adapt. Lose money in the stock market? Take less risk next time. Lose your job sleeping at your desk? Stay awake next time. Lose your ring while digging in the garden? Take your ring off first next time. Lose your spot on the varsity team because of bad grades? Study more next time.

There will always be a next time. If you appreciated what you lost, you will adapt your behavior. Adapt and you increase your odds of avoiding loss.

So, Charlie, did you lose your TV show by being a PR nightmare? Next time, keep a low profile at the very least.

As for me? I'll use hand sanitizer more.

Stock Market Thoughts

Since the BP oil spill, oil drilling permits have come to a near halt. BHP Billiton recently secured a permit, just the second since the Gulf disaster. With a huge backlog in permit applications, this could affect supply which in turn would further affect the price of oil. ... WIth the market being so topsy turvy, it gives a chance to see what the real market leaders are. Apple (AAPL) and BIDU are still maintaining their uptrends in the tech sector. Among casinos, Wynn Resorts (WYNN) looks very strong. In telecommunications, one has to like Vodafone (VOD) despite the goings on in Egypt. ... Semi-conductor companies are looking very weak. Texas Instruments (TXN) is a leader in this group and it is now looking it's about to roll over. Qualcomm (QCOM) and American Tower (AMT) are not getting the iPad push as both have fallen at least 10% over the last week. ... Oil futures may be rising (notice the bounce off $100 Friday?), but integrated oil companies are leveling off. Exxon (XOM) seems to be at a buy point, but I'd view the Friday bounce with caution because of the low volume. Same thing with Petrobras (PBR), Chevron (CVX), and Conoco-Philips (COP). Likewise for some of the oil drillers like Transocean (RIG), National Oilwell Varco (NOV), Diamond Offshore (DO). Refiners on the other hand, Valero (VLO), Sunoco (SUN), and Tesoro (TSO), showed great strength on Friday. That's probably the place to be in energy. ... With Toyota (TM) and Honda (HMC) shutting down in Tokyo, I'm curious what the reaction will be to GM and Ford (F). GM has been a dog for over 6 weeks and Ford (F), though bouncing off its 200 day moving average, has been in big downtrend since its climax top in late January. Both need a catalyst to reverse their trends. ... Bill Gross of PIMCO just dumped all US Treasuries in his Pimco Total Return Fund (PTTAX). He thinks rates are going to start an uptrend on a long term basis, and he is not alone. Quantitative Easing 2 ends in June and many feel that will cause a run-up in yields. The TLT which tracks the 20 year Treasury is reversing its downtrend. I picked up some TLT this week. ... Does your insurance company have Japanese exposure? Aflac (AFL) was quick to say that it doesn't, looking to prevent loss of confidence in the stock. AFL gapped down significantly on Friday when the quake hit, but recovered those losses during the day as buyers stepped in.

Bottom Line For Next Week: Oversold bounce on Friday, but the volume was unconvincing. I'd be very cautious about next week, because it looks like the marke is going to fall.

Current Positions: AAPL, BIDU, SLW, TCK, WLT, PCX, GLD, PLG, C, BAC, ABV, HMIN, TLT. 75% cash.

Stuff That May Only Interest Me

Next week, we will have a Supermoon, a full moon while the moon is at its closest distance to the Earth. Supermoons are supposedly connected to volcanism, earthquakes, high tides, and weather anomalies. Here we are with the Japanese earthquake, the biggest one in Japan in more than a century. Will there be more volatile events next week? Perhaps it might pay to mind the actions of your pets - or just monitor what's happening in the Middle East. ... Scientists have dispelled the connection between large quakes and the lunar cycle, citing that the gravitational pull of the moon is not significant enough to create a quake the magnitude of the one in Japan, but that doesn't stop stock traders from minding it. Traders are superstitious by nature because of the psychology of the market and the crowd. Traders pay attention to Fibonacci numbers and "sell in May, go away" - anything to get an edge and define their risk. ... How big was the quake in Japan? According to experts, the main island of Japan shifted 8 feet, which means if you're checking your GPS in Tokyo, it's directing you to McDonald's instead of KFC. ... The problems with nuclear reactor in Japan will have an impact on policy here. Highly unlikely that there will be movement on the nuclear front domestically. Expect the current reactors to age as replacements with newer technology will be put on the back burner. The earthquake might lead to some tighter regulations on nuclear energy, but that might be it. ... Sweden is cutting down on stamps with Denmark not far behind. Now you have to text message to help arrange for sending post. Send your SMS and in return you receive a code to write on the package. Their mailing system incorporates OCR so just make sure you write neatly. What if you don't have a cellphone? Then you buy one. They're cheaper than landlines over there. ... Shephard Smith on Fox News is very subtle with his bias. Often when he reports something, he'll inject his opinion with some rye remark. For example, he reported that the Feds are analyzing a video of Jared Loughner burning an American flag as part of evidence collecting to determine if he's competent to stand trial. He finished the statement with "ya think?" which I guess means you're not mentally competent if you burn a US flag (burning the flag isn't about mental instability; it just makes you a jackass). Just report the news, Shephard! ... The state attorneys general hammered out a setlement regarding the mortgage abuses by banks. How did Wall Street like it? All the banks rallied on the news - obviously liking the result from the banks standpoint. With 23 percent of all homeowners in negative equity, it stands to reason the mortgage abuse was widespread and systemic. This settlement was supposed to address a possible principal write down to help free up underwater homeowners so that they could move and sell their homes. Moral hazard issue. Wall Street again gets away with it. ... No more free pretzels if you ride Continental Airlines! Took long enough. There is no need for an airline to supply free pretzels. It's not as if the movie theatres give away free popcorn. ... When the new iPad went on sale, the "gray" market for them kicked in gear. People were hired to wait in long lines to buy iPads so that they can be resold at higher prices in areas where the new iPad is not yet available, like China and Russia. You might see some on e-Bay. Apple is responding by limiting purchases to two iPads per person, but that hasn't stopped big money players from hiring several people to wait in line and buy, and with unemployment being what it is, there should be a lot willing to wait in a line. ... With Kenneth Starr getting just a five year jail sentence for embezzeling his clients' money, it just shows that the judicial system has no understanding of the seriousness of white-collar crime. It doesn't matter if his clients are rich and can withstand the financial loss. People work very hard for their money and place a tremendous amount of trust in handing money to a financial advisor. It's worse than armed robbery. Starr is another Bernie Madoff, and the judge let him off the hook. Moron. ... The battle between millionaires and billionaires takes another turn as the NFL heads toward lockout. Reportedly, one player is starting an emergency fund for players who will be financially devastated by the impending lockout. That's funny. I'm sure union workers in Wisconsin who just lost some of their bargaining rights are looking at this thinking: we need an emergency fund for people making a minimum of $300000+ a year. ... Ever lend a book to a friend? How about an e-book? With e-books selling like hotcakes, a website, booklending.com, allows for people to share their e-readers too. Lending period lasts 14 days. Whatever happened to going to the library? ...

Articles and Videos

Japanese Nuclear Reactor Leaking Vapor (http://tinyurl.com/48xl7t7)

Last Week's Best

-R

Tunnelvision

2011-03-06T19:09:00.000-08:00

Bill Gates, who is on a mission to improve education, recently wrote in the Washington Post that the way money is spent in education hurts the progress of students. Thus, he proposed a solution: identify the top 25% of teachers and increase their class sizes by four or five students. Some of the resulting cost savings can be redirected toward those teachers as a raise.

Here's the rub - assuming this is a viable solution: He's addressing the governors. The governors would have to push for this as some kind of education reform package - presumably to chase more Race To The Top Funds - for this to happen. That would include a system for identifying the top 25% of teachers.

How does one identify the top 25%? There is no real consensus. Those who say "test scores" don't know what they're talking about. Nothing substantive has taken shape to address the invalidity of test scores.

Let assume you can identify those 25 percenters. How much money would be saved? Let's assume a high school has 100 teachers with 25 of them being "top tier". Each one gets an extra 5 students per class, meaning an extra 25 students per teacher and 625 students total for all the 25 percenters. That about 3.5 fewer teachers. Each teacher gone saves $70000 in benefits and salary, so that's 70000 x 3.5 = $245000. Now divide by 25: $9800. Now much of that goes to the top 25%? Let's say half: $4900 per year. Thus the top 25% will make 7% more than the others with a workload increase of almost 15%. How much do top tier baseball players make compared to other on the team? What about businesses? Corporations? Do they get to shoulder a greater load too for being top tier?

Bill Gates is right. We do very little to measure, develop, and reward excellent teaching. Once identified, the class sizes of these teachers will increase, thus increasing their workload. That isn't necessarily a reward either. Though his foundation found that 83% respondents would accept teaching more students for increased pay, it neglected to consider if any of these teachers already take on extra duties because of the need for extra pay.

Gates states that his foundation is currently developing a strategy for teacher evaluation. Does one of them include increasing class sizes? He tried small schools with smaller classrooms here in San Diego and it failed. So therefore the opposite is true?

In any case, the Gates method is going to get tested - without the pay increases. Budget cuts continue which mean teacher layoffs - which mean increased class sizes. Unlike new versions of Windows, there is relatively little technical support for when things go wrong.

The right questions are not being asked, and the wrong people are shouldering most of the accountability. People with money like Bill Gates are too focused on the wrong thing. Here are some questions that ought to be asked:

Do you think the biggest problem is bad teachers? If not, then why spend so much time and energy trying to out them?
What are the socioeconomic factors of underperforming students? What are their numbers?
What impact do poor behaving students have on teaching and learning? What is currently in place to address this?
What is currently in place to help parents prepare kids for school prior to kindergarten? What needs to be put in place?
What would attract better teachers to the education field?

To sum up: What out-of-school factors affect teaching and learning and how much responsibility do schools have in them? To begin to address that question is will bring a realization that the problem is very complex one.

Stock Market Thoughts

Oil is ramping, now at $104 (up 7% for the week) and still climbing on upward momentum. Already, we're seeing the transportation sector struggling. Transports are a big indicator of the the rest of the market, because it reflects economic health. If items are being consumed, then they are being shipped. That's good for the transportation business. But if oil is too high, then that affects production. Producers know that they will have to pass that on to consumers. Thus they know that consumers will buy less, so they cut down production. That means less stuff to transport. The first time oil reached $100, it shocked the market and the market tanked. Now $100 isn't a shock, but a climb to say $120 could cause the same thing to happen. A revolution in Saudi Arabia would be very bad. ... The sharp rise in oil has the White House mulling over the possibilty of tapping into the Strategic Petroleum Reserve. THat's the official story. However, the SPR, which is currently filled to capacity, has reportedly sprung a leak. So the Department of Energy is also pushing for it, too. Plans are underway for increasing the SPR's capacity as well, but that could take some time. Government buying of crude will also prop up oil prices, so now is not the best time to buy. I'd wait until the market crashes again. BTW, guess what the average cost per barrel is in the SPR: $23.40. ... We're now in the midst of a tablet craze. They cost a buttload, but like phones, tablets can be had at discounts provided that customers opt into a two-year contract. Thus every computer maker has one out or in the works. Their costs are priceir than cellphones so with the economy being what it is, it is important to carefully watch for when this runs out of steam. Right now, many tech companies have very high PEs because of the projected growth potential. Ones that like Omnivision (OVTI) that make specific components (cameras in this case) for these devices are most vulnerable. Be cautious. ... I'm really liking the action in NKE. It looks ready to pull back (bearish wedge), so any sign of strength at the 50 day EMA is a place to buy.

Bottom Line For Next Week: The market is still climbing, so I can again repaste the same comments I've been posting for about a month now. Instead, I will simply state this: the market is beginning to get a little topsy turvy, so if you're all-in, consider increasing your cash position. A correction can get nasty real quick.

Current Positions: AAPL, BIDU, SLW, TCK, WLT, PCX, GLD, PLG, C, BAC, ABV, HMIN. ABV and PCX are currently my largest positions. I own some AAPL too, and aside from the new HMIN purchase, that's really it. My other positions are just one share to track.

Stuff That May Only Interest Me

The highlight of the Oscars had to be the appearance of Billy Crystal. As the Oscars have transitioned to having cute faces hosting, it has gotten away from what made it entertaining. Of all the costume changes Anne Hathaway did, the only missing from each outfit was a pair of pompoms (how many times did she go "whoo"?). James Franco was pretty stiff in a King-of-England-waving-at-the-crowd way - kind of like a lot of his movies. ... One last thing on the Oscars, the quote of the night came from the winners for best documentary ("Inside Job"): "Since the economic collapse, not one bank executive is in jail." Why stop at bank executive? Consider the lawmakers the banksters made campaign donations to? ... As dumping on teachers has become in vogue, I can only imagine how in vogue will become in Detroit. Budget cuts there will result in class sizes approaching 60 in some high schools, but a maintenance in standardized testing. ... In a move that will unlikely raise morale, the school board in Providence, Rhode Island, is considering firing every teacher in its district, then starting over the hiring process. This is the kind of thing that will have a lot of teachers looking for the door when the economy recovers. ... Unemployment nationally fell to 8.9% but California still languishes at 12.4%. Despite falling below 9%, the number of new private sectors jobs is still mediocre and cost-of-living has gone up while average hourly earnings inched up one cent month over month. Average work hours per week was unchanged as well as labor participation rate (64.2%). Sorry to be a Negative Nancy, but inflation continues to stealthly rear its ugly head and climbing oil prices are an economy killer. ... Ben Bernanke testified that his monetary policy is sound, because his reading of the Taylor Model indicates that interest rates should actually be negative. When someone else pointed out that an alternate view of the Taylor model shows that rates should be higher, he basically said, "Nope, I'm right. You're wrong." Higher prices at the pump and at the supermarket apparently do not count. ... I noticed that once every month, Fox News sends out a correspondent to try to contradict the assertions of someone in the public that Fox News sometimes doesn't publicize the truth. By showing clips of some reporter interrogating another, Fox inadvertantly strengthens the argument that it is biased and not "fair and balanced". By constantly having to address the issue, it calls attention to the smoke that surrounds the Fox News media machine. And where there's smoke, there's fire. At least MSNBC does even pretend it isn't biased. ... The city and state have become worse than loan sharks. Traffic fines tack on fees that total 500% above the actual fine. A cellphone fine is $20, but if add fees, that climbs to $160. Can't pay it all at once? You can do a payment plan, but then you also pay a fee for that. ... The creator of the original Pacman 'fessed up some secrets about the game's design. One was that only one of the four ghosts were actually chasing Pacman - Blinky (the red one). Two were simply trying to position themselves at a certain distance from Pacman, while the fourth was simply to go random. Now that I know the secret, I can finally last more than two stages. ... While I can understand Obama's refusal to defend DOMA (stemming from some very difficult taxation cases involving gay couples), to state it publicly is a headscratcher. It is the law, after all, so why declare to the world that you, law professor, will not honor the legal system? Public is very different than private. Public invites lawsuits. He might as well come out and state publicly that he won't defend banking laws either - oh nevermind, he kinda has - at least in private. ... Charlie Sheen ought to run for Congress. He possesses the kind of qualities we tend to elect. Narcissistic, excessive, ego-maniacal, dim-witted. Best of all, the media likes to cover him and hang on his every word. And he's likable (I guess), which more than balances for his mediocre talent (sorry, he's as plastic as a Madame Tussuad ornament). ... The Maestro, aka Alan Greenspan, stated on CNBC this week that government activism is holding back economic recovery. By activism, he means federal stimulus, housing subsidies, and regulations. Considering that it was his own form government activism that brought our economy to the abyss, that probably means he is saying that he learned from experience and thus feels any government activism is economic suicide. I'd venture that suicide would be to listen to his advice, but then again, CNBC had airtime to fill so I understand giving some to him. ... I'm really tired of people saying that teachers get 3 months vacation. First of all, it isn't 3 months. Secondly, it isn't a vacation, because we're not paid for that time. Teachers are seasonal workers. There's a reason why many of them teach during the summer too. It isn't guilt from having a "3 month vacation".

Articles and Videos

Abe Lincoln's Colonization Proclamation (http://tinyurl.com/64t82jg)

Comparison - Teachers versus Wall Street

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